Nonperformance of Contractual Duty (Breach of Contract)

1
Nonperformance of Contractual Duty (Breach of
Contract)

• Meaning and Requisites of Nonperformance
• Type of Nonperformance
• Effect of Nonperformance
• Impossibility

2
Meaning and Requisites of Nonperformance

• Existence of a Contractual Duty
• There is a valid contract or an obligation.
• Existence of Imputability
• Intent
• Negligence
• Gross negligence Slight negligence
• Occurrence of Hurdle to Perform the obligation
• Prestation has been tendered on the due day
• Imperfect performance
• Nothing has been tendered on the due day
• Impossibility of performance
• Delay in performance
• Anticipatory Repudiation

3
Imputability

• Intent
• Negligence
• Gross negligence
• Slight negligence

4
Burden of Proof to the Defaulting Partys Fault

• The delict provided in article 184 first
  paragraph of Civil Code requires intentional or
  negligently wrongful act damaged the rights of
  another as a requisite element. Thus, the
  claimant who claims damage from the other person
  who is liable for wrongful act shall bear the
  burden of proof for intent of negligent element.
  In non-performance case, the reason for assuming
  liability for damage by the obligor is the
  existence of imputable fact to the obligor.
  Therefore, even though the obligee can prove the
  existence of contractual relationship and
  suffering damages therefrom, then he is entitled
  to claim the debtor to assume the liability for
  non-performance. If the obligor defense that the
  non-performance was caused by the reason that can
  not be imputable to the obligor, the burden of
  proof shall be on the obligors side. (Taiwan
  Supreme Court Civil Judgment Tai Shang No. 267
  (1993)).

5
PRC CL

• Article 107     Types of Liabilities for
  BreachIf a party fails to perform its
  obligations under a contract, or rendered
  non-conforming performance, it shall bear the
  liabilities for breach of contract by specific
  performance, cure of non-conforming performance
  or payment of damages, etc.
• Article 108     Anticipatory BreachWhere one
  party expressly states or indicates by its
  conduct that it will not perform its obligations
  under a contract, the other party may hold it
  liable for breach of contract before the time of
  performance.

6
PRC CL

• Article 109     Monetary Specific PerformanceIf
  a party fails to pay the price or remuneration,
  the other party may require payment thereof.
• Article 110     Non-monetary Specific
  Performance ExceptionsWhere a party fails to
  perform, or rendered non-conforming performance
  of, a non-monetary obligation, the other party
  may require performance, except where(i)    
  performance is impossible in law or in
  fact(ii)    the subject matter of the
  obligation does not lend itself to enforcement by
  specific performance or the cost of performance
  is excessive(iii)   the obligee does not
  require performance within a reasonable time.

7
PRC CL

• Article 111     Liabilities in Case of Quality
  Non-complianceWhere a performance does not meet
  the prescribed quality requirements, the
  breaching party shall be liable for breach in
  accordance with the contract. Where the
  liabilities for breach were not prescribed or
  clearly prescribed, and cannot be determined in
  accordance with Article 61 hereof, the aggrieved
  party may, by reasonable election in light of the
  nature of the subject matter and the degree of
  loss, require the other party to assume
  liabilities for breach by way of repair,
  replacement, remaking, acceptance of returned
  goods, or reduction in price or remuneration,
  etc.

8
PRC CL

• Article 112     Liability for Damages
  Notwithstanding Subsequent Performance or Cure of
  Non-conforming PerformanceWhere a party failed
  to perform or rendered non-conforming
  performance, if notwithstanding its subsequent
  performance or cure of non-conforming
  performance, the other party has sustained other
  loss, the breaching party shall pay damages.

9
PRC CL

• Article 117     Force MajeureA party who was
  unable to perform a contract due to force majeure
  is exempted from liability in part or in whole in
  light of the impact of the event of force
  majeure, except otherwise provided by law. Where
  an event of force majeure occurred after the
  party's delay in performance, it is not exempted
  from liability.For purposes of this Law, force
  majeure means any objective circumstance which is
  unforeseeable, unavoidable and insurmountable.
• Article 118     Duty to Notify in Case of Force
  MajeureIf a party is unable to perform a
  contract due to force majeure, it shall timely
  notify the other party so as to mitigate the loss
  that may be caused to the

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Type of Nonperformance

• Imperfect performance
• Impossibility of performance
• Delay in performance
• Anticipatory Repudiation

11
Effect of Nonperformance

• Specific performance
• Damage
• Recovery
• Pecuniary damages
• Liquidated damage
• Forfeiture deposit (earnest money)

12
Impossibility

• Classification of Impossibility
• Initial Impossibility (at the time of the
  conclusion of the contract), Subsequent
  Impossibility
• Objective Impossibility, Subjective Impossibility
• Impossibility in Fact, Impossibility in Law
• Permanent Impossibility, temporary Impossibility
• Total Impossibility, Partial Impossibility

13
Case Study 1

• X entered into a contract to sell a painting to Y
  on Feb 10, 2006 and promised to deliver the
  painting on Feb 14, 2006.
• If the painting was burned up on Feb 8, what
  relationship between X and Y?
• If the painting was stolen by Z on Feb 8, what
  relationship between X and Y?
• If the painting was burned up on Feb 13, what
  relationship between X and Y?
• If the painting was stolen by Z on Feb 13, what
  relationship between X and Y?

14
Initial Objective Impossibility

• If the prestation of a contract is impossible, it
  is void. However, if the impossibility can be
  removed and if the parties, at the time when the
  contract was constituted, intended to have it
  performed after the removal of the impossibility,
  the contract is still valid. (RCC 246)
• When a contract is void on account of the
  impossibility of the performance, the party who
  at the time of constituting the contract knew or
  might know the impossibility is responsible for
  the damage caused to the other party who, without
  his own negligence, believed in the validity of
  the contract. the several prestations subject to
  a choice is impossible. (RCC 247I)

15
ROC Civil Code

• Article 246
• If the prestation of a contract is impossible, it
  is void. However, if the impossibility can be
  removed and if the parties, at the time when the
  contract was constituted, intended to have it
  performed after the removal of the impossibility,
  the contract is still valid.If the contract is
  subject to a suspenseful condition or to a time
  of commencement, and if the impossibility has
  been removed prior to the fulfillment of the
  condition or the arrival of the time, the
  contract is valid.
• Article 247
• When a contract is void on account of the
  impossibility of the performance, the party who
  at the time of constituting the contract knew or
  might know the impossibility is responsible for
  the injury caused to the other party who, without
  his own negligence, believed in the validity of
  the contract.The provision of the preceding
  paragraph shall be mutatis mutandis applied if
  the prestation is partially impossible and the
  contract is valid in respect to the possible
  part, or if one of the several prestations
  subject to a choice is impossible.The claims for
  the injury in the preceding two paragraphs shall
  be extinguished by prescription if not exercised
  within two years.

16
Japan Civil Code

• The obligor is conclusively discharged from his
  duty and although the Japan Civil Code does not
  so provide, impossibility operates as grounds for
  extinction of an obligation.

17
PRC Contract Law

• PRC CL contains no rule on contracts involving
  initial impossibility.
• Following the rule of UNIDROIT art. 3.3(1)
• Article 3.3 (Initial impossibility) (1) The mere
  fact that at the time of the conclusion of the
  contract the performance of the obligation
  assumed was impossible does not affect the
  validity of the contract. (2) The mere fact that
  at the time of the conclusion of the contract a
  party was not entitled to dispose of the assets
  to which the contract relates does not affect the
  validity of the contract.
• A contracts involving initial impossibility will
  be valid and the party whose performance is
  impossible will be liable for non-performance.

18
Initial Subjective Impossibility

• The rule in Article 246 followed the German Civil
  Code Article 306. the Unmoglichkeit means
  objective impossibility.
• Subjective impossibility is a gap of law.
• Analogue to subsequent impossibility.

19
Case Study 2

• A lent his laptop to B, B sold to C without As
  assent. C did not know B has no right to sell
  this laptop. Upon A found his laptop in Cs
  office, A claimed it back. What result will be?

20
A may claim damages based on torts liability
(184) or liability due to breaching contractual
duty(470, 231) or rescind contract, then claim
restitution (254,259,179)
Loan for use valid, 464,470)
A
B
Delivery
Sale of goods valid, 345,348,367)
Delivery
Contract for transference of ownership
(alienation) (118, indefinitely valid)
If C not in good faith A may claim it back under
767.
C
If C in good faith C gains its ownership under
948, 801
21
Subsequent Impossibility

• Including objective and subjective Impossibility
• An issue regarding breach of contract
• Effects can be classified as follows
• The impossibility can not be imputable to either
  of the parties
• The debtor will be released from his obligation
  to perform (RCC 225)
• The other party shall be released from his
  obligation to perform the counter-prestation. If
  the impossibility is only partial, the
  counter-prestation shall be reduced
  proportionately. (RCC 266)
• The impossibility can be imputable to the obligor
• If the performance becomes impossible by reason
  of a circumstance to which the debtor is imputed,
  the creditor may claim compensation for any
  injury arising therefrom. (RCC 226)
• In cases provided by Article 226, the creditor
  may rescind the contract. (RCC 256)
• The impossibility can be imputable to the obligee
• The debtor will be released from his obligation
  to perform (RCC 225)
• If one of the parties is imputed to the
  impossibility of the other partys performance,
  the later may claim for the counter-prestation,
  but the interests saved or ought to be saved
  arising from the release of the performance shall
  be deducted from the counter-prestation claimed.
  (RCC 267)
• The impossibility can be imputable to the both
  parties.
• Applied the rule in impossibility imputable to
  the obligor then measure the extent of fault of
  obligee to decide the extent of compensation from
  obligor, although the ROC Civil Code does not so
  provide.

22
ROC Civil Code

• Article 225
• The debtor will be released from his obligation
  to perform if the performance becomes impossible
  by reason of a circumstance to which he is not
  imputed.If the debtor is entitled to claim
  compensation for the injury against a third party
  in consequence of the impossibility of the
  performance under the preceding paragraph, the
  creditor may claim against the debtor for the
  transfer of the claim for the injury, or for the
  delivery of the compensation he has received.
• Article 226
• If the performance becomes impossible by reason
  of a circumstance to which the debtor is imputed,
  the creditor may claim compensation for any
  injury arising therefrom.In the case specified
  in the preceding paragraph, if one part of the
  performance becomes impossible and the remaining
  part, if performed, will be of no interests to
  the creditor, the creditor may refuse the
  performance of the remaining part and claim
  compensation for the injury arising from complete
  non-performance.
• Article 227
• If a debtor incompletely performs his obligation
  by reason of a circumstance to which the debtor
  is imputed, the creditor may execute his right
  according to the provisions of the default or the
  impossibility of the performance.In addition to
  the injury arising from the incomplete
  performance in the preceding paragraph, the
  creditor may claim compensation for other
  injuries arising therefrom, if any.

23
ROC Civil Code

• Article 266
• If none of the parties is imputed to the
  impossibility of one partys performance, the
  other party shall be released from his obligation
  to perform the counter-prestation. If the
  impossibility is only partial, the
  counter-prestation shall be reduced
  proportionately.In the case provided in the
  preceding paragraph, if the counter-prestation
  has been wholly or partially performed, it may be
  claimed for the reimbursement in accordance with
  the provisions concerning Unjust Enrichment.
• Article 267
• If one of the parties is imputed to the
  impossibility of the other partys performance,
  the later may claim for the counter-prestation,
  but the interests saved or ought to be saved
  arising from the release of the performance shall
  be deducted from the counter-prestation claimed.

24
ROC Civil Code

• Article 373
• The profits and dangers of the object sold pass
  to the buyer at the time of delivery, unless
  otherwise provided by contract.

25
PRC CL

• The contract law does not provide for breach due
  to impossibility of performance as a special
  category and so the general rules on contractual
  liability apply to this type of breach.
• General justifications for non-performance, such
  as force majeure, assumption of risk and
  contributory conduct, may also apply to breach
  due to impossibility of performance so that the
  defaulting partys liability may be exempted or
  diminished.
• The specific performance shall be denied. (PRCCL
  110(1))

26
PRC CL 110

• Article 110 -monetary Specific Performance
  Exceptions
• Where a party fails to perform, or rendered
  non-conforming performance of, a non-monetary
  obligation, the other party may require
  performance, except where
• (i)     performance is impossible in law or in
  fact
• (ii)    the subject matter of the obligation does
  not lend itself to enforcement by specific
  performance or the cost of performance is
  excessive
• (iii)   the obligee does not require performance
  within a reasonable time.

27
PRC CL

• Article 117     Force Majeure
• A party who was unable to perform a contract due
  to force majeure is exempted from liability in
  part or in whole in light of the impact of the
  event of force majeure, except otherwise provided
  by law. Where an event of force majeure occurred
  after the party's delay in performance, it is not
  exempted from liability.
• For purposes of this Law, force majeure means any
  objective circumstance which is unforeseeable,
  unavoidable and insurmountable.
• Article 118     Duty to Notify in Case of Force
  Majeure
• If a party is unable to perform a contract due to
  force majeure, it shall timely notify the other
  party so as to mitigate the loss that may be
  caused to the other party, and shall provide
  proof of force majeure within a reasonable time.

28
PRC CL

• Article 119     Non-Breaching Party's Duty to
  Mitigate Loss in Case of Breach
• Where a party breached the contract, the other
  party shall take the appropriate measures to
  prevent further loss where the other party
  sustained further loss due to its failure to take
  the appropriate measures, it may not claim
  damages for such further loss.Any reasonable
  expense incurred by the other party in preventing
  further loss shall be borne by the breaching
  party.
• Article 120     Bilateral Breach
• In case of bilateral breach, the parties shall
  assume their respective liabilities accordingly.

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Initial Impossibility Subsequent Impossibility
Objective Impossibility Contract void (ROC, JP) Contract valid (PRC) Valid Contract
Subjective Impossibility Valid Contract Valid Contract
30
CISG 79

• (1) A party is not liable for a failure to
  perform any of his obligations if he proves that
  the failure was due to an impediment beyond his
  control and that he could not reasonably be
  expected to have taken the impediment into
  account at the time of the conclusion of the
  contract or to have avoided or overcome it or its
  consequences.
• (2) If the party's failure is due to the failure
  by a third person whom he has engaged to perform
  the whole or a part of the contract, that party
  is exempt from liability only if
• (a) he is exempted under the preceding paragraph
  and
• (b) the person whom he has so engaged would be so
  exempt if the provisions of that paragraph were
  applied to him.
• (3) The exemption provided by this article has
  effect for the period during which the impediment
  exists.
• (4) The party who fails to perform must give
  notice to the other party of the impediment and
  its effect on his ability to perform. If the
  notice is not received by the other party within
  a reasonable time after the party who fails to
  perform knew or ought to have known of the
  impediment, he is liable for damages resulting
  from such non- receipt.
• (5) Nothing in this article prevents either party
  from exercising any right other than to claim
  damages under this Convention.

31
Doctrine of Change of Circumstances

• ROC Civil Code Article 227-2
• If there is change of circumstances which is not
  predictable then after the constitution of the
  contract, and if the performance of the original
  obligation arising therefrom will become
  obviously unfair, the party may apply to the
  court for increasing or reducing his payment, or
  altering the original obligation.
• The provision in the preceding paragraph shall
  apply mutatis mutandis to the obligation not
  arising from the contract.