Abstract
Both the Ethiopian Civil Code and the Turkish Code of Obligation recognized party autonomy to agree a penalty clause either as an ex-ante estimation of a possible damage from non-performance of an obligation or as a sanction for default. But, despite the fact that both countries adhered to the continental legal system, there are considerable differences between the two regarding the regulation of penalty clauses. The paper examines the regulation of penalty clauses in legal literature as well as the laws of the two countries. It, in particular, analyses the two laws on the type of principal obligations that can be secured by penalty clauses, the possibility of claiming the enforcement of both the contract and the penalty, the relation between fault of the debtor & damaged suffered by the creditor on one hand and the enforcement of the agreed penalty on the other hand as well as possible court intervention in altering the free wills of the parties. A comparative approach is used throughout the paper in which the differences and similarities of the two systems are examined.
Highlights
Parties in a debt relation may secure the performance of their debt through penalty clauses as they may secure through movable or immovable properties or personal guarantors (Cansel & Özel, 2007)
In Ethiopia, as discussed above, courts may grant the creditor a damage over the penalty when a greater damage is caused against him due to the fault of the debtor. Both Ethiopia and Turkey belong to the continental legal system
Penalty clauses may be agreed to secure any obligation so long as the obligation is neither illegal nor immoral except obligations that may inhibit the personal freedoms of the parties like promises to marry, obligations in which one of the party is weaker and worth of legal protection like employment contracts and house rent
Summary
Parties in a debt relation may secure the performance of their debt through penalty clauses as they may secure through movable or immovable properties or personal guarantors (Cansel & Özel, 2007). Penalty clauses are contractual agreements between a creditor and a debtor in a certain debt relation in which they determine the effects of non-performance of the obligation. They may serve as a good faith estimation of the future loss due to a possible non-performance, means to coerce performance or as a limitation of the liability of the debtor (Graves, 2012). This paper is a comparative study of the laws of Turkey and Ethiopia on the regulation of penalty clauses.
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