Commercial Cassation Judgment: Latent Defects in Vehicle Sale Contract

United Arab Emirates

The Federal Supreme Court

Session of Tuesday, 3 June 2025

Presided over by Judge / Shihab Abdul Rahman Al Hammadi "President of the Chamber"

And the membership of Judges: Al Hassan bin Al Arabi Faidi and Abdullah Bou Bakr Al Siri.

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Cassation No. 349 of 2025 Commercial

1-3) Civil transactions "Obligation - Sources of Obligation - Contract - Options that affect the binding nature of the contract: Option of defect" "Contracts: Contract of sale: Effects of sale: Warranty against latent defects (option of sale)".

(1) The right to rescind a sales contract due to a defect is established in contracts that can be rescinded without being stipulated in the contract. Its condition is that the defect must be old, affect the value of the subject matter, be unknown to the buyer, and the seller must not have stipulated an exemption from it. The reason for this is that the soundness of the sold item is implicitly stipulated in the contract for the buyer. If this soundness is absent, the buyer has the option of defect to either rescind the contract, return the price, and return the sold item to its owner. The basis for this.

(2) The established fact that the car subject to the sale contract had been in a serious old accident that was repaired and could not be detected by an ordinary person, and which rendered the car unfit for use and its registration impermissible. It was also established that the fourth respondent (the appellant) was not informed of this latent defect, nor did she accept or consent to it. Its effect. A contract concluded between two parties was accompanied by a latent defect, which fulfills the grounds for rescission, return of the price, and retrieval of the sold item. The subsequent damage to the car after the sale contract, resulting from sudden rains while in the appellant's possession, is damage for which the appellant is not liable, as she kept the car in a safe place due to the seller's refusal to refund the price. This is in application of the rules of lien on the sold item to guarantee the return of the price. The appealed judgment's violation of this view and holding the appellant liable for the value of the subsequent damage to the contract of sale is an error that necessitates cassation.

(3) Harm. Its perpetrator is obliged to compensate. The estimation of compensation is based on the extent of the harm suffered by the injured party and their loss of profit. Its condition is that it must be a result of the harmful act. The appealed judgment's failure to award the due compensation despite the seller's established responsibility for the warranty against the latent defect in the car. This necessitates a judgment for compensatory damages, which the court will address.

(Cassation No. 349 of 2025 Commercial, Session of 3/6/2025)

The Federal Supreme Court

1- It is established according to the texts of Articles 237, 238, 543, 544, 545 of the Civil Transactions Law that a sale is considered concluded on the basis of the sold item being free from defects, except for what is customarily tolerated. The general rules regarding the option of defect apply to the contract of sale. For the buyer's right to rescind the contract and recover the value of the sold item to be established, the defect must be old, affect the value of the subject matter, be unknown to the buyer, and the seller must not have stipulated an exemption from it, unless he intentionally concealed it, in which case the exemption will not benefit him. A defect is considered old if it existed in the sold item before the sale or occurred after it while in the seller's possession before the buyer took delivery. The soundness of the sold item - as clarified in the explanatory memorandum - is an implicit condition in the contract. If the sold item is not delivered, the sale is not binding, so its ruling is not binding. The evidence is that soundness in the sold item is usually required by the buyer because his purpose is to benefit from the sold item, and his benefit is not complete without the condition of soundness. Therefore, soundness was implicitly stipulated in the contract, just like an explicit condition. If soundness is absent, he has the option to either accept the sold item with its defect or rescind the contract, return the price, and return the sold item to its owner.

2- As this is the case, and as is clear from the papers and what the court-appointed expert's report stated in the lawsuit, the plaintiff - the third respondent - bought a Volkswagen Jetta salon car to export to her country "Algeria" for a price of 65,000 dirhams, which was paid by the buyer. It was found upon inspection of the car that there was a repair and welding on the right front side of the chassis without being informed by the seller - the fourth respondent. She refused to take delivery of the car due to this defect because it could not be registered in Algeria. The expert confirmed, after examining the car, that it was impossible to open it electrically or manually because it was completely submerged in rainwater, as it was in an underground parking lot. It sustained damage that included the electrical harness, the car's computer, the radar, and the engine. The car is not roadworthy due to the subsequent damage. It was found by reviewing the car's photos upon its arrival in the country that it had been in a serious accident from the front on the right front side, with damage and تلف in the right front chassis and تلف in the entire right front side with the tire, rim, explosion of airbags, and engine cover and front bumper. The chassis and airbags were repaired and welded, and the repair cannot be detected by an ordinary person except by a specialized technician. The second respondent, who bought the defective car, placed it in an underground parking lot after the third respondent refused to take delivery and the fourth respondent refused to return it. The expert report finds that the third respondent is entitled to return the car and get back the amount she paid of 65,000 dirhams because she was not aware at the time of purchase of the repair in the chassis, and her purpose for buying the car was to export it to her country, Algeria, which means that the car sold to her was defective with a hidden defect not revealed by the pre-contract inspection. The fourth respondent practiced fraud and deception and did not inform her of the accident the car had been in and the repairs he made to the car's right chassis, especially since he knew her intention for the sold item was to export it for use in Algeria, and she bought it...

The Federal Supreme Court

from a company ....... and repaired it, making the contract concluded between the two parties accompanied by a defect of concealment in stating the defects of the car. If the buyer had known about them before the sale, she would not have entered into the contract for this reason, which fulfills the conditions for rescission due to the established defect as previously explained. Rescission entails returning the price to the buyer and retrieving the sold item to its owner. Furthermore, this defect in the car, which the expert confirmed, rendered it unfit for use and its registration by the competent authorities impermissible, as the defect relates to the car's essential components, namely the chassis that carries its body, which cannot maintain its course on the road without being free of defects. This is considered a fundamental matter required by the procedures for a road license, as it relates to safety and security procedures. The damage that occurred to the car due to its exposure to rain was caused by the seller's refusal to take it back after the buyer learned of the defect after the contract and did not accept it. This is the reason that led to that damage, and the buyer is not liable for it, as she kept the car in a safe place. The rain is considered a sudden downpour accompanied by heavy rain and damage, and its occurrence with such intensity and abundance was not anticipated, especially since the seller's refusal to take the car from the buyer as soon as she learned of the defect led the buyer to keep it to ensure the return of her money, in application of the rules of lien on the sold item or the price to guarantee the rights of the contracting parties in case of breach by one of them before the other. As this is the case, and the responsibility of the fourth respondent (the seller) for the latent defect in the car subject to the sale has been established, as it was old and affected the value of the subject matter, and the buyer was unaware of it, and it has not been proven in the papers that the seller informed her of this defect before the contract, nor has the buyer's acceptance and consent to it been proven. As the appealed judgment did not adhere to this view and held the buyer liable for all the incidental damage caused by the seller's refusal to take the car back based on the buyer's request, and that whatever the opinion on the value of the damage, the latent defect that occurred in the car before the contract affected the basic components of the car, rendering it unfit for driving and licensing, even if it had not been exposed to any other damage that the buyer did not cause. All this flaws the appealed judgment and necessitates its cassation.

3- It is established that every harm obliges its perpetrator to compensate, and the compensation is estimated in all cases according to the extent of the harm suffered by the injured party and their loss of profit, provided that this is a natural consequence of the harmful act. The appealed judgment did not award the buyer (the third respondent) the due compensation despite the seller's established responsibility for the defect in the car, and consequently his liability for the harm that befell her, which necessitated a judgment for compensatory damages for this harm. This is what the appealed judgment violated, which flaws it and necessitates its cassation. Since the appeal in its two aspects is valid for a ruling, the court will proceed to rule on the merits as stated in the operative part of the judgment - by rejecting the appeal and upholding the appealed judgment.

The Federal Supreme Court

The Court

After reviewing the papers and reciting the summary report and deliberation.

Whereas the appeal for the interest of the law has fulfilled its legally prescribed formal conditions. It is therefore formally admissible pursuant to the text of Article 176 of the Civil Procedure Law.

Whereas the facts - as they appear from the appealed judgment and other documents - show that the plaintiff: filed lawsuit No. 1451 of 2021 Civil against the defendants, requesting in her conclusion to compel them to return the amount of 65,000 dirhams with compensation for material and moral damages amounting to 30,000 dirhams, on the grounds that it was agreed between her and the defendants to purchase a Volkswagen vehicle from them, and she delivered the first defendant the agreed-upon amount. However, after receiving the amount and their confirmation to her that the car passed the inspection, she presented the car to a technical expert, and it was proven to have major defects that could not be repaired or exported to her country (........) and they refused to return the amount, so she filed the lawsuit.

During the proceedings of the case and the response of the first defendant that he sold the car to the plaintiff after it passed the inspection according to inspection certificate No. 33683737 dated 22/1/2024, and that the second defendant is the one who accompanied the plaintiff in the sale process and he is the one who received the deposit amount on her behalf, and that the plaintiff inspected the car with the second defendant, adding that the plaintiff was fully aware of the vehicle and that it was used and therefore needed some repairs, and that he was surprised by her desire to withdraw from the sale under the pretext of hidden defects, which was not proven in the inspection process for the car, and he requested the dismissal of the lawsuit.

The court of first instance ordered the appointment of an engineering expert to inspect the car, who completed a report in which he concluded, after inspection, that it was impossible to open the car electrically and manually because it was completely submerged in heavy rainwater that fell on the country on 16/4/2024, as it was in an underground parking lot since 24/2/2024, and it sustained electrical damage. The right front side of the car was inspected, and it was found to have a repair in the right front chassis at the thigh above the right front tire, and that the car is not roadworthy due to the current damage, and that by reviewing...

The Federal Supreme Court

photos of the car upon its arrival in the country, it was found that it had been in a serious accident from the front on the right front side, with damage and destruction to the right front chassis and destruction to the entire right front side with the tire, rim, explosion of airbags, engine cover, and front bumper. The right front chassis, side panel, and airbags were repaired and welded. The chassis repair cannot be detected by an ordinary person except by a specialized technician after removing and opening the right fender and inner lining, and the hidden welding of the chassis causes harm to the plaintiff in exporting the car to her country. The defendant ...... is the one who parked the car in an underground parking lot on ...... 24/2/2024. And the intervening party ...... a company specialized in importing written-off cars with accidents from foreign countries and selling them in the country after repairing them, which is what happened in the present case. The current market value of the car is 20,000 dirhams, and the expert report considers the plaintiff entitled to return the car and get back what she paid because she did not know from the first defendant about the repair in the chassis, and her purpose for buying it was to export it to her country (Algeria). After commenting on the report, the court of first instance ruled at its session on 19/8/2024, first: to not accept the lawsuit against the second and third defendants and the intervening party for being filed against parties without standing. Second: to order the first defendant to pay the plaintiff an amount of 65,000 dirhams and an amount of 30,000 dirhams as compensation for damages, with simple annual legal interest on the awarded amount at a rate of 5% from the date this judgment becomes final, provided it does not exceed the principal amount awarded, and dismissed the lawsuit for anything beyond that.

The defendant appealed this judgment by appeal No. 1541 of 2024, and at the session of 14/11/2024, the Court of Appeal ruled to accept the appeal in form, and in substance: to amend the appealed judgment by reducing the awarded amount to 20,000 dirhams and canceling what it ruled regarding compensation, and ruling again to reject it.

The Public Prosecutor has challenged this judgment by cassation, as it is one of the judgments that the litigants cannot challenge due to the low value of the claim. When the appeal was presented - in the advisory chamber - to this court, it decided to set a hearing to be notified to the litigants by the court administration.

The Federal Supreme Court

Whereas the challenge is based on two grounds, the appellant objects in the first ground to the appealed judgment for violating the law, error in its application, and deficiency in reasoning, as it ruled to reduce the price of the purchased car to 20,000 dirhams without ruling for the full price which was 65,000 dirhams, despite the proof of the latent defect at the time of sale and the responsibility of the fourth respondent seller, which entitles the buyer to return the full price, as concluded by the appointed expert in the lawsuit, which flaws the judgment with error in applying the law and deficiency in reasoning, necessitating its cassation.

Whereas this objection is valid; because, although it is established according to the provisions of Articles 237, 238, 543, 544, 545 of the Civil Transactions Law that a sale is considered concluded on the basis of the sold item being free from defects, except for what is customarily tolerated, and the general rules regarding the option of defect apply to the contract of sale. For the buyer's right to rescind the contract and recover the value of the sold item to be established, the defect must be old, affect the value of the subject matter, be unknown to the buyer, and the seller must not have stipulated an exemption from it, unless he intentionally concealed it, in which case the exemption will not benefit him. A defect is considered old if it existed in the sold item before the sale or occurred after it while in the seller's possession before the buyer took delivery. And that the soundness of the sold item - as clarified by the explanatory memorandum - is an implicit condition in the contract. If the sold item is not delivered, the sale is not binding, so its ruling is not binding. The evidence is that soundness in the sold item is usually required by the buyer because his purpose is to benefit from the sold item, and his benefit is not complete without the condition of soundness. Therefore, soundness was implicitly stipulated in the contract, just like an explicit condition. If soundness is absent, he has the option to either accept the sold item with its defect or rescind the contract, return the price, and return the sold item to its owner.

As this is the case, and as is clear from the papers and what the court-appointed expert's report stated in the lawsuit, the plaintiff - the third respondent - bought a Volkswagen Jetta salon car to export to her country "Algeria" for a price of 65,000 dirhams, which was paid by the buyer. It was found upon inspection of the car that there was a repair and welding on the right front side of the chassis without being informed by the seller - the fourth respondent - and she refused to take delivery of the car for this defect due to the impossibility of registering it in Algeria. The expert confirmed, after examining the car, that it was impossible to open it electrically or manually because it was completely submerged in rainwater, as it was in an underground parking lot, and it sustained damage that included the electrical harness, the car's computer, the radar, and the engine, and that the car is not roadworthy due to...

The Federal Supreme Court

the subsequent damage, and that from reviewing photos of the car upon its arrival in the country, it was found that it had been in a serious accident from the front on the right front side, with damage and destruction to the right front chassis and destruction to the entire right front side with the tire, rim, explosion of airbags, engine cover, and front bumper. The chassis and airbags were repaired and welded, and the repair cannot be detected by an ordinary person except by a specialized technician. The second respondent, who bought the defective car, placed it in an underground parking lot after the third respondent refused to take delivery and the fourth respondent refused to return it. The expert report finds that the third respondent is entitled to return the car and get back the amount she paid of 65,000 dirhams because she was not aware at the time of purchase of the repair in the chassis, and her purpose for buying the car was to export it to her country, Algeria, which means that the car sold to her was defective with a hidden defect not revealed by the pre-contract inspection. The fourth respondent practiced fraud and deception and did not inform her of the accident the car had been in and the repairs he made to the car's right chassis, especially since he knew her intention for the sold item was to export it for use in her country, Algeria, and she bought it from a company ...... and it was repaired, making the contract concluded between the two parties accompanied by a defect of concealment in stating the defects of the car. If the buyer had known about them before the sale, she would not have entered into the contract for this reason, which fulfills the conditions for rescission due to the established defect as previously explained. Rescission entails returning the price to the buyer and retrieving the sold item to its owner. Furthermore, this defect in the car, which the expert confirmed, rendered it unfit for use and its registration by the competent authorities impermissible, as the defect relates to the car's essential components, namely the chassis that carries its body, which cannot maintain its course on the road without being free of defects. This is considered a fundamental matter required by the procedures for a road license, as it relates to safety and security procedures. The damage that occurred to the car due to its exposure to rain was caused by the seller's refusal to take it back after the buyer learned of the defect after the contract and did not accept it. This is the reason that led to that damage, and the buyer is not liable for it, as she kept the car in a safe place. The rain is considered a sudden downpour accompanied by heavy rain and damage, and its occurrence with such intensity and abundance was not anticipated, especially since the seller's refusal to...

The Federal Supreme Court

take delivery of the car from the buyer as soon as she learned of the defect led the buyer to keep it to ensure the return of her money, in application of the rules of lien on the sold item or the price to guarantee the rights of the contracting parties in case of breach by one of them before the other. As this is the case, and the responsibility of the fourth respondent (the seller) for the latent defect in the car subject to the sale has been established, as it was old and affected the value of the subject matter, and the buyer was unaware of it, and it has not been proven in the papers that the seller informed her of this defect before the contract, nor has the buyer's acceptance and consent to it been proven. As the appealed judgment did not adhere to this view and held the buyer liable for all the incidental damage caused by the seller's refusal to take the car back based on the buyer's request, and that whatever the opinion on the value of the damage, the latent defect that occurred in the car before the contract affected the basic components of the car, rendering it unfit for driving and licensing, even if it had not been exposed to any other damage that the buyer did not cause. All this flaws the appealed judgment and necessitates its cassation.

Whereas the appellant also objects in the second ground to the appealed judgment for violating the law and error in its application, as it refused to award compensation to the third respondent (the buyer) while the responsibility of the fourth respondent (the seller) for the defect in the car was established, which necessarily caused harm to the buyer due to this defect, requiring her to be compensated for this harm, which flaws the judgment and necessitates its cassation.

Whereas this objection is valid; because it is established that every harm obliges its perpetrator to compensate, and the compensation is estimated in all cases according to the extent of the harm suffered by the injured party and their loss of profit, provided that this is a natural consequence of the harmful act. The appealed judgment did not award the buyer (the third respondent) the due compensation despite the seller's established responsibility for the defect in the car and consequently his liability for the harm that befell her, which necessitated a judgment for compensatory damages for this harm. This is what the appealed judgment violated, which flaws it and necessitates its cassation.

Whereas the appeal in its two aspects is valid for a ruling, the court will proceed to rule on the merits as stated in the operative part of the judgment - by rejecting the appeal and upholding the appealed judgment.