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Contracts which became impossible in Hungarian construction

In construction industry contracts cannot be performed according to the intentions of the parties in each case. It means that the parties cannot fulfil their duties. In the practice of our Legal Partnership we usually meet cases in which the performance of the contracts became impossible or one of the parties referred to it. We can talk about the impossibility of the performance if the reason of the impossibility has been originated after the conclusion of the contract. According to Hungarian law and Hungarian judicial practice, the impossibility of performance can be physical impossibility, legal impossibility or impossibility of the interests. The latter type of impossibility of performance is accepted only in very special cases by Hungarian courts.

If performance has become impossible for a reason attributable to one of the parties, the other party shall be relieved from the obligation of contractual performance and may demand damages for the loss caused by non-performance of an obligation. If performance has become impossible for a reason attributable to both parties, the contract shall be terminated and the parties may demand damages from each other in the proportion of their interaction. According to the general rule of the Hungarian Civil Code, if performance has become impossible for a reason that cannot be attributed to either of the parties, the monetary value of the services provided before the time when the contract was terminated shall be compensated. It is important to know that the last general rules cannot be applied in case of contracts for professional services.

In case of contracts for professional services special rules shall be applied and in this case also other circumstances shall be respected in connection with the application of the legal consequences of impossibility of contractual performance. According to these special rules, if performance has become impossible for a reason that cannot be attributed to either party and the cause of impossibility has occurred within the control of the contractor, he shall not be entitled to demand remuneration. If the cause of impossibility has occurred within the control of customer, the contractor shall be entitled to remuneration, but the customer shall be entitled to deduct the amount that the contractor had saved or could, without great difficulty, have earned elsewhere in the time gained. If the cause of impossibility has occurred within or beyond the control of both parties, the contractor shall be entitled to a proportionate amount of the remuneration for the work done and for his expenses.

According to our experience, if we meet an impossibility of performance in a construction contract which cannot be attributed to either of the parties, we have to consider circumspectly within which party’s control the impossibility of performance has occurred. Finally, I would like to remark that the category “within the control of the party” and legal consequences of the impossibility of performance were known and applied also by Roman Law.

Dr. Tamás BALÁZS
Attorney at law
Managing Partner

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