Signed in as:

Access is brought to you by

Sign in to an additional subscriber account

This account has no valid subscription for this site.

Oxford Law Citator

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

From: Global Sales and Contract Law

Ingeborg Schwenzer, Pascal Hachem, Christopher Kee

Content type:: Book content

Product:: International Commercial Law [ICML]

Published in print:: 26 January 2012

ISBN:: 9780199572984

Prev | Next

Subject(s):: Conformity of goods — Failure to deliver and damages — Burden of proof and damages — Breach of contract — Conformity of the goods

(p. 361) (p. 362) 31 Conformity of the Goods

A. General 31.01
1. I. Historical Development 31.02
  1. 1. Caveat Emptor 31.03
  2. 2. Non-Conformity v Non-Delivery 31.09
    1. (a) Generic v Specific Goods 31.11
    2. (b) Aliud v Peius 31.15
    3. (c) Consequences 31.21
2. II. Civil Law Systems 31.26
  1. 1. Guarantee and Serious Defect 31.28
  2. 2. Vice Apparent v Vice Caché 31.30
3. III. Common Law Systems 31.33
  1. 1. Conditions and Warranties 31.33
  2. 2. Express and Implied Warranties 31.34
4. IV. Uniform and Modern Approach 31.38
  1. 1. Uniform Concept 31.39
  2. 2. Contract and Default Provisions 31.42
  3. 3. Domestic Systems Following the CISG 31.45
B. Contractual Requirements 31.46
1. I. General 31.46
  1. 1. Statutory Requirements 31.47
  2. 2. Express Statements, Public Statements, Usages 31.48
  3. 3. Description and Guarantee 31.53
  4. 4. Buyer’s Subsequent Specification 31.54
2. II. Quantity 31.57
  1. 1. Traditional Approach 31.58
  2. 2. Uniform and Modern Approach 31.63
  3. 3. Permissible Discrepancies 31.68
3. III. Quality 31.70
  1. 1. Features 31.72
  2. 2. Sample and Model 31.74
  3. 3. Origin 31.77
  4. 4. Good Manufacturing Practices (GMP) 31.79
  5. 5. Public Law Requirements 31.82
  6. 6. Ethical Values and Codes of Conduct 31.86
4. IV. Nature and Description 31.93
  1. 1. Domestic Systems 31.93
  2. 2. Uniform Approach 31.96
5. V. Packaging 31.98
6. VI. Other Aspects 31.101
  1. 1. Examples 31.101
  2. 2. Domestic Classifications and Consequences 31.102
  3. 3. Uniform Approach 31.105
C. Default Requirements 31.106
1. I. Fitness for Particular Purpose 31.108
  1. 1. Legislative Approaches 31.112
  2. 2. Particular Purpose Made Known to Seller/Accepted by Seller 31.115
  3. 3. Buyer’s Reliance on Seller’s Skill and Judgement 31.122
2. II. Fitness for Ordinary Use 31.127
1. General 31.127
2. Standard 31.131
3. Durability 31.133
4. Public Law Requirements 31.135
5. Suspicion 31.140
6. Ethical Values 31.143
1. III. Packaging 31.145
1. Domestic and International Approaches 31.146
2. Scope of Duty 31.148
D. Immaterial Discrepancies 31.150
1. I. Domestic Approaches 31.152
2. II. Uniform Approach 31.154
E. Buyer’s Knowledge of the Non-Conformity at Contract Conclusion 31.156
1. I. Scope 31.159
2. II. Time of the Conclusion of the Contract 31.162
3. III. Pre-contractual Duty to Examine 31.163
4. IV. Seller’s Guarantee or Deceit 31.164
F. Time of Non-Conformity 31.165
1. I. General 31.165
2. II. Conclusion of the Contract 31.166
3. III. Time of Delivery 31.168
4. IV. Passing of Risk 31.169
5. V. After Passing of Risk 31.171
G. Burden of Proof 31.173

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 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 current sale of goods laws without first giving consideration to 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 market place 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 in the beginning of the nineteenth and twentieth centuries respectively.⁸ However, both codes also adopted the so-called aedelitian 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. (p. 363) 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 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 majority that ‘every one 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 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 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 (p. 364) example whether inadequate packaging of the 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 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 case²² the buyer contracted for the delivery of a used forklift with automatic transmission. The seller then delivered a forklift with 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. 365) 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 costitutent 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. 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.²⁷ In traditionally structured civil law (p. 366) legal systems operating with this distinction this means that the buyer may return the goods against the price (actio redhibitoria)²⁸ or reduce the purchase price (actio quanti minoris).²⁹ If the case is found to involve the delivery of a different thing altogether (aliud), the case is one of non-delivery³⁰ and hence the remedial regime for general non-performance applies.³¹ In traditionally structured civil law legal systems, this means that the case is one of delay.³² 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.³³

31.23 Furthermore, where the goods delivered are classified as a peius, that is, as non-conforming goods, legal systems typically require the buyer to examine the goods delivered and notify the seller of any defects discovered.³⁴ Sometimes the time periods within which this has to be done are extremely short.³⁵ Consequently, the question of whether the goods delivered are classified as a peius or aliud determines whether the buyer has to examine and notify. Especially in difficult cases like the ones mentioned above,³⁶ a buyer relying on the goods being an aliud runs the risk of losing its remedies for breach of contract in the event the court or tribunal decides it was in fact a case of peius. Thus, in practice, the buyer is always well advised to examine the goods delivered and notify the seller of any discrepancies with the contractual description.

31.24 Finally, the relevant limitation periods typically differ significantly depending on whether the case is one of non-conformity (peius) or non-delivery (aliud).³⁷ For example, Roman law had established a short limitation period of six months for redhibitory actions based on non-conformity.³⁸ This restrictive approach is still maintained in traditionally structured civil law legal systems.³⁹ On the other hand, limitation periods for cases involving an aliud are typically longer. This is due to the fact that in these instances the relevant actions are based on general non-performance. In particular, among these actions is the claim for specific performance which in civil law jurisdictions is considered the primary remedy of the buyer in case of non-delivery.⁴⁰ As this claim is attributed particular value in civil law jurisdictions, the applicable limitation periods are typically considerably longer⁴¹ and typically apply to all remedies for general non-performance, including damages and avoidance of the contract.

31.25 From the perspective of the seller the distinction of aliud and peius entails the inherent danger that it may be confronted with a claim for specific performance even a considerable number of years after delivery.⁴² In the same way as the buyer takes a significant risk when not giving (p. 367) proper notice believing that the goods will be classified as aliud, the seller takes a significant risk when changing its position believing that the goods would have been classified as peius and notice is no longer timely and the typically short limitation period has run out.

II. Civil Law Systems

31.26 Under the Roman principle of caveat emptor, the seller was only liable for defects where it had given an express warranty or guarantee for the respective features or functionalities. Even when the aedilitian remedies of actio redhibitoria (return of goods against the price) and actio quanti minoris (reduction of the price) were broadened in scope to cover all sales contracts, the seller was liable for damages only in case of an express warranty or fraud.

31.27 In some civil law legal systems the focal points still are whether the seller has given a guarantee for the quality of the goods or for the presence of certain features. In other civil law jurisdictions a distinction is made between obvious defects (vice apparent) and hidden defects (vice caché).

1. Guarantee and Serious Defect

31.28 In some civil law jurisdictions the language of the respective codes suggests that remedies for non-conformity are only triggered if the seller has either specifically guaranteed the presence of certain features of the goods or where the goods were defective in a way so as to substantially diminish or even exclude their intended use. A notable proponent of this approach is Switzerland.⁴³ In Germany the Civil Code has followed this approach until its modernization in 2002.⁴⁴ However, this language must not be understood so as to require a fundamental breach. Rather, in practice it is only required that the defect is not wholly insignificant.

31.29 The German approach was particularly restrictive in that the buyer—at least under the law as written in the German Civil Code before 2002—could only return the goods against the price or claim a reduction of the purchase price.⁴⁵ However, the buyer only had a damages claim if the seller had given a guarantee or fraudulently concealed the defect.⁴⁶ However, no damages claim existed where the goods were defective and there was no guarantee and the seller had not known of the defect. This situation forced the courts to invent a separate claim for damages called Positive Vertragsverletzung only two years after the entry into force of the German Civil Code.⁴⁷ The Swiss approach is significantly more buyer-friendly as no guarantee or fraud and not even negligence is necessary for claiming direct damages where the goods are returned against the purchase price.⁴⁸ Indirect damages are available already in case of negligence.⁴⁹

2. Vice Apparent v Vice Caché

31.30 The distinction of obvious defects (vice apparent) and hidden defects (vice caché) is the model established in the French Code Civil. From there it found its way into numerous civil law legal systems around the world, especially the Middle Eastern and Arab legal systems as well as the sub-Saharan legal systems with French tradition.

31.31 Under the French model the seller is only liable for hidden defects. These are typically defined as defects that cannot be discovered by a superficial inspection of the goods such as counting, weighing, or measuring them. In contrast, obvious defects are defined as defects that can be easily discovered without greater efforts. Hence, the buyer is considered to have accepted these defects when contracting for the goods despite the presence of these obvious defects. Of course, (p. 368) this model assumes that the seller, the buyer, and the goods are in the same place so that the buyer would naturally be aware of the obvious defects before the conclusion of the contract. Whether a certain gravity of the defect is required to trigger liability of the seller is not always clear. It appears that such matters will be addressed when it comes to the question whether avoidance of the contract is justified in light of the defect.⁵⁰

31.32 The distinction of vice apparent and vice caché does not work in its traditional way in cases of distance selling. Although the defect may be obvious, for example the car sold is the wrong colour, the defect is hidden to the buyer as it is not in the same place. Hence, in distance-selling contracts any defect must be treated as a hidden defect where the buyer has not seen the goods before or at the time of the conclusion of the contract.

III. Common Law Systems

1. Conditions and Warranties

31.33 Common law jurisdictions which follow the English model categorize contract terms as ‘conditions’, ‘warranties’, or intermediate (or innominate) terms.⁵¹ This distinction is of importance primarily with regard to the question whether the breach entitles the aggrieved party to avoid the contract.⁵² This is discussed in further detail elsewhere in this text and for present purposes is merely summarized.⁵³ The breach of a condition entitles the non-breaching party to reject the goods, avoid the contract, and recover the price independent of the seriousness of the breach. The underlying assumption is that the breach of a condition is always serious enough to justify avoidance. On the other hand the breach of a warranty only gives rise to damages but does not allow avoidance of the contract. The breach of an intermediate term allows for avoidance of the contract only where the breach is serious enough to be considered as going to the root of the contract.⁵⁴ Whether a term is a condition, warranty, or intermediate term largely depends on the interpretation of the contract. However, the English-modelled sale of goods Acts provide statutory allocations for a number of practically important scenarios such as fitness for purpose,⁵⁵ third party property rights,⁵⁶ and timely delivery.⁵⁷

2. Express and Implied Warranties

31.34 Among the common law jurisdictions, the USA has parted ways with the traditional English distinction of conditions and warranties. The term warranty has, however, survived. Today the USA UCC distinguishes express and implied warranties.

31.35 Express warranties are created in a number of situations; § 2-313(1) UCC establishes three situations in which express warranties are created, first where the seller has specifically affirmed a fact or made a promise to the buyer that becomes the basis for the bargain. From a functional perspective this is quite close to the approach in those traditional civil law jurisdictions where a special guarantee was required for the seller’s liability. Secondly, an express warranty is created where the description of the goods became the basis of the bargain. Thirdly, sales by sample are sales under the express warranty that the goods will match the sample.

(p. 369) 31.36 Implied warranties on the other hand are requirements that are so common that express language in the contract is not needed to oblige the seller to comply with them.⁵⁸

31.37 The distinction of express and implied warranties has its main practical effect in the context of exclusion of liability clauses. Where an express warranty has been created, the seller cannot by virtue of another clause in the contract limit or even exclude its liability in cases where the express warranty is breached.⁵⁹ The obligation of the seller to comply with implied warranties can, however, be expressly negated by the parties thus limiting or excluding the seller’s liability in case of breach.⁶⁰

IV. Uniform and Modern Approach

31.38 At the international level, and in modern domestic codifications, it has been possible to adopt a broad notion of conformity.⁶¹ Pursuant to this notion the goods delivered have to be in accordance with the contract. If this is not the case, the situation will be treated as one of non-conformity—in contrast to the domestic approaches which may classify them as separate heads of action. As a consequence, the above-discussed difficulties caused by subtle distinctions which plague legal systems are not found.

1. Uniform Concept

31.39 At the international level, the CISG, the OHADA AUDCG, as well as the DCFR treat the delivery of an aliud and the delivery of a peius as instances of non-conformity.⁶² Consequently the same set of remedies is available to the buyer. Furthermore, the distinctions, important in common law jurisdictions, between conditions and warranties, and again between express and implied warranties do not exist at the international level.⁶³ It should also be noted that discrepancies in quantity as well as breaches of packaging requirements and additional duties are treated as non-conformities.⁶⁴

31.40 Additionally, under the CISG as well as under the DCFR it is not necessary to make certain various civil law distinctions, such as between ordinary characteristics of the goods and special warranties, or the distinction between vice apparent and vice caché.

31.41 In contrast, the OHADA AUDCG has retained the French distinction between vice apparent and vice caché in its Article 259.⁶⁵ This approach is somewhat surprising as Article 255 OHADA AUDCG is almost identical to Article 35 CISG.⁶⁶ The combination of these two approaches within one Act may lead to frictions with considerable practical implications. The notification requirement in Articles 258, 259 OHADA AUDCG⁶⁷ only applies to defects under Article 255 (p. 370) OHADA AUDCG.⁶⁸ Consequently, the question whether a defect is covered by one or the other provision is of eminent practical importance. However, the delimitation of the respective spheres of application of both provisions is anything but clear.⁶⁹ In this regard, the Act creates legal uncertainty for both seller and buyer.

2. Contract and Default Provisions

31.42 With regard to the conformity of the goods uniform laws and the DCFR have abandoned the domestic distinctions outlined earlier and adopt a uniform understanding of conformity.⁷⁰ This uniform understanding first and foremost focuses on the contract. It is up to the parties themselves to establish the quality requirements for the goods to be met under the contract. This is most clearly expressed in Article 35(1) CISG which states: ‘The seller must deliver goods which are of the quantity, quality and description required by the contract and which are contained or packaged in the manner required by the contract.’ Under this subjective approach to conformity the default rules on conformity only apply in case the contract is silent. The DCFR is, however, phrased in a potentially misleading way as it requires that the goods match the contractual requirements ‘and’ the default requirements.⁷¹

31.43 It is clear from the wording of Article 35(1) CISG that any deviation from the contractual requirements amounts to a non-conformity of the goods; independent of whether the deviation is obvious or hidden, whether the seller has given a gurarantee, or has acted negligently or fraudulently. The distinction of obvious and hidden defect has only survived in Articles 258, 259 OHADA AUDCG where different notification and limitation periods are established for obvious and hidden non-conformities.

31.44 The distinctions between conditions and warranties and express and implied warranties are irrelevant under the CISG. The remedial aspect of these distinctions is dealt with by the CISG in a different way, namely the availability of the remedy of avoidance.⁷²

3. Domestic Systems Following the CISG

31.45 The approach taken by the CISG is followed by modern and recently modernized domestic legal systems in Central Europe, the Nordic systems, as well as Eastern Europe and Central Asia.⁷³ However, the recently modernized East Asian civil law jusridictions, including China, appear to have retained the traditional approach.⁷⁴ In Central Europe the CISG approach was closely followed by the EC Consumer Sales Directive⁷⁵ and hence became obligatory for the European Union Member States to be implemented in domestic legislation at least for consumer transactions.

B. Contractual Requirements

I. General

31.46 As a general rule, the starting point in all legal systems examined here is that it is the contract itself which establishes the standard to be met by the goods. In this sense, goods do not conform (p. 371) to contractual requirements where their actual properties do not match those agreed to under the contract.⁷⁶ Which properties are required is a matter of interpretation and in many instances they can be required impliedly.⁷⁷ This will particularly be the case where references are made to specific norms or manufacturing practices. The properties agreed to do not necessarily have to be negotiated individually but may also arise from standard terms.

1. Statutory Requirements

31.47 The principle of freedom of contract frequently finds expression in the statutory provisions relating to issues of conformity. It is common for these provisions to explicitly reference the parties’ contract as the primary source for determining the standard against which conformity is to be judged.⁷⁸ However, some systems refrain from making an express reference to the contract.⁷⁹ The importance placed on the parties’ contract demonstrates that many legal systems initially adopt a subjective approach to determining questions of conformity⁸⁰—that is, what do the parties themselves consider to be conforming goods?

2. Express Statements, Public Statements, Usages

31.48 Determining the standard for conformity is not particularly difficult where the parties have made express statements on the topic. Statements of this kind include size, weight, technical specifications, descriptions relating to appearance and particular characteristics such as colour. Also included are statements as to manufacturing processes, for example where the parties make reference to international agreements (UN Global Compact, Atlanta Agreement). Some difficulties may arise, however, where these statements, although expressly made, do not form part of the contract because of the presence of an entire contract clause.⁸¹

(p. 372) 31.49 Public statements or advertisements made by the seller or a third party may also establish contractual requirements for the goods to match. In many legal systems such a requirement is found in consumer protection laws. Often such legislation provides that the goods must possess the features which they are held out to have in any public statement made by the seller and any others who have participated in earlier links of the business chain.⁸² However, it is less common to find that this liability has been extended to non-consumer transactions.⁸³

31.50 At the international level, the CISG does not contain a provision expressly dealing with the influence of public statements and advertisements made by the seller or a third party on the contractual requirements for the conformity of the goods. This issue is of particular importance where the seller is liable to the buyer and intends to seek recovery of that liability from the manufacturer. Against the background of laws such as the EC Consumer Sales Directive,⁸⁴ it is advocated under the CISG that public statements made by the seller or other persons in the business chain may be used to derive the standard the goods have to meet under the contract.⁸⁵ Amongst the uniform projects the DCFR follows the same approach and expressly states that such statements set the standards for the conformity of the goods.⁸⁶ It should be noted that the DCFR does not restrict this provision to consumer transactions.

31.51 Despite the potentially strong influence of public statements made by the seller or a third party on the quality requirements for the goods to be met under the contract, this is not to say that mere sales puff makes the seller liable. It is a matter of contract interpretation whether a statement made by the seller or a third party was intended to become a legally binding obligation or whether the seller has merely advertised its product to win the buyer. In particular, the decisive issue is how a reasonable third person in the shoes of the buyer would have understood the statements in question.

31.52 Finally, usages also need to be considered in determining whether the goods delivered under a contract of sale conform to the contract. In some instances the applicability of usages is expressly identified in statutory provisions.⁸⁷ Such usages may contain what would otherwise have been express statements by the parties. However, this does not relieve the party relying on the application of a usage from proving that it is in fact an applicable usage.⁸⁸

3. Description and Guarantee

31.53 In those legal systems which adopt a fault-based approach to liability,⁸⁹ it is important to distinguish between mere descriptive statements in the contract and guarantees. It is only in the latter case that damages for delivery of non-conforming goods will be available without the (p. 373) need for fault.⁹⁰ In addition, in case of a guarantee, it will not be possible for the seller to exclude its liability in case it breaches the guarantee. Whether a statement in the contract or made by the seller merely describes the features the buyer may expect the goods to have or amounts to a guarantee is a matter of contract interpretation.⁹¹

4. Buyer’s Subsequent Specification

31.54 It is possible for a contract to permit the buyer to provide specifications after the contract has been concluded.⁹² Such contracts are particularly popular in the commodities trade, specifically in the trade of raw materials and semi-finished products.⁹³ The specifications made by the buyer subsequent to the conclusion of the contract should then form the standard for the conformity of the goods delivered by the seller.

31.55 Where the buyer fails to make such specifications, a number of legal systems, including uniform law as well as the DCFR, entitle the seller to make the specifications instead.⁹⁴ However, as far as the seller is aware of some requirements of the buyer, the specifications made by the seller must accord with these.⁹⁵ Sometimes this is phrased as the seller’s right to proceed in a reasonable manner.⁹⁶ In any case, failure by the buyer to make specifications does not relieve the seller from tendering delivery of the goods. However, the seller is then still obliged to deliver the standard quality required by default; that is—depending on the individual legal system—average, satisfactory,⁹⁷ or merchantable⁹⁸ quality. Conversely, the buyer remains obliged to take delivery and pay the purchase price. Where as a result of the buyer’s failure to make specifications the time for the seller’s own performance passes, the seller is excused for its delay.

31.56 In certain circumstances the failure of the buyer to make specifications may lead to the avoidance of the contract. There can be no doubt that the buyer’s failure is a breach of contract, at least that of an additional duty. It then depends on the applicable law which requirements for avoidance must be met.⁹⁹ In traditionally structured civil law jurisdictions delay is necessary and potentially an additional period of time unless the buyer’s conduct indicates a final and definite refusal to perform the entire contract.¹⁰⁰ In common law jurisdictions following the English model the obligation of the buyer to make specifications would have to amount to a condition or at least an intermediate term to justify avoidance.¹⁰¹ At the international level and in modern or recently modernized systems the breach of the buyer must satisfy the requirement of a fundamental breach or failing this the seller must have fixed an additional period of time.¹⁰²

(p. 374) II. Quantity

31.57 In all instances, the goods are described using quantitative values. This may occur in a variety of ways; ranging from identifying a single specific good, to listing an exact number, or using broad phrases such as ‘entire harvest’.¹⁰³ Accordingly, the seller is obliged to deliver goods in compliance with these measurements. Where the seller fails to do so, legal systems differ with regard to the classification, and thus the legal consequences of that breach.

1. Traditional Approach

31.58 With regard to discrepancies in quantity, two scenarios can be distinguished. First, the seller may have delivered less than what it was obliged to deliver. Secondly, the seller may have delivered more than the amount contracted for.

31.59 The traditional approach to under-delivery found in many domestic systems as well as ULIS, the predecessor of the CISG, is to treat discrepancies in quantity as a failure to comply with the delivery obligation,¹⁰⁴ and hence not as a non-conformity. Nevertheless, a number of systems establish a notification requirement also for these situations.¹⁰⁵ In these situations legal systems generally agree that the buyer does not have to accept partial performance.¹⁰⁶ Where the buyer accepts partial performance it is entitled to pay only a reduced purchase price¹⁰⁷ and claim damages based on partial non-delivery.¹⁰⁸ In civil law legal systems the buyer also retains the claim for specific performance that is delivery of the outstanding part.

31.60 Commentators have noted that a potential problem arises where a buyer fails to reject the lesser quantity of goods, believing mistakenly, that the remainder is still to be delivered.¹⁰⁹ The interpretation of such a situation proposed by these commentators is that the buyer should not be understood to have ‘accepted’ the goods at all.¹¹⁰

(p. 375) 31.61 Where the seller delivers excess quantity, the buyer typically has a number of options. In many legal systems it may, amongst other options, elect to accept the greater delivery and a consequential amendment to the purchase price based on a contract rate,¹¹¹ or reject the excess but accept the original contracted for quantity.¹¹² Individual legal systems may furthermore grant the buyer a claim for damages for additional expenses other than the price to be paid for the excess quantity.¹¹³

31.62 Whether the buyer can reject the entirety of the goods delivered depends on the applicable law. While common law legal systems generally provide the buyer with this option,¹¹⁴ civil law legal systems are less inclined to do so. In these legal systems, rejection of the entirety is typically only available where it is impossible to separate the excess quantity for redelivery to the seller.¹¹⁵

2. Uniform and Modern Approach

31.63 The approach taken at the international level both by uniform law and projects as well as by modern and recently modernized domestic systems differs from the traditional in that discrepancies in quantity, regardless of their extent, are treated as cases of non-conformity.¹¹⁶ Most importantly, under-deliveries are not cases of partial delivery.¹¹⁷

31.64 It follows from the general classification of discrepancies in quantity as cases of non-conformity that every deviation in quantity requires notification by the buyer to the seller.¹¹⁸ Naturally, the seller may not rely on the failure to make notification if it knew or could not have been unaware of the deviation in quantity.¹¹⁹

31.65 The fact that under-deliveries are not classified as partial deliveries has significant impact on the question whether the buyer may reject the goods on the grounds of discrepancy in quantity. In those legal systems that allow avoidance of the contract only where the non-conformity amounts to a fundamental breach,¹²⁰ the buyer will only be able to reject the entirety of the under-delivery if it constitutes a fundamental breach.¹²¹ Where the under-delivery does not amount to a fundamental breach the buyer is restricted to reduction of the purchase price and damages. This is due to the fact that even where in case of non-delivery the buyer may avoid the contract after the expiration of an additional period of time, this is not applicable in case of (p. 376) discrepancies in quantity as they are treated as non-conformities.¹²² Similarly, where a legal system does not require fundamental breach but requires that the breach be not insignificant, the under-delivery must reach this standard.¹²³

31.66 At the domestic level even those legal systems generally treating under-deliveries as non-conformity often establish provisions in their general contract law that partial performance does not have to be accepted by the obligor. However, such rules must not be used to circumvent the equation of under-delivery and non-conformity.

31.67 In instances of excess delivery the buyer may take delivery also of the excess quantity and be obliged to pay a higher price or reject to take delivery of the excess quantity.¹²⁴ Occasionally, however, deliveries of excess quantity are treated as the sending of unsolicited goods which would exclude a claim of the seller for an increased purchase price.¹²⁵ However, the buyer would have to return the excess goods to the seller where it was obvious that a mistake occurred.¹²⁶ Generally, the buyer’s right of rejection is limited to the extent of the delivery which is in excess of the contractual amount. Nevertheless, there are circumstances in which it may be impossible for the buyer to reject only the amount in excess and in that situation the buyer should be permitted to reject the entirety. This may occur, for example, where it is impossible to separate the excess quantity or where a bill of lading refers to a higher amount than that for which was contracted.¹²⁷

3. Permissible Discrepancies

31.68 Parties are free to define the limits of the obligation to deliver the quantity required by the contract. Consequently, in given circumstances discrepancies in quantity do not give rise to liability on the part of the seller. This may occur because the parties have expressly used phrases such as ‘about’, ‘more or less’ or ‘+/-5%’.¹²⁸ The exact clause in each case will need to be interpreted to determine its purpose.¹²⁹ For example, if the words used in the contract are only intended to provide an estimate of quantity and not a requirement as to quantity then the buyer will not have a cause of action. Circumstances of this kind also frequently provide for a cost adjustment to be made to reflect the actual quantity delivered.¹³⁰ Furthermore, practices established between the parties or trade usages¹³¹ may be relevant.¹³²

(p. 377) 31.69 Where the parties have not agreed on an acceptable tolerance, such a tolerance may nevertheless be recognized by the applicable law. Where the discrepancy in quantity is insignificant¹³³ or so slight¹³⁴ that it would be unreasonable to reject the entirety of the goods, legal systems limit the buyer to a reduction of the purchase price¹³⁵ or a claim for damages in lieu of the missing part.¹³⁶

III. Quality

31.70 Apart from the quantity of the goods the agreement of the parties is also the first reference point for the quality requirements to be met by the goods. The term ‘quality’, however, must be understood in a broad way. In the first place it is naturally understood to encompass the physical features of the goods. Beyond the material aspect of the goods the quality required under the contract increasingly concerns the factual and legal relationships of the goods to their surroundings. For example, the contract may require the goods to be manufactured under the observance of certain ethical or ecological standards. Where the seller fails to comply with this obligation the goods are physically in conformity with the contract. Nevertheless, the contract is breached. Similar observations apply where the goods must not originate in conflict zones or other critical regions.

31.71 Once the quality requirements established by the parties have been determined, these must be met by the seller. Whether the quality required actually diminishes the utility of the goods for other purposes or even its ordinary use is irrelevant for the question of whether the goods conform to the contract or not.¹³⁷ Furthermore it is also irrelevant whether the goods delivered are of superior quality than agreed upon in the contract, as the goods delivered do not match the requirements of the contract.

1. Features

31.72 In the typical scenario the parties will first of all address the features the goods must possess under the contract.¹³⁸ The infinite number of features parties might require make it impossible to provide specific remarks on this point instead only a couple of examples are provided. For wool textiles fibre diameter, crimp, yield, or colour may be laid down in the contract. For silver a certain degree of purity may be required. Where complex machinery is contracted for, the contract may contain technical specifications such as production rates or the expected life span of goods subject to ordinary wear and tear. Wood may be described by the radius of trunk of the tree and a maximum degree of moisture. In the sale of cars a required distance per fuel-usage ratio may be specified. Where goods are manufactured from a variety of substances, specifications (p. 378) as to composition such as intrinsic viscosity may be stipulated. On a more general note the contract may specifically require the observance of industry norms, for example where paper is sold.

31.73 The designation of features the goods must possess according to the contract is a different way of establishing quality requirements than requiring fitness for a particular purpose. For example, where the buyer intends to use cable for infrastructure projects in the desert and therefore specifically defines the requirements for the isolation of the wire in order to withstand extreme temperature changes, this is a designation of features the goods must possess. Where, however, the buyer merely informs the seller that the cable is to be used in the desert for infrastructure projects, this is imposing a requirement for fitness for this particular purpose and it is then up to the seller to establish what features the cable must possess.

2. Sample and Model

31.74 Although there are sometimes default provisions regarding sale by sample or model,¹³⁹ such a sale is more properly considered under the heading of contractual requirements because a sample or model is simply another way of describing the goods to be purchased.¹⁴⁰ The goods must correspond to the sample. It is, however, not always easy to determine what is required for the goods to correspond to the sample. For example, a carton of squid labelled ‘2007’ containing squid in the weight range of 100 to 150 grams could be interpreted as sample for squid harvested in 2007 or as sample of squid of the weight between 100 and 150 grams harvested in 2007.¹⁴¹ It is then doubtful whether the squid corresponds to the sample if it was harvested in 2007 or whether it must also fall within the weight range of 100 to 150 grams. In some instances trade practices and usages help in determining what constitutes correspondence with the sample.¹⁴²

31.75 Whether an agreement by the parties on the sample is necessary to make correspondence of the goods with the sample a contractual requirement or whether the mere presentation of the sample is sufficient is answered differently by legal systems. Many domestic systems require an express or implicit agreement between the parties on the sample.¹⁴³ In other systems, such as arguably the CISG, agreement is not necessary.¹⁴⁴ Hence, the threshold for the sample to become binding is lower under the latter approach. For the buyer in particular this means that it must examine the sample as the examination at the time of delivery is only to ascertain whether the goods correspond to the sample. Where it has neglected to do so, it cannot rely on (p. 379) the fact that although the goods match the sample they are, for example, not fit for their ordinary use. This danger is naturally higher where the threshold for the sample to become binding is lower.

31.76 Whereas a sample is typically drawn from the goods to be delivered, a model is representative of the goods, but is not actually itself part of the goods. Models may not necessarily reflect all aspects of the goods to be provided. For example, in the sale of t-shirts the model may represent the design but not the type of cloth to be used or the colour. It must then be determined by contract interpretation which conformity requirements for the goods the model represents.¹⁴⁵

3. Origin

31.77 In many instances the origin of the goods or parts used in the production of the goods will be of particular importance to the buyer. There are a variety of reasons why this might be the case. At the one end are instances where the goods may be of the sort which come from conflict zones such as ‘blood diamonds’ which buyers do not wish to even implicitly support. At the other end are buyers who wish to actively support their local growers, producers, and markets. Additionally, the purchasers from resellers may have their own reasonable or otherwise prejudices about the origin of particular goods.

31.78 Origin may also be associated with particular standards of quality. For example, features of crude oil such as colour, consistency, and smell differ depending on the geographic region from which it has been sourced. Similarly, individual locations may have reputations for particularly high-quality goods in certain areas of industry. In other instances certain areas may be known for organically grown crops.

4. Good Manufacturing Practices (GMP)

31.79 As briefly mentioned earlier, the broad notion of quality also covers the way in which goods have been manufactured. In this context the notion of ‘good manufacturing practices’ (GMP) is of increasing importance. This term describes the development that in many areas of industry manufacturing processes for reasons of product safety have been standardized and minimum requirements have been established either by the industry itself or for the industry by governmental or other regulatory bodies.¹⁴⁶ These standards typically involve considerations of sustainability and duties of care. The manufacturing process in accordance with GMP is usually accompanied by extensive monitoring and reporting procedures, often conducted by independent third parties. The documentation of these monitorings and reports then needs to be handed over from the seller to the buyer to prove compliance with GMP. Failing such presentation, the goods will be considered non-conforming irrespective of the actual quality of the goods or the potentially even higher standard of their manufacturing.

31.80 The existence of GMP in a certain area of industry considerably facilitates contract drafting and establishing quality requirements and provides legal certainty to the parties. Establishing compliance of the goods with GMP as a contractual quality requirement relieves the parties from the necessity of drafting extensive definitions of quality in their contract. Rather, the reference to GMP in the contract protects the buyer in its expectation that the goods comply with minimum standards of quality and that it will be able to market the goods where compliance with GMP is required by law. For the seller, GMP establish clear-cut quality requirements and thus ensure that the goods are produced in a way that is lege artis.

(p. 380) 31.81 Where compliance with GMP is provided by law as a requirement for goods to be able to enter the market, the failure by the seller to deliver goods matching this requirement makes the case one of the goods’ compliance with public law requirements. These issues, however, become relevant mostly in the context of the default quality requirements. Where the contract requires compliance with GMP and the goods are not in such compliance, they are always non-conforming.

5. Public Law Requirements

31.82 A specific case of contractually established quality requirements is compliance of the goods with public law requirements. It is clear that where the goods cannot be resold or used by the buyer because their features do not comply with public law requirements applicable to the market in question, they are useless to the buyer. Typical examples for public law requirements directly affecting the marketability and usability of the goods include specific requirements as to product safety, the manufacturing process such as compliance with GMP, or the origin of the goods. Whether goods are admitted to a market then depends on the compliance with such requirements.

31.83 In order to ensure marketability and usability of the goods in the market envisaged, the buyer is thus well advised to make compliance with the applicable public law requirements a quality requirement of the contract. Otherwise it runs the risk of receiving goods matching the requirements of the contract but which cannot be resold due to non-compliance with public law requirements. In particular, in these situations the buyer cannot be certain to be protected by the default rules on non-conformity.¹⁴⁷, ¹⁴⁸

31.84 The compliance with public law requirements may be established as a contractual requirement in different ways. From the seller’s perspective the buyer is ideally aware of the applicable public law rules and explicitly lists or references them in the contract. However, for the buyer this means running the risk of incompleteness and in addition buyers frequently rely on the expertise of the seller, especially where the seller is also the manufacturer of the goods and therefore has particular superior knowledge of the goods and their features. Hence, buyers will often attempt to negotiate a clause requiring compliance with ‘all relevant regulations’. In other instances the buyer explicitly requires marketability and/or usability in a specified market. For the seller this means that it must familiarize itself with the applicable public law requirements and ensure that the goods will comply with them. Whether in this process there exists a duty of cooperation on the part of the buyer in this regard depends on the particular circumstances of the case.

31.85 Where the contract lacks specificity as regards the public law requirements the goods must comply with but instead uses a particularly broad phrasing, difficulties arise if the requirements change between contract conclusion and the time at which conformity of the goods is required. Ideally the parties clarify the relevant dates in their contract, for example by stating that the public law requirements existing at the time of contracting must be observed or that the public law requirements existing at the time of delivery must be complied with. For the seller the latter case in particular creates significant risks, especially where manufacturing of the goods takes considerable time and a change in the public law requirements before delivery requires a restart of the manufacturing process. In these instances questions as to whether the seller is exempt from liability for the resulting delay arise.

(p. 381) 6. Ethical Values and Codes of Conduct

31.86 The debate on ethical values in sales law is quite young and has only recently attracted attention.¹⁴⁹ In the context of domestic law this field remains virtually undiscovered. Apart from questions of illegality and thus validity of the contract, this issue becomes relevant on two levels: first, with regard to the conformity of the goods and, secondly, with regard to damages for breach of contract.¹⁵⁰

31.87 With respect to the first level ‘quality’ also encompasses the observance of basic ethical values where the contract establishes this as a requirement for the conformity of the goods. Hence, where the contract expressly states that in the manufacturing of the goods certain ethical values are to be observed¹⁵¹ or makes reference to rules, principles, or guidelines embodying such standards¹⁵² the seller must deliver goods which were manufactured in this way, otherwise they do not match the contractual requirements.¹⁵³

31.88 Parties may individually declare that they will observe certain ethical standards. Today, probably the most important institution promoting ethical values in international business is the UN Global Compact.¹⁵⁴ This is an institution in which private companies can participate.¹⁵⁵ Where a party has publicly declared its adherence to certain ethical standards such as by membership of the UN Global Compact, its co-contractant is entitled to hold that party to those ethical standards. In essence, this is simply another example of the relevance of public statements made by any party participating in the business chain.¹⁵⁶

31.89 In the absence of such express statements it is necessary to consider whether ethical standards have otherwise become part of the contract. In particular, this may be the case due to practices established between the parties or trade usages.¹⁵⁷ Where the parties have repeatedly agreed on the observance of certain ethical standards, a practice will have been established creating the expectation that future contracts are to be understood in the same way.¹⁵⁸ Individual industries may establish particular usages published in codes of conduct requiring parties to observe ethical standards set out therein.¹⁵⁹ Once these are established as legally relevant trade usages, they apply to a contract in the same manner as any other trade usage.

31.90 In those legal systems distinguishing aliud and peius¹⁶⁰ the question arises whether goods manufactured in violation of ethi

Recently viewed (0)