According to Contract Act 1950 S75 ‘When a contract has been broken, if a sum is named in

the contract as the amount to be paid in case of such breach, or if the contract contains any other
stipulation by way of penalty, the party complaining of the breach is entitled, whether or not
actual damage or loss is proved to have been caused thereby, to receive from the party who has
broken the contract reasonable compensation not exceeding the amount so-named or, as the case
may be, the penalty stipulated for.’ A liquidated damages clause or an agreed damages clause, is
an arrangement in a contract that fixes the sum payable as damages for a party's breach. For e.g.
Russel contracts with Conrad that if he practices as a surgeon within New York, he will pay
Conrad 10,000usd. Russel practices as a surgeon in New York breaching the contract. Conrad is
entitled to such compensation, not exceeding 10,000usd, as the court considers reasonable.

On the other hand, unliquidated damage is the sum of money assessed by the court as
compensation payable to the party who has suffered a loss. According to Contract Act 1950
S74(a) ‘When a contract has been broken, the party who suffers by the breach is entitled to
receive, from the party who has broken the contract, compensation for any loss or damage
caused to him thereby, which naturally arose in the usual course of things from the breach, or
which the parties knew, when they made the contract, to be likely to result from the breach of it,’
stated that the party who had breached is liable to compensate the suffering party a foreseeable
sum which could be assumed while both the parties entered into the contract. However, “such
compensation is not to be given for any remote and indirect loss or damage sustained by the
reason of the breach,” as stated by S74(b) of the Contract Act implies that any other damage
which is not related or occurred due to a result of the breach of contract is not recoverable by the
suffering party. As in the case of: East Asiatic Co. Ltd v. Othman [1966] 2 MLJ 38 the claimant
can claim for special damages such as the difference between the prices of goods as contracted.
Unliquidated damages are damages for a party's breach which have not been pre-estimated. For
e.g.: Lee contracts to sell and deliver 50 gantangs of saltpetre to Mike, at a certain price to be
paid on delivery. Lee breaks his promise, Mike is entitled to receive from Lee, by way of
compensation, the sum, of any, by which the contract price falls short of the price for which
Mike might have obtained 50 gantangs of saltpetre of like quality at the time when the saltpetre
ought to have been delivered.
Steve agreed in April 2007 to engage Smith as a courier for Malaysian travel, his duties to commence on
1 June 2007. On 11 May 2007, Steve wrote to Smith saying that he no longer required Smith’s services.
Feeling unsatisfied, Smith decided to commence an action for breach of contract on 22 May 2007. Steve
contended that there was no cause of action until the date due for performance. Advise Smith