Pursuant to Article 560(1) of the Civil Code, if the item sold is defective, the buyer may request a price reduction or withdraw from the contract, unless the seller immediately and without undue inconvenience to the buyer replaces the defective item with one free from defects or remedies the defect.
The purpose of a price reduction is to restore the economic balance (equivalence of performance) between the parties to the contract. A price reduction compensates for the fact that the buyer has acquired an item of lower value than they had originally anticipated. A price reduction does not preclude the buyer’s right to claim compensation for any loss suffered in connection with the defect.
As provided for in Article 566 § 1 of the Civil Code, if, due to a physical defect in the goods sold, the buyer has given notice of withdrawal from the contract or of a price reduction, they may claim compensation for the loss they have suffered as a result of having entered into the contract, without being aware of the defect, even if the loss was the result of circumstances for which the seller is not liable; in particular, the buyer may claim:
- reimbursement of the costs of concluding the contract,
- the costs of collection, transport, storage and insurance of the goods, and
- reimbursement of the expenditure incurred to the extent that the buyer has not benefited from such expenditure.
This is without prejudice to the provisions concerning the obligation to compensate for damage in accordance with general principles.
Where the buyer has reduced the price due to defects in the goods sold, the law grants them two claims:
- compensation within the limits of the so-called ‘negative contractual interest’;
- a claim for compensation for damage under general principles.
Compensation within the limits of the so-called ‘negative contractual interest’ includes expenses and costs which the buyer incurred in the belief that the contract would be performed correctly, and which proved to be futile due to a defect in the goods, including, amongst others, the costs of concluding the contract, the costs of collection, transport, storage and insurance of the goods, and the reimbursement of outlays incurred to the extent that the buyer did not derive any benefit from them.
The seller is liable to compensate for this type of damage on a risk basis.
A claim for compensation under general principles relates to actual loss and loss of profit (e.g. a defect in the goods caused a business interruption and, consequently, the loss of an important contract). In order to successfully claim compensation for the full extent of the loss, the buyer must prove that the seller has breached the contract, the amount of the loss suffered, and an adequate causal link between the breach of contract arising from the defects and the loss. The seller’s liability under general principles covers everything the buyer would have obtained had the contract been performed correctly, as well as the losses the buyer would have avoided had the item not been defective (so-called compensation within the limits of the positive contractual interest).
It should be noted that, under the provisions of the Civil Code discussed above, the buyer cannot, under general principles, claim damages covering the costs of rectifying the defects in the goods or the costs of purchasing new, defect-free goods, as the price reduction already includes such costs.