Defects in work delivered under a contract for work

In Decision No. 187 of 13 January 2020 in commercial case No. 3093/2018, Second Commercial Division, the Supreme Court of Cassation explained its consistent approach to Articles 264–266 of the Obligations and Contracts Act. Earlier authorities were cited and summarised in Decision No. 99 of 11 July 2017 in commercial case No. 2483/2016, First Commercial Division. Defects in the work delivered do not extinguish the customer’s obligation to pay the agreed price. Instead, they give the customer rights to be exercised under Article 265. One of the customer’s principal obligations is to accept work performed in accordance with the contract. On acceptance, the customer must inspect it and raise all objections to defective performance, except for defects that cannot be detected by an ordinary inspection or that arise later.

If the defects are so serious that the work is unfit for its contractual or ordinary purpose, the customer may refuse to accept it and rescind the contract under Article 265(2). Simply refusing to pay after taking actual control of what was produced does not exercise that right. An express declaration of rescission must reach the contractor. If the defects are not serious enough to justify rescission, the customer must pay despite them. Under Article 265(1), the customer may then require the contractor to remedy the defects, claim the cost of having them remedied by a third party, or request a proportionate reduction in the price.

There is no restriction on the form in which rights under Article 265(1) may be exercised. In proceedings on the contractor’s claim for payment under Article 266(1), the customer may plead set-off even with disputed claims, or raise a defence of defective performance. Where a defect can be remedied, the price may be reduced by the necessary cost of repair. Where it cannot be remedied but the item remains fit for its intended or agreed use, the reduction reflects the loss in value caused by the permanent defect. The same Supreme Court decision recognises that rights under Article 265 may also be exercised out of court.

This article is not a legal opinion or legal advice concerning a particular situation or person. For help with objections when accepting an item made under contract, consult a lawyer experienced in this area.