Penalty clause

A penalty clause provides that a debtor owes a specified amount or other disadvantage if it fails to perform, performs late, or breaches an obligation. Swiss law accepts contractual penalties as a means of pressure and simplification, distinct from proving actual loss. Depending on the clause, the creditor may claim the penalty, performance, or damages within applicable limits. Courts may reduce an excessive penalty. The clause should be distinguished from a genuine estimate of loss, although the boundary with liquidated damages can be blurred in practice.