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penalty clause n1 : a clause (as in a contract) that calls for a penalty to be paid or suffered by a party under specified terms (as in the event of a breach) and that is usually unenforceable NOTE: A penalty clause differs from a liquidated damages clause by not being tied to an estimate of possible actual damages.
Source: Merriam-Webster's Dictionary of Law ©1996. Merriam-Webster, Incorporated. Published under license with Merriam-Webster, Incorporated.