Withdrawal from the Contract and a Contractual Penalty
Many times, especially in the past, one could encounter the sanctioning of a contractual party by means of a contractual penalty if the contractual party decided to withdraw from the contract.
The key to understanding that a contractual penalty is an instrument protecting against a contractual party’s failure to perform its contractual obligation and is not an instrument aimed at preventing the exercise of the right to withdraw, is the following decision: Judgment of the Supreme Court of the Slovak Republic dated 01 November 2001, file no.: 2 Cdo 141/2000 (excerpt):
“Withdrawal from a contract is not a breach of a contractual obligation, but an exercise of a right, and therefore cannot be sanctioned by a contractual penalty.“
A contractual penalty may be agreed for the event of a breach of a contractual obligation (see Section 544 et seq. of the Civil Code). The exercise of a right as such is not a breach of a contractual obligation, logically.
Be careful about how you draft contracts. If you need to draft a contract, modify the sanction mechanism for failure to perform contractual obligations, or set out the methods of terminating the contract, write to us: skypalova@skylex.sk
