Laesio enormis in the Case of a Purchased Object with Insidious Spreading Loss:

Aug 12, 2022 Benn-Ibler Rechtsanwälte GmbH

In the case at hand, the Austrian Supreme Court (Oberster Gerichtshof, OGH) dealt with the question of whether, when assessing the disproportion between performance and counter-performance in the case of reduction of a sum by more than half (laesio enormis, Section 934 of the Austrian General Civil Code, Allgemeines Bürgerliches Gesetzbuch, ABGB), any loss caused by a spreading damage should be taken into account.

The plaintiff as the buyer and the defendant concluded a purchase contract for a used car. The car was examined and test-driven and the plaintiff signed a contract of sale. A few weeks later, the engine would no longer start because of engine damage. The reason was that the timing chain had slipped due to stretching of the chain. However, the chain could not have stretched that much over thaw low of mileage, even under increased load.

The plaintiff now demanded the rescission of the purchase contract based on error, laesio enormis, according to Section 934 ABGB (Austrian Civil Code), and claiming warranty. The defendant objected that the plaintiff had signed a waiver of warranty and that even in the case of laesio enormis only the costs of replacing the timing chain were the issue.

It was now disputed which value should be used to examine the disproportion between performance and counter-performance – only taking into account the existing defect (the stretched timing chain) or also taking into account the engine damage caused by the stretching of the timing chain. The Supreme Court ruled as follows:

The assessment of the disproportion shall be based on the time of conclusion of the contract. Even subsequent improvements cannot eliminate the right of rescission. The Austrian Supreme Court thus hereby followed the bulk of legal doctrine, according to which the final result of continuing damages cannot be attributed to the time of the conclusion of the contract from an ex-post point of view. In addition, prices are generally determined by the expectations of market participants with regard to utilisation; therefore, only the available information at any particular point in time is relevant. Any spreading loss must therefore be disregarded in determining the value of the object.

OGH 5 Ob 193/21z (01.06.2022)