Economic Critique of the Penalty Clause and the Need to Revise Article 230 of the Civil Code

Document Type : Original Article

Authors

1 P.H.D Student in Private Law of Shahid Beheshti University

2 shahid beheshti university

3 Assistant Professor, Faculty of Law, Shahid Beheshti University

10.48308/jlr.2024.230749.2457

Abstract

The undeniable advantages of liquidated damages, including the absence of the need to prove the occurrence of harm and the causal relationship between the harmful Act and the incurred loss, encourage parties to include such a condition. Article 230 of the Civil Code suggests that in Iranian law, even if the liquidated damages are excessive, they are deemed necessary. The provision states: "If it is stipulated in a transaction that the defaulting party must pay a certain amount as compensation, the judge cannot impose a penalty greater or lesser than what is required." In English law, excessive liquidated damages are interpreted as penal conditions. Unlike a fixed damages clause, such conditions are not enforceable. Economic analysts believed that penal conditions hinder the achievement and breach of an efficient contract; however, nowadays, penal conditions are recognized not only as facilitators of contract breach but also as facilitators of efficient contract breach. According to this view, the mentioned condition should only be considered invalid in cases where it does not fulfill a particular economic role and is unfair. This research aims to provide an appropriate solution and examine the validity of excessive liquidated damages through a comparative approach by revisiting Article 230 of the Civil Code, specifically in cases where it does not fulfill a particular economic role and is deemed unfair

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Legal Research Quarterly

Articles in Press, Accepted Manuscript
Available Online from 01 July 2024

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History

  • Receive Date: 26 January 2024
  • Revise Date: 30 May 2024
  • Accept Date: 01 July 2024

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