CIPS Exam L4M8 Topic 3 Question 21 Discussion

Actual exam question for CIPS's L4M8 exam

Question #: 21
Topic #: 3

[All L4M8 Questions]

What are the two types of damage clauses that can be created within a contract?

AExplanation:
Damages are 'sum of money that the supplier pays if it fails to carry out its contractual obligation. Damages are categorized into two types; liquidated and un-liquidated.
Liquidate Damages are fixed amount of money agreed between the parties that is payable if a contract is breached. For example, knowing that supplier not being able to install a device properly in a power transformer may destroy the device and going ahead to include a fee in the contract if the device was destroyed.
Un-liquidated damages are unfixed amount of money. It is used when the amount of money that will compensate the injured party cannot be known in advance. A court decides the amount when the damages occur. For example, knowing that supplier not being able to install a device properly in a power transformer may destroy the device, other appliances and equipment unknown, cause the buyer delay in the process and reputational damage as in customer dissatisfaction. Yet, unquantifiable as both party are unable to fix a fee in advance on the damages and leaving it to the court to decide the damage if it may occur.
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Suggested Answer: A

by Virgie at Aug 29, 2023, 02:06 AM

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Karima

8 days ago

I prefer liquidated damages because they provide certainty and clarity in case of breach.

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Sharee

13 days ago

Yes, that's correct. Liquidated damages are fixed amounts agreed upon in advance, while un-liquidated damages are decided by the court.

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Karima

14 days ago

I think the two types of damage clauses are liquidated and un-liquidated damages.

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