A lender settled with his borrower and obtained consent orders. The borrower defaulted in payment of the last instalment. The lender sought judgment for the amount of the judgment debt and the borrower sought an extension of time to pay the final instalment and argued that the clause in the deed which provided for payment of the judgment debt was unenforceable as a penalty. The court found otherwise and the borrower appealed.
The Court of Appeal found there was no penalty because the borrower implicitly acknowledged in the deed recitals, which referenced the loans and the litigation, that the judgment debt was a present debt. Where a creditor agrees to accept part payment of a debt in full discharge but stipulates that if the conditions are not met, the full amount of the debt is payable, the doctrine of penalties does not apply.