If the parties to a contract stipulate an amount that will be paid in the event of a breach, the courts will always enforce it.

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Courts will enforce a stipulated amount for damages in the event of a breach (often called liquidated damages) only if the amount is a reasonable estimate of the likely damages and not a penalty. If the stipulated amount is deemed a penalty rather than a reasonable estimate of damages, courts may not enforce it.

If the Parties to a Contract Stipulate an Amount That