New German Law on Sales Contracts

New German Law on Sales Contracts

The new law of obligations came into force on January 1, 2002. This has a major impact on the law on sales contract

1. Consumer Sales Contracts
The law on sales contracts governs the relationship between buyer and seller. If the buyer is a consumer and the seller acts in the course of his business the sales contract is a so called consumer sales contract. There are special rules governing this kind of contract.

1.1 Claims of the Buyer based on Defects
The buyer is entitled to certain claims against the seller if the product is defective when delivered.

1.1.1 Defects
The product has to be defective. This is the case if
- it is not as buyer and seller have agreed upon; a detailed product description might protect the seller from claims of the buyer; the product description must be incorporated into the sales contract
- it cannot be used as presumed by the buyer; sales personnel should carefully listen to everything the buyer says and should correct everything that might show incorrect assumptions of the buyer
- it cannot be used as the buyer might have expected
- it is not as presented in advertising; this need not be by reference to the seller´s advertising only; it can be the producer´s or the assistant´s of either the producer or the seller’s advertising as well; misleading advertising can be corrected; therefore the same medium has to be used.

The product is also defective, if
- it is improperly assembled by the seller
- it is improperly assembled by the buyer due to improper or missing assembly instructions
- the wrong product or an amount too small is delivered.

The product is not defective, if the buyer has improperly used it. The same is true, if the product simply lost value from use.

1.1.2 Claims of the Buyer
If the product is defective, the buyer is entitled to make the following claims against the seller:
- he is entitled to request subsequent performance: the buyer at his discretion is entitled to request that either the defective product be subsequently improved or that a product not having any defect be subsequently delivered
- he is entitled to cancel the contract (this corresponds to the previous claim for rescission) or to request a reduction of the purchase price. However, the buyer is only entitled to make these claims, if he has asked the seller to subsequently perform within a reasonable time limit and the seller has not done so.

The buyer is as well entitled to cancel the contract if
- the seller is not willing to perform at all
- the seller had to make his performance at a fixed date and the buyer was only interested in a performance at this fixed date
- the costs for a subsequent performance of the contract are disproportionately high and the seller rejected to do so for this reason
- a subsequent performance is a charge too burdensome for the seller

- a subsequent performance has failed; with subsequent improvement this is the case if it has failed twice.

In all these cases there is no need for the buyer to ask the seller to subsequently perform within a due time limit.

The buyer is entitled to cancel the contract, even if the product is in a very poor condition or does not exist anymore. In this case he has to compensate the seller.

The buyer is entitled to request both forms of subsequent performance and reduction of the purchase price, even if the product has only a minor defect.

1.1.3 Compensation
The buyer is entitled to make a claim for compensation beside the claims mentioned above.

1.1.4 Limitation Period
The buyer is only entitled to make his claims within the limitation period. The limitation period in principal is two years as of delivery of the defective product. The limitation period is three years, if the seller fraudulently does not inform the buyer about any defects. In this case the limitation period begins to run when the buyer exactly knows who the seller is and the circumstances entitling him to make a claim against this seller.

The limitation period is five years for buildings. The limitation period is also five years if the product is usually used for buildings and the buyer has used it for a building and the product has rendered this building defective. This does not only refer to new buildings, but also to refurbishing or structurally altering an existing building. The product has to be affixed to the building.

The limitation period in principal cannot be modified to the disadvantage of the buyer - neither by general contract terms nor by individual contract. There is an exception for used products. For used products the limitation period can be reduced to one year either by general contract terms or by individual contract.

The limitation period might be suspended. This interruption does not count towards the limitation period. The limitation period e. g. is suspended if the buyer and the seller negotiate the buyer´s claims.

If the buyer and the seller argue about whether the product has been defective when delivered or not, the following does apply: If the product shows any defects during the first six months as of delivery, it is presumed that it was defective when delivered. After these six months it is up to the buyer to prove this.

2. Sales Contracts between Commercial Men acting in the course of their business
If both the buyer and the seller are commercial men acting in the course of their business these rules in principle apply as well. However there are some particularities.

If there is a consumer sales contract at the end of a supply chain, the following rules apply within the whole supply chain: If the consumer buyer either has requested a reduction of the purchase price or has cancelled the contract with his seller, the seller is entitled to do the same with regard to his supplier without asking him to subsequently perform within a reasonable time limit.

The seller is also entitled to claim from his supplier reimbursement of expenses connected with the consumer buyer´s claim.

If the seller and the supplier argue about whether the product was defective when delivered or not, the presumption mentioned above applies also - however, with the following modification: The presumption period begins to run as of delivery of the product to the consumer buyer by the seller.

The limitation period mentioned above in principle also applies to the claims of the seller against the supplier. However there is the following particularity: The limitation period expires at the earliest two months after the seller has fulfilled the consumer buyer´s claims. It expires five years after the supplier has delivered the product to the seller at the latest.

These rules cannot be modified to the disadvantage of the seller neither by general contract terms nor by individual contract. There is one exception: The seller gets an equivalent compensation.

In this context § 377 of the Commercial Code might be of importance. This paragraph stipulates: If both the buyer and the seller are merchants, the buyer has a duty to examine the delivered product without undue delay and again without undue delay has to notify the seller of any defects. If the buyer has not acted accordingly, this might protect the supplier from any claims of the seller based on defects – even within a supply chain where a consumer sales contract is at the very end.

If there is not a consumer sales contract at the end of the supply chain, seller and supplier can reduce the limitation period to one year by general contract terms. However this does not apply to buildings or goods usually used for buildings.