In what situation might a court dismiss liquidated damages?

Liquidated damages refer to a predetermined amount of money that parties agree upon in a contract to be paid if one of them breaches the contract. If a court considers liquidated damages to be excessive or unreasonable compared to the actual harm suffered due to the breach, it might dismiss them. The rationale behind this is to ensure that the penalty serves to compensate for the actual loss rather than act as a punitive measure, which is not allowed in contract law.

In cases where the liquidated damages amount is considered disproportionate to the damages that could realistically be expected from a breach, the court may find it unenforceable. This protects parties from being subjected to harsh penalties that do not correlate with the actual damages they would suffer.

The other options pertain to aspects of liquidated damages but do not justify a court's dismissal of them. For instance, if the liquidated damages are a genuine pre-estimate of loss, derived from reasonable projections, they are more likely to be upheld. Similarly, if they are explicitly stated in the contract and agreed upon by both parties, it strengthens their enforceability. Therefore, the key factor for dismissal effectively lies in whether the amount aligns with what is reasonable and reflective of actual damages rather than being punitive in nature.