Mikayla enters into a contract with Logan to provide surface material for Mikayla's tennis courts by April 1 for a tournament to begin May 1.The contract specifies an amount to be paid if the contract is breached.This is a liquidated damages clause if the amount is
A)an excessive estimate of the loss on a breach.
B)a reasonable estimate of the loss on a breach.
C)designed to penalize the breaching party.
D)intended to quickly provide cash to the nonbreaching party.

Question

Quizplus · Accepted Answer

A liquidated damages clause is a provision in a contract that specifies a predetermined amount of damages to be paid by the breaching party in the event of a breach. To be enforceable, the amount must be a reasonable estimate of the anticipated loss resulting from the breach, rather than an excessive penalty or designed to punish the breaching party. The purpose of the clause is to provide certainty and predictability for both parties, allowing them to assess the risks and benefits of the contract. Therefore, in this case, the amount specified in the liquidated damages clause should be a reasonable estimate of the loss that Mikayla would suffer if Logan breached the contract by failing to provide the surface material by the deadline.

Mikayla Enters into a Contract with Logan to Provide Surface