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Bouvier's Law Dictionary, Revised 6th Edition (1856)

PENALTY, contr. A clause in an agreement, by which the obligor agrees to pay
a certain sum of money, if he shall fail to fulfill the contract contained
in another clause of the same agreement.
2. A penal clause in an agreement supposes two obligations, one of
which is the primitive or principal; and the other, is, conditional or
accessory.
3. The penal obligation differs from an alternative obligation, for
this is but one in its essence; while a penalty always includes two distinct
engagements, and, when the first is fulfilled, the second is void. When a
breach has taken place, the obligee has his option to require the
fulfillment of the first obligation, or' the payment of the penalty, in
those cases which cannot be relieved in equity, when the penalty is
considered as liquidated damages. Dalloz, Dict. mots Obligation avec clause
penale.
4. It is difficult, in many cases, to distinguish between a penalty and
liquidated damages. In general, the courts have inclined to consider the sum
reserved by such agreement to be a penalty, rather than as stipulated
damages. (q.v.)
5. The sum will be considered as a penalty, and not as liquidated
damages, in the following cases: 1. When the parties to the agreement have
expressly declared the sum to be a penalty, and no other intent is to be
collected from the instrument. 2 Bos. & P. 346; 1 H. Bl. 227; 1 Pick. 45 1;
4 Pick. 179; 7 Wheat. 14; 3 John. Cases, 297. 2. When from the form of the
instrument, as in the case of a money bond, it is sufficiently clear a
penalty was intended.
3. When it is doubtful whether the sum was intended as a penalty or
not, and a certain damage or debt is made payable on the face of the
instrument. 2 B. & P. 350; 3 C. & P. 240. 4. When the agreement was
evidently made for the attainment of another object, to which the sum,
specified is wholly collateral, 11 Mass. 76; 15 Mass. 488; 1 Bro. C. C. 418,
419. 5. When the agreement contains several matters, of different degrees of
importance, and yet the sum mentioned is payable for the breach of any, even
the least. 6 Bing. 141; 5 Bing. N. C. 390; 7 Scott, 364. 6. When the
contract is not under seal, and the damages may be ascertained and
estimated; and this though the parties have expressly declared the sum to be
as liquidated damages. 2B. & Ald. 704; 6 B. & C. 216; 4 Dall. 150; 5 Cowen,
144. See 2 Greenl. Ev. 258. 1 Holt N. P. C. 43 1 Bing. R. 302; S. C. 8
Moore, 244; 4 Burr. 2229.
6. The penalty remains unaffected, although the condition may have been
partially performed; as in a case where the penalty was one thousand
dollars, and the condition was to pay an annuity of one hundred dollars,
which had been paid for ten years; the penalty was still valid. 5 Verm. 365.
7. A distinction seems to be made in courts of equity between penalties
and forfeitures. In cases of forfeiture for the breach of any covenant other
than a covenant to pay rent, relief will not be granted in equity, unless
upon the ground of accident, fraud, mistake, or surprise, when the breach is
capable of compensation. Edin. on Inj. 22; 16 Ves. 403; S. C. 18 Ves. 58 3
Ves. 692; 4 Bouv. List. n. 3915.
8. By penalty is understood, also, the punishment inflicted by law for
its violation; the term is mostly applied to a pecuniary punishment. See 6
Pet. 404; 10 Wheat. 246; 1 Gall. R. 26; 2 Gall. R. 515; 1 Mason, R. 243; 3
John. Cas. 297: R. 451; 15 Mass. 488; 7 John. 72 4 Mass. 433; 8 Mass. 223; 8
Com. Dig. 846; 16 Vin. Ab. 301; 1 Vern. 83, n.; 1 Saund. 58, n.; 1 Swans.
318; 1 Wash. C. C. R. 1; 2 Wash. C. C. R. 323; Paine, C. C. R. 661; 7 Wheat.
13. See, generally, Bouv. Inst. Index, h.t.

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