Which of the following statements is true of liquidated damages?

A) They must be reasonably related to the damages that may be suffered if the contract is not fulfilled.
B) They may not be designed to serve as a penalty to deter a party from breaching a contract.
C) They are a form of compensatory damages.
D) All of these choices are correct.

Liquidated Damages

A predetermined amount of money that parties to a contract agree upon as compensation in case of a breach of the contract.

Reasonably Related

A connection or relevance between two or more things that is fair, sensible, or logical.

Compensatory Damages

Monetary awards given to a plaintiff to compensate for loss, damage, or injury suffered due to another's breach of duty or negligence.