The concept of the clause pénale — set out in Article 1231-5 of the French Civil Code (formerly Article 1152) — is a familiar one. It denotes a stipulation by which the parties agree in advance on a lump sum of damages payable in the event of non-performance of an obligation.

The traditional view is that a clause pénale (which English-speaking lawyers will tend to call a penalty clause, with all the comparative-law caveats this entails) can be identified by three converging features:

  • It sanctions a contractual non-performance. That is why the indemnité d’immobilisation — the consideration paid for an option to purchase — cannot qualify: the option holder is under no obligation to buy.
  • It fixes a lump-sum amount of damages. Neither a floor nor a ceiling, but a flat figure, divorced from any assessment of the loss actually suffered.
  • It is in terrorem in nature: hanging over the debtor like a sword of Damocles, it puts pressure on him by spelling out, in advance, the price of non-performance.

So much for the theory.

In practice, separating the wheat from the chaff — distinguishing a clause pénale from neighbouring devices — is no easy task. And the stakes are high: once the stipulation is characterised as a clause pénale, the judge or arbitrator gains an exceptional power to revise the contractually agreed amount where it is manifestly excessive or derisory.

Hence the recurring hesitations and attempts at recharacterisation, as illustrated by the recent case-law of the Cour de cassation.

The cowl does not make the monk. What matters is not the garb, but what lies within. This, in essence, is the line taken by the Cour de cassation in four recent decisions, all of which embrace a functional reading of the clause pénale, looking past the words chosen by the parties.

First example — Cass. civ. 2e, 18 December 2025, no. 23-23.751, FS-B

A six-year retainer agreement between a lawyer and his client provided that, in the event of early termination by the client, the unbilled fees would be claimed « by way of penalty and compensation for the loss suffered« .

The Versailles Court of Appeal saw in this a clause de dédit — a contractual termination fee. The characterisation was not absurd: where the contract itself permits a party to walk away, can one really speak of non-performance?

The Cour de cassation nevertheless reversed, anchoring its analysis in the amount of the indemnity. In the high court’s eyes, because the indemnity equalled the full price of performance through to the term — even though, by definition, no further services would be rendered if termination occurred — the stipulation was coercive in nature: its function was to deter termination.

Once the clause pénale characterisation was secured, Article 1231-5 reasserted itself, and with it the judge’s power to moderate a manifestly excessive amount.

Second example — Cass. civ. 3e, 18 December 2025, no. 24-19.042, FS-B

The by-laws of an agricultural cooperative — approved by ministerial order — provided that, in the event of total or partial non-performance by a member, the board could impose various sanctions, including « a percentage of the value of the quantities that should have been delivered, or of the turnover that the cooperative should have generated, for the remaining accounting periods until the term of the commitment« .

The debtor disputed the clause pénale characterisation, arguing in particular that a clause pénale can only flow from the parties’ agreement, not from a statutory or regulatory mechanism. The argument made no impression on the Cour de cassation.

He further submitted that a clause pénale must fix a lump sum independent of the loss actually suffered — which would not be the case here, since the by-laws referred to « the turnover that the cooperative should have generated« .

The high court nevertheless upheld the clause pénale characterisation. It held that « a clause in the by-laws of a cooperative which, in the event of total or partial non-performance by the member, places upon him the payment of a sum corresponding to a contractual and lump-sum assessment of the future loss suffered by the cooperative, constitutes a clause pénale, irrespective of the fact that the model by-laws contemplate the possibility of pecuniary sanctions and methods of calculation« .

The Third Civil Chamber added that « the sanctions, set out in Articles 8.6 and 8.7 of the by-laws, calculated either on the basis of an estimate of the quantity of harvests that should theoretically have been delivered but were not, or on the basis of a flat percentage, were intended — by reason of their dissuasive amount — to incentivise the member to honour his contractual commitments« .

Thus: because the sanctions were calculated on the basis of an estimate of the quantity of harvests that should have been delivered, the assessment of damages was a lump sum; and because the amount was dissuasive, the in terrorem dimension was made out.

The clause pénale characterisation followed, and with it the judge’s power of moderation.

Third example — Cass. civ. 3e, 8 January 2026, no. 24-12.082, FS-B

A contract for the construction of an individual house stipulated that, if the building owner cancelled before works began, he would owe a flat indemnity of 10% of the agreed price.

The facts look close to those of the first example concerning the lawyer’s retainer.

Yet the Cour de cassation here refused the clause pénale characterisation, on the ground that the indemnity did not sanction a non-performance, but compensated the exercise of a contractual prerogative of termination — one that Article 1794 of the Civil Code expressly grants to the building owner.

In the words of the Court: « The clause pénale, the purpose of which is to ensure performance of the obligation by one of the parties, is to be distinguished from the faculté de dédit, which allows that party to escape performance against payment of a lump-sum indemnity. »

The Court inferred that the clause « did not sanction a non-performance attributable to the building owner, with the result that it could not be analysed as a clause pénale but constituted a clause de dédit, not amenable to moderation« .

That much is true — yet hesitation seems permissible where the contract itself organises such a faculty of withdrawal or early termination.

Does the answer not lie rather in the amount of the stipulated indemnity? In the first decision, the amount was coercive precisely because the client had to pay all sums due under the contract without receiving anything in return. Here, by contrast, the exit ticket is far less onerous: 10% of the contract price (in addition to amounts corresponding to the work already performed).

And is the reference to Article 1794 truly decisive? Does it really matter that it is the Code that allows the building owner to terminate while compensating the contractor, given that (i) such a faculty could equally arise out of the contract alone, and (ii) in any event, it is the parties’ will that determined the amount of the termination indemnity?

Fourth example — Cass. civ. 2e, 12 March 2026, no. 24-13.954, F-B

A contract between an insurer and a general insurance agent provided that, in the event of breach by the agent of his post-contractual non-compete obligation, he would forfeit his right to the end-of-mandate compensatory indemnity.

Could this contractual forfeiture be characterised as a clause pénale?

No, said the Nancy Court of Appeal, which saw in it nothing more than the loss of a right.

That ruling did not stand. For the Cour de cassation, once the parties had « agreed in advance that non-performance [of the obligation] would be sanctioned by the loss of the right to the indemnity« , the legal form of the sanction was beside the point.

What counts is its function: to assess, in advance and on a lump-sum basis, the damages payable in case of non-performance.

It follows that the forfeiture clause may be treated as a clause pénale, and is therefore amenable to judicial moderation.

Key takeaway

The Cour de cassation has now firmly committed to a functional reading of the clause pénale.

In the high court’s eyes, a clause pénale is any stipulation that sanctions a non-performance attributable to the debtor.

It matters little whether the stipulation is dressed up as a « penalty », a « compensation », a « contribution to fixed costs » or a « forfeiture »: what counts is the dual dimension — coercive and indemnitary — of the clause pénale.