If a liquidated damages clause demands an unusually large sum that is not related to reasonably-anticipated actual damages,the clause will be held to be void as a(n):

Question

Quizplus · Accepted Answer

An unusually large sum that is not related to reasonably-anticipated actual damages is considered a penalty, and it is not enforceable. Liquidated damages clauses are intended to provide a fair estimate of the actual damages that one party is likely to suffer if the other breaches the contract. If the sum specified in the clause exceeds this estimate significantly, it is likely to be deemed a penalty, and the clause may be held to be void. Therefore, choice A is the correct answer. Choices B, C, and D are incorrect, as they do not accurately describe the situation described in the question.

If a Liquidated Damages Clause Demands an Unusually Large Sum