Renew Turf, Inc., enters into a contract with Sports Park to provide surface material for Sports Park's baseball fields by October 1 for a series to begin October 5. The contract specifies an amount to be paid if the contract is breached. This is a liquidated damages clause if the amount is
A) meant to pay for additional liquid sealant in the event of damage.
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

Renew Turf, Inc., enters into a contract with Sports Park to provide surface material for Sports Park's baseball fields by October 1 for a series to begin October 5. The contract specifies an amount to be paid if the contract is breached. This is a liquidated damages clause if the amount is
A) ​meant to pay for additional liquid sealant in the event of damage.
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.

Quizplus · Accepted Answer

A liquidated damages clause is enforceable if the amount is a reasonable estimate of the loss on a breach. It is not designed to penalize the breaching party or provide additional benefits to the non-breaching party, but rather to compensate the non-breaching party for the losses incurred due to the breach.