Contracts, 12% of the examination
Liquidated damages
A contract clause fixing in advance the amount recoverable on breach.
For a buyer's default under a contract to purchase a one-to-four unit dwelling that the buyer intends to occupy, an amount actually paid under a compliant liquidated-damages provision is generally valid up to 3% of the purchase price unless the buyer proves it unreasonable. An amount above 3% is invalid unless the party seeking to retain it proves reasonableness. In a printed contract, the provision must appear in at least 10-point bold type or contrasting red print in at least 8-point bold type, and it must be separately signed or initialed by each party.
Test the distinction
A relevant question from Contracts, selected because its facts or explanation use this concept.
A buyer intends to occupy a one-to-four unit home. What does California's 3% liquidated-damages rule provide?
Written to DRE's published topic list. Not a real examination question, since reproducing those is a misdemeanor under B&P Code section 123.
Primary sources
Use these authorities when a course summary, forum answer, or older flashcard conflicts with the current California rule.