Liquidated-Damage Clauses

"Generally speaking, a stipulation involving payment of an amount on default or breach will be enforceable as liquidated damages if it can be characterized as a genuine pre-estimate of the damage that would be suffered by the innocent party upon default or breach. Otherwise, it will be construed as an unenforceable penalty.

NOTE: It has been recognized that the court's power to strike down a ""penalty"" clause is an interference with freedom of contract and should only be exercised where there is oppression. It has also been suggested that the distinction should be made on the principle of unconsciousability or reasonableness of the agreement rather than on the accuracy of the pre-estimated damages."