Defect

A party’s performance is faulty if, when it has been carried out, it is not in accordance with the contract. If the contract is made for the sale of goods, the defect may be in the quantity or quality of the goods. This means that the goods may be damaged or otherwise unsuitable for their intended purpose. A service performance may be defective if the service e.g. maintenance of an object has not been performed as agreed or the results of the service do not correspond with what has been agreed.

According to the Sale of Goods Act, the type, quantity, quality, packaging and other characteristics of the goods must correspond with what has been agreed. If the goods do not correspond, the goods are defective. The goods are also defective if they do not correspond to a description given by the seller or its supplier regarding their qualities or intended use when marketing or otherwise prior to the sale and such information may reasonably be regarded as having induced the contract. When the quantity is incorrect but is to be supplemented at a later time, the breach in question is not a defect but a delay.

If the parties have not specifically agreed on the quality or the characteristics of the delivered goods, the goods have to be suitable for the purpose for which similar goods are usually used. In addition, the goods must be suitable for special purposes of the buyer, if the seller had to have been aware of such purposes at the time of conclusion of the contract, provided that the buyer has had a good cause to trust the seller’s expertise in the case. This may sometimes happen in connection with data procession systems, for example.

Sometimes the object of the agreement, e.g. a used product, is sold or leased in a condition in which it was at the time the agreement was made (“as is”). In that case the seller, for example the lessee, usually has no liability for any defect of the product. However, the seller may be liable for a defect if the product was e.g. in materially worse condition than the buyer could reasonably presume based on the price or circumstances.

The object of the agreement is defective also if the seller of the goods was not the owner and the goods were in the possession of a third party. In this case the buyer may not gain ownership of the goods at all. This is called a juridical defect. Sometimes it may also happen that due to legislation, an order of an authority or a missing authorization it is not possible to use the object of the agreement as provided at the time the agreement was made. For example, real estate does not have the needed building permits. This is called a defect in possession.

The other contracting party, in other words the receiver of the performance and the party liable for payment, may also breach the agreement. A breach of contract occurs if the party neglects to co-operate to carry out the performance. The buyer may for example neglect to deliver agreed raw materials, components or necessary information to the seller.