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German Federal Court (BGH): Deviation from the quality agreed in the contract for work even if the work does not have the agreed functional capability

In its ruling of November 8, 2007 (Case No. VII ZR 183/05), the German Federal Court clarified that a work does not comply with the agreed quality even if it does not have the agreed functional capability. In doing so, it confirmed its legal opinion, which had already prevailed before the modernization of the law of obligations (2002).

What was at issue?

The underlying case concerned the liability for defects of an orderer for a heating system that did not work because the combined heat and power unit built by another orderer did not produce sufficient heat.

The BGH emphasized that the orderer is not responsible because the services of both orderers had to be coordinated to a certain extent. The BGH nevertheless assumed a material defect of the heating system:

According to the BGH, it is to be determined by interpretation of the contract which quality of a work the parties have agreed upon in detail. The agreed quality includes all properties of a work which, according to the agreement of the parties, are to bring about the success owed by the contract.

The success owed under the contract shall be determined not only by the performance or method of execution agreed to achieve it, but also by the function which the work is to perform according to the will of the parties. A deviation from the agreed quality is therefore also to be assumed if the purpose of the production of a work pursued by the contract is not achieved and the work does not fulfil its agreed function or the function required by the contract.

In the opinion of the BGH, this applies irrespective of whether the parties have agreed on a certain type of execution or whether the recognised rules of technology have been observed. If the functional suitability for the contractually stipulated or usual use is agreed and this success cannot be achieved with the contractually agreed performance or type of execution or the recognized rules of technology, the orderer owes the agreed functional suitability.

It is therefore irrelevant that the parts of the work to be installed are properly erected when viewed in isolation. This does not mean that the agreed function is fulfilled. Furthermore, the work is also defective if it does not fulfil the agreed function only because the services of other contractors provided by the customer, on which the functionality of the work depends, are insufficient.

Can the orderer nevertheless escape his liability?

The BGH emphasizes however that in these cases the orderer can escape the responsibility for the lack of its work by fulfilment of its obligation to examine and reference.

According to the case law of the German Federal Court, an orderer is not responsible for the defect in his work if this defect is due to binding specifications of the customer or materials or components supplied by the customer or preliminary work by other orderers and the entrepreneur has fulfilled his obligation to check and provide information.

It is in good faith to release the Contractor from the liability for defects under the condition that he has fulfilled his obligation, which is also directed at the proper performance of the contract, to point out to the Customer the reservations which he has had in the course of the necessary examination as to the suitability of the binding specifications, the materials or components supplied or the advance performance of other contractors or which he should have had in the course of the proper examination.

However, the violation of the obligation to inspect and notify does not constitute a factual basis for the liability for defects. Rather, the fulfillment of the obligation to examine and provide information is a factual element which releases the orderer from liability for material defects or defects of title.

The scope of the obligation to examine and provide information results from the principle of reasonableness, whereby the circumstances of the individual case are decisive. What is to be demanded hereunder is primarily determined by the expert knowledge to be expected from the entrepreneur and by all circumstances which are recognizable as significant for the orderer upon sufficiently careful examination.

If the work of a contractor is closely connected with the preliminary work of another contractor or if it is to be carried out on the basis of the latter's planning, the contractor must check and, if necessary, also make suitable inquiries as to whether this preliminary work, materials or components provide a suitable basis for his work and do not possess any properties which could call the success of his work into question.

Even if he has pointed out to the customer that certain preconditions for his work must be met, he must always ascertain before executing his work whether these preconditions have been met. He cannot regularly rely on the fact that these prerequisites are met simply because he has discussed them with the subcontractor, but must check this independently within the scope of what is reasonable for him.

The BGH also expressly points out that it is the orderer's responsibility to set out and prove the conditions for the facts that exempt him from liability for defects in good faith by way of exception. The German Federal Court has thus imposed the burden of proof on the orderer to prove that he has fulfilled his obligation to examine and provide information.

Ref. jur. Muhammed Sait Sezer

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