Question

Distinguish between 'Liquidated damages' and 'Penalty'.​

Answer 1

Answer:

Under the Common Law System, where the amount fixed is a genuine pre-estimate of the loss in case of breach, it is liquidated damages. However, if the amount fixed is without any regard to possible loss, but is mostly intended to deter the other party in order to refrain from committing breach, it is a penalty.

Answer 2

Answer:

To decide if the amount fixed is liquidated damages or penalty is the discretion of the court. The Indian law considers both as synonymous but the English Law differentiates between the two. The penalty is an exaggerated amount to deter the parties from defaulting. Liquidated damages are an actual estimate of the loss.

Answer 3

Answer:

To decide if the amount fixed is liquidated damages or penalty is the discretion of the court. The Indian law considers both as synonymous but the English Law differentiates between the two. The penalty is an exaggerated amount to deter the parties from defaulting. Liquidated damages are an actual estimate of the loss.