There are four types of performance disruptions. These are impossibility, delay, defective performance, and (positive) breach of contract.
Impossibility of performance
Impossibility of performance occurs when the performance contractually agreed upon becomes impossible to fulfill. For example, this may occur when the object that was to be renovated is destroyed in a fire or when an artist misses their performance due to a missed flight.
The consequences of the impossibility of performance depend on whether a party to the contract is at fault. In cases of negligence or intent, there may be a liability to pay damages.
A female artist misses her flight and is therefore unable to perform as agreed, because she left home too late. She is responsible for this and liable for damages to the organizer.
However, if she misses her performance because the flight is canceled, she did not cause the impossibility and will not be liable for damages (incidental impossibility).
If the performance becomes impossible to fulfill, and the client is responsible for the impossibility, the agreed fee must still be paid.
An actor has signed a contract with a theater to perform in a play. The actor has agreed to attend rehearsals and the performance. However, the creditor, in this case the theater, forgot to inform the actor about an important change in the schedule. The actor arrives at the theater at the originally agreed upon time, but the theater informs him that the performance has been rescheduled to another day due to the schedule change. However, the actor is already committed to perform in another production on that day and cannot participate in the performance.
Force majeure refers to extraordinary events or circumstances that are beyond the control of the parties involved and that make it impossible to fulfill a contractual obligation. Here are some examples of reasons for force majeure:
- Natural disasters such as storms, floods or earthquakes.
- War, terrorism and internal unrest.
- Strikes, lockouts and other labor disputes.
- Pandemics or epidemics.
- Legal prohibitions such as official closures, curfews or gathering bans.
- Technical failures such as blackouts, server outages or transportation failures.
- Transportation disruptions, such as train cancellations or flight cancellations due to weather conditions.
In general, the reasons for force majeure must be unforeseeable, unavoidable, and not caused by the fault of either party in order to be recognized as such. Many contracts also list a precise definition of force majeure in order to avoid possible misunderstandings.
The legal consequences of force majeure depend on the contractual agreements and the circumstances of the individual case. However, there are generally two possible legal consequences:
- Release from the obligation to perform: If force majeure exists, the debtor is released from his obligation to perform. The parties are then released from their contractual obligations and do not have to fulfill any claims for damages or penalties. The contract is dissolved if force majeure makes the fulfillment of the contract impossible. If the force majeure is only temporary, the obligation to perform can be suspended until the circumstances change.
- Adjustment of the contract: In some cases, it may be possible to adjust the contract to take into account the circumstances of force majeure. For example, the parties can agree to extend the performance period to give the debtor more time to perform. Adjusting the agreed compensation or changing the place of delivery may also be considered.
It is important to note that force majeure represents an exception to the normal obligation to perform and that the parties affected are generally not liable for the damages or losses caused by force majeure. However, it is advisable to establish clear regulations in contracts in order to avoid possible conflicts. If no clear regulations are established in the contract, the legal regulations apply. This means that the contract "disintegrates" and both contracting parties are released from the obligation to perform.
Possible Covid-19 Clauses
1. "Should one of the parties be prevented from fulfilling their contractual obligations due to Covid-19 or similar epidemics or pandemics, the party shall immediately inform the other party and shall make every effort to take alternative measures to fulfill the contractual obligations. If this is not possible, the party shall be released from fulfilling the contractual obligations for the duration of the impediment."
2. "In the event of the cancellation of an event due to official measures regarding Covid-19 or similar epidemics or pandemics, the organizer is entitled to postpone or cancel the event. In this case, the participants are obliged to accept a postponement and will do their utmost to agree on a replacement date. The organizer is not liable for consequential damages incurred by the participants or third parties due to the postponement or cancellation."
3. "This agreement is concluded subject to the condition that Covid-19 or similar epidemics or pandemics may significantly impair or make the contractual performance impossible. If this occurs, this agreement shall be suspended by both parties for the duration of the impediment and the contractual obligations shall be suspended. Once the impediment is removed, both parties will resume the fulfillment of their contractual obligations."
Since the rules of force majeure only apply if it is an unforeseeable event, it is questionable which regulations will apply if the parties are already aware of a possible risk to the contract. It will always have to be assessed on a case-by-case basis whether an impossibility was foreseeable or not.
Therefore, it is advisable to agree on clear regulations in the contract for such cases. For example, the specific event can be defined as an event that does not qualify as force majeure. A down payment can also be agreed upon. A gradation of the down payment depending on when exactly the cancellation was made is also possible. For example, 10% down payment for cancellation eight weeks before the performance date, 25% for cancellation 4 weeks before and 40% down payment for cancellations thereafter.
Delay means that a performance is still possible, but the agreed upon performance is not provided at the agreed upon time, place, or manner.
If the debtor falls into delay, the creditor has a choice. He or she can withdraw from the contract, or set a reasonable period for performance and continue to insist on performance. If there is fault (negligence or intent), there may also be an obligation to pay damages.
A painter has contracted with a client to paint a picture. The painter has contractually agreed to complete the picture within two weeks. The client has made a deposit. After two weeks, the client asks the painter if the picture is finished. The painter says he has not started yet because he had other jobs. Now the client can either withdraw from the contract and demand a refund of the deposit, or set a deadline for the painter.
Creditor Delay (Default of Acceptance)
Creditor delay occurs when the creditor does not accept the agreed upon performance. Generally, creditor delay does not have legal consequences, because the creditor only has a right to the item. The agreed upon compensation must be paid in any case, if the performance is in accordance with the contract. However, in the artistic field there are deviations from this rule, namely when the artist has a recognizable interest in accepting the performance at the time of contract conclusion. In this case, the rules of debtor delay apply to the creditor.
A band is playing a tour in Germany. The band has a recognizable interest in performing the concerts, beyond just receiving payment for the performance. After all, many fans want to attend the concerts. If a concert promoter cancels a concert but pays the agreed upon fee, the band may be able to claim further damages.
In paid contracts, the person providing the service is liable, which is called warranty. The service provider is responsible for ensuring that the service or product is provided free of defects. This applies to both material defects and legal defects.
A material defect exists when the delivered product is faulty, damaged, incomplete, or the service was not provided in accordance with the agreement. For example, a material defect may occur if a delivered art or cultural object is damaged or incomplete. For instance, a painting may have cracks or stains, or a sculpture may have damaged parts. A material defect may also exist if the quality or performance of the art or cultural object does not correspond to the guaranteed characteristics. In this case, the artwork or cultural object is defective because it does not have the expected condition or quality.
On the other hand, a legal defect exists if the product or service is not free of legal defects. This means that it may, for example, violate legal provisions or there may be judicial claims by third parties that could impair the ownership or possession of the product, or restrict the usability of the service. A legal defect may occur if the artwork or cultural object is affected by a legal defect, such as violating copyrights or other legal provisions. An example of this would be if a theatrical performance is presented without the necessary approvals or licenses, or if a museum presents an exhibition of stolen art.
In case of a defect, the buyer usually has the right to demand appropriate remedies, such as repair, replacement, refund or price reduction. However, the exact claims and procedures may differ depending on the country and contract.
The (defective) artistic quality usually does not constitute a warranty claim, as it is a very subjective evaluation. Warranty claims due to artistic quality are usually explicitly excluded in contracts.
The individual remedies of the warranty
In Austria, the ABGB (General Civil Code) regulates the warranty for goods and other services. In case of a defect in the purchased goods or services, the creditor (client, buyer) generally has four warranty remedies available: improvement, exchange, price reduction, and rescission (cancellation of the contract).
- Improvement: The creditor can demand that the defect in the goods be remedied. This means that the debtor must repair or improve the goods. If the improvement is successful, the defect is considered resolved and the purchase agreement continues.
- Exchange: The creditor can demand that the defective goods be replaced with a new, flawless product. The debtor must ensure that the new product has the same or comparable value as the original goods. The purchase agreement continues in this case as well.
- Price reduction: The creditor can demand an appropriate reduction in the purchase price if the defect in the goods cannot be remedied or replaced. The amount of the price reduction depends on the extent of the defect.
- Rescission: If improvement, exchange, or price reduction are not possible or reasonable, the creditor can cancel the purchase agreement and return the goods. The debtor is obliged to refund the purchase price in this case. It should be noted that the creditor must grant the debtor (contractor, seller) a reasonable period of time for improvement or exchange of the goods before they can demand a price reduction or rescission.
The warranty can be contractually excluded, except in the case of a consumer transaction. In this case, the warranty cannot be excluded or disadvantaged for consumers (end customers).
Statute of limitations
The warranty remedies are generally available to the creditor for two years after the goods have been delivered for movable property. Immovable property (real estate) has a 3-year warranty period. The period begins to run from the acceptance of the goods or services.
Presumption of Defectiveness
It is important to know that liability only applies to defects that already existed at the time of delivery, even if they only become apparent at a later time. In the first 6 months, there is a presumption of (original) defectiveness, which means that the person providing the service must prove that the goods or services were free of defects at the time of delivery. After 6 months, the recipient of the service must prove that the defect was present at the time of delivery (even if it was only noticed later or only appeared later).
Obligation to Report Defects in Business Transactions between Entrepreneurs
In contracts between entrepreneurs, any defects must be reported. This means that the recipient of the service must inspect the goods or services upon delivery and usually report any defects to the providing entrepreneur within 14 days. Otherwise, the claim for warranty will expire.
Artists are often also considered entrepreneurs here, especially if they pursue their activity as their main profession.