Liquidated damages clause is that a liquidated damages clause is an agreement made in advance, which indicates the monetary compensation if a party breaches the contract.
The purpose of a predetermined sum is to make the agreement more efficient as it is a mutual agreement, rather than a court decision. The clause also helps to estimate damages that reflect the anticipated harm caused by a breach such as the difficulty of finding another, adequate remedy. Finally, the amount must be a compensation for damages, not a penalty.
If the liquidated damages have no relation to the probable loss that may or does result from the breach, the liquidated damages clause of the contract will not be enforceable.
![](https://i.ytimg.com/vi/HSSOnozfHxQ/mqdefault.jpg)