Contractual penalty in case of withdrawal from the contract

The Supreme Court in the resolution of the Composition of the Seven Judges of the Supreme Court – Civil Chamber of November 20, 2019 in the case of III CZP 3/19 resolved the legal issues that arouse discrepancies in jurisprudence and doctrine relating to the admissibility of reserving a contractual penalty in case of withdrawal from the contract due to non-performance of an obligation of a financial nature.

In the above resolution, the Supreme Court stated that it is not permissible to reserve a contractual penalty in case of withdrawal from the agreement due to non-performance of a financial obligation.

So far, two divergent positions have been presented on this matter.

According to one of them, a contractual penalty may be reserved for non-performance or improper performance only of an obligation of a non-monetary nature within the meaning of Article 483 § 1 of the Civil Code. This view was expressed, among others in the judgment of the Supreme Court of 7 February 2007, III CSK 288/06 and in the resolution of the Supreme Court of July 18, 2012, III CZP 39/12. A contract term reserving a contractual penalty in respect of a pecuniary obligation shall be deemed to be null and void pursuant to Article 58 § 1 and 3 of the Civil Code, as contrary to Article 483 § 1 of the Civil Code (such as Supreme Court judgment of August 18, 2005, V CK 90/05).

On the other hand, according to the second position, as a result of withdrawal from the contract, the contract is considered not concluded, and the contractual provisions concerning contractual penalties, provided for by the parties in the event of withdrawal from the contract, remain in force in a situation in which the liability of one of the parties to the contract for the damage caused by the non-performance of an obligation is updated. Upon withdrawal from the contract, Article 494 § 1 sentence 2 Code Civil, providing that a party who withdraws from the contract may claim not only the return of what he has witnessed, but also, on a general basis, compensation for the damage resulting from the non-performance of an obligation. For these reasons, it was considered that for the possibility of effectively reserving the contractual penalty for withdrawal from the contract, it is therefore irrelevant that the reason for the right to make the withdrawal declaration was the improper performance of the pecuniary benefit (judgments of the Supreme Court of May 28, 2014, I CSK 345/13; of October 20, 2006, IV CSK 154/06, OSNC 2007, No 7-8, item 259, of the Court of Justice of the European Communities, Case C-154/06, OSNC 2007, No 7-8, paragraph 117; of June 13, 2008, I CSK 13/08; of May 15, 2014, IV CSK 508/13; of May 21, 2014, II CSK 529/13).

In view of these discrepancies, there is no doubt that the Supreme Court resolution of November 20, 2019 on case III CZP 3/19, which may contribute to the unification of the views expressed in the judicature, was necessary.