Facts

The plaintiff brought an action for damages against the defendants arguing that he had suffered an interference with his property interest in a car engine which had been damaged as a consequence of a faulty mounting by the defendant. On April 8, 1989 the plaintiff purchased a car engine from Firm P which an acquaintance then installed in his motor vehicle. This engine had previously been given a general overhaul by the defendants and delivered by them as a so-called replacement engine to Firm P. After 9,500 km had been registered on the clock, serious damage to the engine occurred on January 18, 1990. The plaintiff attributes the occurrence of loss to the fact that the defendants had not put in place the fastening screw of the camshaft driving wheel, so that this slipped off the camshaft. He claimed compensation from the defendant in the amount of DM 6,870.39, covering the costs of repair and the provision of an expert report, damage resulting from loss of use, and telephone expenses.
The LG rejected the claim. The plaintiff’s appeal to the OLG was unsuccessful. His further appeal to the BGH resulted in the quashing of the judgment and its remission to the lower court for reconsideration.

For the following

Reasons

The OLG found a failure of the pleadings to state a cause of action as a matter of law. In its view the defendants are to be seen as the manufacturers of the engine. However, they are not liable on the basis of § 823 I BGB because only the plaintiff’s financial interest (‘Äquivalenzinteresse’) and not his interest in the integrity (‘Integritätsinteresse’) of his property were affected. There was an ‘identity of substance’ between the damage and the alleged defect in the product. In other words, the initial loss in value corresponded to the loss which occurred.

The initial lack of value of the engine was not restricted to the costs of putting in place the missing fastening screw. Such an approach would only be appropriate where the absence of the screw was known or should have been apparent in the context of the normal usage of the motor, for example, during a service. According to the pleadings of the plaintiff, this was precisely what did not happen. The subsequent sequence of events—the slippage of the camshaft drive wheel—was inevitably going to occur. A defect which is not discoverable cannot be removed. In that case, therefore, the plaintiff’s financial interest coincided in full with the subsequent (large scale) loss. In addition, it was relevant that from the beginning the plaintiff had not acquired a properly functioning engine, since the risk of the destruction of the engine existed at all times. The drive wheel, which was only secured by the cable attached to the camshaft, could have fallen off immediately after the engine was put into service, so that this was not a case of ‘creeping loss’.

II. The judgment of the OLG is incorrect in law and must be quashed. The plaintiff has implicitly satisfied the basic conditions of an adequate plea for damages based on § 823 I BGB.

1. Any person who manufactures a product may be liable in damages in respect of loss which occurs to the product itself after it has been delivered on the grounds that the property of the purchaser has been damaged in accordance with § 823 I BGB. This is the case where the damage to or destruction of the product results in a form of damage (creeping loss) which, because of the purchaser’s interest in the integrity of his property, should have been avoided by the producer who is under a duty to take care. In contrast, there is no right to compensation in tort in respect of losses which merely represent a ‘lack of value’ of the product and which merely affect the purchaser’s interest in usability and financial interest as a consequence of the defect in its condition [references omitted].

The OLG likewise based its decision on these principles. In that context it was right to hold that the defendant is subject to a tortious duty of care in respect of the engine to which it had given a ‘general overhaul’, which it sold and delivered as a ‘replacement engine’ and which it guaranteed as being free from defects. This is the case irrespective of whether the defendant had renewed only a limited number or all of the components of the engine in the context of the overhaul and in so doing had made use of materials supplied by third parties; for the defendant in any case took responsibility for the assembly of the components which it had prepared [references omitted].

2. However, the arguments on the basis of which the OLG reached the conclusion that there was no interference with the plaintiff’s interest in the integrity of his property—namely that the ultimate damage (damage to the engine) and the defect in the product (the missing fastening screw) are ‘identical in substance’, and that therefore the ‘lack of value’ corresponded to the loss which occurred are not free of errors in law.

(a) In its case law, this court has described the financial destruction of the interest of the purchaser which was already disappointed when the property was acquired [reference omitted] as ‘identical in substance’ to the initial ‘lack of value’ [references omitted]. Consequently, there will be ‘identity of substance’ where, viewed from an economic perspective, the initial defect affects the whole object in respect of loss for which compensation is now claimed [reference omitted] because for instance the object as a whole from the beginning is not at all or only in part usable for the purpose for which it was intended because of the defect [references omitted]. In this category are included also the cases in which the elimination of the defect (even if it only affects a part of the object) is not technically possible; the same view is gaining ground in respect of those cases where the defect cannot reasonably be eliminated without excessive expenditure [references omitted]. If, however, the defect is confined to a part of the product and is therefore capable of rectification according to the principles set out here and if it only subsequently leads to the destruction of the product or to damage to other parts of it, then that part of the object which was not initially tainted by the defect has its own value; the ‘lack of value’ does not therefore correspond to the damage [reference omitted].

(b) The OLG correctly uses these principles as the basis for its judgment, but makes the mistake of treating the absence of the fastening screw on the camshaft driving wheel as a defect which cannot be rectified, which leads to the view that the damage is identical to the ‘lack of value’ attributable to the defect. The conclusion of the OLG cannot be followed where it essentially focuses on whether the defect could have been discovered in the context of the normal use of the engine, for example, during a service.

It is not, in legal terms, of relevance for the question whether it is the purchaser’s interest in the integrity of his property or only his financial interest in the usability of the product which has been impaired, whether he could or could not have discovered the defect before the loss occurred in normal circumstances; the subjective ability to discover is not relevant. What is essential is that the defect—from an objective technical standpoint—could have been identified even if only when it was specifically being sought, so long as that would not have involved a disproportionately high cost in terms of time and expenditure. Only from the latter perspective can it be relevant to the economic value of a defect in what circumstances a presumed defect can be discovered. For in the case of a defect which can only be identified with difficulty, as defined here, the possibility of rectifying the defect can be challenged on technical or economic grounds [reference omitted]. The initial ‘lack of value’ and the damage will coincide where the search for the defect and its elimination cause costs which are, for example, equal to or even greater than the cost of the whole product [reference omitted].

(c) The factual circumstances based on the plaintiff’s pleadings which the OLG uses as the basis for its decision do not justify the conclusion that the defective securing of the camshaft driving wheel could not have been eliminated on technical or economic grounds. The OLG bases the adoption of this position solely on the allegation made by the plaintiff that the absence of a screw on the camshaft would not have become apparent if the servicing of the engine had been carried out in accordance with the instructions given in the service booklet.

It is incorrect to conclude that there is a defect the elimination of which is excluded on technical or economic grounds and which consequently taints the whole product with an initial ‘lack of value’, simply because it is not known whether the product actually has a defect or because the defect did not become apparent in the context of normal servicing work which the manufacturer would expect to be undertaken, in other words, in the context of normal usage. As the BGH decisions on ‘creeping loss’ have so far shown this will normally be the case [reference omitted].

There is in this case no support to be derived from the findings of the OLG or from the pleadings of the parties, which are focused purely on the foreseeable servicing work, that the absence of the fastening screw could not have been discovered without economically disproportionate expense.

3. This court is also unable to follow the arguments of the OLG to the effect that the engine delivered by the defendants was entirely unusable from the outset, because from the beginning there was an inherent danger of its destruction thus making this not a case of ‘creeping loss’ and that it was coincidental that the initial propensity of the product to be damaged was only subsequently realised. It is true that the engine was defective in the sense that it lacked a screw which should have secured the driving wheel to the camshaft. The rest of the engine, however, was fit and had, as a whole, considerable value. The defect affected only a small portion of the product at first—namely the driving wheel which was not properly secured and which therefore ran the risk of breaking away from the camshaft—but not the product as a whole, even if—as is, in fact, always the case with ‘creeping loss’—there is from the outset the risk of significant damage to the whole product (which is otherwise free from defects). The question of when this risk might be realised, and in particular the question of whether the defect might be timely discovered and eliminated (for instance in the context of repair work otherwise necessitated) was uncertain. The facts of the case, on which the OLG based its decision having regard to the pleadings of the plaintiff, show that the damage to the whole product did not in fact occur immediately after it was put into operation, but the engine proved capable—for whatever technical reasons—of providing 9,500 km of usage over 19 months. In these circumstances, it cannot be said that the ‘lack of value’ of the engine from the outset was so high that the damage which later occurred could be regarded as ‘identical in substance’ with this ‘lack of value’ and as merely the expression of the plaintiff’s financial interest.

III. The OLG also concluded—logically from its standpoint—that it should leave open the question disputed by the parties as to whether in fact the fastening screw for the camshaft driving wheel was in fact missing when the defendant delivered the engine. The appeal judgment must therefore be quashed and the decision sent back to the OLG so that the necessary findings of fact can be made.

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This page last updated Thursday, 01-Dec-2005 11:04:42 CST. Copyright 2007. All rights reserved.