Contract Performance: Default, Defects, Subsequent Performance

Contract Performance

Sometimes you do not want to get out of a contract – you want the other side to perform as agreed. There are different tools for that depending on what has gone wrong.

Default and Formal Notice

If you are waiting for performance, you must first send a formal notice (Mahnung) – a clear demand with a deadline. Only then does the other party fall into default (Verzug), and only then do damages claims start to accrue. Simply waiting and eventually suing, without ever having sent a formal notice, leaves you in a weak position.

One exception: if a fixed date was agreed in the contract, the debtor falls into default automatically if they miss it, without any notice being required. A deadline is also required when demanding that defects be remedied.

What Is a Reasonable Deadline

The first notice typically sets a two-week deadline. If there is no response at all, I would recommend escalating. If there is a response with a reasonable explanation or a cooperative tone, extending by a week may be justified.

One practical point: do not write “deadline in two weeks.” Calculate the actual end date. A “two-week deadline” is ambiguous about when it starts running.

Subsequent Performance

If the performance is defective, the other party has the right to a second chance first – either remedying the defect or delivering a replacement. This applies to sale of goods contracts and work contracts alike. Demanding a price reduction or withdrawal immediately, without allowing subsequent performance, can cost you those remedies.

Subsequent performance must be demanded formally – not by phone, but at minimum in text form, with a reasonable deadline and a specific description of the defect.

Price Reduction

If subsequent performance has also failed, you can reduce the price in proportion to the defect. Determining the exact amount is often difficult and usually the result of negotiation.

A price reduction requires a genuine defect. Anyone trying to extract a significant discount for a minor issue – a scratch on the packaging, a small deviation from a sample – will not get far.

Withholding Right

A party with a performance obligation (including a payment obligation) can withhold it until the other side performs their part. This lever must be used proportionately. Refusing the entire payment because of a minor defect puts you into default yourself.

Damages in Addition to Performance

If the other party’s breach has caused you a loss – lost profit, cost of substitute procurement, a contractual penalty owed to a third party – you can claim damages in addition to the performance you are still entitled to. As a general rule, fault and an unsuccessful notice period are required.

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