Which statement best describes liquidated damages?

• A. They are set by a court after breach
• B. They are specified in the contract as a reasonable estimate of damages
• C. They are damages for breach of confidentiality
• D. They are punitive damages

Answer: (B)

Liquidated damages are a sum written into the contract at the time it’s formed, intended as a reasonable forecast of the damages that would result if a breach occurs. The key idea is that the amount is pre-agreed and meant to reflect potential harm in advance, not to punish or be decided after the breach. That’s why describing them as the amount specified in the contract as a reasonable estimate of damages is the best fit. They aren’t about damages set by a court after breach (that would be actual damages), nor are they limited to breaches of confidentiality or meant as punitive damages.