Civil Liability For Contractual Breach. Template Contracts.
Updated: Oct 30
Civil contractual liability is one of the most significant forms of civil liability, ensuring compensation for damages caused by the breach of obligations assumed under a contract. It is grounded in the principle that parties must honor their commitments, as contracts carry binding force between the signatories (read more about the effects of electronic signatures in contracts).
In Romania, civil contractual liability is primarily governed by the Civil Code. However, contracts in specialized fields may be subject to additional regulations that specifically address contractual liability.
What is Contractual Liability? Template Contracts
Civil contractual liability refers to the obligation of one contracting party to compensate the other party for any damages resulting from non-performance, defective performance, or delay in fulfilling the obligations stipulated in the contract. Therefore, the existence of contractual liability presumes the presence of a valid contract between the parties. If no contract exists, the party causing the damage may still be held accountable, but under the rules of tort liability (delictual liability) rather than contractual liability.
Civil contractual liability applies to any contractual relationship involving reciprocal rights and obligations between the parties. This includes various types of template contracts, such as SPA contracts, service agreements, lease agreements, insurance policies, and other legal agreements.
A professionally drafted template contract, tailored to the specific type of transaction, plays aan important role in managing risks and ensuring both parties understand their rights and responsibilities.
Why is Contractual Liability Necessary? Template Contracts
The Romanian Civil Code establishes several fundamental principles underlying civil contractual liability, including:
Freedom of contract
According to this principle, parties are free to determine the content of the contract they conclude, provided they comply with mandatory legal norms and public order. In other words, the parties have the right to freely define the obligations they undertake by signing the contract.
Good faith performance
The parties must act in good faith throughout all stages of the contract’s lifecycle, from negotiation to performance. This principle ensures trust and fair conduct in contractual relationships.
Binding force of the contract
Once accepted by the parties, the contract has the force of law between them and must be strictly respected. As a result, no party can unilaterally alter the terms of an ongoing contract without the consent of the other parties. Typically, any modifications require mutual agreement, formalized through a signed template addendum (learn more about contract amendments).
Full compensation for damages
The principle of civil contractual liability ensures that any damage suffered by the injured party due to the other party’s failure to perform must be fully repaired. This reinforces the binding nature of the contract by ensuring that the responsible party is held accountable for non-performance. Ask a contracts lawyer.
When Is a Party Liable for Breaching a Contract? Template Contracts
For contractual liability to be enforced, several cumulative conditions must be met:
A valid contract must exist between the parties.
Contractual liability only applies if the breach involves obligations arising from a validly concluded contract between the responsible party and the injured party. In the absence of a valid contract, contractual liability cannot be invoked. However, if a breach involves pre-contractual obligations or general duties, the injured party may seek compensation under the rules of tort liability, which serves as the general framework for civil liability.
If a contract becomes invalid, contractual liability ceases to apply in relation to non-performance. For example, if a contract is null, tort liability, rather than contractual liability, will govern the situation. If the contract is merely voidable, the nature of the liability depends on the actions taken by the parties: (i) If the parties choose to waive annulment and confirm the contract, contractual liability remains enforceable; (ii) If the contract is annulled, restitution rules apply, following principles similar to tort liability, requiring the parties to restore the benefits received.
In other words, contractual liability must arise from a legal relationship established through a valid contract signed by the responsible party and the injured party. However, special cases exist, such as stipulations for the benefit of third parties, where a third-party beneficiary can demand the performance of contractual obligations, as they acquire rights connected to the contract. Similarly, if the injured party is a legal successor of one of the contracting parties (or a person assimilated to a successor), contractual liability may be enforced in their favor under the contract they inherit.
There is contractual breach. Contract attorney.
Contractual liability arises when one of the parties fails to fulfill its obligations, performs them improperly, or with delay. This may involve non-payment of a sum of money, delayed delivery of goods, or poor performance of a service.
Non-performance of contractual obligations can occur in various situations, each specific to a particular type of contract. Below are some common examples of non-performance and the types of contracts in which they frequently appear:
Template pre-sale contract (promise to sell): The seller or buyer refuses to conclude the sale contract by the agreed date or repeatedly fails to appear before a public notary for authentication. In case of non-performance of a pre-sale contract, the liable party may face contractual liability or the court may substitute the consent of the non-compliant party.
Template lease agreement: The landlord fails to ensure the proper use of the property, such as when the apartment has major defects, or the tenant fails to pay rent on time.
Template service agreement: The service provider does not perform the service at the agreed quality or within the specified deadline, such as failing to complete a repair project, or the beneficiary does not pay for the service provided.
Template individual employment contract: The employer does not pay wages on time, or the employee does not fulfill job responsibilities according to the job description. In labor law, specific sanctions for non-performance of employment contracts may include disciplinary dismissal or holding the employer accountable.
Template insurance contract: The insurer refuses to pay compensation when the insured event occurs, or the insured fails to disclose accurate information when the contract is concluded.
Template transportation contract: The carrier does not deliver goods to the destination on time or damages them, or the sender fails to pay the transportation fee.
Template loan agreement: The debtor fails to repay the borrowed sum at the agreed due date, or the lender does not provide the promised funds according to the agreed terms.
Template franchise agreement: The franchisor fails to provide the agreed support (know-how, marketing materials), or the franchisee does not comply with the operational standards established in the contract.
Template partnership agreement: One partner does not contribute the promised resources (money, equipment), hindering the development of the joint project.
The debtor is liable. Template contracts.
The Civil Code stipulates that non-performance must be unjustified, which generally implies the existence of fault on the part of the debtor responsible for the unfulfilled contractual obligation. The debtor must have acted negligently, recklessly, or intentionally to cause the contractual harm. In some cases, liability may be engaged even in the absence of fault, such as in obligations of result.
In the field of contractual liability, the debtor’s fault is presumed when a contractual obligation is not fulfilled. Therefore, the creditor only needs to prove the existence of the contract and its non-performance, while the debtor must justify the non-performance if exonerating circumstances exist.
Exonerating circumstances, if proven, can relieve the responsible party from the consequences of non-performance of obligations under a template contract. These include:
Force majeure
This refers to an external, unforeseeable event that could not be prevented by the obligated party (absolutely invincible), such as earthquakes, floods, wars, or pandemics. Force majeure makes it impossible to fulfill contractual obligations and exempts the debtor from liability. The scope, conditions, and effects of force majeure may be agreed upon by the parties within the template contract used.
Fortuitous event
This is an unforeseeable and unavoidable event that does not reach the severity of force majeure (e.g., an accidental breakdown).
Creditor’s act
When the creditor obstructs the performance of the contract through their own action or omission (e.g., unjustifiably refusing to accept a delivered good), the debtor is exempted from liability.
Third party’s act
Non-performance of a template contract may sometimes be caused by the actions or omissions of a third party, beyond the debtor’s control. For example, if a contractor hired by the beneficiary to complete part of a project fails to meet their obligations, causing delays in the primary contractor's work, the main contractor can invoke the third party’s fault and be exempted from liability for the delay.
State of necessity
If fulfilling the obligation becomes impossible due to circumstances endangering the debtor’s safety or that of others (e.g., abandoning a transport to save lives), the debtor may be exonerated from contractual liability.
Objective impossibility of performance
The debtor may be relieved of liability if they can prove that the obligation can no longer be fulfilled due to objective reasons, such as the destruction of the subject matter of the contract, through no fault of their own. In such cases, the allocation of risk will depend on the terms outlined in the template contract, which define the boundaries of liability between the parties.
Statute of limitation
If the applicable limitation period for contractual liability has expired, the debtor can no longer be held accountable for non-performance. However, prescription is not a typical exoneration of liability, as the debtor remains obligated to perform the contract, but the obligation can no longer be enforced through legal action (state coercion). The debtor will decide voluntarily whether to fulfill the prescribed obligation.
The general limitation period for contractual liability is three years, starting from the date the creditor became aware or should have become aware of the damage and the responsible party. In special cases, the law may establish shorter or longer limitation periods. Additionally, the parties can agree in their template contract on specific rules regarding the prescription of obligations.
Creditor proves a loss. Template contracts.
To establish contractual liability, the party invoking the breach must have suffered a certain, actual, and direct loss. The damage can be either material (such as financial loss) or moral (such as emotional distress).
There must be a causal link between the contractual breach and the damage. Template contracts.
The damage suffered by the creditor must be a direct consequence of the debtor’s failure to fulfill contractual obligations. In the absence of such a causal link, contractual liability cannot be engaged.
How is the loss compensated for? Contract attorney.
According to the Civil Code, a contractual loss can be remedied through:
Performance in kind: the debtor may be required to fulfill the obligation exactly as stipulated in the contract, provided this is possible and reasonable. In some cases, the creditor may fulfill the contractual obligation at the debtor's expense, with the debtor covering the associated costs.
Payment of damages: if performance in kind is no longer possible or sufficient to remedy the damage, the creditor may request monetary compensation to cover the loss suffered.
Termination of the contract: if the breach is severe or if breaches occur repeatedly, the creditor may request the contract's dissolution through resolution (for contracts with immediate performance) or rescission (for contracts with successive performance).
Limitation or exclusion of liability clauses. Template professional contracts.
The parties may agree on contractual clauses that limit or exclude liability, provided they do not affect essential rights or public order.
Limitation or exclusion of liability clauses are contractual provisions that restrict one party's responsibility for non-performance or exclude liability altogether for certain agreed situations. These clauses aim to provide protection against unforeseen events by limiting contractual risks for one of the parties. The Romanian Civil Code allows such clauses, but with certain restrictions: parties cannot exclude liability for serious misconduct, such as fraudulent intent (dol) or gross negligence, nor can they limit liability for essential rights, such as those related to physical or mental integrity or health, except within the limits of the law.
Liability aggravation clauses have the opposite effect: they expand or intensify one party’s responsibility beyond the usual legal limits for that type of contract. These clauses may impose stricter conditions for fulfilling obligations or increase the amount of compensation for non-performance or delays. Such clauses are commonly found in complex or commercial contracts, where one party assumes additional risks to secure a greater contractual benefit.
Examples of special liability clauses. Template contracts.
Limitation of liability clause
In a SaaS supply contract, the provider may include a clause limiting compensation for software errors or cyberattacks to the value of the contract or a fixed amount (such as the subscription fee for software). Even if the user suffers more significant damage due to software malfunctions or viruses, compensation will be capped as per the contract.
Exclusion of liability clause
In a construction service contract, the contractor may stipulate that they are not liable for delays caused by unfavorable weather conditions or unforeseeable events (force majeure). Such a contractual clause ensures that the contractor will not be held responsible for project delays beyond their control, such as those caused by the weather.
Aggravation of liability clause
In a service contract, the contractor may accept a clause obliging them to pay daily penalties for each day of delay, even if the delay is caused by third parties or force majeure.
Alternatively, in a storage contract, the custodian may specify that they are not liable for damage to goods caused by uncontrollable factors (such as extreme temperature fluctuations or natural events). This clause protects the custodian from potential compensation claims by the beneficiary of the storage.
FAQ About Breach of Contracts
What is contractual liability, and how does it apply to contracts?
Contractual liability refers to the obligation of one party to compensate the other for damages resulting from non-performance or improper performance of contractual obligations. In a professionally drafted template contract, specific clauses outline the responsibilities of each party and the conditions under which liability may be enforced, such as non-payment, delayed delivery, or defective performance.
How is contractual liability limited in a template contract?
The parties may limit contractual liability through clauses that cap responsibility to a certain amount or restrict it to specific types of damages. For instance, a template service contract may state that the service provider is not liable for indirect losses, such as reduced client profits. If no limitation or exclusion clauses are included, general rules of liability under the Civil Code will apply.
When can force majeure be invoked for exemption from liability in a template contract?
Force majeure refers to an unforeseeable and unavoidable event, such as a natural disaster or economic crisis, that prevents one party from fulfilling their contractual obligations. A template contract should define the scope of force majeure events, the conditions under which they apply, and the procedure for notifying the other party.
What is the difference between contractual liability and tort liability?
Contractual liability arises between parties who have entered into a valid contract and pertains to the non-fulfillment of obligations stipulated in that contract. Tort liability, on the other hand, applies outside of a contractual relationship and covers damages caused by unlawful acts. A well-drafted template contract will include clauses that clearly define liability boundaries and distinguish between contractual and tortious liabilities.
What penalties can be included in a template contract for non-performance?
A template contract may incorporate penalty clauses for delays or non-performance, such as requiring the payment of a percentage of the contract value for each day of delay. These penalties serve to discourage negligent behavior and ensure timely fulfillment of obligations.
How does a template contract address breaches of pre-contractual obligations?
Pre-contractual obligations, such as bad-faith negotiations, are subject to tort liability rather than contractual liability. A template contract may contain confidentiality or exclusivity clauses to protect the parties during this phase and prevent disputes.
Conclusion
Contractual liability is essential for ensuring that obligations assumed under contracts are honored and for protecting the legitimate interests of the parties. This form of liability aims to fully compensate the injured party and deter negligent or abusive conduct in contractual relationships.
Parties involved in contracts must understand the importance of fulfilling their obligations and the legal consequences of non-performance to avoid conflicts and maintain trust in business and civil relationships. Use a professionally drafted template contract from Docs & Deeds, which clearly specifies each party’s obligations, performance deadlines, and applicable liability conditions. This will help you protect your rights against unforeseen events and provide clear mechanisms for resolving potential contractual disputes.
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