Economic and Legal Analysis of Penalty Clause

Penalty clause or liquidated damage which is formerly agreed between parties is legally examined and accepted as a rule. Although judge could in some circumstances modify this stipulation. Yet its economic analysis which is focused on economic efficiency can be considered as a “major unexplained puzzle in the economic theory of law”. This article compares the major legal systems in the case of penalty clause with the comparative method and analyzes the advantages and disadvantages of penalty clause with the descriptive and analytical research method. This article tries to deeply appraise the invalidation of the penalty clause and introduce an intermediate solution penalty clause whit some exceptions in special circumstance، as a principle give rise to justice and economic efficiency.