Legal Question in Business Law in California

California law, like common law, abhors a penalty. If a clause in a contract can be construed as a penalty, it is not enforced by the courts. Liquidated damages provisions, on the other hand, are enforced to the extent that the courts find that it is an adequate and appropriate estimation of a party's damages in the event of a breach.

I think you can sue, and most attorneys would advise you to sue in small claims court. Be advised, however, that you give up some rights by selecting such a forum, such as the right to appeal if you do not agree with the decision.

So, is the $800 a "penalty" or a reasonable estimate of the dance hall's damages? I think before filing suit, I'd try to find out if they have been sued or even confronted on the $800 deposit forfeiture issue and with what results. Is the place heavily booked seven months in advance? It might be, and if so, the forfeiture might be a reasonable estimate of damages and therefore pass muster in court. What would the total fee have been, in addition to the $800? If we're looking at maybe an $8,000 bill and the place tends to sell out months in advance, the $800 deposit forfeiture looks like a realistic estimate of damages. If, on the other hand, the hall seldom sells out or only sells out a few weeks in advance, and/or your total rental might have been more in the $2,000 area, suit seems to be more in order and likely to win.