Tuesday, October 23, 2012

Contract Breach Penalty Unenforceable

Liquidated damage provisions in a contract may be enforceable if actual damages as a result of a breach would be difficult to calculate and if the amount is an attempt to approximate losses rather than acting as a penalty.  Students sometimes have difficulty with this concept.  There is somewhat of a popular cultural belief that one who breaches a contract is punished by the law. But the law is more concerned with compensating the non-breaching party than in punishing the breaching party.  Strategical breach may not be encouraged, but is certainly allowed. Sometimes to get students past the legal folklore I use an extreme example.  Imagine a contract with the following provision:

In the event of breach, the breaching party must fight Klondor in a stone circle death match.

Is it enforceable?


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