SealCoat Paving enters into a contract with Royal Golf & Tennis Club to provide surface material for Royal'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)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

Quizplus · Accepted Answer

A liquidated damages clause is meant to provide an estimate of the actual damages suffered by the nonbreaching party in the event of a breach. It is not intended to punish or penalize the breaching party, but rather to provide a reasonable remedy for the nonbreaching party. Therefore, option B, which states that the amount specified is a reasonable estimate of the loss on a breach, is the correct choice.

SealCoat Paving Enters into a Contract with Royal Golf