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 agreement to pay a certain sum of money in case of the violation of a covenant of a lease is held to be a provision for liquidated damages if apportioned to the separate covenants, and not unreasonable, especially if the actual damages are difficult to estimate. Thus a provision in a lease which provides for an annual rental of seven thousand dollars, that in case the premises are retained after the expiration of the term, damages shall be paid for such detention at the rate of thirty dollars a day, is liquidated damages.1 So a covenant that lessees shall pay five dollars a day for delay in removing tracks and ties from realty has been held to be a provision for liquidated damages.2 A provision in a lease for paying five thousand dollars in case of breach is treated as a covenant for a penalty where the only breach is delay in payment of rent.3 So under a lease, a provision that if the tenant should assign or underlet, or remove or attempt to remove any of his goods and chattels his term should cease immediately and "one whole year's rent of three thousand dollars shall immediately thereon become due and owing," is rent, and not a penalty.4 An agreement made when a vessel is chartered, to pay a certain sum therefor if the vessel is lost, or irreparably damaged is treated as liquidated damages.5 By California statute in such cases, however, as such provisions are void by statute, only the actual damages sustained can be recovered.6 So an agreement to pay for the use of a button-sewing machine at a certain sum per thousand buttons, with a provision that if the lessee does not keep account of the number of buttons sewed, the lessor may, at his option, charge five dollars a day for the use of such machine is not a penalty.7
9 Mcintosh v. Johnson, 8 Utah 359; 31 Pac. 450.
1 Poppers v. Meagher, 148 111. 192; 35 N. E. 805; affirming, 47 111. App. 593.
2 Townsend v. Ry. Co., 28 Ont. 195.
3 Gay Mfg. Co. v. Camp, 65 Fed. 794; 13 C. C. A. 137.
4 Dermott v. Wallach, 1 Wall. (U. S.) 61.
5 Sun, etc., Association v. Moore, 183 U. S. 642.
6 Wilmington Transportation Co. v. O'Niel, 98 Cal. 1; 32 Pac. 705.