A Czech Supreme Court decision (file no. 23 CDO 1192 / 2019) dated 30
September 2019 considers the validity of a contractual penalty clause arising from a breach of duty and contractual withdrawal. 

According to the Supreme Court,  there is no prohibition against an agreement between two parties which ties a contractual penalty to another legal fact such as a creditor’s withdrawal from the contract based on the debtor’s breach of duty. Such a clause is therefore allowed.Equally, such an agreement does not depart from the definition of contractual penalties stated under section 2048 of the Civil Code. It does not therefore represent an innominate contract.This kind of agreement is also not excluded by any laws on contractual penalties.

As such, there remains no scope for concluding that such a legal action is absolutely invalid.

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