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 provision that default in payment of one installment of interest will make the whole debt due and payable is held in some jurisdictions to be a penalty,1 though by the great weight of authority such provisions are not penalties, and are valid.2 So a provision making the principal due in case of failure to pay taxes before they become delinquent is valid.3 In some states a provision for the payment of attorneys' fees, in case the debt is collected by litigation, is treated as a penalty.4 Provisions of the classes here discussed are sometimes attacked as being penalties, sometimes as being disguised forms of usury,5 and sometimes as being unconscionable,6 so as to be an element in establishing constructive fraud or undue influence. If such provision is held valid, it means, of course, that none of these objections is well taken. The converse of this proposition is not always true. Such provision may be held not to be a penalty, but to be usurious, and vice versa. Even if invalid, the difference in the results that would follow from holding it a penalty, or usurious, or unconscionable, may be so great as to make the solution of this question a matter of great practical importance.