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Part VII Obligations of the Seller, 34 Examination and Notice

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

Remedies for breach of contract — Applicable law — Documents — Conformity of goods — Taking delivery and obligations of the buyer — Examination and notice and obligations of the seller — Third party property rights and obligations of the seller

(p. 453) 34  Examination and Notice

A.  General

I.  Rationale and Comparative Overview

34.01  The idea of a buyer having to examine the goods and subsequently notifying a seller of any defects discovered is known to the overwhelming majority of legal systems. However, there is a significant difference in both the purpose and the operation of this concept.

34.02  It should be noted from the outset that the failure by the buyer to examine the goods and notify the seller of any non-conformities discovered does not give rise to any liability on the (p. 454) part of the buyer. The legal consequences of such a failure are legal detriments to the buyer in that it loses some or all remedies for breach of contract.1 Hence examination and notice—although termed obligations—cannot be compared to obligations such as the payment of the purchase price. Examination and notice are not actionable by the seller. In other words, the seller cannot sue the buyer for not having examined the goods and failed to give notice.

1.  Strict Notice Requirement

34.03  Many civil law legal systems traditionally operate with a very strict notice requirement,2 although in a number of them it is only established for commercial transactions.3 This means that in order to preserve (all of) its remedies for breach of contract the buyer must examine the goods and notify the seller of any defects. A certain relief is achieved by provisions in some legal systems which dispense with the notice requirement where the goods delivered differ in kind or quantity from the goods due under the contract so greatly that the seller cannot reasonably assume the buyer to accept the goods.4 The same result is achieved in those legal systems that distinguish between peius and aliud.5 The duty to examine and give notice applies to a peius only but not to the delivery of an aliud.

34.04  The basic concept of a strict notice requirement is, by and large, undisputed in these legal systems. The majority view argues that the strict notice requirement is necessary to create legal certainty in commerce and thus enhance quick and uncomplicated transactions.6 However, there are legal systems where it is doubted that such strong protection of the breaching seller at the expense of the aggrieved buyer can be justified.7 Naturally, in light of the fact that the buyer is precluded from asserting any remedies for breach of contract8 should it fail to comply with the notice requirement, in practice this requirement has emerged as the seller’s most forceful—and thus primary—defensive weapon.

(p. 455) 2.  Intermediate Approaches

34.05  Intermediate approaches can be found in the common law systems, mixed jurisdictions,9 as well as in the majority of Eastern European and Central Asian legal systems.10

34.06  In those common law legal systems which follow the English model a buyer who fails to examine and notify the seller of any non-conformity within a reasonable period of time loses the right to reject the goods and to avoid the contract.11 The buyer is then considered to have accepted the goods as they are.12 Hence, common law jurisdictions following the English model do not directly speak of an obligation of the buyer to examine the goods and notify the seller of defects. Instead the buyer has a right to inspect the goods before acceptance and the buyer’s request to make use of it cannot be refused by the seller.13 Consequently, the prospect of losing the right to reject the goods and to avoid the contract imposes an indirect obligation on the buyer to examine and notify. In contrast to the strict notice requirement of civil law origin, the English model does not deprive the buyer of all remedies in case it fails to timely notify the seller of defects. Rather, only the right to avoid the contract is lost while the right to claim damages for non-conformity is generally retained.14

34.07  In the USA the situation is different insofar as, in essence, two notice requirements exist. The first notice requirement mirrors the English one in that the buyer is deemed to have accepted the goods if it fails to timely15 notify the seller of non-conformities.16 The buyer then loses the right to avoid the contract.17 In certain instances this right can be restored by the revocation of acceptance.18 After acceptance the buyer generally retains the right to claim damages for non-conformity. However, at this point the second notice requirement is triggered. If after acceptance the buyer fails to notify the seller of any non-conformity within a reasonable period of time the buyer then also loses the right to other remedies, especially damages.19

34.08  The majority of Eastern European and Central Asian legal systems expressly oblige the buyer to examine the goods and notify the seller—absent any agreement to the contrary—within a reasonable period of time.20 However, they go on to state that in case the buyer fails to comply with this requirement, the seller can refuse cure if the seller can prove that due to the failure of the buyer to give proper notice, cure has become impossible or would cause disproportionate (p. 456) costs.21 These legal systems are silent as to the fate of the other remedies, namely damages and avoidance. It would seem that the buyer is not deprived of these.

3.  No Notice

34.09  A notable exception to the general acceptance of the idea of the buyer examining the goods and notifying the seller of defects to preserve its remedies for breach of contract is to be found in France and some legal systems following the French legal tradition. Here, no explicit requirement for the buyer to examine the goods and notify the seller of defects is established. Rather, the buyer has to bring a claim based on breach of contract either within a specified limitation period22 or within a ‘bref délai’.23

4.  International Level

34.10  At the international level, uniform laws as well as the DCFR are familiar with the requirement to examine the goods and notify of defects.

34.11  The CISG deals with this requirement in its Articles 38–40, 43, 44.24 Pursuant to these provisions the buyer must examine the goods delivered (Article 38 CISG) and give notice of defects (Article 39 CISG). The seller may not rely on a failure to give notice where it could not have been unaware of the non-conformity (Article 40 CISG). The notification requirement also encompasses third party rights or intellectual property rights held by third parties in the goods (Article 43 CISG).

34.12  These provisions gave rise to much debate during the Vienna Conference at which the CISG was drafted.25 In particular, representatives from developing countries opposed the inclusion of the notice requirement into the Convention as they feared that parties located in developing countries would typically not be aware of such provisions and their requirements.26 A compromise was eventually found by softening the notice requirement via Article 44 CISG which states that the failure of a buyer to give notice of defects within a reasonable period of time does not deprive it of the right to reduce the purchase price or claim damages, except for loss of profit, where the buyer has a reasonable excuse.27

34.13  Indicative of the growing sophistication of African traders, it appears that these concerns were no longer relevant when drafting the OHADA AUDCG in 1998. This Act in fact contained an even stricter notice requirement than the CISG as the cut-off period for notification of defects is limited to one year28 as opposed to the two years in Article 39(2) CISG.29 Furthermore, there is no equivalent to the reasonable excuse exception found in Article 44 CISG.

(p. 457) 34.14  The 2011 OHADA AUDCG displays significant changes to the 1998 position. In particular it distinguishes between apparent and hidden defects with regard to the length of the notification period. For defects apparent at the time of taking delivery the notification period is one month.30 For hidden defects the period for giving notice is one year after the defect should have been discovered.31

34.15  Among the uniform projects only the DCFR contains a notification requirement.32 This is not surprising as it is the only one of them which contains a specific part on sales contracts.

II.  Legal Basis for Buyer’s Notice Requirement

1.  Contract and Usages

34.16  In accordance with the principle of freedom of contract it is first for the parties to establish a notice requirement and any modalities of examination and notice on the side of the buyer.33 Where this is not done expressly in the contract, it may be necessary to consider usages which may apply. These usages in turn may establish such a notice requirement.34

2.  Statutory Default Provisions

34.17  Where the contract is silent and a notice requirement does not arise from usages, this requirement is frequently found in statutory default provisions.35

3.  Good Faith

34.18  Where the contract is silent and no statutory default provisions establish a notice requirement on the side of the buyer, legal systems occasionally acknowledge that this requirement can arise from the general principle of good faith.36

III.  Scope of Notice Requirement

34.19  While the notice requirement is generally acknowledged by the majority of legal systems, it is not without limits. In this regard, legal systems display a considerable variety when it comes to the actual imposition of this requirement—both in the context of the transactions to which it applies and the types of breach that require notification.

(p. 458) 1.  Type of Breach

34.20  The notice requirement, however, does not necessarily apply to all kinds of breaches. In particular, it should be remembered that the notification requirement as far as applicable only applies to cases which the applicable law classifies as cases of non-conformity.

(a)  Non-Conformity

34.21  As discussed above, a significant number of legal systems still adhere to the traditional distinction of aliud and peius.37 This distinction is again a factor in regard to the scope of the notice requirement. A legal system may require notice only in case of non-conformity but not in case of delivery of a different thing—that is, non-delivery.38 Other legal systems which distinguish aliud and peius consider the degree to which the goods delivered differ from those described in the contract.39 Where the difference is minimal, notice is still required. Where the difference is so substantial that it would be unreasonable for a seller to assume acceptance, notice is not required.

34.22  It has previously been noted that a deficiency in quantity may be considered a case of non-conformity.40 This generally means that the buyer has to notify the seller not only of defects but also of missing goods or parts of a delivery.41 This may lead to the situation that the buyer has to pay for goods that were never delivered because it failed to notify the seller in time. In such cases it may be irrelevant that the buyer believed erroneously that the missing goods would be subsequently delivered. At the international level, the DCFR exempts the buyer from the notice requirement where there is a deficiency in quantity and the buyer has reason to believe that the seller would subsequently deliver the missing goods.42

(b)  Documents

34.23  If documents are also subject to the rules of conformity, then as a matter of consequence all rules relating to conformity must also apply to documents including examination and notice, for example where a bill of lading displays wrong shipment dates.

(c)  Third Party Rights

34.24  A distinction is made in most jurisdictions between physical non-conformity and goods which are the subject of third party rights.43 In many legal systems the notice requirement only applies to physical non-conformity.44 However, in those legal systems operating with the Roman law concept of eviction, in the context of third party property rights and encumbrances the buyer is typically under an obligation to notify the seller of the third party attempting eviction of the buyer or to raise before the courts of law a claim against the seller, as a third party, in the dispute between the buyer and the person claiming (p. 459) rights over the goods.45 From a functional perspective this is a separate notice requirement for legal defects. Other legal systems, including the CISG, simply establish a separate notification requirement for legal defects that in essence mirrors the notification requirement for physical non-conformity.46

2.  Transactions Covered

34.25  The application of the notice requirement may, however, not only depend on the type of breach in question but also on the type of transaction concerned. Where legal systems restrict the application of the notice requirement to certain transactions, they typically focus on the identity of the contracting parties and the subject matter of the contract.

(a)  Identity of Contracting Parties

34.26  In many civil law legal systems the notice requirement is contained in the commercial code47 in which case it does not generally apply to those who are not subject to regulation by these commercial codes in the first instance. Since these codes are limited to merchants,48 or to transactions that pursue a goal of economic speculation or a profit purpose,49 there may not be a requirement on non-merchants or on sales that do not pursue a goal of economic speculation or intend a profit purpose. In these legal systems civil codes regularly do not establish a notice requirement.50

34.27  In other civil law jurisdictions and indeed most common law systems there are no specific commercial codes or acts applicable only to merchants. In some of these systems the notice requirement therefore applies unrestrictedly to all kinds of transactions.51 However, in the majority of these legal systems potentially unreasonable results are avoided by the operation of specific provisions designed to protect consumers.52 Where no such provisions have been established, court practice applies different standards for examination and notice depending on the identity of the parties.