27 February 2020
Reducing contractual penalties

Let us assume that you entered into an agreement secured by contractual penalties and you have failed to perform it. You are probably wondering whether there is a way to reduce contractual penalties you are obliged to pay…

The Civil Code provides for an institution of contractual penalty mitigation. If the greater part of the obligation has been performed, the debtor may demand that contractual penalties be reduced; the same applies to the case where contractual penalties are grossly overstated.

“Gross overstatement” as a circumstance justifying the mitigation of contractual penalties must be viewed as a comparison of the damage sustained as a consequence of infringing the obligation with the level of restricted contractual penalties (B. Księżopolski, Uwagi o miarkowaniu kar umownych w obrocie uspołecznionym, PiP 1970, b. 3–4, p. 520). A criterion of gross overstatement may further be the relation of its level to the level of compensation due to the creditor on general terms (P. Drapała, Gloss to the judgment of SC of 8 July 2004, IV CK 522/03, OSP 2005, b. 7–8, Item 97; P. Granecki, Gloss to the judgment of SC of 8 July 2004, IV CK 522/03, OSP 2006, b. 1, Item 2; K. Zagrobelny, Gloss to the judgment of SC of 23 March 2006, IV CSK 89/05, OSP 2007, b. 6, Item 66; judgment of SC of 20 May 1980, I CR 229/80, OSNC 1980, no. 12, Item 243; judgment of SC of  11 October 2007, IV CSK 181/07, OSNC-ZD 2008, no. 2, Item 48; judgment of SC of 23 May 2013, IV CSK 644/12, LEX no. 1365722).

Therefore, if you are in a similar situation, you may bring an action to court to reduce contractual penalties referring to one of the above specified circumstances or quote the above circumstances in pending proceedings for the payment of contractual penalties.

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