Drew contracts to sell a house to Evan.The contract provides that if Drew does not close the deal by February 10,he must pay Evan one-half of the contract price.This provision is not enforceable because it is
A)a liquidated damages clause.
B)a material breach.
C)a mitigation of damages.
D)a penalty clause.

Question

Quizplus · Accepted Answer

The provision is not enforceable because it is a penalty clause. Penalty clauses, unlike liquidated damages clauses, are not intended to compensate for actual damages but rather to punish the breaching party. In this case, the provision requiring Drew to pay one-half of the contract price if he does not close the deal by a certain date is a penalty and not a good-faith estimate of actual damages that might result from a delay.

Drew Contracts to Sell a House to Evan