„A contract may stipulate that damage arising from non-performance or improper performance of a non-monetary obligation will be remedied by a specific sum (liquidated damages) being paid.“ – Civil Code art. 483.
First of all in the Polish law system liquidated damages may only arise from non-performance or improper performance of a non-monetary obligation. As a rule the damage for monetary obligations (usually for late performance) are compensated by statutory interest (roughly 18% yearly). In case contracting parties stipulate for liquidated damages arising from a monetary obligation it won’t be enforceable and is likely deemed to be null and void.
Secondly, the amount of liquidated damages should be strictly specified in a contract or at very least it should be possible to determine the sum at a conclusion of the contract (eg. by specifying the reference value – % value of contract). If the sum to be paid is to be determined by future events or actions such clause will lose certain legal privileges of liquidated damages.
Thirdly, in case of liquidated damages there is no prerequisite of indentifying any damage for an injured party. Moreover its possible to stipulate for liquidated damages in case of any contract breach that will not (or even can not) result in incurring damage at all. The liquidated damages, in that regard, can have punitive function which generally is not possible when pursuing compensation at large. The amount to be paid in case of breach can not be exceedingly punitive.
Fourthly, liquidated damages generally “consume” the right to seek compensation at large. It is possible to waive that rule if parties decide so in a contract. In such case, the injured party will be able to seek compensation at large only for damage exceeding the liquidated damages.
Fifthly, if the greater part of the obligation has been performed, the party in breach may demand that the liquidated damages be reduced. This is applied in case the part of obligation performed by the party in breach can economically serve its purpose in reasonable extent to the injured party.
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