Inquiry obligation

When a seller and a buyer (afterwards) come in to conflict about, for instance, the quality of the bought goods, the buyer will often try to persuade the seller that he has not fulfilled his disclosure obligation, while the seller will say that the buyer has not fulfilled his inquiry obligation. Regardless of the situation, whether it is a part of a toy on marktplaats.nl, hidden defects in a property or a second and car at a car dealer.

The inquiry obligation for a buyer

In general, it is assumed that the buyer can be expected to make the maximum effort to prevent himself of being unknowing about the deal at hand. This is called the inquiry obligation. The buyer wants to reach an agreement and has usually taken the initiative for this. Before the buying of a property this means that one has to research the state of the property. For visible defects and for defects that become apparent after a bit of investigation, the seller is not responsible.

The disclosure obligation for a seller

When the seller is familiar with certain information, of which he knows or has reason to believe that it is relevant for the buyer (like hidden defects in a property), the seller is obligated to inform the buyer about that information. Furthermore, the inquiry obligation does not go as far as being distrustful of the words of the seller. On the contrary: the buyer is allowed to go by these words. If they turn out not to be true, this will fall on the seller’s plate.

The contents of the inquiry/ disclosure obligation

Which inquiry must be performed by the buyer, and which information must be disclosed is almost impossible to fill in beforehand? This is because, as is common in law, everything depends on the specific circumstances in this individual case. A professional party will be expected to do more research than an individual. The professional is expected to know the weak points and what things he has to investigate.

A “trick” for buyers

Because the inquiry obligation of the buyer is leading, but the disclosure obligation goes before it, the buyer profits extra if they can ask a lot of questions about the product to the buyer. With these questions they not only fulfil their inquiry obligation, but also increase the the disclosure obligation of the seller, because they can trust his answers.

Pitfalls for sellers

When a buyer asks many questions that is usually a good thing. It shows that the buyer is genuinely interested, otherwise he would not spend as much time on the matter. At the same time however, the seller must not forget that this not only makes sure he complies to the inquiry obligation, but also increases the disclosure obligation. The seller must answer all the questions truthfully, and also try not to be clever and mislead the buyer. One should also not give an answer that may not technically be untrue, but still provides the wrong idea. I once had a client who denied that it was his signature, but later admitted reluctantly that it was his paraph.

You can understand that the was not inclined to any good will. These fancy tricks are usually explained negatively toward the seller. At the same time, the disclosure obligation does not mean that the seller has to answer everything after the first (open) question. The seller only has to answer truthfully, but does not have to elaborate. A common mistake for sellers is that they give away too much information that was not asked for. This leads to the buyer not always fulfilling his inquiry obligation.

Pitfalls for buyers

There is common mistake buyers make as well. If there are certain questions about the quality of the product in the inquiry, the seller might lower his price. If the buyer agrees to this, he relinquishes his right to complain afterwards, because he ought to have known the risks when he agreed to the drop in price. After all, the buyer would not have paid more if the product had functioned better than initially thought.

Agreements on risk division

In some cases, it isn't possible to research all aspects of the product completely. This is sometimes the case in large transactions, such as company take-overs, where it is practically impossible to check all the different parts of the deal within reasonable time limits. It is also possible that an inquiry has to take place within a limited period of time, for instance when companies want to avoid rumours.

Sometimes companies do not want to give away all the information straight away. In a company take-over, they do not want to aid a potential buyer. For instance, a firm thinking of selling a subsidiary company is not helped by the competition getting all the sensitive information right away. This might lead to the interested company deciding to not to buy anymore, because this information gives them the means to try it on their own. To minimize this risk, companies often release information in phases, with the more sensitive parts kept until a deal is very likely to happen. To avoid these problems, parties can divide the obligations of inquiry and disclosure of the buyer and seller. This way both parties know exactly what they have to inquire/disclose. This must be done on paper however, so this does not become a new point of discussion.

More information

When coming to an agreement you can always let our attorneys evaluate your concept. We can advise you on how to contractually fulfil your inquiry and disclosure obligations. If you have any further questions, we are also at your service.