PENALTY, in its original and proper sense, is a pecuniary punishment imposed by statute upon parties guilty of certain ofTences. This term is also used to denote a sum of money which a party to a contract has engaged to pay in case he violates his engagement. Penalties imposed by statute are strictly regulated by statute; but with respect to penalties created by contract, the rule is neitherso strict nor so uniform. In oneclassof cases the courts of common lawhave the power of awarding damages commensurate to the injury sustained, though the parties have agreed that a fixed sum shall be paid by way of penalty. In a second class, the courts of common law possess this power of limiting the sum to be recovered by action to the amount of injury sustained, only where the plaintiff, by bringing an action of assumpsit or of covenant instead of an action of debt, abandons his claim to the penalty. In a third class, the actual amount of injury is capable of being ascertained, but the courts of common law are, from the form of the proceedings, absolutely bound by the contract of the parties. Here the courts of equity interpose to relieve the party from the rigorous exaction of the penally. (Comyns's Digest, Chancery (2 Q 3—4 D 2.) In a fourth class, although the sum stipulated to be paid upon the doing or the omission of a particular act may be obviously disproportioned to the amount of injury sustained, yet if there be no means of ascertaining the amount, or if it be expressed in the contract that the sum to be paid shall be regarded not as a penalty, but as liquidated damages, that is, as the sum ascertained and agreed between the parties as the pecuniary amount of the injury, neither courts of law nor courts of equity can prevent the recovery of the stipulated sum. Where however a large sum is stipulated to be paid in the event of the nonpayment of smaller sums at a particular time, no agreement between the parties can so far alter the real nature of the transaction as to convert this sum into liquidated damages. In other cases the distinction between a penalty and liquidated damages is often difficult to ascertain, and some of the decisions on this head are not easily reconciled.
The third class of cases, those in which the interference of a court of equity is necessary, is much narrowed by the statute 8 & 9 Will. III., c. 11, s. 8, under which, in actions in courts of record upon any bond or penal sum for the performance of covenants or agreements contained in any indenture, deed, or writing, the plaintiff is required to state the breaches of covenant or agreement which he has sustained, and damages are to be assessed accordingly. If the plaintiff recover in the action, judgment is entered up for the penalty, but execution issues only for the damages assessed by the jury upon the breaches stated and proved, the judgment remaining as a security against future breaches of the same covenant or agreement, or of other covenants or agreements contained in the same instrument and protected by the same penalty. [uu.nu; Damages.]
It was formerly usual to insert in leases a stipulation that if the rent were not paid on the day on which it became due, a small sum should be added for every day during which it remained unpaid. This graduated penalty is called a nomine poena, and the landlord may distrain [distress] for it. A nomine poena? is seldom found in modern leases, the interest of the landlord being considered sufficiently protected by a clause usually inserted, enabling the laudlord to make the lease void in case of non-payment of rent or breach of other covenants.
Note - this article incorporates content from The Penny Cyclopaedia of the Society for the Diffusion of Useful Knowledge (1840)