Penal damages are best seen as quantitatively excessive liquidated damages and are invalid under the common law. While liquidated damages are a priori calculations of expectation loss under the contract, penal damages go further and seek to penalise a party in some way for breach of a clause above and beyond the loss suffered by the innocent party as a result of this breach. Many clauses which are found to be penal are expressed as liquidated damages clauses but are 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. So, for example, a person wishing to give up smoking cannot contract with a third party to be fined $100 each time they smoke as this figure does not represent the expectation loss of the contract.
Read more about Penal Damages: As Distinguished From Other Types of Damages
Famous quotes containing the words penal and/or damages:
“Him the Almighty Power
Hurld headlong flaming from th’ Ethereal Skie
With hideous ruine and combustion down
To bottomless perdition, there to dwell
In Adamantine Chains and penal Fire,
Who durst defie th’ Omnipotent to Arms.
Nine times the Space that measures Day and Night
To mortal men, he with his horrid crew
Lay vanquisht, rowling in the fiery Gulfe”
—John Milton (1608–1674)
“According to the law of nature it is only fair that no one should become richer through damages and injuries suffered by another.”
—Marcus Tullius Cicero (106–43 B.C.)