- Introduction
2. Seller’s contract avoidance requires a fundamental breach.
2.1 No fundamental breach if difference in quality is not significant (e.g. the goods are still usable).
2.2 No fundamental breach if defects can be easily remedied (except if buyer has lost confidence in seller’s ability to remedy).
2.3 No fundamental breach if the buyer refuses seller’s offer to remedy.
3. The seller cannot invoke art. 39 if he knew or should have known the defect.
4. The buyer must examine the goods as soon as possible and notify the defects within a reasonable time from discovery.
4.1 Timely examination of the goods supplied – Art. 38(1)
4.2 Timely notification of the non-conformity.
5. The buyer must clearly specify the defect invoked.
6. How can the seller react to buyer’s rejection of non-conforming goods?
7. Conclusions – recommended strategies for the seller.
1. Introduction
One of the main critical issues between buyer and seller arises when the buyer rejects or threatens to reject the goods purchased, arguing lack of conformity, delayed delivery or other reasons for contract termination.
When this happens, the seller must verify whether the buyer’s complaint is well-founded. This frequently implies for the seller difficult and time-consuming discussions and investigations in view of ascertaining the facts invoked by the buyer and the existence of its responsibility claimed by the buyer.
In order to overcome this problem, the CISG entitles the seller, in certain cases, to reject the buyer’s claim without entering into the merits of the complaint. In particular, the seller can object that the buyer’s complaint was late or non-sufficiently precise or that the seller’s non-compliance invoked by the buyer does not amount to a fundamental breach.
It is therefore important that the seller, before accepting to discuss the merits of the complaint, verifies if he can avoid the problem by invoking circumstances which exclude a priori his responsibility.
I intend to verify how these issues are dealt with by the courts under the Vienna Convention on International Sale of Goods (CISG).
– I will first examine the situations where the buyer’s complaint does not amount to a fundamental breach and consequently does not entitle the buyer to avoid the sales contract.
– Thereafter, I will deal with the situations where the complaint is late or not sufficiently precise.
– Finally, I will see how the seller can avoid termination of the sales contract by timely remedying the non-conformity of the goods supplied.
2. Seller’s contract avoidance requires a fundamental breach
In order to avoid the contract, the buyer must prove that the seller’s non-compliance he is invoking amounts to a fundamental breach, according to Article 25 of the CISG.
This is clearly stated in Article 49(1), where it is said that:
The buyer may declare the contract avoided:
(a) if the failure by the seller to perform any of his obligations under the contract or this Convention amounts to a fundamental breach of contract….
As regards the notion of fundamental breach, Art. 25 CISG, provides as follows:
« A breach of contract committed by one of the parties is fundamental if it results in such detriment to the other party as substantially to deprive him of what he is entitled to expect under the contract, unless the party in breach did not foresee and a reasonable person of the same kind in the same circumstances would not have foreseen such a result. »
This means that only breaches of such importance as to fall under Art. 25, are to be considered fundamental. I will not discuss here the definition of fundamental breach in general terms but concentrate on its actual application in case law, with respect to contracts of sale, evidencing which breaches have been considered fundamental by the Courts and which have not.
2.1 No fundamental breach if difference in quality is not significant (e.g. the goods are still usable).
A first important issue to consider regards the level of non-conformity that must be attained in order to qualify the breach as fundamental.
– Breaches of minor importance do not amount to a fundamental breach, especially if the goods can be resold at a reasonable price.
DE-06 – OLG Frankfurt 18-01-1984 – Shoes. Contrary to German national sales law, which except for insignificant deviations in principle grants the right to cancellation of the contract on grounds of a defect, under the Convention, the buyer is expected to accept to a considerable extent even non-conforming goods and to invoke different remedies (reduction of price, damages) to compensate for the defect(s).
Consequently, the buyer normally is required to report explicitly on the defects and the unacceptability of any further use, since otherwise the examination [by the court] would not be possible as to whether or not there had been a fundamental breach as is required for avoidance
DE-26 – BGH 03-04-1996 – Cobalt Phosphate. No fundamental breach if the buyer can reasonably be expected to process or sell the goods elsewhere in the ordinary course of business without disproportionate effort, even if this involves a price reduction.
CH-04 – Swiss Federal Tribunal 28-10-1996 – Frozen meat. The court held that the difference in quality between that as had been agreed and that as was delivered was not significant enough to give the buyer a right to declare the contract avoided, even though experts estimated that the decrease in value of the goods, which were too fat and too wet, amounted to 25.5 per cent.
– On the contrary, defects which have the effect that the goods cannot be marketed amount to a fundamental breach.
IT-02 – Trib. Foggia 21-06-2013 – Sale of wine by Italian producer to German buyer. The court noted that the buyer’s attempts to resell the wine at a reduced price were unsuccessful, and that the buyer had no choice but to keep the wine in storage for years. According to the court this inability to market the wine demonstrated that the product was unfit for its agreed purpose, and that the seller had fundamentally breached its contractual obligations. The buyer was therefore entitled to terminate the contract and the seller had to reimburse the buyer for the advance payment as well as for legal expenses. It also had to ship back to Italy, at its own care and expense, the wine already delivered by a date no later than 60 days following the court’s decision.
DE-43 – LG Landshut 05-04-1995 – The seller delivered clothes that shrank by 10-15% when washed. The Court found that this implied a fundamental breach by the seller and ordered the parties to make restitution concurrently.
This breach of contract also constitutes a fundamental breach of contract under Art. 25 CISG. The breach of contract resulted in such detriment to the [buyer] as substantially to deprive[buyer] of what it was entitled to expect under the contract. The clothes after having been washed did not become just negligibly smaller but had shrunk one to two sizes. As a result, the end customer could no longer wear these clothes after having washed them for the first time. The end customer, thus, would either complain to the retailer or would no longer buy goods from this retailer. Thereby, the retailer suffers a substantial detriment.
2.2 No fundamental breach if defects can be easily remedied (except if buyer has lost confidence in seller’s ability to remedy).
According to prevailing case law, the buyer cannot invoke termination for fundamental breach if the breach can be easily remedied by the seller.
DE-03 – OLG Koblenz 31-01-1997 – Acrylic blankets. Subject to Art. 49, the seller may, even after the date for delivery, remedy at his own expense any failure to perform his obligations, if he can do so without unreasonable delay and without causing the buyer unreasonable inconvenience.
Even a severe defect may not constitute a fundamental breach of contract in the sense of Art. 49 CISG, if the seller is able and willing to remedy without causing unreasonable inconvenience to the buyer.
CH-1 – Jura Cantonal Court 26-07-2007 – Industrial furnace – Defects that can be easily remedied, do not amount to a fundamental breach. In this case it was possible to make a correction, specifically by installing additional protection, namely metal sheeting, the cost of which was not high. That minor defect, which could readily be made good at little expense, was not such as to affect the essential substance of the contract or seriously jeopardize the economic object pursued by the parties. Thus, the court did not acknowledge the buyer’s right of avoidance of the contract, and it dismissed the buyer’s claim.
2.3 No fundamental breach if the buyer refuses seller’s offer to remedy.
DE-03 – OLG Koblenz 31-01-1997 – Acrylic blankets. No buyer’s right to terminate for fundamental breach, because buyer refuses seller’s proposal to remedy the defects.
By its reference to Art. 49 CISG, Art. 48 CISG gives priority to the buyer’s right to avoid the contract over the seller’s right to remedy for his failure to perform as stated in Art. 48(1) CISG.
However, this can only apply in cases in which the delivery of defective goods amounts to a fundamental breach of contract in the sense of Art. 49(1)(a) CISG and Art. 25 CISG. This again depends not only on the gravity of the defect, but also on the seller’s willingness to remedy the defect without causing unreasonable delay or inconvenience to the buyer. Even a severe defect may not constitute a fundamental breach of contract in the sense of Art. 49 CISG, if the seller is able and willing to remedy without causing unreasonable inconvenience to the buyer [Seller] expressed its sincere intention to remedy in the sense of the provision to [Buyer] in the conversation of 28 January 1994. [Buyer] was not justified to refuse [Seller]’s offer to remedy without giving any reason.
3. The seller cannot invoke art. 39 if he knew or should have known the defect.
DE-10 – Bundesgerichtshof 30-06-2004 – Irradiated paprika – The buyer claims that the product is irradiated and terminates the contract, but the notice is sent without respecting the delay of art. 39. The buyer pretends that the seller knew or could not ignore that the paprika was irradiated and that consequently art. 39 does not apply, but he Court decided that further elements were needed in order to decide this issue.
FR-03 – Cour d’appel Douai 20-10-2022 – winders (enrouleurs). The buyer claimed that the products supplied were defective and requested to be reimbursed for the costs sustained in view of their repair. The winders did not have a valid certificate for the EU and the buyer had to repair them.
The buyer’s claim was made more than two years after delivery of the products and consequently the buyer should have lost the right to claim the non-conformity.
However, since the seller could not have been unaware of the non-conformity, the terms for complaining are not applicable to the buyer.
4. The buyer must examine the goods as soon as possible and notify the defects the within a reasonable time from discovery
Article 38 (1) The buyer must examine the goods, or cause them to be examined, within as short a period as is practicable in the circumstances.
Article 39 (1) The buyer loses the right to rely on a lack of conformity of the goods if he does not give notice to the seller specifying the nature of the lack of conformity within a reasonable time after he has discovered it or ought to have discovered it.
4.1 Timely examination of the goods supplied – Art. 38(1)
AU-02 Oberster Gerichtshof 22-11-2011 Andy Warhole’s «New Coke 1985». A unique hand screen print by Andy Warhole framed and kept behind acrylic glass was sold to a company, that purchased it for purely decorative purposes, not being a trader of artworks. When the buyer decided, years after, to have it reframed, significant defects appeared which were not detectable without removing the frame. The defects reduced its value by 35%. Attempts by the seller to resell the print were unsuccessful. This confirms the fundamental breach.
The buyer sued the seller, who objected that the buyer should have inspected the artwork within a reasonable time. The buyer gave notice of the non-conformity 14 days after its discovery, i.e. almost two years after delivery, but – not being an art merchant – he was not required to make a comprehensive examination.
DE-12 – OLG Naumburg – 22-04-2019. The buyer cannot invoke Art. 39(1) CISG if he does not give notice of the non-conformity within a reasonable time from the date on which he should have ascertained the defect
Der Käufer hat gemäß Art. 38 CISG die Ware innerhalb einer so kurzen Frist zu untersuchen oder untersuchen zu lassen, wie es die Umstände erlauben bzw. nach Art. 39 CISG dem Verkäufer innerhalb einer angemessenen Frist nach dem Zeitpunkt, in der er die Vertragswidrigkeit der Ware festgestellt hat oder hatte feststellen müssen, anzeigt und dabei die Art der Vertragswidrigkeit bezeichnet. Für die Untersuchung der Ware ist dem Käufer jener Zeitraum zuzugestehen, welcher ein sorgfältiger Käufer unter den konkreten Umständen des Einzelfalles vernünftigerweise für eine sorgfältige Prüfung benötigt.
NL-2 – Supreme Court – 22-02-1998 – Tiles. The Supreme Court rejected the appeal, pursuant to article 38 (1) CISG which determines that “[t]he buyer must examine the goods, or cause them to be examined, within as short a period as is practicable in the circumstances”. In that sense the Court of Appeals did not err in determining that the buyer should not have postponed the inspection of the tiles after being made aware of their lack of conformity by its customer. The Court of Appeals did not err even in affirming that the buyer should not have postponed informing the seller of the alleged lack of conformity, if necessary, accompanied by a statement conveying its own doubts about the existence of the defects. The Supreme Court also confirmed the Court of Appeals’ reasoning that a period of time of “not even four months” did not constitute a “reasonable period” in the sense of article 39 (1) CISG to give notice of the lack of conformity in question.
US-1 – DC Eastern District of Texas – 14-03-2022. Computer tablets. Tablets that do not work correctly in the US. The buyer did not verify this problem when they were delivered, but only when customers returned them claiming that they were defective.
Mingtel lost the right to pursue a remedy because it failed to examine the tablets within as short a period as is practicable under Article 38 and failed to provide sufficient notice within a reasonable time.
4.2 Timely notification of the non-conformity – Art. 39(1).
DE-12 – OLG Naumburg – 22-04-2019. The buyer cannot invoke Art. 39(1) CISG if he does not give notice of the non-conformity within a reasonable time from the date on which he should have ascertained the defect.
Der Käufer hat gemäß Art. 38 CISG die Ware innerhalb einer so kurzen Frist zu untersuchen oder untersuchen zu lassen, wie es die Umstände erlauben bzw. nach Art. 39 CISG dem Verkäufer innerhalb einer angemessenen Frist nach dem Zeitpunkt, in der er die Vertragswidrigkeit der Ware festgestellt hat oder hatte feststellen müssen, anzeigt und dabei die Art der Vertragswidrigkeit bezeichnet. Für die Untersuchung der Ware ist dem Käufer jener Zeitraum zuzugestehen, welcher ein sorgfältiger Käufer unter den konkreten Umständen des Einzelfalles vernünftigerweise für eine sorgfältige Prüfung benötigt.
Amtsgericht Riedlingen – 22-10-1994. The buyer cannot invoke Art. 39(1) CISG because he did not give timely notice of the non-conformity.
The [buyer] did not notify [the seller] about the lack of conformity within a reasonable time after the [buyer] ought to have discovered it. The notice of lack of conformity was not given to the [seller]’s general agent until twenty days after the receipt of the goods. Even though a complete examination within a short time period was complicated by the Christmas Holidays, it was feasible for the [buyer] to carry out spot checks of the goods. The [buyer] could have done this within a time limit of not more than three days. At the latest, within another three days [buyer] could have notified [the seller] about the non-conformity. This is because – following the [buyer]’s submissions – the ham started to develop mould at the latest two or three hours after unpacking.
The term may be totally different in case of machinery to be installed and will normally run from the date on which the installation is successful or when it appears that the defects cannot be remedied.
IT-4 – Trib. Busto Arsizio 13-12-2001 – Industrial Machinery. The reasonable time for declaring contract avoidance for fundamental breach (art. 49(2)(b) CISG) begins to run when the buyer, after the seller has unsuccessfully tried to fix the defects, becomes aware of the fundamental breach, i.e. that the defects cannot be remedied by the seller.
The Court considered that the buyer’s avoidance of the contract at the moment of the installation of the machine, and not after trying to fix its defects, would have been contrary to the principle of good faith which governs international transactions as well [as domestic ones].
CH-7 – Swiss Federal Tribunal 18-05-2009 – Filling and packaging plant. Theterm for avoidance runs from the date on which the buyer becomes aware, after a long period of seller’s attempts to repair the plant, that seller cannot remedy the defects.
It has been found that the packaging machine achieves an actual performance of 52 vials per minute while 180 vials per minute were required under the contract concluded between the parties. This deviation establishes a fundamental breach of contract in terms of Art. 25 CISG.
Given that [Buyer] had become aware of the fundamental breach of contract in terms of Art. 49(2)(b)(i) CISG only by 14 February 2003, it has not forfeited its right to declare avoidance by making that declaration on 23 March 2003.
5. The buyer must clearly specify the defect invoked
If the buyer does not specify the precise nature of the defects invoked, his notification of the non-conformity is ineffective, and he loses the right to avoid the contract.
IT-3 – Trib. Vigevano 12-06-2000 – Rubber for shoe soles. The buyer had not sufficiently specified the nature of the lack of conformity according to Art. 39(1) CISG. A mere statement that the goods “caused problems” or “present defects” does not enable the seller to determine its conduct regarding the alleged lack of conformity.
DE-7 – OLG Saarbrücken 13-06-98 – Flowers. The buyer lost its right to rely on a lack of conformity of the goods since it failed to specify the precise nature of the defects as required by Art. 39(1) CISG. In the Court’s opinion, it was neither sufficient to give notice of the mere fact of the “bad quality” of the flowers to the seller nor to find fault with the “poor appearance” of the flowers.
6. How can the seller react to buyer’s rejection of non-conforming goods?
The seller can remedy by timely replacing or repairing the non-conforming goods. If he refuses, the buyer is entitled to terminate the contract for fundamental breach.
DE-7 – OLG Koblenz 31-01-1997 – Acrylic blankets. The buyer is not entitled to terminate the contract for fundamental breach, if he refuses seller’s proposal to remedy the defects.
Subject to Art. 49, the seller may, even after the date for delivery, remedy at his own expense any failure to perform his obligations, if he can do so without unreasonable delay and without causing the buyer unreasonable inconvenience
Even a severe defect may not constitute a fundamental breach of contract in the sense of Art. 49 CISG, if the seller is able and willing to remedy without causing unreasonable inconvenience to the buyer.
However, if the buyer has reasons to believe that the seller is unable remedy timely, his right to terminate the contract for fundamental breach cannot be excluded.
DE-4 – Bundesgerichtshof – 25-09-2014. Despite several attempts at repair, the [seller] failed in producing a functional and usable tool. Furthermore, it had to be taken into account that the [buyer] had been under time pressure because of existing delivery obligations towards its customers, which the [seller] had been made aware of in their extensive correspondence. Since the [buyer]’s confidence in the [seller]’s ability was rightly shaken in this situation, the fact that the non-conformity of the goods could be remedied did not exclude a fundamental breach of contract.
7. Conclusions – Recommended strategies for the seller
As we have seen above, under the CISG the seller has several ways to reject buyer’s complaints regarding the goods sold without engaging a discussion about its merits.
This constitutes an important advantage of the CISG for the seller, with respect to many domestic laws on sales and can be an important reason for opting in favor of the Vienna Convention.
If a seller wants to take full advantage of this opportunity, he must work out a strategy in view of rejecting a priori complaints which would not comply with the prerequisites for contract avoidance by the buyer.
Thus, the seller should verify:
– whether the claim has been notified in due time,
– whether the defects have been sufficiently specified, etc.
– whether the defects claimed are sufficiently important to be considered as a fundamental breach.
In the presence of these situations the seller can reject the buyer’s claim without needing to discuss its merits.
This does not, of course, exclude the possibility of an amicable settlement of the dispute for commercial reasons, but the fact of having rejected a priori buyer’s claim would put the seller in a stronger negotiating position, based only on his willingness to maintain a good relationship with its counterpart.
Fabio Bortolotti, IDI President and Country expert for Italy
