Abstract

The opinion written in 1985 by Judge Richard Posner in Lake River Corp. v. Carborundum Co. is both well-known and controversial. Lake River concerns liquidated damages and penalties. The purpose of this article is to examine the case from the point of view of the Civil Law; that is, of the Continental legal system. E. Allan Farnsworth has written that the Continental legal system is not hostile towards penalties. I take issue with this statement. This paper identifies the Continental legal system's rules in relation to penalties, and then applies those rules to the Lake River case, and, because a very similar result would obtain as the one in the 7th Circuit case, the attitude of the Continental law towards penalties is shown to be similar to that of American law: penalty clauses are permissible if they are not penal.