
Quoting
Ridgley v. Topa Thrift & Loan Ass'n, 17 Cal.4th 970, 977, 73 Cal.Rptr.2d 378, 953 P.2d 484 (1998).
A liquidated damages clause will generally be considered unreasonable, and hence unenforceable under section 1671(b), if it bears no reasonable relationship to the range of actual damages that the parties could have anticipated would flow from a breach. The amount set as liquidated damages "must represent the result of a reasonable endeavor by the parties to estimate a fair average compensation for any loss that may be sustained." (Garrett v. Coast & Southern Fed. Sav. & Loan Assn., supra, 9 Cal.3d at p. 739 (hereafter Garrett).) In the absence of such relationship, a contractual clause purporting to predetermine damages "must be construed as a penalty." (Ibid.) "A penalty provision operates to compel performance of an act [citation] and usually becomes effective only in the event of default [citation] upon which a forfeiture is compelled without regard to the damages sustained by the party aggrieved by the breach [citation]. The characteristic feature of a penalty is its lack of proportional relation to the damages which may actually flow from failure to perform under a contract. [Citations.]" (Ibid.)
In short, "[a]n amount disproportionate to the anticipated damages is termed a `penalty.' A contractual provision imposing a `penalty' is ineffective, and the wronged party can collect only the actual damages sustained." (Perdue v. Crocker National Bank (1985) 38 Cal.3d 913, 931 [216 Cal. Rptr. 345, 702 P.2d 503]; see also Ebbert v. Mercantile Trust Co. (1931) 213 Cal. 496, 499 [2 P.2d 776] ["[A]ny provision by which money or property would be forfeited without regard to the actual damage suffered would be an unenforceable penalty."].)