Contracts
An Oregon purchase contract specifies that the earnest money will be retained by the seller as liquidated damages if the buyer defaults. Liquidated damages clauses are enforceable in Oregon when:
AThe seller files a lawsuit for specific performance
BThe damages would be difficult to estimate at the time of contracting and the amount is a reasonable estimate of anticipated harm✓ Correct
CThe earnest money exceeds 10% of the purchase price
DOnly when the buyer has misrepresented their financing ability
Explanation
Liquidated damages clauses are enforceable in Oregon when the amount represents a reasonable pre-estimate of actual damages that would be difficult to quantify precisely, and not a penalty. Courts may invalidate liquidated damages clauses that function as punitive penalties.
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