Liquidated Damages
A predetermined amount of damages agreed upon at contract formation, payable upon breach.
Liquidated damages clauses set a fixed amount or formula for calculating damages if a breach occurs. They save both parties the time and expense of proving actual damages in court.
To be enforceable, liquidated damages must be a reasonable estimate of anticipated harm at the time of contract formation. If a court finds the amount excessive or punitive, it may strike the clause.
Example
A wedding venue contract specifies that cancellation within 30 days of the event results in liquidated damages equal to 50% of the total booking fee.
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