You Might Be Thinking…

“If the supplier is late, I can simply claim damages.”
Yes, but proving damages is often complicated and time-consuming. A contractual penalty is faster, clearer, and acts as a deterrent against delays.

Clients Often Ask Me…

• How high can a contractual penalty be to remain enforceable?

• Does it have to be in writing?

• Can I combine a penalty with damages?

• What if the delay is caused by force majeure?

• Can penalties apply to the buyer for late payment?

Legal Framework in Brief

• § 2048 Civil Code: Parties may agree on a contractual penalty for breach of contract.

• § 2050 Civil Code: The creditor is entitled to the penalty even if no damage occurred.

• Purchase agreements for machinery → typically include penalties for delivery delays, but also for late payment of the purchase price.

• Courts may reduce (moderate) the penalty if it is excessively high.

How to Proceed in Practice

1. Setting the Penalty Amount

• Usual range: 0.05–0.5% of the price per day of delay.

• For high-value machinery, it is advisable to set a cap (e.g., max. 10% of the price).

2. Form of Agreement

• Must be in writing in the purchase contract.

• Can be agreed separately for stages (transport, installation, commissioning).

3. Combination with Damages

• Always state explicitly that the penalty does not exclude damages.

4. Exceptions and Force Majeure

• Define situations where penalties do not apply (e.g., government intervention, natural disaster).

• Otherwise, disputes over “justifiable reasons” may arise.

Risks and Common Mistakes

• Penalty too low → supplier prefers to pay the fine rather than deliver on time.

• No force majeure clause → disputes over floods, pandemics, or wars.

• No maximum cap → penalty may exceed the price of the machine.

• Unbalanced sanctions → contract protects only one side.

Lawyer’s Checklist

✔ Set the penalty at a realistic, enforceable level.
✔ Put it in writing in the contract.
✔ Add a clause that damages remain claimable.
✔ Define force majeure clearly.

FAQ

Is a contractual penalty enforceable even without damage?
Yes, it applies regardless of proven damage.

Can a court reduce the penalty?
Yes, if it is disproportionate.

Can the buyer also face penalties?
Yes, e.g., for late payment or failure to take delivery.

Is a vague penalty clause enough?
No, it must be specific (e.g., % of price per day).