Liquidated Damages
Liquidated Damages
What is liquidated damages?
Liquidated damages are damages whose amount the parties designate during the formation of a contract for the injured party to collect as compensation upon a specific breach. The purpose of this condition is to demonstrate a predetermined sum that must be paid if a party fails to perform as promised. These damages are determined when a contract is drawn up, and serve as protection for both parties that have entered the contract, whether they are a buyer and a seller, an employer and an employee or other similar parties. If these criteria are not met, a liquidated damages clause will be void. The fixed amount which a party to an agreement promises to pay to the other, in case he shall not fulfill some primary or principal engagement into which he has entered by the same agreement.
These liquidated damages clauses are therefore enforceable. The clauses are referred to as liquidated damages clauses due to the fact that a court is not required to quantify the losses sustained by a party. Liquidated Damages is defined as “a sum which a party to a contract agrees to pay or a deposit which he agrees to forfeit if The breaks some promise and which, having been arrived at by a good faith effort to estimate in advance the actual damage which would probably ensue the breach, are legally recoverable or retainable as agreed damages if the breach occurs.”
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