In the previous article, we focused on key theoretical emphases of the institute of seller’s liability for errors. In this article, we will examine the manufacturer’s liability for faultless operation of goods. The next article will examine consumer sales. We will then be able to determine any potential (non)applicability of the institute of liability for errors and faultless operation warranty, specifically directly to the examined Dieselgate affair.

The liability of seller and manufacturer for faultless operation of goods (so-called technical goods) for the specific period, starting when the goods were handed over to the buyer, does not encroach the rules on seller’s liability for errors. Modern marketing approaches are characterised by the goods manufacturers generally not actually selling the goods to (end) buyers themselves (as seller); goods are sold by sellers, with the manufacturer not entering business (contractual) relationship with (end) buyers. This represents an establishment of direct legal relationship between manufacturers and buyers. The substance of this relationship includes the manufacturer’s obligations regarding the faultless operation of goods and, in relation to these obligations, the opposing (correlating) rights of the buyer. According to these rules, the seller also has the same obligations as the manufacturer to the buyer. This is a set of legal rules regulation the obligations of the manufacturer and seller of goods, regarding faultless operation of these goods. It is a commitment (by the manufacturer and seller) that the goods will operate faultlessly within the specified (warranty) period, with the obligation to repair the malfunction or replace the goods of they fail to operate faultlessly (a malfunction becomes apparent within the warranty period), while the buyer is entitled to demand that the malfunction is rectified or the goods replaced. The Obligations Code defines so-called voluntary warranty, which is formed on the basis of a unilateral legal transaction – by issuing a manufacturer’s warranty certificate and handing the certificate to the buyer through the seller. In the sense of general validity for all buyers (not only end consumers), considering the applicable Consumer Protection Act, the rules on faultless operation warranty apply also to the rights on non-consumers. The Consumer Protection Act also stipulates the institute of obligatory warranty, for which the issuance of the warranty certificate is not significant (warranty obligation remains, even if the manufacturer did not issue warranty certificates and statements to the buyer, even though it should by law).

The legislation defines a manufacturer very broadly. A warranty is any obligation that a company assumes to the consumer, undertaking to repair or replace the goods for the consumer free of charge, or to return the proceeds of sale or provide another means, when the goods do not operate faultlessly or do not have the characteristics listed in the warranty certificate or advertising message. The warranty is legally binding for the warrantor under the conditions specified in the warranty certificate and advertising message. The warrantor has all obligations under the law, even if the warranty certificate does not contain all data specified by law (or if the warranty certificate had not been issued, had been issue but not handed to the buyer by the seller) or is not issued in accordance with the law (not understandable or not issued on paper or other durable medium). The minister responsible for the economy issues a rulebook (so-called obligatory warranty), which defines the following: the goods for which the manufacturer must issue a faultless operation warranty for a period of at least one year, and second-hand goods for which the seller must issue a faultless operation warranty for a period for at least one month.

The seller’s commitment is accessory (dependent) on the commitment of the manufacturer. The seller’s commitment automatically ceases if the manufacturer’s commitment ceases. The buyer is entitled to choose whether to enforce claims against the seller or manufacturer. The claim must be enforced within the warranty period. A malfunction (circumstance, whereby the goods do not operate faultlessly) also has the characteristics of an error. The buyer, at their own discretions, can enforce claims based on seller’s liability for errors (if assumptions of this liability are met) and claims based on seller’s liability for faultless operations of goods; however, the buyer can not concurrently enforce these claims, as they overlap.

Regarding the relationship between warranty and warranty claims, we can determine that the bases for both types of warranty claims differ. The client is given the right to enforce the claim on the basis they choose themself. The buyer received an additional guarantee from warranty, and nothing states that utilising this entitlement would terminate any other legal benefit that had been given previously. The will of the parties could be that the agreed-upon warranty replaces legal warranty; in such situation, the buyer has no claims arising from legal warranty.

The following assumptions have to be met for the liability of the manufacturer or seller: the goods, for which the two parties made a commitment to ensure their faultless operation, do not operate faultlessly, and the reason for the malfunction (non-operation) are the characteristics of the goods themselves (within the internal business sphere of the manufacturer), and not the reasons outside the seller’s or manufacturer’s sphere, claim for repair or replacement of the goods within the warranty period and judicial enforcement within the one-year (preclusion) period. The commitment has the characteristics of a business obligation, whereby in the case of a breach there is an assumption that the cause lies within the obligor’s sphere. The manufacturer can refute this assumption only by proving that the reason for the malfunction does not originate in its sphere, i.e. that the reason for the malfunction are not the characteristics of the goods themselves (basis – reasonable application of Article 240 of the Obligations Code; circumstance that could not be managed and was not under any obligation to manage, e.g. incorrect use of the goods by the buyer).

The negative consequences for the buyer are reflected in direct damage (damage to the goods themselves – reduced value of goods due to malfunction), damage due to trust (as a result of property disposition of the buyer, legal and actual, which the buyer conducted, trusting that the goods operate faultlessly), and the indirect damages, damages to other buyer’s property, not on the goods themselves. The distinction between the above forms of damage is important, as restitution for specific type of damage can only be demanded by enforcing certain claims (e.g. claim for rectifying a malfunction).

The rights of the buyer on the basis of a faultless operation warranty are the right to demand the rectification of malfunction or provision of alternative goods. This is a special type of business damage liability, based on the reduced value of goods due to a malfunction. It protects the interest of the buyer, to have the goods operate faultlessly within the warranty period. By enforcing these claims, the buyer demands that the manufacturer or seller correctly perform the commitment (obligation), with the goods operating faultlessly within the warranty period. These are specific performances that, along with the performance, eliminate direct damage due to reduced value of goods. In this part, the application of general rules on business damage liability is excluded. The obligation of the manufacturer and seller (rectification of malfunction) is an indivisible obligation; the buyers are not subject to the internal recourse relationship between the seller and the manufacturer. The buyer can demand rectification of defect from both or just one of them, at their own discretion. The obligation of both ceases when either one fulfils this obligation. The order of claims is defined by law, as the law defines the option to demand repair of goods as primary, and if that is not fulfilled within the appropriate deadline, replacement of goods as the alternative. According to a special provision of the law, the buyer can (only) in the relationship to the seller enforce the right to withdraw from the contract or to request a proportional purchasing price decrease.

The special right of the buyer is the right to maintenance of the goods, replacement parts etc. even after the warranty period has expired (with the difference that this right is subject to payment).

The warranty period is the period in which the malfunction in the operation of the goods must become apparent; in this period, the buyer must enforce their claim for repair of goods. How much time has passed since the malfunction was detected until the buyer demanded its repair is not (legally) significant. Warranty periods have the same significance as warranty periods for liability for (latent) defects. When the warranty period expires, the liability of the manufacturer or seller on the basis of warranty ceases and the buyer loses its rights.

The Consumer Protection Act specifically defines the “appropriate period” for the rectification of malfunction in faultless operation of goods, i.e. 45 days. Considering the scope of repairs (small or significant procedure – repair), the warranty period is appropriately extended or restarted with the replacement or return of repaired goods.

The seller is obligated to transport the goods to the location of repair or replacement and to deliver the repaired or replaced goods to the buyer at its own expense. The risk of accidental destruction or damage to the goods is also borne by the seller or manufacturer during this time.

The rights of the buyer towards the manufacturer arising from the warranty certificate are extinguished after one year from the date when the buyer requested a repair or replacement of goods. This is a preclusion period not restricted by the institute of the interruption of the period, and is considered per objection of the affected party (and not by official duty of the court). The rights needs to be enforced in court during this period, otherwise the manufacturer’s liability is terminated. Regarding the liability for faultless operation of goods, the Obligations Code does not specify a special rule on the period for judicial enforcement of claims towards the seller; however, rules under Article 480 of the Obligations Code apply as appropriate.

Source: Pravni vidiki afere Dieselgate [Legal Aspects of Dieselgate] (master’s thesis), 2016, Damjan Merhar