Book2 Chapter02 Title04

GERMAN CIVIL CODE OF 1896

• Based on the English Translation by: Wang, Chung Hui (1907). The German Civil Code, translated and annotated with historical introduction and appendices. London: Stevens and Sons. [available on Archive.org]

BOOK II. Law of Obligations.

Chapter II. Obligations Ex Contractu.

Title IV. Earnest, Stipulated Penalty.

Section 336.

• [I] If, on entering into a contract, something is given as earnest, this is deemed to be proof of the conclusion of the contract.
• [II] In case of doubt the earnest is not deemed to be a forfeit.

Section 337.

• [I] The earnest shall, in case of doubt, be credited on the performance due from the giver, or, when this cannot be done, shall be returned on performance of the contract.
• [II] If the contract is rescinded the earnest shall be returned.

Section 338.

• If the performance due from the giver becomes impossible in consequence of a circumstance for which he is responsible, or if the rescinding of the contract is due to his fault, the holder of the earnest is entitled to retain it. If the holder of the earnest demand compensation for non-performance, the earnest shall, in case of doubt, be credited, or, if this cannot be done, shall be returned on payment of the compensation.

Section 339.

• If the debtor promises the creditor the payment of a sum of money as penalty in case he does not perform his obligation or does not perform it in the proper manner, the penalty is forfeited if he is in default. If the performance due consists in a forbearance (m), the penalty is forfeited as soon as any act in contravention of the obligation is committed.

Section 340.

• [I] If the debtor has promised the penalty for the case of his not fulfilling his obligation, the creditor may demand the forfeited penalty in lieu of fulfilment. If the creditor declares to the debtor that he demands the penalty, the claim for fulfilment is barred.
• [II] If the creditor has a claim for compensation for non-performance, he may demand the forfeited penalty as the minimum amount of the damage. Proof of further damage is admissible.

Section 341.

• [I] If the debtor has promised the penalty for the case of his not fulfilling the obligation in the proper manner, e.g., not at the fixed time, the creditor may demand the forfeited penalty in addition to the fulfilment.
• [II] If the creditor has a claim for compensation on account of improper fulfilment, the provisions of 340, par. 2, apply.
• [III] If the creditor accepts the fulfilment, he may demand the penalty only if on acceptance he reserves the right to do so.

Section 342.

• If another performance than the payment of a sum of money is promised as penalty, the provisions of 339 to 341 apply; the claim for compensation is barred if the creditor demands the penalty.

Section 343.

• [I] If a forfeited penalty is disproportionately high, it may be reduced to a reasonable amount by judicial decree obtained by the debtor). In the determination of reasonableness every legitimate interest of the creditor, not merely his property interest, shall be taken into consideration. After payment of the penalty the claim for reduction is barred.
• [II] The same rule applies also, apart from the cases provided for by 339, 342, if a person promises a penalty for the case of his doing or forbearing to do some act.

Section 344.

• If the law declares the promised performance invalid, an agreement made for a penalty for non-fulfilment of the promise is also invalid, even if the parties knew of the invalidity of the promise.

Section 345.

• If the debtor contests the forfeiture of the penalty on the ground of having fulfilled his obligation, he shall prove the fulfilment, unless the performance due from him consisted in a forbearance.