What are liquidated damages

What are liquidated damages

Q.

What are liquidated damages?

A.

Liquidated damages are an amount of damages that the parties to a contract agree to in the event of a breach. To be enforceable by a court, the damages cannot be readily ascertainable at the time of contract. So if you have a very good idea of what a particular breach can be quantified as (in terms of monetary harm) at the time of contract, then liquidated damages are typically not enforceable.

Secondly, if the amount of damages is grossly disproportionate to the damages one might expect to occur from a breach, then that kind of a clause is likely going to be seen as a penalty, and therefore unenforceable.