Source: https://www.juridicainternational.eu/index.php?id=14839
Timestamp: 2019-04-19 12:54:42+00:00

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– reduce the price (LOA §112).
At the same time, on 3 May 2011, the text of the draft version of an Optional Instrument *11 (hereinafter referred to as the Optional Instrument) was published, which the European Commission could use as a ‘toolbox’ in the further regulation of European contract law. *12 The latest text of the draft version of the Optional Instrument was published on 19 August 2011. *13 According to its Article 107 (3) 1), the consumer may use any remedies mentioned in the instrument without granting the seller an option to cure. Hence, it is recommended by the Optional Instrument to provide for the absence of hierarchy of the consumer’s remedies and in addition to that also for the right of the consumer not to grant the seller a possibility to cure his non-performance.
This article shows that according to the LOA, both a buyer who is a consumer and a buyer who is not a consumer have in case of defective goods the right to freely choose a remedy suitable for him subject only to right of the seller to cure the non-performance. This means that the LOA lacks a hierarchy of the buyer’s remedies. The hierarchy of remedies would exist if the buyer was able to use other remedies only after he claimed from the seller performance through replacement or repair (LOA §222 (1)), or granted an additional time for the performance of the obligation (LOA §114 (1)). *14 It will also be demonstrated below that the rights of the buyer and the seller are balanced provided that the remedies used by the buyer are not in hierarchy but the buyer’s opportunity to resort to any of the remedies is limited solely by the seller’s right to cure his non-performance.
A general rule on the freedom to choose a remedy is contained in LOA §101 (2). According to that rule, in the case of non-performance, the obligee may resort to any remedy separately or resort simultaneously to all remedies which arise from law or the contract and which can be invoked simultaneously, unless otherwise provided by law or the contract. Hence it could be concluded that a buyer who has received from the seller defective goods should, as a rule, be able to independently decide to which of the above-mentioned remedies he wishes to resort. However before assuming such a position, it must be identified if, in the case of the sale of defective goods, the law contains special provisions providing for a hierarchy of remedies. In addition it should be noted that the parties are free to agree upon the sequence of using remedies in the contract and thus the right of the buyer to choose the remedy may be subject to such contractual restraints. The latter topic is however not addressed in this article.
The comments on the LOA note about the hierarchy of remedies that in the case of lack of conformity of a thing, the buyer can only request from the seller the performance of the contract under LOA §222 (1) and as a rule other remedies are secondary. *15 The EC Consumer Law Compendium sets out that Estonia has adopted the hierarchy of remedies that enables the consumer first to request only replacement or repair. *16 However, it remains questionable on what bases the positions described have been assumed, as the LOA contains no specific provision establishing such hierarchy.
According to LOA §116 (1), a fundamental breach of contract serves as a precondition for the termination of a contract. There are no other preconditions (e.g., grant of an additional term before termination) arising from LOA §116 (1).
Although in the event indicated in LOA §116 (2) 5), the obligee must essentially require performance of the obligation before termination of the contract, this does not serve as a general prerequisite for the right to termination. It only provides for an additional possibility for the termination of the contract in cases where grounds of fundamental breach of the contract would in normal circumstances be denied. Hence, if it is not possible to prove that the obligor has failed to perform an obligation in a manner that would allow to consider his breach fundamental as defined in LOA §116 (2) 1)–4), the obligee may nevertheless turn the obligor’s breach of contract into a fundamental breach by requiring performance of the obligation within an additional term. LOA §116 (2) 5) is of considerable practical importance as it enables the obligee to free himself of the uncertainty about whether the non-performance by the obligor can be regarded as fundamental. *25 Taking into account that the wording of the situations of fundamental breach of contract listed in LOA §116 (2) 1)–4) are rather general, it is often advisable in practice to grant the obligor an additional term for performance before terminating contract. Despite the abovementioned, the author of this article is not of the opinion that the objective of LOA §116 (2) 5) is to establish a hierarchy among the remedies, but the idea is rather to give the obligee an additional opportunity to demonstrate the fundamental nature of the non-performance by the obligor.
Based on the above, the author is of the opinion that according to the regulation of the termination of the contract contained in the general part of the LOA, the buyer is not, as a rule, obliged to grant an additional term for the seller to perform the obligation and, as a result, there is no hierarchy between the claim for performance and the right of termination. Nevertheless such a hierarchy may arise in regard to specific circumstances emerging in practice and in such cases it may be necessary to grant the obligor an additional term for performance based on LOA §116 (2) 5) or (4).
3) the seller fails to repair or replace a thing within a reasonable period of time after the seller is notified of the lack of conformity.
Pursuant to LOA §223 (2), in the event of consumer sale, any unreasonable inconvenience caused to the buyer by the repair or replacement of a thing is also deemed to be a fundamental breach of the contract by the seller. The situation of such significant breach of contract as described above can only occur if the buyer has demanded from the seller performance of the obligation (LOA §222 (1)) or the seller has undertaken to cure the breach at his own initiative (LOA §107).
Based on the above, one can assume the position that there is generally no hierarchy between the claim for the replacement or repair of the goods and the termination of the contract as remedies in the event of a fundamental breach of the contract. Provided that the preconditions for resorting to these remedies are met, the buyer can choose termination as the first remedy to be used. The buyer must naturally take into account the principle of good faith set out in LOA §6 and General Part of the Civil Code Act *33 (hereinafter referred to as the GPCCA) §138. This means that one cannot terminate the contract when one acts in bad faith while exercising the right to terminate. *34 At the same time the buyer’s obligation to act in good faith when terminating the contract certainly does not make the claim to perform the obligation (LOA §222 (1)) a primary remedy and the right of termination a secondary remedy.
The regulation of BGB §440 *41 and Articles 3 (3) and (5) of the Consumer Sales Directive that served as the basis for drafting the relevant provisions on the contract of sale in the LOA differ from those described. The main difference here is that pursuant to both the Consumer Sales Directive *42 as well as BGB §440 *43 the previous claim for the replacement or repair of the goods and the failure to satisfy the claim by the seller generally serves as a precondition for the buyer’s right of termination. *44 Thus termination is a secondary remedy according to the Consumer Sales Directive as well as the BGB. However as the Consumer Sales Directive requires minimum harmonisation *45 , the regulation of the LOA diverging from the Directive in favour of the buyer is allowed with regard to consumer sales and in accordance with the EU law.
The above once more confirms the author’s opinion that pursuant to the LOA, the buyer who received non-conforming goods need not as a rule claim performance before exercising the right of termination if the breach is fundamental. Namely, in the BGB and the Consumer Sales Directive, the hierarchy of remedies arises directly from the wording of the provisions concerned. As demonstrated, the wording of the LOA does not point to such a hierarchy. Hence, the approach chosen in the LOA is similar to that of the CISG *46 , and according to this, the buyer usually has the freedom to choose between different remedies.
Article 115 of the Optional Instrument does not prescribe the previous claim for performance as a precondition for the exercise of the buyer’s right of termination either. Unlike the regulation of the LOA, according to Article 115 (2) of the Optional Instrument, the consumer may terminate the contract in case of non-conformity of the goods, unless the non-conformity is insignificant. In case of non-consumer sales, subsection 1 still provides for fundamental breach as a precondition for termination. Thus under the Optional Instrument in the case of a consumer sale, the buyer enjoys a considerably wider opportunity of terminating the contract than permitted by the legislation and model act described above.
The general regulation concerning the reduction of the price is in LOA §112. According to subsection 1, a party may reduce the price, if the party accepts defective performance. This section does not require the obligee to grant an additional term (LOA §114) for the obligor to perform the obligation before reducing the price. Yet, it has been established that the obligation to grant an additional term may in certain cases arise from the principle of good faith (LOA §6, GPCCA §138). *49 However, granting an additional term for the performance of an obligation is not, as a rule, a precondition for the obligee to reduce the price.
3) upon the purchase of a used thing which is sold by public auction (clause 3).
The regulation according to which the price reduction is not a secondary remedy must be regarded as appropriate. In such a case, the buyer retains the opportunity to keep the defective goods, if he so wishes (and if the seller does not wish to cure his non-performance) and start to use them immediately without having to claim the repair or replacement of the goods, which can be time-consuming.
If the buyer wishes to reduce the price based on the defects of the goods sold, his right to resort to the remedy is limited by the seller’s right to cure his non-performance (LOA §224).
The relationship between the seller’s right to cure and the buyer’s right to terminate the contract is different. As noted above, LOA §107 (1) provides that the seller may cure the non-performance, as long as the buyer has not terminated the contract. Thus, at the moment the buyer has terminated the contract on the grounds of the defects of the goods, the seller is deprived of the right to cure the non-performance. *66 However, as long as the buyer has not made a declaration of termination (but has, for example, notified the seller of the defects under LOA §220), the seller as a rule has the right to cure his non-performance. Also, according to Estonian law, the buyer’s right to terminate the contract can depend on the seller’s right to cure through the notion of fundamental breach of contract set out in LOA §223 (1) and (2). As indicated in Section 3.1 of this article, the seller can in certain cases preclude the buyer’s opportunity to rely on fundamental breach of the seller’s obligation if the seller cures the non-performance during a reasonable period of time.
For example, let us imagine a situation in which the buyer buys goods that turn out to be defective and informs the seller of the defect (LOA §220). The notice about the defect does not contain any other information. By submitting the notice, the buyer has in fact given the seller an opportunity to cure the non-performance but has not claimed performance from him (replacement or repair). In order to consider the claim of performance submitted, the buyer’s relevant expression of will would be required. However, this cannot be identified merely from a notice about defects. Consequently, there is no hierarchy between the buyer’s remedies in the LOA, yet the buyer’s right to choose any remedy is as a rule limited by the seller’s right to cure his non-performance.
The consumer sales regulation provided in the Optional Instrument differs from the description presented above. Article 110 (2) provides for the seller an opportunity to cure his non-performance. At the same time, according to Article 107 (3) 1), the seller’s right to cure is precluded if the failure concerns a consumer sales contract. However, if the buyer is not a consumer, the seller has been granted an opportunity to cure his non-performance (subsection 2). Thus, in the case of a consumer sale, the consumer is pursuant to the Optional Instrument absolutely free to opt for any remedies of those specified in Article 107. The author of this article believes that this may have increased the level of protection of consumer rights but the seller has been forced to a considerably unfavourable position. This is especially true, considering the fact that according to the Optional Instrument, a consumer is entitled to terminate the contract already in the case of an insignificant breach of the contract (see Section 3.2 of this article).
The analysis of the LOA provisions contained in the article showed that according to the regulation of a sales contract, the remedies that the buyer could use in the case of lack of conformity are not in hierarchical relationship to each other. There is no hierarchy among the buyer’s remedies regardless of whether it is a consumer sales contract or any other sales contract.
The buyer’s freedom of choice does not unreasonably damage the seller’s rights either. Namely, according to LOA §107, the seller as a rule has the right to cure his non-performance as long as the buyer has not terminated the contract with the seller. By this, the Estonian legislator has provided as a rule for the seller an opportunity to limit the buyer’s choice of remedies if the seller so wishes. Pursuant to LOA §107 (3), the buyer may usually not use other remedies apart from withholding performance as long as the seller cures his non-performance within the framework prescribed by law (above all, during a reasonable period of time after giving notice of his intention to cure). The regulation described thus grants the seller an opportunity to perform his obligation after the initial failure to do so.
It may be concluded that both the buyer’s and seller’s interests have been taken into account when drafting the regulation of the sales contract in the LOA and that the interests have been successfully balanced through a system of remedies, complemented by the seller’s right to cure. Keeping in mind the developments of the European law specified at the beginning of the article, it would thus not be correct to impose on the buyer an obligation by all means to claim performance from the seller (also through the obligation to grant an additional term) before resorting to other remedies, as it had been prescribed by the draft directive on consumer rights for a long time. The demand for granting an additional term for performance as a prerequisite for using remedies is justified in legal systems in which the obligor is not entitled to the opportunity to cure (e.g., BGB). At the same time the value of the solution offered in the Optional Instrument, according to which a buyer who is a consumer could terminate the contract without granting the seller an opportunity to cure, should be seriously considered. This would ensure a great freedom of choice for the consumer but would probably leave the sellers’ interests unprotected to a considerable degree.
*1 Võlaõigusseadus. – RT I 2001, 81, 487; RT I, 4.4.2011, 3 (in Estonian).
*2 RT II 1993, 21/22, 52.
*3 116 SE I. Võlaõigusseadus (Law of Obligations Act. Draft). Available at http://web.riigikogu.ee/ems/saros-bin/mgetdoc?itemid=991610001&login=proov&password=&system=ems&server=rag-ne11 (28.3.2010) (in Estonian).
*4 Directive 1999/44/EC of the European Parliament and of the Council of 25 May 1999 on certain aspects of the sale of consumer goods and associated guarantees. – OJ L 171, 7.7.1999, pp. 12–16.
*5 116 SE I. Law of Obligations Act. Draft (Note 3).
*6 See, e.g., LOA §222 (demand for performance of contract as a remedy), §223 (fundamental breach of contract by the seller).
*8 Proposal for a Directive of the European Parliament and the Council on Consumer Rights COM (2008) 614 final. Explanatory Memorandum; Proposal on Consumer Rights Directive, preamble, No. 4, p. 3.
*9 European Parliament legislative resolution of 23 June 2011 on the proposal for a directive of the European Parliament and of the Council on consumer rights (COM(2008)0614 – C6-0349/2008 – 2008/0196(COD)). Available at http://www.europarl.europa.eu/sides/getDoc.do?pubRef=-//EP//TEXT+TA+P7-TA-2011-0293+0+DOC+XML+V0//EN&language=EN#BKMD-21 (25.7.2011).
*10 K. Lilleholt. Notes on the Proposal for a New Directive on Consumer Rights. – European Review of Private Law 2009/3, p. 338.
*11 A European contract law for consumers and businesses: Publication of the results of the feasibility study carried out by the Expert Group on European contract law for stakeholders’ and legal practitioners’ Feedback. Available at http://ec.europa.eu/justice/policies/consumer/docs/explanatory_no-te_results_feasibility_study_05_2011_en.pdf (24.5.2011).
*13 Available at http://ec.europa.eu/justice/contract/files/feasibility-study_en.pdf (5.10.2011).
*14 E.g., M. Schmidt-Kessel is in the same position concerning the furnishing of the notion of hierarchy with the content. The Right to Specific Performance under the DCFR. – G. Wagner (ed.). The Common Frame of Reference: A View from Law and Economics. Sellier 2009, p. 85.
*15 P. Varul et al. Võlaõigusseadus II. Kommenteeritud väljaanne (Law of Obligations II. Commented Edition). Tallinn: Juura 2007, p. 37 (in Estonian).
*16 H. Schulte-Nölke, M. Ebers (eds.). EC Consumer Law Compendium. The Consumer Aquis and its Transposition in the Member States. Sellier 2008, p. 427.
*17 P. Varul et al. Võlaõigusseadus I. Kommenteeritud väljaanne (Law of Obligations Act I. Commented edition). Juura 2006, p. 321 (in Estonian).
*18 See M. Kingisepp. Tarbijakaitseõigus Euroopa Liidus ja Eestis (Consumer protection law in the European Union and Estonia). Läte 2011, p. 232 (in Estonian).
*19 M. Loos. Consumer Sales Law in the Proposal for a Consumer Rights Directive. – European Review of Private Law 2010/1, p. 37; C. Twigg-Flesner. Fit For Purpose? The Proposals on Sale. – Modernising and Harmonising Consumer Contract Law. G. Howells, R. Schulze (eds.). Sellier 2009, p. 159; E. Grabitz, M. Hilf, M. Nettesheim. Das Recht der Europäischen Union. München 2009, Article 3, margin No. 20; R. O. Sale. Italienische Rechtsprechung zum Gemeinschaftsprivatrecht – Der Verbrauchsgüterkauf zwischen Haftung des Verkäufers für Vertragswidrigkeit und Schutz des Verkäufers nach der Geltendmachung der dem Verbraucher zustehenden Rechtsbehelfe. – GPR 2010/3, p. 146.
*20 M. Loos (Note 19), p. 36; C. M. Bianca, S. Grundmann. EU Sales Directive. Commentary. Intersentia 2002, p. 159, 168; Directorate General for International Policies. The Potential Impact of the Consumer Rights Directive on Member States’ Contract Law, 2009, p. 25. Available at http://www.directsellingeurope.eu/public/Analysis_and_background_do-cuments/European%20Parliament%20-%20study_ConsRights_ImpactMS_09.pdf (7.4.2011).
*21 M. Schmidt-Kessel. Remedies for Breach of Contract in European Private Law. – R. Schulze. New Features in Contract Law. Sellier 2007, p. 195.
*22 Here LOA §222 serves as an exception, providing for in its subsection 2 that when choosing between the replacement and repair of the thing, the buyer may in first place claim the repair if the given contract of sale is not a contract of consumer sale. However, the provision does not have a wider impact on the buyer’s right to use different remedies.
*23 V. Kõve. Draft Common Frame of Reference and Estonian Law of Obligations Act: Similarities and Differences in the System of Contractual Liability. – Juridica International 2008 (XIV), p. 204.
*24 It is not, however acceptable, to allow for termination under LOA §116 (2) 5) if the breach is of inferior importance in respect of the entire contract. P. Varul et al. (Note 17), p. 402.
*25 P. Varul et al. (Note 17), p. 402.
*26 According to LOA §116 (2) 2), breach is a fundamental breach of contract if strict compliance with the obligation which has not been performed is the precondition for the other party’s continued interest in the performance of the contract.
*27 P. Varul et al. (Note 17), p. 402.
*28 V. Kõve (Note 23), p. 204.
*29 P. Varul et al. (Note 15), p. 63.
3) the injured party has no legitimate interest in refusing cure.
According to subsection 3 of the same section, the injured party may withhold performance as of receipt of the notice of cure until completion or failure of the cure. During the time for cure, the injured party may use other remedies only if these are not inconsistent with the cure.
*31 CCSCd, 3-2-1-11-10, paragraph 11. – RT III 2010, 11, 80 (in Estonian).
*32 See also P. Varul et al. (Note 15), p. 64.
*33 Tsiviilseadustiku üldosa seadus. – RT I 2002, 35, 216; RT I , 06.12.2010, 12 (in Estonian).
*34 P. Varul et al. (Note 17), p. 402.
*35 C. von Bar, E. Clive, H. Schulte-Nölke (eds.). Principles, Definitions and Model Rules of European Private Law: Draft Common Frame of Reference. Interim Outline Edition. München: Sellier 2009.
*36 Bürgerliches Gesetzbuch, adopted on 18.8.1896. – RGBl., p. 195.
*37 P. Schlechtriem, I. Schwenzer. Commentay on the UN Convention on the International Sale of Goods (CISG). 3rd ed. Oxford University Press 2010, Article 45, comment 12; T. Bachmann. Die elektive Konkurrenz. Berlin: Duncker & Humbolt 2010, p. 238; A. Mittmann. Einheitliches UN-Kaufrecht und Europäische Verbrauchsgüterkauf-Richtlinie. Peter Lang 2004, p. 135.
*38 K. Lilleholt (Note 10), p. 338; B. S. Markesinis, H. Unberath, A. Johnston. The German Law of Contract. A Comparative Treatise. 2nd ed. Hart Publishing 2006, p. 389.
*39 M. Loos (Note 19), p. 27.
*41 P. Varul et al. (Note 15), p. 63.
*42 M. Loos (Note 19), p. 37; E. Grabitz, M. Hilf, M. Nettesheim (Note 19), Article 3, margin No. 20.
*43 H. P. Westermann. Münchener Kommentar zum BGB. 5. Aufl. München: Verlag C. H. Beck 2008, §440, margin No. 3, 5.
*44 Ibid., §434, margin No. 47; H. Amann, G. Brambring, C. Hertel. Der Schuldrechtsferorm in der Vertragspraxis. München: Verlag C. H. Beck 2002, p. 114; S. Lorenz. Selbstvornahme der Mängelbeseitigung im Kaufrecht. NJW 2003, 1417; U. Verweyen. Die Käufrechtsbehelfe des UN-Kaufrechts im Vergleich zu denen des neuen internen deutschen Handelskaufsrechts aus Sicht eines deutschen Warenexporteurs. Peter Lang 2005, p. 72.
*45 H. Schulte-Nölke, M. Ebers (eds.) (Note 16), p. 427.
*46 H. Sivesand. The Buyers Remedies for Non-Conforming Goods. Should There be Free Choice or are Restrictions Necessary? Vol 2. Sellier 2005, p. 127.
*47 M. Loos (Note 19), p. 41.
*49 P. Varul et al. (Note 17), p. 374.
*50 P. Varul et al. (Note 15), p. 65.
*52 In relation with the contractor’ liability for work that lacks conformity with the contract, this has been stated by the Supreme Court in its decision 3-2-1-148-08, paragraph 12. – RT III 2009, 10, 73 (in Estonian).
*53 P. Schlechtriem, I. Schwenzer (Note 37), Article 50, comment 7.
*54 T. Bachmann (Note 37), p. 232; P. Schlechtriem, I. Schwenzer (Note 37), Article 47, comment 2.
*55 C. von Bar, E. Clive, H. Schulte-Nölke (eds.) (Note 35), p. 1341.
*56 H. P. Westermann (Note 43), §441, margin No. 1; T. Bachmann (Note 37), p. 233; B. S. Markesinis, H. Unberath, A. Johnston (Note 38), p. 510.
*57 P. Varul et al. (Note 15), p. 65.
*58 E. Grabitz, M. Hilf, M. Nettesheim (Note 19), Article 3, margin No. 15.
*59 B. S. Markesinis, H. Unberath, A. Johnston (Note 38), p. 514.
*60 E. Grabitz, M. Hilf, M. Nettesheim (Note 19), Article 3, margin No. 20; B. S. Markesinis, H. Unberath, A. Johnston (Note 38), p. 514.
*61 P. Varul et al. (Note 17), p. 341.
*63 P. Varul et al. (Note 17), p. 341.
*66 P. Varul et al. (Note 17), p. 343.
*67 P. Huber. CISG – the Structure of Remedies. Rabels Zeitschrift für ausländisches und internationales Privatrecht. Bd. 71. 2007, p. 21.
*68 M. Schmidt-Kessel (Note 14), p. 194.
*69 In relation to the DCFR, the same position has been assumed by C. von Bar, E. Clive, H. Schulte-Nölke (eds.) (Note 35), p. 812.
*70 V. Mak. Performance-Oriented Remedies in European Sale of Goods Law. Article Publishing 2009, p. 184.
*71 H. Sivesand (Note 46), p. 117.
*73 V. Mak (Note 70), p. 202.

References: §112
 §222
 §114
 §101
 §222
 §116
 §116
 §116
 §116
 §116
 §116
 §116
 §116
 §223
 §222
 §107
 §6
 §138
 §222
 §440
 §440
 §112
 §114
 §6
 §138
 §224
 §107
 §220
 §223
 §220
 §107
 §107
 §222
 §223
 §222
 V. 
 §116
 §116
 V. 
 §440
 §434
 §441
 V. 
 V.