Legal Q&A · Commercial Contracts

How does a contractual penalty work, and is it enforceable?

Law as at 21 July 2026

Answered by , Czech and Slovak attorney, admitted to the Slovak and Czech Bars (SAK 300422 · ČAK 19654).

Short answer

A contractual penalty is a monetary sanction for breach of a contractual obligation. It is valid only if agreed in writing with a specified amount or at least a calculation method. The creditor is entitled to it even without loss, but generally cannot claim damages alongside it unless otherwise agreed. A court may reduce an excessively high penalty on application.

What must a contractual penalty clause contain?

A contractual penalty secures performance of an obligation. Once agreed, the party in breach must pay it even if the entitled party suffered no loss (Section 544(1) of the Civil Code). There are two validity conditions: writing and a specified amount or at least a method of calculation (Section 544(2)). An oral or uncertain penalty is invalid, making its contractual wording particularly important.

Can I claim damages as well?

Section 545 governs the relationship between penalties and damages. Unless otherwise agreed, the creditor cannot claim damages alongside the penalty for the same breach. Damages exceeding the penalty can be claimed only if agreed (Section 545(2)). The debtor also need not pay the penalty if not at fault for the breach, unless the agreement provides otherwise (Section 545(3)). These rules can be varied by agreement, and a well-drafted clause adapts them to your needs.

Can the court reduce the penalty?

Contractual penalties are not unlimited. A court may reduce an excessive penalty, considering the value and importance of the secured obligation (Section 545a). In commercial relationships, the court has a similar reduction power down to the loss suffered before its decision (Section 301 of the Commercial Code), while circumstances excluding liability do not affect the duty to pay the penalty (Section 300). An oversized penalty can therefore be cut back in court.

How to set and enforce it

We design penalties when preparing the agreement so they are both valid and practically enforceable, through bespoke commercial agreements or contract review before signing. If a breach has already occurred, we pursue the unpaid penalty with the principal through debt recovery.

This answer provides general information on the law as at 21 July 2026. It does not constitute legal services or replace an assessment of an individual case. The details of your situation may differ. Book a consultation to discuss them.

More legal questions

All questions and answers
  1. Must an agreement be in writing to be valid? Most agreements are valid orally: Slovak law generally allows freedom of form. However, writing may be required by law, for example for property transfers, or by the parties themselves. If the prescribed written form is missing, the agreement is invalid. Amendments require a distinction between civil and commercial law: in a commercial relationship, merely signing the agreement in writing does not mean that every amendment must also be in writing. In practice, writing is recommended even where the law does not require it, for evidence and certainty.
  2. How can I validly withdraw from an agreement? You may withdraw only if the law or the agreement permits it, rather than simply because you wish to. Under civil law, the agreement is generally cancelled from the outset; under commercial law, it terminates when the withdrawal notice is delivered, with the effects prescribed by Section 351 of the Commercial Code. In commercial relationships, the right depends on whether the breach is material, allowing immediate withdrawal, or non-material, requiring an additional period for performance to expire unused. Withdrawal must be notified without undue delay.
  3. What documents do I sign when buying a franchise? Almost never just one document. Alongside the franchise agreement, you sign acknowledgment of the operating manual, a lease or sublease of the premises and security documents, most commonly a blank promissory note with a completion agreement, personally guaranteed by a member of the franchisee company. Sometimes documents for a joint company with the franchisor are added. The package can only be assessed as a whole because the documents refer to one another.
  4. What is an agreement to enter into a future agreement, and how binding is it? The parties undertake in writing to enter into a specified future agreement by an agreed date and must agree its essential terms. If one party does not conclude it, the other may, within one year, ask the court to substitute that party's expression of intent, and may also seek damages. The obligation ends if circumstances change substantially.

Cannot find your question? Ask your own question

Facing this situation?

Tell us what you need help with.

Describe your situation. We will review it and tell you within 24 hours whether and how we can help, including an indicative fee.

  1. 1Send your enquiry via this form
  2. 2Within 24 h you get a price confirmation and plan
  3. 3We start work only after your approval
Mgr. Patrik Tulinský, LL.M. Czech and Slovak attorney · SAK 300422 · ČAK 19654

Not keen on calls or email? Message us on WhatsApp →
Prefer to book a time right away? Book a consultation →
Or email us about this matter.

PDF, Word, images, ZIP… max 10 MB per file, 30 MB total.

Submitting this form does not create an engagement or attorney-client relationship. Before taking on a matter we run a conflict-of-interest check, so please do not send sensitive originals until we confirm the matter together.

Contact a lawyer