Forfeit

Type of security for fulfillment of obligations in accordance with Art. 329 of the Civil Code of the Russian Federation .

The agreement on the penalty must be made in writing regardless of the form of the underlying obligation. Failure to comply with the written form shall entail the invalidity of the penalty agreement.

The creditor has the right to demand the payment of a penalty determined by law (legal penalty), regardless of whether the obligation to pay it is provided by agreement of the parties. The size of the legal penalty may be increased by agreement of the parties, if the law does not prohibit it.

If the penalty payable is clearly disproportionate to the consequences of the violation of the obligation, the court has the right to reduce the penalty.

Types of Forfeit

Depending on the possibility of combining the forfeit with damages, the law distinguishes between four types of forfeit: credit, penalty, exceptional and alternative (Article 394 of the Civil Code of the Russian Federation).

• The offset penalty allows the creditor, in addition to the penalty, to claim damages in part not covered by the penalty, that is, with the offset. A penalty of this type is the most frequently used and is considered credible in all cases, unless otherwise provided by law or contract.
• The fine penalty allows the creditor to claim compensation in full for the losses caused and, moreover, the payment of the penalty. This type of penalty is used for the most flagrant and significant breaches of obligations, for example, for poor-quality supply of products and consumer goods.
• An exceptional penalty , unlike a penalty, eliminates the right to recover damages.
• An alternative penalty provides for the right of the injured party to recover either a penalty or losses.
• Penalty - a penalty, determined as a percentage for each delayed day of fulfillment of an obligation.

For the subject of the establishment of the penalty, they distinguish between legal (prescribed by law) and contractual (established by the parties to the contract). ^[one]

According to English law, a penalty is an obligation to pay a certain amount to protect against breach of contract. This amount significantly exceeds the actual losses that the court may recognize as incurred by the innocent party as a result of the violation. English law prohibits the use of forfeit. Any provision on forfeit is considered null and void.

The provision of the contract may be recognized as the provision on the penalty (and therefore void or unenforceable) if it is proved that the size of the penalty is excessive or disproportionate, and its main purpose is to limit, not compensation, and that there is some form of harassment. ^[2]

• Ian Ivory, Anton Rogosa. Use of English law in Russian transactions = / Use of English law in Russian Transactions. - M .: Alpina Publisher , 2011. - 136 p. - (Library of the company "Goltsblat BLP"). - ISBN 978-5-9614-1518-6 .

• § 2. Forfeit Civil Code of the Russian Federation