Muldoon v. Lynch
Facts: The parties contracted to build a funeral monument. If the monument wasn’t completed in one year, the contract provided that the plaintiff would “forfeit” ten dollars per day until completion. The plaintiff didn’t complete the monument on time and the defendant didn’t pay. The plaintiff sued for the unpaid contract price and the defendant claimed a deduction for the delay.
Issue: Was the daily deduction clause a penalty?
Rule: Courts will not enforce a clause containing a penalty.
Analysis: The court finds that the defendant could not have suffered actual damages compensable by money. Furthermore, the parties used the word “forfeiture” in the contract and this term was considered equivalent to “penalty”.
Conclusion: The court ruled that the plaintiffs were entitled to the entire unpaid contract price with no deduction because the deduction clause constituted a penalty.
If the dispute had been over a total penalty of $100, it is unlikely the parties would have chosen to go to trial. However, I don’t think the ruling would have been different, because the court rules based on the plain language of the contract and not the total amount of the deduction.