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Damages, liquidated

Damages stated in a contract to be payable on breach. They must be a fair estimate of the damage likely to be suffered. Round sums which do not appear to be related in any way to possible damage are known as penalties and are not enforceable. Where damages are difficult to assess, what might appear to be a penalty may be adjudged to be liquidated damages. if the court considers that the sum was an attempt to evaluate the possible loss.

Reference: The Penguin Business Dictionary, 3rd edt.