What is the difference between a true penalty and a forfeiture clause in a contract?
Alberta, Canada
The following excerpt is from Coronado Developments Ltd. v. W.E.D. Developments Ltd., 1982 CanLII 1255 (AB QB):
A true penalty clause would be one where the vendor seeks to exact an extravagant payment from the party who defaults on a contract, while under a forfeiture clause the vendor would retain money given to him in partial payment. Nonetheless, courts of equity have been willing to classify such forfeiture clauses as being the nature of penalties; Drinkle v. Steedman, supra.
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