A contractual provision fixing damages in the event of breach will be sustained if the amount liquidated bears a reasonable proportion to the probable loss and the amount of actual loss is incapable or difficult of precise estimation. If, however, the amount fixed is plainly or grossly disproportionate to the probable loss, the provision calls for a penalty and will not be enforced. The party challenging the damages provision has the burden to prove that the liquidated damages are an unenforceable penalty, but the party seeking to enforce the provision must necessarily have been damaged in order for the provision to apply.
Rubin v. Napoli Bern Ripka Shkolnik, LLP, NY Slip Op 00250 (1st Dep't January 14, 2020)
Here is the decision.
