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Liquidated / Stipulated Damages

In this lesson, we will provide an understanding of the legal solutions available when a contract is breached. We will explore various types of remedies, as well as the different categories of damages. By the end of this lesson, you’ll have a clear grasp of how these legal mechanisms function to enforce contracts and protect the rights of the parties involved.

Exercise 1

Read the short text about the different remedies, then select the correct option from the list to complete (1) ….. to (10) ….. .

If one of the parties to a contract fails to perform its terms, their conduct ___1___ a breach of contract. When such a breach occurs, the ___2___ party has various remedies available to address the situation.

One common remedy for a breach of contract is the payment of ___3___ compensation to the injured party, commonly referred to as damages. Damages are designed to compensate the non-breaching party for the financial losses they have suffered as a result of the breach.

In some cases, ___4___ relief may be sought, such as specific performance or injunction. Specific performance is a legal remedy that requires the breaching party to ___5___ their contractual obligations as originally agreed. It is typically invoked when the subject matter of the contract is unique or when monetary compensation is ___6___ to address the harm caused by the breach.

Additionally, individuals and businesses often turn to ___7___ for indemnification. An indemnity contract serves to insure a person or entity against specific ___8___ events.

In summary, these legal tools play a crucial role in addressing contractual ___9___ and ____10___ financial risks for parties involved in various business and legal transactions.

Now, press the START button to select the correct option from the list to complete (1) ….. to (10) ….. .

3

Remedies Clauses

1 / 10

Choose the correct option to complete the gap.

If one of the parties to a contract fails to perform its terms, their conduct ___1___ a breach of contract.

2 / 10

Choose the correct option to complete the gap.

When such a breach occurs, the ___2___ party has various remedies available to address the situation.

3 / 10

Choose the correct option to complete the gap.

One common remedy for a breach of contract is the payment of ___3___ compensation to the injured party, commonly referred to as damages.

4 / 10

Choose the correct option to complete the gap.

In some cases, ___4___ relief may be sought, such as specific performance or injunction.

5 / 10

Choose the correct option to complete the gap.

Specific performance is a legal remedy that requires the breaching party to ___5___ their contractual obligations as originally agreed.

6 / 10

Choose the correct option to complete the gap.

It is typically invoked when the subject matter of the contract is unique or when monetary compensation is ___6___ to address the harm caused by the breach.

7 / 10

Choose the correct option to complete the gap.

Additionally, individuals and businesses often turn to ___7___ for indemnification.

8 / 10

Choose the correct option to complete the gap.

An indemnity contract serves to insure a person or entity against specific ___8___ events.

9 / 10

Choose the correct option to complete the gap.

In summary, these legal tools play a crucial role in addressing contractual ___9___...

10 / 10

Choose the correct option to complete the gap.

... and ____10___ financial risks for parties involved in various business and legal transactions.

Your score is

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Listen to the text

Exercise 2

Complete the gaps with the correct word from the box.
  • actual
  • awarded
  • breach
  • claimant
  • compensate
  • deter
  • exemplary
  • loss
  • performed
  • pre-estimate
  • punish
  • pursuing
  • remedies
  • stipulated
    

There are several (1) _____  available for (2) _____ of contract, and some of them are equitable as opposed to common law remedies. Common law remedies include certain types of monetary damages.

It is important to remember that whenever damages are (3) _____, they are intended to compensate the injured party for any loss or damage arising from the breach, but they are not intended to (4) _____ the party committing the breach. The basic principle is that the injured party should be restored financially as nearly as possible to the position it would have been in had the contract been (5) _____. It is also important to note that damages are assessed by the court on the actual (6) _____ to the injured party, and not on the basis of any gain made by the other party.

The most common types of damages are:

  • Compensatory damages - also called (7) _____ damages - are paid to (8) _____ the claimant for loss, injury, or harm suffered by another's breach of duty.
  • Parties may contract for liquidated damages - also called (9) _____ damages - to be paid upon a breach of the contract by one of the parties. Liquidated damages are usually based on a (10) _____ for an anticipated breach of contract which is specifically set out as a clause of the contract.
  • Punitive damages – sometimes termed (11) _____ damages in the United Kingdom - are damages not awarded in order to compensate the claimant, but in order to reform or (12) _____ the defendant and similar persons from (13) _____ a course of action such as that which damaged the (14) _____.
Selected Value: 0
1= not difficult at all 10= too difficult, not my level

Exercise 3

Read text and decide if the following sentences are true or false.

Kötbér is translated into English with at least two different expressions: liquidated / stipulated damages and penalty. Liquidated damages is a British English expression, while penalty is an American English word. Stipulated damages on the other hand is not a genuine English phrase, it is translated into English and can be found mostly in EU texts to refer to the Continental form of compensation.

Another even more important difference between liquidated / stipulated damages and penalty clauses is how enforceable they are under different legislations. Liquidated / stipulated damages clauses are valid and enforceable in the UK and in the EU, while penalty clauses are not.

A liquidated / stipulated damages clause purports to recover the amount of damage someone has one sustained, therefore it is a genuine estimate of the loss to be suffered and its amount is reasonable and not disproportionate. However, if a liquidated / stipulated

damages clause intends to punish the breaching party, its amount grossly exceeds the amount of damage that has been sustained and its sole purpose is to deter the contracting parties from breaching the contract, it amounts to a penalty clause, which, as opposed to a liquidated / stipulated damages clause, is not enforceable in the majority of jurisdictions all over the world.

The court’s decision as to whether the liquidated / stipulated damages are intended as a penalty or not largely depends on the reasonableness of the amount. In many jurisdictions, the courts will sever the penalty clause from the contract, holding it to be unenforceable as a penalty. The result is that the non-breaching party is forced to prove its loss in accordance with the general principles of contractual remedies. Therefore, it is is crucial when drafting a damages clause that it contains the elements of an enforceable liquidated / stipulated damages clause as opposed to an unenforceable penalty.

1. Under Continental law a penalty provision is included in an agreement in order to compensate the non-breaching party for anticipated losses resulting from a breach.

2. Under US law a penalty provision is included in an agreement in order to compensate the non-breaching party for anticipated losses resulting from a breach.

3. Under Hungarian law a penalty provision is included in an agreement in order to compensate the non-breaching party for anticipated losses resulting from a breach.

4. Under Continental law courts will generally strike down penalty provision, leaving the injured party no further means of recovering damages from the breaching party.

5. Under US law courts will generally strike down penalty provision, leaving the injured party no further means of recovering damages from the breaching party.

6. Under Hungarian law courts will generally strike down penalty provision, leaving the injured party no further means of recovering damages from the breaching party.

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1= very easy 10= too difficult, not my level

Under Hungarian Law, liquidated / stipulated damages are governed by the Sixth Book of the new Hungarian Civil Code (Articles 6:186-189)

There are three basic types of liquidated / stipulated damages:

  • Liquidated / stipulated damages for delay (késedelmi kötbér)
  • Liquidated / stipulated damages for non-performance (meghiusulási kötbér)
  • Liquidated / stipulated damages for defective performance (hibás teljesítési kötbér)

Exercise 4

Match the two parts of the sentences about liquidated / stipulated damages in Hungary.
1)     Liquidated / stipulated damages in Hungary …
2)     Any agreement on liquidated / stipulated damages is …
3)     Claiming liquidated / stipulated damages rules out …
4)     Claiming liquidated / stipulated damages for non-performance rules out …
5)     Liquidated / stipulated damages for defective performance rules out …
6)     Agreeing on an interest rate after liquidated / stipulated damages is …
7)     If the party fails to pay liquidated / stipulated damages on time, …
8)     Claiming liquidated / stipulated damages does not rule out …
9)     The calculation of liquidated / stipulated damages can be …
10)  It is common contractual practice in Hungary that the contracting parties …
a)      … the right to demand performance.
b)      … only valid in writing.
c)      … default interest is added to the late payment.
d)      … serve as immediately available remedy.
e)      … agree in a cap for the liquidated / stipulated damages, usually at 10% to 20% of the total contractual fee, which is usually accepted by the Hungarian Courts.
f)       … null and void under the Hungarian law.
g)      … agreed freely by the parties, either as a fixed lump sum or as a percentage of the contractual fee, or a combination of both, with or without cap.
h)      … claiming damages that exceed the amount received as damages for the breach of contract.
i)       … claiming certain other remedies of similar effect that may be otherwise claimed on the same factual basis
j)       … warranty claims for the said defective products, defective services or defective performance.

Write your answers here.

Selected Value: 1
1= very easy 10= too difficult, not my level

Exercise 5

Complete the gaps with the expressions from the box.
  • a result of Contractor's default
  • according to the dispositions
  • fails to complete
  • fail to operate
  • in terms of
  • shall pay (x2)
  • shall not exceed (x2)
  • stipulated damages (x2)
  • until

If the Contractor (1) __________ the Works by the Date for Practical Completion, the Contractor (2) _________ to the Client the sum of HUF 100,000 per each day of delay as (3) __________. In any event, the maximum amount of stipulated damages (4) __________ 10 % of the Contract Price.

After Date for Practical Completion, if the Works (5) ___________ as required (6) ___________ output, efficiency and reliability (7) ____________ of the Contract, the Contractor shall, and where Performance Failure is (8) __________, be responsible for the Repairing and (9) __________ to the Client the sum of HUF 100,000 per each day (10) __________ the Repairing Completion as (11) _________. In any event, the maximum amount of stipulated damages (12) __________ 10 % of the Contract Price.

Selected Value: 0
1= not difficult at all 10= too difficult, not my level

Exercise 6

1. Listen to the following voicemail one of your clients sent to you and take notes. 2. Use your notes and record a similar voicemail.
Click or drag a file to this area to upload.
Other possibilities: send a voicemail through FaceTime, WhatsApp or Messenger.

The feedback to your answer will be sent to you in a voicemail.

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Kapcsolódó tartalmak:

My-legal-english-cards-2-leckelista

Contract Law III - Task 1

My-legal-english-cards-2-leckelista

Contract Law III - Task 2

My-legal-english-cards-2-leckelista

Contract Law III - Task 3

YOUR PROGRESS MAP IN THE "LIQUIDATED / STIPULATED DAMAGES" LESSON

1
  • Exercise 1
2
  • Exercise 2
3
  • Exercise 3
4
  • Exercise 4
5
  • Exercise 5
6
  • Exercise 6

Lingua Juris Szaknyelvi Központ
Tulajdonos: Connect Europe Bt.

Levelezési cím: 1027 - Budapest, Medve u. 23.

Telefon: 06 1 783 1339,
Mobil: 06 20 340 9278

Email: info@linguajuris.hu

 

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