The correct answers are: A fixed sum agreed in the contract; A genuine pre-estimate of likely losses; An amount payable in the event of a breach of contract.

Liquidated damages are agreed in advance in the contract as a genuine pre-estimate of losses which would occur in the event of a breach of the contract. This is a convenient way of precluding litigation, as otherwise the parties would have to go to the trouble and expense of having the damages assessed. If the amount fixed by the contract is unreasonably large and was intended merely to discourage breach, however, it will be deemed a penalty and the court will not enforce it.