Which type of damages is often set at a specific amount agreed upon in advance?

Liquidated damages are a specific type of damages that parties agree upon in advance at the time of contract formation. This agreed-upon amount serves as a pre-determined compensation for potential losses that may arise from a breach of contract. The rationale for liquidated damages is to provide clarity and certainty to both parties regarding the potential financial consequences of a breach, thereby reducing disputes and the need for lengthy litigation in the event of such an occurrence.

For example, in a construction contract, the parties may agree that if the project is completed late, the contract will stipulate a specific amount per day that the contractor will pay to the client as compensation. This arrangement is beneficial as it encourages timely performance and helps both parties to estimate potential liability in advance.

In contrast, other types of damages, such as nominal, ordinary, and vindictive damages, do not operate on the same principles. Nominal damages are typically awarded when a legal wrong has occurred, but no actual financial loss has resulted, reflecting a minimal or symbolic amount. Ordinary damages, on the other hand, aim to compensate actual losses incurred as a direct result of a breach. Vindictive damages, also known as punitive damages, are intended to punish the wrongdoer and deter similar behavior in the future