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Describe the nature and purpose of liquidated damage clauses and how they are distinguished from penalty clauses.

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nadamunawaras

Liquidated damage clauses are provisions in contracts that predetermine the amount of damages to be paid if one party breaches the contract. These clauses are designed to provide a fair estimation of potential losses in the event of a breach, making the resolution of disputes more straightforward and avoiding the need for protracted litigation to determine actual damages.

**Nature and Purpose of Liquidated Damage Clauses:**

1. **Compensation:** They aim to compensate the non-breaching party for losses that are anticipated at the time of contract formation.

2. **Certainty:** By specifying damages in advance, they provide certainty and clarity to both parties about the financial consequences of a breach.

3. **Efficiency:** They streamline dispute resolution by avoiding the need to prove actual damages.

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