Can a DAO be held liable for breach of contract?
Regarding contractual liability it makes no difference whether any of the contractual parties is
a DAO or not. Therefore, the general civil law rules apply. Accordingly, a DAO can be held
liable for breaches, if it is party to the respective contract.
This requires that the DAO can basically enter into a contract. Again, this means that the
DAO must be able to be subject to civil law obligations and to exercise civil law rights. Hence
it must be regarded as a legal entity under civil law. In current legal practice this is mostly the
case when the DAO qualifies as a company, either as a civil law partnership (Gesellschaft
bürgerlichen Rechts – GbR) or under certain circumstances as a general partnership (offene
Under the existing contract laws, the event of breach of a contract entitles the party who
suffers by such breach to receive, from the party who has broken the contract, compensation for any usual or foreseeable loss or damage caused to the aggrieved party. If the contract stipulates a penalty, the aggrieved party is entitled to reasonable compensation not exceeding the amount stipulated as penalty in the contract. Unless the contract provisions expressly exclude DAO from any liability or the aggrieved party waives the statutory rights available to it in this regard, a DAO would, upon breach of a contract by DAO, in its capacity as a
contracting party, can be held liable for such breach.