penalty clauses

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Related to Penalty clause: Liquidated damages clause

penalty clauses

clauses that impose a liability more extensive than general damages. They are contrary to public policy and accordingly unenforceable. However, the courts will allow parties to agree the amount of damages in advance by way of what is called a liquidate damages provision. These often look the same, and the result may be little different. It has been said that the factors in determining what is allowed and what is not are as follows:

(i) the difficulty of calculating the actual loss on breach;
(ii) the reasonableness of the stipulated sum;
(iii) a clause will be presumed penal if it makes the same sum payable for breaches of differing severity;
(iv) a clause will be penal if the principal obligation is to pay money and the stipulated sum is larger.

Collins Dictionary of Law © W.J. Stewart, 2006

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References in periodicals archive ?

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It was reported at end of February 2018 that Iran sought $1.2 billion in damages as per the penalty clause from January 1, 2015.

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"A penalty clause, being liquidated damages, is ancillary to a principal obligation.

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The second most important thing, regardless of whether you are or aren't dealing with a solid real estate agent and/or a solid law firm, is that when you get into such agreements, you should first make sure that both parties are subjected to a kind of penalty clause in case of not honoring the contract.