Liquidated damages

Due to the difficulty in calculation of damages and the broad judicial discretion available to completely remove the compensation in accordance with the general principles of damages, it is uncertain whether the performing party will have a compensation payment in case of breach of contract. Within the framework of freedom of contract, parties, through making an agreement, can specify the sum that will be paid on the failure of a party to perform or comply with one of the contractual obligations. At this point, liquidated damages can be stipulated to eliminate the uncertainty in calculation of damages and exclude the broad judicial discretion available to completely remove the compensation. Liquidated damages are defined as specified sums agreed to be paid in case of breach of contract. Although liquidated damages have common legal characteristics with some legal remedies such as lump-sum fee, forfeit money, penal sum, suretyship, conditional obligation, alternative obligation, non-liability clause, settlement arrangement, withdrawal of the lawsuit and acknowledgement of debt, liquidated damages clauses are different from all these. Most importantly, despite the quite similarities, liquidated damages clauses are different from penalty clauses. For this reason, liquidated damages clauses are subject to general provisions and it is impossible to implement the provisions on the penalty clauses, even by analogy, to liquidated damages clauses. Keywords: Liquidated damages, penalty clause, breach of contract, damages law, contracts law.