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Liquidated Damages and Penalty Clauses

A liquidated damages clause generally refers to a clause included in a contract of sale of property, with the purpose of establishing a pre-agreed sum that must be paid in the case of a breach. In the case where such a clause has been included in a contract, the innocent party will not be compensated an amount higher than the fixed sum. However, if the contract includes a clause intended as punishment rather than an assessment of losses, it’s considered a penalty clause and will not be implemented.

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