In B2B, the buyer must inspect goods for material defects promptly following delivery. Any recognisable defects must be notified to the seller without delay. If the buyer fails to notify the seller in due time, the buyer will lose all rights and claims with regard to recognisable defects.
Bremen Higher Regional Court (OLG), judgment of 17 March 2023 – 2 U 32/20
Where the purchase is a commercial B2B transaction, the buyer has a duty under section 377 of the German Commercial Code (Handelsgesetzbuch, HGB) to inspect the goods: the buyer must inspect the goods immediately upon receipt to determine whether they are the correct goods, whether the seller has delivered the contractually agreed quantity and whether the goods have any material defects. Such inspection must be made without undue delay once the buyer has received the goods. There is no general definition of the period between delivery and inspection that can be deemed 'without undue delay'. Crucial factors include the nature of the goods, the sector, the size of the business, the organisation of the business and the need for a complex investigation. In the case of perishable goods, only a few hours may be allowed for the inspection of the goods. For complex technical products, an inspection within one to two weeks may still be considered 'without undue delay' in certain cases.
The type, form and scope of the inspection again depend on the nature, quantity and intended use of the goods. The costs incurred for the inspection, the time required, the risk of damage resulting from a defect and the technical inspection options available to the buyer must also be taken into account. The scope of the examination must be within the bounds of what is usual and reasonable. There is no need for an 'all-round inspection' for all potential defects in the goods. For larger quantities of goods, testing in the form of representative random samples is usually sufficient. Where successive and partial deliveries are made, however, the buyer must check each individual delivery separately.
If the buyer discovers defects when inspecting the goods, the buyer is obliged to notify the seller of the defects immediately − this is known as the obligation to give notice of defects. When doing so, the buyer must inform the seller of the nature and extent of the defect. Where larger quantities of goods are involved, a rough estimate of how many individual items are estimated to be defective must always be given. If there are several defects, all defects must be reported. A separate notice of defects must be issued for each partial and successive delivery. As a rule, general complaints are not enough. The notification of defects does not require any particular form, unless agreed otherwise in the relevant contract. It is, however, recommended that the written form be observed as a form of proof. After all, in the case of any doubt, it is the buyer's responsibility to prove that the seller was informed of the defect. Here it is sufficient for the protection of the buyer's rights that the buyer has sent the notification of defects in good time. The actual notification period directly follows the investigation period. Due to today's modern means of communication, it normally is no more than one to two working days. Defects in perishable goods such as fruit or flowers must be notified much earlier, in some circumstances within a few hours.
If the buyer fails to notify recognisable defects or fails to do so in good time, the buyer will lose all claims and rights based on defects that were not notified or were notified too late. This includes all warranty claims in the broadest sense with regard to defects that would have been recognisable if the goods had been properly inspected. If a defect that could not be recognised during a proper inspection of the goods is discovered later, the buyer must notify the seller of the defect as soon as it is discovered. Otherwise, the goods will be deemed approved with this hidden defect; the buyer will lose all rights and claims with regard to such defect.
The Bremen Higher Regional Court recently dealt with questions relating to the obligation to inspect for and give notice of defects in commercial sales of goods.
In the matter at issue, the buyer claimed damages from the seller for the delivery of defective stainless steel elements. To no avail. Some stainless steel components were indisputably defective. Yet, the Bremen Regional Court dismissed the action because the buyer did not report the defect until 15 days after delivery of the stainless steel components and the associated test certificates.
Some of the stainless steel elements were defective because, contrary to the contractual agreement, they did not come from properly registered and certified manufacturers. The corresponding test certificates clearly showed this. The buyer could have discovered and reported the defect if the test certificates had been checked properly and in time. The buyer had in fact performed random checks. Representative samples are, however, only suitable for identical bulk goods to satisfy the inspection obligation. Rather than supplying similar bulk goods, however, the seller had supplied various types of steel elements for the manufacture of complex pipe systems, in different dimensions and strengths. When inspecting the delivery of a large number of parts of different types and dimensions from several manufacturers, the buyer must not merely take random samples if the buyer can verify the agreed quality by comparing documents and a simple visual inspection, as otherwise there is a risk of considerable consequential damage. This was the case here. It was foreseeable for the buyer that the installation of the various stainless steel components would lead to considerable installation and removal costs if defects were found. It would have been possible for the buyer to recognise the defects with reasonable effort by checking the test certificates. The promise of a certain quality by the seller does not release the buyer from the buyer's obligation to inspect the goods and give notice of defects. A (particular) confidence in the existence (or absence) of the relevant quality based on the seller's guarantee does not mean that the buyer may blindly rely on the guarantee and waive the inspection or may exercise less care.
The duration of the investigation period to be granted is influenced by the fact that the investigation depends on the submission of accompanying technical documents. A notification of defects within two weeks, starting from delivery of the goods or from receipt of the test certificates, whichever was later, was nevertheless required. As the buyer did not give notice of the defect until 15 days after receiving the goods and the separately transmitted test certificates, this was no longer 'without undue delay'. The buyer has therefore failed to fulfil the obligation to give notice of defects in due time. As a result, the buyer has lost all warranty rights (section 437 of the German Civil Code (Bürgerliches Gesetzbuch, BGB)) with regard to defects that would have been recognisable during a proper inspection. The same goes for all claims, within the broadest meaning of the word, that are based on defects that could have been recognised during a proper inspection.
The ruling of the Bremen Higher Regional Court illustrates the need to know the requirements and the rights and obligations in connection with the obligation to inspect for and give notice of defects in B2B transactions. Reasonable inspection of goods and corresponding notification of defects immediately upon receipt of the goods are indispensable in commercial transactions.
The law does not state exactly how and when the goods are to be inspected. It is therefore advisable to reach individual agreements regarding deadlines and the type and manner of the inspection in order to avoid discrepancies and disputes in advance. It is also permitted to entirely exclude the buyer's obligation to inspect for and give notice of defects − for example with regard to the outgoing goods inspection taking place at the seller's premises. This, however, requires an individual agreement; general terms and conditions or standardised quality assurance agreements will not suffice.
There are particularities in cross-border commercial sales. If the buyer and the seller have not made a choice of law, the obligation to inspect the goods and notify defects is generally determined by the law applicable at the seller's registered office. As a rule, the UN Convention on Contracts for the International Sale of Goods then applies first. The UN Convention also distinguishes between the obligation to inspect the goods and the notification of defects. However, the requirements and the content of the regulations are not synchronised. The UN Convention on Contracts for the International Sale of Goods is more buyer-friendly than German law with regard to the obligation to inspect for and give notice of defects − in particular, the notice period under the UN Convention is much more generous from the buyer's point of view.
This post also appears in the Haufe Wirtschaftsrechtsnewsletter.
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