Liquidated damages (contractual penalty)
A sum agreed in advance that one side pays for a specific breach, such as a missed deadline, without having to prove the actual loss.
In Polish law a contractual penalty (kara umowna, Articles 483 to 485 of the Civil Code) can be set for non-monetary obligations: delays, breach of confidentiality, hiring the other side’s people. The creditor does not have to prove damage, and a court may reduce a penalty that is grossly excessive or where the obligation was largely performed. Common law systems use liquidated damages, which must be a genuine estimate of loss rather than a punishment. In IT contracts penalties for delay are often capped as a share of the contract value.
Related terms
- Limitation of liability (liability cap): A contract clause that caps how much one side can owe the other for damages, often at the fees paid over a set period, and excludes some kinds of loss.
- Non-solicitation clause (no-poach): A clause that forbids the buyer from hiring the vendor’s people directly, during the contract and for some time after, usually backed by a fee.
- NDA (non-disclosure agreement): A contract that defines what counts as confidential information, how it may be used and for how long, usually signed before sharing details with a vendor.
- SLA (service level agreement): A contract that defines availability, response and fix times per priority, and what happens when they are missed.
