Metro Facilities,Inc.,contracts to sell a parking garage to Nouveau Property Company.The contract provides that if Metro does not close the deal by September 15,it must pay Nouveau one-half of the contract price.This provision is not enforceable because it is
A)a liquidated damages clause.
B)a waiver of breach clause.
C)a limitation-of-liability clause.
D)a penalty clause.

Question

Quizplus · Accepted Answer

The provision that requires Metro Facilities to pay Nouveau Property Company one-half of the contract price if they fail to close the deal by September 15 is a penalty clause. A penalty clause is an unenforceable provision in a contract that requires one party to pay an excessive amount of damages for a breach of contract. Here, the amount of damages required is disproportionate to the loss that would be suffered by Nouveau if the contract was not closed by September 15.