Is it possible to stipulate a contractual penalty without specifying a deadline or an exact monetary amount?

A legal question has been submitted to the Supreme Court: “Is it valid and permissible under Article 483 § 1 of the Civil Code to stipulate a contractual penalty in the form of a specified percentage of the contractual remuneration for each day of delay, without setting a final date for calculating the penalty or a maximum amount?” The Regional Court in Łódź, handling case file no. III CZP 16/21, concluded that existing Supreme Court jurisprudence on the matter is inconsistent.

Case law

The definition of a contractual penalty is provided in Article 483 § 1 of the Civil Code, which states that it may be agreed in a contract that compensation for damage resulting from non-performance or improper performance of a non-monetary obligation will be made by payment of a specified sum. The Regional Court in Łódź questioned the validity of a contractual penalty clause expressed as a percentage of the contractual remuneration for each day of delay without specifying a final date for calculating the penalty or its maximum amount.

The adjudicating panel cited, among others, a judgment from 22 October 2015, in which the Supreme Court ruled that failure to specify a final date for calculating contractual penalties or their maximum amount leads to the debtor being indefinitely burdened with this obligation, essentially creating an eternal, open-ended obligation (case no. IV CSK 687/14).

According to this view, the contract must include clauses that define a maximum penalty amount. An opposing position does not require a maximum penalty to be stipulated in the contract for non-performance or improper performance of an obligation.

Method of specifying the sum payable

The rule under Article 483 § 1 of the Civil Code requires the contractual penalty to be expressed as a monetary sum payable in the event of non-performance or improper performance of a non-monetary obligation. This requirement is considered fulfilled when the parties specify the amount in advance or indicate the basis for its determination in the contract. On the other hand, another judgment cited by the Regional Court – from 28 June 2017 – states that although the Civil Code requires the penalty sum to be expressed at the time of stipulating the clause, there is no obligation to state an exact amount. The parties may define the penalty indirectly by indicating criteria allowing the calculation of the amount the debtor will be required to pay the creditor (e.g. a percentage share).

The Regional Court also referenced the Supreme Court ruling of 3 October 2019, case no. I CSK 280/18, which held that if the parties do not expressly state the penalty amount in the contract, they must provide a calculation metric such that only an arithmetic operation is required in the future (once the conditions for applying the penalty are met), without the need to determine the basis from which the penalty amount is to be derived. Otherwise, the contractual provision will be invalid as contrary to Article 483 § 1 of the Civil Code. The Court also noted doctrinal views that a contractual penalty may be expressed as a specific amount or as a fraction of the principal obligation.

A ruling on this issue is of great importance as it may definitively determine the manner in which contractual penalties can be stipulated in contracts, as well as affect the validity of existing penalty clauses.