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8/10/2018

New purchase law 2018

On 1 January 2018, the law on the reform of building contract law, the change of liability for defects under purchase law, the strengthening of legal protection in civil proceedings, and the automatic seal in land register procedures or shipping register procedures (cf. German Civil Code l. I 2017, 969) came into force (cf. also note EBA of 28 April 2016).

This law entailed important changes in German warranty law. The most famous readjustment can be found in § 439 section 3 of the new version of the German Civil Code: The seller is obligated within the context of cure to bear the buyer’s expenses necessary for removing the defective thing and for installing the repaired thing or the delivered defect-free thing regardless of whether it concerns a contract for the supply of consumer goods or a business deal between two contractors.

  1. The reform’s background

With things meant for installation, the defect often only occurs when the purchaser has already installed the good. When the purchaser demands replacement delivery according to §§ 437 Nr. 2, 439 sec. 1 alt. 2 BGB, before the law reform the question often arose who should bear the costs for the removal of the defective thing and the installation of the new defect-free thing. These cost items can take considerable proportions, which do often exceed the good’s purchase price.

In its famous jurisdiction on parquet strips of the year 2008 the German Federal Court of Justice decided that the buyer’s right to cure according to § 439 section 1 of the old version of the German Civil Code does not comprise the compensation of costs for the removal of a defective and the installation of a defect-free thing.

Contradicting this decision, the European Court of Justice found in 2011: In the case of a contract of sale between a contractor and a consumer § 439 of the German Civil Code shall be interpreted in the context of the directive on the sale of consumer goods (RL 1999/44/EG) (cf. ECJ (1. chamber), Judgement of 16.6.2011, Ref. C-65/09, C-87/09 (Gebr. Weber GmbH/Jürgen Wittmer; Ingrid Putz/Medianess Electronics GmbH)). According to article 3, section 2, section 3 of the directive, cure shall be carried out free of charge. This leads to the seller’s obligation to remove a defective purchase good already installed in another thing and to re-install the replacement product, or to reimburse the costs incurred, if he does not conduct the removal/ installation himself.

Thereupon, the German Federal Court of Justice, for contracts between contractors and consumers, interpreted § 439 of the German Civil Code according to the directives and recognised the buyer’s reimbursement claim according to § 439, section 2 of the old version of the German Civil Code. In settled case law, however, the Court clarified that the directive on the sale of consumer goods does not apply for contracts of sale between contractors, so that the seller must only bear the costs for removal and installation if the conditions for a (fault-based) claim of damages are given (vgl. German Federal Court of Justice, Judgement of 17.10.2012, Ref. VIII ZR 226/11; Judgement of 16.04.2013, Ref. VIII ZR 375/11; Judgement of 02.04.2014, Ref. VIII ZR 46/13).

These differences led to the following problem, especially when service contracts coincided with contracts of sale:

If a work contractor installed defective building material, he is, in principle, liable for its removal and reinstallation for the buyer. He may, however, only claim refund for installation and removal costs from the seller of the defective building material, if culpable conduct can be proven. Yet, on a very regular basis, the seller is only part of a supply chain himself and did neither cause the defect nor did he know about the defectiveness of the thing at the time of delivery to the work contractor. According to settled case law, the manufacturer is not to be considered as the seller’s vicarious agent either, so that the seller is not to be held liable for the defective manufacturing of the thing. If the seller is blameless, the work contractor may not file damage claims against him and has to cover the expenses for installation and removal himself.

  1. The seller’s warranty obligation for the expenses for removal and installation irrespective of any fault (§ 439 German Civil Code, new version)

German legislature therefore saw a need for action and carried out the following alterations to the former legal situation with regard to the extent of the claim for cure:

  • As part of the claim for cure the buyer may demand the reimbursement of expenses from the seller for the removal of the defective thing and the installation of the thing free of defects.
  • This claim is valid regardless of whether the buyer demands subsequent delivery and repair.
  • 439 section 3 of the new version of the German Civil Code shall be applied to all types of contracts of sale (contracts for the supply of consumer goods, contracts between contractors, contracts between consumers).
  • According to § 439 section 3 of the new version of the German Civil Code the buyer cannot carry out the claim itself (cf. BT-Dr. 18/11437, p. 39).
  • The buyer may also claim reimbursement of expenses, if he affixes the defective thing « to another ».
  • In the context of contracts for the supply of consumer goods the contract cannot differ from the legal claim for the reimbursement of expenses – neither by individual agreement nor by general terms and conditions (cf. § 476 section 1 German Civil Code, new version).

With regard to the extent of the claim for the reimbursement of expenses the law refers to all of the buyer’s « necessary expenses ». Expenses are considered as necessary when a reasonable client with economical thinking and after expert advice or statement could and had to regard them as acceptable, meaning appropriate and promising means for the remedy of defects (cf. BT-Dr. 18/11437, p. 40). In this respect, the judicial practice of work contract law must be applied.

Of course, the buyer is not entitled to a claim for reimbursement of expenses, if he knew about or grossly negligently ignored the defectiveness at the moment of installation. (cf. § 442 German Civil Code, which remains unchanged).

  1. Refuse due to disproportionate expenses

The seller may still refuse the kind of cure chosen by the buyer if it involves disproportionate expenses. The provision of § 439, section 3 of the old version of the German Civil Code was included unchanged in § 439, section 4 of the new version of the German Civil Code.

What is new, however, are the provisions of the law of the sale of consumer goods. In §§ 475, section 1 and section 6 of the new version of the German Civil Code legislature puts into legal practice another specification of the European Court of Justice. If a kind of cure is excluded due to impossibility or disproportion the seller may not refuse another kind of cure due to disproportionate expenses (cf. § 475, section 4, p. 1 German Civil Code, new version). According to § 475, section 4, p. 1 of the new version of the German Civil Code it is only possible to limit the expenses for cure to an appropriate level. It is, however, not quite clear whether « expenses » means the expenses for removal/ installation or the overall expenses for the cure. Furthermore, legislature does not state how the « appropriate amount » shall be defined.

  1. (Facilitated) Recourse by the seller within the supply chain

The extension of the seller’s liability is compensated through the concurrent extension of possibilities of recourse within a supply chain. Recourse claims are now placed into §§ 445a, 445b of the new version of the German Civil Code and into general purchase law and are applicable regardless of whether the last transaction of the supply chain is a sale of consumer goods or not.

According to § 445a, section 1 of the new version of the German Civil Code the seller of a newly produced thing may claim for reimbursement of the expenses he had to bear for the buyer according to §§ 439, section 2 and section 3 BGB of the new version of the German Civil Code as well as § 475 section 4 and section 6 of the German Civil Code, if the defect claimed by the buyer already existed when the risk was transmitted to the seller and the respective supplier was also contractor.

According to § 445b of the new version of the German Civil Code, recourse claims become time-barred within two years, whereas the claims of the seller against his supplier shall only become time-barred within the two months following the execution of the buyers’ warranty claims by the seller.

The new provisions for recourse according to § 445a of the German Civil Code require that the contract of sale concluded within the supply chain was concluded for the same thing in each case. It is therefore questionable whether the new provisions for recourse apply, if a supplier delivers individual parts out of which the buyer produces a final product and then sells it on to the final buyer (cf. Huber, NZBau 2018, 72 (76)). Based on the original provision concerning the sale of consumer goods (cf. § 478, section 1 BGB old version) a recourse claim was declined in these cases within the literature of legal comments (cf. MüKoBGB/S. Lorenz, 6. edition 2012, German Civil Code § 478 Rn. 15).

  1. What action is needed?

The new provisions have extensively modified warranty law concerning so-called « installation cases ». In this regard, it should be noted that the new provisions apply for contracts of sale concluded from 01-01-2018.

Sellers of things which, after their intended use, are suited for the installation into another thing should bear in mind the potential risk of extended claim for cure according to § 439, section 3 of the new version of the German Civil Code.

Existing contracts, especially general terms and conditions, should be checked for a possible need for change. In commercial business, it will most probably not be possible anymore to agree upon a repeal of warranty obligation for expenses for removal and installation through general terms and conditions, as the prohibited clauses according to § 309 n° 8 lit. b cc of the new version of the German Civil Code has indicative effect within the test of reasonableness of contents according to § 307 of the German Civil Code.

Finally, it can be noted that unresolved issues do persist concerning the actual handling of the regulations; for example which amount of reimbursement of expenses is considered as « appropriate ». It will only become apparent in the course of time how the provisions are actually dealt with in practice and which further concretisation will have to be carried out by jurisdiction.

Julia Dressel                                                                                     20 June 2018

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