Compensation

May 28, 2024

In principle, if damage is suffered, this damage can be compensated in the form of compensation. The aim is to restore the situation that existed before the damage occurred. This compensation often takes the form of financial compensation.

Various requirements must be met for a claim for compensation to exist. This raises further questions, i.e. how exactly can the damage be determined and does this require culpable behaviour on the part of the damaging party?

For which damages can I claim compensation?

Compensation can be claimed for financial loss (material damage) or non-pecuniary loss (immaterial damage). The difference between the two types of damage is that in the case of financial loss, the damage can be specifically calculated, whereas in the case of non-pecuniary loss, it is not possible to put an exact figure on it.

Financial loss (material damage)

Financial loss is defined as any damage to a legal asset. It requires a detrimental change in assets that has occurred as a result of the damage. All goods that have a monetary value have a pecuniary value.

The injured party's assets include not only his property, for example his house or his car, but also any claims, shares in a company or copyrights. Reductions in assets also fall under financial losses if there is a loss of the possibility of use and an economic value can be attributed to this loss. The injured party can also claim compensation for loss of profit if they would have received financial benefits without the damage. This is the case, for example, with loss of earnings.

Non-pecuniary damage (immaterial damage)

This includes all damages whose value cannot be easily determined or cannot be precisely quantified. For example, injuries to physical integrity, deprivation of liberty or general personal rights can be claimed as non-material damages. Care costs and the costs of converting a house to make it suitable for the disabled as a result of an accident can also fall under non-pecuniary loss.

Financial and non-pecuniary damages can also be claimed for one and the same loss if the respective legal interests are violated by the injuring party. For example, if there is an accident with a cyclist and the cyclist is not culpably involved, the cyclist can claim material damages for the repair of the bicycle on the one hand and non-pecuniary damages for possible physical injuries on the other.

What are the requirements for a claim for damages?

In order for a claim for damages to be asserted, the injured party must first be entitled to compensation. For this claim to exist, there must be a contractual obligation between the injured party and the injuring party. A contractual obligation is any legal relationship that is established between two or more persons and regulates the relationship between the creditor and the debtor. It therefore serves as the basis for determining the parties' obligations of performance and behaviour. The establishment of an obligation can be derived from contractual agreements. On the other hand, a contractual obligation can arise on the basis of statutory regulations.

Contractual obligations

If an obligation arises as a result of a contractual agreement, this is generally based on a bilateral legal transaction. This includes, for example

Purchase contract §§ 433 ff. German Civil Code (BGB)

If the seller is unable to deliver the purchased item despite the purchase contract, the buyer can generally claim damages

Loan agreement §§ 488 ff. BGB

Damages may be due in the event of late or non-payment of instalments

Rental agreement and lease agreement §§ 535 ff. BGB

The landlord has a claim for damages against the tenant if the tenant does not fulfil his duty to ensure public safety

Labour/service/work contract §§ 611 ff. BGB

A waiter who leaves a bag with receipts in an unlocked car is liable for the loss of the amount due to grossly negligent breach of contract BAG, judgement of 15 November 2001 - 8 AZR 95/01

Gift contract §§ 516 ff. BGB

The donee can claim damages from the donor if the donor has fraudulently concealed a defect in the gifted item

The exact requirements that must be met for the existence of a contractual obligation and the conditions under which a claim for damages is granted depend on the relevant type of contract.

Example: The conclusion of a purchase contract creates a contractual obligation that entitles the buyer to the transfer of ownership of the purchased item and the seller to payment of the purchase price.

Obligations similar to a contract

According to Section 311 (2) BGB, a contractual obligation can already arise through the commencement of contract negotiations, the initiation of a contract or similar business contacts. A breach of duties of consideration in the context of preparatory actions can also lead to a liability for damages. For example, an injury caused by a banana peel lying around in the supermarket can already give rise to a liability for damages on the part of the supermarket owner, even though the shopper and the supermarket owner have not entered into any contractual relationship.

In addition, a contractual obligation can also arise with a person who is not a party to the contract, but who claims a particular degree of trust and thereby significantly influences the contract negotiations or the conclusion of the contract.

Statutory obligations

A legal obligation arises when corresponding requirements or conditions of the offence from relevant laws are fulfilled. The content of the obligation is not determined by the parties' stipulations, but by statutory provisions. However, contractual and statutory obligations can also exist side by side. Examples of statutory obligations are

Unlawful act § 823 BGB

This includes any damage caused by an intentional or negligent act that unlawfully violates the life, body, health, freedom, property or any other right of another person.

Management without an order § 677 BGB

If an agency is carried out without a prior order, there may be a liability for damages.

Owner-occupier relationship § 987

The owner can claim damages from the unlawful possessor.

Animal keeper liability § 833

The animal owner owes compensation to the injured party if a person is injured or property is damaged by his animal.

Unjust enrichment § 812

This involves the reversal of unjustified transfers of assets

Vehicle owner liability § 7 StVG

Product liability

When is a breach of duty given?

In order for damages to be claimed, there must be a breach of an obligation arising from a contractual obligation.

A distinction must be made between primary and secondary obligations. Principal obligations include all agreed obligations that are determined by the contractual obligation.

Ancillary performance obligations refer to the agreed primary performance obligations and support the fulfilment of their purpose. They consist, for example, of duties of consideration and care that the contracting parties must observe towards each other.

Example in the case of a tenancy agreement:

As a primary performance obligation, the landlord owes the provision of the rental property and the tenant owes the payment of the rent. As a secondary obligation, the landlord also owes the maintenance of the rented property. The tenant has a duty of care and must tolerate modernisation measures.

It is particularly important that the debtor is also responsible for the occurrence of the damage, i.e. his actions must be causal for causing the damage. In this case, the tortfeasor must always be responsible for intentional or negligent behaviour. The fault of another person can also be attributed. For example, the employer is generally held responsible for the employee's breach of duty if the employee commits a breach of duty as a vicarious agent of the employer.

What types of compensation are there?

Damages are intended to compensate for all involuntary financial losses. However, it must be determined which type of compensation is relevant for the claim, as a distinction is made between compensation in lieu of performance and compensation in addition to performance.

Damages in lieu of performance

Damages in lieu of performance can be claimed instead of the performance owed. Compensation in lieu of performance plays a particularly important role in cases of impossibility of performance, non-performance or poor performance, or breaches of obligations. In this case, compensation takes the place of the actual claim for fulfilment. In other words, you receive compensation instead of the actually agreed service. It is important to note that you can either claim damages or the fulfilment of obligations, but not both. Furthermore, compensation should be paid for any damage that functionally replaces performance, such as loss of assets or loss of pecuniary benefits.

Compensation in addition to performance

Compensation in addition to performance includes claims arising from damage caused by delay or all other simple compensation claims. In contrast to damages in lieu of performance, in the case of damages in addition to performance, the claim for damages is in addition to the fulfilment of the primary claim. The damage does not affect the performance itself, but occurs to other legal interests. This therefore includes all damage items that have occurred, for example, due to a delay in performance, but for which compensation can also be claimed in addition to the claim for performance from the contractual obligation. Rather, the claim is in addition to the main contractual obligation and does not affect it. For example, compensation for damages compensates for collateral damage, additional expenses or loss of profit in addition to performance.

A distinction between the type of damage is relevant. This is because the assertion of damages in lieu of performance requires the creditor to set a grace period so that the debtor has a kind of second chance to fulfil the performance. However, it would be an unfair result if the creditor had to accept the resulting damage without compensation despite the debtor's delay. After all, damage has been caused by the delay despite the delay in performance. Therefore, compensation for damages in addition to performance is relevant, which exists independently of the claim for fulfilment.

Expenses

All voluntary financial losses, also known as expenses, are to be distinguished from damages in lieu of or in addition to performance. This distinction is made because only all involuntary financial losses fall under damages. For example, legal fees can be claimed even though a lawyer was hired voluntarily. Other expenses that have become useless due to the non-fulfilment of the contract can also be compensated. In principle, they are not claimed in accordance with the rules of damages, but there is a claim for reimbursement of expenses in accordance with § 284 BGB.

How is the amount of compensation calculated?

Three methods are used to calculate damages.

Difference method

In this method, the initial assets are compared with the assets after the loss event. The amount of compensation is then determined from the resulting difference.

Concrete calculation of damages

Here, an exact quantification of the damage is possible by, for example, the existence of invoices.

Abstract calculation of damages

If it is not possible to calculate the damage, it is determined by an abstract calculation of the damage.

Problem of contributory negligence

If the damage was caused by the injured party's own culpable contribution, the contribution to the occurrence of the damage must be taken into account when determining the amount of compensation. This can be particularly important in the case of road accidents if the injured party also bears some responsibility for causing the accident. In such a case, the proportion of fault is determined and a liability quota is formed.

Can I claim compensation even without a contractual relationship?

In principle, only the contracting parties are entitled to claim damages under the contract. However, third parties are always involved. If damage has been caused by this third party, a claim for damages arises outside the contractual parties. Such cases are referred to as third-party damage liquidation. If, for example, a haulage company is booked to deliver the object of purchase, the buyer (who is the entrepreneur) is generally liable for any damage from the moment the object of purchase is handed over to the haulage company. However, if the forwarding company causes damage, the result is unfair, as the buyer has no claim for damages against the company due to the lack of a contract with the forwarding company. Although the seller has a contractual relationship with the shipping company, the latter has not suffered any damage because it still has a claim for payment against the buyer despite the destruction. This problem is solved by the fact that the seller can assert a claim for damages against the shipping company on behalf of the buyer and the buyer can subsequently demand that the seller hand over the damages.

Difference between damages and compensation for pain and suffering

Compensation for damages includes compensation for material and immaterial damage. Compensation for pain and suffering, on the other hand, can only be claimed by the injured party as a result of certain immaterial damages. This is the case for injuries

to the body
to health
freedom
sexual self-determination

Compensation for pain and suffering is intended to fulfil a compensatory and satisfaction function. In addition to the severity of the injury, factors such as the duration of treatment, the degree of pain caused, the duration of the damage and the resulting impairment to the person's future life also play a role in the calculation of compensation for pain and suffering.

Are there time limits for enforcing a claim for damages?

Due to the different claims for damages, there are also different time limits to be observed in each case. In principle, civil law claims are subject to the three-year time limit according to § 195 BGB. It is important to know that the time limit only begins to run at the end of the year. Other important time limits are

Contractual or statutory claims for damages due to injury to life, limb, health or freedom expire after 30 years from the commission of the breach of duty.
If there is no knowledge of the injuring party, the limitation period is 10 years.
A period of 2 years from the handover of the object of purchase applies to the assertion of defect rights for movable objects.
A period of six months applies to the assertion of claims for damage to the rented property.