Flo's Notes

Sale of Goods

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References without law book default to BGB.

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Sale of Goods

A sale of goods contract is any contract where the seller agrees to transfer ownership of a good to the buyer in exchange for payment. This does not apply to goods, but also to rights and the sale of other objects (§ 453 I BGB). The specific rules for sale of goods contracts are found in §§ 433–479 BGB.

Passing of Risk / Transfer of Posession

In a sale of goods contract, the risk of accidental loss or damage to the good passes from the seller to the buyer at the time of delivery. This means that if the good is damaged or lost after delivery, the buyer bears the risk, even if they have not yet paid for it (§ 446 (1) BGB).

Material Defect

In the moment of the passing of risks, the acquired good has to be free of material defects. This is the case if the thing sold meets the subjective requirements, objective requirements, and the assembly requirements (§ 434 I BGB).

  1. Subjective Requirements: Meets the agreed-upon specifications and expectations of the buyer in terms of nature, suitability, and accessories/instructions agreed upon (§ 434 II BGB).
  2. Objective Requirements: Meets the general standards and expectations for goods of that type (unless otherwise agreed upon) (§ 434 III BGB).
  3. Assembly Requirements: If the good is sold as part of a larger assembly or system, it must be compatible and function properly within that assembly or system, or if agreed upon, assembled correctly (§ 434 IV BGB).
  4. Additionally, delivering the wrong item has the same consequences as delivering it broken (to make sure this section applies instead of regular contract law; § 434 V BGB).

In the exam, check each step individually.

Buyer’s Rights

If the delivered good as a material defect, the buyer can exercise the following rights (§ 437 BGB):

  • Cure: The buyer can demand that the seller remedy the defect by repair or replacement (§ 439). Usually, cure must be given a reasonable period to cure before revoking the contract.
  • Revocation: The buyer can revoke the contract and return the good, receiving a refund of the purchase price (§§ 440, 323, 326 V).
  • Reduction: The buyer can reduce the purchase price to reflect the defect (§ 441).
  • Compensation:
    • Claim Damages: The buyer can claim damages for any losses incurred due to the defect (§§ 440, 280, 281, 283, 311a).
    • Reimbursement of Wasted Expenses: The buyer can claim reimbursement for any expenses incurred due to the defect (e.g., transportation costs, inspection costs) (§ 284).

Limits

  • Time: These rights can be exercises within 2 years after delivery (higher limits for special cases like real estate) (§ 438).
  • Awareness: The buyer must not have been aware of the defect (or not unaware due to gross negligence) at the time of delivery, unless the seller fraudulently concealed the defect (§ 442).
  • Exclusion: These rights can be excluded or limited by contract, but not in cases of fraudulent concealment (§ 444). This usually requires interpretation and does not apply to consumer cases (sold by a merchant to a non-merchant).

Cure

Cure is the buyer’s right to demand that the seller remedy the defect by repair or replacement.

Usually, a reasonable period must be given to cure before revoking a contract. However, exceptions are defined in § 281 II and § 323. Additionally, no such notice is required if the seller has seriously and definitively refused to cure or if the cure is unreasonable (§ 440).

For the defect to be cured, the buyer may demand either repair or a replacement delivery (§ 439 I). Unreasonable cure starts at around 150% of the seller’s original cost and may refuse if cure is impossible or unreasonable (§ 439 II).

Revocation

As explained above, a chance to cure a defect has to be given (unless special cases apply or cure has been refused).

On top of the general rules laid out in § 323 (see the revocation of general contracts), § 440 lays out additional rules:

  • The cure is considered failed if it did not resolve the issue on the second attempt.
  • If the seller has refused to cure, the buyer may revoke the contract immediately.
  • If cure is unreasonable (including if the trust in the seller is lost), the buyer may revoke immediately.

Rescission

Buyers don’t revoke the contract, they rescind it. This unwinds the contract by turning it into a restitution relationship, meaning both parties must return what they received. The buyer returns the good, and the seller returns the purchase price. The terms are laid out in § 346 I BGB.

Reduction of Price

Instead of Revocation, the buyer may choose to reduce the purchase price to reflect the defect (§ 441 I BGB). This requires the same preconditions as revocation, including a reasonable period to cure, unless special cases apply. The buyer may reduce the price by the amount that reflects the defect. The exclusion of the right of revocation if the damage is minor in § 323 V 2 does not apply here.

The reduction in price is based on the value lost due to the defect. If the value of the good is only half of its undamaged market value, the purchase price may be reduced by half.

Sale of Consumer Goods

The difference between traders and consumers if explained in Consumer Protection. Whereas Sale of Goods clauses apply to all contracts, sale of consumer goods contracts are a special case where the seller is a trader and the buyer is a consumer: B2C contracts only.

The definition of sales of movable (physical) consumer goods is given by § 474 BGB. If the good contains digital elements, the rules of Sale of Goods with Digital Elements apply.

Additional Provisions

  • § 477: In B2C sales, it’s assumed that material defects that appear within 1 year of the passing of risk have already existed before the risk was passed (unless this is incompatible with the nature of the thing or defect).
  • § 476 I: There can be no contractual clauses that deviate from the Buyer’s Rights under §§ 433 I 2, 434-442, if this would put the consumer at a disadvantage (subject to exceptions). Clauses like “sold as seen” are void.

Sale of Goods with Digital Elements

Sale of goods with digital elements covers goods that require complex software to operate, such as phones, though the economic focus is on the hardware. It’s an extension of the regular sale of goods law.

  • § 475a I BGB: If a movable thing exclusively serves as a carrier of digital content, the provisions on contracts for digital goods (§§ 327-327u) apply, not the provisions on sale of goods.
  • If the software is linked to the hardware sold, goods law applies.

Additions to Sale of Goods

  • § 475b: If software updates are not provided in reasonable time, this constitutes a material defect, and the buyer can exercise their rights under Buyer’s Rights. What’s reasonable depends on the type of software and is an ongoing definition by case law.
  • § 439 and § 323 allow for revocation when defects are particularly serious, and for digital elements one failed attempt to cure or (not necessarily serious) refusal to cure is sufficient for revocation, making this easier than for regular sale of goods.

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