• Built-In Contract Remedies: Avoiding the Unenforceable Penalty
  • July 4, 2017 | Author: Giselle Roohparvar
  • Law Firm: Miller Starr Regalia A Professional Law Corporation - San Francisco Office
  • Under California law, a provision of a contract found to impose a penalty is unenforceable as a forfeiture and contrary to public policy.<sup>1</sup> The characteristic feature of a penalty is the lack of proportional relation between the forfeiture compelled<sup>2</sup> and the damages or harm that might actually flow from the failure to perform under a contract.<sup>3</sup> Whether a contractual provision is an unenforceable penalty is a question of law subject to judicial determination.<sup>4</sup> When parties are not careful, they risk having a bargained-for condition in their contract struck down as an unenforceable penalty.