Penalty Clause
Category: Legal
Definition (plain English)
A clause that imposes a consequence for breach, which may be treated differently from liquidated damages depending on the governing law.
Why it matters commercially
Penalty wording can be challenged or unenforceable in some jurisdictions, so buyers and sellers need legal review before relying on it for delivery, payment, or quality discipline.
Example
A distributor removed a broad penalty clause and replaced it with capped liquidated damages tied to late delivery of launch stock.
Common mistake
Using penalty and liquidated damages language interchangeably without checking governing law, proportionality, cap, and actual loss basis.
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