Commercial Terms
A fixed amount the parties agree in advance will be owed if the contract is breached.
Liquidated damages are a set sum, agreed when the contract is signed, that one party will pay if it breaches in a particular way. They are used when actual damages would be hard to calculate after the fact, so the parties fix the number in advance to avoid a fight about it later.
For the clause to hold up, the amount has to be a reasonable estimate of the likely harm, not a penalty meant to punish. Courts will refuse to enforce a figure that looks punitive rather than compensatory. Liquidated damages are read together with the limitation of liability clause, which may cap total exposure.
Related terms
A failure to perform that is serious enough to defeat the purpose of the contract.
A clause that caps how much one party can be required to pay the other if something goes wrong.
The part of a contract that sets how much is owed, when it is due, and how it must be paid.
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