The purpose of this stipulation is to establish a predetermined sum that must be paid if a party fails to perform as promised. Damages can be liquidated in a contract only if (1) the injury is either "uncertain" or "difficult to quantify"; (2) the amount is reasonable and considers the actual or anticipated harm caused by the contract breach, the difficulty of proving the loss, and the difficulty of finding another, adequate remedy; and (3) the damages are structured to function as damages, not as a penalty. A penalty is a sum that is disproportionate to the actual harm. If these criteria are not met, a liquidated damages clause will be void. It serves as a punishment or as a deterrent against the breach of a contract. "One View Too Many." Boston Bar Journal 34 (April).n.

liquidating damages on form hud 2442-47

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Monetary compensation for a loss, detriment, or injury to a person or a person's rights or property, awarded by a court judgment or by a contract stipulation regarding breach of contract.

Generally, contracts that involve the exchange of money or the promise of performance have a liquidated damages stipulation.