Ronny hires a car from Greens Transport with global positioning system (GPS)for his holiday in Las Vegas.The rent for the car was $175 a day and was hired for 7 days.The contract did not state anything regarding speed.At times Ronny drove at a high speed of which the GPS kept a record and Greens imposed damages worth $4000 for the wear and tear caused due to high speed.What kind of damage is this?

Question

Quizplus · Accepted Answer

In the above case,the fee for damages imposed for unreasonably high compared to the possible wear and tear caused due to the high speed.Hence,it is a Penalty.The prime purpose of a penalty under a contract is to prevent a breach of the contract by holding over the head of a contracting party the threat of punishment for a breach.A provision for liquidated damages,on the other hand,is designed to fix fair compensation to the injured party to the contract when it is breached.

Ronny Hires a Car from Greens Transport with Global Positioning