Question

state the difference between liquidated damages and penalty

Answer 1

Let’s say I had a milk business.

I had a contract with you to refrigerate the milk.

Everything is based on what is enforceable in court.

If you do not keep my milk cool, the milk goes bad, and it spoils. I have damages. Which means the court will not ask you to replace the milk, which would entail you to start a dairy, and produce milk.

Instead the court will ask you to provide the value of the milk.

Now if I can prove that you had intent to lock the cooler doors, and instead purposely heated the milk to unsafe levels, then the court could ask for punitive damages.

Now, if the negotiated contract has already considered liquidated damages, and penalties, then it makes the decision easier for the court.

However, if there were some unnegotiated facts which were an extenuating circumstance. For instance, let’s say the local power plant generating power failed, and the contract did not mention you having to provide emergency power to keep my milk cool. Then if i did not agree that was outside the contract, I might sue you.

Then the court will have to decide whether I am right, or whether you were right.