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Liquidated Contract Damages, Reasonable Forecast of Damages

In breach of contract litigation, it is the responsibility of the party complaining of the breach to prove all of the damages/harm incurred which form the basis for the monetary request. Certain contracts include liquidated damages provisions. These types of provisions set forth the amount of damages in the event of a breach. 

Not all liquidated damages provisions are proper or enforceable. For a liquidated damages provision to be legal, they must, among other things, contain a “reasonable forecast of damages.” What this means is that the monetary amount of the damages must not be unreasonably disproportionate to the amount of harm anticipated when the contract is made. An amount is reasonable if it approximates the actual loss that has resulted from the particular breach. This is a very flexible analysis and depends on the nature of a given breach, the subject matter of the contract, and the reasonable belief at the time the contract is made. 

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