Paralegal Exam Prep

Category - Legal System

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The term “liquidated damages” refers to ______________.

An agreed-upon estimate of damages in tort and property cases.
An agreed-upon estimate of damages in trespass cases.
An agreed-upon estimate of damages at the time of contract formation.
An agreed-upon estimate of damages in insurance subrogation cases.

Explanation

Answer: C - An agreed-upon estimate of damages at the time of contract formation. In contract situations, the parties to a contract may agree to a predetermined or “liquidated” amount of damages when the contract is formed if the amount of damages from breach would be difficult to determine at formation.

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