What is the difference between penality and Liquidity damages?

Question

Accepted Answer

Penalty is a punishment for breach of contract while liquidity damages compensate for financial loss due to breach.

Penalty is a fixed amount agreed upon in the contract as a punishment for breach of contract.
Liquidity damages compensate for the actual financial loss suffered due to breach of contract.
Penalty is usually higher than the actual loss suffered while liquidity damages are calculated based on the actual loss.
Penalty is meant to deter breach of contract while liquidity damages are meant to compensate for the loss.
For example, if a contractor fails to complete a project on time, the contract may specify a penalty of $1000 per day of delay. On the other hand, if a supplier fails to deliver goods on time, the buyer may claim liquidity damages for the actual financial loss suffered due to the delay.

Accepted Answer

Liquidity damage is vary item to item but penalty can be charge for any activities which has not been done as per quality norms , specification or as per contract terms & conditions.

What is the difference between penality and Liquidity damages?

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