- In principle, the law on the sale of goods does not make a distinction between B2B contracts or sales contracts vis-à-vis consumers. However, statutory law does have special provisions to protect the consumer. These provisions state that consumers’ claims for defects may not be restricted or ruled out.
- There is a great degree of freedom, however, in drafting individual B2B contracts so that claims for defects may usually be considerably extended, restricted or completely ruled out.
- Under statutory law, the content of general terms and conditions of sales/purchase (GTCs) is subject to strict scrutiny so that extending, restricting or completely ruling out claims for defects in GTCs may be invalid. This also applies to B2B contracts to be considered as GTCs.
A material defect (Sachmangel) exists when the goods do not have the agreed quality at transfer of risk. If the parties have not agreed that the goods should meet a specific quality or specification, the goods must be fit for the purpose specified in the contract. If the purpose has not been specified either, the goods must be fit for the usual purpose and meet the quality which the purchaser can expect from goods of this type.
A legal defect (Rechtsmangel) exists when third parties can assert rights with respect to the goods against the purchaser. Third-party ownership is not deemed to be a legal defect. If it prevents the acquisition of ownership by the purchaser the legal situation corresponds to the case that the goods are not supplied at all.
Rights and Remedies of Purchaser
- Remedy of defect
- Withdrawal from contract/Reduction of price
- Claim for damages
- In the event of a defect the purchaser may first claim for repair or replacement. The right to subsequent performance is irrespective of the seller’s fault.
- Restriction to one of the two types of subsequent performance is generally deemed permissible in individually negotiated contracts and in GTCs.
Right to Choose Subsequent Performance
- The purchaser is entitled to choose between repair and replacement.
- Transferring the right to choose between repair and replacement to the seller is generally deemed permissible in individually negotiated contracts and in GTCs.
Costs of Subsequent Performance
- The seller must bear the necessary costs incurred for subsequent performance, in particular transport, travel, labour and material costs.
- As a rule, the costs incurred when removing the defective goods and installing the replacement form part of the subsequent performance costs in contracts vis-à-vis the consumer. However, this is not the case in B2B contracts. Therefore, in B2B contracts the purchaser would have to assert these costs as part of its claim for damages which do require additional preconditions.
- In contracts vis-à-vis consumers and as a rule in GTCs, restrictions are generally invalid.
Conditions for Claims for Damages
- Claims for damages are subject to the following preconditions:
- Breach of contractual obligation, e.g. default, material defect or legal defect
- Fault, i.e. negligent or intentional breach of contractual obligation, whereby each party is responsible for fault on the part of its legal representative and of persons whom it uses to perform its obligation.
- Root cause of damage
- Consumer rights may not be restricted in contracts vis-à-vis consumers.
- The scope for limiting liability is significantly restricted in GTCs vis-à-vis companies. In individually negotiated B2B contracts, however, broad restrictions on liability are permitted. In any case, liability for acting with intent cannot be limited in advance.
Extent of Claims for Damages/Limitation of Liability
- The injuring party must provide compensation for all direct and indirect losses it has caused owing to its breach of obligation.
- The extent of liability may not be restricted to the detriment of the consumer in contracts vis-à-vis consumers.
- In GTCs vis-à-vis companies, the scope for limiting the extent of liability is significantly restricted. In individually negotiated B2B contracts, however, the extent of liability may be restricted. In any case, liability for acting with intent cannot be limited in advance.
Withdrawal from Sales Contract
- Before withdrawing from the sales contract, the purchaser must first grant the seller the opportunity to render subsequent performance.
- If subsequent performance fails, is refused or subsequent performance is considered unreasonable, the purchaser may withdraw from the sales contract.
- If it is not possible to render the performance (e.g. if the goods have been destroyed), the purchaser is also entitled to withdraw from the contract.
- As a rule, the withdrawal right may not be restricted in contracts vis-à-vis consumers and in general in GTCs.
- Withdrawal and claim for damages are cumulative remedies of the purchaser.
Limitation Period for Claims for Defects
- In sales contracts regarding movable goods, the limitation period for claims for defects is two years starting with delivery of the goods.
- In the event of fraudulent misrepresentation, the limitation period may be extended to up to 30 years from the breach of obligation. Usually the limitation period in this case is three years starting from the end of the year in which the claim arises.
- Reducing the limitation period is generally not permitted vis-à-vis consumers.
- Reducing or extending the limitation period is somewhat restricted in GTCs between companies.
Purchaser’s Obligation to Inspect Goods and Report Defects in B2B Contracts
- In B2B contracts the purchaser must inspect the goods without undue delay and report any detected defects to the seller without undue delay. The purchaser must also report hidden defects without undue delay after detection.
- If the purchaser breaches its obligation to inspect the goods or to report any defects, the goods will be deemed to have been accepted. In this case the purchaser may not assert any claims for defects it has not reported. Presumed acceptance does not apply if the seller has maliciously concealed the defect.
- In individually negotiated contracts, the obligation to inspect the goods and report any defects may be extended, limited, or completely excluded.
In GTCs a clause excluding the obligation to inspect goods and report defects in most cases is invalid.