Last Updated on June 27, 2021 by LawEuro
German Civil Code (BGB) German law
Title 4
Earnest, contractual penalty
Section 336
Interpretation of earnest
(1) Where something is given as an earnest when a contract is entered into, this is deemed to be a sign that the contract has been entered into.
(2) The earnest is not deemed, in case of doubt, to be forfeit money.
Section 337
Crediting or return of the earnest
(1) The earnest is, in case of doubt, to be credited against the performance owed by the giver of the earnest, or, where this cannot occur, is to be returned when the contract is performed.
(2) If the contract is cancelled, the earnest must be returned.
Section 338
Earnest in case of impossibility of performance for which giver of earnest is responsible
If the performance owed by the giver of the earnest becomes impossible due to a circumstance for which he is responsible, or if the giver of the earnest is responsible for the cancellation of the contract entered into, the recipient of the earnest may retain it. If the recipient demands damages for non-performance, the earnest must, in case of doubt, be credited against it, or if this cannot occur, must be returned when damages are paid.
Section 339
Payability of contractual penalty
Where the obligor promises the obligee, in the event that he fails to perform his obligation or fails to do so properly, payment of an amount of money as a penalty, the penalty is payable if he is in default. If the performance owed consists in forbearance, the penalty is payable on breach.
Section 340
Promise to pay a penalty for nonperformance
(1) If the obligor has promised the penalty in the event that he fails to perform his obligation, the obligee may demand the penalty that is payable in lieu of fulfilment. If the obligee declares to the obligor that he is demanding the penalty, the claim to performance is excluded.
(2) If the obligee is entitled to a claim to damages for nonperformance, he may demand the penalty payable as the minimum amount of the damage. Assertion of additional damage is not excluded.
Section 341
Promise of a penalty for improper performance
(1) If the obligor has promised the penalty in the event that he fails to perform his obligation properly, including without limitation performance at the specified time, the obligee may demand the payable penalty in addition to performance.
(2) If the obligee has a claim to damages for the improper performance, the provisions of section 340 (2) apply.
(3) If the obligee accepts performance, he may demand the penalty only if he reserved the right to do so on acceptance.
Section 342
Alternatives to monetary penalty
If, as penalty, performance other than the payment of a sum of money is promised, the provisions of sections 339 to 341 apply; the claim to damages is excluded if the obligee demands the penalty.
Section 343
Reduction of the penalty
(1) If a payable penalty is disproportionately high, it may on the application of the obligor be reduced to a reasonable amount by judicial decision. In judging the appropriateness, every legitimate interest of the obligee, not merely his financial interest, must be taken into account. Once the penalty is paid, reduction is excluded.
(2) The same also applies, except in the cases of sections 339 and 342, if someone promises a penalty in the event that he undertakes or omits an action.
Section 344
Ineffective promise of a penalty
If the law declares that the promise of an act of performance is ineffective, then the agreement of a penalty made for the event of failure to fulfil the promise is likewise ineffective, even if the parties knew of the ineffectiveness of the promise.
Section 345
Burden of proof
If the obligor contests the payability of the penalty because he has performed his obligation, he must prove performance, unless the performance owed consisted in forbearance.
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