The VII Civil Senate of the Federal Court of Justice (BGH), which is responsible for the law on contracts for work and services, had to decide in two cases what the consequences are for the client's claims in the event of defective work performance if the contractor has performed its services on the basis of a contract for work and services with a so-called no-invoice agreement.
In the proceedings VII ZR 42/07, the plaintiff had commissioned the defendant to seal the terrace of his house and to cover it with wood. The plaintiff asserted warranty rights due to water damage in the granny flat below the terrace shortly after the work had been completed.
In the proceedings VII ZR 140/07, the defendant was commissioned with surveying work for the construction of the plaintiffs' new single-family house. According to the plaintiffs, their house and carport were incorrectly positioned as a result of a surveying error by the defendant. They demanded compensation for the damage they had suffered as a result.
In both cases, the parties had agreed that no invoice would be issued for the services to be rendered. With regard to this no-invoice agreement, the courts in both instances denied the asserted warranty rights to the respective plaintiff due to the nullity of the contract for work. The reason given was that the no-invoice agreement served the purpose of tax evasion and was therefore null and void because it violated a statutory prohibition. This resulted in the overall nullity of the contract, as it was not proven that it would have been concluded at the same conditions if invoices had been properly issued.
The Senate set aside the judgments of the Courts of Appeal insofar as they ruled in favour of the respective party to the action and referred the case back to the Courts of Appeal.
The Senate shares their opinion that the no-invoice agreement, which is void due to a violation of a statutory prohibition, only does not lead to an overall nullity of the contract for work if the contract would have been concluded under the same conditions if proper invoicing had been agreed.
However, the senate could leave open whether the no-invoice agreement in the cases in dispute resulted in the overall nullity of the contracts for work. For according to the principles of good faith, the defendants were precluded from invoking it. This results from the special interest situation that typically exists in such construction contracts concluded with a no-invoice agreement if the contractor performed his work on the client's property in a defective manner or if his defective performance - as in the case of surveying work - was reflected in the building. The resulting consequences for the client cannot be dealt with in an economically sensible way by rules on the rescission of a void contract.
In both cases to be decided by the Senate, these principles mean that the contractor is precluded from invoking an overall nullity of the contract for work due to the unlawfulness of the no-billing clause.
Judgments of the Federal Supreme Court of 24 April 2008 - VII ZR 42/07 and 140/0734
Lower courts
Frankfurt/Oder Regional Court - 17 O 416/04 - July 14, 2006
Brandenburg Higher Regional Court - 12 U 155/06 - February 8, 2007
Aachen Regional Court - 12 O 621/04 - April 28, 2006
Cologne Higher Regional Court - 11 U 89/06 - 11/22/2006
Source: Press release No. 84/2008 of the Press Office of the Federal Court of Justice
76125 Karlsruhe, April 24, 2008, telephone (0721) 159-5013, fax (0721) 159-5501
Goldberg Attorneys at Law, Wuppertal-Solingen 2008
Attorney at Law Michael Ullrich, LL.M.(Information Law)
m.ullrich@goldberg.de
