If necessary and possible, agree to a default clause - World Credit Organization

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    • 7.7 If necessary and possible, agree on a breach of contract

    The breach of contract clause clearly stipulates the responsibility for breach of contract, and lays a good foundation for possible future litigation and rights protection. Liquidated damages or interest on arrears can be clearly stipulated in the breach of contract clause. For example: if Party A fails to complete the project on schedule, it shall pay Party B 100,000 yuan for breach of contract. In fact, liquidated damages are generally the main content or all of the content of the breach clause.

    The liquidated damages in the breach clause, no matter how high or low, should follow the principle of reasonableness. The liquidated damages are too low to achieve the purpose of preventing the other party from breaching the contract. At the same time, excessive but unreasonable liquidated damages will increase the difficulty of contract negotiations, and eventually if a dispute arises, the other party will ask the court to revoke the clause on the grounds that it violates the principle of fairness, making the clause impossible to realize. There have been many such cases in the country.

    Generally speaking, the amount of liquidated damages in a contract has the following two characteristics:

    1. The amount of liquidated damages can make up for the direct economic loss and part of the reasonable expected profit loss caused by the other party's breach of contract.

    2. The amount of liquidated damages can basically achieve the purpose of preventing the other party from easily breaching the contract. For some enterprises with irregular management, there is no liquidated damages clause, and the other party does not attach importance to the performance of the contract, which leads to easy breach of contract.

    The above content is excerpted from "Building an Integrity Unit - ICE8000 Integrity Management" (written by Fang Bangjian, free to use, but please indicate the source)