A contractual penalty is a deterrent – a way to motivate the contractor to meet deadlines, remove defects, or maintain confidentiality. But real damage may still occur – such as hiring a replacement, halting other projects, or loss of business.

So the key question is: Can you demand both the penalty and actual damages?

According to Czech Civil Code § 2050:

“If a contractual penalty is agreed, the creditor shall not be entitled to damages caused by the breach of the duty to which the penalty applies, unless otherwise agreed.”

This means:

• By default, you can’t claim both for the same breach.

• However, if explicitly stated in the contract, both can be pursued – especially for different types of losses.

How to Set It Up Properly

To protect your interests, include a clause such as:

“The parties agree that the contractual penalty does not exclude the right to full compensation for damage.”

Without it, courts will often limit compensation to the (lower) penalty only.

The Court’s Approach

Czech courts strictly follow the rule: no express clause, no damages beyond the penalty. But if such a clause exists and damages are clearly proven (e.g. expert reports, invoices), they may award both.