13. Contract Law II - Inspection and notice-3.pptx

Course Name: Contract Law II Inspection and notice Dr. Selma Mezetovic Medic, MJur (Oxon) [email protected] 2023/2024 What are seller’s obligations in sale of goods contract? Seller’s obligations The seller’s main obligations are to: (a) deliver the purchased goods; (b) transfer the property in...

Course Name: Contract Law II Inspection and notice Dr. Selma Mezetovic Medic, MJur (Oxon) [email protected] 2023/2024 What are seller’s obligations in sale of goods contract? Seller’s obligations The seller’s main obligations are to: (a) deliver the purchased goods; (b) transfer the property in the goods; and (c) hand over the documents relating to the goods Seller’s obligations The goods delivered must conform to the contract (Article 35(1) CISG “(1) The seller must deliver goods which are of the quantity, quality and description required by the contract…” Article 36 (1) The seller is liable in accordance with the contract and this Convention for any lack of conformity which exists at the time when the risk passes to the buyer, even though the lack of conformity becomes apparent only after that time. (2) The seller is also liable for any lack of conformity which occurs after the time indicated in the preceding paragraph and which is due to a breach of any of his obligations, including a breach of any guarantee that for a period of time the goods will remain fit for their ordinary purpose or for some particular purpose or will retain specified qualities or characteristics. Duty to inspect and notify – buyer’s perspective The determinative period of time when the characteristics of the goods have to be present for Article 35 CISG is the passing of risk (Article 36(1) CISG) When does the passing of risk happen? If the buyer has not given notice of the lack of conformity by that moment, the buyer has the burden of proof that the goods lacked conformity before the passing of risk When the lack of conformity was noticeable is of no importance Example The company A concluded a sale of goods contract with company B. A was supposed to deliver the goods in June 2023. The goods concerned were glasses with logo of the company B intended to be used at the special celebration. B stored the goods in their storage, and opened them in the beginning of July only to notice that almost all the glasses were broken. Can B request the money back? Duty to inspect and notify – seller’s perspective What do you think why is this important from the seller’s point of view? Duty to inspect and notify – seller’s perspective Legal security for the seller Reliance by the seller that goods are sold properly No need to protect a negligent buyer What are buyer’s obligations in sale of goods contract? 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. (2) If the contract involves carriage of the goods, examination may be deferred until after the goods have arrived at their destination. (3) If the goods are redirected in transit or redispatched by the buyer without a reasonable opportunity for examination by him and at the time of the conclusion of the contract the seller knew or ought to have known of the possibility of such redirection or redispatch, examination may be deferred until after the goods have arrived at the new destination. Examination and Notice Buyer has responsibility to timely inspect the goods + to notify the seller of potential nonconformity A reasonable opportunity to examine the goods considered on a case by case basis – it depends on the nature of the goods and the nature of alleged defects Time limit for inspection Art 38(1) CISG : “Within as short a period as is practicable in the circumstances“ What if goods are food? Is the inspection simple or complex? Can it be done by pure eyesight or a specialized test is necessary? Are the tests available in that country? Example A Dutch company contracted with an Italian company for the delivery of deep frozen cheese. The buyer argued that the cheese was infested with worms. Since the examination only took place some time after the cheese had been delivered and consequently notice had been given late, the decisive factor was whether the examination had been done in a period as short as practicable. The buyer claimed that an earlier examination had not been possible because the cheese was delivered frozen. The Court did not accept this argument: The buyer could have examined part of the cheese delivery and could have examined the cheese immediately. Time limit for inspection If the goods are transported the examination may be deferred until after the goods have arrived at their destination (Article 38(2) CISG) If the goods are redirected in transit or re-dispatched by the buyer, the examination can be deferred until after the goods have arrived to the new destination (Article 38(3) CISG) The rationale behind Article 38(3) CISG is to avoid the need to open the goods’ packaging before the goods arrive to their new destination Example A steel merchant situated in Germany (G) bought steel sheets from an Austrian manufacturer (A). Those sheets were to be delivered to Rostock but were to be redispatched immediately to the German steel merchant’s Portuguese customer (P). The steel sheets were rolled up, so that an examination was only economically viable by the end purchaser once the sheets had reached their final destination. The Court held that the examination period only started from the time the sheets had reached the Portuguese purchaser. CONTRACT A G G sends further G P Examination period starts only when goods arrive to P. Notice If the buyer discovers a defect, or could have discovered the defect, the buyer has “a reasonable time” from the time of detection to give notice to the seller The buyer has to object to any non-conforming delivery or quantity The notice travels at the addressee’s risk – the buyer must give notice in a way either agreed by the parties or which is warranted in the circumstances “Reasonable time” for notice “Reasonableness under Article 39(1) contains both objective and subjective components. To determine whether the objective component of “reasonableness” is met in a given case, one should refer to available case law to gauge the varying periods of time other Courts applying Article 39(1) have found to be timely or untimely. On the other hand, the subjective component of “reasonableness” should be analysed by taking into account factors specific to the case including the terms of the contract, the characteristics of the goods, and the purpose for which the goods are used.” 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. (2) In any event, the buyer loses the right to rely on a lack of conformity of the goods if he does not give the seller notice thereof at the latest within a period of two years from the date on which the goods were actually handed over to the buyer, unless this time limit is inconsistent with a contractual period of guarantee. The time limit for notification The buyer has to inspect the goods and notify The subjective and objective time period Subjective Art 39 (1) CISG – reasonable time Objective Art 39 (2) CISG – 2 years The courts lean towards 14 days as reasonable Eg in German law the subjective period is “immediately: sometimes one day The quality of the notice Art 39 (1) CISG - specifying the nature of the lack of conformity What exactly is the non-conformity? Some general statements that the goods are not what was expected are not enough Seller must be able to identify the lack of conformity to prepare the repair Example The buyer who was situated in Germany bought shoes from the Italian seller. The buyer refused the payment of the purchase price for the delivered shoes and declared avoidance of the contracts. When giving notice the buyer had stated that shoes were defective in all aspects, the material was defective and finish was different for each pair of shoes – sometimes the shoes were stepped sometimes folded. The Court held that these notices were deficient since it was not possible to ascertain from them the exact nature of the defects and the degree of non-conformity. Article 40 The seller is not entitled to rely on the provisions of articles 38 and 39 if the lack of conformity relates to facts of which he knew or could not have been unaware and which he did not disclose to the buyer. What if seller knew or should have known about the defect? Art 40 CISG – no need for notice Difficult to prove Only when a reasonable commercial person should have known and did not disclose it Consequences of not notifying? Buyer loses his right to rely on the defect (Art 39 CISG) However, under Art 44 CISG he might still be able to get price reduction and damage, without loss of profit, but only if he has an excuse for not notifying The duty to inspect and notify under CISG – there is a song! The CISG Song With L yrics - YouTube