First-Year Law Students' Examination (FYLSX)

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A construction contract for a new office building contains a clause stating that the contractor will pay the owner $2,000 for each day the project is completed past the agreed-upon deadline. This amount was chosen because, at the time of contracting, forecasting the precise financial harm from a delay (such as lost rent and business opportunities) was difficult, and $2,000 was a reasonable estimate. This type of clause is best described as:

A punitive damages clause, which is generally unenforceable. A liquidated damages clause, which is likely enforceable. An exculpatory clause, which relieves the contractor of liability. An accord and satisfaction clause, which settles a disputed claim.

Correct Answer:

A liquidated damages clause, which is likely enforceable.

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