What is a liquidated damages clause?

A liquidated damages clause is a specific term in a contract outlining a set amount of damages for each party in the event that the contract is breached. This clause is typically added to a contract to ensure that the parties involved are adequately compensated for a breach of the original agreement. This clause operates to both limit the amount of damages that must be paid and to provide a clear framework for a calculation of damages. In Nebraska, liquidated damages clauses are recognized as a valid and enforceable part of a contract, provided they adhere to certain legal requirements. These requirements include that the clause must be reasonable in light of the circumstances, the amounts specified must not be unconscionably high, and the clause must be based on the actual damages that may have been suffered by either party. In the event that a liquidated damages clause is deemed invalid by a court, a party may still be able to recover damages under tort, breach of contract, or other legal remedies.

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