Unliquidated damages offer a lifeline when a contract breach blindsides you. Instead of pre-agreed sums, courts decide the amount after examining actual losses.
Unliquidated damages help restore what you lost rather than punishing the other party. But how do you prove such a claim?
This blog post breaks down what unliquidated damages are, how courts calculate them, and how they differ from liquidated damages.
Let’s get started.
What Are Unliquidated Damages and Why Do They Matter
When two parties sign a contract, they may include a clause specifying the amount due if one side fails to perform. That pre-agreed amount is known as liquidated damages. Unliquidated damages, by contrast, are “at large,” their value isn’t written into the contract. Courts determine the amount based on the evidence presented after a breach. Because they are not predetermined, these damages allow claimants to recover unforeseen losses that couldn’t be estimated beforehand. However, the claimant must prove actual loss and show that the loss was a natural result of the breach.
Including an unliquidated damages clause in a contract benefits the party that might suffer from a breach. It keeps a pathway open for compensation even when estimating the loss is difficult. The disadvantage is the burden of proof; a claimant must demonstrate both the extent and the foreseeability of the loss, which can be a complex process.
In industries such as construction and engineering, parties sometimes enter “N/A” or “NIL” for liquidated damages. Without clear language stating that unliquidated damages still apply, such omissions may suggest no compensation is available.
Unliquidated Vs Liquidated Damages
Liquidated damages clauses pre-determine compensation for specific breaches, such as project delays. When such a clause is enforceable, a court awards the stipulated amount, and the injured party doesn’t have to prove actual loss. But if the clause is invalid or absent, unliquidated damages come into play. Courts will not award both types; they choose one or the other.
Infographic note: The infographic compares liquidated and unliquidated damages, noting that the former is agreed in advance while the latter is determined by the court. It also cites a 2025 Delaware case in which former stockholders of a biotech firm recovered more than $180 million after the acquiring company failed to use commercially reasonable efforts. This real-life example underscores the high stakes of unliquidated damages claims.
How Courts Assess Unliquidated Damages
Courts adopt a compensatory approach: they try to restore the injured party to the position they would have been in had the breach not occurred. They consider proven losses such as lost profits, extra costs, and even moral harm. Judges avoid punitive awards and focus on actual loss; they won’t grant a windfall. The amount must be reasonable and supported by evidence, and courts exercise discretion when determining the figure.
Before awarding damages, judges examine whether the losses were foreseeable at the time the contract was made. Even if a specific loss wasn’t foreseen, it must be something a reasonable person could have anticipated. The claimant must also show they took reasonable steps to mitigate the loss.
Legal Principles for Claiming Unliquidated Damages
To succeed in a claim, you must satisfy four key principles:
- Causation: The breach must directly cause the claimed loss. For instance, if a contractor delays a project and that delay causes a penalty from the owner, the contractor’s breach must be shown to be the cause of the penalty.
- Foreseeability and remoteness: Only losses that naturally arise from the breach or were within the parties’ contemplation at the time of contracting are recoverable. Losses cannot be too remote.
- Mitigation: The claimant must take reasonable steps to reduce the loss. If they make no effort to minimize harm, compensation may be reduced.
- Proof of loss: Plaintiffs must provide credible evidence, financial statements, invoices, and expert testimony to support the claimed amount. Courts reject speculative or exaggerated claims.
Failing to meet any of these principles can derail a claim. Collecting and preserving documentation, communicating promptly with the breaching party, and seeking legal advice early can help you build a stronger case.
Common Scenarios and Real-World Examples
Unliquidated damages arise in many contexts, not just construction contracts.
The following are some common scenarios:
- Construction delays without a liquidated damages clause: If a contractor’s delay causes the owner to incur extra financing or rental costs, unliquidated damages may compensate those losses.
- Professional negligence: When an architect, engineer, or other professional fails to meet contractual standards and that failure results in unexpected costs, the injured party can claim unliquidated damages.
- Supply chain disruptions: Suppose a supplier fails to deliver goods on time, causing a manufacturer to lose customers. The manufacturer may recover lost profits through unliquidated damages.
- Employment disputes: If an employee or employer breaches a contractual term (for example, by resigning without notice), the injured party may claim compensation for lost wages or recruitment costs.
These situations highlight why businesses must draft contracts carefully and consider contingencies. Real-world statistics underscore the prevalence of contract disputes. In U.S. district courts, there were 31,372 contract actions filed in 2023 and 29,102 in 2024, according to official court statistics. Legal analysts also report that average damage awards in federal cases exceeded prior highs by more than $1 million in 2023 and 2024. Such numbers show that contract litigation is both frequent and costly.
Recent Case Spotlight: Alexion Pharmaceuticals
In 2025, the Delaware Court of Chancery considered a dispute between Alexion Pharmaceuticals and the former owners of Syntimmune Inc. The merger agreement required Alexion to use commercially reasonable efforts to develop Syntimmune’s drug candidates. The court found that Alexion deprioritized the projects and awarded more than $180 million in damages, $130 million previously awarded for a milestone payment plus an additional $50 million in unliquidated damages.
This case underscores that courts enforce reasonable-efforts clauses and will compensate claimants when a buyer fails to meet its obligations. It also illustrates the scale of unliquidated damages awards, especially in high-value mergers.
Steps to Claim Unliquidated Damages
Pursuing a claim requires patience and evidence. The following step-by-step approach helps structure your case:
- Establish foreseeability: Ask yourself whether a reasonable person could have anticipated the loss. If you are aware of the risk, mention it in the contract.
- Prove causation: Collect evidence showing that the breach directly caused your loss, including emails, timelines, reports, and witness statements.
- Mitigate: Take reasonable actions to reduce your losses, such as finding replacement suppliers or workers. Document your efforts.
- Document the loss: Prepare financial statements, invoices, and expert reports to quantify the harm.
- Seek a court award: File a claim within the statute of limitations. The court will examine your evidence and determine the amount owed.
Legal Limits and Enforceability
Unliquidated damages serve to compensate, not punish. Courts avoid double recovery and will not award more than the plaintiff’s actual loss. They also reject claims that are speculative or unsupported. In some jurisdictions, courts may reduce or deny damages if they consider the claimant’s loss too uncertain. Therefore, careful contract drafting and thorough record-keeping are essential.
FAQs
Q1. What is the difference between unliquidated and liquidated damages?
Unliquidated damages are decided by a court after a breach based on proven loss, whereas liquidated damages are pre-agreed sums written into a contract.
Q2. Can you claim both liquidated and unliquidated damages?
Typically not. If a valid liquidated damages clause applies, it usually excludes unliquidated damages for the same breach. If the clause is invalid, the court may award unliquidated damages instead.
Q3. Are unliquidated damages harder to prove?
Yes. Claimants must show their loss was foreseeable, directly caused by the breach, and supported by evidence. The burden of proof is greater than with liquidated damages.
Q4. What types of losses qualify?
Losses may include lost profits, additional costs resulting from delays or business disruptions, and, in some cases, non-economic harm, provided they were foreseeable and not remote.
Q5. How long do I have to file a claim?
The statute of limitations varies by jurisdiction and contract type. Many breach-of-contract claims must be filed within two to six years. Check local laws and consult a lawyer.
Q6. Should I include an unliquidated damages clause in my contract?
Including such a clause clarifies that losses not covered by liquidated damages can still be recovered. It also signals the parties’ intent to seek court-determined compensation when necessary.
Summary
Unliquidated damages are a vital tool for restoring fairness when a breach of contract causes unforeseen loss. Courts weigh foreseeability, causation, mitigation, and proof before awarding compensation, and recent cases show these awards can be significant. By understanding the differences between liquidated and unliquidated damages, drafting contracts carefully, and gathering evidence early, you can better protect your business interests.
I am Mohammad Fahad Usmani, B.E. PMP, PMI-RMP. I have been blogging on project management topics since 2011. To date, thousands of professionals have passed the PMP exam using my resources.
