Legal Affairs
German Sales Law
In the case of defective goods, the buyer’s basic right against the seller is the right to have the defect cured (German: “Nacherfüllung”). If the cure proves unsuccessful, then the buyer has the right to a reduction of the purchase price or to rescind/terminate the contract. Any rights or claims that the buyer has against the seller on account of a defect of the purchased goods are barred by limitation generally after two years. If the buyer is a private consumer and the seller a businessperson (German: “Unternehmer”), then the two-year limitation period may not be departed from. Only in the case of used goods does a different rule apply. The limitation period here can be shortened to one year. If both the buyer and the seller are businesspeople, then different rules apply in some cases. For example the limitation period can be shortened to one year even in the case of new goods by stipulating this in standard terms and conditions of business (German: “AGB”).
1. Purchases of Consumer Goods
The German law on sales regulates the legal relationship between buyers and sellers. If the buyer is a private consumer and the seller a businessperson, then a so-called purchase of consumer goods exists. A consumer is defined as any natural person who concludes a legal transaction that can be attributed to neither the commercial nor the self-employed professional activities of such person. It is irrelevant whether the goods sold are actually consumer goods or not. For purchases of consumer goods, the following rules in particular apply:
1.1 Buyers’ rights in the case of defective goods
If the purchased goods are defective at the time they are delivered to the buyer, then the buyer has certain rights and claims against the seller if certain conditions are met. Basically, the goods must already be defective at the point in time at which risk passes to the buyer. Risk passes at the point in time when the risk of accidental loss (destruction, lost goods) passes to the buyer. This is generally the time of delivery. The goods must therefore already be defective at the time of their delivery. In the case of a dispute, it is up to the buyer to prove that the goods were already defective at the time of delivery.
If the buyer already knew of the defect at the time the sale contract was concluded, then no warranty claims with respect to such defect may be asserted. The same is true if the seller can prove to the buyer that the defect was initially caused by the improper handling of the goods after risk passed, for example by usage contrary to the instruction manual or by a wilful destruction of the goods.
1.1.1 Defects
The goods must be defective. Goods are defective if:
- They do not conform to what the buyer and the seller agreed to.
- They are unfit for the purpose contemplated by the buyer.
The particular purpose contemplated by the buyer alone is sufficient to satisfy this criterium. Therefore close attention should be paid to everything the buyer says about the goods during sales negotiations, and any wrong ideas he or she may have about the possible use of the goods should be corrected.
- They are unfit for the purpose for which such goods are usually used and the buyer could expect that the goods are fit for such purpose.
- The seller, the manufacturer, or their assistants make representations about the qualities of the goods, especially in advertising or sales negotiations, and the goods do not have these qualities. The advertising does not have to have taken place in Germany. It can have taken place outside of Germany as well. However, goods will only be deemed defective if the seller knew or had to have known of the representations or if the representations were capable of influencing the buyer’s decision to purchase the goods.
Manufacturers should therefore take precautions within their distribution networks to avoid any thoughtless advertising.
Goods are also deemed defective if:
- They were improperly assembled by the seller or by those engaged by the seller to perform its legal obligations.
- They were incorrectly assembled on account of incorrect - or even missing - assembly instructions.
- The wrong goods or insufficient quantities of goods were delivered.
A valid right or claim of the buyer also presupposes that the buyer actually lacked knowledge of the defect or that a lack of knowledge of the defect was not the result of the buyer’s gross negligence. But if the seller fraudulently concealed the defect or gave a guarantee that the goods had certain qualities/attributes, then the buyer is entitled to any rights in conjunction with the warranty even if the buyer had to have known of the defect.
Goods are therefore not regarded as defective in cases where the buyer uses the goods in an improper manner. The normal wear and tear of goods is also not regarded as a defect. It is often difficult to distinguish between a defect and mere wear and tear.
If goods have a limited length of durability or a limited serviceable life and become defective after this period expires, then no defect will be found to exist. The same applies even if the limitation period has not yet expired.
Used goods will only be regarded as defective if goods of the same kind would not (yet) usually exhibit such a defect. Used goods should be examined very carefully before they are sold, and the buyer should be given detailed information about any defects in order to include this as part of the contract.
If goods have a limited length of durability or a limited serviceable life and become defective after this period expires, then no defect will be found to exist. The same applies even if the limitation period has not yet expired.
Used goods will only be regarded as defective if goods of the same kind would not (yet) usually exhibit such a defect. Used goods should be examined very carefully before they are sold, and the buyer should be given detailed information about any defects in order to include this as part of the contract.
1.1.2 Curing a defect, reducing the purchase price, and rescinding/terminating the contract
If goods are defective, the buyer is entitled to certain rights and claims against the seller.
The buyer’s basic right is the right to have the defect cured (German: “Nacherfüllung”). The buyer has the option to have the defect remedied or to have defect-free goods delivered. The goods subsequently delivered do not necessarily have to be new. It generally suffices if equivalent and defect-free used goods are subsequently delivered. It is only when a curing of the defect is unreasonable for the seller that the seller may refuse to do it.
If insufficient quantities are delivered, then the right to have the defect cured is generally limited to the right to have the missing quantities subsequently delivered. There are exceptions to this, however, for example when tiles originate from a certain series in order to avoid minor differences in colour.
The seller must pay the costs of curing the defect, especially transport costs, toll fees, material costs, and labour costs. The same applies even if the buyer has relocated the goods to a different location than the commercial establishment or place of residence.
In lieu of having the defect cured, the buyer also has the right to rescind/terminate the sale contract or have the purchase price reduced. This only applies, however, if the buyer has first set a reasonable deadline for the seller to cure the defect and this deadline expires without the defect being cured.
The buyer also has the right to rescind/terminate the contract if:
- the seller seriously and definitively refuses to perform.
- the seller was supposed to perform on a certain day and such performance was of interest to the buyer on this very day only (e.g. wedding cake for a wedding).
- the costs for curing the defect are unreasonable for the seller and because of this the seller refuses to do it.
- it is unreasonable to expect the seller to cure the defect.
- the curing of the defect proves unsuccessful. An attempt to subsequently remedy a defect (German: “Nachbesserung”) that fails twice is deemed an unsuccessful cure.
- after the interests of both sides have been weighed, the immediate rescission/termination of the contract is justified.
The buyer in these cases no longer has to set a deadline for the seller to cure the defect.
The buyer may also rescind/terminate the contract if the only goods still available are in a poor condition or if they are no longer available at all. The seller must of course reimburse the buyer the value of the goods.
The buyer still has a right to have the defect cured or to have the purchase price reduced even if the defect is a minor one.
1.1.3 Claims for damages
The buyer may also have a claim for damages against the seller. This claim for damages may be asserted in lieu of performance. This requires that the buyer first set a reasonable deadline for the seller to perform or to cure the defect and that the deadline expires without successful performance or cure. The claim for damages may also be asserted in addition to performance. In such a case, the buyer does not have to set the seller a deadline. Also possible is compensation for pecuniary loss incurred in direct association with the goods purchased. An example of this would be the fallout of a production facility due to some kind of defect and the loss of profits associated with it. The prerequisite to both is fault [intent and negligence] on the part of the seller. Fault also comprises ordinary negligence, which means that sellers are already at fault when they fail to exercise the due care and diligence required for commercial dealings. Decisive here are the specific duties of care imposed on the seller. This most likely depends on the nature of the product: The higher the value of the product, the higher the standard of care. The claim for damages may be higher than the claim for the purchase price.
1.1.4 Limitation periods and burden of proof
The warranty period is the period of time in which warranty claims may be asserted.
- The basic statutory limitation period (German: “Verjährungsfrist”) is two years starting from the time the defective goods are delivered to the buyer. If the seller fraudulently conceals a defect, then the rights and claims of the buyer are barred by limitation three years after obtaining knowledge of the identity of the seller and of the facts in support of the claim.
- The warranty period for goods that have been used for a building structure in accordance with their usual manner of use and that cause a defect to occur in such building structure is five years. This applies not only to new building structures but to renovation work and remodelling work on already erected building structures. The goods in such cases must be firmly fixed to the building structure.
- Any deviation from the warranty periods to the prejudice of the consumer is prohibited. The only exception is in the case of used goods. The warranty period in the case of used goods may be shortened to one year.
Burden of proof within the two-year limitation period shifts after ony year
If the buyer and seller are in dispute about the point in time at which the defect came into existence, then the following applies: If a defect comes to light within one year from the time the buyer accepted delivery of the goods, then there is a (statutory) presumption in favour of the buyer to the effect that the defect already existed at the time delivery was accepted. This presumption only applies if the buyer is a consumer. The presumption can be rebutted by the seller by proving that the defect was caused by the consumer’s improper treatment of the goods. The burden of proof shifts at the end of the six months, and it is the buyer who then must prove that the defect already existed at the time the goods were delivered to him or her. In most cases, the buyer will be unable to do this.
1.2 Guarantees
A guarantee within the meaning of German law is when the guarantor grants to the buyer rights and claims in excess to the buyer’s statutory rights and claims. Guarantees are often offered by manufacturers and sellers to their customers as a special service and buying incentive. The statutory rights and claims continue in effect independent of the guarantee. Guarantees and warranty claims are not the same! A guarantee does not have to be made in writing.
1.3 Delay
If a debtor (which may be a purchaser or a seller) is late in rendering performance and is at fault for such late performance, then the debtor is regarded as being in delay of performance. Performance is late when the creditor is entitled to demand performance from the debtor and the debtor is obligated to render such performance. In order for the debtor to be officially in delay of performance, the creditor generally must provide the debtor with a warning notice (German: “Mahnung”).
The only cases in which the creditor does not have to provide the debtor with a warning notice are when:
The only cases in which the creditor does not have to provide the debtor with a warning notice are when:
- a calendar date has been specified as the time for performance;
- there is a condition that some event must first occur and based on the notional occurrence of such event it is possible to specify a calendar date as the time for performance;
- the debtor seriously and definitively refuses to perform; or
- on account of the special circumstances, it is certain that the buyer is in delay.
Irrespective of a warning notice, the debtor is in delay of performance at the latest after 30 days following the payment due date and presentation of the invoice. If the debtor is a consumer, then this applies only if the consumer was expressly notified of this on the invoice or on the list of outstanding amounts owed.
If the debtor is in delay of paying a money debt, then the creditor may claim the interest on arrears as so-called loss caused by delayed performance. The rate of interest on arrears is five percentage points above the base interest rate. The current base interest rate is found at www.bundesbank.de.
2. Contracts of sale between businesspeople
If both the buyer and the seller are businesspeople, then the foregoing discussion applies with the following differences:
2.1 Chains of delivery: manufacturer > dealer > private consumer
If the private consumer is found at the end of a chain of delivery, then the following applies to the entire delivery chain (i.e. including contracts between suppliers): In the case of new goods, end sellers have a right of recourse against their suppliers. This presupposes that the supplier had to take the goods back on account of a defect or that the (consumer) buyer had the purchase price reduced on account of a defect. The end seller is then entitled to rescind/terminate the contract with its supplier without having to set a deadline for the supplier to cure the defect or to reduce the purchase price. This does not apply if an ex gratia arrangement has been made.
End sellers may claim from their suppliers the reimbursement of the costs incurred by them, especially transport costs, toll fees, material costs, and labour costs.
If a buyer and a seller are in dispute about when a defect originated, then the discussion in 1.1.4 above applies with the following change: The six-month period after which the burden of proof shifts does not begin to run until the moment the buyer of the end seller accepted delivery of the goods.
The end seller’s recourse claim against its supplier is subject to the limitation periods set out in 1.1.4 above. The limitation period begins to run with the delivery of the goods to the end seller by the supplier and expires as a rule two years later. The earliest, however, that an action will be barred by limitation is two months after the point in time that the end seller satisfied the claims of the consumer. And the latest they will be barred by limitation is five years after delivery of the goods from the supplier to the end seller.
Although end sellers and suppliers are not entitled to enter into agreements that depart from these rules to the prejudice of the end seller, they may do so if the end seller is granted something comparable as compensation.
A special exclusion of liability in the case of commercial transactions (German: “Handelskauf”) follows from the buyer’s obligation per Section 377 HGB to inspect the goods and give notice of any defects. In such cases, the buyer and the seller must both be what is referred to in German commercial law as a “Kaufmann”, which means “merchant” in a broad sense. Such merchants are obligated to promptly inspect purchased goods upon receipt of them and to give notice of any defects. If they fail to do this, the goods are deemed as approved. It is only in the case of hidden defects that cannot be detected by an inspection of the goods that buyers retain their rights and claims. Because of the strength of the recourse claim in the case of sales of consumer goods, subsuppliers frequently invoke Section 377 HGB to defend such recourse claims. Therefore an actual inspection of the goods should be carried out promptly upon receipt of them and any defects reported without undue delay.
2.2 Commercial transactions
If both the buyer and the seller are businesspeople (and there is no consumer at the end of a chain of delivery), then it is possible to limit liability (Section 444 of the German Civil Code (BGB)) in cases where the businessperson has not fraudulently concealed a defect or has not guaranteed the attributes/qualities of the goods. A shortening of the warranty period to one year should be possible on the basis of an individual agreement or through standard terms and conditions of business (German: “AGB”). An exclusion of liability (for individual or for all defects) is generally possible on the basis of an individual (preferably) written agreement but not via standard terms and conditions of business (AGBs). If a warranty is to be for less than one year or if it is to be excluded altogether, then it is advisable – due to the current uncertainty of the law in this area – not to include such an agreement in “AGBs” but always in the form of an individual contractual agreement. You should be aware of the fact that it is not always possible to exclude a warranty altogether. The German Federal Court of Justice has ruled, for instance, that in the case of new buildings or buildings to be erected, warranties cannot be excluded by way of AGBs, and they can only be excluded on the basis of individual agreements if it has been discussed at length in advance. The same probably applies to goods commonly used for building structures that cause defects in such building structures.
Section 377 HGB would of course apply here as well. In our opinion, the burden of proof rule in 1.1.4 does not apply to a purely commercial transaction (German: “Handelskauf”). This means that the buyer must prove from the very beginning that the defect existed at the time the goods were delivered.
2.3 Miscellaneous
If the debtor is in delay of payment, the creditor may claim the interest on arrears as so-called loss caused by delayed performance. For merchants (German: “Kaufleute”), the rate of interest on arrears is eight percentage points above the base interest rate.
3. Further information
This online information can only provide you with a very summarized overview of these topics and does not claim to be complete. If you need more information, you can visit our Commerzbibliothek (Library of Commerce) where you will find all the usual legal literature such as legislation, legal commentaries, collections of judicial decisions, periodicals, and monographs. The Commerzbibliothek is located on the ground floor of the Hamburg Chamber of Commerce at Adolphsplatz 1 in 20457 Hamburg. It is open Monday to Thursday from 10 am to 8 pm and on Friday and Saturday from 10 am to 3 pm.