What distinguishes liquidated damages from other types of damages?

Liquidated damages are unique because they are specifically agreed upon by the parties involved in a contract at the time of formation. This means that, rather than relying on a court to determine the amount of damages that may be incurred from a breach of contract, the parties have predetermined a set amount that is intended to represent a fair estimation of potential losses resulting from a breach. This pre-agreement is crucial for the enforceability of liquidated damages; if such damages are not pre-agreed upon, they may not be recognized by the court.

Other options indicate misunderstandings about the nature of liquidated damages. For example, while some damages may have punitive intentions, liquidated damages are not punitive but rather compensatory in nature, intended to cover the actual losses. Moreover, liquidated damages are not limited to government contracts; they can be utilized in private contracts as well. Finally, liquidated damages are not confined to tort cases; they are specifically a contract-related remedy. Understanding these distinctions helps clarify why the characteristic of being pre-agreed is what primarily distinguishes liquidated damages from other forms of damages.