Legal Definitions - damages clause

A damages clause is a specific provision within a contract that outlines the financial compensation or other remedies one party must provide to the other if a breach of contract occurs or if a specified type of harm is caused. These clauses aim to clarify in advance how losses will be addressed, potentially specifying a fixed amount (known as liquidated damages) or a method for calculating the compensation due.

• Example 1: Construction Project Delay

  A contract for the construction of a new commercial building includes a clause stating that if the contractor fails to complete the project by the agreed-upon deadline, they will pay the client $2,500 for each day of delay until completion. This amount is intended to cover the client's lost revenue from not being able to use the building.

  This illustrates a damages clause because it pre-establishes the financial compensation ($2,500 per day) that the contractor must provide to the client if the contractor breaches the contract by failing to meet the completion deadline. It specifies the remedy for a particular type of harm (project delay).

• Example 2: Software Licensing Agreement

  A technology company licenses its proprietary database management software to a large corporation. The licensing agreement contains a clause stipulating that if the corporation makes unauthorized copies of the software or uses it beyond the scope of the license, it will be liable for a penalty of $75,000 per instance of infringement, in addition to any other legal remedies available to the technology company.

  Here, the clause acts as a damages clause by setting a specific financial consequence ($75,000 penalty) for a breach of the licensing terms, particularly unauthorized use or intellectual property infringement. It aims to compensate the software company for the harm caused by such a breach.

• Example 3: Event Venue Rental

  A community center rents out its main hall for private events. Their rental agreement includes a clause stating that the renter is responsible for any damage to the facility or its equipment (e.g., broken chairs, stained carpets, damaged sound system) beyond normal wear and tear, and agrees to cover the full cost of repair or replacement, which may be deducted from their security deposit or billed separately.

  This is a damages clause because it clearly defines the financial responsibility of the renting party for specific types of harm (property damage) caused during their use of the venue. It outlines how compensation for such damage will be handled, ensuring the community center is made whole.