Private Law Theory

Introduction:
The purpose of a liquidated damages clause in a contract is to allow the parties to agree in advance to the amount of compensation due one party in the event of the other party’s breach. Texas courts have long recognized the general enforceability of liquidated damage clauses. These clauses have become routine in various types of contracts, including real estate sales contracts, construction contracts, and noncompetition agreements to name a few. However, as always, the right of contracting parties to make their own bargains is not completely unlimited. The fundamental goal of the law when it comes to contract damages is to redress breach by compensating the injured party, not to preemptively deter breach by compelling performance. Therefore, courts will not enforce a liquidated damages provision deemed to function as a ‘penalty’ intended only to secure the performance of the contract … (more)

Trey Qualls, ‘Take a Second-Look at Liquidated Damages in Texas (Regardless of What the Texas Supreme Court Says)’. Baylor Law Review, Fall 2015, Vol 67, No 3.

First posted 2016-02-09 12:01:22