Liquidated damages

1.Concept

In a contract, parties may agree to liquidated damages as indemnity or penalty for non-performance of any or all of the obligations in their agreement.[1]

Best Legal Practices
Stipulate liquidated damages – The party who has interest to protect in a transaction should ask for liquidated damages to be stipulated in the contract. The amount for the penalty depends on the value of transaction involved to the said party.

a. Equitable reduction

Stipulated liquidated damages may be “equitably reduced” once they are found to be “iniquitous or unconscionable.”[2] However, if the breach is not one stipulated or contemplated by the parties, it shall be the applicable law which shall determine the measure of damages and not the stipulated damages.[3]


[1] Ibid. Article 2226.

[2] Ibid. Article 2227.

[3] Ibid. Article 2228.

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