A Critical Reflection on the Foundations of Addressing Excessive Penalty Clauses in Judicial Judgments

Articles in Press

Document Type : scientific

Authors

1 Razavi University of lslamic Sciences

2 Razavi University of Islamic Sciences

3 University of Judicial Sciences and Administrative Services

Abstract

The penalty clause serves as a tool to deter breach of contract and may, in addition to compensating for loss, take on a punitive aspect. However, there are instances where an exorbitant amount is stipulated as a penalty, creating an unfair position for the obligor. Despite the principle of freedom of contract and the explicit provision of Article 230 of the Civil Code, such agreements are considered valid. Nevertheless, a number of judges, driven by a sense of injustice toward the obligor, have sought to confront such clauses by invoking various legal grounds, either declaring them void or reducing the stipulated amount. Their efforts, beginning with disregard for the clarity of Article 230 and continuing with reinterpretation of established legal doctrines, ultimately fall short. This study, using a descriptive–library method, classifies and analyzes judicial opinions on the matter and demonstrates that opposing excessive penalty clauses not only contradicts a valid contractual term, but also conflicts with a mandatory legal rule that denies judges the authority to interfere in the parties’ agreement. Accordingly, legal reform appears to be the only viable solution.

Keywords

Main Subjects

Civil Jurisprudence Doctrines

Articles in Press, Accepted Manuscript
Available Online from 29 July 2025

Files

Share

How to cite

Statistics