Which one of the following statements accurately describes the effect of a liquidated damages clause on a plaintiff's claim in a breach of contract action?
A) This clause conclusively determines the amount of damages that the court can award.
B) This clause requires the injured party to take all reasonable steps to mitigate (lessen) his losses.
C) Liquidated damages only apply to losses caused by excess water, such as floods or tidal waves.
D) The plaintiff will likely be awarded a judgment for all the damages that "naturally and directly flow" from the breach.
E) The court will likely award the amount set out in the clause if it considers that to be a genuine estimate by the parties of the likely consequences of the breach.

Question

Quizplus · Accepted Answer

A liquidated damages clause sets out a predetermined amount of damages that will be paid in the event of a breach of contract. If the amount set out in the clause is considered by the court to be a genuine estimate of the likely loss suffered by the plaintiff, then the court will likely award that amount. However, if the amount is seen as penal or excessive, the court may refuse to enforce it and instead award the actual damages suffered by the plaintiff. Thus, the clause does not conclusively determine the amount of damages that will be awarded, but rather provides a starting point for the court's analysis.

Which One of the Following Statements Accurately Describes the Effect