Liquidated Damages Legal Meaning and Definition

Here is a simplified definition of the legal term Liquidated Damages.

Liquidated Damages (n.) - Liquidated damages refer to a predetermined amount of money that one party in an agreement agrees to pay to the other in the event of a breach of contract or inability to fulfill specified conditions. These damages are established during the creation of the contract. Payment may be avoided if it can be shown that the contract was entered into under fraud or severe misunderstanding, which could render the agreement null.