Mike contracted to buy Rita's house in a written contract that provided for a deposit of $10 000 to be forfeited in the event of Mike's failing to go through with the deal.This deposit was an honest estimate of the damages Rita would suffer.On these facts,which of the following is true?
A)If the contract price agreed upon was $150 000 and Rita,after Mike breaches the contract,sells the house in one week for $138 000,she will still be able to recoup all her losses.
B)If Mike breaches the contract,he would not have to pay $10 000 even if Rita suffered a substantial loss.
C)If Mike breaches the contract,he will have to pay Rita all damages that directly and naturally flow from the breach.
D)If Mike breaches the contract,he would have to pay $10 000 even if Rita's actual loss was $40 000.
E)A clause in a contract that provides for the forfeiture of a deposit is called an exemption clause.

Question

Quizplus · Accepted Answer

The deposit of $10,000 acts as liquidated damages, an agreed-upon sum to be paid in case of breach. This means Mike would owe Rita $10,000 regardless of her actual losses.

Mike Contracted to Buy Rita's House in a Written Contract