Which statement best expresses the position taken by the courts with respect to contractual penalty clauses?

Question

Quizplus · Accepted Answer

Courts generally enforce a penalty clause if it is structured as a liquidated damages clause, meaning it is a reasonable estimation of damages that might result from a breach, and not punitive in nature. Liquidated damages clauses are enforceable because they provide a clear, predetermined measure of damages, whereas punitive penalty clauses are often not enforceable as they aim to punish rather than compensate for an actual loss.

Which Statement Best Expresses the Position Taken by the Courts