Oregon Construction Contractors (CCB) Practice Test

What are the amounts agreed upon by parties as fair compensation to the non-breaching party if a breach occurs?

1. Liquidated or Stated Damages

2. General damages

3. Compensatory damages

4. Equitable damages

The correct answer is: Liquidated or Stated Damages

The correct answer refers to the provision known as liquidated damages, which are specific amounts set forth in a contract as compensation to be paid to the non-breaching party in the event that a breach occurs. These amounts are agreed upon by the parties at the time of the contract formation and are meant to provide a predetermined and fair estimate of potential damages, rather than leaving the assessment of damages to subjective evaluation after a breach. Liquidated damages help avoid disputes over how much compensation is due, ensuring that both parties have clarity regarding potential future breaches. This concept is particularly useful in contracts where it may be difficult to ascertain the actual damages because they could vary significantly based on circumstances. General damages, on the other hand, are typically awarded for losses that can be directly linked to the breach but aren’t specified in advance. Compensatory damages are meant to make the injured party whole but can encompass a broader category beyond what is specifically outlined in the contract. Equitable damages involve non-monetary relief and are not focused on compensation. Therefore, the definition and purpose of liquidated damages align closely with the requirement of pre-agreed compensation in the event of a breach.