A liquidated damage clause in a contract is an attempt by the parties to estimate damages in the event of non-performance or breach of the contract.  It represents a way to compensate the aggrieved party for an act of the other party to the agreement.  To be enforceable, the amount of the liquidated damages must not be a penalty.  Simon H. Prisk explains when these clauses should be used, whether a clause may have a problem regarding its enforcement, and what standards are used for making that determination.