OGH: Excessive price is not a defect subject to reporting (Sec. 377 UGB)

Mar 3, 2021 Benn-Ibler Rechtsanwälte

The Austrian Supreme Court (Oberster Gerichtshof, OGH) recently ruled that in cases of reduction by more than half, there is no obligation to give notice of defects within the meaning of sections 377, 378 of the Austrian Commercial Code (Unternehmensgesetzbuch, UGB).

In the present case, the parties to the dispute concluded a mutually business-related "internet system contract" with a term of 48 months for the creation and operation of a website. A monthly flat fee was agreed.

The defendant stopped payments after approximately one year, whereupon the plaintiff declared the premature termination of the contract for due cause. The defendant objected to misrepresentation and reduction by more than half (Sec. 934 Austrian Civil Code - ABGB) and essentially argued that the promised payment was excessive by more than half. In addition, the plaintiff was by far indemnified and held harmless for the payments made until the termination of the contract.

Both the court of first instance and the court of appeal found in favor of the plaintiff because the defendant had not fulfilled its obligation to notify defects according to Sec. 377 UGB. In addition, a challenge according to Sec. 934 ABGB was held to only be possible after the defendant had completely fulfilled its obligations.

The OGH, however, ruled in favor of the defendant.

Firstly, the time of the conclusion of the contract was decisive for the existence of a disproportion according to Sec. 934 ABGB. A rescission of the contract due to a reduction by more than half could also be asserted before the complete fulfillment of the contract.

There was also no obligation to report a defect. This presupposed that the buyer had discovered or should have discovered a defect in the goods after delivery by examination. The scope of application of Sec. 377, 378 UGB was limited to cases of defectiveness in the sense of a deviation from what was owed, bad delivery, quality defects, or wrong delivery and quantity deviations. The promise of a price that is objectively excessive is not a defect that must be reported in the sense of Sec. 377, 378 UGB.

OGH 10 Ob 48/20m (15.12.2020)