Paralegal Exam Prep

Category - Contracts

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Under common law, liquidated damages are enforceable as long as they:

Are not punitive.
Are only nominal.
Are the same as incidental damages.
Are statutory.
Are also available under the UCC.

Explanation

Answer: A. Under common law, liquidated damages are enforceable as long as they are not punitive. Liquidated damages are meant to compensate the non-breaching party. Even where it was agreed upon by the contracting parties, a liquidated damages clause that was meant to punish the breaching party and has no relationship to the loss the non-breaching party suffered will not be enforced.

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