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An answer to a recent question mentions that "all the money you have" is not a valid liquidated-damages clause in a contract.

The main use of "liquidation" that I'm familiar with is in the context of bankruptcy, where it does indeed mean (roughly) "all the money you have". (Well, strictly speaking it means converting all your assets to cash, with the implication that you then give all the money you have your creditors.)

Are these usages of "liquidated"/"liquidation" related? Or more generally, where does the term "liquidated" in "liquidated damages" come from?

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Black's Law Dictionary (5th edition 1979) states that "Liquidated" means

Ascertained; determined; fixed; settled; made clear or manifest.

This is the sense of the term in which damages are "liquidated" by a liquidated damages term in a contract or statute. The damages are settled by a contractual determine rather than being "unliquidated" (i.e. uncertain or unresolved or undetermined.)

The sense of the word meaning sold or reduced to money, is derivative of this prior and more fundamental sense of the word. When assets or an estate are reduced to money their fair market value is fixed or settled.

How a word meaning "liquid" came to mean "make clear" when modified is speculative (given what my brief research uncovered), but I think that are some very plausible paths by which that could have happened.

According to Oxford Languages:

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liq·ui·date /ˈlikwəˌdāt/

Origin

mid 16th century (in the sense ‘set out (accounts) clearly’): from medieval Latin liquidat- ‘made clear’, from the verb liquidare, from Latin liquidus (see liquid). liquidate (sense 1) was influenced by Italian liquidare and French liquider, liquidate (sense 2) by Russian likvidirovatʹ

A second online dictionary source states:

liquidate (v.)

1570s, of accounts, "to reduce to order, to set out clearly" (a sense now obsolete), from Late Latin or Medieval Latin liquidatus, past participle of liquidare "to melt, make liquid, make clear, clarify," from Latin liquidus "fluid, liquid, moist" (see liquid (adj.)). Sense of "clear away" (a debt) first recorded 1755. The meaning "wipe out, kill" is from 1924, possibly from Russian likvidirovat, ultimately from the Latin word. Related: Liquidated; liquidating.

English.StackExchange has some answers of essentially the same question that doesn't shed much more light on the matter but one excerpt is notable:

The meaning is already present in the Latin liquidus which means both "liquid" and "clear, evident".

This obviously comes from liquids being limpid (transparent). Limpid by the way (another Latin cognate, originally from Oscan origin) gives Spanish limpido and limpiar.

Also liquare means "to filter". So that the idea of transparency and purity is already strongly associated with liquids in Latin.

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Damages are an award to one party when a (legally recognized and approved) loss or detriment is caused by the action or inactions of another party, by requiring some further action by the second party to compensate the first party.

Liquidation and related words refer to the process of turning assets (usually property of some kind) into their equivalent value in currency, allowing the value to flow like a liquid from one party to another party.

Liquidated damages are damages which, to be corrected, may require transfer of specific property or services or actions that is legally or physically difficult to do, instead stated in currency as an estimate for the value those properties or services or actions would have provided.

The phrase meanings are definitively linked, in that the adjectival form used in law follows from that used in commerce, and is generalised from one area involving currency to others.

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  • So if I'm understanding correctly, "liquidated damages" would be damages where making the harmed party whole in a strictly compensatory manner would technically require actions or transfer of assets which would be prohibitive. As such, the parties agree that the damages have a "liquidated" (cash equivalent) value as stated in the contract. So "liquidated damages" aren't necessarily any cash-valued damages, but specifically those where an amount of cash is agreed upon in lieu of non-cash compensation. -- Did I get that right? – R.M. Feb 15 at 21:57
  • @R.M. Not really. Liquidated damages are damages in a fixed dollar amount set at a sum certain or simple formula (e.g. $1,000 per day after the deadline, 5% of a late payment, or six months of current salary of an employee), in the language of a contract, because predictability is valuable and the factual complexity involved in determining a true amount of compensatory damages would be difficult and expensive to determine through litigation. Typical examples include damages for delayed performance of a contract and damages for violation of a non-competition or employee non-solicitation clause. – ohwilleke Feb 16 at 16:45
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The Oxford English Dictionary (the standard reference source for historical word usage) gives 4 relevant sense and dates of first attestation:

To make clear or plain (something obscure or confused); to render unambiguous; to settle (differences, disputes). {1670}

To clear away, resolve (objections). {1620: rare}

To determine and apportion by agreement or by litigation; to reduce to order, set out clearly (accounts). {1575}

To clear off, pay (a debt). {1755}

The adjectival form with the sense "Ascertained and fixed in amount" is found as far back as 1609: these are legal uses of the term. The vagarity in senses is in part due to the various figurative meanings in Latin, where the root means "leave; flow; clear". The ultimate answer would come from studying ancient English legal texts written in Latin.

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  • I assume that the OED also included the Russian sense meaning "kill" from 1924 that was omitted (properly) by you as not a relevant sense of the word. – ohwilleke Feb 16 at 16:50
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    Yes, it's also included in the OED. – user6726 Feb 16 at 16:58
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Liquidated means “in cash”

This is the usage in both liquidated damages (damages stated in cash) and liquidation of a company (the assets are sold and converted to cash).

A liquid asset is one that is or is readily convertible (e.g. shares in a highly traded company, government bonds) to cash.

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  • I get the sense, though, that "liquidated damages" is something that's distinct from "monetary damages" -- that not all damages paid in cash (or denominated in currency) would be considered to be "liquidated damages". – R.M. Feb 15 at 21:44
  • @R.M. All damages are monetary – Dale M Feb 15 at 23:27
  • @R.M. You're correct. Damages are "liquidated" when they are awarded as the result of a liquidated-damages clause, which is the exception rather than the rule. Damages are usually calculated some other way; expectancy, restitution, and reliance are the main approaches. – bdb484 Feb 16 at 17:03

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