Univ.-Prof. Andreas Schwartze, LL.M. (EUI) Contract Law: Warranties and associated guarantees – Course: Consumer Protection Law in the EU (Sveučilište u Zagrebu )

Introduction Directive 1999/44/EC of 25 May 1999 on the Sale of Consumer Goods and Associated Guarantees Directive covering the most important type of contract (others mostly on minor types of contract, eg package tours, time sharing) and regulating most practical area -> parts of breach of contract ! no comprehensive regulation of sale (compare Art 4 CISG ; but IV.A.DCFR / CESL) based on Art 95 ECT (now: Art 114 TFEU) -> goals: functioning of internal market (and: consumer protection) legislative history: Comparative study 1993 (FR); Green paper 1993; Conference 1994; academic draft 1995 (unpublished); proposal > adaptation of Part III of the UN-Sales Law (CISG) from 1980 minimum harmonisation: Art.8 (2) Dir99/44 – option for MS to adopt or retain more stringent provisions in favour of consumer protection Univ.-Prof. Dr. Andreas Schwartze, LL.M. (EUI) - University of Zagreb ( )

1. Scope of Application Material Scope I: Sales Contracts (1) Directive 99/44 to be applied on contracts of sale (Art 1 (4) Dir99/44) Art 1 (1) Dir99/44: “sale of … goods” ( = Rec. 3 Dir99/44) -> only goods = tangible movable objects - with exceptions for water, gas and electricity (Art.1 (2) lit b Dir99/44) – but Art 3 lit f CISG: only electricity excluded / Art. IV.A-1:101 (a) DCFR: applies with appropriate adaptations eg animals, medical and farming products, standard software, ships and aircraft (these not under CISG, Art 2 lit e) NOT: sale of real estate / sale of rights, like intellectual property, or claims – compare Art 2 lit d CISG: no stocks, shares etc and money / Art. IV.A-1:101 (b), (c) DCFR: appr. Adaptations -> included: „ goods to be manufactured or produced” ( Art.1 (4) Dir99/44 = Art. IV.A-1:101 (b), (c) DCFR ) – but see Art 3 (1) CISG: only if buyer is not supplying substantial part of the material Univ.-Prof. Dr. Andreas Schwartze, LL.M. (EUI) - University of Zagreb ( )

1. Scope of Application Material Scope I: Sales Contracts (2) Directive 99/44 to be applied on sales contracts Art 1 (1) Dir99/44: “sale of … goods” ( = Rec. 3 Dir99/44) -> „forced“ sales excluded: „ sold by way of execution or otherwise by authority of law” = Art 2 lit c CISG -> MS-option: excluding „ second-hand goods sold at public auction where consumers have the opportunity of attending the sale in person” = not online-”auctions” like ebay therefore: basically second-hand goods are covered – but see Art 2 lit b CISG: auctions generally excluded Univ.-Prof. Dr. Andreas Schwartze, LL.M. (EUI) - University of Zagreb ( )

1. Scope of Application Personal scope: Consumer contracts of sale Directive 99/44 to be applied only to B2C-contracts Consumer: a “natural person who … is acting [+ primarily]* /[not predominant]** for purposes which are not related to his [or her]* trade, business [craft]** or profession“ (Art. 1 (2) lit a Dir99/44) -> usual definition (but compare DCFR Art. I.-1:105 (1)*; CESL Art. 2 lit f **) see ECJ Gruber C-464/01: dual use - no consumer if more than marginal business aspect compare Art 2 lit a CISG: not extended to goods which are “bought for personal, family or household use” Seller: any “natural or legal person who … sells consumer goods in the course of his trade, business or profession” (Art 1 (2) lit c Dir99/44) no application to reversed consumer purchase (private seller / professional buyer) Univ.-Prof. Dr. Andreas Schwartze, LL.M. (EUI) - University of Zagreb ( )

2. Sellers obligation: The duty to deliver conforming goods I.Conformity with the contract (1) Art 2 (1) Dir99/44: “ The seller must deliver goods to the consumer which are in conformity with the contract of sale” -> compare Art 2 lit a CISG: seller must deliver goods like required by the contract = legal obligation protected by sanctions (see Art.3 Dir99/44) following a uniform concept of breach of contract (no Roman law based special warranty anymore) -> compare DCFR Art. IV.A-2:101 (d): “The seller must … ensure that the goods conform to the contract” = CESL Art. 91 (c): „ … ensure that the goods or the digital content are in conformity with the contract” Univ.-Prof. Dr. Andreas Schwartze, LL.M. (EUI) - University of Zagreb ( )

2. Sellers obligation: The duty to deliver conforming goods I.Conformity with the contract (2) Art 2 (1) Dir99/44: “ The seller must deliver goods to the consumer which are in conformity with the contract of sale” = primacy of party autonomy (but see Art.7 Dir99/44) - agreement necessary on the object (what is bought) -> another kind of good (aliud) constitutes non-conformity (see Art IV.A.-2:301 (a) DCFR = Art 99 (1) (a) CESL: description) - agreement necessary on the number (how much is bought) -> more or less constitutes non-conformity (see Art IV.A.-2:301 (a) DCFR = Art 99 (1) (a) CESL : quantity) ! agreements of specific qualities of the goods may reduce sellers obligation ! Univ.-Prof. Dr. Andreas Schwartze, LL.M. (EUI) - University of Zagreb ( )

2. Sellers obligation: The duty to deliver conforming goods II. Presumption of conformity (1) Art 2 (2) Dir99/44: “Consumer goods are presumed to be in conformity with the contract if they …” = rebuttable (burden of proof with the buyer) presumption of conformity with the contract if 4 requirements (Art 2 (2) (a) – (d) Dir99/44) are cumulatively met (except for (b) no agreement necessary): (a) description (or model, sample) given by the seller (see Art.IV.A.-2:302(c) DCFR / Art 35 (2) (c) CISG) (b) fitness for a consented – even by implied agreements – particular purpose (see Art.IV.A.-2:302(a) DCFR / Art 35 (2) (b) CISG) (c) fitness for normal use (see Art.IV.A.-2:302(b) DCFR / Art 35 (2) (a) CISG (d) normal quality standards under reasonable consumer expectations (see Art.IV.A.-2:302 (f) DCFR) (esp if induced by public statements even of producers -> but expts Art 2 (4) Dir99/44 ) (see Art.IV.A.-2:303 DCFR) Univ.-Prof. Dr. Andreas Schwartze, LL.M. (EUI) - University of Zagreb ( )

2. Sellers obligation: The duty to deliver conforming goods II. Presumption of conformity (2) Art 2 (2) Dir99/44: “Consumer goods are presumed to be in conformity with the contract if they …” - … are incorrectly installed by the seller (Art 2 (5) s.1 Dir99/44) (see Art.IV.A.-2:304 (a) DCFR) -> no definition of „installation“ or are incorrectly installed by the consumer /buyer using an incorrect instruction (Art 2 (5) s.2 Dir99/44) -> sellers liabillity for instructions ordinarily provided by the producer (see Art.IV.A.-2:304 (b) DCFR) In any event liability of the seller is excluded if the consumer „ was aware, or could not reasonably be unaware of, the lack of conformity” (Art 2 (3) Dir99/44, sim Art.IV.A.-2:307 (1) DCFR / Art 104 CESL-EP: only if buyer knew, between traders also if he could not been unaware) Univ.-Prof. Dr. Andreas Schwartze, LL.M. (EUI) - University of Zagreb ( )

3. Buyers remedies: The sanctions for delivering non- conforming goods I. Time of non-conformity Art 2 (2) Dir99/44: “ …for any lack of conformity which exists at the time the goods were delivered” - disputed if this refers to the passing of the possession to the consumer (handing over) or left open at what time (making availiable, sending, delivery) or which place see Art.IV.A.-2:308 (1) DCFR / Art.105 (1) CESL / Art 36 (1) CISG: at the time when the risk passes to the buyer -> when the buyer takes over the goods, Art.IV.A.-5:102 (1) DCFR / Art 69 (1) CISGor when the consumer has acquired the physical possession of the goods (Art.142 (1) CESL) Univ.-Prof. Dr. Andreas Schwartze, LL.M. (EUI) - University of Zagreb ( )

3. Buyers remedies: The sanctions for delivering non- conforming goods II. The three remedies of non-conformity (1) Art 3 (2) Dir99/44: - bring into conformity, by repair or replacement (-> Art 46 CISG) see Art.III.-3:302 (2) DCFR: right to enforce performance / Art.106 (a) CESL free of charge: even no compensation for the benefits in using the goods (ECJ Quelle 2008) - reduction made in the price (-> Art 50 CISG: may reduce the price) see Art.III.-3:601 (1) DCFR / Art.106 (d) CESL „appropriate“ = in proportion with the deminished value of the goods - rescind the contract (-> Art 49 CISG: declare the contract avoided) see Art.III.-3:502, IV.A.-4:201 DCFR: termination / Art.105 (c) CESL not if the lack of conformity is only minor (Art 3 (6) Dir99/44) = Art.III.-3:502, IV.A.-4:201 DCFR / but Art.114 (2) CESL: „insignificant“ Univ.-Prof. Dr. Andreas Schwartze, LL.M. (EUI) - University of Zagreb ( )

3. Buyers remedies: The sanctions for delivering non- conforming goods II. The three remedies of non-conformity (2) choice of consumer between repair and replacement (Art 3 (3) Dir99/44), if the remedy is not impossible -> like generally for second-hand goods (rec 16) or disproportionate because of unreasonable costs -> significantly higher costs of one remedy compared to the other remedy (rec 11) ECJ Weber/Putz (2011): if the non-conforming goods are to be replaced, it is for the seller to pay for the removal of the defective goods and installation of the replacement goods – not disproportionate hirarchy of remedies: in the first place only repair or replacement (Art 3 (3) Dir99/44), only if not feasible or does not happen, Art 3 (5) Dir99/44, then in the second place price reduction or rescission is possible but see DCFR / CESL / CISG: no hirarchy of remedies ECJ Duarte Hueros (2013): no ex officio duty for the national courts to grant appropriate price reduction to consumers of their own motion when the consumer did not ask for price reduction – but procedural help Univ.-Prof. Dr. Andreas Schwartze, LL.M. (EUI) - University of Zagreb ( )

3. Buyers remedies: The sanctions for delivering non- conforming goods II. The three remedies of non-conformity (3) no remedy to claim damages -> left to national MS-law but see: - Art 45 (1) (b) CISG: non-fault liability under Art 74 – 77 CISG - Art III.-3:701 DCFR: non-fault liability under Art III.-3:702 – III.-3:707 DCFR ! Limitation of damages to be payed by private sellers to the contract price (Art IV.A.-4:202 DCFR) - Art 106 CESL: non-fault liability under Art 159 – 165 CESL including foreseeable future loss, including lost profit, after termination calculated on the basis of a substitute transaction or the current price Univ.-Prof. Dr. Andreas Schwartze, LL.M. (EUI) - University of Zagreb ( )

4. Associated guarantees Formal requirements for commercial guarantees guarantee: “ any undertaking by a seller or producer to the consumer, given without extra charge, to reimburse the price paid or to replace, repair or handle consumer goods in any way if they do not meet the specifications set out in the guarantee statement or in the relevant advertising” (Art 1 (2)(e) Dir99/44) see Art IV.A.-6:103 – 6:108 DCFR: Consumer goods guarantees Art 6 (1) Dir99/44: guarantee is unilaterally binding the offeror (= Art IV.A.-6:102 DCFR) Transparency rules: legislated remedies not affected / information on content / document on request (Art 6 (2), (3) Dir99/44, see (= Art IV.A.-6:103 DCFR) -> aim: guarantees should not mislead the consumer (rec 21) if requirements are not met -> consumer can still rely on the guarantee - no other sanctions (Art 6 (5) Dir99/44) Univ.-Prof. Dr. Andreas Schwartze, LL.M. (EUI) - University of Zagreb ( )

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