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.
