Multiple choice

If the compensation to be paid on breach of contract is the genuine pre-estimate of the prospective damages, it is known as

  1. special damages

  2. penalty

  3. un-liquidated damages

  4. Iiquidated damages
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

When compensation specified for breach is a genuine pre-estimate of prospective damages, it is called liquidated damages. This represents the parties' advance agreement on reasonable compensation for breach, based on actual anticipated loss. It differs from penalty (punitive) and unliquidated damages (determined by court after breach). Liquidated damages are enforceable as genuine pre-estimates, not as punishments.

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