penalty clause

penalty clause definition - legal

n

A provision in a contract that stipulates an excessive pecuniary charge against a defaulting party. Courts do not generally enforce such a clause, but will enforce liquidated damage clauses when they represent a legitimate approximation of actual damages. See also damages (liquidated damages).

Webster's New World Law Dictionary Copyright © 2006 by Wiley Publishing, Inc., Hoboken, New Jersey.
Used by arrangement with John Wiley & Sons, Inc.

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