Учебный год 22-23 / Mistake, Fraud and Duties to Inform in European Contract Law (The Common Core of European Private Law)-1

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stricter duty on the buyer to inform himself about the actual condition of the car.5

(ii) Here the case law on fraud (art. 1116 of the Civil Code) is more helpful. In 1988 the Cour de cassation approved6 a Court of Appeal’s decision that held, first, that a garage is, as a professional seller, supposed to know all the characteristics of the vehicles that it sells, with the sole exception of non-perceptible characteristics. Secondly and consequently, that the court, having ascertained that the mileage recorder had been manipulated, considered that the garage should have detected the manipulation and, by concealing it from the buyer, committed fraudulent manoeuvres to the effect of intentionally deceiving the buyer and inducing the latter into contracting upon more onerous conditions (incidental fraud was retained in specie). The Cour de cassation therefore seems to infer fraud from the presumption of the ability of the professional or specialised seller (cf. Case 3), to discover hidden defects.7 Even if it is submitted that this decision of the Cour de cassation should rather be taken as an isolated instance, it nevertheless indicates a tendency of the courts to be rather lenient in admitting the existence of fraud in the context of the sale of motor vehicles by professionals to non--professionals.

In Bruno’s case, there will however be one preliminary obstacle to overcome: the combination of the age of the car (that was not concealed to Bruno) and the assertion that it was ‘as good as new’ seems to reveal some kind of gross exaggeration that a strict judge might perceive in terms of a dolus bonus. However, if Bruno’s garage pretended that the engine of the car was new when actually it had just been repaired, there is some case law holding the seller liable for fraud.8 Again, the issue of excusability will normally not be raised when the action is brought in fraud9 (see Case 3).

5See, for instance, Liège,14-5-1986, JL, 1987, 173: a used car was sold as dating from 1975 whereas it actually dated from the year 1974; the judge held the purchaser’s mistake not excusable for he should have been aware of the real year when, upon delivery of the car, he was given the registration certificate along with the certificate from the automobile inspection authority that both mentioned this year.

6Cass, 21-04-1988, RDC, 1991, p. 203 and note C. Jassogne, ‘Observations sur le dol du professionnel’.

7 Jassogne note under Cass, 21-04-1988, ibid., p. 205. 8 Comm Liège, 24-1-1991, JT, 1991, p. 526.

9Ibid., in this decision the commercial tribunal of Liège expressly ruled out the possibility of seeing the fraud wiped out by an eventual demonstration of the buyer’s imprudence or technical knowledge in the field. Compare however Brussels, 27-6-1996, AJT, 1997--8, 329: an intentional transmission of erroneous information is reprehensible on the basis of fraud but, however, there is a certain obligation incurred by the deceived party to inform himor herself, account being taken of his or her competence.

(iii)Making a claim on the basis of non-conformity is unlikely to succeed as it is very likely that Bruno has accepted the car since he needed to use it before he could discover the defect and this has the effect of barring such an action (see Case 3).

(iv)Bruno could bring a claim based upon the seller’s guarantee against hidden defects and the most abundant case law as to the sale of used cars is to be found under this ground (arts. 1641 ff. of the Civil Code) as discussed in Case 3. If Bruno can prove the hidden defect, he will have the choice between terminating the contract (with reciprocal restitution) and asking for a reduction of the price corresponding to the diminution in value of the thing sold (art. 1644 of the Civil Code). Additionally, the purchaser will be awarded damages when the seller acted in bad faith (art. 1645 of the Civil Code), which is ‘presumed’ to be the case when the seller is a professional or specialist except if the latter can prove the non-perceptible character of the defect (which is hard to

prove10).

Recent case law contains several decisions, the factual situations of which are similar to Bruno’s case, where an action was successfully brought on this ground. For example it has been held that the fact that the car sold is a used car does not exclude the seller’s guarantee against hidden defects; one cannot object that the purchaser did not get an expert to carry out a report on the car;11 a used engine must be able to provide satisfaction for several thousands of kilometres.12 If Bruno continues to use the car (here it would obviously be after repairs) during the time that his action is pending, he is estopped from exercising his right to terminate the contract but he will still be able to obtain a reduction of price and additional damages under art. 1645 of the Civil Code.13

10P. Galand, ‘L’appréciation des vices cachés en cas de vente de véhicules automobiles’, RGAR, 1992, no. 12024, E observes that the requirement for the defect to be non-perceptible has the effect, as to transactions for the sale of cars, of bringing Belgian case law closer to the position of the French Cour de cassation that does not allow contrary evidence against this presumption.

11Ibid., no. 3: generally speaking there is no obligation for the buyer to have an expert analysis conducted upon the car nor to undertake a specific enquiry in order to discover eventual hidden defects (see also J.P. Zele, 6-9-1989, JJP, 1991, 442). Also the fact that the vehicle was presented to the automobile inspection authority (not giving rise to any observations on this occasion) does not in itself constitute an argument in favour of the seller (see also Antwerp, 30-3-1988, DC/CR, 1990--91, p. 716 and note B. Tuerlinckx).

12Liège, 20-6-1996, JLMB, 1997, p. 17.

13Civ Verviers, 16-10-1995, RGDC, 1996, 161; Comm Hasselt, 13-6-1995, Limb. Rechtsl., 1995, 246, Pas, 1995, III, 22; Civ Bruges, 6-9-1989, RW, 1991--92, p. 95, note EMS.

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As explained in Case 3, Bruno must prove the importance of the defect; the fact that Bruno bought a used car will be taken into account because he may not require the car to have the same qualities as a new one.14 But, as seen above, Bruno may expect the engine of a car, even a used car, to work, at least for some time. However, if Bruno purchased the car at a very low price, he will be deemed to have accepted the risk of potential hidden defects existing.15 In any event Bruno must comply with art. 1648 of the Civil Code’s requirement of a short time limit.16

To conclude, fraud looks like a good ground to invoke since the case law appears to be lenient with regard to proving the intentional element of fraud when the seller is a professional. However, the seller’s guarantee against hidden defects appears to be the most commonly used and satisfactory remedy for the buyer in such cases.

England

Bruno’s claims lie in breach of contract and misrepresentation. The principles are as set out in Case 1:

(i) the contractual remedy, if any, will be damages or the right to require the garage to repair or replace the car. There was an express assurance about the age and quality of the car, which will be incorporated as express terms of the contract if it can be said that, in the circumstances, the parties so intended;17 but there will also have been implied conditions in the contract that the car complies with the description by reference to which it was bought, and that it was of satisfactory quality.18 It is not clear from the facts whether the statement as to age is false: if so, there will be a breach of contract in relation to description. The unroadworthiness of the car will also be a breach of contract, as long as it can be established that the quality of the car was unsatisfactory at the time of the contract, and not merely because of what has happened

14Galand, ‘L’appréciation des vices cachés’, no. 5.

15Comm Hasselt, 12-1-1987, Limb. Rechtsl., 1987, p. 164.

16Case law concerning this time limit shows that each case is very much judged on the facts and that the courts interpret this provision to be enacted in the interest of both buyer and seller. Note that if the buyer brings an action not against the immediate seller but against the person who sold the car to his seller on the basis of arts. 1382--3 of the Civil Code (action in tort), he does not have to comply with the requirement of a short time limit under art. 1648 of the Civil Code (Liège, 26-5-1992, JLMB, 1995 and note P. Henry.

17See discussion under Cases 5 and 6. 18 Sale of Goods Act 1979, ss. 13 and 14.

to it in the ‘several months’ which have elapsed since then. Although breach of condition (such as under ss. 13 and 14 Sale of Goods Act 1979) gives rise to a right to reject the goods, the time lapse will here mean that Bruno cannot any longer reject the car.19 He may however claim damages on the contract measure, which will be the difference, at the time of contract, between the value of a car such as the dealer promised it to be, and the value of the car as it was in fact. Alternatively, he may require the garage to repair or replace the car.20

(ii)The misrepresentation claim depends on Bruno establishing that a false statement was made, either as to the age or simply as to the quality of the car. The statement ‘as good as new’ might not be a sufficiently precise statement of fact but the claim is certainly arguable.21 If the misrepresentation is established the remedies have been described in Case 3: damages on the tort measure is the most likely remedy, since the lapse of time will have barred rescission unless Bruno can establish that the garage was fraudulent in making the statement(s) -- time running from the contract in the case of non-fraudulent misrepresentations, but only from the date of discovery of the falsehood if fraud can be shown.22

(iii)No case of mistake could be made out here: the mistake would be as to quality, and is not sufficiently serious to fall within the established case law. Nor is it clear that the mistake was shared with the garage.

This case is a further illustration that a purchaser of a chattel must normally find a false statement or an unperformed promise by the vendor before he can complain of defects in what he has bought; and statements made during the negotiations (‘sales talk’) have to be analysed with some care to see whether they are sufficiently serious to bind the representor (either as a misrepresentation or as a contractual promise). Some assistance is given to a purchaser by the implication of contractual conditions (and therefore allocation of risk in favour of the purchaser) by the Sale of Goods Act 1979; but the basic principle of caveat emptor survives.

19See discussion under Case 3.

20Sale of Goods Act 1979, s. 48B. He may not claim a reduction of purchase price or rescind the contract under s. 48C, discussed under Case 3, because repair or replacement is here possible.

21See discussion under Case 6. In Reece v. Seru Investments Ltd [1973] EGD 152 it was held that an estate agent’s assurance about a property being ‘as good as it looks’ was, on the facts, an actionable misrepresentation.

22See discussion under Case 3.

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France

Bruno’s claim against his seller could be based upon non-performance of the contract of sale (i) as well as on defective consent (ii).

(i) Article 1641 of the Civil Code provides that the seller must guarantee against all latent defects of the goods which might render them unfit for their intended use or which may diminish their use to a point that, had the buyer known about them, he would not have bought the goods or would have paid a lower price for them. The cause of action is distinct from simple non-conformity with the terms of the contract. For the first action to succeed, two main sorts of conditions (substantial and procedural) must be fulfilled:

(a)Bruno has to show that the defects of the car he bought (the fact that it is unroadworthy and that the motor needs replacement) were hidden at the moment of the sale, i.e. that they existed at that time but were not apparent (cf. art. 1642: the seller is not liable for any apparent defects which the buyer might have known about). Obviously, this is the case since the seller assured Bruno that the car was a 1995 ‘as good as new’. Bruno had no reason to be suspicious, since as a consumer he was dealing with a professional. The main rule created by case law applies here: as a professional, the seller is supposed to have known of the defect, i.e. he could not be unaware of it because of his professional expertise.23 This rule arises from the presumption of the seller’s knowledge of the defect, from which his bad faith is inferred. The presumption cannot be rebutted which has had the effect of converting an evidential rule into a substantive rule of law. Bruno then has to show that these defects render the thing ‘unfit for its intended use’. Here again, the condition is satisfied and there is no need to show any specific use of which the seller may have been unaware: objectively a car must be roadworthy and the motor should not need to be replaced. Bruno can base his action on numerous precedents.24

(b)The main procedural condition, which has given rise to abundant litigation, is related to the interpretation of art. 1648 al. 1, which provides that such an action must be commenced by the buyer shortly after he has discovered the defect, according to the nature of this defect. What is mainly at stake here is the line that must be drawn between the action

23See Civ 1, 24 November 1954, JCP 1955.II. 8565, note HB.

24In relation to cases concerning cars, see Paris 3 May 1967 (Gaz. Pal. 1967.2.34, note J-P. D) or Paris 11 June 1970 (ibid. 1971.1. Somm.47, RTD civ 1971.389, obs. Cornu) retaining the excessive consumption of a car as a hidden defect; Civ 1, 23 May 1995 (Bull civ I, 217, 1996. Somm.15, obs. Tournafond) about the defective conception of a motor.

based on art. 1641 and the action for non-conformity, i.e. breach of the seller’s duty to deliver the goods (see below (ii)).25 The question as to when the short limitation period starts running is a matter of fact, decided by the trial judges.

Finally, it should be underlined that as the claimant Bruno has the burden of proof, which means that he must adduce evidence of the existence of the defect; the fact that the defect was prior to the sale; and if he wants damages, the bad faith or the professional quality of the seller. A recent decision of the Cour de cassation highlights the first condition by holding that the fact that the seller had voluntarily -- at his own expense -- replaced a part of a machine, was clear evidence, in the absence of other elements, of the existence of the defect (a kind of rebuttable presumption of the existence of a hidden defect).26

If Bruno’s action succeeds, he may choose between two different types of remedies. According to art. 1644 he may either choose to return the car to the seller, in which case he shall be reimbursed; or he may choose to keep the car, in which case experts will determine its real market value and Bruno would be entitled to a reduction of the price. Of course, the second hypothesis is not convenient at all for Bruno, except if he wants to collect unroadworthy cars!

(ii) Bruno could also base his claim on the non-conformity of the car (see art. 1604 of the Civil Code). There is a concurrence of actions with the claim under (i) above. Either Bruno could allege that the seller’s oral stipulation is deemed to be incorporated into the contract, and the car that has actually been delivered clearly fails to match up to its description, or that the non-conformity of the car delivered is understood as being unfit for the purpose. In a recent case the Cour de cassation decided that a failure to deliver a car capable of being used to transport disabled persons (and contractually agreed for this use) was a failure by the seller of his obligation to deliver goods in conformity and not a hidden defect.27 However, a relative uncertainty remains for two main reasons. First, the Cour de cassation’s attitude is not always as clear as it should be;28 secondly, in some cases, it may still be difficult to distinguish the ‘normal use’ from the contractual description of the goods.

25If Bruno has just discovered the defect, he can ask for (but not require) a court-ordered expertise and the short limitation period will run from the date when the expert’s report is delivered.

26See Com, 1 April 1997, Dalloz Affaires 1997, n. 20, p. 632.

27Civ 1, 17 June 1997, Dalloz Affaires 1997, p. 1218.

28See e.g. Civ 1, 5 November 1996, Dalloz Affaires 1996, p. 1410; JCP 1997.II. 22872, note Rade: adde D. 1998, Jault -- Sczeke.

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(iii)Bruno could also claim he has made a mistake as to a substantial quality of the subject-matter of the contract, under art. 1110 of the Civil Code. Actions pursuant to art. 1641 and mistake are theoretically very different: the former refers to the performance of the contract and is based on an objective approach (the car must objectively be unfit for its intended purpose); the latter is related to the formation of the contract and is a mixture of objective--subjective criteria. The distinction is clear where the mistake concerns a quality without any link with the use of the thing, for instance the authenticity of a painting (see Case 1). However the frontier is less clear-cut where the mistake is a consequence of a hidden defect, which might be the case here: one could easily argue that the hidden defect of the car has led Bruno to have a mistaken idea of the reality, and furthermore that he has been victim of fraud (art. 1116 of the Civil Code).29 Some recent case law suggests that an action may well lie for a breach of the duty to inform on the basis of fraud if the seller fraudulently concealed the condition of the car.30

As the above-mentioned actions are concurrent, Bruno will have to make a choice according to the procedural and substantive advantages of each action. He will have to consider whether it is easier to prove mistake, fraud or a hidden defect of the goods. It could be argued that evidence of mistake or fraud is more difficult to establish than the objective criterion of art. 1641 of the Civil Code. However, according to the recent decision of the Cour de cassation, in an action for fraud concealment, the seller has the burden of proving that he has discharged his duty to inform, thus reversing the burden of proof. This obviously alleviates the evidential difficulties of an action based on fraud. In the end, it depends on what Bruno wants -- to keep the car with damages or to return it to the seller and get his money back, with damages.

Germany

Because the car is defective Bruno (under §§ 434, 437, 439, 440 BGB) can claim his warranty rights (repairing the car, termination of the contract, reduction of the purchase price). He can also claim for damages

29See Case 3 for example.

30For example, Civ 1, 19 June 1985, Bull civ I, no. 201 where the seller was held liable for concealing the condition of a second-hand car and even more to the point, Civ 1, 15 May 2002, RTDCiv 2003, 84, where the Cour de cassation held that the seller had the burden of proving that the duty to inform had been fulfilled, thus reinforcing the duty incumbent on him, as opposed to the claimant proving the seller’s fraud (in relation to the seller’s concealing the fact that the second-hand car for sale had been in an accident).

for breach of contract if the seller knew or should have known of the defect (§§ 437 Ziff 3, 440, 280). It is not clear whether Bruno may claim for damages also from the fact that the car does not show the guaranteed characteristic (§§ 437 Ziff 3, 280, 276 I, 311a BGB). The courts have often assessed statements concerning the age, condition and roadworthiness as guaranteed qualities -- mostly in cases where a dealer sells used cars. However, the statement that the car is ‘as good as new’ is too indefinite to invoke the seller’s special liability for the damage caused by his breach. The seller has not given a warranty relating to a particular quality but on the contrary, has only touted the apparently good condition of the car.31

If the seller had nevertheless been aware of the fact that the car was in fact unroadworthy and that the motor needed replacing, then Bruno may nonetheless seek to enforce his claim for damages under §§ 437 Ziff 3, 440, 280. The seller is then liable on the grounds that he fraudulently withheld a defect in the object of sale. The knowledge of the seller also determines whether Bruno may, besides this, annul the contract under § 123 (fraudulent misrepresentation) and whether he can in addition seek to enforce a tortious claim for damages. The seller is also made liable under § 826 if he intended wilfully and knowingly to injure Bruno by selling him the used car.

Bruno’s claims under culpa in contrahendo, however, are ruled out; they become subsidiary claims if the purchaser is able to assert his special warranty claims.32 The same applies to a claim to annul the contract of sale on grounds of mistake as to quality (§ 119 II).33 If the promise that the car is a 1995 model turns out to be incorrect, then things would differ: the BGH does not see any defect of quality in the age of a used vehicle, but rather a characteristic as to quality. According to this view, the purchaser who makes a mistake as to the year of a car does not have a warranty claim but may annul the contract on grounds of mistake.34

Greece

When Bruno bought the car he had made a fundamental mistake as to the car’s qualities, more specifically as to its roadworthy condition.

31On the wealth of decisions concerning warranties in used goods trade cf. Palandt/Putzo, § 459 paras. 30a and 31.

32Cf. R. Knöpfle, ‘Zum Verhältnis zwischen Gewährleistungsansprüchen und Ansprüchen aus culpa in contrahendo oder positiver Forderungsverletzung’ NJW 1990, 2497 ff.

33Cf. Case 3.

34RG LZ 1929, 547 and 1931, 240 (‘Rohilla-Case’); BGHZ 72, 252; BGHZ 78, 216 (‘Mähdrescher-Case’); OLG Stuttgart NJW 1989, 2547.

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Therefore according to art. 142 AK, he can seek judicial annulment of the sale. Both the objective and the subjective criteria are met.35 Bruno’s mistake is due to the local garage’s inaccurate declarations which were made with intent. As fraud is recognised by law (art. 147 AK) as a special ground for the annulment of a legal act, Bruno can seek the annulment of the sale and, in parallel, damages in tort, since fraud is a tort (art. 914 AK). Bruno can ask for the return of the purchase price, as the seller has been unjustly enriched to Bruno’s detriment (arts. 904 ff. AK) and he must return the car.

The good condition of the car is a specific quality expressly agreed by the parties. Bruno may also make a claim for breach of contract (termination, reduction of purchase price or damages under arts. 543--4 AK). However, as Bruno discovered the non-conformity several months after the conclusion of the sale, it must be presumed that this claim is time barred, since arts. 554 ff. AK provide for a short limitation period of six months from the delivery of movable goods.

It is disputed whether the above rights of the purchaser are concurrent with his right to annul the sale on the grounds of mistake (art. 142 AK). According to the predominant opinion36 the purchaser cannot seek the annulment of the sale, because the provisions of arts. 534 ff. AK, as lex specialis, exclude the application of the general provisions on mistake.

The opposite view37 submits that, as the two legal institutions have different goals -- the provisions on mistake secure the autonomy of the will while those on the vendor’s liability for defects of the thing and lack of conformity aim at avoiding the harmful consequences of the

35On the question of prescription, see Case 1.

36AP 463/61 NoV 10, 166; Balis, General Principles of Civil Law, § 42; D. Bosdas (1964) ArchN 15, 373; Filios, Law of Obligations, Special Part § 1; Gazis, General Principles of Civil Law,

§ 16 III 3; I. Karakatsanis, ‘Concurrence of annulment in the grounds of fraud with the rights of the purchaser which arise from art. 543 AK’ (1975) EEN 42, p. 854; A. Ligeropoulos, ‘Concerning the sale of goods chapter of the draft of the law of obligations’ (1937) Themis 48, p. 638; K. Spiliopoulos, in A. Litzeropoulos, A. Gazis and G. Rammos (eds.), ErmAK Introd. Notes to Arts 534--56 (Athens, 1972), n. 65.

37AP 706/85 Elld 27, 91; I. Aravantinos, Mistake as to the object of the performance (Athens, 1954), p. 89; P. Doris, ‘Concurrence of the action for annulment on the grounds of mistake as to quality with the claims which arise from hidden defects and absence of agreed quality’ (1968) EEN 35, pp. 703 ff. who however accepts that the purchaser’s right to annul the contract is subject to the brief six months prescription of art. 554 AK; Kafkas, Law of Obligations, pp. 534--5 § 7; Spyridakis, General Principles, p. 602; Stathopoulos, Contract Law in Hellas, p. 221; P. Zepos, Law of Obligations. Special Part

(2nd edn, Athens, 1965), p. 80; see also Klavanidou, Error as to the Qualities of the Thing in Sales, pp. 222 ff.