The Civil Code of Quebec (the "C.C.Q.") recognizes two types of civil liability: contractual and extracontractual civil liability.
In this blog post, we will focus on contractual liability, examining its conditions, implications, and the types of liabilities it encompasses. By delving into Article 1458 C.C.Q., we aim to shed light on the essential aspects of contractual liability in Quebec.
What is Contractual Liability?
Contractual liability arises when a party to a contract fails to abide by a duty imposed by the agreement between the parties. Specifically, Article 1458 of the C.C.Q. states:
Every person has a duty to honour his contractual undertakings.
Where he fails in this duty, he is liable for any bodily, moral or material injury he causes to the other contracting party and is bound to make reparations for the injury; neither he nor the other party may in such a case avoid the rules governing contractual liability by opting for rules that would be more favourable to them.
The starting point for this is the existence of a validly formed contract between the parties.
What are the Conditions to Prove Contractual Liability?
To establish contractual liability, four conditions must be satisfied: the existence of a valid contract, a fault, causation, and damages. Let’s explore each in more detail.
To prove contractual liability, a valid contract must exist; the parties must be bound by the contract; and there must be a non-performance of a contractual obligation.
In Quebec, a contract validly formed binds the parties who have entered into it not only as to what they have expressed in it but also as to what is incident to it according to its nature and in conformity with usage, equity, or law (art 1434 CCQ).
Fault
Fault in this case refers to the non-respect or breach of a contractual obligation. To illustrate this, let’s consider an example involving an IT consulting firm called “Tech Solutions” and a manufacturing company called “Quality Products Inc.”
Tech Solutions enters into a valid contract with a manufacturing company, “Quality Products Inc”, to develop and implement a customized inventory management software system. The contract specifies that Tech Solutions will deliver the fully functional software within four months.
However, due to poor project planning and mismanagement, Tech Solutions fails to complete the software development on time. They deliver an incomplete and buggy system after seven months, causing Quality Products Inc. to experience significant disruptions in their inventory management processes. As a result, Quality Products Inc. faces delays in fulfilling customer orders, increased inventory holding costs, and a loss of potential sales.
In this case, Tech Solutions breached its contractual obligation to deliver a fully functional software system within the allotted time. This breach of contractual obligation represents a fault in this case.
Causation
The second condition to prove contractual liability is causation. It implies that the breach of the contractual obligation must directly result in damages suffered by the other party. In our example, Quality Products Inc. incurs financial losses due to disruptions in fulfilling customer orders, increased inventory holding costs, and a loss of potential sales. To establish causation, Quality Products Inc. must demonstrate that these consequences were a direct result of Tech Solutions’ breach of an obligation to provide a fully functional software system.
Damages
The third, and final, condition is proving the damages that resulted from the breach of contract. Specifically, Tech Solutions will only be liable for damages that were foreseen or foreseeable at the time the contract was signed and include only what is an immediate and direct consequence of the breach of obligation (1613 CCQ).
In this case, Quality Products Inc. must quantify the increased inventory costs, missed sales opportunities, and the loss of potential sales and provide proof of these. Additionally, they can seek compensation for remedial actions, such as hiring another software company or purchasing a new software system.
What Types of Liability are Covered?
There are three types of liability covered by this notion: bodily, moral, and material injury.
Bodily liability refers to damage to a person’s well-being, encompassing physical injuries or even death. It also extends to psychological harm, such as nervous shock or trauma.
Moral liability arises from infringing upon extrapatrimonial rights, excluding matters related to bodily integrity. It involves the infringement of feelings.
Material liability pertains to damage inflicted on the patrimony, often involving harm to property, whether movable or immovable.
Exemption From Liability
A party may free themselves from liability for injury caused to another by proving that the injury results from superior force.
Superior force, or force majeure, is an unforeseeable and irresistible event. In the context of the COVID-19 pandemic, some contractual parties were able to prove force majeure to free themselves from liability, others were not. This is because each contract and situation has to be analyzed based on its facts. In particular, the courts will look for force majeure clauses in contracts, the type of obligation (i.e. the intensity of the obligation), any guarantees provided by one party to the other, and how the force majeure event impacted the ability of the party to perform their contractual duties.
Another way a party may free themselves is based on the act of a third party. This occurs where a third party prevents performance of the contractual obligations, which is assimilated to a force majeure. Through this, the party in fault may be released from their obligation but may engage the third party’s extracontractual liability towards the non-defaulting party.
Third, if one of the parties through their own acts makes the performance of the other party’s obligations impossible, the former must then bear the consequences of their actions.
Liability That Cannot Be Excluded
Intentional or gross fault material injury
Under the C.C.Q., a party may not exclude or limit their liability for material injury that was caused through an intentional or gross fault.
What is a gross fault? It is a fault which shows gross recklessness, gross carelessness, or gross negligence.
Moral or bodily injury
The C.C.Q. clearly states that a party may not in any way exclude or limit their liability for bodily or moral injury caused to another. A limitation of liability clause in the contract exonerating a party from any potential moral or bodily liability will likely be without effect.
Conclusion
Contractual liability holds significant importance in the legal landscape. By examining the legal conditions of fault, causation, and damages, businesses can better comprehend the implications of contractual liability. By adhering to the principles outlined in the Civil Code of Quebec, parties can navigate contractual relationships with confidence and seek recourse when obligations are not met.
This blog post is not legal advice and is for general informational purposes only. Always speak with a lawyer before acting on any of the information contained herein.