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ReferenceInternational Business Law

How to rescind a purchase contract correctly

Rescission of a purchase contract between businesses: requirements, deadlines, place of supplementary performance, and practical recommendations.

Peter Poleacov (updated )5 min

A wooden sign reading SORRY WE ARE CLOSED hangs on a shop’s glass door

Starting point

In a sale between businesses, a buyer who wants to rescind the contract has to have set the seller a reasonable period for supplementary performance beforehand. That period has to have expired without success. That is what Section 437 No. 2 of the German Civil Code (Bürgerliches Gesetzbuch, BGB) says, read together with Sections 440, 323(1), and 439 BGB. If the sale is a commercial transaction for both sides, the buyer must also inspect the goods without undue delay after delivery and give notice of defects without undue delay. The buyer must report a defect that only shows later without undue delay after discovering it. Otherwise the goods are deemed approved and the buyer loses its rights for that defect, including rescission (Section 377 of the German Commercial Code, Handelsgesetzbuch, HGB).

A deadline alone is not enough. Under the settled case law of the German Federal Court of Justice (Bundesgerichtshof, BGH), the buyer also has to make the purchased item available for inspection (Section 439(5) BGB). The buyer must do so at the place of performance for supplementary performance. This lets the seller check whether the alleged defect exists, whether it was already present when risk passed, what its cause is, and whether it can be remedied. Until the buyer gives the seller that opportunity, the seller as a rule need not engage with the demand.1

Where that place lies is determined in sales law by the general rule in Section 269(1) and (2) BGB.2 Where the contract says nothing, the circumstances of the individual case decide, particularly the nature of the obligation. Where those yield nothing either, the place of supplementary performance is the seller’s business establishment at the time the contract was concluded.3

When no deadline is needed

Setting a deadline is the rule, but there are exceptions. Sections 323(2) and 440 BGB list the main cases in which the buyer may rescind the contract without one: a serious and final refusal to cure, a failed cure, unreasonableness, and a fixed-date deal. The most important in practice is the flip side of the seller’s inspection right described above. Sometimes the seller refuses the very inspection it could otherwise insist on. Then cure can become unreasonable for the buyer. If it does, a deadline is dispensable. The BGH so held for a consumer’s purchase from a business. There the defect affected safety, and the court weighed all the circumstances of the case.4 The BGH left open whether a refused inspection can make the deadline dispensable between businesses too. In such a sale, set a reasonable deadline anyway if in doubt. A buyer who wants to rescind the contract should be able to prove that the seller refused the inspection. A seller who means to cure allows the inspection rather than fending it off.

The materiality threshold

Even a formally correct procedure fails if the breach is immaterial. Rescission is then barred (Section 323(5) sentence 2 BGB). With a small, cheaply fixed defect, the buyer can still demand cure, meaning a repair or a replacement. If cure does not happen, the buyer can instead reduce the price or claim damages, but cannot unwind the sale (Section 323(5) sentence 2 and Section 281(1) sentence 3 BGB).

The right to withhold performance has no such bar for minor defects, and that is regularly missed. Until the defect is remedied, the buyer may withhold the full purchase price under Section 320(1) BGB, even where the defect is minor and remediable. The limit is reached only where exercising the right offends good faith (Section 242 BGB). In the case decided, paintwork damage on a new car was enough. The buyer was entitled to refuse the entire payment and did not fall into default.5 So if you are a buyer facing a trivial defect, withholding the purchase price helps you; rescission does not.

Cross-border sale of goods

Everything above applies to a sale between businesses governed by the BGB. In a cross-border sale of goods between businesses in different Contracting States, the CISG as a rule applies instead, and it does so automatically, without the parties having to agree on it. Its requirements are stricter. The buyer can only unwind the contract for a fundamental breach, or for non-delivery after a fruitless grace period (Article 49(1) CISG). The CISG term for this is avoidance. Where the seller has delivered, the buyer must declare avoidance within a reasonable time (Article 49(2) CISG). A curable defect and an expired deadline for cure are not enough there. There too, the buyer must examine the goods promptly and give notice of defects within a reasonable time; otherwise the buyer can no longer rely on them (Articles 38 and 39 CISG). An exporter who plans around the rescission requirements of the BGB is often planning around the wrong rule. What follows from that for German exporters is set out in “CISG: advantages and disadvantages for German exporters”.

Practical recommendations

  1. In contracts for the sale or supply of goods, regulate the place of performance and also the place of supplementary performance. A blanket rule (for example, always at the seller’s location) is not the right approach; set the place for each contract individually. This avoids unnecessary disputes, costs, and risks in warranty scenarios.

  2. From the buyer’s side, also make sure to make the item available to the seller for supplementary performance, see Section 439(5) BGB.

  3. Finally, the demand to remedy the defect has to be drafted carefully. Otherwise no effective deadline for supplementary performance is triggered.

  4. Before rescinding the contract, check two limits: whether the defect is material (Section 323(5) sentence 2 BGB) and whether the deadline was exceptionally dispensable. Rescission over a trivial defect, or without a deadline although one was required, fails.

Notes

  1. BGH, judgment of 30 March 2022 – VIII ZR 109/20; on the version of Section 439(5) BGB effective from 1 January 2022, BT-Drs. 19/27424, p. 26 et seq. ↩

  2. The foundational decision is BGH, judgment of 13 April 2011 – VIII ZR 220/10. ↩

  3. BGH, judgment of 19 July 2017 – VIII ZR 278/16. ↩

  4. BGH, judgment of 26 October 2016 – VIII ZR 240/15. ↩

  5. BGH, judgment of 26 October 2016 – VIII ZR 211/15. ↩

Reference: Poleacov, P. (2026). How to rescind a purchase contract correctly. INN.LAW. https://inn.law/en/perspectives/cancellation-of-purchase-agreement/