Penalty Clauses and the CISG

16 Pages Posted: 15 Nov 2013 Last revised: 7 Apr 2014

See all articles by Jack Graves

Jack Graves

Touro University - Jacob D. Fuchsberg Law Center

Date Written: 2012

Abstract

Commercial agreements often provide for “fixed sums” payable upon a specified breach. Such agreements are generally enforced in civil law jurisdictions. In contrast, the common law distinguishes between “liquidated damages” and “penalty” clauses, enforcing the former, while invalidating the latter as a penalty. The UN Convention on Contracts for the International Sale of Goods (CISG) does not directly address the payment of “fixed sums” as damages, and the validity of “penalty” clauses has, traditionally, been relegated to otherwise applicable domestic national law under CISG Article 4. This traditional orthodoxy has recently been challenged — suggesting that the fate of a penalty clause should be determined by reference to the general principles of the CISG and that such a clause should generally be enforced. The validity of fixed sums, as penalties, is currently under consideration by the CISG Advisory Council, so further exploration of the issue would seem particularly timely. This article examines the basis for the traditional view, along with two distinct challenges to that view — ultimately concluding that these challenges fail to support their respective solutions to the issue and suggesting the continuing vitality of the traditional view.

Keywords: CISG, Civil Law, Common Law, Contract, Convention on Contracts for the International Sale of Goods, Fixed Sum, Liquidated Damages, International, Penalty Clause, Remedies, Breach, Damages, Non-performance, Punitive

Suggested Citation

Graves, Jack Michael, Penalty Clauses and the CISG (2012). 30 Journal of Law and Commerce 153 (2012), Touro Law Center Legal Studies Research Paper No. 14-14, Available at SSRN: https://ssrn.com/abstract=2350315

Jack Michael Graves (Contact Author)

Touro University - Jacob D. Fuchsberg Law Center ( email )

225 Eastview Drive
Central Islip, NY 11722
United States

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