Under what conditions are liquidated damages enforceable in a contract?

Liquidated damages are enforceable in a contract primarily when they represent a reasonable forecast of the actual damages that could be incurred as a result of a breach. This means that at the time the contract is formed, the parties reasonably estimate the potential harm likely to result from a breach, and they agree to a predetermined sum that reflects that assessment. The enforceability hinges on the idea that the agreed amount is not punitive but rather a genuine attempt to forecast and compensate for anticipated losses.

In contrast to this correct condition, options that involve quantifying damages easily at the time of contract signing may not necessarily guarantee that the predetermined amount reflects reasonable estimation past just ease of calculation. Additionally, allowing for unlimited damages would not limit the liability in a manner that is predictable or reasonable, potentially making it punitive instead of compensatory. Lastly, having damages predetermined by the court does not apply because liquidated damages must be agreed upon by the parties involved, rather than imposed through judicial determination.