In this blog post, we will examine the defect case in sales contracts in depth to provide you with a comprehensive understanding of the legal assessment and consequences of a defect. We will focus on the relevant laws, the different types of defects, the claims and rights arising from a defect case and the possible consequences for the contracting parties.

What is a defect case?

A case of defect occurs when a sold item does not have the agreed quality or is not suitable for the contractually presumed use. This can occur due to various circumstances, such as defective materials, faulty workmanship or construction errors.

German law generally makes a distinction between material defects and defects of title:

Material defect: A material defect exists if the sold item does not have the agreed quality or is not suitable for the contractually presumed use (§ 434 BGB). This includes, for example, production defects, material defects or malfunctions.
Defect of title: A defect of title exists if third parties can assert rights with regard to the sold item which impair the buyer in his contractually presumed use (§ 435 BGB). An example of this would be if the thing sold is encumbered with a security mortgage.

Legal basis: The German Civil Code (BGB)

The legal basis for defects in contracts of sale can be found in the German Civil Code (BGB), in particular in §§ 433 ff. BGB. The central provisions for material defects and defects of title are:

§ 434 BGB (material defect)
§ 435 BGB (defect of title)

In addition, there are numerous other regulations dealing with the rights and claims of the contracting parties in the event of a defect, such as:

§ 437 BGB (rights of the buyer in case of defects)
§ 439 BGB (supplementary performance)
§ 440 BGB (special regulations for withdrawal and compensation)
§ 441 BGB (reduction)
§ 442 BGB (Exclusion of rights in case of defects)
§ 443 BGB (Special provisions for guarantees)
§ 444 BGB (Exclusion of rights for defects in case of fraudulent concealment)
§ Section 445a BGB (Limitation of Claims for Defects in the Sale of Consumer Goods)
§ Section 446 BGB (Passing of Risk)
§ 447 BGB (Passing of risk in the case of sale by delivery to a place other than the place of performance)

These provisions form the legal framework by which the case of defects in sales contracts is assessed and the resulting claims and rights of the contracting parties are determined.

Types of defects

In the context of the case of defects, different types of defects can be distinguished, which may entail different legal consequences:

Overt defects: Overt defects are those that are readily recognisable during a normal examination of the item, e.g. obvious scratches or damage.
Hidden defects: Hidden defects are those that can only be detected during subsequent use of the item or through a more detailed examination, e.g. internal material defects or hidden construction defects.
Defects fraudulently concealed: Defects fraudulently concealed are those which the seller knows or at least considers possible but conceals from the buyer in order to bring about the purchase contract.
Guaranteed characteristics: Guaranteed characteristics are those for whose existence the seller expressly assumes a guarantee. If a guaranteed characteristic is missing, this also constitutes a defect.

Claims and rights of the buyer in the event of a defect

If the buyer discovers a defect in the context of a purchase contract, he has various claims and rights against the seller according to § 437 BGB:

Subsequent performance (§ 439 BGB): The buyer may demand that the seller remedy the defect or deliver a defect-free item. The seller bears the costs for the supplementary performance.
Withdrawal from the contract (§ 440, 323, 326 BGB): If the supplementary performance fails or the seller refuses it, the buyer can withdraw from the purchase contract under certain conditions and demand repayment of the purchase price.
Reduction (§ 441 BGB): Instead of withdrawal, the buyer may also demand a reduction of the purchase price, i.e. reduce the purchase price in accordance with the reduction in value of the item.
Damages (§ 440, 280, 281, 283, 311a BGB): Under certain conditions, the buyer may claim damages instead of performance or reimbursement of futile expenses, e.g. if the seller has fraudulently concealed the defect or has given a guarantee for the quality of the item.
Suspension of the statute of limitations (§ 445a, 445b BGB): In the case of purchases of consumer goods, the assertion of rights based on defects suspends the limitation period for the claims for the duration of the supplementary performance.

However, the assertion of these claims and rights may be excluded under certain circumstances, for example if the buyer knew of the defect at the time of the conclusion of the contract (§ 442 BGB) or if the seller fraudulently concealed the defect (§ 444 BGB).

Rights and duties of the seller in the event of a defect

In the event of a defect, the seller has various rights and obligations, which arise in particular from the above-mentioned claims and rights of the buyer:

Supplementary performance (§ 439 BGB): The seller is obliged to remedy the defect or to deliver a defect-free item at the buyer’s request. He bears the costs for the supplementary performance.
Rescission of the contract (§ 346 ff. BGB): If the buyer effectively withdraws from the contract, the seller is obliged to repay the purchase price and to take back the defective item. In return, the buyer must return the defective item and pay compensation for any use made of it.
Defence of limitation (§§ 214, 218 BGB): The seller may invoke the defence of limitation against the assertion of claims for defects by the buyer if the statutory limitation periods have expired.
Defence against unjustified claims: The seller has the right to defend himself against unjustified claims of the buyer, e.g. if the asserted defect does not exist or the claims are already time-barred.
Right to compensation: Under certain circumstances, the seller can also claim compensation from the buyer, e.g. if the buyer has culpably caused or aggravated the defect.

Limitation of claims for defects

The buyer’s claims and rights in the event of a defect are subject to the statute of limitations. The statutory limitation periods for claims for defects are:

§ 438 para. 1 no. 3 BGB: Two years from delivery of the item in the case of purchases of consumer goods, unless the seller has fraudulently concealed the item.
§ Section 438 para. 1 no. 3 BGB: One year from delivery of the item in the case of second-hand items and contracts between entrepreneurs, unless the seller has fraudulently concealed the defect.
§ Section 438 (1) no. 2 BGB: Five years from delivery of the item in the case of buildings and items which have been used for a building in accordance with their customary use and have caused its defectiveness.

However, the limitation of claims for defects may be suspended or prevented under certain circumstances, for example by the assertion of rights based on defects (§ 445a BGB) or by contractual agreements between the parties.

FAQs on the case of defects

Here you will find a summary of the most frequently asked questions.

When is there a defect?

A defect exists if the sold item does not have the agreed quality, is not suitable for the contractually presumed use or third parties can assert rights in relation to the item that impair the buyer’s use of it. These may be material defects (e.g. production defects, material defects) or defects of title (e.g. security mortgages).

What claims does the buyer have in the event of a defect?

In the event of a defect, the buyer is entitled to various claims and rights according to § 437 BGB (German Civil Code), such as supplementary performance, withdrawal from the contract, reduction of the purchase price, damages and suspension of the statute of limitations. However, the assertion of these claims may be excluded under certain circumstances, for example if the buyer was aware of the defect or the seller fraudulently concealed the defect.

How long does the buyer have to assert claims for defects?

Depending on the circumstances, the statutory limitation periods for claims for defects are two years from delivery of the item in the case of consumer goods purchases, one year from delivery of the item in the case of used items and contracts between entrepreneurs or five years from delivery of the item in the case of buildings and items used accordingly. However, the limitation of claims for defects can be suspended or prevented under certain circumstances.

What happens if the seller has fraudulently concealed the defect?

If the seller has fraudulently concealed a defect, the buyer can claim damages instead of performance or compensation for futile expenses according to § 444 BGB. In addition, the seller cannot invoke the defence of limitation in such a case.

Can the seller defend himself against unjustified claims for defects?

Yes, the seller has the right to defend himself against unjustified defect claims of the buyer, e.g. if the asserted defect does not exist or the claims are already time-barred. In such cases, the seller can refuse to fulfil the claims or, if necessary, demand compensation from the buyer himself.

Conclusion

The case of defects in sales contracts is a complex area of law that entails a multitude of claims, rights and obligations for both buyer and seller. Due to the different types of defects, the numerous legal regulations and the manifold legal consequences, it is advisable to seek legal assistance in cases of defects. Sound legal advice and representation can help to effectively protect your own interests and ward off unjustified claims. Our law firm is at your side with competence and experience in all questions concerning defect cases and sales contracts. We will be happy to advise you in a personal meeting and support you in asserting your rights.

Defect case: Legal assessment and consequences for purchase contracts