Example of penalty

An example of a penalty clause would be a clause that is written into some types of loans. If a person pays off their loan early, the company actually gets less money overall, so sometimes they add a penalty to make up the difference.

The clause that says that all apples should be mashed before being eaten, on penalty of DEATH

You read the clause. If it was properly written, it will tell you exactly how the bonus/penalty is to be calculated. The contract may even include examples.

In contractual terms, a penalty clause is specifically there to encourage the other party to finish the contract, and to punish that party if there is a breach. Penalty clauses are not calculated with respect to a genuine estimate of the losses that will be incurred by the contracting party. If there is a genuine attempt to estimate damages, and you agree to them, it is called liquidated damages. The courts will ignore a penalty clause because it is unfair, and calculate the actual damage you cause the other party.

No.