Question

When the parties to a contract agree that a certain sum of money would be payable in case of breach of contract such payment of damage is called _________.

• A. liquidated damage
• B. unliquidated damage
• C. penalty
• D. special damages

Answer 1

Answer: (A)

liquidated damage

Liquidated damages refer to the sum of damages that the parties assess and agree upon at the time of contract for breach of the contract by either party. On breach of contract, this sum of money becomes payable irrespective of the actual value of the damages that may be caused on breach. The Indian Contract Act, 1972 recognizes liquidated damages under Section 74 by stating that if parties stipulate any amount to be paid as damages or any penalty to be imposed on breach, the aggrieved party is entitled to only that amount or penalty and no other greater or lesser amount.