A contractual party breaching its obligations undertaken in the contract may face various consequences. One of the consequences is that the damage caused by the breach of contract shall be compensated. In which case the concerned party may be exempted from the liability for damages?
Damage caused by the breach of contract
All cases shall be considered as a breach of contract, when the party fails to comply with its contractual obligation or performs it not in line with the provisions of the contract, legal regulations. The breach of contract may occur in various forms. For instance, shall be considered as a breach of contract the followings.
- If someone performs its obligation in a delayed manner.
- Obligations are performing in a faulty manner.
- The breaches of obligation to provide the information set forth in the contract.
- If someone fails to comply with its obligation to cooperate.
It may occur that the other party suffers damage from the breach of contract. The party in breach shall reimburse the caused damage. The damage may occur in the form of actual depreciation. For instance, if the other party’s property is damaged by reason of the contractual breach. The damage may occur in the form of loss of profit. For instance, if due to the late performance a loss of income emerges at the other party. The damages caused by the breach of contract include the additional costs that arise at the claimant being necessary to remedy the suffered damage.
Exemption from the liability
If the faulty party would like to be exempt from the liability from damages, strict conditions must be met. In order to be exempted from the liability, three conditions must be simultaneously met. The party in breach shall prove the followings.
- Firstly, the breach of contract was caused by a circumstance beyond its control.
- Secondly, it was not foreseeable by the time of the conclusion of the contract.
- Thirdly, it was not expected from him/her to avoid the given circumstance or to prevent the damage.
Such external circumstances fall usually beyond the control of the party on which the party has no influence. Shall be considered as such circumstances the so-called force majeure events, for instance, the natural disasters. The wars and general strikes are for example considered as circumstances beyond the party’s control. But, the failure or disturbance in the internal operation of the working unit shall not be considered as a circumstance beyond the party’s control.
The circumstance is not foreseeable, if the party in breach did not foresee it, and could not have foreseen its occurrence even with due diligence and care.
The parties are obliged to avoid the circumstance leading to the damage and to eliminate the damage that is threatening or emerged due to the breach of contract. It depends on the nature of the breach and the circumstances whether the avoidance or the elimination of the damage could have been expected.
Limitation or exclusion of liability
The contracting parties have the possibility to exclude or limitate in the contract the liability for breach of contract. For instance, they can establish a limit amount for the liability for damages, or they might also establish less severe conditions for the exemption from the liability.
It is not permitted to exclude the liability for damages for intentional tort or for causing damages resulting in loss of life, harm to physical integrity or health. In some cases, the legal provisions stipulate specific regulations which prohibit the limitation or the exclusion of the liability. For instance, in case of hazardous operations (vehicles, building activity, etc.) the liability can be excluded only in case of material damage.
Dr. Szabó Gergely