Reseach On The Definition And Application Of The Liquidated Damages

Liquidated damages system has been in place for quite some time. Itplays a very important role no matter whether it’s in the theory of civillaw theory or practice of life. But there are still lots of controversiesand confusion on the definition of legal status and application in thejudicial practice. It need to be clarified in theory urgently.This article is mainly divided into two parts:The first part is about the definition of liquidated damages. Thatpart firstly explored and introduced the history of liquidated damagesand its legal basis. Through the comparison of two legal systems, the basicnature of liquidated damages should be clearer. Specifically, if theparties do not achieve a special agreement, it’s better to consider itas the engagement of the liquidated damages. Moreover, if the punitivedamages under the premise of the law which does not forbid unambiguously,there should be room for its application. In addition, in some specialcircumstances, the range of liquidated damages should be limited orexpanded. And in both of the theory and practice, there are some similarconcepts which need to be defined and differentiated in a reasonableexplanation. The second part is about the application of liquidated damages. First,it demonstrated the clause of liquidated damages is different from thegeneral terms of the contract. Its effect depends on the specific cases.If the contract is invalid, the clauses of the liquidated damages shouldalso be invalid. Oppositely on the occasion of the termination of acontract, the clauses of liquidated damages should still have the bindingforce to liquidation. Second, whether these means of relief just likespecific performance, compensation for damage and deposit can be adoptedat the same time should be discussed in different conditions. in normalcircumstances, penalty and other means of relief do not conflict. However,whether the liquidated damages and other means of relief can be adoptedat the same time depends on the regulations and appropriate explanations.Third, the Contract Law’s Article114should be regarded as a general rulewhich regulates compensative liquidated damages. But it doesn’t mean itexclude punitive damages. The parties can achieve a special agreement forthe penalty. If the amounts of actual loss are too high or too low, thecourt or the arbitration commission should identify and adjust the amountsby considering the actual loss. Fourth, on the problem of limitation ofaction, it’s better to consider the liquidated damages as a wholecreditor’s right. And the starting point of the limitation may be furtherimproved.Finally, the shortcomings of this system in China were sumed up. Then,a few suggestions would be made to the legislation.