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.
Provisions fixing the amount of royalty to be paid for the use of another's mine, patent, and the like, are usually held not to be penalties. A provision in a mining contract for the payment of a minimum royalty is not a penalty.1 So a provision in an oil lease that the lessee shall sink one well during the first year, and in default thereof will pay five hundred dollars a year for delay, is not a penalty,2 even if a subsequent test of adjoining realty shows that there is no oil or gas on the leased property.3 So a provision in a contract for the use of a patent to pay the minimum royalty,4 or to pay double the contract rate if the patent right is used after the time fixed for the expiration of the license,5 are not penalties.
7 Standard, etc., Co. v. Breed, 163 Mass. 10; 39 N. E. 346.
1 Martin v. Mining Co., 114 Fed. 553; Consolidated Coal Co. v. Peers, 150 111. 344; 37 N. E. 937.
2 Gibson v. Oliver, 158 Pa. St. 277; 27 Atl. 961.
3 Gibson v. Oliver, 158 Pa. St. 277; 27 Atl. 961.
4 Van Tuyl v. Young, 23 Ohio C. C. 15.
5 Knox Rock-Blasting Co. v. Stone Co., 64 O. S. 361; 60 N. E. 563; reversing, 16 Ohio C. C. 21; 8 Ohio C. D. 478.