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Consumer rights :

rescinding a contract in faulty goods cases

Under German law on the sale of goods, consumer rights are protected by a range of remedies for faulty goods. These include the right to rescind a contract if the defects are more than minor. But how does German law define “minor defects”. Find the answer here.

Consumer rights: rescinding a contract in faulty goods cases ©-ferkelraggae-Fotolia-Fotolia_31081868_XS
Consumer rights: rescinding a contract in faulty goods cases ©-ferkelraggae-Fotolia-Fotolia_31081868_XS

German law on faulty goods

Under § 323 German Civil Code (Bürgerliches Gesetzbuch, BGB), consumers are afforded certain rights in relation to the purchase of goods.

If the goods purchased are unknowingly faulty, four remedies are available. One of these remedies is to rescind the contract. Put simply, rescission means that a party cancels a contract and is put back into the position they would have been in, had the contract not been made.

However, if there are only minor defects in the goods, § 323(5) BGB provides that rescission is not open as a remedy to consumers. Instead, they must rely on other remedies, such as repair, replacement or a reduction the in purchase price.

The question that arises is: what does the term “minor defect” mean and in turn, when is the possibility of rescission excluded?

Vehicle defects

In a case before Germany’s Federal Court of Justice (Bundesgerichtshof, BGH), a claimant sought to rescind a purchase contract of almost €30,000 for a new car.

After buying the car, the consumer discovered that there were a number of defects with the parking sensor, including incorrect acoustic warning signals and lack of optical warning signals. The consumer contacted the dealer and an authorised mechanic about the defects but met with no success. Finally the consumer set a deadline for the defects to be repaired.

The defendant dealer informed the consumer that, following repair, the parking sensor was working perfectly and met current market technology standards.

Nevertheless, the customer declared a desire to rescind the contract and sought repayment of the purchase price, less a sum in compensation for the period of use of the car. The total amount sought was just over €27,000.

Consumer rights in cases of minor defects

Upon the advice of an expert report, the appeal court determined that the parking sensor had been incorrectly installed in the vehicle, leading to warning signals being given even though no object was nearby. The cost of repairing the defect was nearly €2,000. The court therefore ruled that as the cost of repair did not exceed 10% of the original value of the vehicle, the defects were to be considered as “minor” and the consumer was not entitled to rescind the contract.

Minor defects threshold

On appeal, the BGH overturned the appeal court’s judgment.

The BGH’s VIII civil chamber ruled that although consideration must be given to the circumstances of each case in light of the interests of the parties when determining the threshold in relation to minor defects under § 323(5) BGB, it is generally the case that the “minor defects threshold” is reached when the repair costs exceed 5% of the purchase price.

The court clarified that it can be assumed that defects in goods are minor when this flexible threshold of 5% is not exceeded. Where minor defects in goods are found, the right to rescission is excluded, but not the other remedies that exist for consumers.

According to the BGH, a general increase in this “minor defect threshold” above the stated percentage would be incompatible with the will of Parliament (as expressed through the legislative text and travaux préparatoires), the sense and purpose of § 323(5) and the logic behind the provisions on consumer rights in defective goods cases.

Application to the facts

As the cost of repairing the parking sensor in this case amounted to 6.5% of the purchase price, the defects were substantial enough to entitle the consumer to rescind the contract. The case was therefore remitted to the lower appeal court for a determination on the facts as to the level of compensation owed by the consumer for having had use of the vehicle.

Source: Pressestelle des Bundesgerichtshofs – Urteil vom 28. Mai 2014 – VIII ZR 94/13.