The Taiwan High Court rendered the 103-Shang-Yi-1037 Civil Decision of December 24, 2014 (hereinafter, the "Decision"), holding that if an agreed-upon default penalty is too high, a court may reduce it to an appropriate amount, and the right of claim of the claimant will not be established until the legal effect of the court's ruling on discretionary reduction of the default penalty is formed when the issue of delinquent interest will arise.

According to the facts underlying the Decision, the Appellant applied to the court for compulsory enforcement (which has been completed) of a default penalty of NT$3.85 million in accordance with Article 12 of the lease agreement for failure to return the property at issue within the required period. The Appellee, however, filed a complaint to seek a judgment which reduces such default penalty, which the Appellee asserted to be excessive, and which compels the Appellant to pay the Appellee NT$1,922,137 plus statutory delinquent interest accrued from the day following the final judgment.

It was first pointed out in the Decision that under Article 252 of the Civil Code, if an agreed-upon default penalty is too high, the court my reduce it to a reasonable amount. In addition, except for voluntary payment by the obligor which may be deemed voluntary performance of the obligor who may not request a refund of such payment, the court may still reduce such payment to a reasonable amount pursuant to the above requirement. Therefore, it was further determined that the benefit generated without legal reasons from the enforcement of the part of the payment which should be reduced by the Decision should be returned to the Appellee.

It was also pointed out in the Decision that an application to the court to reduce a default penalty will not be effective until the court has rendered a ruling ex officio to reduce the default penalty. Therefore, a party is not obligated to refund the default penalty before such discretionary reduction by the court, and the right of claim of the claimant is not established until the legal effect of the court's discretionary reduction ruling is formed when the issue of additional delinquent interest payable by the obligee arises due to delay payment. Therefore, the right of claim of the Appellee over the return of unjust enrichment was not established until the Decision became final. To wit, the Appellant was not liable for delinquent payment until the day following the finalization of the Decision. Therefore, with respect to interest accrual, only the statutory delinquent interest for the period between the day following the finalization of the Decision and the date of payment is valid. The Appellee's claims in excess of such interest are groundless and should be rejected.