February 2024 News: professional's liability in case of a hidden defect of the sold goods – 3 useful tips

• Reminder / Background:

Pursuant to Article 1641 of the French Civil Code, the seller is compelled to guarantee the hidden defects of the sold product that:

• make such product unsuitable for the use for which it is intended.
• or which limits the product’s use to such an extent that the buyer would not have acquired it or would have acquired it at a lower price if he had been aware of these defects.

A recent judgment of the Commercial Chamber of the Cour de Cassation (ie. French Supreme Court), dated 17 January 2024, in line with 4 former judgments of the Mixed Chamber (of same Cour) dated 21 July 2023, gives us the opportunity to recall 3 insightful points to be taken into account by any seller, regardless of his rank in the chain of successive sales of a product.

• What are the main takeaways from the decision of the Court of Cassation?

• The seller – and only the so-called professional seller – is presumed to know (with no possibility of going against that) the hidden defects of the sold goods

In the case of hidden defects, only the so-called "professional" seller is deemed to be aware of the defects affecting the sold goods, and this in an irrefutable assumption (ie. such seller cannot sustain anything to the contrary and is therefore automatically presumed to be responsible for the consequences related to the hidden defects).

As the Supreme Court points out, Article 1645 of the French Civil Code creates an "irrefutable presumption of knowledge on the part of the professional seller of the defect of the sold goods, which obliges him to remedy all the damages resulting from it".

Given the impact of this irrefutable presumption, being regarded as a "professional seller" must therefore be construed restrictively and characterized in practice, as the Cour de Cassation outlines again.

Thus, in its decision, the Cour de Cassation censured the trial judges for not having inquired whether the seller, even though specialized in forestry work, was actually engaged in the usual sale of agricultural machinery (which would therefore make him a “professional seller” with respect to the sold product).

• The buyer must exercise his rights grounded on the warranty for hidden defects within 2 years, but this limitation period can be interrupted

The buyer of the products affected by the hidden defect must act within 2 years of the discovery of the defect affecting the sold products. However, it is now established that this limitation period can be interrupted, for example by a judicial expertise measure, to the plaintiff’s benefit.

• The buyer can sue the seller for hidden defects for 20 years after the sale of the product.

This decision by the Commercial Chamber of the Cour de Cassation confirms the solution previously adopted last July and seems to put an end to the jurisprudential trend in favor of the seller, which, according to Article L.110-4 of the Commercial Code, considered that the buyer's action was time-barred 5 years after the sale of the product affected by the hidden defect.

It now seems to be well established that the buyer, regardless of his rank in the contractual chain, can – to its best interests – initiate a liability action, within 20 years as of the sale of the product to the plaintiff.

• What are the practical insights for the seller?

Warning : the seller's liability, for the sold product’s hidden defects, can be searched for during 20 years following the sale of the product, regardless of the type of product or the seller’s rank in the chain of sale/resale.

It is therefore now impossible to dismiss the buyer or the sub-buyer from his claim based on the hidden defects warranty, after 5 years following the initial sale of the product.

The seller may still have, among other means, the possibility to question:

• his status as a "professional seller" to try to fight the "irrefutable" presumption of his knowledge of the hidden defect. The French Supreme Court will be cautious on how to characterize a “professional” seller.

• the validity of the warranty action for hidden defects, within the prescribed time limits, by arguing that the buyer did not respect the 2-year period from the discovery of the defect (even if it is now known that this period may be interrupted). In this regard, it is worth noting that the plaintiff in a warranty action for latent defects shall evidence that he has acted promptly after the defect’s discovery – which period is itself included in the 20-year period from the sale of the affected product.

It is likely that this case law trend, recently reaffirmed since July 2023, is now to be seriously taken into consideration - unless the forthcoming law reform may change the situation (the contemplate French reform on special contract law currently provides for some changes in the regime of warranty for latent defects).

A French court, seized with a dispute regarding an international chain of sale contracts, may decide to apply French law and thus the hidden defects regime. Hence the importance of the choice of applicable law and jurisdiction in international contracts.

Another interesting matter relates to the possibility for the seller to provide for/enforce valid and enforceable liability limitation clauses to counteract the effects of the hidden defects warranty, but this is another story and the subject for another article.

 

To be continued…

 

Sarah Temple-Boyer                                                                                               Jessica Pereira Quaresma

Attorney                                                                                                                     Legal Trainee