A contractual penalty clause is one of the most practical tools available to parties negotiating a contract in North Macedonia. It predetermines the financial consequences of non-performance, late performance or improper performance — giving both sides certainty about the risks involved and eliminating the need to prove actual damage in order to claim compensation. This page is part of our practice in contract law. 

A contractual penalty constitutes a legal instrument of the law of obligations aimed at ensuring discipline in the performance of contractual obligations, by predetermining the consequences of their non-performance, late performance, or improper performance. It enhances legal certainty, as the parties, already at the time of concluding the contract, anticipate the risks and financial implications of a potential breach.

How a Contractual Penalty Is Agreed

In accordance with statutory provisions, the creditor and the debtor may agree that the debtor will pay a specified monetary amount or provide another material benefit to the creditor in the event of non-performance, delay, or improper performance of the obligation. Unless otherwise stipulated in the contract, it is presumed that the contractual penalty is agreed for the case of delay. An important limitation is that a contractual penalty may not be agreed for monetary obligations.

With regard to the method of determination, the contractual penalty may be set in various ways, such as a fixed amount, a percentage, a daily rate for delay, or through another appropriate model, depending on the nature of the obligation. Its validity is subject to compliance with the form prescribed for the underlying contract — meaning the penalty clause must be agreed in the same form as the obligation it secures.

Accessory Nature and Limits

As an accessory right, the contractual penalty is inseparably linked to the principal obligation. It shares its legal fate — meaning it ceases to have effect if the underlying obligation becomes void or is terminated on other grounds. Additionally, the contractual penalty has no legal effect if the non-performance or delay occurred due to circumstances for which the debtor is not liable.

Creditor Rights — Performance or Penalty

The rights of the creditor depend on the purpose for which the contractual penalty was agreed. If it is stipulated for non-performance, the creditor may choose between claiming performance of the obligation or claiming the contractual penalty, but not both simultaneously. Conversely, where the contractual penalty is agreed for delay or improper performance, the creditor may claim both performance and the contractual penalty. However, if the creditor accepts performance without delay and without reserving the right to the contractual penalty, they lose the right to claim it.

Judicial Reduction

Although the contractual penalty is based on the principle of party autonomy, the law provides for the possibility of judicial intervention. Specifically, upon the debtor’s request, a court may reduce the amount of the contractual penalty if it finds it to be disproportionately high in relation to the value and significance of the obligation.

Relationship with Damages

The contractual penalty does not exclude the creditor’s right to claim compensation. The creditor may claim the contractual penalty regardless of whether any actual damage has been suffered and irrespective of its amount. If the damage exceeds the amount of the contractual penalty, the creditor is entitled to claim the difference up to full compensation.

Statutory Penalties and Contractual Penalties

Finally, where the law provides for a specific statutory compensation (penalty or similar) for non-performance or delay, and the parties have additionally agreed on a contractual penalty, the creditor is not entitled to claim both simultaneously, unless expressly permitted by law.

The contractual penalty represents an important mechanism for ensuring contractual discipline, but its application must always remain within the principles of good faith, fairness, and proportionality.

Practical Checklist

When drafting or reviewing a contractual penalty clause in North Macedonia, verify the following: (1) State the triggering event clearly — is the penalty for non-performance, delay, or improper performance? If silent, the law presumes it applies only to delay. Make the intended scope explicit. (2) Do not apply to monetary obligations — a contractual penalty cannot be agreed for obligations whose subject matter is a sum of money. If the primary obligation is monetary, the penalty clause is invalid. (3) Match the form of the underlying contract — if the main contract requires notarization or a specific written form, the penalty clause must be in the same form to be valid. (4) Choose the right structure — fixed amount, percentage of contract value, daily rate for delay, or another model. The structure should reflect the nature of the obligation and the harm that breach would cause. (5) Reserve the right to the penalty when accepting late performance — if the creditor accepts performance without expressly reserving the right to the contractual penalty, that right is lost. Always reserve in writing. (6) Be aware of judicial reduction — courts can reduce a disproportionately high penalty at the debtor’s request. Setting the penalty at a level that is commercially justifiable reduces this risk. 

Frequently Asked Questions

Can a contractual penalty be agreed for any type of obligation?

No. The law explicitly prohibits contractual penalties for monetary obligations — that is, where the primary obligation itself is to pay money. For all other types of obligation (delivery of goods, performance of services, construction, transfer of rights, etc.), a contractual penalty clause is permitted.

What is presumed if the contract does not specify when the penalty applies?

If the contract includes a penalty clause but does not specify whether it applies to non-performance, delay or improper performance, the law presumes it was agreed for the case of delay. To avoid ambiguity, the triggering events should always be explicitly stated.

Can the creditor claim both performance and the contractual penalty?

It depends on the purpose of the penalty. If the penalty was agreed for non-performance, the creditor must choose between demanding performance or demanding the penalty — not both. If it was agreed for delay or improper performance, the creditor can claim both performance and the penalty simultaneously.

Can a court reduce the contractual penalty?

Yes. Upon the debtor’s request, a court can reduce the contractual penalty if it finds it disproportionately high relative to the value and significance of the obligation. This is a protective mechanism against abusive penalty clauses. The creditor cannot prevent this — the debtor simply needs to raise it before the court.

Does claiming the contractual penalty require proof of actual damage?

No. The creditor can claim the contractual penalty regardless of whether any actual damage has occurred and regardless of its amount. This is one of the key advantages of the contractual penalty — it eliminates the evidentiary burden of proving loss. If actual damage exceeds the penalty amount, the creditor can additionally claim the difference up to full compensation.

Need legal guidance?

If you have questions about contractual penalty clauses or contract drafting in North Macedonia, the team at Lalicic & Partners is at your disposal. Contact us through our website.