Metro Holdings Inc. contracts to sell a commercial parking garage to New Property LLC. The contract provides that if Metro does not close the deal by a certain date, it must pay the buyer one-half of the value of the property. This provision is not enforceable if it is
A)meant to pay for additional work in the event of damage.
B)a reasonable estimate of the loss on the breach.
C)designed to penalize Metro.
D)intended to quickly provide cash to New Property.

Question

Quizplus · Accepted Answer

This provision is considered a penalty clause, which is generally not enforceable in contracts. Penalty clauses are meant to punish the breaching party rather than to compensate the non-breaching party for losses incurred due to the breach.