Florida Breach of Contract: Liquidated Damages
When your business makes a contract with another party, you are placing a great deal of faith in that party. If they do not live up to their end of the bargain, your business could sustain serious financial damage as a result. Florida law seeks to remedy this issue by allowing non-breaching parties to recover compensation for their damages. In some cases, the amount of damages available can be predetermined by the two parties during the contract formation process. Specifically, this can be done by including a liquidated damages clause within the contract. If you included this type of clause, it is critical that you ensure that it is properly drafted. Florida courts may find many flawed liquidated damages clauses to be legally invalid. If you have any questions about liquidated damages, please contact our West Palm Beach commercial litigation attorneys today to learn more about your legal options.
What Makes a Liquidated Damages Clause Enforceable?
In order to answer this question, you first must understand the goal of contract remedies. When a breach of contract occurs, courts allow for damages to be obtained by the non-breaching party. This is solely because the non-breaching party has likely sustained some type of financial ‘injury’. That injury needs to be rectified. This is not because courts are seeking to punish the party that was responsible for the breach. Contract penalties are generally not enforceable. A liquidated damages provision cannot act as a de facto penalty. If a court deems the clause to be a penalty, it will be held to be invalid. In order to ensure that your liquidated damages clause is valid, it should always conform to the following two criteria:
- Damages must be reasonably estimated: Liquidated damages allow for damages to be predetermined, but that amount of damages may not simply be a random figure. Instead, the specified amount of damages must constitute a reasonable estimate of the real damages that would likely be sustained as the result of a future breach. A clause that vastly mis-estimates damages likely to be associated with a breach will end up unjustly enriching the non-breaching party. As a result, this type of clause will serve as a penalty, and it will not be enforced.
- Damages must be uncertain at the time of contract formation: There are two main benefits to using a liquidated damages clause: certainty over damages and saving time calculating complex damages in the future. A liquidated damages clause should be used for types of damages are extremely difficult to value. For example, if a breach of a confidentiality agreement occurs, both parties may recognize that real damage was sustained. However, this could be a situation where the damage would be hard to value and a liquidated damages clause could be desirable. On the other hand, damages such as lost sales, are much easier to value and should generally not be predetermined.
Contact Our Office Today
At Pike & Lustig, LLP, our experienced commercial litigation attorneys have helped many businesses through contract disputes. If your company has been damaged by another party’s breach of a contract, please do not hesitate to contact us at our West Palm Beach office. Our firm proudly serves businesses throughout Southeast Florida, including in Broward County and Dade County.