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KembaraXtra – Legal Terms – Liquidated Damages
Liquidated damages refer to a sum of money that the parties to a contract agree in advance will be payable if one party breaches the agreement. This amount is fixed at the time the contract is made.
The purpose of such a clause is to provide certainty and avoid the need for lengthy court proceedings to assess damages after a breach. It is particularly useful where actual losses may be difficult to calculate.
However, the agreed sum must represent a genuine estimate of likely loss. If it is excessive and intended as a punishment, courts may treat it as a penalty and refuse to enforce it.
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