freedom of contract

Stewart, the owner of ABC Construction, agreed with Joan, the owner of XYZ Hotel, that he would complete renovations on her upscale hotel on the beach in Florida by October 1. The amount due to Stewart under the contract was $250,000. The contract contained a clause by which Stewart would pay Joan $50,000 for each day he was late on completing the project. Unfortunately, an unexpected earthquake shook the area, and while the earthquake did not damage the hotel itself, Stewart encountered significant difficulty in getting supplies due to the high demand for building material following the earthquake. Because he believed that traveling himself to other states to obtain supplies would be prohibitively expensive, he delayed the project for two weeks while waiting for local stores to have sufficient supplies available. Stewart finished renovations six days late. Joan told Stewart that she owed him nothing but that he owed her $50,000. Stewart told Joan that he was suing for the entire $250,000 because it was not his fault the earthquake delayed matters. Assuming the earthquake does not affect Stewart’s liability for damages, which of the following is true regarding the provision that he will pay $50,000 for each day he is late?

It will be upheld based on freedom of contract.
It will be upheld because the penalty per day is less than one half of the amount due for the job.
It will be upheld as a stipulated amount.
It will be struck because parties are prohibited as a matter of law from specifying damages.
It will be struck as a penalty.