Research On The Priority Of Liquidated Damage In Situations Of Breach

One contract party's trade interests rely on the performance of the other party's duties, and non-performance of one party's duties will definitely cause damages to the other one. In the situation of one party's non-performance, the author tends to deem the liquidated damages as the price of the breach, and insists that the liquidated damage clauses should be adopted first, drawing on the theory of efficient breach. Compared to the specific performance, which will certainly be against the will of the breaching party, the enforcement of the liquidated damage is much more effective- quicker and easier. The recovery of compensatory damages is also ineffective, as the breaching party lacks information about the expectation of the injured party, so he could not reasonably predict the specific damages. Besides, there will be moral hazards if the evidence of damages is given by the injured party.The author insists that the performance of liquidated damage clauses is more effective. The liquidated damage clauses will be still valid in the situation of rescission, and these clauses also produce many positive effects on both parties. The injured party will be compensated by liquidated damages, and he gets the incentive to avoid further losses. Also, liquidated damage, the amount of whom is certainly an important element of pricing, will help disclose the necessary information in the trade, so it is unreasonable if the judiciary intervenes in this casually. If the bad performance only causes the subject matter defective, the liquidated damage clauses is still valid. While the clauses will be no longer available if the defective subject matter causes other property damages, for the injured party could not reasonably predict the potential damages.Besides, the author insists that, when the breach is caused by unexpected accident, the breach party could claim to reduce liquidated damage if he is not the advantageous stakeholder.