It often includes a reading that the parties involved in the contract are agreeing beforehand, as it would probably be unmanageable to decide the compensatory damages in the event of contract breach, although, such a statement is not mandatory.
This clause may be conducted towards both parties involved in the contract. For instance in these words: “If both of us neglect to execute, one will be obliged to pay the other party $20,000.” But it is not essential too. Normally, a liquidated damages clause is conducted towards only one party, along with the specified date of delivery of amount. The California Association of Realtors has provided a benchmark contract involving residential purchase that entails a liquidated damages clause that emphasizes that if a buyer failed to fulfill the completion of purchase contract due to fault by buyer, the seller will retain the amount deposited actually as the liquidated damages. The most noteworthy items in the mentioned clause include the asymmetry of the provision. as it puts the whole burden on one party, its limitation to a specific unit of residential property set by the Civil Code 1675 and the requirement of agreement by signing to ensure damages are paid. The signatory agreement is required to ensure that both parties have agreed that the contract has breached. Otherwise an arbitration or judicial decision will be needed. Initialling or signatory agreement on a liquidated clause is not mandatory but optional. Though it is printed priory in the agreement of CAR purchase, it is applicable only on the indication of both parties. Mostly in the encounter of a liquidating clause, a principle has the liability to inquire the meaning of the clause replied by the seller as defined by law.