Liquidated Damages and Penalties

Question 1

What are Liquidated Damages

Answer 1

• Damages specified in contract to be paid if contract was breached and AVOID

Question 2

What are Penalties

Answer 2

• In MOST cases, penalties are unenforceable

Question 3

When are Penalties considered invalid?

Answer 3

• If amount is extravagant AND out of proportion

Question 4

What should be compensated instead if its a Penalty?

Answer 4

• Common LAW Damages

Question 5

What should be present for Common Law Doctrine to apply?

Answer 5

BREACH OF CONTRACT

Question 6

What should be present for EQUITABLE Doctrine to apply?

Answer 6

• Whether there has been performance or NON performance

Question 7

What is the 2 Stage Test to determine whether sth is a penalty or liquidated damage?

Answer 7

1. Does the Penalty doctrine apply?
   –> Payable on breach?
   –> Payable on occurence of an event that is NOT a contractual obligations?
   –> Fee for additional obligation or service
2. Is the clause a penalty?
   –> Amount extravagent and unconscionable and out out of all proportion

Question 8

Should a clause be determined a penalty or liquidated damage BEFORE or AFTER contract formation?

Answer 8

BEFORE

Question 9

What is a key case to determine whether something is a penalty?

Answer 9

• Dunlop