Penalty Clauses in Italian Law

The Italian legislative provisions pertaining to penalty clauses are based on the French model in the Code civil. In contrast to the typical approach in common law systems, Italian law does not distinguish between penalty and liquidated damages clauses. A contractual penalty, agreed upon with the aim of causing the creditor to cease performance, is regarded as effective; however the extent of such penalty can be lowered by the court if it is clearly too high. Due to different matters at the European level, contract theory in the field of penalty clauses has focused on private law sanctions. Recent key decisions by the Italian Court of Cassation have, however, brought the compensatory function of the penalty clause to the fore. In this context, it is thus necessary to examine the relationship between contractual penalties, claims to performance, and compensation in order to assess the parties' autonomy when determining the function of penalty clauses. Where compensation is concerned, it is to be clarified whether the loss suffered is one of the criteria to be considered when assessing whether the extent of the penalty is appropriate. This article also refers to the content of the consumer code as well as other provisions concerning similar clauses, e.g., deposits. Finally, the Italian rules on contractual penalties will be compared with the corresponding rules in projects aimed at the harmonization of private law.