What is the Difference between 'Liquidated Damages' and "Penalty’?
Sometimes, parties to a contract stipulate at the time of its formation (i.e., in advance) that in case of breach of its performance by either of the parties, a certain specified sum will be payable as damages. Such a sum is known as:-(i) Liquidated Damages, or ADVERTISEMENTS: (ii) Penalty. (i) Liquidated damages: It is a sum fixed or ascertained by the parties to the contract, which is a fair and genuine per-estimate of the probable loss that might occur as a result of breach of contract. Thus, liquidated damages are an assessment of loss which in the opinion of the parties will occur due to breach. Such damages are effective and recoverable by the aggrieved party from the other. Image Source: hawaiiesquire.com (ii) Penalty: On the other hand, penalty is…