Research On The Liquidated Damages

Liquidated Damages as an old legal system, originated from Roman law and has been long worked as a guarantee tool for the fulfillment of obligation, which compels the debtor to pay the debt. In German law, predetermination of damages and inherent liquidated damages are sorted in different sections, which means predetermination of damages are used to compensate the non-breaching party and liquidated Damages are used as a guarantee tool. However, in Chinese Contract Law,acritical 114 stipulated liquidated Damages, which is explained as compensatory liquidated damages. As we known, predetermination of damages as special part of indemnity system, is intended tosimplify the process of proving. When the parties entered into a contract, they agreed to pay the other party certain sum of money if he or she breach the contract, such agreement can relieve the non-breaching party from the intricate burden of proof. Liquidated Damages, however, allow the sum of money higher the real loss becauseof its nature. In Chinese Contract Law, it is suggested that the liquidated damages clause stipulated the predetermination of damages, hence we can conclude that the function of liquidated damages in Chinese law only focuses on the compensation of loss, parties of contracts can only agree on the punitive liquidated damages for the purposes of pushing the other party to perform its obligation. Therefore, liquidated damages has single function and cannotplay a role on guaranteeing the performance of the contract.Therefore, this article classifies liquidated damages into three, including predetermination of damages, inherent liquidated damages and punitive liquidated damages. Predetermination of damages can simplified the causes of proving,especially in those complicated cases, inherent liquidated damages can guarantee the performance of the obligation and punitive liquidated damages allow the non-breaching party to have not only the liquidated damages but only the specific performance. When adjusting the amount of the liquidated damages, it can be only classified into three parts. The nature of predetermination of damages determine that the amount of predetermination of damages cannot be adjusted by the justice at his or her option, unless the amount is much higher than the foreseeable loss. As to inherent liquidated damages, we shall not adopt the existed actual loss standard, and chose to analysis comprehensive elements, such as the degree of fault, the positions of both parties, the performance of the agreement and etc. To the punitive liquidated damages, the discretion of the justice is larger, the adjustment can be done as the justice analysis different elements, and the maximum amount can refer to the total amount of the contract or the total amount of the non-performing part of the contract.