A Jurisprudential and Comparative Analysis of Liquidated Damages Clauses and the Court’s Authority to Modify Them

Abstract

Liquidated damages clauses are among the most significant contractual mechanisms used to secure performance and predetermine the financial consequences of breach. These clauses play an important role in strengthening legal certainty, reducing contractual disputes, and simplifying the compensation process. Nevertheless, the inclusion of excessive or disproportionate amounts in some contracts has raised a fundamental legal question: should courts always enforce the amount agreed upon by the parties, or may they modify it under exceptional circumstances? This study adopts an analytical, jurisprudential, and comparative approach to examine the legitimacy of liquidated damages clauses and the scope of judicial intervention in modifying them. The findings demonstrate that, within Imami jurisprudence, the validity of such clauses is generally supported by principles such as the binding force of contractual stipulations, the necessity of fulfilling obligations, and respect for party autonomy. However, this validity is not absolute. Where the clause becomes an instrument of oppression, unjust enrichment, or disproportionate harm, jurisprudential principles such as the prohibition of harm, prevention of injustice, and contractual fairness may justify limiting or moderating its enforcement. The study further shows that although Article 230 of the Iranian Civil Code apparently restricts judicial authority to alter the agreed amount, a more flexible interpretation consistent with broader legal and jurisprudential principles may allow limited judicial intervention in cases of manifest disproportionality. Comparative analysis of French law, common-law systems, and international contractual instruments also indicates that modern legal systems increasingly seek to balance contractual autonomy with the need to prevent unfair and excessive contractual terms. The article ultimately concludes that recognizing a limited and regulated judicial authority to modify liquidated damages clauses can preserve contractual stability while preventing the enforcement of oppressive and inequitable provisions.