What is a liquidated damages clause, and when is it enforceable or considered a penalty?

• A. A predetermined sum that is automatically enforceable in all breaches.
• B. A clause that sets a predetermined sum upon breach and is enforceable only if the forecast of actual damages is reasonable at contract formation.
• C. A penalty clause that is void regardless of damages.
• D. A court must approve any liquidated damages amount after breach.

Answer: (B)