Liability arising from contract

Liability arising from contract

Agreements are concluded constantly. In the most common agreements, one party commits to a performance and the other party commits to a payment in money. The performance may consist of, for example, the delivery of a physical product or the provision of a service. If one of the two parties fails to fulfill its obligation, this can lead to contractual liability (also known as breach of contract).

The law states that a failure to perform creates an obligation to compensate the damage suffered by the other party as a result. The damage suffered by the other party must be a consequence of the failure. Furthermore, the failure must be attributable to the defaulting party, meaning that there is no question of force majeure.

The law grants individuals and organizations a high degree of contractual freedom. It is therefore possible to exclude contractual liability, for example in the general terms and conditions. Excluding liability can be done by means of exoneration clauses, but in practice, this proves to be a frequent source of discussion and conflict. We offer legal expertise both during the conclusion of an agreement and during a conflict situation.

We have the knowledge and expertise to assume diverse roles: from advice to dispute resolution. We have an experienced team of lawyers and legal experts in the field of liability law. Contact us to discuss the possibilities.

When is there an attributable failure?

Not every setback gives rise to liability. The law requires an attributable failure to perform (Article 6:74 of the Dutch Civil Code). A failure cannot be attributed to the debtor if it is not due to his fault and is not for his account pursuant to law, legal act, or prevailing views in commercial practice (Article 6:75 of the Dutch Civil Code). In the latter case, we speak of force majeure. Whoever invokes force majeure bears the burden of proof for doing so.

Furthermore, the distinction between an obligation of effort and an obligation of result is important . An advisor often promises only a careful effort, whereas a supplier typically promises a concrete result (the delivery). Whether the counterparty has defaulted therefore depends on exactly what the parties agreed upon. The debtor himself is liable for the failure of auxiliary persons engaged by the debtor for the execution of the work, pursuant to Article 6:76 of the Dutch Civil Code.

Notice of default and breach of contract: without this, no compensation for damages

Many entrepreneurs, from international corporations to the baker on the corner, believe that a failure to perform immediately entitles the other party to compensation. This is often incorrect. As a rule, default required for compensation due to delay (Article 6:81 of the Dutch Civil Code). Default usually only occurs after a notice of default: a written demand in which you describe the failure and give the other party a reasonable period to still comply (Article 6:82 of the Dutch Civil Code).

In a number of cases, default occurs by operation of law and a notice of default is not required (Article 6:83 of the Dutch Civil Code), for example when performance is permanently impossible, when a fixed deadline has been exceeded, or when the counterparty indicates that it will not perform. An incorrectly formulated or premature notice of default is a common mistake that can cause a claim for damages to fail. Our lawyers and in-house counsel assess whether default has occurred before you take action.

Compensation, dissolution, or performance?

In the event of an attributable breach, you in principle have a choice between various remedies. You can demand performance , claim damages , or dissolve the agreement in whole or in part (Article 6:265 of the Dutch Civil Code). Dissolution is only possible if the breach, given its particular nature or minor significance, justifies dissolution; as a rule, default is also required for this.

The amount of compensation is limited by law. Eligible for compensation are, among other things, incurred loss and lost profits (Article 6:96 of the Dutch Civil Code). There must be a sufficient causal link between the breach and the damage, and the damage must be reasonably attributable to the breach (Article 6:98 of the Dutch Civil Code). In the event of contributory negligence on the part of the injured party, the compensation may be reduced (Article 6:101 of the Dutch Civil Code). We calculate in advance which route, compensation or dissolution, works out most favorably for you.

Exemption clauses and general terms and conditions

The law grants broad contractual freedom; therefore, in practice, liability is often limited or excluded in advance by means of an exoneration clause, usually in the general terms and conditions. Such a clause is not valid indefinitely. An exoneration may be disregarded if invoking it is unacceptable according to standards of reasonableness and fairness (Article 6:248 paragraph 2 of the Dutch Civil Code), for example in cases of intent or conscious recklessness. Additionally, a clause in general terms and conditions may be unreasonably burdensome and thus voidable (Article 6:233 of the Dutch Civil Code).

Whether the general terms and conditions were provided in a timely manner is also important for their validity (Article 6:234 of the Dutch Civil Code). Whether you wish to draft a watertight exemption clause yourself or challenge a claim by the counterparty, we understand both sides of the playing field.

Duty to complain and statute of limitations: pay attention to the time limits

Anyone who waits too long to complain or initiate legal proceedings may forfeit their rights. Pursuant to the duty to complain, you must protest to the other party within a reasonable time after discovering the defect (Article 6:89 of the Dutch Civil Code; for sales, Article 7:23 of the Dutch Civil Code applies). If you do so too late, you can no longer invoke the breach of contract.

In addition, a limitation period. A claim for compensation for damages generally lapses after five years from the date the injured party became aware of the damage and the liable person, and in any event twenty years after the event (Article 3:310 of the Dutch Civil Code). The claim for performance also lapses after five years (Article 3:307 of the Dutch Civil Code). The limitation period can be interrupted in a timely manner. We closely monitor these periods, as an expired period can rarely be rectified.

Contractual and non-contractual liability

Contractual liability does not stand alone. The same event can simultaneously constitute an attributable breach and a tortious act (concurrence). In that case, it may be more advantageous to base the claim also, or primarily, on tortious liability, for example due to a different limitation period or a broader circle of liable persons. We select the strongest legal basis for each case.

This page falls under our broader expertise in Liability, Damages and Insurance. Within this area, we also advise on related topics such as professional liability, damages and claims for compensation, and liability insurance.

Why MKB Juristen for liability arising from contracts?

At MKB Juristen, you work with mixed teams of lawyers and in-house counsel. This combination means that we not only litigate but also consider the commercial interests behind a contract. We assist both international corporations and small business owners, and we speak the language of both. From drafting and reviewing agreements and general terms and conditions to conducting proceedings regarding a damages claim, we assume diverse roles, ranging from advisory services to dispute resolution. Contact us to discuss your situation without obligation.