Oklahoma law permits the use of a liquidated damages clause in business law contracts. However, these provisions must comply with all legal requirements to prevent a court from invalidating them. Liquidated damages provisions might provide some protection against liability in breach of contract cases. As an example, a construction project on your property requires more time than the company estimated. The liquidated damages clause might state a specified amount of damages per day for the delay. Without this provision, you may need to prove specific damages from the delay in which case you could face disagreement from the company about the extent of those damages. Liquidated damage clauses are common in construction law and the enforceability depends on many different factors.
Penalty Versus Damages
If courts determine that a liquidated damages clause is a penalty, it might not uphold the provision. Damages reflect a party’s loss due to a breach of contract. A penalty is a punishment and might benefit a person who did not suffer any actual loss because of a breach of contract or failure to timely complete a project.
Liquidated Damages Clause Must be Reasonable
A court might reject a liquidated damages provision that does not reasonably cover an estimate of actual damages. If actual damages related to a breach of contract differ significantly from the liquidated damages, the provision might not prevail in court. However, the difference should be shockingly disproportionate and not just differ slightly for there to be an issue with enforceability. Courts might uphold a liquidated damages provision that awards twice an estimate of the actual damages to the benefiting party.
Estimates Difficult To Ascertain
If damages estimates are difficult to obtain, liquidated damage clauses provide a potential remedy. However, judges may not enforce these provisions unless the circumstances make it challenging to estimate the actual amount of damages. If an actual estimate is possible, the court might find that the liquidated damages clause is unnecessary.
If Benefitting Party Contributes To Delays
There are cases where the party who benefits from the liquidated damages clause contributes to the violation of a contract. For instance, if a construction company and the client have a liquidated damages clause that provides compensation to the client if the project takes longer than estimated, the client cannot hinder the construction project’s progress and then claim damages. If a client refuses to allow the contractor to work certain days, or requests that they halt their project, then the client’s contribution to the delay could prevent them from recovering damages based on the contract.
Tulsa Business Law Attorney
Liquidated damages clauses in construction contracts are just one of the complicated issues that contract attorneys must consider in drafting legal documents. If you are entering into a contract, failing to work with an Oklahoma contract attorney could lead to costly complications down the road.
A clear and legally enforceable contract that details both parties’ obligations could work to prevent conflict and litigation. Speak to a contract lawyer today to discuss drafting one that meets your needs and complies with all legal requirements. For more insights on liquidated damages, reach out to the Tulsa Lawyers at Kania Law Office by calling (918) 743-2233 or by contacting us online.