Liquidated damages clauses fail when post-contract reliance makes harm unpredictable.
Evidence
In a diamond transaction, it would be particularly difficult to draft a liquidated damages clause that a court would view as a “good faith” attempt to preestimate damages. Often, at the time of contracting, the parties themselves are unable to accurately preestimate damages since the actual harm suffered by the promisee in the event of breach depends largely on business decisions made after entering into the contract. For example, even if at the time of contracting nonpayment would neither have bankrupted the promisee nor caused him to default on other obligations, if he subsequently made a large financial commitment in reliance on being paid and then was not, he might suffer tremendous financial and reputational harm, particularly if forced to go to court to obtain a judgment. — Lisa Bernestein, Opting out of the Legal System, 160
Categorization
- XREF: Connects to the reader’s network-closure thesis: parties opt into private ordering partly because legal remedies cannot be pre-contracted with reliable ex ante certainty. — connects to: Expectation damages as enforced in practice fail to deter breach. — Lisa Bernestein, Opting out of the Legal System, 148; Ex post consequential harm makes liquidated damages clauses hard to enforce in diamond deals. — Lisa Bernestein, Opting out of the Legal System, 160; Legal damages fail to compensate lost profit because intervening business value is inherently speculative. — Lisa Bernestein, Opting out of the Legal System, 151
Related
- Ex post consequential harm makes liquidated damages clauses hard to enforce in diamond deals. (similarity 0.92)
- Expectation damages as enforced in practice fail to deter breach. (similarity 0.88)
- Legal damages fail to compensate lost profit because intervening business value is inherently speculative. (similarity 0.82)
- Judicially enforced expectation damages fail to make promisees whole or deter breach. (similarity 0.82)
Broader Connections
- Ex post consequential harm makes liquidated damages clauses hard to enforce in diamond deals.
#exemplifies(0.90) — Lisa Bernestein, Opting out of the Legal System, 160 - Legal damages fail to compensate lost profit because intervening business value is inherently speculative.
#corroborates(0.85) — Lisa Bernestein, Opting out of the Legal System, 151 - Expectation damages as enforced in practice fail to deter breach.
#expands(0.75) — Lisa Bernestein, Opting out of the Legal System, 148