Courts enforce liquidated damages as a form of a penalty.

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Liquidated damages are not considered penalties because they are predetermined amounts agreed upon by parties in a contract to compensate for a specific breach of the contract. Penalties, on the other hand, are punitive measures to deter a party from breaching the contract. Courts only enforce liquidated damages if they are reasonable and do not exceed actual damages that may be hard to prove in court.

Courts Enforce Liquidated Damages as a Form of a Penalty