Research on the System of Reducing Liquidated Damages

DOI: https://doi.org/10.62517/jel.202514403

Author(s)

Shiyi Chen*

Affiliation(s)

School of Law, China Jiliang University, Hangzhou, Zhejiang, China *Corresponding Author

Abstract

The system of discretionary reduction of liquidated damages, as an important institutional arrangement in modern contract law to coordinate autonomy of will and contractual justice, not only embodies the concept of contractual fairness but also relates to the scale and efficiency of judicial discretion. Article 585, Paragraph 2 of the Civil Code establishes the rule that "when the liquidated damages are too high, the people's court may make appropriate adjustments", granting judicial authorities the legitimate power to intervene in the autonomy of the contract when the liquidated damages are grossly unfair. This system, on the surface, responds to the demand for safeguarding transaction justice, but in essence, it has sparked numerous controversies and practical challenges: for instance, inconsistent judgment standards, ambiguous definition of the nature of liquidated damages, and unclear application standards occur frequently, which poses dual challenges to judicial practice in terms of both normativity and predictability. This article will explore the value basis of the legitimacy of the penalty adjustment system, and from the perspective of "functionalism", clarify its dual attributes of compensation and punishment. Based on this, it will improve the judgment and path of the reduction standard, promote the reasonable application of the penalty system, and enhance the fairness and standardization of judicial discretion.

Keywords

Adjustment of Liquidated Damages; Freedom of Contract; Contractual Justice; Punitive Liquidated Damages; Compensatory Liquidated Damages

References

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