Moderation of a contractual penalty in the context of case law

According to § 2051 OZ, the following applies: 'The court may, at the request of the debtor, reduce the contractual penalty unduly high, taking into account the value and significance of the secured obligation, up to the extent of the damage incurred by the time of the decision by the breach of the obligation to which the contractual penalty applies. To compensate for the damage, they incurred
the right to it later, the injured party is entitled to a maximum contractual penalty.”! 1

The above-cited provision seeks to balance the interests of both parties. The creditor is guaranteed a penalty in the event of a breach of duty, while the debtor is protected from unreasonable penalties.

The earlier decision-making practice assessed the adequacy of the contractual penalty in particular in relation to the time of its negotiation. Reference can be made, for example, to the judgment of the Supreme Court of 17 May 2011, sp. 23 Cdo 2192/2009, or to the judgment of the Supreme Court of 21 June 2011, p. 32 Cdo 944/2010.
At the time, the Supreme Court stressed the need to rely on the circumstances existing at the time of the conclusion of the arrangement.

The decision of the Supreme Court of January 11, 2023 (published under No. R 76/2023), which established a new methodology for assessing moderation. The Supreme Court found that:

“The reasonableness of the contractual penalty within the meaning of § 2051 o. z. shall be assessed with regard to the manner and under what circumstances the breach of the contractual obligation established by the contractual penalty occurred and to what extent it affected the interests of the creditor, which should have been protected by the negotiation of the contractual penalty. The court does not examine the unreasonableness of the contractual penalty arrangement, nor the reasonableness of a particular claim to a contractual penalty. It shall take into account not only the circumstances already known at the time of the award of the contractual penalty, but also of the circumstances which occurred during the breach of the contractual obligation, as well as the circumstances arising after the breach of the contractual obligation, where the breach of the contractual obligation undoubtedly originated and was foreseeable at the time of the breach of the obligation. ' ! 2

It follows from the above that moderation is not a control of the content of the agreement, but constitutes an ex post control of the specific claim asserted.

In order to effectively fulfill the concept defined in the Supreme Court Decision of 11.1.2023, sp. zn. 31 Cdo 2273/2022, it is necessary for the court to proceed in three steps: first, it must determine what function the contractual penalty was supposed to perform, since it is this that determines the definition of the relevant circumstances and criteria. This is followed by a phase in which it assesses the (non) adequacy of the contractual penalty (i.e., the specific claim resulting from the arrangement) on the basis of relevant circumstances arising from the function identified in the first phase. If it is concluded that the contractual penalty is not unreasonable, or the extent of the consequences of the breach cannot be clarified
obligations in the sphere of the creditor, in order to make a conclusion of unreasonableness, do not reduce the claim. Otherwise, there follows a phase in which the claim is reduced to a reasonable extent (fair in concreto). This approach can undoubtedly be assessed positively, as it contributes to the consistency of the whole process.3 The assessment of circumstances can be approached as a so-called moving system in which factors can complement each other.4

Decisive Moment and Procedural Aspects
According to the general provisions of the procedural provision of Section 154 of the CPC, the decisive factor for a judgment is the moment of the judgment, so that the finding of the facts is as up-to-date as possible and that the parties are not prejudicial to the change of facts in the period between the end of the oral hearing and the pronouncement of the judgment. 5 Therefore, the moment of decision is procedurally limited by the moment the judgment is pronounced. 6 It follows from the above that whereas, according to current decision-making practice, for the purpose of assessing reasonableness, a decision may be made at the earliest at the time of the infringement, but at the latest at the time of the adoption of a judicial decision, the admissibility of circumstances varies depending on their origin and predictability at the time of the infringement. 7

However, in order to apply moderation, it is necessary that the debtor raise an objection to the unreasonableness of the claim. An objection alleging the unreasonableness of the right to a contractual penalty may be raised by the debtor in the proceedings at any time, up to the moment of the decision of the Court of Appeal. However, it is necessary to remember that in order to assess the reasonableness of such an objection by the debtor, one cannot do without the facts that are relevant to the conclusion of the court on the reduction of the unreasonable claim. Accordingly, the reduction of the right to a contractual penalty on the basis of an application made by the debtor only in an appeal procedure governed by the principle of incomplete appeal may be made only if the conclusion that the contractual penalty is disproportionate is based on facts which have come to light or have been established in the proceedings before the court of first instance. If it is not possible to assess the reasonableness of the debtor's request for a reduction of the contractual penalty without the application of other facts and evidence, the appellate court cannot take into account the debtor's objection and reduce the contractual penalty (without the court of appeal being able to take into account not only the circumstances already known at the time of the award of the contractual penalty, but also the circumstances given in connection with the breach of the contractual obligation, as well as the circumstances that arise later, if they originate in the breach of the contractual obligation itself, judicial intervention (moderation) in the specific claim of the creditor for payment of the contractual penalty is not possible justify). 8

Moderation of a contractual penalty pursuant to § 2051 OZ cannot be understood as a special case of checking the content of a contractual agreement, but should be seen as a way of further checking the adequacy of a particular claim, in which circumstances other than those given in the negotiation should also be taken into account.
Contractual penalties. 9

Moderation of the contractual penalty according to § 2051 OZ is today perceived as a tool for additional control of the proportionality of the claimed claim. The approach adopted by the Supreme Court in its decision of 11 January 2023 strengthens the protection of the debtor against unreasonable penalties, while maintaining the meaning of the contractual penalty as a means of protecting the creditor. The courts are obliged to carry out a comprehensive and multi-phase assessment, which includes both the circumstances at the negotiation and those that arose later and have their origin in the breach of duty. This shift contributes to greater fairness and balance between the parties to the commitment relationship
while making it easier for courts to play a role in assessing reasonableness.

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1 st. § 2051 of Act No. 89/2012 Coll., Civil Code
2 Judgment of the Supreme Court of 11 January 2023, sp. no. 31 Cdo 2273/2022
3 Shilhan. Legal consequences of breach of contract in the new Civil Code, pp. 418-419.
4 Melzer, F. Methodology of finding law: an introduction to legal argumentation. Prague: C. H. Beck, 2011, p. 75-76.
5 NS Resolution of 25.9.2008, item 28 Cdo 2930/2008
6 Dvořák, B. § 154. In: Lavický, P. et al. Code of Civil Procedure: Practical Commentary [online]. ASPI system. Wolters Kluwer,
7 MIKYSKOVA, Monika. \ textit {Moderation of contractual fines in current case law}. It's online. Diploma Thesis. Brno: Masaryk University,
Faculty of Law. 2024. Available from: https://theses.cz/id/ppozy3/.
8 Judgment of the Supreme Court of the Czech Republic No. 23 Cdo 767/2024-209 of 22.5.2025
9 Judgment of the Supreme Court of 26 October 2023, sp. nn. 33 Cdo 1424/2023