Types of breaches of contract

When two or more parties enter into a contract, they agree to perform what is agreed in the contract. It is not uncommon, however, for either an obligor (debtor) or an obligee (creditor) to partially or entirely fail to fulfil what has been agreed. According to the Swiss Code of Obligations (CO), a distinction is made between default performance, deficient performance and the impossibility of performance. The former two types of breach of contract are discussed first. Our attorneys at Teichmann International in Frauenfeld, Zurich and St. Gallen will be happy to inform you about the distinctions between the types of contractual breaches and can advise you personally on your individual case.

DEFAULT / DELAY

A default breach is defined as the delayed fulfilment of an obliger’s obligation. This can also mean that the obligor fulfils the contract differently than agreed. According to Art. 102 para. 1 CO the obliger is in default as soon as they receive a formal reminder from the obligee. According to Art. 107 para. 1 CO, the obligee is entitled to set the obliger a reasonable deadline for subsequent performance. Exceptions to this are transactions with an expiry date according to Art. 102, para. 2 CO and fixed transactions according to Art. 108, item 3 CO. A transaction with an expiry date exists if the discernible intention of the parties from the contract is for the performance to explicitly take place at a certain time or be fulfilled by a certain time. In this case, the obligor is in default from the expiry of the date of expiration without a necessary reminder. In the case of a fixed date transaction, a time of performance has also been agreed. A subsequent fulfilment or performance would be useless for the obligee. For example, a bride and groom cannot use a wedding cake that is delivered late. In this case, the bride and groom are entitled to exercise their rights of choice, which arise from Art. 107 para. 2 CO, without setting a grace period. In particular, the obligee have the right to insist on the fulfilment of the contract and a payment of damages caused by the delay, as well as the positive and negative interest in the contract. Positive contractual interest means that the obligee insists on performance. However, the costs incurred may be claimed as damages. Negative contractual interest, by contrast, refers to the withdrawal from the contract and the claim for damages according to Art. 109 OR. It is presented as if one had never entered into the contract in the first place. A lawyer in St. Gallen, Zurich or Frauenfeld can inform you about your legal option in the instance of a breach of contract.

defective PERFORMANCE / WARRANTY

If the right thing is delivered, but it is found defective, the rules of defective performance apply. Defective performance in the law of sales is regulated in Art. 197 in the CO and defective perfomance pertaining to work contract law in Art. 368 CO. In the law of sale, the seller is liable to the buyer for all warranted characteristics, including the physical and legal defects which nullify or substantially reduce its intended use. In this regard, according to Art. 200 para. 1 CO, the seller is not liable for defects that were known to the buyer at the time of purchase. After the purchase of the object, the buyer has the immediate duty to inspect the object of purchase and, if a defect is discovered, to immediately give notice of the defect (pursuant to Art. 201 CO). If the buyer does not comply with his inspection and complaint requirements, there is a ‘fictious approval’ and the object of purchase is considered approved. If there is a defect and this is reported immediately, there are three warranty rights for purchased goods. The conversion, the reduction and the substitute performance. The conversion according to Art. 205 para. 1 CO, positions the buyer as if he had never entered into the contract. The reduction is simply a reduction of price as a result of the defect. In the case of generic goods, there is also the possibility of compensation according to Art. 206 CO, according to which the buyer can demand a substitution of the purchased goods. If you are unsure about your warranty rights, please do not hesitate to contact our lawyers in Switzerland.

However, there are also defects that only become apparent after a certain period of time. Here, according to Art. 201 Para. 3 CO, these must be notified immediately after discovery. In this case, however, the limitation periods according to Art. 210 para. 1 CO must be observed. This period is restricted to two years for movable objects. By contrast, there are things which were integrated into immovable things and so caused a defectiveness of the work. There, the limitation period is 5 years according to Art. 210 para. 2 CO. Even in the case of a defective object, the obligee has the option of rescission- provided it is not a construction- and the reduction according to Art. 368 CO, provided these are notified within the 5 years. In contrast to defective purchased goods, no compensation is available for defects in a work. But the obligee is entitled to rectification by the obligor. At most, claims for damages may also arise. Are you not sure whether you are entitled to damages? Then a lawyer in Zurich, St. Gallen or Frauenfeld will be happy to help you.