As in Dutch law, German law on the sale of goods also requires the vendor to supply the purchaser with a fault-free item. If, however, the goods sold are defective, the statutory warranty clauses apply – unless General Terms and Conditions apply to the contractual relationship. However, we will not be considering this situation here; the comments relate only to the statutory arrangements.

Faults at the time of risk transfer
In order for the statutory warranty rights to apply, the item must be faulty at the time the risk is transferred.

Normally, risk is transferred when the item is handed over. If, however, the item is delivered to a particular location at the customer’s request, the risk may pass to the buyer when, for instance, the vendor presents the item to a forwarding agent. This is not the case if a consumer acquires a movable object (consumer good purchase) from a business. In this event, the risk does not pass to the buyer until he actually receives the item. Furthermore, in the case of a consumer good purchase, it is assumed that a defect that becomes apparent within six months of the transfer of risk existed at the time the risk was transferred. The vendor does, however, have the right to refute this assumption.

A defect exists if the actual state of the item differs from the condition that was agreed at the time the contract was concluded between the vendor and buyer.
If the condition was not agreed, the item is free from material defects if it is suitable for the use presumed under the contract or if it is suitable for normal use and its condition corresponds to what is usual for items of the same type and to what the buyer is entitled to expect, given the nature of the item. It should be borne in mind that all characteristics suggested by advertising statements or product descriptions are also deemed to have been agreed. Moreover, incorrect assembly or installation by the vendor or inadequate installation or assembly instructions constitute a defect in the same manner as would the delivery of the wrong item or an incomplete delivery. A defect of title is equivalent to a material defect.

However, the buyer cannot claim a defect if the buyer was aware of the defect when the contract was concluded or, due to gross negligence, was not aware of it.

Legal consequences
The buyer has a prior right to a cure. This means he can choose whether he wishes to have the defective item repaired or have a new (fault-free) item delivered (replacement). The vendor may only refuse the form of cure chosen by the buyer if it is impossible for the vendor to undertake that cure or if it could only do so at unreasonable cost. In this case, the buyer’s right is limited to the other form of cure. The vendor bears all the costs of the cure. The buyer’s entitlement to a cure does not presuppose that the vendor is responsible for the defective nature of the item bought. Besides the conclusion of an effective contract of sale, the only requirement is the delivery of an item that is defective at the time the risk is transferred.

If the vendor does not fulfill its cure obligation, despite being allowed a reasonable extension of time, the buyer may demand rescission of contract, a reduction in the purchase price and compensation and reimbursement for wasted expenditures.

Rescission is the process of dissolving the contract with retroactive effect, so that the entitlements resulting from the contract also lapse. Services already performed must be returned. Instead of rescinding the contract, the buyer may reduce the purchase price. In this case, the price reduction must be commensurate with the difference between the value of the item in a fault-free state and its actual value. In the event of a dispute, the reduction is calculated by the court.
The buyer is entitled to compensation in addition to a cure, rescission or price reduction if the vendor is responsible for the damage, i.e. the damage was caused by at least negligent actions on the vendor’s part.

Limitation period
The usual warranty period under the law on the sale of goods is two years. In the case of movable items, the limitation period for claims for defects commences upon delivery. For immovable property (and buildings), the period is five years and commences upon handover. The limitation period is thirty years if the defect lies in a right in rem of a third party on the basis of which the surrender of the purchased object may be demanded, or in another right entered in the land register.
In the case of contracts with end consumers, the warranty period for new items may not be shortened, either by general terms and conditions or by individual agreements. The parties may, however, limit the warranty for used goods to one year.

Special arrangements for commercial parties
If the purchase is a mutual commercial sale, the buyer must inspect the object purchased immediately upon receipt and immediately make any complaints. If he does not fulfill this obligation, the goods are deemed to have been approved, meaning that all claims against the supplier on account of that defect are excluded. The interpretation of the concept of “immediate” can prove problematic, particularly if the goods are not handed directly from one party to the other, but are supplied directly to the end consumer.

Warranty vs guarantee
The guarantee is a voluntary obligation assumed by the vendor or manufacturer, on top of the warranty period, whereby it guarantees that an item will not develop any defects within a particular period. The assumption of a guarantee by the retailer or manufacturer also covers defects that do not arise until after handover. These guarantee rights are voluntarily conferred by the manufacturer; therefore, the manufacturer is at liberty to determine the content of those rights as it so chooses and, if appropriate, can also limit them.
The statutory warranty right exists alongside such a guarantee, meaning that the buyer may choose during the statutory warranty period whether to make a claim on the guarantee (usually against the manufacturer) or on the warranty (against the vendor).

Warranty law vs product liability law
The significant difference between warranty law and product liability law is that the latter does not govern liability for damage to the product, but rather the manufacturer’s liability for consequential damages arising as a result of a faulty (movable) product. If the item was defective at the time it was placed on the market (i.e. from the outset), the manufacturer is liable for material damage, personal injury and death. Product liability law also covers compensation. The liability is a strict liability, i.e. the manufacturer is liable even if it cannot be blamed for intent or negligence. Claims under this law arise regardless of whether a contract was concluded between the manufacturer and end customer. The rules of the German Product Liability Act apply in addition to the vendor’s contractual liability under the German Civil Code (BGB). Therefore, warranty claims, for instance, are unaffected by liability under the Product Liability Act.

The manufacturer is firstly the manufacturer of the end product (even if it assembled the end product from faulty bought-in component products), the manufacturer of a faulty component product and the “quasi-manufacturer”, who sells an item produced by another manufacturer under its own brand. Importers and retailers may also be held liable. All the persons listed are liable, meaning that the injured party may, for instance, choose the financially strongest party.
A defect exists if, taking all the circumstances into account, the consumer’s safety expectations are not met.
The Product Liability Act is a mandatory law, which means it cannot be modified or excluded by contract.

As simple and clear as warranty rights may seem by law, in reality dealing with defective deliveries can raise all kinds of issues and possible interpretations – and this is what causes disputes. The clearer the agreements made by the parties in the contract, the smaller the risk of argument later on.

By Susanne Hermsen of Dirkzwager