04 - Asynchronous Recording - CISG Rights and Obligations

Article 39 and 38 of the Convention

This lecture focuses on Article 38 and 39 of the CISG, addressing the buyer's duty to inspect goods and notify the seller of any non-conformity.

ULIS Failure

The ULIS (predecessor to the CISG) failed due to lack of ratification because it was created mainly by industrialized states, which neglected the concerns of developing countries.

Seller's Obligation and Buyer's Remedies

  • The seller must deliver conforming goods.
    • Conforming goods match the description or sample and are fit for their ordinary purpose or a specific purpose communicated by the buyer.
  • If the seller delivers non-conforming goods (e.g., Grade B apples instead of Grade A), the buyer has remedies.
    • Claim damages under Article 74.
    • Avoid the contract and claim damages under Article 75 (substitute transaction) or Article 76 (market price measure).
    • Reduce the price under Article 50 if the buyer keeps the non-conforming goods.

Inspection of Goods (Article 38)

  • Article 38 addresses the timing of the buyer's inspection of goods upon delivery.
  • The buyer must inspect goods to discover non-conformity.
  • Article 38 asks, how quickly does the buyer have to inspect the goods?
  • The buyer cannot delay inspection unreasonably (e.g., inspecting two years after delivery).

Notice of Non-conformity (Article 39) and ULIS

  • The ULIS required the buyer to promptly give notice of non-conformity to the seller.
  • The notice should detail the issues and reasons for non-conformity.
  • The purpose is to allow the seller to gather evidence and potentially cure the defect.

Twofold function

  • Sharing of information enabling the seller to collect evidence.
  • Allows the seller to cure the defect

Seller's Right to Cure

  • If the seller delivers goods before the agreed date (e.g., January 25 instead of February 1) and they are non-conforming, the seller has an opportunity to cure the defect.
    • This applies to both quantity and quality issues.
    • The seller can cure by delivering the correct quantity or replacing defective goods before the delivery date, without unreasonable burden to the buyer.

Two-Step Process

  1. Inspection (Article 38):
    • The buyer must inspect the goods, and Article 38 specifies when this inspection should occur.
  2. Notice (Article 39):
    • After inspection, Article 39 dictates how much time the buyer has to send a notice of non-conformity.

ULIS vs. CISG: "Promptly" vs. "Reasonable Time"

  • The ULIS required "prompt" notice, leading to issues for developing countries that lacked immediate access to experts for inspection.
  • Developing countries importing complex machinery often needed to bring in experts from developed nations to inspect goods, making prompt notice difficult.
  • During CISG negotiations, the developing world representatives rejected the word "promptly." A main compromise replaced "promptly" with "within a reasonable time."
  • Article 39 of the CISG requires the buyer to give notice within a reasonable time after discovering the nonconformity.
  • The term "reasonable time" is intentionally vague to accommodate various circumstances.

Core Issues

  • Article 38: When the goods should be inspected.
  • Article 39: When the notice of non-conformity should be provided.
  • Articles 40 and 44: Provisions that may dampen the strict requirements of Article 39.

Article 38 Details

  • Article 38 states the buyer must examine the goods or have them examined within as short a period as practicable in the circumstances.
  • Where goods are collected ex-works, the examination period starts at the seller's premises.
  • For goods involving carriage, examination can be deferred until the goods arrive at their destination.
  • If goods are resold during transit and redirected, examination starts when they reach the redirected location, provided the seller knows of the redirection.

Relationship Between Article 38 and 39

  • Article 38: Inspect goods as soon as practicable.
  • Article 39: Provide notice of non-conformity within a reasonable time after discovery.
  • Failure to provide notice within a reasonable time results in the buyer losing the right to rely on the non-conformity.

Determining "Reasonable Time"

Factors in determining reasonable time for notice of non-conformity:

  1. Established Practices:
    • If parties have consistently used a specific timeframe for notice, that becomes the reasonable time.
    • This aligns with Article 9.1, where parties are bound by agreed practices.
  2. Trade Usages:
    • If no established practice exists, trade usages widely known and used in international trade apply (Article 9.2).
    • Example: In the cotton trade, a two-month notice period may be standard.
  3. Special Nature of Goods:
    • Perishable goods require quicker notice due to their short lifespan.
    • Sellers need the opportunity to collect evidence or resell the goods if the contract is avoided.
    • Durable or complex goods may allow for a longer reasonable time.
  4. Nature of Remedy Chosen:
    • Avoiding the contract requires quicker notice to allow the seller to resell the goods.
    • Price reduction may allow for a longer notice period, but evidence gathering still matters.

Article 39.2: Two-Year Cutoff

  • Article 39.2 sets a maximum two-year period for providing notice, regardless of what is deemed reasonable.
  • Even if a reasonable time might be longer in some circumstances, any notice after two years is invalid.
  • This applies irrespective of the type of goods (perishable or durable).
  • Article 39-1: Reasonable amount of time. Article 39-2, maximum is two years anyway.

Article 40: Seller's Knowledge

  • Article 40 provides an exception to Article 39.
  • If the seller knew or could not have been unaware of the non-conformity, the buyer does not lose rights under Article 39, even without timely notice.
  • This is because the purpose of notice is to inform the seller and allow them to gather evidence or cure the defect, which is unnecessary if the seller is already aware.

Article 44: Reasonable Excuse

  • Article 44 offers a compromise if the buyer has a reasonable excuse for not giving notice within a reasonable time (under Article 39.1).
  • In this case, the buyer still loses the right to claim damages but retains the right to reduce the price.
  • Article 44 does not apply to the two-year cutoff in Article 39.2.
  • If notice is not given within two years, Article 44 is not applicable
  • It's questionable what reasonable excuse could exist, as any valid excuse would likely be considered when determining the reasonable time.