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The entrepreneur K purchases two vehicles from H, a car dealer: a used small car for €8,000 and a used delivery van for €25,000, which according to the contract is to be delivered in two weeks. It is agreed that H shall pay upon receipt of the vehicles. H immediately transfers EUR 8,000 as the purchase price, and the small car is handed over immediately. The delivery of the new delivery van is delayed by several weeks because H still needs the van himself. Three months after the contract is concluded, H agrees, at K's insistence, to deliver the delivery van within another week. The used small car is delivered on time, but after a short time, K discovers that the engine has significant defects that were already present at the time of sale.1. The conclusion of a contract gives rise to mutual claims between the contracting parties, which must be settled by performance. However, the conclusion of the contract alone does not ensure that the rights and obligations are actually fulfilled—the performance of the contract is a separate step, which can often present practical challenges.

Upon conclusion of the purchase contract, certain mutual obligations arise for both contracting parties, which are specified in the contract and determined by law.

The seller (H) is obliged to hand over the agreed vehicles to the buyer (K) and to transfer ownership of them to him. In addition, the vehicles must be free of material defects and defects of title, i.e., in the condition as contractually agreed. In return, the buyer (B) is obliged to pay the agreed purchase price and to accept the vehicles as soon as they are duly delivered. These mutual obligations exist from the moment the contract is concluded, but are only terminated by the actual performance of the service (transfer, payment). If one party fails to fulfill its obligations properly, this results in performance disruptions such as default, impossibility, or warranty claims.

There may be cases in which one party has difficulties fulfilling its contractual obligations. Such situations are referred to in civil law as performance disruptions. They include problems such as delayed performance, defective performance, or complete failure to perform due to subsequent impossibility.

H does not deliver the delivery van at the agreed time, even though performance would still be possible in principle, i.e., there is a delay. After the destruction of the delivery van, performance has become objectively impossible, so that impossibility now exists. Although the small car was handed over, the defective engine constitutes a defect, so that performance was not rendered as agreed.

Applicability only to reciprocal contracts

The law on breach of contract aims to create a fair balance between the contracting parties when problems arise in the performance of a contract. However, this is only possible if the basis of the contract was originally considered fair by both parties. Therefore, the law on breach of contract is only applicable to reciprocal contracts. In reciprocal contracts, performance and consideration are directly related. Contracts regulate the exchange of services, such as money for goods (purchase contract), goods for goods (barter contract), money for work (contract for work or services) or money for use (loan, rent, lease). The law on breach of contract applies here because both parties have a legitimate interest in ensuring that the exchange of the agreed services takes place smoothly.

K undertakes to pay the purchase price, while H must hand over the two vehicles and transfer ownership of them. This is therefore a typical purchase contract in which money is exchanged for goods, i.e., it is a reciprocal contract because the purchase price and the purchased goods correspond to the will of the parties. If one party fails to fulfill its obligation properly, performance disruptions occur. As can be seen in this case, these can take the form of delay, subsequent impossibility, and defectiveness (warranty) and lead to mirror-image claims and obligations on the part of the contracting parties.

In the case of non-reciprocal contracts, there is no direct exchange of services. Since no consideration is provided for, the law on breach of contract does not apply here. Problems with the performance of the contract must be assessed according to other legal principles.

Parents E give their son S their old car as a gift. Upon handing it over, both parties realize that the vehicle is no longer roadworthy—the engine is defective. S wants to demand that his parents repair the car or give him another vehicle. However, since this is a gift, it is not a reciprocal contract as in the case of a purchase. The parents only owe their child the free transfer of the car, but not a defect-free item. Therefore, S cannot assert any warranty claims due to the defect.

Default

If the debtor fails to fulfill his contractual obligations on time, he is in default. This always occurs when the debtor fails to perform the service owed despite having the opportunity to do so at the agreed time, at the agreed place of performance, or in the agreed quality or form, and thus fails to properly fulfill his obligations under the contract.

H had contractually agreed to deliver the delivery van within two weeks, but continued to use it himself, thereby delaying delivery by several weeks. H is therefore in default because he did not deliver the agreed delivery van at the agreed time, even though he would have been able to do so.

In this case, the creditor has various options for action to secure his rights despite the delay. He can adhere to the contract, i.e., continue to demand performance, even if the service is provided late. In this case, the contract remains in force and the creditor can additionally claim damages for the delay if he has suffered a disadvantage as a result. The prerequisite is that the performance is still of interest to him and the delay is reasonable.

In the present case, K, as the buyer, can choose between two courses of action to secure his rights despite the delayed delivery of the delivery van. On the one hand, K can adhere to the contract and continue to demand delivery of the vehicle, even if this is delayed.

If the delay is attributable to the fault of the debtor, the creditor can claim damages. The debtor is liable for all damages caused by the delay. In the event of a breach of contractual obligations, it is generally assumed that the breach of contract is also due to fault, i.e., a claim for damages always exists if the debtor cannot prove that he is not at fault.

K can therefore claim damages from H for the delay, for example for costs incurred as a result of the delay in delivery.

In the event of default, the creditor may also withdraw from the contract if he is no longer interested in the delayed performance or if the debtor fails to perform even after a reasonable grace period. Withdrawal terminates the contract, the mutual obligations expire, and any services already rendered must be reimbursed, as far as possible.

If K is no longer interested in the delivery due to the delay or if H fails to perform the agreed service even after a reasonable grace period, K may withdraw from the contract. This extinguishes the mutual obligations, and any services already rendered (such as a down payment) would have to be refunded.

When withdrawing from the contract, the creditor must set the debtor a reasonable grace period. The grace period serves to give the debtor a last chance to fulfill their obligation and still execute the contract properly. However, if this period expires without success, the contract is terminated unilaterally. In this case, the creditor is entitled to what is known as the interest in performance, i.e., the financial advantage that they would have gained from the proper performance of the contract.

In the present case, K must first set H a reasonable grace period to give them a final opportunity to deliver the delivery van. This grace period is intended to give H the opportunity to still fulfill his contractual obligation and conclude the contract properly. Since H already has the vehicle and also had it at the time the contract was concluded, the period can be relatively short. If H does not deliver within the period, the contract is invalid, i.e., H no longer has to pay or can reclaim any payment already made (under the law of unjust enrichment).

A creditor's default occurs when the creditor does not accept the debtor's timely and proper performance. Unlike the debtor, the creditor is generally not obliged to accept performance.

A sells B a vehicle for €10,000, which B pays. The contract stipulates that A shall hand over the vehicle to B in Linz on May 15. A meets the agreed deadline and brings the vehicle to Linz, but B does not show up to take delivery of the vehicle. Despite repeated attempts to contact B, B refuses to accept the vehicle because he is now interested in another vehicle. B is in default of acceptance.

Despite the default of acceptance, the debtor cannot force the creditor to accept the performance. Nevertheless, the creditor's obligations – in particular the payment obligations – remain in place. If the performance becomes impossible during the creditor's default, the creditor bears the price risk. He must pay the agreed price even if the performance can no longer be rendered.

While the vehicle is waiting for B in Linz, it is completely destroyed by a lightning strike. The purchase contract is valid and B cannot reclaim the EUR 10,000.

Defects and warranty

The warranty is a fundamental legal institution in Austrian civil law that protects the buyer of an item from defective performance. It obliges the seller to take responsibility for defects that already exist at the time of delivery, even if these only become apparent later.

Defect

The basis for the warranty is the concept of a defect. A defect refers to any deviation from the agreed or expected quality of the item. The purpose of the warranty is to compensate for any deviation between the contractually agreed performance and the actual performance and to enable the buyer to use the item as agreed. A defect exists if the delivered item does not have the agreed or usually expected characteristics. This can be the case, for example, with material defects, if the item has physical defects, or with legal defects, if it is encumbered by third-party rights.

In the present case, the small car delivered by H has significant engine damage, which already existed at the time of sale. This means that the vehicle does not correspond to the agreed or expected quality and therefore constitutes a material defect, since K purchased the vehicle from a car dealer with the expectation of using it on the road.

In addition to material defects, legal defects can also play a role. These arise when the item sold is encumbered by third-party rights that restrict its use. A purchase contract requires the seller to transfer ownership of the item to the buyer. However, if the car sold actually belongs to another person, the seller cannot transfer this ownership. The buyer therefore does not obtain legal ownership – there is a legal defect.

A buyer purchases a used car from a private seller that is in perfect condition on the outside and has a reliable engine. A few weeks after the purchase, however, he learns from the police that the vehicle has been reported stolen and must be returned to its rightful owner. Although the car is technically free of defects, there is a legal defect because the buyer is not allowed to legally own or use the vehicle.

Primary legal remedies

Under the warranty, the buyer is generally entitled to obtain the product as defined in the contract. The buyer can either request an repair or replacement of the item. In general, it is up to the seller, if he chooses to replace or repair the defective product.

Replacement means that the defective item is replaced with a non-defective one. This is particularly relevant if the defect cannot be remedied or if the repair would be disproportionately expensive.

A buyer discovers that a new laptop has a defective screen upon delivery. The seller decides to replace the laptop, as replacement is faster and less expensive than repair.

The improvement is made by repairing the defective item. This solution is often the seller's preferred choice if the defect is technically easy to remedy and the repair makes more economic sense than a replacement.

After taking delivery of a used car, a buyer discovers a crack in the rear window. The buyer has the right to demand that the seller repair the rear window or replace the car with an equivalent vehicle. The seller has the right to choose how to remedy the defect; in most cases, repairing the rear window will be less expensive.

Secondary remedies

In principle, the primary warranty remedies – i.e., repair or replacement – take precedence. The seller should first be given the opportunity to remedy the defect themselves or to deliver a defect-free item. Only if these remedies are not possible, have failed, are unreasonable, or are refused in individual cases can the buyer resort to secondary warranty remedies. These are a price reduction or rescission (cancellation of the contract).

Even if the engine of the small car purchased is broken, the seller H should first be given the opportunity to remedy the defect – for example, by repairing or replacing the engine. Only if these primary warranty remedies are not possible, unsuccessful, or unreasonable can the buyer resort to secondary remedies such as a price reduction or rescission.

Secondary remedies may also be considered if an attempt at repair or replacement fails. This is the case, for example, if the defect persists despite repair or reappears after a short time. The buyer does not have to accept an unlimited number of repair attempts, but can proceed to a price reduction or rescission after one unsuccessful attempt.

If the seller fails to take action despite a reasonable grace period and does not remedy the defect within this period, the buyer is entitled to demand secondary remedies. The grace period gives the seller a final opportunity to fulfill their obligations. If it expires without success, the buyer can reduce the price or withdraw from the contract.

One of the secondary warranty remedies is rescission, which leads to the complete reversal of the contract. The buyer returns the defective item and receives a refund of the purchase price in return. Rescission is primarily considered in the case of serious defects that significantly impair the use of the item, or if the primary remedies are unsuccessful.

In the case of the small car with engine damage, the buyer can achieve the reversal (rescission) of the purchase contract by way of secondary warranty remedies. They return the vehicle to the seller and receive their purchase price back or do not have to pay it.

The price reduction—a secondary warranty remedy—is a financial compensation in which the purchase price is reduced in proportion to the depreciation of the defective item. The buyer keeps the defective item but receives a reduction in the purchase price that compensates for the defect economically.

If there is no engine damage to the used car, but only a dent in the hood caused after the conclusion of the contract, the purchase price can be reduced accordingly so that the buyer can either repair the damage himself or be compensated for the lower resale value.

Whether a price reduction or rescission applies depends on the severity of the defect and the circumstances of the individual case. A minor defect that is insignificant for the contract usually only justifies a price reduction, while rescission is permissible in the case of significant (serious) defects.

The warranty period regulates how long the buyer can assert claims if a defect becomes apparent after the item has been handed over. The purpose of the period is to provide legal certainty for the seller. The duration of the warranty period depends on the type of item and the contractual agreements.

In Austria, the duration of the warranty period is regulated by law and depends on the type of item in question. These periods define the time frame within which the buyer can assert warranty claims. The period for asserting claims is two years for movable items and three years for immovable items. However, the parties may also agree on a different statutory warranty period, provided that no mandatory consumer protection provisions are violated.

In principle, the buyer must prove that the defect already existed at the time of delivery. However, if the defect occurs within 6 months of delivery, it is assumed that the defect already existed at the time of delivery, unless this assumption is incompatible with the nature of the defect.

A buys a liter of milk and a game console at the supermarket. After 5 months, he notices that the game console's transformer is defective and that the milk has gone bad. The assumption that the transformer was already defective at the time of delivery seems plausible in principle, so that warranty remedies exist, but not in the case of the spoiled milk, which has gone bad after 5 months in any case.

In transactions between businesses (B2B transactions), stricter requirements apply: The buyer must report defects within a reasonable period after discovering them. If this report is not made, the buyer loses their warranty claims, even if the defect occurs within the period.

Subsequent impossibility

Subsequent impossibility occurs when a contract was originally fulfillable, but fulfillment becomes impossible due to subsequent events. Unlike initial impossibility, where a contract is not fulfillable from the outset (for example, because the performance is prohibited or absurd), impossibility in this case only arises after the contract has been concluded.

Shortly before H is finally to take delivery of the delivery van, it is completely destroyed in a fire in the workshop. At the time the contract was concluded, delivery of the delivery van was possible; the impossibility of delivery only arises afterwards, i.e., there is subsequent impossibility.

Since the sale of this specific delivery van and not just any delivery van of a certain brand, year of manufacture, and equipment was agreed upon, delivery is no longer possible. If, on the other hand, H and K had only agreed on the delivery of a delivery van of a specific brand, with a specific year of manufacture and equipment, H would be in default and would have to deliver another delivery van of this type.

The legal consequences of subsequent impossibility depend on who is responsible for the impossibility. Typically, the debtor will be responsible for the impossibility of performance.

Shortly before H is finally due to hand over the delivery van, it is completely destroyed in a fire in the workshop. It is up to H to ensure that the vehicle to be handed over to K is properly stored. If H is responsible for the fire, he is also responsible for the impossibility of handing over the delivery van.

If the debtor of a service—for example, the seller—is responsible for the subsequent impossibility of performance, the creditor (the other party to the contract) has a choice of options. The debtor must take responsibility for the impossibility and adequately compensate the creditor's interests. The creditor has a choice between two options: The creditor can withdraw from the contract, i.e., terminate it (unilaterally). However, they can also adhere to the contract and demand that the debtor compensate them for the value of the performance that has become impossible. This option is particularly useful if the creditor would have gained a financial advantage from the transaction that is now no longer possible.

If H is at fault, K can withdraw from the contract and demand repayment of the purchase price of EUR 25,000, if already paid. However, if K can show that he had received an offer from a third party to purchase the delivery van for EUR 35,000, he can demand this amount as compensation.

If the cause of the impossibility of performance is a fortuitous event for which neither party is responsible, the contract is automatically void. In this case, both parties are released from their performance obligations. An example of a fortuitous event would be a natural disaster that makes it impossible to fulfill the contract. In this case, the provision serves to create a balance without unfairly disadvantaging either party.

If H's vehicle fleet is flooded due to unforeseeable flooding and the delivery van is also rendered worthless or destroyed, the contract is void.

If the impossibility of performance is caused by the creditor (e.g., the buyer) themselves, the contract remains in force. In this case, the creditor is still obliged to provide their consideration, even if they can no longer receive the debtor's performance. This is to prevent the creditor from profiting from their own misconduct.

K drives the company car onto H's premises to inquire about the delivery van. Due to a phone call, he is briefly distracted and crashes into the delivery van, which is currently being repaired. The impact causes a short circuit, causing the delivery van to burst into flames. In this case, K himself is responsible for the impossibility of fulfilling the contract. K remains obliged to pay the purchase price, as the impossibility of performance was caused by his own behavior.

Questions

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Beispiel: What is the nature of the breach of contract?

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Beispiel: What is the breach of contract?

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Beispiel: What is the breach of contract?

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Beispiel: Can N claim a real gold nacklace from T?

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Beispiel: How can B proceed?

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Beispiel: What claims does B have against A?

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Beispiel: What is the breach of contract and what claims does the buyer have?

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Beispiel: What is the breach of contract and what claims does the buyer have?

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Beispiel: What options does the buyer have?

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Beispiel: What options does the buyer have?

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Beispiel: What claims do the parties have?

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Beispiel: What claims does A have?

Summary

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