Making Liquidated Damages Optional?

Because he happened to cite one of my posts on the subject, I came across this post on liquidated damages by Virginia litigator Lee Berlik.

It discusses a recent Virginia case regarding a contract provision that allowed a party to choose between liquidated damages or some other, greater remedy. Here’s the language at issue:

If the Seller does not elect to accept the Deposit as liquidated damages, the Deposit may not be the limit of the Purchaser’s liability in the event of a default.

The drafter gets points for creativity, but the court held the provision unenforceable. Here’s what Lee’s post says:

He found the clause was unenforceable for two reasons: (1) an early Virginia Supreme Court case defined liquidated damages as stipulated damages “to avoid all future questions of damage,” a purpose an optional clause would obviously not accomplish, and (2) the option was a penalty in that it would only be exercised if the amount of the deposit exceeded actual damages.

By the way, the post that Lee cited is this 2011 post on the phrase as liquidated damages and not as a penalty.

About the author

Ken Adams is the leading authority on how to say clearly whatever you want to say in a contract. He’s author of A Manual of Style for Contract Drafting, and he offers online and in-person training around the world. He’s also chief content officer of LegalSifter, Inc., a company that combines artificial intelligence and expertise to assist with review of contracts.