What is a Liquidated Damages?

Definition: Specifies a predetermined amount of money that must be paid as damages for failure to perform under a contract.

The Liquidated Damages is one of the most common—and potentially dangerous—clauses found in modern contracts. While it serves a legitimate business purpose for the drafting party, it often disproportionately shifts risk onto the person signing.

Why is it dangerous?

Our AI frequently flags this clause because drafting attorneys use highly complex, convoluted language designed to obscure the true financial or legal risk. If you see this clause in your contract, you must ensure it is precisely bounded.