Comparative Analysis of Penalty Clause (Penalty condition) in Contracts and Its Comparison with Liquidated and Punitive Damage

Articles in Press

Document Type : Original Article

Authors

1 . PhD in private law, Shiraz Branch, Islamic Azad University, Shiraz, Iran

2 Assistant Professor, Department of Private Law, Faculty of Law and Political Science, Islamic Azad University (Shiraz Branch), Shiraz, Iran

10.48308/jlr.2024.234152.2642

Abstract

A penalty clause is a predetermined amount in a contract intended to prevent potential breach of the contract and is sometimes referred to as a "penal clause". Article 230 of the Iranian Civil Code refers to the penalty clause, which stipulates that the amount agreed upon in the contract serves as compensation for damages resulting from the execution of the obligation in case of violation. In Arab legal systems, it is referred to "Al-Band Al-Jizai", and in English laws, it is known as the "penalty clause." The penalty clause is divided into two types: penalty clause for delay of fulfilling the obligation, for example, a certain amount must be paid by the obligor for each day of delay. and in such cases, the obligee can request the penalty and the fulfilment of the obligation together. The other type is the penalty clause in lieu of fulfilling the main obligation, which in case of non-fulfilment of the obligation, only the penalty can be claimed. The penalty clause is different from the liquidated damages, as the latter is a precise estimate and assessment of the amount of damages, while the penalty clause is a probable prediction of loss, predetermined as a fixed amount regardless of whether or not there is a loss. Comparison of the penalty clause, liquidated damages and punitive damages is the purpose of this article to express the differences and similarities between these two aspect.

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Legal Research Quarterly

Articles in Press, Accepted Manuscript
Available Online from 07 October 2024

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History

  • Receive Date: 20 December 2023
  • Revise Date: 13 September 2024
  • Accept Date: 24 September 2024

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