Legal Effect of Penalty Clause and Specific Performance in a Land Sale Agreement Despite Acceptance of Liquidated Damages
Mr. Mun agreed to sell his land and house to Mr. Kong for an agreed price, and both parties executed a written agreement stipulating that the transfer of ownership would be registered at the Land Office on 20 January 1982. The contract further provided that, should Mr. Mun fail to transfer the property in accordance with the agreement, he would pay a contractual penalty of 20,000 Baht and consent to judicial enforcement compelling performance of the contract.
Subsequently, Mr. Mun refused to proceed with the transfer on the ground that the agreed price was insufficient for him to purchase a new residence. Although he paid the contractual penalty of 20,000 Baht to Mr. Kong, the latter, who wished to reside in the property, filed an action seeking specific performance compelling Mr. Mun to transfer the land and house in accordance with the agreement.
Mr. Mun contended that, since Mr. Kong had already accepted the penalty payment, he was no longer entitled to demand transfer of the property or seek enforcement of the contract.
Such defense is untenable. The contractual penalty in this case constituted a penalty under Section 381 paragraph one of the Thai Civil and Commercial Code, under which the creditor retains the right to demand performance of the principal obligation in addition to the penalty, unless otherwise agreed. Furthermore, the acceptance of the penalty payment by Mr. Kong did not extinguish his right to seek specific performance, as Section 381 paragraph final paragraph concerns reservation of the right to claim the penalty, not reservation of the right to compel performance of the principal obligation.
Accordingly, Mr. Mun remained obligated to transfer the land and house to Mr. Kong pursuant to the agreement. (Supreme Court Decision No. 2216/2515)