§ 19-28 Contract - Damages - Liquidated Damages

• Library: South Carolina Requests to Charge - Civil (SCBar) (2016 Ed.)

§ 19-28 Contract - Damages - Liquidated Damages

Liquidated damages is the amount agreed upon by the parties when the contract is entered into as the sum to be paid if the contract is breached. It is an estimate made by the parties at the time of making the contract of the extent of the injury which a breach of the contract will cause. Liquidated damages is a sum to be paid in the event of nonperformance. Provisions for liquidated damages are valid and enforceable, so long as they are not actually in the nature of a penalty.

The distinction between a penalty and liquidated damages is that a penalty is in effect a security for performance, while liquidated damages are for a sum to be paid in lieu of performance. A penalty is designed to punish for a breach of contract; whereas, liquidated damages are intended as fair compensation for the breach. A penalty is designed to prevent a breach by the threat of punishment.

In order for a provision for payment of a stated amount on breach of contract to be considered as a provision for liquidated damages, it is required that the damages to be anticipated are uncertain in amount or difficult to be proved; that the parties intended to liquidate them in advance; and the amount stated is a reasonable one that is not greatly disproportionate to the presumable loss or injury.

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