by John Marshall

“ In general, a sum of money in gross, to be paid for the non-performance of an agreement, is considered as a penalty, the legal operation of which is, to cover the damages which the party, in whose favour the stipulation is made, may have sustained from the breach of contract by the opposite party. It will not of course be considered as liquidated damages; and it will be incumbent on the party who claims them as such, to show that they were so considered by the contracting parties. Much stronger is the inference in favour of it's being a penalty, when it is expressly reserved as one. ”

“ A circumstance of no light import was given in evidence by the creditor himself. It was that, at the time of discharging the account for the extra work, the debtor confessed 'that he had retained in his hands 1,000 dollars, as the forfeiture under the original contract for not finishing the houses in the time stipulated by contract, and that he would hold it, unless compelled by law to pay it.' This 1,000 dollars was the penalty stipulated in the agreement under seal ”

“ It was not proved that the application of this money to the discharge of the verbal contract was 'expressly directed.' Yet no person will say that the creditor was at liberty to controvert this application, or to change it.
A person owing money under distinct contracts has undoubtedly a right to apply his payments to whichever debt he may choose; and, although prudence might suggest an express direction of the application of his payments at the time of their being made ”