Damages Definition
Statutory provisions in Chinese contract law establish that the measure of damages for breach of contract must equal the loss suffered as a consequence of the infraction. Under the prc civil code article 584, this compensation is designed to place the injured party in the position they would have occupied had the contract been fully performed. The compensation covers both the actual losses incurred and the lost profits that would have been realized from the transaction.
This principle applies directly when a Chinese mill fails to deliver linen yarn, causing the foreign buyer to lose downstream sales.
Foreseeability Limit
Limiting the scope of these damages relies on the legal principle that the breaching party is only liable for losses they could have anticipated when signing the agreement. The code specifies that the total compensation cannot exceed the losses that the defaulting party foresaw or ought to have foreseen as a potential consequence of their breach. For instance, if a linen mill delays shipment of flax fabric, they are not liable for unprecedented downstream manufacturing losses unless those specific penalties were disclosed during contract negotiations.
This prevents buyers from claiming excessive or remote damages that are disconnected from typical textile trade risks.
Profit Recovery
Applying this rule requires clear evidence of the lost profits and additional procurement costs incurred by the non-breaching party. When a weaver must purchase replacement flax yarn from an alternative source at a higher spot price, the resulting financial difference is recoverable under the prc civil code article 584. This ensures that textile contracts are backed by a predictable, legally protected expectation of performance.
