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  September – October 2022

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Article

The importance of the qualification of the contract to invoke the application of the guarantee of hidden defects (art. 1641 Civil Code)

The Court of Cassation recently pointed out that the warranty for hidden defects provided for in Article 1641 of the Civil Code applies exclusively to contracts of sale and not to contracts of services.

The qualification of the contract is therefore essential. However, this is often not so simple, especially in the case of complex contracts which relate both to an activity/service and to the supply of the necessary material/equipment. Another element of complexity may arise from the presence of a chain of successive contracts, each of which must find the right qualification between a contract of service or a contract of sale.

A criterion for distinguishing between a contract of service and a contract of sale has been identified by case law, namely the standardization or customization of the product or service. Thus, when the contract concerns things whose characteristics are determined in advance by the manufacturer (a so-called “standard” product), it is a contract of sale. If, on the other hand, the work is specific to the particular needs expressed by the client, the contract is a contract of services.

In a decision pronounced on June 29, 2022, the Commercial Chamber of the Court of Cassation reiterates an important principle: the action in warranty for hidden defects is not open to the client against the contractor (Cass. com June 29, 2022 n° 19-20.647).

In this case, the company ENGIE had entrusted the construction of an electricity production plant to the company SMAC. The latter had purchased photovoltaic panels from TENESOL in order to install them on the plant. In turn, TENESOL purchased the necessary parts for the assembly of the photovoltaic panels from a third party.

Having noticed failures in the power plant resulting from a problem with the photovoltaic panels, ENGIE sued SMAC for compensation for its damages. ENGIE based its claim on the warranty of hidden defects. For its part, SMAC argued that the warranty for hidden defects was only owed by the seller and was therefore inapplicable to the contract of services concluded with ENGIE, even though SMAC had supplied the photovoltaic panels.

The Versailles Court of Appeal ruled that the warranty for hidden defects was owed by SMAC to ENGIE: “in its capacity as final supplier of connectors, SMAC is liable to ENGIE for the warranty for hidden defects, regardless of the fact that the contract between them is a contract for the hire of work”.

The Court of Cassation overturned the decision of the Versailles Court of Appeal on the grounds that “the action in warranty for hidden defects is not open to the client against the contractor“.

The Court of Cassation qualified the contract concluded between ENGIE and SMAC as a contract of services and not a contract of sale, so that the warranty for hidden defects provided for in article 1641 of the Civil Code was not applicable.

• Reminder on the guarantee of hidden defects :

The guarantee of hidden defects is governed by the provisions of article 1641 and following of the Civil Code which states:

“The seller is bound by the warranty for latent defects of the thing sold which render it unfit for the purpose for which it was intended, or which so decrease this use that the buyer would not have acquired it, or would only have given a lower price, if he had known them.”

The application of the guarantee of hidden defects assumes :

• A defect not apparent and pre-existing at the time of the sale which makes the thing unfit for its use;
• The introduction of the action, by the buyer, within two years from the appearance of the defect.

The guarantee of the hidden defects allows the buyer to ask for the resolution of the sale or the reduction of the price.

In a chain of contracts transferring ownership (e.g. contract of sale), the warranty against hidden defects is transmitted with the thing to the successive owners, so that the last purchaser can address to the original seller, as to his own supplier.

• Which regime for contracts of services ?

The warranty for hidden defects does not apply to contracts of services.

In contracts of services, the contractor is obliged to perform the work in accordance with the conditions agreed upon in the contract and free of any defects. In the event of non-performance of this obligation, the contractor’s contractual liability may be sought on the basis of Article 1231-1 of the Civil Code.

In a contract for the manufacture of a material thing, for example, the contractor who does not respect the obligation to produce the thing free of all defects and in conformity with the contract is liable. This is a no-fault liability. The contractor may be exempted from liability if he can prove an extraneous cause.

• This is where the fundamental difference with the action in warranty of hidden defects lies: the seller owes the warranty in the presence of a latent defect regardless of whether it results from an extraneous cause, whereas the contractor may be exonerated from his liability for defect in the presence of an extraneous cause.

• Foreseeable developments in the scope of application of the warranty of hidden defects

The reform of the Civil Code that led to the adoption of Ordinance No. 2016-131 of February 10, 2016, reforming the law of contracts, the general regime and proof of obligations continues with the publication in July 2022, by the Ministry of Justice, of the preliminary draft reform of the law of special contracts.

The drafters of the preliminary draft reform of the law of special contracts propose a new wording of article 1641 governing, until now, the guarantee of hidden defects by simplifying the definition of a defect in the thing: “The thing sold is vitiated when it is unfit for the use usually expected of a similar thing or does not conform to the specifications of the contract.”

Moreover, this preliminary draft seems to establish a unified regime of warranty of defects in the thing, which suggests an alignment of the regime of warranty of defects between that applicable to contracts of sale and that which would apply to contracts of services.

Indeed, on reading article 1789 of the Reform Proposals, it might be understood that contracts of enterprise are also subject to the regime of the guarantee of defects:

“The contractor has, like the seller, the obligation to deliver the work to the client. Similarly, he is liable for defects or lack of conformity affecting the work […]”.

Therefore, we might wonder whether the Court of Cassation would have adopted the same solution in the judgment of June 29, 2022.

This text is subject to public consultation until November 18, 2022 and the drafting of the articles may still evolve.

Alexia Duran Froix