Which of the following holds true in case of liquidated damages?
A) For liquidated damages to be lawful, the actual damages must be precisely determined.
B) Liquidated damages are enforceable even if actual damages are later determined to be different.
C) A liquidated damages clause is considered a penalty if actual damages are not determinable in advance.
D) If a liquidated damages clause is found to be a penalty, it continues to be enforceable.

Question

Quizplus · Accepted Answer

Liquidated damages are predetermined damages that are specified in a contract to be paid by the party that breaches the contract. The purpose of liquidated damages is to provide an estimate of the actual damages that may be caused by a breach of the contract. If actual damages are later determined to be different, the liquidated damages are still enforceable as long as they were reasonable at the time the contract was made. Option A is not true as the actual damages need not be precisely determined for liquidated damages to be lawful. Option C is partially true; a liquidated damages clause will be deemed a penalty if it is disproportionate to the actual damages that are likely to occur, but it is not dependent on the ability to determine actual damages in advance. Option D is false; if a liquidated damages clause is found to be a penalty, it is unenforceable.

Which of the Following Holds True in Case of Liquidated