The Penalty Clause: Theoretical and Practical Matters

Art. 1538 of the new Civil Code stipulates: “the penalty clause is the one by means of which the parties stipulate that the debtor undertakes a particular service in the event of non-fulfillment of the principal obligation" (paragraph 1). According to paragraph 2 of the same article, in the event of non-execution, the creditor may request either the enforced execution in kind of the principal obligation or the penalty clause. Moreover, the creditor may request the enforcement of the penalty clause without having to prove the existence or the amount of the damage. The penalty clause finds its applicability in the performance of obligations, more precisely in the case of execution by equivalent.” The amount of the penalty clause is determined in advance, based on assessment. The advantage for the creditors consists in the fact that they no longer have to prove the existence and the amount of the damage if the debtor fails to perform their obligations according to the contractual provisions. The penalty clause is not meant, but must be expressly provided. The validity of the penalty clause depends on the validity of the agreement which stipulates it, since the nullity of the penalty clause does not entail the nullity of the principal clause.