Multistate Bar Examination Practice Question
A homeowner and a builder entered into a written contract for the construction of a new house, with a completion date of October 1. The contract included a clause stating that for each day the house was not complete after October 1, the builder would pay the homeowner $1,000. At the time of contracting, it was difficult to estimate the precise damages the homeowner might suffer from a delay, but both parties believed $1,000 per day was a reasonable estimate, considering potential costs for temporary housing, storage, and other inconveniences. The builder completed the house on October 31, a 30-day delay. The homeowner's actual damages due to the delay amounted to approximately $950 per day. The homeowner has sued the builder to enforce the daily damages clause.
How is a court most likely to rule on the liquidated damages clause?
The clause is unenforceable because the liquidated amount of $1,000 per day is not identical to the actual damages of $950 per day.
The clause is unenforceable because its primary purpose was to penalize the builder for being late.
The clause is enforceable because the amount is a reasonable forecast of the harm caused by the breach.
The clause is enforceable only up to the actual damages of $950 per day, with the remaining $50 per day being an unenforceable penalty.