Restitution due under failure of consideration

Under the Civil Code,(1) in order for a restitution claim due to failure of consideration to arise, the service recipient must be aware that the service was performed in expectation of later receipt of consideration.

In general, according to Section 1435 of the code, such a claim arises when the circumstances which formed the basis of the transaction cease to exist. If the transaction is purely service-based, it is regulated by Section 1152 of the code.

It is accepted legal practice that, in accordance with the principle stated in Section 1152 of the code, the recipient of a contractual performance which cannot be undone is obliged to remunerate the other party adequately. This is not necessary where the recipient does not expect remuneration for the service.

Therefore, when services are provided in a non-commercial context, it is essential to decide whether the service was knowingly accepted. However, it is up to the recipient to prove that the service was provided without obligation of payment.

In order for a claim for failure of consideration to arise under Section 1435 in conjunction with Section 1152 of the code, the recipient must be aware that the service was provided in expectation of later consideration.

If the service supplier bears no responsibility for the failure of purpose, its claim does not depend on the benefit obtained by the recipient. If the supplier is in any way responsible for the failure of purpose, it can bring a claim only for the amount that would lead to unjust enrichment. This means that compensation may be limited to the actual benefit obtained by the recipient. A complete claim loss is possible only where the supplier caused the failure of purpose in bad faith. The burden of proof regarding a possible limitation of compensation or for a complete dismissal due to bad faith lies on the recipient.

Within the meaning of Section 1152 of the code, ‘consideration’ includes the usual remuneration as well as other ordinary and extraordinary benefits (eg, commission) which are based on the result of the work provided. This means that salary is based on the accomplishments of the worker, as well as the market conditions and business situation. It is therefore a performance payment.(2)

Restitution due under failure of purpose

Enrichment-based entitlement to restitution due to failure of purpose arises even if performance is owed under a contract. Partial failure of purpose leads to partial rescission only.

An appellate court recently held(3) that an enrichment-based claim for restitution due to failure of purpose is possible even if the performance is contractually owed. This opinion does not diverge from the highest jurisprudence.

Under Section 1435 of the Civil Code, a supplier can reclaim things which were rightfully owed from a recipient if the legal basis for keeping them ceases to exist. Jurisprudence accepts this as a basis for restitution due to cessation of cause or non-occurrence of success beyond its literal interpretation. This is applicable whenever the commercial reason or the general circumstances which would have been the purpose of the transaction cease to exist. There is no need for an express agreement regarding the legal purpose of the benefit. However, the motive and purpose of the transaction must be expressed explicitly to the supplier in order to reclaim in case of failure of purpose.

Restitution claims in cases of contract termination follow enrichment law principles. The second sentence in Section 921 of the code is simply an application of Section 1435. The repayment of partial purchase price after rescission as an enrichment claim is a sub-category of Section 1435 of the code.

In the present case the parties drew up a contract which was entered into on April 1 2006 for a minimum duration of three years, but which was terminated in 2007. The defendant was aware of the contract’s purpose – specifically, the agreed terms were put in place in order to market the claimant’s products in a furnished property that served as an advertising space for its goods, which were sold there. Therefore, this purpose was part of the contract.

The agreed terms were not achieved and did not reach the claimant’s expectations – namely, the continuation of the contractual relationship for a certain period of time. The purpose partially failed due to the early removal of the advertising material. This partial failure of purpose triggered an enrichment-based claim for restitution of part-payment.

Endnotes

(1) Section 1435 in conjunction with Section 1152 of the code.

(2) For further details on this issue see Austrian Supreme Court Decision 6 Ob 172/10b of September 22 2010.

(3) Austrian Supreme Court Decision of 4 Ob 105/10k, August 31 2010.