Henry and Xavier are merchants under the UCC and are determining what should be included in their liquidated damages clauses. Xavier wants to include punitive damages as part of their contract. What is the UCC rule regarding punitive damages?

A) That the nonbreaching seller may claim against a breaching buyer who is guilty of malice 20 percent of the purchase price or $500, whichever is less, as punitive damages.
B) That the nonbreaching seller may claim against a breaching buyer who is guilty of malice 20 percent of the purchase price or $500, whichever is more, as punitive damages.
C) That the nonbreaching seller may claim against a breaching buyer who is guilty of malice 30 percent of the purchase price or $1,000, whichever is less, as punitive damages.
D) That the nonbreaching seller may claim against a breaching buyer who is guilty of malice 30 percent of the purchase price or $1,000, whichever is more, as punitive damages.
E) The UCC does not address punitive damages, other than voiding liquidated damages that are punitive in nature.

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Aditya Pandey · Accepted Answer

Final Answer : E, Explanation :  The UCC generally does not allow for punitive damages in the context of commercial contracts. It focuses on compensatory damages to put the injured party in the position they would have been in had the contract been performed. Liquidated damages clauses that are punitive in nature are typically voided under the UCC because they do not aim to compensate the non-breaching party but rather to punish the breaching party.

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