A liquidated damages provision will be validated if it is considered to be a penalty.

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A liquidated damages provision will not be validated if it is considered to be a penalty. Courts will only enforce a liquidated damages provision if it is a reasonable estimate of actual damages that would occur in the event of a breach of contract, and not a punishment for breaching the contract. A penalty provision is unenforceable as it is against public policy.

A Liquidated Damages Provision Will Be Validated If It Is