Liquidated Damages Law and Legal Definition

Liquidated damages may be incorporated as a clause in a contract when the parties to a contract agree to the payment of a certain sum as a fixed and agreed upon payment for not doing certain things particularly mentioned in the agreement. It is the amount of money specified in a contract to be awarded in the event that the agreement is violated, often when the actual damages are difficult to determine with specificity. Sometimes the liquidated damages are the amount of a deposit or a down payment, or are based on a formula, such as a percentage of the contract amount. Liquidated damages clauses will generally be enforced as long as the amount is not unconscionable.