What is the exam-ready distinction?
| Official syllabus topic | Contracts: Breach, Damages, and Equitable Remedies |
|---|---|
| Official PSI area | Contracts |
| Published weight | 19% of the 100-question national portion |
| Source edition | PSI Georgia Candidate Information Bulletin dated July 1, 2026 |
The Rule
PSI publishes a weight for the complete official area, not a guaranteed count for this individual comparison. Use the source, document, actor, event, and timing stated in the question before applying a memorized definition.
Side-by-side comparison
Read across each row. The terms are deliberately compared on identical dimensions so the difference remains clear when the exam hides the vocabulary inside a scenario.
| Decision dimension | Liquidated damages | Specific performance |
|---|---|---|
| Remedy | Agreed monetary amount or formula for a covered breach | Court order requiring the promised performance |
| Why used | Actual damages were difficult to estimate when contracting | Money may be inadequate, often because land is unique |
| Validity limit | Must not operate as an unenforceable penalty | Equitable and discretionary, with contract and fairness defenses |
| Real estate clue | Earnest money retained under an enforceable remedy clause | Order to convey the identified parcel |
Decision rule
Georgia-specific distinction
Worked example
Scenario. A signed contract states that, after a covered buyer default, the seller may retain the earnest money as the seller's agreed exclusive remedy.
Reason it through. The clause specifies a money remedy and says it is exclusive. The facts do not request a court order compelling purchase.
Answer. The clause describes liquidated damages, subject to enforceability under the governing law.
Common exam traps
- Calling every forfeiture enforceable liquidated damages
- Assuming a seller always gets both remedies
- Treating specific performance as money damages
- Ignoring an exclusive-remedy or election clause
Original practice questions with detailed explanations
These are original instructional questions mapped to the July 1, 2026 PSI outline. They are not copied from PSI or any live examination. Choose an answer before opening the explanation.
Question 1A buyer refuses to close without any legal excuse. The contract lets the seller keep the $5,000 earnest money as the seller's sole remedy. What remedy does this clause describe?
- A. Specific performance
- B. Rescission
- C. Compensatory damages set by a court
- D. Liquidated damages
Show answer and explanation →
Answer: D. Liquidated damages
Liquidated damages are an agreed money remedy set in the contract to estimate loss, and keeping the earnest money as the sole remedy is the classic real estate example. The seller is not asking a court to force the purchase. Mistaking a kept deposit for specific performance is the common trap.
Question 2A seller backs out of a signed contract to sell a lakefront lot. The buyer wants the lot itself, not money. Which remedy should the buyer's attorney pursue?
- A. Liquidated damages
- B. Return of the earnest money
- C. Specific performance
- D. Novation
Show answer and explanation →
Answer: C. Specific performance
Specific performance is an equitable order compelling the promised act, and it is often available for real property because each parcel is unique. The buyer wants the lot conveyed, not a payment. Liquidated damages is wrong because it is a money remedy.
Question 3A contract sets liquidated damages at 50% of the purchase price if the buyer defaults. Why might a court refuse to enforce the clause?
- A. It looks like a penalty, not an estimate of loss
- B. Real estate contracts cannot set damages in advance
- C. The seller must first seek specific performance
- D. Only a court can set damages in any contract
Show answer and explanation →
Answer: A. It looks like a penalty, not an estimate of loss
A liquidated damages clause must be a reasonable estimate of loss and cannot operate as a penalty. Half the price looks far more like punishment than an estimate. Parties can agree to damages in advance, so the second choice overstates the rule.
Ready to move on?
You have this distinction down when all of these are true.
- Define every compared term without using the other term as the definition.
- Rebuild the comparison table from memory.
- State the decision rule and Georgia distinction without notes.
- Solve the worked example after changing one key fact.
- Explain the rule or fact that makes each distractor wrong.
- Answer all three original questions correctly in mixed practice on a later day.
Recommended next lesson
Continue with Option Contract Versus Right of First Refusal. Remedies apply once a contract is breached; Option Contract Versus Right of First Refusal looks at two purchase rights that differ on whether the holder can force a sale now or must wait for the owner to decide to sell.
Return to the complete exam-concept library or the Contracts hub.