Cost-Based Analysis Can Be Useful In Calif. Contract Disputes
Liquidated damages provisions in contracts specify a predetermined amount of monetary damages that an injured party can recover in the event of a breach. In “Cost-Based Analysis Can Be Useful In Calif. Contract Disputes,” an article written for Law360, Principal Mark Gustafson, Vice President Nathan Trujillo, and Associate Michael Chu outline a cost-based framework that contracting parties in California can use to fix the fair amount of compensation arising from a potential breach.
Under California law, contracting parties must make reasonable efforts to estimate fair compensation for the actual loss prior to specifying liquidated damages in consumer contracts. Failure to do so puts them at risk of a legal ruling that renders their liquidated damages provisions unenforceable, which can carry serious financial consequences. If done properly using a rigorous, data-driven approach such as is outlined by Mr. Gustafson, Dr. Trujillo, and Mr. Chu, a cost-based analysis provides an estimate of the reasonable compensation for loss that can withstand judicial scrutiny in a contract enforcement action.