What is the test for the purpose of an agreed liquidated damages clause in a contract?

Saskatchewan, Canada


The following excerpt is from Love and Love v. Robinson and Robinson, 1981 CanLII 2171 (SKDC):

The learned author concludes on the authority of Stockloser v. Johnson, [1954] 1 Q.B. 476, that: If there is no agreement, whether express or implied, that money paid shall not be returnable on default, then nothing in the nature of agreed liquidated damages exists in the contract and the defaulter is entitled, if the other party rescinds on the basis of the default and does not deep the contract open and available for performance, to recover the money he has paid over in part performance in an action for money had and received. . . . If, on the other hand, there is such an agreement that money paid shall not be returnable upon default, then the common law adheres to this expressed intention and will refuse any redress to the plaintiff payer. This is so whether the payments to he forfeited or the moneys deposited are or are not out of all proportion to the actual or probable loss accruing to the payee; in other words, whether they are in the nature of a penalty or of liquidated damages paid before the event. . . .

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