PENALTY

penalty. 1. Punishment imposed on a wrongdoer, usu. in the form of imprisonment or fine; esp., a sum of money exacted as punishment for either a wrong to the state or a civil wrong (as distinguished from compensation for the injured party’s loss). • Though usu. for crimes, penalties are also sometimes imposed for civil wrongs. [Cases: Penalties  1. C.J.S. Penalties §§ 2–4.]

civil penalty. A fine assessed for a violation of a statute or regulation < the EPA levied a civil penalty of $10,000 on the manufacturer for exceeding its pollution limits>.

statutory penalty.A penalty imposed for a statutory violation; esp., a penalty imposing automatic liability on a wrongdoer for violation of a statute’s terms without reference to any actual damages suffered. [Cases: Penalties  1. C.J.S. Penalties §§ 2–4.]

2. An extra charge against a party who violates a contractual provision.

prepayment penalty. A charge assessed against a borrower who elects to pay off a loan before it is due. [Cases: Bills and Notes  429; Usury  61. C.J.S. Bills and Notes; Letters of Credit §§ 100, 234–236, 238; Interest and Usury; Consumer Credit § 172.]

3. Excessive stipulated damages that a contract purports to impose on a party that breaches. • If the damages are excessive enough to be considered a penalty, a court will usu. not enforce that particular provision of the contract. Some contracts specify that a given sum of damages is intended “as liquidated damages and not as a penalty” — but even that language is not foolproof. [Cases: Damages  80. C.J.S. Damages §§ 185, 190–192.]“A penalty is a sum which a party … agrees to pay or forfeit in the event of a breach, but which is fixed, not as a pre-estimate of probable actual damages, but as a punishment, the threat of which is designed to prevent the breach, or as security, where the sum is deposited or the covenant to pay is joined in by one or more sureties, to insure that the person injured shall collect his actual damages. Penalties … are not recoverable or retainable as such by the person in whose favor they are framed ….” Charles T. McCormick, Handbook on the Law of Damages § 146, at 600 (1935).

4. PENALTY CLAUSE.

[Blacks Law 8th]