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A Study on Penalty Clause

  • DONG-A LAW REVIEW
  • 2011, (52), pp.633-658
  • Publisher : The Institute for Legal Studies Dong-A University
  • Research Area : Social Science > Law

조일윤 1

1동아대학교

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ABSTRACT

Generally, when making contracts such as dealing․lease․subcontract, etc, purchaser issues fund and other valuables to seller as a earnest money under the purposes of contract's evidence, default damage's information, cancellation right's deferring, etc. The earnest money has characteristics of evidence earnest money, penalty for breach of contract and cancellation charge according to the contract of the person directly involved. The penalty for breach of contract is divided into liquidated damages and penalty clause. (1) The penalty clause can be defined as “the penalty for breach of contract that creditor will collect independent of compensation for damages when debtor doesn't pay off his debts”. There is a struggle for the recognition of penalty clause's concept, but Korean precedents show that we recognize penalty clause. (2) Penalty clause has coercive function as a measure strengthening private control for default unlike the liquidated damages which have both fulfillment securing function and damage compensation function. Therefore, creditor can demand damage compensation by default with penalty clause. (3) Penalty clause is included to penalty for breach of contract, so conditions for demanding penalty for breach of contract should be fundamentally necessary for demanding penalty for breach of contract. And, penalty clause is included to private penalty which has controling function for default. So, imputation reasons are necessary, but damages are not necessary. (4) There is no regulation for increase or decrease when penalty clause is unfairly too little or too much, but precedents don't permit the increase or decrease. However, for the decrease, if the agreed penalty is excessively heavy in comparison with creditor's benefit obtained by obligation's compulsion, one part or the whole of it becomes null on the contrast to good public order and customs. So, they accept the possibility of decrease. There is no precedent for increase, but it will be proper to interpret like the decrease. In the actual dealing, people agree for penalty for breach of contract as a penalty clause. And, if considering the compensation for punishment damages recognized by foreign countries, it will be proper to regulate penalty clause more actively. It will be secure or fulfill the principle of contract compliance after the Roman law, ‘contract must be kept.’ more thoroughly.

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