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.
A contract that if default is made in paying a debt when due the debt shall bear a higher rate of interest after maturity than it did before, is not a stipulation for a penalty if the higher rate does not exceed the maximum rate fixed by statute.1 Even if the rate exacted after maturity is in excess of the maximum rate allowed by law, some courts hold that the stipulation is not for a penalty.2 In other states a provision for unlawful interest after maturity is treated as a penalty.3 Whether such contracts are usurious is a question discussed elsewhere.4 It may here be remarked that the theory that such a stipulation is for a penalty and therefore void is invoked in some cases to save the contract from the consequence of usury,5 and in other cases to enable the court to give relief to a debtor who has not brought himself within the protection of the courts on the ground of usury, as by omitting to tender the amount lawfully due.6 Agreements that in case of default the debt shall bear a higher though lawful rate of interest from the date at which it was contracted have been held in some states to be provisions for liquidated damages;7 in others as penalties.8
« Waggoner v. Cox. 40 0. S. 539. For a ease much like the foregoing except that the smaller sum was treated as the real debt and the larger one therefore as the penalty, see Cairnes v. Knight, 17 0. S. 68.
1 Linton v. Ins. Co., 104 Fed. 584; 44 C. C. A. 54; Dehass v. Dibert, 70 Fed. 227; 30 L. R. A. 189; 17 C. C A. 79; Thompson v. Garner, 104 Cal. 168; 43 Am. St. Rep. 81; 37 Pac. 900; Eccles v. Herrick, 15 Colo. App. 350; 62 Pac. 1040; Dusenberry v. Abbott, 1 Neb. Unofficial 101; 95 N. W. 466; Omaha, etc., Co. v. Hansen, 46 Neb. 870; 65 N. W. 1058; Havemyer v. Paul, 45 Neb. 373; 63 N. W. 932; Close v. Riddle, 40 Or. 592; 91 Am. St. Rep. 580; 67 Pac. 932.
2 Walker v. Abt, 83 111. 226; Bane v. Gridley, 67 111. 388; Smith v. Whitaker, 23 111. 367.
3 First National Bank v. Davis, 108 111. 633; Wilson v. Dean, 10 Ia. 432; Gower v. Carter, 3 Ia. 244; 66 Am. Dec. 71; Newell v. Houlton, 22 Minn. 19; Richardson v. Campbell, 34 Neb. 181; 33 Am. St. Rep. 633; 51 N. W. 753; Upton v. O'Donahue, 32 Neb. 565; 49 N. W. 267; Wey-rich v. Hobelman, 14 Neb. 432; 16 N. W. 436; Brockway v. Clark, 6 Ohio 45; Fisher v. Otis, 3 Pinn. (Wis.) 78; 3 Chand. (Wis.) 83.
4 See Sec. 465.
5 Fisher v. Otis, 3 Pinn. (Wis.) 78; 3 Chand. (Wis.) 83.