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.
Another test which has met with general favor is the following: If provision is made for breach of several different covenants of a contract, and a gross sum is fixed which is to be paid in case of the breach of any one of such covenants, and the covenants are of different degrees of importance so that the damage resulting from the breach of one would be much greater than those resulting from the breach of another, the stipulation is held to be a penalty.1 Thus a promise to pay a fixed sum for failure to build a house or to pay off all liens thereon,2 or to pay a certain additional amount per ton for every ton of hay or straw sold off the premises, where the value of manure from hay is different from that from straw,3 or a promise to pay a certain sum in case of any default in a contract to sell and deliver a certain number of sheep,4 or a promise to pay a fixed sum for breach of any one of a number of covenants, ranging from the payment of royalty to keeping gates closed,5 or a bond in the sum of ten thousand dollars, conditioned on the release of a number of debts varying in amount from eight thousand dollars to ten thousand dollars,6 have each been held to be provisions for penalties. This test has proved so satisfactory in its operation that it is a matter of regret that so many cases present facts which do not admit of determination by it. Even this test, however, is not unanimously adopted. It has been repudiated in several courts, though often in obiter, as a decisive test;7 and it has been said that this principle has no application to cases where the damage from each breach, though not the same in each, is in each uncertain,8 but that it applies only where the damages are readily ascertainable, either on some,9 or all,10 of the breaches, as where one of the covenants is to pay money.11
7 Gibson v. Oliver, 158 Pa. St. 277; 27 Atl. 961.
1 Willson v. Love (1896), 1 Q. B. 626; Kemble v. Farren, 6 Bing. 141; Home, etc., Co. v. McNamara, 111 Fed. 822; 49 C. C. A. 642; Smith v. Newell, 37 Fla. 147; 20 So. 249; State v. Larson, 83 Minn. 124; 54 L. R. A. 487; 86 N. W. 3; Carter v. Strom, 41 Minn. 522; 43 N. W. 394; Squires v. Elwood. 33 Neb. 126; 49 N. W. 939; El Reno v. Cullinane, 4 Okla. 457; 46 Pac. 510; Berry v. Wisdom, 3 O. S. 241; Wilhelm v. Eaves, 21 Or. 194; 14 L. R. A. 297; 27 Pac. 1053; Keck v. Bieber. 148 Pa. St. 645; 33 Am. St. Rep. 846; 24 Atl. 170; Johnson v.
Cook, 24 Wash. 474; 64 Pac. 729; (City of) Madison v. Engineering Co., 118 Wis. 480; 95 N. W. 1097; Kerslake v. McInnis, 113 Wis. 659; 89 N. W. 895.
2 Johnson v. Cook, 24 Wash. 474; 64 Pac. 729. (Amount agreed on $3,000 - value of house $2,000.)
3 Willson v. Love (1896), 1 Q. B. 626.
4 Squires v. Elwood, 33 Neb. 126; 49 N. W. 939. See for a similar contract of a less marked type. Home, etc., Co. v. McNamara, 111 Fed. 822; 49 C. C. A. 642.
5 Keck v. Bieber. 148 Pa. St. 645; 33 Am. St. Rep. 846; 24 Atl. 170.