Reduction of an excessive conventional penalty in an aircraft sale contract

Facts

On December 29, 1992, X. SA and C. Company Limited entered into a contract for the sale of a Canadair Challenger 601-3A-ER aircraft for a total price of 17'595'000 US$. The contract provided for staggered payments, with deposits to be paid on different dates. C. made partial payments totaling 3'733'500 US$ before X. terminated the contract due to non-payment of a deposit. X. retained the deposits already paid, pursuant to Article 3 of the contract, which stipulated that partial payments made by the buyer remained acquired by the seller in case of non-performance.

The plaintiffs, Y. and Z., assignees of C., brought an action against X. to obtain restitution of the deposits. The Geneva Court of Justice ordered X. to pay the plaintiffs the amount of 3'233'500 US$ with interest. X. appealed to the Federal Tribunal, which partially admitted the appeal and amended the judgment under appeal.

Considerations

The Federal Tribunal examined the issue of reducing an excessive conventional penalty under Article 163 para. 3 CO. It recalled that the provisions concerning the penalty clause apply to the agreement whereby partial payments made remain, in the event of termination, acquired by the creditor. The Federal Tribunal also emphasized that the judge must reduce penalties that it deems excessive, taking into account all the specific circumstances of the case.

The Federal Tribunal considered the conventional penalty of 3'733'500 US$ to be excessive, representing 21.21% of the price…