This section is from the book "The Law Of Contracts", by William Herbert Page. Also available from Amazon: Commercial Contracts: A Practical Guide to Deals, Contracts, Agreements and Promises.
An alternative contract is one which gives to one of the parties the choice of doing one of two or more different acts as performance of the contract.1 If one of the alternatives is the payment of money, a contract of this type has some resemblance to a contract for a penalty or for liquidated damages; but it must be distinguished from both of them. The essential difference is that both penalties and liquidated damages are payable on breach of one or more covenants of a contract, whereas the payment provided for in the alternative contract is a performance of the contract - not a compensation for breach. The alternative contract is enforceable according to its terms; and if the contingencies have occurred on which the money is to be paid, such payment can be enforced.2 Thus under a contract for the sale of a medical practice, the vendor to have the right to resume practice after five years, on payment to the vendee of two thousand dollars, such payment was neither a penalty nor liquidated damages, but a covenant giving the vendor the right to make such election; and if he elects to resume the practice, he must pay such sum.3 The question of who can exercise the right of election is discussed elsewhere.4 The outward form of the contract is not, of course, decisive of the question, or an easy method of evading the rules as to penalties would be presented. If the whole contract shows that the stipulation for payment is inserted, not to give one party an election, but to coerce performance of the alternative covenant, such stipulation is treated as a penalty.5