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Liquidated Damages and Punitive Damages

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Carnack contracts to sell his house and lot to Willard for $100,000. The terms of the contract call for Willard to pay 10% of the purchase price as a deposit toward the purchase price as a down payment. The terms further stipulate that should the buyer breach the contract, Carnack will retain the deposit as liquidated damages. Willard pays the deposit, but because her expected financing of the $90,000 balance falls through, she breaches the contract. Two weeks later, Carnack sells the house and lot to Balkova for $105,000. Willard demands her $10,000 back, but Carnack refuses, claiming that Willard's breach and the contract terms entitle him to keep the deposit. Discuss who is correct.

Justify your answer using information from your Reading and be sure to:

Discuss the elements of liquidated damages.
Analyze what distinguishes liquidated damages from punitive damages and discuss whether or not the penalty be assessed in the above case.
Suppose Carnack was able to determine at the time the Contract was signed the amount and type of his damages. Would your answer change?

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Solution Summary

This solution provides a review of liquidated damages and punitive damages for a breach of contract.

See Also This Related BrainMass Solution

What remedies are available to the nonbreaching party?

What remedies are available to the nonbreaching party?

It is important you understand the differences in the various types of damages. In Hadley v. Baxendale (1854), liquidated damages versus penalties, specific performance, mitigation of damages, compensatory damages and or punitive damages.

What are the difference between these or under what circumstances will they be awarded? Use examples to illustrate your points.

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