Penalty or compensation in case of delay?
The Bulgarian court of law has been consistent in that the agreed default penalty up to a certain percentage of the amount of the monetary obligation does not limit the creditor to claim compensation for delay in the amount of the statutory interest on the principal instead of the penalty.
The statutory interest in Bulgaria is the Basic Interest Rate determined by the Bulgarian National Bank plus 10% on an annual basis. The penalty for delay is usually limited in the contracts to up to 10% of the amount of the obligation regardless of the duration of the delay. Thus, the compensation for delay often will be higher than the agreed penalty.
The Bulgarian law explicitly provides for the possibility for the creditor to claim compensation for larger damages that are not covered by the penalty. The harm to the creditor in case of default of a pecuniary obligation is assumed by the legislator because of the nature of the monetary obligation – the payment of a pecuniary obligation is always possible and the default is manifested only by the delay of the debtor.
The legislative solution the liability for non-performance not to be limited to the amount of the agreed penalty, and the creditor to be entitled to claim compensation for greater damages, determines the conclusion that the penalty for delay agreed in the contract does not in principle exclude the creditor from claiming compensation under Art. 86, para. 1 of the Obligations and Contracts Act in the amount of the statutory interest instead of the contractual penalty or above its amount.
The liability of the debtor should not be considered limited to the amount of the penalty. Compensation under art. 86, para. 1 of the Obligations and Contracts Act is also due in the presence of a penalty clause in the contract between the parties if a claim for the penalty is not filed and the debtor has not paid the agreed penalty.
This article is purely informative in nature and does not constitute legal advice regarding a specific subject or factual situation. For specific legal advice, you should contact a lawyer. Stoeva, Tchompalov & Znepolski Law Firm is not responsible for taking any legal action based on its content.