Liquidated Damages

What are Liquidated Damages in Contract Law?

Liquidated damages are a predetermined amount of money that parties agree upon in a contract as compensation for potential breaches. This amount is specified in the contract and is intended to provide clarity and certainty regarding the consequences of non-performance.

In Context

Liquidated damages are commonly used in construction contracts, where delays can lead to significant costs. For example, if a contractor agrees to complete a building project by a certain date, the contract may stipulate that they will pay £500 for each day the project is late. This arrangement helps both parties to understand the financial implications of a breach. A notable case is Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd (1915), where the House of Lords upheld a liquidated damages clause, reinforcing the principle that such clauses are enforceable as long as they are not deemed punitive.

See Also

• Penalty Clause

• Breach of Contract

• Remedies for Breach

Learn More

For a deeper understanding of liquidated damages and their application in contract law, explore our Contract Law Notes for detailed explanations and relevant case studies.