Close link between the right to specific performance and penalty clauses: a comparative approach

Abstract

In a contractual relationship, the debtor is liable for a full and due performance. Furthermore, the parties can also agree on a penalty clause to be performed, in case where the obligation is not diligently performed. Penalty clauses are side-agreements enlarging the scope of liability of the debtor by establishing a penalty to be paid in case of breach of contract. These clauses, thus guarantee the performance by creating pressure on the debtor. These penalties are awarded even if there is no damage. On the other hand, penalty clauses are to be separated from liquidated damages clauses which are also side-agreements aiming to estimate damages in case of a possible breach of contract. In other words, such clauses simply aim to measure damages that are hard to prove once incurred. Liquidated damages clauses can easily be enforced by the courts in both civil and common law countries. However, this is not the case for penalty clauses.