Liquidated Damages

Definition: Liquidated damages are an amount or calculation agreed in advance to compensate for a specified contract breach when the loss would be difficult to determine.

Example

A purchase contract may provide that a stated deposit will serve as liquidated damages for a covered buyer default, if the provision is enforceable and properly invoked.

Keep the distinction clear

Liquidated damages are intended as compensation, not an unlawful penalty. A deposit is not automatically forfeited merely because money is in escrow; the contract and applicable law control.

Related terms

Default · Earnest Money · Specific Performance

Keep studying

Valid, Void, Voidable, and Unenforceable Contracts

References: Cornell LII: liquidated damages

Pronunciation (US): LIK-wuh-day-tid DAM-ij-iz (capitals show stress)

Pronunciation reference: Merriam-Webster