Penal damages
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Penal damages are
liquidated damages Liquidated damages, also referred to as liquidated and ascertained damages (LADs), are damages whose amount the parties designate during the formation of a contract for the injured party to collect as compensation upon a specific breach (e.g., lat ...
which exceed reasonable compensatory damages, making them invalid under
common law Common law (also known as judicial precedent, judge-made law, or case law) is the body of law primarily developed through judicial decisions rather than statutes. Although common law may incorporate certain statutes, it is largely based on prece ...
. While liquidated damage clauses set a pre-agreed value on the expected loss to one party if the other party were to breach the contract, penal damages go further and seek to penalise the breaching party beyond the reasonable losses from the breach. Many clauses which are found to be penal (i.e. "penalty clauses") are expressed as liquidated damages clauses but have been seen by courts as excessive and thus invalid. The judicial approach to penal damages is conceptually important as it is one of the few examples of judicial paternalism in contract law. Even if two parties genuinely and without coercion wish to consent to a contract which includes a penal clause, they are unable to. In the
United States The United States of America (USA), also known as the United States (U.S.) or America, is a country primarily located in North America. It is a federal republic of 50 U.S. state, states and a federal capital district, Washington, D.C. The 48 ...
, a 1947
legal case Legal proceeding is an activity that seeks to invoke the power of a tribunal in order to enforce a law. Although the term may be defined more broadly or more narrowly as circumstances require, it has been noted that " e term ''legal proceedings'' ...
relating to the contracted supply of dried eggs to the Federal Surplus Commodities Corporation to be supplied as aid to
Russia Russia, or the Russian Federation, is a country spanning Eastern Europe and North Asia. It is the list of countries and dependencies by area, largest country in the world, and extends across Time in Russia, eleven time zones, sharing Borders ...
in 1942 (Priebe & Sons, Inc. v. United States) held that a provision in the contract for liquidated damages to be paid for late inspection and certification of the product constituted an unenforceable penalty clause.
US Supreme Court The Supreme Court of the United States (SCOTUS) is the highest court in the federal judiciary of the United States. It has ultimate appellate jurisdiction over all Federal tribunals in the United States, U.S. federal court cases, and over Stat ...

Priebe & Sons., Inc. v. United States, 332 U.S. 407 (1947)
decided 17 November 1947, accessed 6 April 2023
A wholesale review of the English law rule against penalty clauses (as opposed to penal damages) was conducted by the UK Supreme Court in the 2015 judgment in '' Cavendish Square Holding BV v Talal El Makdessi''., a case joined with ''ParkingEye Ltd v Beavis'' for the purposes of the Supreme Court judgment.


As distinguished from other types of damages

Penal damages are to be distinguished from
punitive damages Punitive damages, or exemplary damages, are damages assessed in order to punish the defendant for outrageous conduct and/or to reform or deter the defendant and others from engaging in conduct similar to that which formed the basis of the lawsuit. ...
, which are awarded in certain types of
tort A tort is a civil wrong, other than breach of contract, that causes a claimant to suffer loss or harm, resulting in legal liability for the person who commits the tortious act. Tort law can be contrasted with criminal law, which deals with cri ...
actions for actions which caused harm to the plaintiff. Penal damages are also different from treble damages, which are generally set by
statute A statute is a law or formal written enactment of a legislature. Statutes typically declare, command or prohibit something. Statutes are distinguished from court law and unwritten law (also known as common law) in that they are the expressed wil ...
for certain violations of
competition law Competition law is the field of law that promotes or seeks to maintain market competition by regulating anti-competitive conduct by companies. Competition law is implemented through public and private enforcement. It is also known as antitrust ...
and related laws.


See also

* Penalties in English law


References

Contract law {{contract-law-stub