WOM 4 / Word of the moment 4: Vertragsstrafe

Liquidated damages are a sum fixed in advance by the parties to a contract as the amount to be paid in the event of a breach. They are recoverable provided that the sum fixed was a fair pre-estimate of the likely consequences of a breach, but not if they were imposed as a penalty. (Oxford Law Dictionary)

The German equivalent is Vertragsstrafe. We sometimes hesitate to translate Vertragsstrafe into English as contractual penalty, because the word penalty is used to refer to the kind of agreed damages that are extortionate. But liquidated damages is not a term easily understood.

On liquidated damages and penalties, there is an article at Consilio.

But Cheshire, Fifoot & Furmston (1996 edition) says that the term used does not matter so much as the intention of the parties:

The fact that the parties may have used the expression ‘penalty’ or ‘liquidated damages’ does not conclude the matter, and the court must still decide whether the sum fixed is a genuine forecast of the probable loss.

I see Furmston was at Brizzle.