Stipulated Damages Law and Legal Definition

Stipulated damages are sum of money laid down in an agreement as compensation that can be recovered for any loss or injury incurred by the breach of the other party. Such damages are contracted generally when the parties can foresee and assess the loss or injury before it occurs. In stipulated damages, the amount of the damages identified must roughly approximate the damages likely to fall upon the party seeking the benefit of the term. At the time the contract is made, the damages must be sufficiently uncertain that a stipulated damages clause will likely save both parties the future difficulty of estimating damages. If a loss occurs due to the breach of the defendant, the plaintiff can recover only the stipulated damages even if the actual loss amounts to a higher sum of money. However, there may be exceptions.