Question

Kenneth enters a contract to sell his home to Valerie, who puts down a $5,000 earnest money deposit. At the last minute, Valerie backs out of the deal. Kenneth keeps the earnest deposit. This is an example of ______.

Answer 1

Answer:

accepting liquidated damages

Explanation:

Liquidated damages are a sum of money (agreed and written in a contract) specified as the total amount of compensation that an injured party must receive, if the other party breaches certain parts of the contract. The contract also establishes what actions or omissions constitute a violation. For the agreement to be legally enforceable, the nature of the contract must be such that it is difficult to determine the actual damages, and the amount of the damages must be reasonable under the circumstances. Otherwise, the law may consider the amount specified as a fine (included in the contract primarily to force its correct compliance) and not as compensation for damages.