A commercial buyer in Tempe seeks to enforce a purchase contract, but the seller claims the liquidated damages clause is unenforceable. Under Arizona law, what makes a liquidated damages clause unenforceable?
Correct Answer
B) The clause operates as a penalty rather than reasonable compensation
Arizona law makes liquidated damages clauses unenforceable if they operate as penalties rather than reasonable compensation for actual anticipated damages. Option A is incorrect because Arizona doesn't set specific percentage limits. Option C is incorrect because the remedy sought doesn't affect clause enforceability. Option D is incorrect because liquidated damages clauses apply to both commercial and residential contracts.
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Related Topics & Key Terms
Key Terms:
Related Concepts
Novation is the substitution of a new contract for an existing one, or the replacement of one party with a new party, with the consent of all parties involved. The original party is completely released from all obligations.
Offer and acceptance is the process by which one party proposes specific terms for a contract and the other party agrees to those exact terms, creating mutual assent. This mutual agreement, also called a meeting of the minds, is an essential element of every valid contract.
An option contract gives one party the exclusive right, but not the obligation, to purchase or lease a property at a specified price within a specified time period. The buyer pays option consideration to keep the option open.
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