Can one be liable to pay an agreed sum if they break a promise?

Question

Bob wants Alice to share a computer file with him. This could be a photo, a video/audio recording etc. — anything that only Alice has and that Bob craves a copy of. The copyright ownership shouldn't necessarily be a factor (other than it is not Bob's).

Alice says: okay, I'll share the file with you, but you must not share it with anyone and not upload anywhere. If you break this promise, you'll pay me $1m.

Bob says okay, deal. But later he flaunts the file on the Internet and openly admits breaking the promise.

Can Alice get a court order that Bob pays her $1m?

Note that Alice may not necessarily have suffered any quantifiable damages — the file could be just her discreet but private photo which she just didn't want to publish. Alternatively, she could have: the file could be her forthcoming music album, a movie script, a book to be published etc.

Answer 1

Assuming there is a contract (and it is not clear that there is), this is a purported liquidated damages clause. Alice is trying to dictate what Bob will owe her if he breaches his promise to not share the file.

However, there are limits on what can be stipulated in a liquidated damages clause.

Super Save Disposal Inc. v. Blazin Auto Ltd., 2011 BCSC 1784:

The enforceability of a liquidated damages provision in an agreement engages two competing objectives: freedom of contract versus the right of the courts to intervene in a given case to relieve against an oppressive or unconscionable result flowing from enforcement of the liquidated damages term. It is well settled that the enforceability of such a term turns on whether it is a genuine pre-estimate of the expected loss that a party will sustain in the event of a breach of contract or a penalty clause so oppressive or unreasonable that equitable intervention is justified to prevent an injustice.

Judicial interference with a liquidated damages provision will be justified if enforcement of the term results in payment of a sum which is extravagant and unconscionable in comparison with the greatest loss that could conceivably be proved to have followed from the breach

Oppressive liquidated damages clauses work against a person's freedom to breach and the possibility of efficient breach.

Perhaps if the file were a trade secret like the Coke recipe, the $1,000,000 might be a genuine pre-breach estimate, but without much more information about the nature of the file, I predict a court would find the $1,000,000 to be extravagant and unconscionable in comparison to the greatest loss that could conceivably be proved to have followed from the breach.

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What follows is less researched.

If it is not a contract then I think it is at best a licence, which would make Bob's agreement to pay $1,000,000 a free-standing unenforceable promise.

I also agree with Matthew's position on the possibility (and limitations of) a claim in promissory estoppel, especially in jurisdictions following Waltons Stores or similar reasoning.

Answer 2

france

It depends, but probably not; it seems "clearly too high"

Let us assume that Bob and Alice entered a contract along the lines of:

1. Bob will not [do the thing]
2. If Bob [does the thing], Bob will pay Alice $1 million

Note that unlike in a common-law jurisdiction, there is no need for reciprocal consideration, so that contract (which is all negatives for Bob) is legal.

Let us ignore possible liability towards third parties due to copyright or other concerns. If Bob does the thing, then refuses to pay, Alice will rely on Code civil, 1231-5:

Lorsque le contrat stipule que celui qui manquera de l'exécuter paiera une certaine somme à titre de dommages et intérêts, il ne peut être alloué à l'autre partie une somme plus forte ni moindre.

Néanmoins, le juge peut, même d'office, modérer ou augmenter la pénalité ainsi convenue si elle est manifestement excessive ou dérisoire.

Lorsque l'engagement a été exécuté en partie, la pénalité convenue peut être diminuée par le juge, même d'office, à proportion de l'intérêt que l'exécution partielle a procuré au créancier, sans préjudice de l'application de l'alinéa précédent.

Toute stipulation contraire aux deux alinéas précédents est réputée non écrite.

When the contract says that whoever fails to execute one of his or her commitments will pay a certain sum of money to the other party as damages, the other party cannot be granted a higher or lower sum.

However, the judge can, even on his or her own, decrease or increase the penalty so agreed if it is clearly too high or low.

When the commitment has been partially accomplished, the agreed penalty can be decreased by the judge, even on his or her own, in proportion of the interest that the other party received from partial execution, without prejudice of the previous paragraph.

Any clause contradicting any of the previous two paragraphs is void.

I highly recommend this commentary (if you can read French) for more information about the jurisprudence surrounding that article and the clause pénale concept in general. A rough summary:

• §1 establishes the general principle that the freely-contracting parties can put on price on a breach that can differ from the prejudice caused by a breach (whether actual, ex post, or reasonably-foreseeable, ex ante). The point of such penalty clauses (generally disallowed in common-law jurisdictions) is to incentivize performance of the contract.
• §2 does limit that principle for exceedingly unreasonable estimates. While the judge can modify the amount, it must be based on other motives than the ones rejected above; for instance the amount must be much higher/lower than typical for similar contracts;
• if the penalty is found to be too high or too low, it must not be changed beyond the actual (ex post) prejudice (assuming such prejudice can be reasonably quantified by the judge). That is, if the prejudice is $100 and the clause amount was "clearly too high" at $1000, the amount can be reduced to $500, $200 or $100, but not $50. Conversely, if the prejudice is $100 and the clause "clearly too low" at $10, the judge can bring it to $20, $50 or $100, but not $1000.
• additional damages can be claimed. For instance, suppose Bob promises to knit a sweater and give it to Alice next time she visits him, under penalty of $X. The first time Alice comes, Bob says he does not have the sweater, and tells her to come back later. Rinse and repeat: Alice repeatedly comes to Bob’s house asking for the sweater without getting it, before she eventually sues. At court, Alice can claim the $X amount, plus her travel costs to Bob’s house beyond the first visit (if she did those travels only in an attempt to get her sweater).

I will add that although §2 allows the judge to change the penalty amount even if no party asked for it, I would expect this to be a very rare occurrence.

Bob will likely argue that a $1 million penalty is "clearly too high" (manifestement excessive). If Bob shared a picture of Alice’s cat, I expect he would prevail, and the judge would operate a large reduction in the penalty. Other fact patterns may warrant otherwise, for instance

• if Bob is a millionaire and he shares an intimate picture of actress Alice, $1m could be a somewhat-reasonable amount and therefore would likely be sustained by the judge
• if Bob had undertaken to not set fire to Alice’s home under a penalty of $1, Alice (as unwise as she was to accept the contract in the first place) could successfully argue that $1 is manifestement dérisoire and she should recover more.

Answer 3

In addition to the liquidated damages already mentioned, Alice could rely on the doctrine of promissory estoppel to enforce Bob's promise. This requires establishing the following facts:

1. Was there an intent to create legal relations between the parties?
2. Did the defendant (Bob) make a clear and unambiguous promise?
3. Did the plaintiff (Alice) act in reliance on the defendant's promise?
4. Was the plaintiff's reliance reasonable and foreseeable?
5. Did the plaintiff suffer an injury due to reliance on the defendant's promise?

These requirements were developed in Central London Property Trust v High Trees House [1947] KB 130 High Court, Ajayi V. Briscoe (1964) 1 WLR 1326, Alan Co. Ltd V El Nasr & Import Co. (1972) 2 QB 18, and Evenden V. Guildford City AFC (1975) QB 917

Addressing each requirement in turn:

1. There does not appear to be enough evidence to suggest there was any intention to create legal relations between Bob and Alice. A failure to establish this is fatal to Alice's claim, but I will go on to answer the other elements anyway.

2. Bob made a clear and unambiguous promise not to share the file with anyone or upload it anywhere.

3. Alice acted in reliance of Bob's promise, by then sharing the file with him. She would not have shared the file if he had not made the promise.

4. Alice's reliance on the promise was reasonable and foreseeable by the nature of the promise made to her.

5. The nature of the injury Alice has suffered will depend on what, exactly, the file is. This will also affect the nature of the remedy given by the court and/or the amount of damages awarded to Alice.

The general principle is that promissory estoppel will be used to enact the minimum amount of justice required to remedy the situation. So, it is unlikely she would get $1 million in damages unless she can prove that she really has suffered damage to that amount. She might instead get a worldwide permanent mandatory injunction allowing her to get hosting providers to take the file down, as well as some smaller amount of damages from Bob directly. This is because even though she wants damages, the court is entitled to substitute an appropriate remedy in equity that does justice to her situation.

However, since there is insufficient evidence that there was any intent to create legal relations between Bob and Alice, her claim for promissory estoppel would likely fail.