Article 483 § 1 of the Civil Code stipulates that a contract may stipulate that compensation for damage resulting from non-performance or improper performance of a non-monetary obligation shall be paid in the form of a specified sum (contractual penalty).
In business practice, when formulating the provisions of a contract, the parties often stipulate contractual penalties for delays in the performance of contractual obligations and specify the specific events that constitute the basis for their calculation.
Although, as a rule, a contractual penalty stipulated by the parties to a contractual relationship is due to the creditor only if the debtor’s non-performance or improper performance of a non-monetary obligation is the result of circumstances for which the debtor is responsible (Article 471 of the Civil Code), the parties may regulate this issue differently.
The freedom of the parties to set the limits of liability for damages results from the provisions of Article 473 of the Civil Code and Article 353(1) of the Civil Code. In this respect, the parties may contractually determine the scope of liability and the distribution of the risk of bearing the consequences of non-performance of the obligation, which means that they may also include provisions on contractual penalties in the contract and specify the grounds for their calculation.
Pursuant to Article 473 § 1 of the Civil Code, the debtor may, by contract, accept liability for non-performance or improper performance of an obligation due to specified circumstances for which he/she is not liable under the law.
It is established in doctrine and case law that the creditor may be entitled to compensation for improper performance of the contract if the non-performance or improper performance is the result of circumstances other than the debtor’s culpable conduct. It is considered reasonable to hold the debtor liable for non-performance or improper performance of an obligation due to accidental circumstances, even for events resulting from force majeure.
Case law accepts that the parties to a contract may agree that compensation for improper performance of the contract, in the form of a contractual penalty, shall also be payable to the creditor if the improper performance of the contract is the result of circumstances other than the debtor’s culpable conduct.
Therefore, if the parties to a given contract wish to extend the debtor’s liability and stipulate contractual penalties or penalties in the event of improper performance of the contract for reasons not attributable to the debtor, care should be taken to ensure that the contractual provisions in this regard are appropriately drafted.