Also known as: as a penalty · by way of penalty
Written by attorneys · grounded in primary & secondary sources — see below
A Latin phrase denoting a monetary exaction imposed as punishment rather than as compensation or revenue. Courts refuse to enforce such an exaction when it exceeds a reasonable estimate of loss or functions primarily to deter conduct.
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Ridge Buildings signed a lease with Gold Buildings that required two years of rent upon early termination. After discovering interference with the HVAC system, Ridge terminated early. Gold Buildings demanded the full amount. The court treated the clause as in poenam because the fixed sum bore no reasonable relation to actual losses and served mainly to punish termination.
Ridge Buildings paid a 40 percent deposit to WindowCo for custom glass panels and later cancelled the order. WindowCo kept the entire deposit under the contract. The court held the retention clause in poenam because the amount exceeded any anticipated harm from cancellation and the goods were not shown to be difficult to resell.
A policyholder sued Pacific Mutual after a claim denial and obtained both compensatory and punitive damages. The insurer argued the punitive component operated in poenam. The Court upheld the award because the conduct also constituted an independent tort for which punitive damages are recoverable.
After a money judgment was affirmed on appeal, the appellee sought the 10 percent statutory add-on. Burlington Northern argued the add-on functioned in poenam. The Court examined whether the mandatory penalty conflicted with federal procedural rules governing appeals.
Indigent plaintiffs challenged a state requirement that they pay filing fees to obtain a divorce. The state defended the fee as ordinary revenue collection. The Court struck it down because the exaction operated in poenam by conditioning a fundamental right on payment that many could not afford.
Prevailing civil rights plaintiffs sought attorney fees calculated at their lawyers full hourly rates for all time spent. The defendants contended that any excess award would function in poenam. The Court limited recovery to hours reasonably expended on the litigation.
A clause becomes unenforceable when the fixed amount is unreasonable in light of anticipated or actual loss and the difficulties of proving loss. Courts examine whether the sum serves mainly to punish breach rather than to compensate the injured party.
Punitive damages are unavailable for breach of contract unless the breaching conduct also constitutes a tort for which punitive damages are independently recoverable.
…whether capital punishment may ever be imposed as a sanction for murder) rather than in the particular (the propriety of death as a penalty to be applied to a specific defendant for a specific crime) is under consideration, the inquiry into "excessiveness" has two aspects. First, the punishment must not involve the unnecessary…