CMS Expert Guide to Warranties in Supply Contracts
- General Remarks
- Material Defects
- Legal Defects
- Subsequent Performance
- Right to Choose Subsequent Performance
- Costs of Subsequent Performance
- Conditions for Claims for Damages
- Extent of Claims for Damages
- Withdrawal from Sales Contract
- Limitation Period for Claims for Defects
- Purchaser’s Obligation to Inspect Goods and Report Defects in B2B Contracts
The following CMS Guide on Warranties in Supply Contracts illustrates the legal conditions for supply agreements in several European countries. The CMS Guide deals with supply contracts between companies (hereinafter also „B2B contracts“). In certain cases, the country chapters additionally refer to specific provisions applicable to consumers without outlining them in detail or comprehensively.
The country chapters exclusively address the respective national law. However, the United Nations Convention on Contracts for the International Sale of Goods (CISG) often applies to international supply contracts. Therefore, the CMS Guide contains a separate chapter which summarizes the main aspects of the CISG.
To read about Warranties in Supply Contracts in a specific country, click on the appropriate country in the map below.
- The United Nations Convention on Contracts for the International Sale of Goods (CISG) applies exclusively to B2B contracts.
It applies – as long as it is not contractually excluded – to contracts concerning the sale of goods between parties whose places of business are in different countries:
- if the countries are contracting states of the CISG; or
- if the rules of international private law lead to the application of the law of a contracting state of the CISG.
- The parties may exclude the application of the CISG entirely or partially with regard to specific provisions.
- The CISG contains provisions e.g. with regard to the conclusion of sales contracts and the obligations of the parties resulting from the sales contract. As the CISG only regulates specific areas of law, the provisions of the applicable national law apply in addition to the CISG.
A material defect exists when the goods do not comply with the agreed quantity, quality or specification at transfer of risk. If the parties have not agreed that the goods should meet a specific quality or specification, the goods must be fit for the purposes for which goods of the same description would ordinarily be used and must be fit for any particular purpose expressly or impliedly made known to the seller at the time of conclusion of the contract except where the circumstances show that the purchaser did not rely, or that it was unreasonable for it to rely, on the seller’s skill and judgement.
A legal defect exists when third parties can assert rights or claims with respect to the goods against the purchaser.
Rights and Remedies of Purchaser
- Remedy of defect
- Withdrawal from contract
- Reduction of purchase price
- Claim for damages
The purchaser is not deprived of any right it may have to claim damages by exercising its right to other remedies.
- If the goods do not comply with the contract, the purchaser may require the seller to remedy the lack of conformity by repair, unless this is unreasonable taking into account all circumstances of the case.
- Replacement may only be required in cases of a fundamental breach of contract.
- The purchaser may only require subsequent performance in conjunction with the notice of defect or within a reasonable time thereafter.
Right to Choose Subsequent Performance
- In principle the purchaser may choose between repair and replacement.
- However, if repair is possible and reasonable, purchaser usually loses its right to choose replacement.
- Furthermore, the seller may, even after the date for delivery, remedy at its own expense any failure to perform its obligations, if it can do so without unreasonable delay and without causing the purchaser unreasonable inconvenience or uncertainty of reimbursement by the seller of expenses advanced by the purchaser. In this case the purchaser loses its right to choose between repair and replacement.
Costs of Subsequent Performance
The seller must bear the necessary costs incurred for subsequent performance.
Conditions for Claims for Damages
Claims for damages are subject to the following preconditions:
- Breach of contractual obligation, e.g. default, material defect or legal defect;
- Causal relation between the breach of obligation and the damage incurred;
- A party is not liable for a failure to perform any of its obligations if it proves that the failure was due to an impediment beyond its control and that it could not reasonably be expected to have taken the impediment into account at the time of conclusion of the contract or to have avoided or overcome it, or its consequences.
Extent of Claims for Damages
- The breaching party must provide compensation for all direct and indirect losses resulting from its breach of obligation. Such damages may not exceed the loss which the injuring party foresaw or ought to have foreseen at the time of conclusion of the contract, in the light of the facts and matters of which it then knew or ought to have known, as a possible consequence of the breach of contract.
- The CISG does not apply to the liability of the seller for death or personal injury caused by the goods to any person. This is subject to the respective national (e.g. product liability) law.
Withdrawal from Sales Contract
The purchaser may withdraw from the sales contract,
- if the failure by the seller to perform any of its obligations under the contract or the CISG amounts to a fundamental breach of contract; or
- in the event of non-delivery, if the seller does not deliver the goods within the reasonable period of time fixed by the purchaser or declares that it will not deliver within the reasonable period so fixed.
Limitation Period for Claims for Defects
- The CISG does not stipulate a limitation period for claims for defects. The limitation period is subject to the applicable national law.
- The purchaser may, however, only require subsequent performance in conjunction with the notice of defect or within a reasonable time thereafter.
- However, the purchaser loses the right to rely on a lack of conformity of the goods if it does not give the seller notice thereof at the latest within a period of two years from the date on which the goods were actually handed over to the purchaser, unless this time limit is inconsistent with a contractual period of guarantee.
Purchaser’s Obligation to Inspect Goods and Report Defects in B2B Contracts
- The purchaser must inspect the goods within as short a period as is practicable under the circumstances.
- The purchaser loses the right to rely on a lack of conformity of the goods if it does not give notice to the seller specifying the nature of the lack of conformity within a reasonable time after it has discovered it or ought to have discovered it.
- However, the purchaser may reduce the price or claim damages, except for loss of profit, if it has a reasonable excuse for its failure to give the required notice.