Meaning
Statutory provision within the PRC Civil Code governs the liability for losses resulting from a breach of contract when the parties have not established a liquidated damages clause or a specific method for calculation. The rule requires that compensation equals the actual harm sustained by the non breaching party. Article 585 mandates that such damages cover direct economic losses plus expected gains that would have accrued had the agreement proceeded without interference.
Courts limit these awards to the amount the breaching party foresaw or should have foreseen at the time of contract execution.
Damages Calculation
Judicial review of claims under this framework relies upon objective evidence rather than speculative projections of lost revenue. Plaintiffs provide accounting records and inventory logs to substantiate the financial deficit attributed to the failure of the counterparty. If the calculated amount appears disproportionate to the actual injury, the law empowers the presiding tribunal to adjust the sum downward to ensure fairness.
This authority acts as a check against claims that exceed the demonstrable impact on production or supply chain stability.
Enforcement Boundary
Limitations on compensation apply when the claimant fails to take reasonable measures to mitigate the negative consequences of the default. Expenses incurred by the non breaching party during these corrective actions form part of the total recovery. Authorities exclude indirect losses that lack a clear causal link to the specific conduct of the defendant.
Contractual parties cannot waive these baseline protections through private agreements because the statute protects the integrity of market transactions against extreme imbalance.
Legal Prerequisite
Proving the existence of a valid contract serves as the threshold for applying the remedy. Establishing that the defendant committed an act of nonperformance provides the grounds for the claim. The burden of proof rests on the party seeking relief to quantify the monetary impact caused by the shift in schedule or quality.
Courts treat the absence of a liquidated damages clause as an invitation to apply these default principles to restore the economic position of the injured party.
