General Finance Acceptance Limited v Melrose

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oooh, orphan Template:Underlinked Template:Infobox court case

General Finance Acceptance Limited v Melrose [1988] 1 NZLR 465 is an often cited case regarding whether a contract term for calculating damages in the future are what is called liquidated damages (i.e. is a genuine pre estimate of damages)[1], or is otherwise deemed a penalty clause, which the courts do not uphold as legally enforceable.

Background

General Finance Acceptance(GFA) leased a computer to Melrose on a 5 year term, with the leasing contract having the term that upon default, that Melrose would pay all the remaining lease payments less the cost of the computer at the date of cancellation, plus interest on top of al this at 32% per annum.

Melrose cancelled the contract early, and billed were billed by GFA for this default as per the default clause in the lease agreement, even though these damages were far higher than Melrose would of paid had the lease had gone the whole 5 year term, and they disputed liability for these damages.

Held

The court held that as the damages claimed by GFA were in excess of what they would have received from the lease had it gone the full 5 years, and ruled that the default clause was not liquidated damages, but instead were penal in nature, and accordingly GFA’s damages claim here was not legally enforceable.

References

  1. Chetwin, Graw, Tiong, An introduction to the Law of Contract in New Zealand, 4th edition, Brookers, ISBN 0-86472-555-8