Flo's Notes

Breach of Duty

7 min read

References without law book default to BGB.

Resources

Breach of Duty

Principle of Separation

Entering into a contract and performing the contract are two separate steps and therefore legal transactions. This allows for more complex contracts – in a purchase contract, for example, payment does not immediately imply ownership of the good. The breach of duty occurs when the performance does not meet the contractual obligations, which can lead to various legal consequences.

In consequence, a void contract does not void the performance (transfer of goods), but can be reversed using § 812 BGB.

Breach of duty, as opposed to performance, means that one party did not fulfill their contractual obligations. In response, the other party can claim damages (requires fault) instead of in addition to performance, or revoke the contract (requires a significant breach of duty but no fault).

Types of Compensation

Step 1: When did the damage occur?

Step 2: Is the performance still possible, or now impossible?

Step 3: Damage in addition to or damage instead of performance?
Differentiate between § 281 and § 286 BGB.

Performance

Performance occurs when a party fulfills its contractual obligations as agreed upon in the contract and reaches the creditor (§ 362 BGB), but also when both parties agree to modify the contract and the creditor accepts something else (§ 364).

There are three cases in which performance is not possible and might give rise to a breach of duty:

  • Impossibility: When performance is objectively impossible (§ 275), the debtor is released from their obligation (§ 326 I, with exceptions in § 326 II). This can be due to physical impossibility (e.g., the good was destroyed) or legal impossibility (e.g., a change in law prohibits performance), but never due to monetary impossibility (e.g., the debtor cannot afford to pay).
  • Default: When the debtor fails to perform on time, they are in temporary default (§ 286). The creditor can then demand performance and claim damages for any losses incurred due to the delay, or revoke the contract in some cases. In most cases, a warning note is required before the debtor is in default.
  • Improper Performance: When the debtor performs but does not meet the contractual obligations (e.g., delivers a different good or a defective good), they are in breach of duty. The creditor can then demand proper performance, claim damages for any losses incurred due to the improper performance, or revoke the contract in some cases (§ 281, § 323).

Statute of Limitation

The statute of limitation limits the time period during which a party can claim damages for breach of duty. In Germany, this is 3 years for contracts, can be longer in other cases, and starts at the end of the year in which the claim arose and the creditor should have become aware of the damage.

Legal Tender

Strictly speaking, legal tender in Germany is only physical Euro. However, bank transfers are generally accepted because they constitute central bank money. An invoice bearing a bank account number is also treated as an implicit offer to accept payment by transfer.

Element of Fault

Damages for the Breach of Duty: § 281 I

§ 281 I BGB allows the creditor to claim compensation for damages arising from the for breach of duty, however, this does not apply if the obligor is not at fault (sentence 2).
While the creditor must prove the breach of duty, the court assumes fault, which the debtor must disprove.

Based on § 276 I BGB, an element of fault can be:

  • Intentional conduct: When the obligor deliberately breaches the contract with knowledge of the consequences (actively or passively).
  • Negligence (§ 276 II): Failure to exercise the care required given the circumstances.

Negligence

If the obligor could have done something to prevent the damage, and it would not have been unreasonable to ask, but they failed to do so, they are negligent. Therefore, the standards are generally higher for professionals.

Gross negligence is a special case of negligence, where the obligor completely disregards the care they should have taken. In this case, the obligor is liable for all damages, even those that are unforeseeable.

In addition, the obligor may be liable in line with § 311a II BGB if they knew or were responsible for knowing of the impossibility of performance before contracting.

Fault and Agency

Under § 278 BGB, a party is liable for the fault of their agents (e.g. employees) as if the negligence was their own. The agent is usually not party of the contract and therefore has no contractual liability.

Calculating Damages

Contrary to the US, damages in Germany are aimed at restoration, not deterrence. This usually uses money as a substitute to restore the damage instead instead of replacement. Monetary compensation is mandatory if restoration is not possible (§ 251 I) or only at disproportionate expense (§ 251 II). The exception to this rule are pets (§ 251 II 2).

Damages are:

The extend of compensation can be limited if the inured party has contributed to the damage (§ 254 BGB), for example in traffic accidents.

The relevant provision determines if damages are paid instead of performance, or in addition. Interest to restore damages can be positive or negative:

  • Positive Interest (usual): Put the creditor in the position they would have been in if the contract had been properly performed. Includes lost profits and all consequences of the breach.
  • Negative Interest (exception stated in the relevant provision): Put the creditor in the position they would have been in if the contract had never existed. Covers costs incurred in reliance on the contract, but not lost profits.

Revocation of Contract

Revocation applies to one-time contracts, whereas termination is used for ongoing contracts. In general, to reverse the contract, the other party must be given a second chance (a warning note with a reasonable deadline) to perform, unless a date was already specified in the contract and was significant. If the contract is revoked, both parties must return any benefits received from the other party.

The requirements for revocation are laid out in § 323 BGB:

  • There is a breach of contract (§ 323 I): No performance, or performance is not in line with the contract.
  • There was an additional period for performance (§ 323 I), which however is not required if the other party seriously and definitely refuses performance or if there is no performance at a certain date specified in the contract and this date is essential to the creditor (§ 323 II).
  • The breach of duty is significant (§ 323 V (2)): The breach of duty must be significant, meaning that the non-performance or improper performance must substantially affect the purpose of the contract. Something that can be easily fixed is not significant.

Common Checks

  • Impossibility to perform → § 275 BGB

  • Delivery and procurement of ownership in line with § 929 I BGB →

  • Consideration (of payment) owed? → § 326 I 1 BGB

  • Exception from responsibility? → § 326 II BGB

  • Reclaim down payment →§ 326 IV BGB, § 345 I BGB

  • Breach of duty → § 281 BGB → Check Due (1), Enforceable (2), Performance (3)

  • Assumption of responsibility → § 280 I 2 BGB

  • Exception for warning note (before default) → § 286 II BGB

Graph View

Backlinks