Carl contracts to sell his house and lot to Winifred for $30,000.The terms of the contract call for Winifred to pay 5 percent of the purchase price as a deposit toward the purchase price, or a down payment.The terms further stipulate that should the buyer breach the contract, Carl will retain the money as damages.What type of damages does this agreement exemplify?

Question

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The agreement exemplifies liquidated damages, as it sets a specific amount (5% of the purchase price) to be paid as a down payment, which will be retained by Carl as damages if Winifred breaches the contract.

Carl Contracts to Sell His House and Lot to Winifred