Definition: Conventional penalty is the suspensory conditional performance which the debtor promises the creditor through a legal transaction in the event of non-performance, improper performance or late performance of a particular debt.

The debtor is only obliged to pay the contractual penalty if he has not fulfilled the main debt, not properly or late fulfilled it. The legal basis for a contractual penalty can be either a contract or statutes. The agreement of a contractual penalty has an accessory character, i.e. it is added to an existing legal obligation and is dependent on it in its creation, continuation and enforceability. For this reason, the agreement on a contractual penalty requires the same form as the obligation, the non-fulfilment of which is to result in the penalty being imposed. Agreements on contractual penalties can be made at the same time as the main contract or only subsequently.

Assertion of the contractual penalty presupposes that the debtor is at fault for the non-performance or poor performance of the main obligation. It is not presupposed that the creditor has suffered damage (in contrast to compensation for damages), the creditor is consequently exempt from furnishing proof of corresponding damage (Art. 161 para. 1 CO).