The penalty clause is the mechanism available to the creditor of an obligation under Article 1538 of the Civil Code:
“1,538. –
(1) The penalty clause is one by which the parties stipulate that the debtor undertakes a certain performance in the event of non-performance of the principal obligation.
(2) In case of non-performance, the creditor may demand either the forced performance of the principal obligation or the penalty clause.”
Thus, in the event of a conflict regarding the execution of the contract, the creditor avoids judicial evaluation of damages. In the absence of such clauses, the court determines the extent of damages in accordance with the principle of full compensation for the prejudice in order to restore the creditor to the position they would be in if the debtor had fully performed the obligations. The debtor is thus obligated to pay damages to the creditor within the limits of the caused prejudice.
However, the penalty clause allows the creditor to establish by contract the amount the debtor pays as a result of any non-performance of obligations.
The rule in this matter is that the court cannot intervene in the value of the clause. However, there are a few exceptions:
• If the principal obligation has been partially performed and has benefited the creditor: total non-performance, even if it exceeds the actual damage, does not allow the courts to modify the amount owed by the debtor. However, they can intervene in cases of partial performance.
• The penalty is clearly excessive compared to the damage that could have been foreseen by the parties at the conclusion of the contract (in which case it could be considered an abusive clause).
The penalty clause becomes due when the conditions of the debtor’s contractual liability are met:
• the existence of an unlawful act consisting of the failure to comply with the obligation (non-performance, inadequate performance, or delayed performance);
• the existence of prejudice;
• the causal relationship between the act and the prejudice;
• the debtor’s fault.
The creditor, in case of the debtor’s culpable non-performance, has the option to resort to any of the following mechanisms if a penalty clause has been introduced into the contract:
• Forced performance;
• Rescission/termination and enforcement of the penalty clause.
It is worth mentioning, however, that this clause depends on the existence of the contract. The nullity of the principal obligation stipulated in the contract will automatically attract the nullity of the clause. However, if the contract terminates by rescission/termination, the penalty clause will not extinguish if it was provided as a remedy for non-performance.
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