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

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A liquidated damages provision will be invalidated if it is deemed to be a penalty rather than a reasonable estimate of actual damages that may arise from a breach of contract. The court will scrutinize the provision to determine whether it is a true pre-estimate of damages or an excessive amount designed to act as a deterrent to breach of contract. If it's determined to be excessive and unreasonable, it will be struck down as a penalty.

A Liquidated Damages Provision Will Be Invalidated If It Is