Legal Definition of penalty clause
1 : 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.
2 : a clause in a statute or judgment that sets forth a penalty for a specific act or omission (as failure to make a support payment on time)
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