U.S. Supreme Court
Tayloe v. Sandiford, 20 U.S. 7 Wheat. 13 13 (1822)
Tayloe v. Sandiford
20 U.S. (7 Wheat.) 13
In general, a sum of money in gross to be paid for the nonperformance of an agreement is considered as a penalty, and not as liquidated damages.
A fortiori when if is expressly reserved as a penalty.
Thus where, in a building contract, the following covenant was contained, "the said houses to be completely finished on or before 24 December next, under a penalty of one thousand dollars in case of failure," it was held that this was not intended as liquidated damages for the breach of that single covenant only, but applied to all the covenants made by the same party in that agreement; that it was in the nature of a penalty, and could not be set off in an action brought by the party to recover the price of the work.
An agreement to perform certain work within a limited time under a certain penalty is not to be construed as liquidating the damages which the party is to pay for the breach of his covenant.
A person owing money under distinct contracts has a right to apply his payments to whichever debt he may choose, and this power may be exercised without any express directions given at the time.
A direction may be evidenced by circumstances as well as by words, and a positive refusal to pay one debt and an acknowledgement of another with a delivery of the sum due upon it would be such a circumstance. chanrobles.com-red