Breach of Contract and Damages: Positive and Negative Damages

The creditor must establish the obligation, breach, loss and adequate causal link between breach and loss. Under TBK m.112 the debtor bears the burden of proving absence of fault. The fault presumption does not remove the need to establish the other liability conditions.

The degree of fault (intent, gross negligence, slight negligence) may affect the scope of damages. The judge takes into account the circumstances and especially the gravity of fault (TBK m.51-52). Equitable reduction is possible in slight fault; but liability for intent or gross negligence cannot be excluded in advance by contract (TBK m.115).

Positive damages represent the difference between the creditor's hypothetical asset position had performance occurred and the actual position resulting from breach. In other words, the gains forgone and losses suffered because performance was not made.

Positive damages include substitutionary damages, delay damages, lost profits (lucrum cessans) and consequential damages. The creditor demands positive damages by keeping the contract alive and declaring renunciation of performance (TBK m.125/2).

Negative damages are losses the creditor would not have suffered had the contract never been concluded. They include reliance expenses (negotiation costs, notarial fees, expert reports, security costs) and other opportunities forgone because of the contract.

On rescission, the creditor may demand only negative damages (TBK m.125/3); rescission and positive damages cannot be combined. Since rescission treats the contract as never concluded, there is no theoretical basis to claim the performance interest.

Advance exclusion of the debtor's gross-fault liability is void (m.115/1). An advance exclusion for an obligation arising from an employment contract is also void (m.115/2). Where a service, profession or craft requires expertise and permission by law or a competent authority, even slight-fault exclusions are void (m.115/3).

Exclusion clauses in standard terms are also subject to content review under TBK m.25. Provisions contrary to good faith to the detriment of the other party are invalid.

In contractual disputes, not only the signed text but also offer correspondence, revision history, invoices, delivery records, payment records, formal notices and the parties' subsequent conduct are taken into account. The formation, performance and termination of a contract often acquire meaning only through these ancillary documents.

Form requirements, authority of representation, penalty clauses, exclusion-of-liability provisions, standard terms and consumer-protection rules may all affect the validity or enforceability of a contract. For standard terms, the requirements of clear information, an opportunity to learn their content and acceptance under Article 21 of the Code of Obligations must be considered, together with any special consumer rules.

Before any dispute arises, the scope of obligations, delivery date, defect notice, default notice, interest and competent-court clauses should be drafted explicitly. Vague provisions may give rise to interpretation disputes and to difficulties of proof later on.