How would the court determine whether the liquidated damages clause is valid? Is this clause valid?

A court uses a three step approach to decide whether a liquidated damages provision is valid. They will first determine whether the clause is legally binding. They will also examine whether it is obvious that both parties wanted this clause to be applicable in the particular circumstance. Finally, they will consider if the amount agreed upon as “liquidated damages” was a reasonable estimate at the time of agreement. In addition, the court will decide whether or not enforcing such damages would be unfair to either party.

In the end, all these factors and circumstances are taken into consideration. Therefore, it is difficult to say definitively if this clause is valid without taking into account all the relevant information – however, typically courts tend to favor protecting contractual agreements so there is a good chance that this clause could be enforced depending on how strong its terms are and whether both parties can agree on them.