Attention! Limitation of the claim for performance including consequential damages before claim for subsequent performance?!

In general, everyone expects a warranty period of 5 years (4 years for the VOB/B contract) for claims for defects that arise during the implementation of a construction project. 

This is dangerous, since the Federal Court of Justice (BGH) with ruling of May 19, 2022 (VII ZR 149/21) decided that with a not accepted, stopped building claims for damages can fall under the statute of limitations already 3 years after the stop! It can be assumed that this also applies to the claim for performance.

  1. Facts (simplified)

In a construction contract dated January 30, 2008, the contractor (defendant) undertook to build a single-family house for the client (plaintiff) within a construction period of three months. In the event of the defendant culpably exceeding the construction period, the parties agreed on a contractual penalty in the amount of EUR 45 per day limited to a maximum of 200 days. Construction work started in June 2008. Subsequently, disagreements arose regarding the correctness of the defendant’s performance, whereupon the plaintiff stopped paying partial invoices.

As a result, the defendant stopped his work.

In mid-August, the plaintiff set the defendant a reasonable deadline to resume work and complete the work without defects by September 5, 2008. The defendant allowed the deadlines to expire fruitlessly.

In March 2013, after the defendant’s claim for progress payments had been dismissed in another lawsuit due to the defendant’s defective construction work, the plaintiff declared its withdrawal from the contract. After a partial demolition and rebuilding of the affected parts of the building, the client moved into the house in June 2015.

In March 2017, the plaintiff sued the defendant for repayment of an overpayment, damages, and payment of a contractual penalty. The claims for damages asserted by the plaintiff included compensation for storage costs, commitment interest, incurred rental costs and loss of use due to the defendant’s default in performance.

The Court of Appeal dismissed the complaint on the grounds of the statute of limitations.

It based its decision on section 217 of the German Civil Code (§ 217 BGB), according to which the claims for repayment of the overpayment and for damages are time-barred with the main claim (= claim for performance), which is subject to the regular limitation period (sections 195, 199 of the German Civil Code).

The court allowed the revision, inter alia, regarding the question of whether the claim for performance could be time-barred before the claim for subsequent performance.

  1. Decision of the Federal Court of Justice

As a result, the Federal Court of Justice confirmed the judgment of the Court of Appeal. The defendant was entitled to raise the defense of the statute of limitations regarding the claims for damages asserted by the plaintiff due to the defendant’s default in performance as well as regarding the claim for payment of a contractual penalty.

However, the Federal Court of Justice left open whether section 217 of the German Civil Code is applicable to claims for damages for default (sections 280 I, II, 286 I of the German Civil Code) and whether the underlying claim for performance of the plaintiff is also time-barred.

In its ruling, the Federal Court of Justice states that the claim for compensation for damage incurred as a result of default (sections 280 I, II, 286 I of the German Civil Code) is subject to the regular statute of limitations, i.e. three years (section 217 of the German Civil Code is therefore not applicable). The contractual obligation of the defendant to build a single-family house had become due three months after the start of construction in June 2008 and thus in September 2008, so that the defendant was in default at the latest at the end of September 2008 (section 286 II No. 2 of the German Civil Code). The plaintiff was aware of the due date of his claim for performance and thus of the facts giving rise to the occurrence of the default, so that the three-year limitation period began to run at the end of 2008 and expired on December 31, 2011.

The Federal Court of Justice further stated that the occurrence of damage in the case of several consequences of damage is determined for the purposes of limitation law based on the principle of unity of damage. The entire damage, which is based on uniform conduct, is deemed to have occurred with the first loss of assets. This also includes future damage items, provided that they were foreseeable as possible at the time the claim arose. No independent limitation period is set in motion for such a late consequence. The Injured party has to defend himself against the statute of limitations with regard to all further damage consequences, which already begins with the first occurrence of damage, by filing an action for a declaratory judgment.

The plaintiff’s claim for payment of a contractual penalty is therefore also time-barred. The contractual penalty was forfeited in full in 2009, so that the claim arising in the same year (2009) became time-barred on December 31, 2012 according to sections 195, 199 I of the German Civil Code.

  1. Conclusion

Even though the Federal Court of Justice left open when the claim for performance underlying the construction contract was time-barred, it is to be assumed in this respect that the standard limitation period begins with the end of the year in which the claim arose. The decisive factor here is regularly the time at which the payment is due. 

In constellations in which the contractor owes the completion of the construction project according to the calendar, the claim becomes due at the end of this period. The limitation period for both the claim for performance and a possible claim for damages due to delay shall commence at the end of this year. However, even in cases without an agreed completion period, it must be assumed as a matter of precaution that from the point in time at which the construction project is no longer operated, the claim for performance is due immediately and the limitation period (also for the claim for damages for delay) begins to run at the end of the year.

In these cases, the builder must take measures to prevent the statute of limitations from expiring before the end of the three-year standard limitation period (calculated from the end of the year in which the construction was stopped). If he declares acceptance in due time (subject to the defects), he may pursue his claims (at least) as claims for subsequent performance within the limitation period applicable to claims for defects for a further 5 years (according to VOB/B only 4 years, if applicable) from acceptance.

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