Judicial Oversight of Remedy Stipulation

AuthorJamie Cassels
Pages520-539
520
CHAPTER 14
JUDICIAL OVERSIGHT OF
REMEDY STIPULATION
A. INTRODUCTION
1) Remedy Stipulation and Liquidated Damages
It is not uncommon, in both tort and contract cases, to f‌ind that the
parties have sought in advance to specify an amount of damages for
breach of duty. Exclusion clauses and limitation clauses contained in
written agreements and in posted notices frequently seek to limit both
liability and the amount of damages that may be claimed for tort or
breach of contract. These clauses are inserted for the benef‌it of the
breaching party. Conversely, contracts sometimes contain “liquidated
damages” provisions th at specify a f‌ixed amount of damages for breach
and are generally included for the benef‌it of the plaintif f. Other clauses,
such as “acceleration clauses” and clauses providing for forfeitures of
deposits, also serve to stipulate the remedy. The essential question in
any case is whether or not the courts will enforce the stipulated rem-
edy at the suit of the plaintiff upon breach. Exclusion clauses are con-
trolled by the substantive law of contract rega rding notice of terms and
unconscionability. As such, they will not be dealt with here. Instead,
this chapter is concerned with stipulated damages provisions, gener-
ally called “liquidated damages.”
Judicial Over sight of Remedy Stipulation521
2) The Advantages and Disadvantages of Stipulated
Damages
There are many advantages to permitting parties to stipulate the dam-
ages upon breach of contract. In situations where damages will be dif-
f‌icult to prove, they provide a form of insurance to the parties that in
the event of breach their losses w ill be fully recompensed. They reduce
“judicial risk,” reduce the diff‌iculty and cost of proving damages, and
achieve savings for both the parties and the judicial system. The prin-
ciple of freedom of contract weighs in favour of permitting a w ide scope
for liquidated damages clauses. The parties know best what is at stake
in the transaction and how to arrange their affairs. Each enters into
the agreement with her eyes open, knowing what the consequence of
breach will be.
Despite these arguments in favour of stipulated damages, there
are competing principles at play, including the law’s desire to protect
weaker parties a nd its dislike of pena lties and punitive dam ages. These
considerations suggest that courts should police stipulated damages
clauses carefully. Stipulated damages provisions will often appear to
be punitive or coercive. The law of contract rarely permits punitive
damages or specif‌ic performance, and the question is whether the par-
ties should be permitted to agree between themselves to a result that a
court would not consider appropriate. Moreover, such clauses may be
an indication of overbearing by one party and thus raise the issue of
unconscionability.
B. LIQUIDATED DAMAGES AND PENALTIES
1) Basic Concepts
The most common way of stipulating a remedy is to include in a con-
tract a clause requiring that a f‌ixed sum be payable for breach. Histor-
ically, such provisions, aimed at securing performance of a contract,
took the form of penal bonds and penal clauses.1 Penal bonds were
instruments under which one party promised to pay the other a sum
of money. The bond would be void only if the promisee performed a cer-
tain act. Penal clause s were included in the contractual instru ment itself.
Courts of equity, however, provided relief against bonds and forfeitures,
1 SM Waddam s, The Law of Damages, 2d ed, loose-leaf (Aurora, ON: Can ada Law
Book, 1991–) at para 8.40.

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