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Part VII Obligations of the Seller, 31 Conformity of the Goods

From: Global Sales and Contract Law (2nd Edition)

Ingeborg Schwenzer, Edgardo Muñoz

From: Oxford Legal Research Library (http://olrl.ouplaw.com). (c) Oxford University Press, 2023. All Rights Reserved. Subscriber: null; date: 06 June 2023

Contract — Burden of proof and damages — Time of delivery — Conformity of goods — Definition of goods

(p. 389) 31  Conformity of the Goods

A.  General

31.01  In the overwhelming majority of cases the conformity of the goods delivered under a sales contract is the crucial point in legal proceedings. Given this eminent practical relevance, the (p. 390) rules on non-conformity established by a legal system are the acid test for that legal system’s sales law. The topic is complicated by the myriad of approaches to the myriad of issues.

I.  Historical Development

31.02  Traditional positions adopted by various jurisdictions are still visible in modern legal architecture. As such, it is impossible to consider the current sale of goods laws without first considering their historical development.

1.  Caveat Emptor

31.03  One of the oldest principles known to sales law is caveat emptor. This principle originates in Roman law.1 In essence, caveat emptor means that the buyer is purchasing the goods as they are (unless an exception applies2) and takes on the risk that the goods do not conform in some way. Hence, the buyer has no remedy against the seller. The archetypal situation for the principle of caveat emptor is that of a marketplace where both seller and buyer were present and where the buyer was in a position to inspect and examine the goods before entering into the contract.3

31.04  Today, the caveat emptor rule in its original shape most clearly resurfaces in the context of so-called ‘as is’ contracts.4 These are agreements where the buyer purchases the goods in the condition in which they are presented by the seller, thereby taking on the risk of any defects. The parties’ right to enter into such agreements may, however, sometimes be restricted or even be excluded in consumer transactions.5

31.05  Under Roman law the caveat emptor rule did not, however, apply where the seller had either specifically warranted for the goods to possess certain features (stipulatio) or where the seller had fraudulently concealed an existing defect (dolus).6

31.06  Following the rediscovery of Roman law in the twelfth century in Italy, the principle of caveat emptor and the exceptions stipulatio and dolus found their way into all early legal systems.7 Highly influential civil law codifications such as the French code civil and the German BGB maintained this approach also at the beginning of the nineteenth and twentieth centuries respectively.8 However, both codes also adopted the so-called aedilitian remedies of actio redhibitoria (return of the goods against the price) and actio quanti minoris (reduction of the purchase price) which were developed under Roman law subsequent to caveat emptor especially in the fields of slave and cattle trade. Hence the basic civil law model was—and in many legal systems still is—that actio redhibitoria and actio quanti minoris are always available to the buyer. However, damages for non-conformity are still subject to caveat emptor and the exceptions stipulatio and dolus. From France and Germany in particular, this basic model then rode (p. 391) the wave of codifications in the nineteenth and early twentieth centuries to eventually become part of the vast majority of civil law sales laws.

31.07  Common law jurisdictions appear to have become familiar with the principle of caveat emptor in the fourteenth century and it subsequently emerged in the sale of goods laws in the seventeenth century.9 However, in contrast to civil law legal systems, common law jurisdictions did not adopt the aedilitian remedies actio redhibitoria and actio quanti minoris. Consequently, the early Roman position was more strictly preserved in common law legal systems.

31.08  As far as the liability for damages based on non-conformity is concerned, all legal systems operating with caveat emptor and the exceptions stipulatio and dolus face the problem of applying these exceptions in practice. The delimitation of express warranties from mere sale puffs has engaged courts for centuries. A famous common law example is Chandelor v Lopus.10 In that case, a jeweller was sued for selling what was purported to be a bezar-stone.11 The stone in question was not a bezar-stone and while successful at first the claim against the seller was ultimately overturned on appeal. The Exchequer Chamber found by a majority that ‘everyone in selling his wares will affirm that his wares are good, or the horse which he sells is sound; yet if he does not warrant them to be so, it is no cause of action, and the warranty ought to be made at the same time of the sale’.12

2.  Non-Conformity v Non-Delivery

31.09  The distinction between cases of non-conformity and cases of non-delivery is of great practical importance. This importance arises from the fact that in all legal systems the legal consequences differ depending on the classification of the case. For example, in a case of non-conformity, the buyer is typically obliged to examine the goods and notify the seller of any defects discovered.13 Furthermore, the limitation periods for actions based on total non-performance in all traditionally structured civil law jurisdictions are considerably longer than those for actions based on non-conformity.14 In common law, the presumptive measures of damage differ.15

31.10  Obviously, the issue of distinguishing non-conformity and non-delivery does not arise where the buyer has not received anything from the seller. However, where the goods delivered do not possess the features called for under the contract, the question may arise whether the deviation makes the case one of non-conformity or one of non-delivery. This relates both to discrepancies in quantity and quality. Furthermore, the breach of additional duties such as packaging is relevant in this context. With regard to discrepancies in quality the question of whether this is a case of non-conformity or non-delivery is traditionally known as the distinction of peius and aliud—that is, the distinction between the delivery of defective goods and the delivery of a different thing altogether.16 Discrepancies in quantity were—and in many legal systems still are17—treated as partial non-delivery. Finally, the breach of additional duties may give rise to difficulties in classification, for example, whether inadequate packaging of the (p. 392) goods is a non-conformity or a non-performance of an additional obligation. Legal systems traditionally differ in this regard.18

(a)  Generic v Specific Goods

31.11  The first distinction that is traditionally made is between the sale of generic goods and the sale of specific goods. Roman law was based on the sale of specific goods and consequently, legal systems which strictly adhered to Roman law also were structured along with the sale of specific goods. As discussed below distinguishing sales of generic and specific goods also impacts the difficulties arising from the distinction of aliud and peius.19

31.12  Under the sale of generic20 goods the buyer contracts for goods that belong to a certain genus that is defined by certain common features. Obvious examples include oil, grain, coffee, wine, shoes, cloth, and similar mass products. Depending on the contractual agreements these general categories may then be narrowed down as regards specific subspecies within the genus thus carving out more sharply the distinguishing features of the respective genus which in turn manifest the quality requirements under the contract. For example, the contract may be for a certain type of crude oil, such as West Texas Intermediate or Arabian Light; the general term wine may be narrowed down to a certain region like Bordeaux. It is, however, also conceivable that, for example, the genus coffee is restricted to fair-traded coffee.

31.13  The sale of a specific good on the other hand obliges the seller to deliver the individual good with its distinguishing features. Hence, the quality requirements under the contract are not established by the genus to which the individual good might belong but by the individual characteristics of the respective good. For example, Leonardo da Vinci’s Mona Lisa belongs to the genus of oil paintings. However, were the Louvre to sell the Mona Lisa, this would certainly not be a contract for an oil painting. Apart from works of art, the typical objects of a sales contract for specific goods are customized goods such as machines developed and constructed for the specific needs of the buyer21 as well as used goods.

31.14  Drawing the line between generic and specific goods is often not as easy as it might appear. In particular, whether a feature of goods already amounts to a distinguishing feature of an entire genus may be doubtful under circumstances of the individual case. For example, in a leading Swiss case,22 the buyer contracted for the delivery of a used forklift with automatic transmission. The seller then delivered a forklift with a stick shift. In the first step, the Swiss Federal Supreme Court had to determine whether the sale was one of generic or specific goods. It was clear to the court that forklifts in general form a genus. Hence, the question was whether forklifts with automatic transmission form a narrower genus. The court answered this in the affirmative and hence treated the contract as one for generic goods, despite the fact that the forklift in casu was a used one.

(b)  Aliud v Peius

31.15  The distinction of aliud (delivery of a different thing) and peius (delivery of non-conforming goods) is primarily associated with civil law legal systems. However, there have also been instances under English law where the buyer was allowed to calculate its losses as if the seller had not delivered at all because of the gravity of the deviation of the features the goods possessed from those required under the contract. However, common law jurisdictions, (p. 393) especially their remedial systems, are not structured along the lines of aliud and peius but, broadly speaking, focus on the breach only but not the exact cause for the breach to exist.23

31.16  Depending on whether the sale is one for generic goods or a specific good, the distinction of non-conformity (peius) and non-delivery (aliud) works differently. It will be remembered that this issue arises only where the buyer has received goods from the seller. It can be noted already at this point that the most difficulties in this context arise where generic goods are sold.

31.17  As stated earlier, under a sale for a specific good the quality requirements under the contract follow from the specific properties of that very good. For example, a used car is individualized by the serial number as a specific item. Hence, if the good delivered does not possess these specific properties, this is always a case of non-delivery, as the delivered good is simply not the good owed under the contract. If, however, the good possesses all the properties required under the contract but is defective, it is always a case of non-conformity. For example, the tank of the used car leaks gas or the Mona Lisa has a scratch from a negligent security guard.

31.18  The distinction of non-conformity and total non-performance is primarily of practical relevance where generic goods are sold. Here it is necessary to determine whether the lack of a certain feature already rules the goods out of the genus (aliud) or whether they are still encompassed by the genus albeit with a defect (peius). However, while this abstract mechanism seems clear and simple, its application to concrete cases often presents insurmountable difficulties and produces unpredictable results creating legal uncertainty.24

31.19  Whether the delivery of a solo violin under a contract for a concert violin will be found to be a case of non-conformity (peius) or non-delivery (aliud) is almost impossible to predict.25 Similarly, in the above-mentioned Swiss case, it is impossible to predict whether the lack of automatic transmission and the presence of stick shift in a forklift amounts to the lack of a feature constituent for a genus ‘forklift with automatic transmission’ or whether it is merely a defect of a good falling within the genus ‘forklift’ which the contract, however, required to have automatic transmission. The Swiss Supreme Court found ‘forklift with automatic transmission’ to be an individual genus and that the delivered forklift with stick shift already belonged to another genus which made the case one of non-delivery.26

31.20  The difficulty in determining whether an aliud or peius was delivered by the seller is particularly evidenced by a Spanish case. The olive oil delivered could not be imported by the buyer under the applicable public law regime. The Supreme Court found the delivered olive oil to be an aliud.27 This implies that in the opinion of the court ‘olive oil eligible for import’ is a subspecies to the general genus of olive oil and hence that the possibility to import is a distinguishing feature of this individual genus.

(c)  Consequences

31.21  The difficulties in distinguishing aliud and peius are already unfortunate in their own right. This is aggravated by the significant differences in the legal consequences which the outcome of this distinction entails in all legal systems which adhere to this concept.

31.22  The first observation to be made is that where the case is found to be one of non-conformity (peius) the specific remedies for non-conformity apply.28 In traditionally structured civil law legal systems operating with this distinction, this means that the buyer may return the goods (p. 394) against the price (actio redhibitoria)29 or reduce the purchase price (actio quanti minoris).30 If the case is found to involve the delivery of a different thing altogether (aliud), the case is one of non-delivery31 and hence the remedial regime for general non-performance applies.32 In traditionally structured civil law legal systems, this means that the case is one of delay.33 The outcome of the aliud–peius distinction in these legal systems is also of relevance for the remedy of damages which in case of non-conformity is typically more restricted than in case of non-delivery.34