A liquidated damage provision has its basis the the principle of just compensation for loss, states a New York Supreme Court Justice in the Gunderson case cited below. This case analyzed the issue of whether or not a pre-school could enforce a liquidated damages provision for full tuition ($19,300) when the Petitioner-enrollee withdrew from school five months before the start date. In denying the pre-school-cross-movant's' summary judgment, the court held that more discovery was necessary to decide if whether or not $1,9300 is commensurate with actual loss or grossly disproportionate.
Liquidated damages are enforceable when they are reasonable and proportional to the probable loss. They are not enforceable if they appear to be a forfeiture or penalty.
(Gunderson v. Park West Montessori, Inc., NYLJ, September 1, 2009, at 26, col. 1)