If, due to the nature of a legal relationship, there is a risk of breach of obligation by the debtor, you can secure your claims by means of a penalty.
A penalty is a monetary amount determined by agreement of the parties, which the debtor must pay for non-performance, delay in performance, or other types of breach of obligation.
A penalty can exist only in the form of a monetary amount, which must be fixed and specifically determined. For the validity of a penalty agreement, the law requires the parties to conclude the contract in writing.
Two forms of penalty are distinguished: interest and fine. One is intended for cases where the breach of obligation is expressed in delay, while the other is used as a lump-sum penalty in the event of a penalty being stipulated. For example, if a party materially breaches the contract and also withdraws from the contract, to protect against this, a penalty may be stipulated in the amount of 30% of the contract subject's value, or the penalty may be expressed as a fixed amount (e.g., 5,000 GEL).
It should also be noted that a penalty is compatible with all secondary claims, and when applying it, the party is not required to prove the fact of damage, since the basis for imposing a penalty is the breach/improper performance of the obligation. However, in cases of force majeure, the imposition of a penalty on the party may be excluded.
Georgian legislation imperatively establishes that the creditor cannot simultaneously demand both payment of the penalty and performance of the obligation, unless the penalty is stipulated for cases where the debtor fails to fulfill obligations within the prescribed time.
The law allows the possibility to claim the full amount of the penalty for delay and, together with it, to demand performance of the obligation. However, if the penalty is stipulated for non-performance of the obligation, the party can no longer demand performance of the obligation together with the penalty.
