Question

Laurens, Inc. contracted with GSP, LLC to widen a four-lane road to a six-lane road for ten miles. When Laurens, Inc. and GSP, LLC drafted the contract, the agreement contained a provision that if either party breached the contract, that party was liable to pay $10 million dollars to the nonbreaching party. This scenario is an example of _______.

Answer 1

Answer:

penalty clause

Explanation:

A penalty clause is a provision included in the contract that requires any breaching party to compensate the other party for any damages produced by the breaching of the contract.

In this case, the penalty provision establishes a $10 million payment if any of the parties breaches the contract. That payment must be done to compensate for any damages suffered by the non-breaching party.