Civil liability by contract is a person’s obligation to repair the prejudice caused to another person by the non-execution, unsatisfactory or delayed execution of the obligation assumed through a signed valid contract.
For the contractual liability to exist, the following conditions are mandatory:
- The existence of an illegal act: failure to respect a contractual obligation through which a patrimonial subjective right of the creditor is damaged;
- The existence of patrimonial damage;
- The existence of a causal link between the action and the resulted damaged;
- The culpability of the person who committed the illegal act;
Contractual liability, as stipulated by the legislator, gives the damaged party, the creditor of the obligation to be executed, the right to compensation or damages representing, in essence, the equivalent of the prejudice brought to them through the culpable non-execution of contractual obligations by the obligor. The redressal of said prejudice by the creditor can be requested regardless of whether the execution was not done or was unsatisfactory and also regardless of whether a rescission or dissolution of the contract occurred.
The penalties available to the creditor are:
- The dissolution or rescission of the contract by right (commissary pact) or judicially;
- To keep the contract and apply delay penalties or other penalty clauses;
- Damages (moratorium or compensatory, depending on the case) whether the contract is rescinded or dissolved or not;
The annulment of contracts can be obtained through rescission or conventional dissolution (the insertion of a commissary pact within the contractual clauses) or judiciary (through the intervention of a court of law), as well as by the method of contractual execution (successive or instant execution).
The termination of contracts is defined as a penalty of culpable non-execution of reciprocal contracts and it consists in its retroactive liquidation and the restoration of the parties to their state previous to the signing of the contract. It applies in the case of contracts with instant execution and the action in rescission can be introduced only by the party who has executed or declares itself ready to execute the assumed obligation. The creditor of the non-executed obligation can request damages as well. To initiate the rescission, the debtor must have been put in delay.
- The parties will be restored to their state previous to the signing of the contract by mutual restitution of all benefits provided through the contract agreement(this also affects third parties, which can use uzucapion and possession in good faith to defend themselves);
- The creditor of the non-executed obligation which lead to the rescission has the right to damages from the debtor;
The dissolution of contracts (by definition) as in the case of rescission, is a penalty of culpable non-execution of reciprocal contracts with successive execution making the future effects of the contract stop and leaving the previous successive benefits untouched. Other than that, all the rescission rules apply (judicial cause, admissibility conditions for dissolution actions, commissary pacts). Termination by right (or conventionally) applies when the counterparties, in order to avoid the court of law, introduce rescission clauses in the contract in case of non-executed obligations, these clauses being known as commissary pacts.
The redressal of the damages caused by inadequate or lack of execution is done by creditor compensation, as opposed to dissolution (or rescission), the compensation is usually pecuniary.
DELAY PENALTIES AND INTEREST RATES
Delay penalties represent sanctions for failing to fulfill on term payment obligations and are calculated for each day of delay starting with the next day after the due date and until the entire owed sum is paid. The level of delay penalty must be included in the contractual clauses, for each day of delay and the delay penalty must not exclude the payment of interest rates.
Among penalty roles we can include the following:
- Penalizing role – because it is applied to a penalty in case of unfulfillment of contractual clauses which act as laws between counterparties.
- Compensatory role – refers to the fact that the penalty compensates the damage done by the debtor’s delay in fulfilling the obligations on term.
- Preventive role – determines the party which assumes the obligations derived from the contract to fulfill them on time to avoid paying extra sums of money.
Delay penalties act as interest rates or delay increases. These have to be proven, they cannot be presumed. In reciprocal contracts in which each party is a credit as well as a debtor of the bond created through the contract, the delayed payment penalties should extend to all participants, otherwise they might be invoked by the interested party as an abusive clause.
The sum of delay penalties can exceed the quantum of the sum over which they are calculated only if the contract states it. These details have already been ruled on by the legislator through laws and specific statutes (Directive 2011/7/EU).
Penalty interest rate are covered by Civil Law and special laws regarding legal remuneration interest rates and penalizing for financial obligation, as well as to cover some fiscal-financial measures within the banking domain. The law covers to main categories of interest rates, the legal remuneration interest rates and penalty interest rates. Because these two categories are covered by law they are legal however they can be set by the counterparties, a situation in which they would be called conventional interest rates.
Specialized literature characterizes legal interest rates as a “share established by law whose quantum depends on a variable parameter which is applied to a given capital as a price of its use or as damages for the non-execution of an obligation”.
The remuneration interest rate is the interest owed by the debtor who has the obligation of paying a sum of money on a certain term, calculated for a period previous to the term on which the obligation must be fulfilled. As can be observed, the remuneration interest rate represents the debtor’s owed interest for using the creditor’s capital.
The penalizing interest rate is the interest owed by the debtor of the financial obligation for failing to fulfill said obligation on term and it is associated with delay penalty. Therefore, the penalizing interest rate is a moratorium damage of judicial nature and is owed by the debtor for not paying the sum owed to the creditor on time.
In commercial relations, the interests are subject to special rules which concern: interest flow moment, the method of calculation and application of interests, the quantum of interest rates and damages.
Interests can be established through the agreement of the counterparties and are called conventional interest rates, the parties being free to set the interest quantum in their convention.
Determination and evaluation of damages can be done as follows:
- Judicially – judicial evaluation;
- By law – legal evaluation;
- Agreement of the counterparts – conventional evaluation – in this case the interested parties include a contractual clause specially made to anticipate the extension of the damages in case on non-execution of obligations. This clause is called a penal clause.
Conventional evaluation has two methods:
- The counterparties can agree on the quantum of damages owed by the debtor after the creation of the prejudice;
- The counterparties can agree in a contract or a separate convention over the quantum of damages before the prejudice is done through the so called penal clause;
There are two categories of damages:
- Default interest – represent the equivalent of the prejudice suffered by the creditor after a delayed execution of obligations (they can be cumulated with the execution in nature of the debtor’s obligation)
- Compensating interest – equalize the damages suffered by the creditor after the partial or non-execution of the obligation (cannot be cumulated with the execution in nature of the obligation because they replace this execution).
The penal clause is the contractual provision through which the counterparts state that the debtor assumes the obligation of a certain action in case they fail to execute the main obligation they have agreed upon. Therefore, per the contractual clause the counterparties determine, in anticipation, the equivalent of the damage which the creditor would suffer as an effect of non-execution, delayed or unsatisfactory execution of the debtor’s obligation. In case the counterparties have established, by mutual anticipated agreement and estimation, a contractual provision through which the quantum of damages owed by the culpable party in case of fulfillment or unsatisfactory fulfillment of assumed obligations, they will be known as conventional damages and can be found stated in the counterparties’ contract under the name of penal clause. The penal clause, therefore, has a dual character: punitive and restoring for the case of culpable non-execution of the contract by the debtor.
The characteristics of the penal clause:
- The form of the penal clause will be written and in its absence only the legal interest will be owed. Because it is an accessory clause and it follows the fate of the main contract, depending on the nature of the contract it will bear a written regime under a signature or an authentic document. It can be negotiated and inserted from the beginning as an accessory clause of the main contract or as a separate obligation established by an addendum to the main contract. For this reason, the penalties written on invoices cannot represent a penal clause because they are not negotiated directly by the counterparties and assumed by the debtor. The penalties must be proven, not presumed.
- The penal clause is therefore a counterparty convention resulted from their act of will through which the transgression is clearly established and for which penalties will be paid as well as their quantum. By principle, in mutual agreements in which each side is a debtor and a creditor, the penal clause has to be covered for both sides identically, otherwise it can be classified as an abusive contractual clause.
As opposed to default interest which is always about a sum of money, the object of the penal clause is wider, no sum of money is mentioned, and/or benefits.
Therefore, it is not mandatory that in order for the main obligation to be fulfilled a pecuniary expressed penalty is provided; it can also be a benefit of a different nature. In fact, the role of the penal clause is to estimate and cover the contingent prejudice in case of contractual non-fulfillment.
The penal clause represents for the creditor the advantage of not having to prove the existence and quantum of the damage, in case the debtor does not fulfill his obligations according to contractual provisions. In financial contracts, all penal clauses are mandatory.
In order to correctly asses the non-execution, unsatisfactory or delayed execution of contractual obligations consequences, the current legislative assembly must be taken into account such as the “obligation effects” from the civil law as well as the commercial laws which apply to contractual responsibility.
Therefore, I consider the contractual liability is not only a particularly interesting and vast domain, but also complex from a judicial point of view due to the effects it can produce, depending on their applicability in space and time.
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- C. Florescu, Drept civil – Teoria Generală a Obligaţiilor, Editura U.T.M., Bucureşti, 2007; Dinu Gheorghe, Associate Professor, PhD, Spiru Haret University, Romania, Address: 13 Ion Ghica Str., Bucharest, Romania, Tel.: +4 021 314 0075, E-mail: firstname.lastname@example.org.
Tomescu Raluca — PhD in progress, Nicolae Titulescu University, Romania, Address: 185 Calea Văcărești, Bucharest 040051, Romania, Tel.: +40731018690, Romania, Corresponding author: email@example.com.CONTRACTUAL LIABILITYThe contract is, throughout the world, the judicial mechanism essential to economic activity. The contract represents, in fact, the conventional framework through which the counterparties assume obligations and gain rights in relation to each other, and is the concretization of the volition agreement of the parties and is considered valid only if the interested parties have freely and uncorruptedly expressed their agreement. Counterparties have the liberty of including within the closed convention any clauses they like, the only condition being that they do not act against public order or morals. Counterparties may include, along with other contractual clauses, all the penalties they consider necessary to be applied in case of culpable non-execution of assumed obligations and if the parties omit making these specifications, the legislator, by the power vested in him, has created a series of rules in the interest of the prejudiced party to protect their interest and to restore contractual balance where it is needed.Written by: Tomescu Raluca AntoanettaPublished by: БАСАРАНОВИЧ ЕКАТЕРИНАDate Published: 12/29/2016Edition: euroasia-science.ru_26-27.02.2016_2(23)Available in: Ebook