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Breach of contract

Austrian contract and tort law is based on a fault-based liability, it presupposes wrongful behaviour. A claimant generally has to prove that a damage occurred and that it was caused by the other contracting party. Furthermore, the claimant carries the burden of proof of the unlawfulness of the other party's behaviour. In the case of contractual claims, the unlawfulness follows from the breach of the contract. As a fourth step, the defendants fault has to be proven.

Contractual damages claims are privileged compared to tort claims (delict). First, Section 1313a of the Austrian Civil Code provides for extensive vicarious liability; anyone is liable for the fault of their legal representatives as well as persons he or she employs to deliver the performance of services – even if these persons are entrepreneurs.

Secondly, usually the injured party has to prove that the other party is at fault; nevertheless, contractual liability differs, because in this case the injuring party has to prove that it is not at fault. This reversal of the burden of proof only applies to minor negligence.

Thirdly, pecuniary loss is not compensated in tort.

Typical types of reasons for filing a breach of contract claim are given below.

i Non-performance

If the performance of the contract has become (accidentally) impossible before the contractually agreed date of delivery, the contract falls apart and the parties must return any benefits already received. If a party is at fault, the infringed party may either stick with the contract, perform its part of the contract and then demand the value of the (meanwhile) impossible consideration, or rescind the contract and demand the balance between its own performance and due consideration. Moreover, the infringed party may claim damages for any disadvantages suffered by the contracts non-performance.

Any other non-performance such as mere non-delivery constitutes a breach of contract and gives rise to damage claims.

ii Delay

One party's failure to perform within the agreed time frame, to deliver at the agreed place or to fulfil the contract in the determined manner entitles the other party to insist on performance of the contract or to set a grace period and to rescind the contract. Usually, it is not too difficult to determine whether a party failed to deliver at a certain point in time or at a certain place; however, failure to fulfil the contract in the determined manner is harder to establish. If a party to a contract does not deliver the contracted goods, no matter if the goods delivered are completely different or just faulty, the other party to the contract may reject delivery or accept delivery under reservation. If the party accepts delivery, it may only assert warranty claims (see below). If the party in delay of performance is at fault, the injured party may additionally claim for damages caused by delay.

iii Warranties

Statutory warranty against defects applies to any non-gratuitous contract under Austrian law. Statutory warranty must not be mistaken for a contractual guarantee (or warranty). Section 922 of the Austrian Civil Code stipulates that the party selling goods is liable for the asset having the agreed or generally assumed qualities, that it must conform with its description, a sample or a model and that it can be used in line with the nature of the transaction or the concluded agreement. Thus, any deviation from the contractually agreed service or goods, or what is usually expected from the contracted services or goods, may be a defect. There are defects of legal title and quality or quantity defects. In the first case, the debtor failed to transfer the promised right (partially or fully); in the second case, the debtor does not deliver enough or insufficient quality of goods. According to Section 924 of the Austrian Civil Code, it is presumed that any defects appearing within six months from the date of delivery were already present at the time of delivery. The debtor then has to prove that the defect did not exist at that time, which is immensely difficult in most cases. The creditor may primarily request repair or replacement of the goods, only if repair or replacement is impossible, disproportionate, inconvenient for the creditor, unreasonable for the debtor or if the debtor fails to perform entirely, the creditor may request a price reduction or a rescission of the contract.

In recent years, the Supreme Court has ruled that a party that repairs or replaces contracted goods or services before the debtor has been given a second chance to perform any warranty work, has to pay the full price, but does not have to pay the amount that the debtor saved by not repairing or replacing the contracted goods or services.

In accordance with statutory law, entrepreneurs must give the other party notice of any defects within an appropriate time frame, otherwise the right of warranty or damage claim relating to the defect is lost. Instead of making a warranty claim, a party may bring a damages claim instead; the advantage of a damage claim is that the damage claim becomes time-barred within three years from the time the party becomes aware of the damage and the identity of the damaging party (see below). The warranty period for movables is only two years.

iv Other breaches of contract

If negligent defective performance causes any consequential damage to a party to a contract or a damage is caused by a negligent violation or breach of ancillary obligations, the injured party may recover these consequential damages as contractual damages claims.

v Pre-contractual liability

Even if the parties do not conclude a contract, a party may be liable for damages if the party negligently breaches pre-contractual duties of protection and care or any pre-contractual disclosure obligations (culpa in contrahendo). The parties are free to discontinue negotiations of a contract at any given time; however, they must act in good faith and may not end negotiations arbitrarily if the other party was induced to rely on the conclusion of the contract and damages would ensure from the discontinuance of the negotiations. The injured party may then claim the damages the party suffered owing to its reliance on the conclusion of the contract.