There cannot be an entitlement to both abatement and major compensation on account of the same defect
Recent judgement of the Federal High Court of Justice (BGH)
If a thing is defective, the purchaser has a choice if supplementary performance is unsuccessful. He can keep the thing and call for abatement of the purchase price, or he can rescind the contract. If he decides in favour of abatement, however, he cannot claim major compensation on account of the same defect.
Facts of the case
The plaintiff acquired a new vehicle from the defendant. After the vehicle had been handed over, he complained about various defects. Each of these was rectified by the defendant. In the view of the plaintiff all the defects were attributable to the same cause. The proneness of the vehicle to defects was caused by deficiencies in manufacturing quality. The plaintiff called for 20% abatement under Sections 437 2. and 441 of the German Civil Code (BGB) and duly requested the defendant to repay part of the purchase price. After having instituted legal proceedings, he complained about further defects, only some of which were rectified by the defendant. This led the plaintiff to change his demand from repayment of the abated sum to major compensation (compensation in lieu of complete performance as in Sections 437 3. and 281 1. Sentence 3 and 281 5. of the BGB). Those paragraphs provide for compensation by the vendor for the loss or damage incurred by the non-performance of the contract as a whole.
Legal background and decision of the BGH
In the view of the BGH, a request for abatement cannot be changed to a request for payment of major compensation. This follows from the wording and systematisation of the law. If the thing is defective, the purchaser can, in accordance with Section 437 2 of the BGB, call for abatement of the purchase price or rescind the contract. He can choose whether to stay with the contract and reduce the purchase price or break away from the contract and transact the performance rendered in reverse. In making this decision, the purchaser can alter the contractual relationship unilaterally. He has a so-called gestaltungsrecht (right to alter a legal relationship). To safeguard the interests of the vendor, however, the purchaser can only exercise this right once. The decision cannot be revoked or attached to any conditions. The vendor may, and should, be entitled to place his trust in what the purchaser says. For this reason the purchaser cannot claim – either in addition or subsequently – major compensation citing the same defect. Otherwise he would be able to break away from the contract after abatement. The fact is that compensation in lieu of complete performance has far-reaching consequences. The purchaser receives compensation for the loss or damage he has incurred as a result of the non-performance of the contract as a whole. That also covers, for example, lost profit, if the purchaser would have been able to resell the purchase object at a higher price. And any increases in price, for example if the purchase price for the procurement of a replacement has gone up. At the same time, the purchaser must return the performance that has already been rendered to the vendor. The legal consequences are similar to those of rescission. By selecting abatement, however, the purchaser has irreversibly abandoned the possibility of having the contract annulled.
Summary and recommendation for action
This judgement strengthens the position of vendors. In this way, their customers must now abide by their choice between abatement and rescission once they have made it. However, heed should be paid to the fact that this judgement relates to the case of identical defects. If other defects come to light, the purchaser is once again entitled to warranty rights. And this, again, is accompanied by the right to choose between abatement and rescission. And it should not be forgotten that as well as abatement, so-called minor compensation can be called for. This covers loss or damage of the kind that may for example be incurred by loss of use during the rectification of a defect.back