Liquidated Damages Clause Law and Legal Definition

Liquidated damages clause is a contractual provision that pre-determines the measure of damages if a party breaches the agreement. Courts, generally have upheld such a clause unless the agreed-on sum is deemed a penalty for one of the following reasons:

1. If the sum grossly exceeds the probable damages on breach,

2. If the same sum is made payable for any variety of different breaches that involve some major and some minor breach, or;

3. If a mere delay in payment has been listed among the events of default.