Default and warranty are legal institutions that belong to the group of defaults and attempt to correct defects that occur during the execution of legal transactions that have been validly concluded .

A new decision by the Supreme Court shows that it can be worthwhile to consciously choose between default and warranty.

The performance agreed in a contract must be provided by the (service) debtor at the agreed time, at the agreed place and in the agreed manner to . Pursuant to Section 918 ABGB, if the debtor does not perform as agreed, the (performance) creditor may insist on performance or withdraw from the contract by setting a grace period. The grace period does not apply if the debtor finally refuses proper performance.

However, the consequences of default only occur if the (service) creditor already refuses to accept the service not properly rendered by the debtor and thereby prevents delivery.

If is handed over, recourse to the legal institution of warranty (§§ 922 ff ABGB) is necessary. The creditor can initially choose between improvement or replacement (Section 932 (2) ABGB). Only if both improvement and replacement are impossible, involve disproportionate expense for the transferor or considerable inconvenience for the transferee, improvement or replacement is refused or cannot be carried out within a reasonable period of time or improvement and replacement are unreasonable for the transferee for valid reasons attributable to the transferor, can a price reduction or rescission (= withdrawal from the contract) be requested instead of improvement or replacement (Section 932 (4) ABGB). However, there is only a right to choose between price reduction and rescission if it is “not a minor defect ” (Section 932 (4) ABGB).

In a case recently decided by the Supreme Court (OGH, 23.10.2018, 4 Ob 183/18t, Zak 2019/18), the defendant purchased a new car for EUR 27,000.00 from the plaintiff car dealer . During the transportation of the vehicle, a thunderstorm caused massive hail damage, which resulted in 150 to 200 dents on the hood and roof of the vehicle . This damage, which amounted to a total of EUR 1,100.00, was also repaired by the plaintiff car dealer. Nevertheless, the defendant refused to accept the vehicle.

He referred to the fact that a new car was owed according to the contract. Although the car damaged by the hail damage had been repaired, it could no longer be qualified as a new car. Therefore, the plaintiff car dealer had not performed “in the manner stipulated” (cf. Section 918 ABGB), which is why he was entitled to withdraw from the contract after setting a grace period. Since refused proper performance, a grace period was also not required.

The car dealer suing opposed the termination of the contract. In particular, argued that it was only a minor defect which could never lead to the termination of the contract even in the case of warranty claims. The rescission of the contract was therefore unjustified .

The lower courts and also the Supreme Court ruled in favor of the defendant buyer and dismissed the car dealer’s claim for damages.

In its reasoning, the Supreme Court states that, according to established case law, the objection of improper performance or the exercise of the right of rescission does not depend on whether the improper performance is based on the defect of a characteristic that would constitute a material or minor defect according to warranty principles (OGH, 23.10.2018, 4 Ob 183/18t, Zak 2019/18).

In other words, withdrawal from the contract is also possible if the non-conformity of the service offer lies in a defect that would qualify as minor under warranty law.

If the defendant buyer had therefore taken delivery of the car and only then complained about the hail damage, he would no longer have been entitled to withdraw from the contract, but would have been limited to a price reduction. However, since he did not accept the vehicle at all, thus preventing a handover and the plaintiff car dealer refused proper performance, he was entitled to withdraw from the contract .

The case in question therefore shows that it can certainly be worthwhile to take a closer look at when handing over the property.