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.
The importance of the distinction between liquidated damages and penalty consists in the effect which the courts give to the two kinds of stipulation. At modern law a contract for a penalty in favor of a private individual is unenforceable, and void in legal effect.1 The actual damage, and that alone, may be recovered.2 This may be, on the one hand, less than the amount of the penalty,3
6 and 9 William III, c. 11.
Kansas. Kuter v. State Bank, 96 Kan. 485, 152 Pac. 662 [order modified, Kuter v. State Bank, 97 Kan. 375, 154 Pac. 1009]; Metz v. Clay, 101 Kan. 45, 165 Pac. 809.
Massachusetts. Makletzova .v. Diaghileff, 227 Mass. 100, 116 N. E. 231.
Michigan. Decker v. Pierce, 191 Mich. 64, 157 N. W. 384.
Utah. Western Macaroni Mfg. Co. v. Fiore, 47 Utah 108, 151 Pac. 984.
So by statute, Dillon v. Ringleman, 55 Okla. 331, 155 Pac. 563.
2 Sheffield-King Milling Co. v. Domestic Science Baking Co., 95 O. S. 180, 115 N. E. 1014; Western Macaroni Mfg. Co. v. Fiore, 47 Utah 108, 151 Pac. 984.
3 United States. Van Buren v. Digges, 52 U. S. (11 How.) 461, 13 L. ed. 771; Watts v. Camors, 115 U. S. 353, 29 L. ed. 406; Chicago House-Wrecking Co. v. United States, 106 Fed. 385, 53 L. R. A. 122, 45 C. C. A. 343.
Alabama. Henry v. Ry., 91 Ala. 585, 8 So. 343.
Illinois. Low v. Nolte, 16 111. 475; Hennessy v. Metzger, 152 111. 505, 43 Am. St. Rep. 267, 38 N. E. 1058.
Iowa. Foley v. McKeegan, 4 Ia. 1, 66 Am. Dec. 107; Lord v. Gaddis, 9 Ia. 265.
Kentucky. Hahn v. Horstman, 12 Bush. (Ky.) 249.
Massachusetts. Perkins v. Lyman, 11 Mass. 76, 6 Am. Dec. 158.
Missouri. Hamaker v. Schroers, 49 Mo. 406.
North Carolina. Lindsay v. Anesley, 28 N. Car. 186.
Oklahoma. Kelley v. Seay, 3 Okla. 527, 41 Pac. 615.
Pennsylvania Bigouy v. Tyson, 75 Pa. 157.
South Carolina. Bearden v. Smith, 11 Rich. L. (S. Car.) 554.
Washington. Johnson v. Cook, 24 Wash. 474, 64 Pac. 729.
In obiter it is said that no recovery of actual damages can he had in excess of the penalty, although only actual damages can be recovered if less than the penalty. "The bars, thrown down to the other party, are kept up as to him." Grand Union Laundry Co. v. Carney, 88 Wash. 327, 153 Pac. 5.
and on the other it may exceed it.4 The actual damages sustained must be shown,5 otherwise only nominal damages can be recovered.6 There is some authority for treating a provision for a penalty as prima facie evidence of the amount of damage suffered, in the absence of evidence to the contrary.7 While a covenant for a penalty is void, it is not illegal, and such a covenant does not render invalid the remaining covenants of the contract if they are valid in themselves.8
A penalty in a bond payable to the government or to some branch thereof, is valid and enforceable.9