Penalty

Definition of Penalty

Meaning of penalty, related to United States investment and financial law, in the American Legal Dictionary. See also related words and terms of penalty below.

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Further Reading

• Information about penalty in: John Downes and Jordan Elliot Goodman, “Dictionary of finance and investment terms” (Hauppauge, New York, Barron's, 2014)
• Information about penalty in: Jerry Martin Rosenberg, “Dictionary of investing” (New York, Wiley)
• Information about penalty in: Campbell R. Harvey's Hypertextual Finance Glossary

Penalty

In the Past

A clause in an agreement, by which the obligor agrees to pay a certain-sum of money, if he must fail to fulfil the contract contained in another clause of the same agreement.

Developments

A penal clause in an agreement supposes two obligations, one of which is the primitive or main; and the other, is, conditional or accessory.

Details

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 choice to need the fulfilment of the first obligation, or' the payment of the penalty, in those cases which cannot be relieved in equity (see more about this popular legal topic in the U.S. encyclopedia), when the penalty is considered as liquidated damages. Dalloz, Dict. mots Obligation avec clause penale.

Other Aspects

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. (see this concept in the corresponding entry on this reference)

More Information

The sum will be considered as a penalty and not as liquidated damages (see more about this popular legal topic in the U.S. encyclopedia), 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 (see more about this popular legal topic in the U.S. encyclopedia) 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 (see more about this popular legal topic in the U.S. encyclopedia) 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.

Other Issues

The penalty stays unaffected, although the condition may have been partly 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.

More

A distinction seems to be made in courts of equity (see more about this popular legal topic in the U.S. encyclopedia) 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 (see more about this popular legal topic in the U.S. encyclopedia), unless upon the ground of accident (see more about this popular legal topic in the U.S. encyclopedia), 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.

More

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 Comyn's Digest (A digest of the laws of England, 1822) 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. [1]

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Notes and References

1. Partialy, this information about penalty is based on the Bouvier's Law Dictionary, 1848 edition. There is a list of terms of the Bouvier's Law Dictionary, including penalty.

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