Contractual penalty is the institution governed by the law of obligations in Article 483-484 KC. This is a contractual reservation whereby compensation for damages resulting from default or non-monetary default will be made by payment of a certain sum.
The contractual penalty institution is an increasingly used solution to safeguard the regularity and timely execution of contractual obligations. It is intended to make it easier for the creditor to obtain monetary compensation for the failure or inadequate execution of the debtor's obligation.
The debtor may waive the obligation to pay a contractual penalty if they overturn the presumption contained in Article 471 KC that non-execution or improper execution of an obligation is due to the circumstances for which he is responsible[1].
The creditor may not require the payment of a contractual penalty, including the execution of an obligation where the contractual penalty has been reserved in the event of default.
Scope of the contractual penalty
Contractual penalties shall apply only if they are reserved in the contract. This is a certain amount, which does not mean that, by reserving it in the contract, the amount of it must be indicated at the same time.
The amount of the contractual penalty can be determined by indicating the criteria on the basis of which it will be possible to determine the amount payable by the debtor.
The contractual penalty is an accessory to the principal obligation, meaning that the nullity or ineffectiveness of the contract has the same effect on the contractual penalty reservation.
The possibility of seeking payment of a contractual penalty shall not depend in any way on the creditor's loss. Violation of contractual provisions by failure to execute or improper execution of the obligation is sufficient to require payment of a contractual penalty. It is intended to compensate for the overall effect of default in the interests of the creditor and to provide additional safeguards for the proper performance of the contract[2].
Contractual penalty and compensation
The contractual penalty constitutes a surrogate compensation, but is a different benefit than compensation. This means that if a party comes to pay a contractual penalty in judicial proceedings, the court cannot rule against compensation. However, it should be borne in mind that a grossly high contractual penalty is incompatible with Article 483 KC, as well as proportionality and adequacy[3].
According to Article 483(2) KC, the debtor cannot, without the consent of the creditor, waive his obligation by paying the contractual penalty. The discriminatory nature of the provision implies that the parties may agree that the payment of the contractual penalty will lead to the expiry of all or part of the obligation on the part of the debtor.
The creditor may not require the payment of a contractual penalty, including the execution of an obligation where the contractual penalty has been reserved in the event of default. However, it may choose, at its discretion, either a claim for performance of the obligation or a claim for payment of a contractual penalty.
Obtaining satisfaction by the creditor one claims permanently exclude the possibility of an investigation second of them. A contractual penalty may be requested by the creditor together with a request for the performance of the obligation where it has been reserved in the event of a breach of the obligation.[4].
[1] Judgment of the Court of Appeal in Warsaw - V Civil Division dated 18 February 2021, V ACa 255/20
[2] Judgment of the Court of Appeal in Krakow - First Civil Division dated 3 March 2021, I AGa 274/19
[3] Judgment of the National Appeal Chamber of 18 January 2021, KIO 3446/20
[4] Article 483 KC ed series Osajda/red. volume Borisiak 2021, Edition 29/W. Borisiak