CIPS L4M8 Exam - Topic 3 Question 73 Discussion

Actual exam question for CIPS's L4M8 exam

Question #: 73
Topic #: 3

Describe what should be considered when creating damages terms in a contract.

AExplanation:
Damages are 'sum of money that the supplier pays if it fails to carry out its contractual obligation.
When creating terms for damages in the contract, it should be considered that Damages are categorized into two types (liquidated and un-liquidated). And which or if both are applicable to the contract in hand.
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 parties 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 Cyril at May 14, 2026, 08:02 AM

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Jerrod

16 days ago

I remember we discussed the importance of distinguishing between liquidated and un-liquidated damages in class. It seems crucial to get that right in a contract.

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