The Civil Code of the Russian Federation:
General Provisions on Liability for the
Violation of Obligations
Alexander S. Komarov”
This article discusses the rules in the Civil Code of
the Russian Federation (“C.C.R.F.”) on the liability for the
violation of contractual and extra-contractual obligations.
The author first describes the general regime of obli-
gations in the C.C.RF. and then goes on to discuss the
remedy of monetary damages for the violation of an obli-
gation. The interaction between contractual and statutory
penalty clauses and damages is also raised. In particular,
the author notes that special rules are applicable to the vio-
lation of a monetary obligation.
The remedy of specific performance and its limita-
tions is then considered. The author follows this with a dis-
cussion about when a creditor may use self-help remedies
to perform an obligation previously breached. The rules
applicable to breaches of obligations to transfer objects
with individual distinguishing characteristics are also can-
vassed by the author.
The article then focuses on the rules of subsidiary li-
ability. The author notes, in particular, that the C.C.R.F.
places limitations on liability to help better regulate busi-
ness relations in Russia.
The author concludes by reviewing the various re-
gimes of vicarious liability in the C.C.R.F., how a fault by
a creditor will affect a debtor’s liability, and the conse-
quences of a delay in performance by a creditor or debtor.
Cet article porte sur les r~gles du Code civil de la Fd-
diration russe concemant la responsabilit6 en cas de viola-
tion d’obligations contractuelles et extra-contractuelles.
L’auteur dtcrit premi~rement le regime g6ndral des
obligations dans le nouveau Code. I1 discute ensuite du re-
mede de dommages pcuniaires en cas de violation d’une
obligation. L’interaction entre les dommages et les clauses
p~nales statutaires et contractuelles est aussi soulevde.
L’auteur note en particulier que des rfgles spciales sont
applicables A la violation d’une obligation pcuniaire.
Le remde d’extcution en nature ainsi que ses limites
sont d&crits. L’auteur discute ensuite des instances oit le
cr&liteur peut se servir de remtaes d’auto-assistance afin
de remplir une obligation qui a 6t6 viol~e. Les rfgles appli-
cables b la violation d’une obligation de transf6rer un objet
ayant des caractdristiques individuelles particuli4res sont
aussi soulevtes par ‘auteur.
L’auteur discute de la responsabilitd subsidiaire qui
est assum~e par plusieurs crditeurs en cas de violation
d’une obligation. L’auteur note que le Code impose des li-
mites t la responsabilit6 afin de mieux r~gir les relations
commerciales.
L’auteur conclut en revoyant les divers rdgimes de
responsabilit6 pour la faute d’autrui trouv~s dans le Code,
mais aussi comment une faute du cr~diteur affectera la res-
ponsabilit6 du ddbiteur ainsi que les consdquences d’un re-
tard dans l’exdcution du d~biteur ou du cr~diteur.
President, International Commercial Arbitration Court.
McGill Law Journal 1999
Revue de droit de McGill 1999
To be cited as: (1999) 44 McGill W. 357
Mode de r~f&ence: (1999) 44 R.D. McGill 357
MCGILL LAW JOURNAL/REVUE DE DROITDE MCGILL
[Vol. 44
I. Grounds of Liability for the Violation of an Obligation
I1. Compensation for Damages
Ill. Damages and Penalties
IV. Liability for Non-Performance of a Monetary Obligation
V.
VI.
Performance of Obligations in Kind
Self-Assistance
VII. Consequences of Non-Performance of an Obligation to Transfer an
Object with Individual Distinguishing Characteristics
VIII. Subsidiary Liability
IX. Limitation of the Amount of Liability
X.
XI.
Liability of a Debtor for its Employees
Liability of the Debtor for Actions of Third Parties
XII. Fault of the Creditor
XIII. Delay by the Debtor
XIV. Delay by the Creditor
Conclusion
References
1999] A.S. KOMAROV- LIABILITY FOR THE VIOLATION OF OBLIGATIONS
359
I. Grounds of Liability for the Violation of an Obligation
The new Civil Code of the Russian Federation’ has not drastically changed the
concept of grounds of liability which was represented in article 401 of the 1964 Civil
Code of the Russian Soviet Federated Socialist Republic Specifically, liability for the
violation of an obligation arises only where the debtor has committed a fault. The
fault may be manifested both in the form of negligence and intent. In determining li-
ability, the statute does not introduce any distinctions with respect to how the fault of
the debtor arose.
The C.C.R.F. also provides for the possibility of establishing by statute or contract
other grounds of liability for the violation of obligations. For instance, unlike the
culpa principle, liability based on the principle of infliction of harm does not take the
existence or absence of fault into account.
Grounds of liability established by a contract may extend or circumscribe liability.
For example, the parties may agree that exemption from liability shall take place in
instances directly specified in the contract, but these are unlikely to be comprehensive
and may not result in the full and unconditional exclusion of the debtor’s liability.
The most widespread method of changing the grounds of liability for incomplete
or non-performed obligations is by agreement of the parties. In practice, the terms of a
contract will specify particular circumstances where a party is exempted from liabil-
ity. Such clauses consider not only the effect of a force majeure or superior force, but
also situations resulting from the conscious acts of people. Inclusion of such a term in
a contract means that in the event of the violation of a contractual obligation, the ap-
plicable provisions shall be those which were agreed upon by the parties rather than
those contained in the C.C.R.F.
Article 401 of the 1964 Civil Code contained an important criterion for estab-
lishing liability: the parameters of conduct for determining whether the debtor has
committed a fault. This provision applied to both intentional and non-intentional vio-
lations of obligations. It should be emphasized that the analysis of a debtor’s conduct
should be based on extrinsic characteristics. The analysis should specifically reflect
the legal nature of the violated obligation and take into account the commercial real-
ity.
A particular situation in which a person who violates an obligation happens to
find himself should be compared to a standard of conduct which is determined by ex-
trinsic characteristics. Only in the event where the conduct of the debtor meets the
‘ Part I was enacted in 1994: Sobranie zakonodatelstva R.E (1994) No. 32, item 3301; and Part 2
was enacted in 1995: Sobranie zakonodatelstva R.E (1996) No. 5, item 410 [hereinafter C.C.R.F.].
For the English-language translation, see P.B. Maggs & A.N. Zhiltsov, eds., The Civil Code of the
Russian Federation, trans. RB. Maggs & A.N. Zhiltsov (Armonk, N.Y: M.E. Sharpe, 1997).
2 Vedomosti S”ezda Narodnykh Deputatov R.E i Verkhovnogo Soveta R.E (1964) No. 24, item 406
[hereinafter 1964 Civil Code].
MCGILL LAW JOURNAL / REVUE DEDROITDEMCGILL
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extrinsic requirements would the debtor be considered not culpable for the viola-
tion-despite the fact that the debtor may have failed to perform or improperly exe-
cuted the obligation.
The C.C.R.E establishes a presumption of fault, and places the burden on the
debtor to prove that no violation of obligations occurred.? The debtor can successfully
rebut this presumption if it is proven that the violation of the obligation was caused by
circumstances which exclude personal fault, such as the effect of force majeure or the
conduct of third persons for which the debtor is not liable. Moreover, under the 1964
Civil Code, the debtor must prove that its conduct met the criteria established in arti-
cle 401(1)(ii). It should be remembered, however, that the creditor must initially prove
the very fact of the violation of an obligation.
For contractual relationships involving entrepreneurial activity, the C.C.R.F. ex-
pands the grounds of liability, establishing increased liability for the violation of obli-
gations. Entrepreneurial activity is “independent activity done at one’s own risk di-
rected at the systematic receipt of profit from the use of property, sale of goods, per-
formance of work, or from the rendering of services by persons registered in this ca-
pacity by the procedure established by a statute.” Under contracts involving entrepre-
neurial activity, the debtor is exempted from liability only if it is proven that the vio-
lation of the obligation was the result of a force majeure. The C.C.R.F characterizes
this phenomenon as specific, extraordinary circumstances which are unavoidable in
the given situation, adding that these circumstances should be analyzed with respect
to specific facts related to the violation of the obligation.? In order to avoid any debate
about whether the most general cases of non-performance or improper performance
of obligations in commerce constitute a force majeure, the C.C.R.E lists instances of
non-performance which are not considered as those relieving an entrepreneur of li-
ability. These specifically include the violation of obligations on the part of contract
partners of the debtor, the absence on the market of goods necessary for performance,
and the lack of the debtor’s monetary funds.’
The characteristics of force majeure should be present in a given situation simul-
taneously, not alternatively. The question also arises as to whether the definition of
‘force majeure” given by the C.C.R.F includes events which do not constitute natural
disasters, but nevertheless appear to share the characteristics of a force majeure. Such
events would include military actions, blockades, embargoes, acts of state agencies of
any government level, and other events of public life. The answer to this question in
each particular case will depend on the extent to which each event meets the estab-
lished distinctive features of a force majeure. For instance, if the unavoidable nature
of such events is obvious in practically all instances, their extraordinary nature (i.e.,
the unpredictability of their emergence) may be subject to doubt.
Art. 401(2) C.C.R.E
‘Art. 2(1)(iii) C.C.R.F.
‘Art. 401(3) C.C.R.E
‘Ibid.
1999] A.S. KOMAROV- LIABILITY FOR THE VIOLATION OF OBLIGATIONS
361
Such an approach means that for a party acting under circumstances which pre-
vent the performance of obligations because of an unavoidable event, liability for non-
performance may nevertheless be established if the event could have been foreseen at
the moment the obligation arose. This means that in order to avoid being found liable
for non-performance, a party entering into an obligatory relationship must directly ex-
clude its liability. If there is an inability or unwillingness to do so, a party may take
protective measures of an economic nature, such as insurance.
II. Compensation for Damages
The general norms that regulate issues of liability for the violation of obligations
arising from contractual relations are contained in Chapter 25 of the C.C.R.F. At the
beginning of this chapter, article 393 C.C.R.F. establishes a rule under which the
debtor is obligated to compensate the creditor for damages resulting from the non-
performance or the improper performance of an obligation. This fundamental rule
implies that the unsatisfactory conduct of the debtor results in the emergence of an
obligation to compensate for any damages caused by the debtor’s actions or failure to
act.
The key function of the debtor’s obligation arising from the breach of contract is
to compensate, in monetary form, those damages which the creditor incurred due to
the non-performance or improper performance of an obligation placed upon the
debtor. In this sense, article 393 C.C.R.F. reflects the legislator’s belief in the impor-
tant and socially meaningful goal of protecting the property interests of business par-
ticipants.
The concept of compensation for damages in the law of obligations can serve
various purposes, particularly in the area of regulation of entrepreneurial activity
where it can assume both a preventive and punitive nature. This can be explained by
the fact that the general rules of procedure for determining compensation in the event
of a violation of obligations are first and foremost aimed at resolving issues arising in
the relationship between a specific creditor and debtor. Such rules do not take into ac-
count the social and economic factors with respect to these actors. On the other hand,
in the event of compensation by damages-when it is necessary to take into consid-
eration these factors-the legislation may base itself on special principles and rules
for the establishment and determination of the amount of compensation due to the
creditor.
With respect to the amount of damages due for compensation, there is a general
principle which implies that full compensation is necessary. Hence, all damages
caused by the non-performance or improper performance of an obligation must be
compensated, regardless of the nature of the fault or property status of the wrongdoer.
At the same time, the scope of the debtor’s obligations with respect to compensation
for damages is influenced by a number of factors proceeding both from the law (e.g.
article 404 C.C.R.E) and the agreement of the parties (e.g. penalty clauses).
General rules relating to the scope of compensation for damages are established
in article 15(1) C.C.R.F. This article states that “[a] person whose right has been vio-
362
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lated may demand full compensation for the damages caused to it unless a statute or
contract provides for compensation in a lesser amount.” In principle, this provision
also may be read as prohibiting compensation for damages which are beyond the
scope of those caused by the violation (i.e., penalty clauses).
It is significant that the C.C.R.F. makes a distinction between monetary compen-
sation for material and property damage caused to the creditor on the one hand, and
the compensation for moral harm on the other. It should be emphasized that in those
instances where pecuniary compensation for moral harm is allowed by the C.C.R.F,
special rules are applicable.’ A consequence of the violation of a contractual obliga-
tion is, normally, the emergence of damages in the form of harm caused to property.
At the same time, if the violation of an obligation also results in moral harm, compen-
sation for the latter will be regulated by provisions of the C.C.R.F governing compen-
sation for moral harm.’
Damages, in conformity with article 15 C.C.R.F., means the expenses incurred by
the creditor whose right was violated (i.e., those incurred in order to reinstate the right
that was violated, or the loss of or harm to property). The amount also includes in-
come not received that the creditor would have received in the usual course of busi-
ness had the obligation not been violated.
Since compensation for damages aims to protect the business interests of the ag-
grieved party, the issue of what fundamental approaches must be taken to determine
the magnitude of damage inflicted becomes particularly relevant. Given the fact that
infliction of damage primarily affects the material status of the aggrieved party, the
protection of this party’s interest lies in the re-establishment-to the extent possible in
pecuniary terms–of the creditor’s property status that would have existed had the
specific obligation not been violated by the debtor. In a market economy, the imple-
mentation of this goal normally will not be hindered in its search for criteria to estab-
lish the monetary equivalent for the performance of the violated obligation. Moreover,
such an approach is desirable because it serves to create favourable conditions for the
stability of business relations.
The C.C.R.F. stipulates that the existence of damage should be proven by the per-
son filing a claim for compensation. The creditor should prove that between the vio-
lation of the obligation and the damage there is a causal connection such that the
damage is a direct consequence of the violation of the obligation-and that this con-
nection is not accidental in nature, but always exists in comparable circumstances. In
practice, such damage is often referred to as “direct” damage and may be contrasted
with “indirect damages” where the causal relationship is more remote. This criterion
equally refers to both actual physical or material damage and lost profit.
A person who has the right to claim compensation for damages is someone who
has suffered property damage as a result of the violation of an obligation. In principle,
7 Arts. 1099-1101 C.C.R.F.
B Ibid.
1999] A.S. KOMAROV- LIABILITY FOR THE VIOLATION OF OBLIGATIONS
363
the right to file a claim for compensation for damages belongs only to the party of an
obligation. For instance, in the event of a violation of contractual obligations, a party
to the contract has the legal right to compensation for damages. Thus, third parties
whose business happens to be adversely affected by the debtor’s violation of an obli-
gation shall have no right to directly file a claim for compensation against the debtor.
Moreover, third parties who also suffer damages as a result of the debtor’s non-
performance of the obligation owing to the creditor shall have no right, in principle, to
file a claim against the debtor for the compensation for damages which did not
emerge directly with that third party.
At the same time, a market economy presupposes complicated and multi-stage
contractual interactions, including intermediary links characterized, at times, by dis-
agreement over their economic content and legal form. In this context, it does not
seem justifiable to absolutely deny the right of the creditor to claim compensation for
damages which, in fact, emerged with the third person, but which only can be recov-
ered from the debtor by the person who has relations in personam with the wrong-
doer. Such damages, however, are not recoverable by the aggrieved party.
The recognition of damages following the claim of the creditor, not the aggrieved
person, would be accepted by a court on the basis of the estimated “real nature” of
damages to the creditor. The court must establish in these circumstances the degree of
inevitability of such damages for the creditor as a debtor of the party who suffered
real damages. This analysis should certainly include an examination of the legal rela-
tions between the creditor and the third person where the creditor is a debtor with re-
spect to compensation for damages.
Establishing the obligation of a creditor to compensate damage caused to a third
person in these situations is of the greatest significance, regardless of whether the
monetary amounts have actually been paid by the creditor to the third person in com-
pensation. It seems that such an interpretation logically follows from the definition of
“damages” given by article 15(2) C.C.R.E that mentions not only the expenses that
the aggrieved party has incurred, but also the expenses that it must make to restore the
right that was violated.
The rule in article 393(3) C.C.R.F. helps to overcome difficulties arising in prac-
tice with respect to the estimation of the amount of damage requiring compensation.
According to this article, the determination of damages takes into account the prices
that existed at the place where the obligation was to be performed on the day of vol-
untary satisfaction by the debtor of the creditor’s claim, or if the claim was not satis-
fied voluntarily, on the day of filing the suit. Depending on the circumstances, a court
may satisfy a claim of compensation for damages by taking into account prices exist-
ing on the decision date.
Such an approach to determining the amount of damages may of course be im-
plemented only in a market economy-and this is new to Russian law. Article 393(3)
C.C.R.F. also provides grounds for the conclusion that the legislator expected it would
be possible to use a method other than the method of “concrete” calculation for de-
termining the amount of damages. This involves determining damages as the differ-
ence between the price of the breached obligation and the price of the new obligation
MCGILL LAW JOURNAL / REVUE DE DROITDE MCGILL
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into which the creditor had to enter to receive the required performance. The law also
allows the possibility of using an abstract calculation of damages which equates the
existing price of performance in a certain place and time with the cost of the perform-
ance which the creditor would have received had it really performed a substituting
transaction. In other words, to prove that damages were really suffered, it is necessary
to prove that at the time when the contract was breached there was a difference be-
tween the price as stipulated in the contract and the price effective for similar goods in
the marketplace.
Given the fluctuation of prices in a market economy and the possibility that par-
ties-when calculating the amount of damages-will use market fluctuations to their
benefit, courts have been granted the right-upon the request of the party con-
cerned-to calculate damages according to the prices on the day the decision is ren-
dered.” This right of the court should only be used when such a decision will contrib-
ute to the implementation of the principle of compensation for damages incurred.
In terms of awarding “future” damages, if the violated right may be restored in
kind through the purchase of particular goods or through the performance of certain
services-and in instances when at the moment that the claim is filed or the decision
is being rendered actual expenses have not yet been determined by the creditor-the
value of the goods and services should also be determined in conformity with article
393(3) C.C.R.F
A general criterion that should be used by courts when determining lost profit is
the general business practice, as defined in article 15(2) C.C.R.F Article 393(4)
C.C.R.F. also lists the circumstances related to the calculation of compensation that is
subject to accounting. More specifically, measures taken by the creditor to receive
future profit and the preparations made for this purpose may be considered as a
minimum limit of lost profit requiring compensation. This may result in the inclusion
of the amount of lost profit and other subjective criteria connected with a given situa-
tion. On the other hand, since the measures and preparations taken by the creditor are
normally expressed in expenses incurred, they may be accounted for when the other
constituent part of damages (i.e., actual damage) is evaluated.
111. Damages and Penalties
For a long period during the economic development of Russia’s business rela-
tions, instead of claiming compensation for damages, sums on deposit were forfeited.
The debtor was obligated to pay the deposit to the creditor to cover the possibility of
non-performance or improper performance of an obligation. This is the reason why
the drafters of the C.C.R.F paid significant attention to the regulation of this form of
liability. At the same time, one should not overlook the fact that the traditional attitude
9 Art. 393(3) C.C.R.F.
1999] A.S. KOMAROV- LIABILITY FOR THE VIOLATION OF OBLIGATIONS
365
toward penalties as a means of securing obligations was reflected in certain statutory
norms.
The general provisions on penalties-primarily as means to secure obligations-
are formulated in articles 330 to 333 C.C.R.F. In particular, these articles define the
concept of a “penalty” and the form of agreement thereon. They also establish the
right of a court, in certain instances, to reduce the amount of compensation.
Thus far, penalties have been used in the event of non-performance or improper
performance by a debtor of an obligation. The imposition of these penalties is a rather
widespread contractual practice in the area of business transactions. This practice
demonstrates that the same penalty may be used for any violation of an obligation, or
it may be applied only to specific kinds of non-performance or improper performance
of obligations. In Chapter 25 of the C.C.R.F., the provisions on penalties are based on
the understanding that they are a form of liability for the violation of obligations. The
chapter regulates the correlation of penalties with the right to demand for damages.
The basic rule established by the C.C.R.E limits the level of damages payable due
to the non-performance or improper performance of an obligation to the amount of
compensation not covered by the penalty. This rule, however, is only suppletive. A
contract may also provide for a different proportion between a penalty and compen-
sation for damages. For example, it may only allow recovery of a penalty amount (i.e.,
exclusive penalty), damages to be recovered in full in excess of a penalty (i.e., penalty
forfeiture), or at the choice of the creditor, either damages or recovery of a penalty
(i.e., alternative penalty).
The C.C.R.F. provides that a penalty for non-performance or improper perform-
ance of an obligation may be established not only by contract, but by statute.” The
practices of the application of statutory penalties as a method for regulating business
relations between independent subjects of law under a decentralized economy, how-
ever, are unlikely to be of great importance.
For the provisions relating to compensation in the form of the proportion of dam-
ages and penalties to be implemented, the grounds for claiming both a penalty and
damages should be the same, that is, they should be linked to the same violation of the
contract. In cases where a penalty is established by statute, the question of a creditor’s
right to receive both a penalty and compensation for damages is resolved in the statute
itself. On the other hand, in cases where a penalty has been stipulated in the contract,
the parties often specify the amount and grounds for the payment of the penalty,
leaving the issue of the additional payment of damages open. It is in this particular
case that a suppletive norm contained in article 394(1) C.C.R.F. will be applied.
For the creditor to receive compensation for damages not covered by the penalty,
it will have to prove the full value of the damage caused, and that the amount of the
See e.g. art. 394 C.C.R.F.
“Art. 330(1) C.C.R.F.
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penalty is less than this amount. Given the fact that the key goal of the penalty is to
facilitate the recovery of damages caused by the violation of the obligation by ex-
cluding the necessity for the creditor to prove actual damages, a claim for compensa-
tion for damages not covered by the penalty will be limited to instances when the
penalty merely compensates for insignificant damages suffered by the creditor.
The right to claim a penalty is not determined by the level of actual damage sus-
tained by the creditor. However, if a penalty is clearly disproportionate to the conse-
quences of a violation, a court has the right to reduce it.’2 In this case, the burden of
proving the amount of the actual damage, or absence thereof, must be placed upon the
debtor, on whose initiative the court normally initiates proceedings on the issue. If the
court itself chooses to initiate proceedings, it may demand that the creditor provide
proof of the amount of actual damage caused.
The amount of the penalty may be reduced by a court, but only if the penalty is
clearly disproportionate to the consequences of the violation of the obligation. When
such consequences are evaluated by the court, events may be taken into consideration
that do not directly relate to the consequences of the violation of an obligation such
as, inter alia, the price of goods, work, services, or the value of the contract.
A penalty forfeiture does not act as a means of facilitating the award of compen-
sation for damages. Instead, it executes a punitive function. This type of penalty has
been applied rather broadly in the past and was used mainly in instances where a pen-
alty had been established by statute and where a rigid legal regulation of a certain kind
of business relation was required. In civil and, particularly, business commerce penal-
ties, forfeitures are unlikely to be considered as a natural element since the punitive
nature of such penalties is not in line with the basic principles of private law.
At the same time, it should be taken into consideration that in contractual prac-
tices, penalty clauses are frequently the consequence of abusive behaviour by the
dominant party of a contract. In such cases, a penalty forfeiture may be deemed unac-
ceptable for its effect in preventing the exercise of civil rights” and thereby deemed
void of legal force.
In cases where a penalty has been awarded for the violation of an obligation and
where there is, at the same time, a restriction on liability applicable to the same viola-
tion, limitation of liability takes priority over the penalty provisions by virtue of a bal-
ance established between the right to a penalty and the right to claim compensation
for damages. Thus, in the case of the trumped penalty, the right of a creditor to com-
pensation for damages whose coverage by the penalty has been displaced will be lim-
ited to an amount determined by the provisions on the limitation of liability.
Art. 333 C.C.R.F.
Art. 10 C.C.R.F.
1999] A.S. KOMAROV- LIABILITY FOR THE VIOLATION OF OBLIGATIONS
367
IV. Liability for Non-Performance of a Monetary Obligation
The C.C.R.F., following the tradition of the continental system, establishes special
rules relating to the liability for non-performance of a monetary obligation. Although
there is no general definition of such liability, both in theory and in practice a mone-
tary obligation is unequivocally understood to be an obligation involving the payment
of a money amount.
The necessity of special regulation of liability in the event of a violation of a
monetary obligation is explained by the specific subject of such an obligation, which
is of particular significance and has exclusive features. The key feature of this kind of
obligation is the universal nature of money in civil and business transactions.
Violations of monetary obligations always result in a delay in payment. This dis-
tinguishes it from other obligations. It is this specific circumstance that is of a decisive
nature for establishing liability, not the fact that the debtor unlawfully used these
funds. Article 395(1) C.C.R.E relating to the consequences of delay in performing
monetary obligations is formulated in the following manner:
For the use of another’s monetary assets as the result of their unlawful reten-
tion, refusal to return them, … delay in their payment, or unjustified receipt or
saving at the expense of another person, interest is subject to payment on the
amount of these funds.
The provisions established by the C.C.R.F with respect to the exercise of a
creditor’s right to receive interest in the event of non-performance of a monetary obli-
gation do not require that the creditor prove actual damages (i.e., the amount of inter-
est actually paid for the receipt of borrowed funds) nor the fact of receiving a loan in
connection with the delay in the performance of a monetary obligation by the debtor.
The creditor need not prove the amount of income received by the debtor who unlaw-
fully used the creditor’s monetary funds. The right of the creditor to receive compen-
sation for damages in the form of an interest charge on the amount of unpaid funds is
dependent on how the funds were used by the debtor, more specifically, what income
was received and whether loan funds were used. In order to satisfy a claim for pay-
ment of interest on the amount of monetary funds that are the subject of an unper-
formed obligation, it is enough for the creditor to prove the amount of interest ac-
cording to the bank rate applicable in its place of residence, or alternatively, in the lo-
cation of the relevant bank if the latter is the ultimate creditor of the monetary obliga-
tion.
Such a solution to the problem is justified since the creditor, in the event it does
not receive monetary funds due from the debtor, may apply to the bank servicing it,
which is normally located in the place specified. In addition, the interest rate used by
this bank to finance its clients may be considered as proof of the existing bank rate in
the bank’s domicile.
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In contrast to the old civil legislation,” the amount of interest subject to payment
in the event of a violation of a monetary obligation is not fixed in the C.C.R.F. This
amount is determined by the rate of bank interest in accounting terms. Since the
C.C.R.F. does not define the concept of the accounting rate of bank interest, senior
Russian judicial bodies have provided the following explanation:
The amount of interest subject to payment for the use of another’s money funds
shall be determined by the accounting rate of the bank interest in the residence
place of an individual creditor (location of a legal entity) as of the day of per-
formance of a monetary obligation. Currently, the relations between organiza-
tions and citizens of the Russian Federation shall be subject to payment of in-
terest in the amount of a single accounting rate of the Central Bank of the Rus-
sian Federation on loan resources provided to commercial banks (refinancing
rate).
15
The interest provided for by article 395(1) C.C.R.E shall be subject to payment
only with respect to a particular amount of monetary funds, and shall not be accrued
on the interest for the use of another’s money funds unless otherwise provided for by
the law. The interest shall be paid for the whole period of use of another’s monetary
funds until the day of actual payment of these funds to the creditor, unless a statute,
other legal acts, or a contractual clause establishes a shorter term.
If the monetary obligation has not been performed by the debtor at the moment
when the decision was taken, the court decision on recovery of interest for the use of
another’s monetary funds shall contain information on the amount on which the inter-
est has accrued. It shall also mention the starting date of the accrual, and the amount
of interest on the basis of the bank rate. The bank rate is determined and applied on
the date when the claim was filed, or the day when the decision was rendered. Interest
on these sums shall accrue until the actual payment of the funds to the creditor. In es-
tablishing the accounting rate of bank interest, it is expedient to give preference to the
rate which is the closest in value to the accounting rates applied during the period when
the other party’s funds were used.
In the event that the monetary obligation is performed by the debtor prior to the
court’s decision, the decision should specify the interest subject to recovery from the
debtor for a fixed amount:
If in accordance with the legislation on currency regulation and currency con-
trol a monetary obligation is denominated in foreign currency [article 317
C.C.R.F.] and there is no official accounting rate of the bank interest with re-
spect to currency loans as of the day of performance of the monetary obligation
in the place of location of the creditor, the amount of interest shall be deter-
mined on the basis of information published in official sources of the average
“The 1964 Civil Code and the 1961 Fundamentals of Civil Legislation of the U.S.S.R. and Union
Republics.
” Fundamentals of Civil Legislation of the U.S.S.R. and Union Republics, Vedomosti S”ezda
Narodnykh Deputatov S.S.S.R. i Verkhovnogo Soveta S.S.S.R. (1991) No. 26, item 133, art. 51.
1999] A.S. KOMAROV- LIABILITY FOR THE VIOLATION OF OBLIGATIONS
369
bank interest rates on short-term currency loans provided in the place of the
creditor’s location.’
6
If there are no such publications, the amount of interest to be recovered shall be estab-
lished on the basis of a document submitted by the plaintiff from a major bank in the
creditor’s domicile, confirming the applicable rate on short-term currency credits.
At the same time, it seems that this explanation, with respect to monetary obliga-
tions existing between Russian enterprises, does not fully reflect the logic of traditional
regulation concerning the interest rate that a creditor may rely upon in the event of a
delay in the performance of a monetary obligation. Thus, proceeding from a generally
accepted understanding of the functioning of the financial mechanism servicing com-
merce, it could be concluded that in such cases, current interest rates existing in the
market should be applied; in other words, rates used by banks when providing loans to
their clients, not the inter-bank crediting rates usually lower than the commercial inter-
est rates. In this event, interest rates established by the Central Bank of the Russian
Federation on its transactions should not be used, particularly since these rates are used
mainly to influence interest rates in the market.
As a general rule, the C.C.R.F. establishes that the amount of interest shall be de-
termined as of the day of performance of a monetary obligation. Given the fact that
bank interest is subject to rather serious fluctuations, in the event of a lengthy delay
these fluctuations may lead to a situation where, proceeding from the above rule, the
creditor will not be able to receive the appropriate compensation for damages caused
by the violation of the obligation by the debtor. To avoid such a situation, the C.C.R.F.
provides an opportunity for the debtor to base its claim on the bank rate of interest pre-
vailing on the day when the suit was filed or the day of the court’s decision. The choice
of either option rests with the creditor.
The appropriate interest rate to be paid for the violation of a monetary obligation
may be established either by a statute or contract. Since the general development of
Russian civil legislation reflects the continued liberalization of the regulation of busi-
ness relations, the extent to which the amount of interest for non-performance of a
monetary obligation will be established by statute is likely to be minimal. Conversely,
the determination of the interest rate by contract under the conditions of a developing
market is becoming a more widespread phenomenon because it allows parties to
minimize the influence of fluctuations in interest rates. Although the C.C.R.F. does not
directly establish any limitations with respect to the amount of interest that may be de-
termined by a contract, this does not mean that the parties may voluntarily establish
such amounts. For instance, certain rates that appear unjustifiably high may be deemed
invalid if a court decides that they are a result of one party’s dominant position in the
market. This is stipulated in article 10 C.C.R.F., which establishes the general scope of
the exercise of one’s civil rights.
,6 Ibid., art 52.
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If a violation of a monetary obligation causes damages to a creditor that are not
fully compensated by the payment of interest, the creditor has the right to claim com-
pensation for such damages. This means that the creditor must prove that the amount of
actual damages caused was the result of the unlawful withholding of the money
amount by the debtor.
When a decision is rendered on the right of a creditor to receive compensation for
such damages, all general norms relating to the regulation of liability for the violation
of an obligation must be applied. In light of this, it is rare that damages caused by the
violation of a monetary obligation will exceed the bank interest rate for the use of bor-
rowed funds. This is primarily explained by the fact that fluctuations in the amount of
bank interest reflect mainly economic factors (e.g. the devaluation of money due to in-
flation) which may later foster claims for compensation of additional damages.
The C.C.R.. does not directly stipulate when the accrual of interest on a monetary
obligation should begin. Most likely, this would be the moment when the right of a
creditor to receive the amount due is violated. In situations where the period for the
performance of a monetary obligation is established in advance (e.g. the time for pay-
ing the price under the purchase-sale contract), interest will start to accrue the day after
the period for payment has expired. If a monetary obligation arises by virtue of a claim
filed by the creditor (e.g. a claim for compensation for damages), the time for payment
shall be determined based on the date of filing of the claim in addition to the time pe-
riod deemed necessary for executing payment that is generally accepted under such
circumstances.
V. Performance of Obligations in Kind
An important rule regarding the legal consequences of the violation of an obliga-
tion is fixed at article 396(1) C.C.R.E, which states that “[p]ayment of a penalty and
compensation for damages in case of improper performance of an obligation shall not
free the debtor from the performance of the obligation in kind unless otherwise pro-
vided by a statute or contract” Thus, a principle of proportionality exists in relation to
the specific means of legal protection that the creditor has when an obligation is vio-
lated.
At the same time, this is not meant to encompass all obligations. The above-
mentioned principle only works when there is improper performance of an obligation
(i.e., when goods of improper quality are delivered) and the creditor uses its right to re-
cover a penalty, or files a claim for compensation for damages. In such a situation, the
creditor also has the right to claim the performance of the obligation in kind, Le., to
demand the delivery of goods of proper quality. Such an approach is justified since the
altemative measures of liability only compensate damages corresponding to the non-
performed part of the obligation.
The C.C.R.. provides that other regulations may follow from a statute or contract.
If, in the above-mentioned instance, a creditor is deprived of the right to claim for per-
formance of an obligation in kind, another form of protection that compensates for the
deprivation should be given.
1999] A.S. KOMAROV- LIABILITY FOR THE VIOLATION OF OBLIGATIONS
371
Where the violation of an obligation involves absolute non-performance (Le.,
where the creditor did not receive anything with respect to the obligation placed on the
debtor) another rule will apply, namely, the rule articulated in article 396(2) C.C.R.E In
such a case, if damages resulting from non-performance are compensated, or the
debtor paid the penalty stipulated for instances of absolute non-performance,
the
creditor shall be deprived of its right to claim for the performance of the obligation in
kind since the latter will be deemed to have received compensation equivalent to the
performance of the obligation.
Since these norms are of a suppletive nature, another method of regulating the legal
rights of the creditor in such a situation may arise. Specifically, the creditor may have
the right–despite having received the penalty amount or damages-to claim for the
debtor’s performance of the obligation in kind. This approach presumes that the pay-
ment by the debtor will serve as a penalty for non-performance of the obligation.
Article 396(3) C.C.R.F. provides a special rule that eliminates the debtor’s obliga-
tion to perform an obligation in kind in two specific instances. First, the debtor is freed
from performance of an obligation in kind if a creditor refuses to accept performance
that-as a result of the delay-is no longer useful. The rights of a creditor in this situa-
tion are specified in article 405(2) C.C.R.F.
Second, the debtor is freed in situations in which the contract itself imposes penal-
ties for the violation of an obligation, effectively compensating for termination of the
contract (i.e., cancellation compensation), and the creditor makes use of the penalties.
In such an instance, the debtor is freed from the performance of the obligation in kind.
The legal consequences of the agreement of the parties regarding cancellation compen-
sation are established in article 409 C.C.R.F.
VI. Self-Assistance
Other legal consequences of non-performance of obligations of a different nature
are established in article 397 C.C.R.F. If a debtor fails to perform its obligation to pro-
duce and transfer the object of the obligation to the creditor, or to perform defined
work or render a service, the creditor shall have the right, within a reasonable time, to
entrust the performance of the obligation to a third party for a reasonable price or to
perform it by its own efforts. Such actions may be taken by the creditor unless other-
wise prohibited by a statute or another legal act, by contract, or by the nature of the ob-
ligation itself. If the creditor suffers damages at the same time, it will have the right to
claim compensation for the necessary expenses and any other damages suffered.
Article 397 C.C.R.F. applies only if an obligation violated by the debtor may be
objectively performed, not only by the debtor, but by other persons including the
creditor. The rule naturally expands the possibilities available to the creditor should the
debtor fail to perform the obligation. Regulations providing for such actions, often de-
scribed both in theory and practice as “self-assistance”, create conditions in which the
creditor-having a real opportunity to exert influence for achieving a desirable result
without resorting to any formal means of the protection of rights-may perform spe-
cific actions to bring about the necessary result.
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The rule on “self-assistance”, which did not exist in the 1964 Civil Code, encour-
ages the active conduct of the creditor. This, of course, will reflect favourably on the
justifiable active conduct of participants in entrepreneurial activity. Application of this
rule does not in principle mean a change in the original legal basis of the relationships
of the parties to the obligation. The fact that the creditor performed the obligation pre-
viously placed under the concluded contract upon the debtor does not have any influ-
ence upon their rights and obligations established in the context of mutual obligations.
The exercise of “self-assistance” is not an obligation of the creditor, but rather the
creditor’s right. The issue of whether the creditor should resort to this means of legal
protection in a given case is resolved on the basis of its own interests. On the other
hand, if the performance of certain actions by the creditor in such a situation may be
considered as a reasonable necessity related to the mitigation of possible damages
caused by the violation of the obligation, failure to take such action may influence the
amount of damages for which compensation may be claimed by the creditor.”
The C.C.R.F. proceeds from the principle that it is possible to resort to legal rights
provided to the creditor when the violation is an absolute non-performance of an obli-
gation.” In the event of improper performance of an obligation, however, the creditor
does not have such a right. The legality of using the right to “self-assistance” is also
determined by compliance with certain requirements. According to article 397
C.C.R.E, these requirements are as follows:
(1) The creditor must, in choosing to make use of this right, exercise it within a
reasonable time determined by the specific circumstances of performance of
the obligation. It seems that in any case the creditor must inform the debtor
of its actions.
(2) The price of performance of the obligation by the creditor or third party,
instead of by the debtor, must be reasonable.
(3) If the creditor entrusts the performance of the obligation to a third party, it is
presumed that this person will meet the same criteria as the debtor who failed
to perform the obligation.
(4) All expenses and other damages incurred by the creditor due to resorting to
self-assistance will be subject to compensation in conformity with the
general provisions on compensation for damages.
VII. Consequences of Non-Performance of an Obligation to Transfer
an Object with Individual Distinguishing Characteristics
Article 398 C.C.R.F. stipulates an additional legal right of the creditor if an indi-
vidually-defined thing (i.e., a thing having certain individual distinguishing features
‘ See art. 404 C.C.R.E: “Fault of the Creditor”
“Art. 397 C.C.R..
1999] A.S. KOMAROV- LIABILITY FOR THE VIOLATION OF OBLIGATIONS
373
that make it different from other things) is the object of the violated obligation. This in-
cludes not only things existing as single items, but also things belonging to a certain
group but for certain reasons have been singled out. If a thing is transferred into use,
article 398 C.C.R.. applies only in the case of use for compensation. The provision
also establishes only the material right of the creditor to claim the transfer of the thing
in question. If, despite the creditor’s claim, the thing is not being transferred, the
creditor may seek judicial protection of the violated right. In contrast to the provisions
established in article 397 C.C.R.E, the creditor in this case cannot resort to “self-
assistance” and withdraw the thing being claimed from the debtor.
Through this rule the C.C.R.F. confirms the principle of the priority of rights in
rem over rights in personam. It specifies that if the thing has already been transferred
to a third party having the right of ownership, the creditor claiming the thing loses the
right to demand that it be transferred. On the other hand, if the thing has not yet been
transferred to the person who has the right of ownership over it, and several creditors
whose right is based on legal relations in personam claim it, the C.C.R.E recognizes
the priority of the creditor for whose benefit the obligation first arose. If this is impos-
sible to establish, the thing will be subject to a transfer to the creditor who was the
first to ensure the protection of its right, i.e., the creditor who has filed a suit on the
withdrawal of the thing to its benefit.
The creditor to whom the thing must be transferred may, instead of demanding
that the thing be withdrawn from the debtor, file a claim for compensation for dam-
ages caused by the violation of the debtor’s obligation to transfer the thing belonging
to it. In this regard, general provisions on liability for the violation of obligations must
be applied.
VIII. Subsidiary Liability
The C.C.R.F. contains special norms relating to general legal consequences where
liability is borne by several debtors, some of whom are principal debtors while others
bear supplementary (i.e., subsidiary) liability.” In other words, liability of the latter
group arises not by virtue of a violation of certain obligations, but only where the
debtor who bears the principal liability violates its obligation to the creditor.
The regulation of subsidiary liability is aimed at ensuring additional means of le-
gal protection for creditors when they enter into legal relationships that imply the ne-
cessity of increased safeguards with respect to certain subjects of law. The rules on
subsidiary liability established in the C.C.R.F. relate to the legal status of certain sub-
jects of law. For example, there are provisions that regulate the relationships between
the founder (i.e., owner) of a legal entity and the appropriate corresponding legal en-
tity under certain circumstances, such as in the event of insolvency and bankruptcy. A
‘9 Art 399 C.C.R.F.
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statute or contract may provide for subsidiary liability of the surety for the debtor’s
obligation secured by suretyship.’
For a finding of subsidiary liability flowing from regulatory acts, expression of
consent on the part of a subsidiary debtor is normally not required. However, for a
finding of subsidiary liability caused by the violation of a contractual obligation, the
consent of the person on whom such liability will be placed is necessary. For exam-
ple, in an agreement between a creditor and a principal debtor where a third party is
mentioned who will bear subsidiary liability in case of violation of the obligation by
the principal debtor, such an obligation will not be valid unless the creditor and the
subsidiary debtor formalize an appropriate obligation. As practice shows, the most
widespread form of contractual subsidiary liability is suretyship.
The subsidiary nature of such liability is manifested primarily in the necessity of
the creditor to file a claim on the performance of an obligation to the principal debtor,
regardless of the existence of another debtor in addition to the principal one. Only
when the principal debtor refuses to satisfy the lawful demand of the creditor for per-
formance of the obligation–or if the debtor in no way reacts to such a demand within
a reasonable time-shall subsidiary liability of the debtor arise. Moreover, a contract
providing for subsidiary liability of the debtor may establish certain terms which
should be fulfilled by the creditor prior to filing a claim against the subsidiary debtor.
In such a case, it is the fulfilment of these terms that will satisfy the prerequisites for a
finding of liability of the subsidiary debtor. The lawful refusal of the principal debtor
to perform obligations, however, does not grant the creditor the right to turn to the
subsidiary debtor.
There are also other limitations for the creditor with respect to subsidiary liability
of the debtor. These specifically relate to instances in which the principal debtor has a
counter-claim against the creditor. For example, the creditor must agree to accept the
counter-claim of the principal debtor. If the creditor refuses to do so, in accordance
with the nature of this rule, it may not address a claim to the subsidiary debtor. To
some extent this provision restricts the freedom of the creditor’s actions. However, it
seems expedient from the perspective of rational business regulation since it orients
the parties toward simpler and more economically efficient conduct. If the claim of
the creditor is not redeemed in full by off-setting against the counter-claim of a prin-
cipal debtor, its remaining part must be satisfied by the person bearing subsidiary li-
ability. Furthermore, the creditor cannot present the person who bears subsidiary li-
ability with a demand to perform the obligation if it has not used the right of
uncontested recovery of funds from the principal debtor. In certain instances, a person
who bears subsidiary liability takes the place of the principal debtor and has the right
to use objections against the creditor which the principal debtor has and which may
influence the satisfaction of the creditor’s claim for the performance of the obligation.
20 Art. 363 C.C.R.E
1999] A.S. KOMAROV- LIABILITY FOR THE VIOLATION OF OBLIGATIONS
375
To efficiently resolve the question of liability for the violation of an obligation, it
is necessary to simultaneously consider all of the relevant issues. That is why the
C.C.R.F. places upon the person bearing subsidiary liability the obligation to warn the
principal debtor about it prior to satisfaction of the claim or-should a dispute be con-
sidered in court-to attract the latter to participate in the case. If this is not done, in
the event of consideration of a recourse claim to the principal debtor, the latter may
defend its position by objections which it had against the creditor and which it could
report to the person with subsidiary liability when it considered the creditor’s claim
for performance of the obligation.
IX. Limitation of the Amount of Liability
The C.C.R.F. gives due attention to the issue of regulating the amount of liability
in case of violation of obligations. This is so because establishing limited liability is a
deviation from the fundamental provision on liability, namely, the principle of full
compensation for damages suffered by the aggrieved party as the result of the viola-
tion of an obligation by the debtor.
Legislative limitation of the amount of liability for the violation of obligations is a
form of state regulation of business relations. This method is frequently used for pur-
suing a certain economic policy aimed at the support of some branches of the national
economy by creating favourable conditions for those engaged in the relevant indus-
tries, specifically by limiting their property liability for the violation of obligations.
The described method of regulating economic relations is undoubtedly a useful
one among available measures aimed at implementation of social and economic pol-
icy in a State, particularly one under transition. Although provisions of the C.C.R.F
do not specify the conditions under which limitations of liability may be introduced,
the establishment of limited liability should not run contrary to the fundamental prin-
ciples of civil legislation established in article 1 C.C.R.F. In particular, civil rights may
be limited only to the extent necessary for the purposes of defending the bases of the
constitutional order, protecting morals, health, the legal interests of other persons, and
ensuring the defence of the country and the security of the State.
This rule directly introduces an exemption from the principle of freedom of con-
tract when the parties to the contract formulate provisions on liability for the violation
of obligations. Where the amount of liability is determined by statute, agreements es-
tablishing the amount of liability are deemed null and void-unless such an agree-
ment is concluded after the circumstances causing liability arise. Such limitations on
freedom of contract are aimed at preventing an economically stronger party from us-
ing an advantage to create a situation that would harm the other party through con-
tractual limitation of the stronger party’s liability for the violation of obligations.
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The established rules relate to two types of contractual relations: (i) relations un-
der the contract of adhesion” and (ii) relations under any other contract where an indi-
vidual acting as a consumer is a creditor. Although the C.C.R.E regulates the limita-
tion of liability in such contracts, it may not be below the liability established by stat-
ute. Moreover, the established rule on the inadmissibility of provisions limiting liabil-
ity will be applied on the condition that limited liability may be established in the fu-
ture (i.e., with respect to events that may ensue after the conclusion of the agreement).
The consequence of failure to observe the established rules is that any agreement
containing inadmissible limitations of liability will be declared null and void.
The fact that the above provisions on the limitation of liability are applied to the
relations directly referred to does not mean that limited liability agreements that are
not subject to the above rules-i.e., in the sphere of entrepreneurial activity-may
contain voluntary terms on agreed-upon limitations. Indeed, establishing limited li-
ability on one’s own obligations may become a source of abuse by the dominant party.
Should this occur, a court may refuse to defend the right of the parties to freely de-
termine the terms of the contract, which in effect could mean deeming the respective
contractual provision on the limitation of liability as having no legal force. Also note
that article 401(4) C.C.R.F is a general rule stating that “[ain agreement concluded in
advance for eliminating or limiting liability for the intentional violation of an obliga-
tion is void.”
X. Liability of a Debtor for its Employees
The C.C.R.F. separately regulates this issue of vicarious liability. Article 402
C.C.R.F provides that the actions of the debtor’s employees in the performance of its
obligation shall be considered actions of the debtor. Also, the debtor shall be liable for
these actions if they have resulted in the non-performance or improper performance of
the obligation. This rule is applied to the debtor regardless of whether it is an individ-
ual or a legal entity. For instance, an individual engaged in entrepreneurial activity
without forming a legal entity shall bear liability in conformity with the relevant pro-
visions of the C.C.R.F
One should bear in mind that although it is not directly stated in this norm, this
rule also applies in cases where the violation of an obligation is not only a conse-
quence of the actions of the debtor’s employees, but is an integral part of their failure
to act. Such a situation arises if an employee does not fulfil his professional duties-
the performance of which forms the content of the debtor’s obligations.
The C.C.R.E does not provide any general criteria or list of persons covered by
the term “employees”. At the same time, it follows from the generally accepted
meaning of the term that this category primarily describes the employed staff of the
debtor-i.e., persons who are in relationships with the debtor that are regulated by
2″ Art. 428 C.C.R.F.
1999] A.S. KOMAROV – LIABILITY FOR THE VIOLATION OF OBLIGATIONS
377
employment law. In this regard, it does not matter whether these employees are in the
technical personnel category, whether they are vested with administrative or repre-
sentative functions, or whether they are working on a part-time or a full-time basis
with the debtor.
The above rule should be considered differently from the situation in which a per-
son having legal power to do so by virtue of a statute acts in the name of a debtor (e.g.
the actions of the manager of a joint stock company), or is designated as a representa-
tive under a contract (e.g. a person acting on the grounds of a power of attorney issued
by the debtor).
Furthermore, the rules do not apply to persons who perform certain activities on
the basis of a civil law contract (e.g. a contract of work). Since such persons cannot be
regarded as the employees of the debtor because they have relations with the latter
regulated not by employment law but by a civil law contract, the appropriate norms of
civil law should be applied, for example, article 403 C.C.R.F. establishing the liability
of the debtor for the actions of third parties.
The debtor’s liability for the actions of its employees arises if these actions occur
within the course of an employee’s duty. The burden of proof concerning the absence
of such a circumstance should be placed upon the debtor since the debtor is responsi-
ble for organizing the activity of its employees so that they properly perform their
functions within the enterprise and that no factors causing doubt appear in the legal
powers of the employees. On the other hand, the creditor, while presenting a claim to
the debtor, should prove that a specific person whose actions form the violation of the
obligation is an employee of the debtor.
In establishing the liability of the debtor in the case of non-performance or im-
proper performance of an obligation, it is irrelevant whether an employee was culpa-
ble of performing actions that caused the violation of the obligation. For instance, an
employee may perform his duties in good faith, but actions with respect to the creditor
may still objectively constitute a violation of the employer’s obligation. Similarly, in
establishing the liability of the debtor, it is irrelevant whether the debtor intentionally
or negligently violated its duty, and thereby caused the non-performance or improper
performance of the obligation to the creditor.
Xl. Liability of the Debtor for Actions of Third Parties
Article 403 C.C.R.F. states that “[t]he debtor shall be liable for non-performance
or improper performance of an obligation by third [parties] to whom performance was
entrusted, unless a statute establishes that liability is to be borne by the third [party]
who is the direct performer.” Since performance of an obligation may be transferred
by the debtor to a third party’–which is routinely done in civil and commercial prac-
tice-this creates a possibility for flexible conduct of the debtor and thus expands the
Art 313 C.C.R.F.
MCGILL LAW JOURNAL / REVUE DE DROIT DE MCGILL
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possibility to enter into various contractual relations. The essence of this legal rule
may be summarized as follows: placing performance of an obligation on a third party
does not mean the transfer of the obligation itself, nor does it mean the debtor’s liabil-
ity for its violation.
As a rule, the choice of a third party employed for the performance of the obliga-
tion is made by the debtor itself. However, there are instances whereby the creditor
prescribes the debtor to use the services of certain third parties for the performance of
specific obligations either in full or in part. If in such a case the creditor and the debtor
fall to reach an agreement on the consequences of a violation regarding the part of the
obligation for which performance was assigned to the third party named by the
creditor, the debtor will bear the risk of violation of the obligation by the third party.
The amount, terms, and grounds of liability of the third party to the debtor for
performance of the obligation as determined in the agreement are irrelevant to deter-
mining the quantum of liability of the debtor who transferred the performance of the
obligation to a third party-unless the creditor and debtor came to a separate agree-
ment. For example, freeing the third party of liability for non-performance or im-
proper performance of an obligation does not automatically lead to freeing the debtor
of liability on this obligation to the creditor.
In case of a violation of a debtor’s obligation, the consequences shall be deter-
mined on the basis of the general provisions on liability, specifically those establish-
ing grounds of liability for the violation of obligations. The particular analysis of cir-
cumstances resulting in the violation of an obligation will also include an evaluation
of whether the non-performance or improper performance of the obligation was influ-
enced by the fact that it was performed not by the debtor, but by the third party. At the
same time, note that the rule under consideration does not directly regulate the rela-
tions between the debtor and the creditor on the one hand, and the third party per-
forming the obligation on the other.
X1I. Fault of the Creditor
The C.C.R.E also establishes a rule to be applied if an obligation is violated
through the occurrence of a “mixed fault”, i.e., the fault of both the debtor and credi-
tor.” In principle, liability should be grounded in the fault of the debtor. In this case,
however, it obviously would be wrong to place liability for the consequences of a
violation of the obligation exclusively on the debtor. To the extent that the violation of
the obligation was determined by the culpable actions of the creditor, the amount of
the debtor’s liability will be reduced.
When establishing whether the act of the creditor in a specific situation was actus
reus or not, the general criteria of liability contained in article 401(1)(i) C.C.R.E
should be applied by extension. Since the C.C.R.E establishes a presumption of fault
” Art. 404 C.C.R.F.
1999] A.S. KOMAROV- LIABILITY FOR THE VIOLATION OF OBLIGATIONS
379
on the debtor in the case of a violation of an obligation, the debtor must prove the ex-
istence of circumstances exonerating its liability for the violation of the obligation.
The burden of proving the creditor’s fault in non-performance or improper perform-
ance of the obligation must also be placed on the debtor.
The amount of liability of the debtor (i.e., the sum total of damages subject to
compensation) may be reduced if the creditor facilitated an increase in the amount of
damages caused by the violation of the obligation. The liability of the debtor, how-
ever, only shall be decreased if such actions may be deemed as the chargeable fault of
the creditor (i.e., only if the latter performed them intentionally or by negligence).
The amount of liability also may be reduced if the creditor failed to take reason-
able actions to decrease the amount of damages caused by the violation of the con-
tract. The amount of liability may be decreased specifically by the amount of damages
that the creditor could have avoided if it had acted reasonably under the circum-
stances. Determining what actions may be considered reasonable in such a case will
depend on the specific circumstances and the customs that have taken shape in the
sphere of civil or commercial practice.
Liability only may be reduced in this regard if the debtor proves that the creditor
had a possibility to take reasonable measures to decrease damages, but did not do so.
The debtor must also prove the amount of the damage which could have been pre-
vented by such actions.
Where liability for the violation of an obligation by virtue of a statute or contract
is established regardless of the fault-as in the case of obligations in the sphere of en-
trepreneurial activity or by virtue of agreement on the force majeure clause-the pro-
visions on the reduction of liability stipulated in article 404(1) C.C.R.F. for instances
of “mixed fault” shall nonetheless apply. At the same time, in situations where parties
to the contract resolve these issues in a different way-namely by establishing the
creditor’s limitation of liability-such agreements will be deemed valid unless quali-
fied as an abuse of right.’
Xl11. Delay by the Debtor
The C.C.R.F. separately considers the consequences of one of the most wide-
spread violations of an obligation, namely, when the debtor breaches the period speci-
fied for performance regardless of whether this term of the obligation is established
by statute or contract.2
In the event of delay, all the general provisions on liability that provide for in-
stances of improper performance of the obligation shall apply. Circumstances involv-
ing the impossibility to perform an obligation that arose during the delay are specifi-
cally regulated. In these cases, the risk of accidental events occurring that negatively
Art. 10 C.C.R.F.
Art. 405 C.C.R.E
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[Vol. 44
influence the performance of the obligation shall be placed upon the delaying debtor,
who shall also be held liable for the consequences of such events. This rule applies
only in situations where the liability of the debtor for the delay in performance is un-
ambiguously established.
Delay in the performance of an obligation may also result in the refusal of the
creditor to accept performance. This legal right of the creditor is limited only in an in-
stance where-as the result of a lengthy delay-the creditor lost interest in the per-
formance of the obligation. The length of delay granting the creditor such a right de-
pends on specific circumstances, especially on what constitutes the subject of the ob-
ligation. In any case, the cause for the loss of the creditor’s interest always should be
the length of the delay, not other reasons unrelated to the delay.
Damages should compensate not for the delay in performance, but for the non-
performance of the obligation as the whole. The loss of interest in the performance of
the obligation must be proven by the creditor. It seems that in the evaluation of con-
crete circumstances, not only subjective aspects relating to the creditor should be
taken into account, but also circumstances of an objective nature-specifically, the
standards of conduct under similar situations which have become common in this
particular sector of civil or commercial practice.
A situation in which performance of an obligation by the debtor depends on the
performance of certain actions on the part of the creditor is also regulated by the
C.C.R.E If the debtor is unable to perform its obligation in due time because of the
creditor, failure to comply with the stipulated period for performance will not be con-
sidered as a violation of the contract resulting in the application of measures of liabil-
ity.
XIV. Delay by the Creditor
Article 406(1) C.C.R.F. states that “[a] creditor shall be considered to have de-
layed if it has refused to accept proper performance offered by the debtor or has not
taken actions provided by a statute, other legal acts, or contract deriving from the
customs of trade or from the nature of the obligation.” In this situation, non-
performance of such actions deprives the debtor of the possibility to perform its obli-
gation.
A creditor shall be considered to have delayed in cases where it refuses to con-
firm, in the appropriate form, the performance of the obligation by the debtor (e.g. by
issuing a document of receipt of the debt). 6 Actions deemed a delay by the creditor
should be in accordance with two general criteria: (i) they should represent a violation
of an obligation of legal significance, which may vary in content and source, and (ii)
the creditor’s performance of these actions which constitute the obligation should be a
mandatory prerequisite for the debtor’s performance of its obligations.
216 Art. 408(2) C.C.R.F
1999] A.S. KOMAROV- LIABILITY FOR THE VIOLATION OF OBLIGATIONS
381
The delay of the creditor gives the debtor a right to receive compensation for
damages caused by the delay, unless the creditor proves that the delay occurred due to
circumstances for which neither the creditor nor the persons upon whom the accep-
tance of the performance was placed-by virtue of statute, other legal acts, or the
creditor’s instruction-are responsible. At the same time, the C.C.R.F. does not iden-
tify any special grounds of creditor liability in the sphere of entrepreneurial activity
that would parallel the provisions on the liability of the debtor for non-performance of
obligations in this sphere.
Article 406(3) C.C.R.F provides for the consequences of the creditor’s delay with
respect to the right to demand interest for this period. In this case, the creditor cannot
claim interest on a monetary obligation.
Conclusion
The purpose of this article was to introduce the reader to some of the new provi-
sions and concepts in the C.C.R.F. regarding liability for the violation of obligations.
As demonstrated, many of these new developments stand in stark contrast to the pre-
vious legal regime. As with any new legal system, however, the key for the future
rests in the effective implementation and enforcement of the new rules. Thus, only
time will tell exactly how liability for breached obligations and the related C.C.R.F.
provisions will be interpreted by the courts.
382
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[Vol. 44
References
Legislation
Civil Code of the Russian Federation, Part 1: Sobranie zakonodatelstva R.E (1994)
No. 32, item 3301; Part 2: Sobranie zakonodatelstva R.E (1996) No. 5, item 410.
Civil Code of the Russian Soviet Federated Socialist Republic, Vedomosti S”ezda
Narodnykh Deputatov R.E i Verkhovnogo Soveta R.E (1964) No. 24, item 406.
Fundamentals of Civil Legislation of the U.S.S.R. and Union Republics, Vedomosti
S”ezda Narodnykh Deputatov S.S.S.R. i Verkhovnogo Soveta S.S.S.R. (1991) No. 26,
item 733.
Books
Maggs, P.B. & Zhiltsov, A.N., eds, The Civil Code of the Russian Federation, trans.
P.B. Maggs & A.N. Zhiltsov (Armonk, N.Y: M.E. Sharpe, 1997).
