Disputes about defective goods are regularly brought before the courts. When assessing whether certain defects constitute non-conformity, the seller's duty of disclosure and the buyer's duty to investigate play a role. According to established case law, the obligation to provide information prevails over the obligation to investigate. Recently, the Supreme Court again ruled on the relationship between the duty to disclose and the duty to investigate. Does the Supreme Court adhere to the main rule?
Non-conformity means that a sold good does not comply with the agreement if, also in view of the nature of the good and the statements made by the seller about the good, it does not have the properties that the buyer could expect on the basis of the agreement. The buyer may expect the good to possess the properties necessary for its normal use, the presence of which he did not have to doubt, as well as the properties necessary for a special use foreseen in the agreement (Article 7:17 of the Civil Code).
The main rule is that the obligation to provide information takes precedence over the obligation to investigate. An exception to the main rule is possible, for example, if prior notice of any defects is given, defects are visible and if an expert has been called in. This must be well justified. All the circumstances of the case are taken into account, and the need to protect a careless buyer weighs heavily in this respect. The mere fact that a buyer is imprudent is not a licence for the seller to remain silent.
The case before the Supreme Court involved the purchase of a 1910 sailing charter vessel for a sum of €245,000. The purchase agreement included the right of the buyer to inspect the sold property internally and externally before actual delivery. The buyer was also given the opportunity (at his expense) to put the vessel dry for inspection of the underwater hull before delivery. The costs of any repairs prescribed by the surveyor would be for the seller's account and risk. Furthermore, the seller warranted that he had provided the buyer with the information about the property which, according to common opinion, should be brought to the buyer's attention.
Shortly after delivery, it gradually became clear that water was entering the vessel. The seller was summoned to have the defect repaired at its own expense and, in case the summons was not heeded, a claim was made for reimbursement of the repair costs.
The buyer continued to sail with the leakage until the end of the sailing season because, on the one hand, little water entered the vessel when it was moored and, on the other, there were sufficient means to pump the water away while sailing.
Subsequently, other defects were reported to the seller by the buyer, including severe rusting. The surveyor hired by the buyer reported the following in this regard:
"this defect (strong rusting) has been present for quite some time. It concerns a slowly working process that could have started many decades ago due to lack of proper and regular maintenance in combination with (sea) water on the surface.
This rusting process must have been known for many years. The area near the washroom was fitted with a PVC drain pipe with a drain plug. This pvc pipe must have been installed several years ago and when installed, this severe rusting must have been noticed immediately."
The repair costs were valued at €85,000 excluding VAT. The buyer subsequently rescinded the purchase agreement and commenced proceedings.
Judgement of the court and court of appeal
In the first instance, the buyer claimed that the seller should be ordered to pay over €197,000 and compensate for damages, to be made out in court. In addition, the buyer claimed a declaratory judgment that he had properly voided or dissolved the purchase agreement, or at least that the purchase agreement had been voided or dissolved. The buyer argued that the vessel did not comply with the contract and that he had been wrong about the vessel's characteristics.
The court rejected the buyer's claims. On appeal, the court's judgment was upheld. To this end, the court considered that the defects discovered shortly after delivery, given their minor extent, the fact that they had been remedied and that the sailing charter vessel had subsequently been sailed throughout the season, did not constitute non-conformity within the meaning of Section 7:17 of the Civil Code.
The question whether the other defects, including the rusting, prevented normal use of the vessel and thus constituted non-conformity could be left open, according to the Court of Appeal. Based on all the facts and circumstances when the sale was concluded, the buyer could not expect these defects to be absent. The buyer had not complied with his obligation to investigate. He had failed to make use of the opportunity to put the more than 100-year-old vessel dry and inspect it (or have it inspected) before delivery.
According to the Court, there was also no evidence that the seller knew about the other defects. If and to the extent that it had to be assumed that the buyer should have communicated the defects to the buyer, this did not entail that the buyer would have been relieved of his obligation to investigate. Neither was it established that in case the seller would have communicated the defects to the buyer, the buyer would have seen this as a reason to investigate further. During the inspection, the buyer had seen that there was water on the hull, and in the seller's statement that this was condensation and/or water from a leaking central heating system, he (apparently) saw no reason for a further inspection of the hull and/or the hull. It cannot be ruled out that the same would have applied if the seller had reported that the ship was taking on water while sailing. In addition, when buying a (more than 100 years old) ship, an inspection of the hull, the condition of the bottom, is so essential that every buyer can be expected to have such an inspection carried out. This is all the more true since the purchase agreement expressly allowed the buyer to do so, and it is a relatively simple inspection.
The court of appeal therefore did not take into account the fact that the seller had concealed the fact that there was leakage earlier, and left open whether the seller should have disclosed this to the buyer.
Supreme Court ruling
In cassation, it was complained that the court of appeal had stepped outside the boundaries of the legal battle by including in its assessment whether the buyer would have seen cause for a further inspection if the seller had disclosed the fact that the ship was already making water while sailing before the sale.
The court of appeal would have failed to recognise that in general, and in this case in particular, good faith precludes the seller who has breached his duty of disclosure from arguing, in order to ward off a claim of non-conformity or error, that the buyer has breached his duty to investigate. If the court failed to recognise this, the court did not give sufficient reasons for its opinion that this was different in this case in the light of the circumstances of the case and the assertions made about it by the buyer.
The Supreme Court agreed and set aside the court's judgment. The Court of Appeal either misunderstood that in general it cannot be held against a buyer, even an imprudent buyer, that he has not sufficiently investigated the properties of the sold property, when the seller, according to generally accepted views, had a duty to inform the buyer in this respect but has failed to inform the buyer of the factual information known to the seller that is relevant for answering the question which properties the buyer could expect of the purchased property in view of its intended use, or has insufficiently substantiated its judgment that the aforementioned starting point is exceptional in the present case. Indeed, in the latter case, the court should have included the special circumstances of the case in its reasoning.
Here, the Supreme Court upheld the main rule. Thus, even if the contract contains agreements on the buyer's obligation to investigate, this does not give the seller the right to remain silent. If a seller has deliberately withheld certain relevant information, the buyer cannot be accused of not having fulfilled his duty to investigate. Deviation from the main rule that aims to protect a careless buyer is subject to an aggravated obligation to state reasons. The Court of Appeal had not given sufficient reasons for this deviation.
Do you have questions about non-conformity or would you like advice on identified defects and resulting damage? Please feel free to contact one of our lawyers. We will be happy to assist you.