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Reproduced with permission from 36 American Journal of Comparative Law (1988) 437-472

A History of Cutoff Rules as a Form of Caveat Emptor: Part I -- The 1980 U.N. Convention on the International Sale of Goods

John C. Reitz [*]

Introduction

Caveat emptor is a venerable rule of sales law.[1] It appears that both the early Roman law and the early Germanic law permitted the buyer to be parted from his money for substandard goods with no more protection than whatever inspection and express contractual guarantees the buyer had the foresight to insist upon.[2] The development of the warranty of quality, especially the implied warranty of quality, may be viewed as a movement toward a significant measure of protection for the unwary buyer that corrects the worst excesses of caveat emptor by holding the seller, in the absence of explicit agreement, to quality standards matching the expectations buyers in the particular market reasonably have in light of the seller's behavior and the context of the transactions.[3] Like the rules [page 437] of financial disclosure for sales of corporate stock, warranty law may be justified as a tool to minimize transaction costs and secure buyer confidence in the marketplace, thereby promoting commerce.[4] It apparently accords with widespread notions of fairness because it has been widely adopted.[5]

The capacity of warranty law to curb the sharp practices associated with caveat emptor and to secure confidence in the marketplace is undercut if the buyer's rights to obtain a remedy for breach of warranty are subject to rules that cut off the buyer's rights too quickly. Instead of hoping that unwary buyers will fail to bargain for specific quality terms in the contract, the seller of shoddy goods can hope that unwary buyers will fail either to notice defects in the delivered goods or to pursue their remedies before the cutoff gives the seller immunity. Short cutoff rules thus constitute another form, albeit attenuated, of caveat emptor.

It is striking how many special cutoff rules limiting the buyer's right to a remedy for the breach of the warranty of quality there are in various national systems of sales law. They include special limitations periods that are shorter than the limitations period generally applicable to claims between buyer and seller,[6] notice rules that cut [page 438] off buyers' claims unless the buyer gives the seller notice within some short period,[7] and even acceptance rules that cut off buyers' remedies upon acceptance.[8] Short cutoffs are particularly prevalent in civil law systems, including virtually all of Western Europe except the United Kingdom, all of Latin America, and many of the Soviet-bloc countries.[9] The civil law tends to employ all three types of cutoffs in combination [10] and imposes the same cutoff rule on both of the buyer's principal remedies for breach of warranty, "avoidance" [11] [page 439] and damages,[12] [13] often in very short time periods.[14] Short cutoffs are not as common in the common law tradition. Nevertheless, the American UCC limits both the buyer's damage and avoidance remedies by separate but similar notice rules [15] and uses an acceptance rule to cut off the avoidance remedy for defects of which the buyer knew or should have known at delivery.[16] The British Sale of Goods Act (SGA) employs only one special short cutoff, an acceptance rule affecting the remedy of avoidance only, but for all defects, latent or [page 440] patent.[17]

This study seeks to understand why so many legal systems have adopted special cutoff rules that, absent an agreement to the contrary, limit the buyer's remedies for breach of the warranty of quality in a way that favors sellers. Three theses will be considered. First, the functional justification for cutoff rules argues that the cutoff rules minimize transaction costs by assigning risks to the parties best able to bear those risks. Second, the political thesis suggests that cutoff rules are the product of political conflict in which sellers' representatives have simply tended to prevail over buyer's representatives. Third, the conceptual thesis explains cutoff rules as products of the ways in which we have conceptualized sales transactions and the institution of warranty.

Part I of this article focuses on the political thesis. After first arguing that the functional justification is inadequate to explain the prevalence of special cutoff rules, Part I then examines the process of negotiations that led up to the 1980 U.N. Convention on Contracts for the International Sale of Goods (CISG).[18] Of the entire history of warranty, from Roman times until now, this recent attempt at international unification of sales law provides the clearest evidence, outside of the consumer context, that cutoff rules have been imposed over objection by representatives of buyers' interests. at the 1980 diplomatic conference in Vienna to negotiate the final text of the CISG, representatives from a number of developing countries strongly objected to a notice rule cutting off the buyer's damage remedy on the grounds that it would be prejudicial to their interests as buyers of complex machinery, their main import. The issue of the notice rule [19] was one of the few points that divided the developing countries from the developed countries [20] and "one of the Conference's most difficult problems."[21] The result of this challenge by Third World buyers was amendment of the notice rule by the addition [page 441] of some obscure compromise language.[22] Part I offers, as a byproduct of the inquiry into the politics of cutoff rules, an interpretation of the compromise struck with regard to the notice rule.

After describing the politics of cutoff rules during the international unification of sales law, Part I will offer a political thesis to fit that experience. The thesis must account for the apparent lack of opposition from buyer groups in developed countries. It must also account -- as Part II of this Article, to be published in a subsequent issue, will show -- for a striking lack of commercial buyer opposition in the entire historical development of cutoff rules in various national legal systems prior to the international unification efforts. Indeed, Part II will show that commercial interests have constituted the primary support for cutoff rules and that the only group of buyers who have tended to oppose these rules have been consumers, who have tended to gain exemption from at least the notice rule.[23] A major aspect of the political thesis developed in Part I of this article is therefore that the processes by which sales law is generally formulated are structurally biased to underrepresent the interests of commercial buyers in a way that did not apply in the negotiation of the CISG. The conclusion to Part I explores the political thesis' implication that caution should be exercised in using merchants' customs and usages (lex mercatoria) as a basis for international commercial legislation.

Part II of this article will chronicle the history of cutoff rules from their inception in Roman law through medieval and modern civil and common law developments to show how the development of cutoff rules has been an integral part of the history of warranty. Besides providing historical data for testing the political thesis developed in Part I, Part II will examine the conceptual thesis. The historical record is replete with evidence of two types of conceptualizations that have influenced the development of special cutoff rules. One is deep ambivalence about the justification for the institution of warranty itself, especially implied warranty. The other is a tendency that can be traced from Roman times to today to conceptualize the sales transaction in a way that attributes decisive importance to acceptance for determining the buyer's rights. Final evaluation of the political thesis will thus have to await evaluation of the potentially competing conceptual thesis. Part II will argue that both [page 442] theses are necessary to account for the historical development of special cutoffs on buyers' warranty rights.

I. The Functional Arguments for Special Cutoff Rules

If lack of timely notice exposes the seller to prejudice or deprives the seller of a benefit greater in magnitude than the risks of caveat emptor the short cutoff imposes on the buyer, then short cutoff rules in the suppletive rules of sales could be justified as providing the set of rules that rational buyers and sellers would most often agree upon, thus minimizing the cost of contracting for the largest number of contracting parties.[24] This kind of principled functional argument that the rules serve both parties' interests, however, is not persuasive in most cases, especially insofar as the cutoff rules apply to the damage remedy.[25]

The strongest arguments for short cutoffs apply only to the remedy of avoidance. Avoidance typically entitles the buyer to return the defective goods to the seller and receive back all sums already paid.[26] Delay by the buyer in exercising that right could result in loss to the seller of an opportunity to dispose of the goods elsewhere or loss of a favorable price if the market price declines. For the same reason, delay in the exercise of the right to avoid raises the possibility that the buyer might engage in speculation at the expense of the seller. Moreover, delay in the exercise of the remedy raises particularly messy questions about accounting for any interim benefits the buyer may have obtained by having the goods for the period before they are returned. For all of these reasons, this article will treat short cutoffs on the remedy of avoidance, even the British acceptance rule foreclosing avoidance for all defects, as sufficiently justified that they do not as clearly raise the interesting political and conceptual issues the cutoffs on the damage remedy [page 443] raise. None of the foregoing arguments, however, apply to the buyer's claim for money damages.

The more general functional arguments for special cutoffs on buyers' remedies, including the right to damages, are based on the informational disadvantage that the seller suffers upon delivering goods to the buyer.[27] Once the goods have passed into the control or possession of the buyer, the seller generally has no way of learning of defects in the goods which only manifest themselves after delivery unless the buyer notifies the seller. The arguments for rules requiring buyers to give prompt notice are based either (a) on protecting sellers against certain types of prejudice they might suffer as a result of the informational disadvantage or (b) on the planning value to sellers of eliminating the informational disadvantage by giving the seller an enforceable expectation of repose sooner than would otherwise be supplied by the general statute of limitations.

Even if we assume a significant value for early repose, it is obvious that the repose justification best fits cutoff rules with fixed cutoff periods, like the two-year cap on the CISG notice rule [28] or the German six-month limitation rule,[29] both of which establish fixed periods running from delivery. But fixed cutoff periods effectively transfer to buyers the risk of latent defects that do not manifest themselves within the cutoff period. The shorter the fixed period, the greater the risk transferred to buyers. Limitations periods as short as a month [30] seem especially likely to transfer to buyer significant risk of latent defects for many types of goods, especially [page 444] durable goods like machinery, but limitations period of one year [31] or more are not so clearly objectionable on the grounds of transferring latent defect risks.

Cutoff rules like the German [32] and American [33] notice rules that employ a flexible cutoff period to bar remedies only with respect to defects a reasonable inspection would reveal do not necessarily transfer the cost of latent defects to buyers but fail to provide a predictable cutoff period because they depend both (a) on a highly discretionary post hoc determination by courts of when the buyer should have discovered the defect and given notice [34] and (b) on the vagaries of when latent defects become patent. Repose arguments therefore provide a particularly dubious rationale for flexible period cutoff rules. Repose arguments also fail to provide a sound rationale for the most prevalent type of acceptance rule, which applies only to apparent defects, because it leaves sellers exposed to subsequent liability for latent defects.

For cutoffs employing fixed periods of at least moderate length -- the only types of cutoff rules that fit the repose rationale -- the argument comes down to an assertion that early repose has sufficient value to the seller to justify the limitation of the buyer's rights. Although it seems plausible that the planning benefits of early repose might entail some financial benefits for sellers, such as lower record retention costs [35] or the avoidance of financial overextension,[36] the possible benefits do not appear to be substantial.[37] It [page 445] is unclear that they will be of a significantly different magnitude from the costs of sellers' breaches of the warranty of quality which the early cutoff shifts to buyers. The repose argument thus provides at most a weak justification for fixed-period cutoff rules of moderate length.

Some prejudice arguments are stronger, but only in relatively narrow types of cases, and others are superficially plausible but do not withstand rigorous scrutiny. For example, the form of prejudice most commonly cited in arguments for cutoff rules is the possible loss of evidence to challenge unwarranted claims of breach. This rationale does not apply to every case because delay does not always result in loss of significant probative evidence. But even in the cases in which the seller can show loss of a source of evidence that might have confirmed or rebutted the buyer's claim, it is not clear that the seller has been significantly prejudiced. Under German and American sales law, the buyer has the burden of proof to show that the seller breached the warranty with respect to accepted goods.[38] If, for example, a buyer of peaches delays too long in complaining of defective quality, she runs the risk of undermining the credibility of her claim. This is especially likely to be the case if the buyer depends exclusively on the testimony of her own employees and the peaches are no longer available for the seller to verify the alleged defects or the buyer delayed so long that the current defective state of the peaches is not highly probative of their state at delivery. As a general rule, we might expect that the more unreasonable her delay, the greater the doubts cast on her credibility. But if the buyer has evidence sufficient to overcome those doubts -- for example, if there is testimony by one of the seller's employees or a neutral third party that the peaches were defective at delivery [39] or the goods were demonstrably defective at time of suit and it is unlikely they could [page 446] have been in that condition if they had been delivered without defect [40] -- there is little reason to believe that the seller has lost evidence that would have refuted the buyer's claim. In any event, if there is reason to believe that specific, potentially exculpatory evidence has been lost as a result of the buyer's delay, it is hard to see why the seller needs any greater protection than a rebuttable presumption that the lost evidence would have tended to show that the goods were not defective at delivery.

Under French law, although there is much confusion over apportionment of the burden of proof in warranty cases,[41] it appears that the courts, which at the lowest level for suits between commercial buyers and sellers are composed of panels of three business people,[42] are generally hostile to buyers pressing defect claims without impartial third-party expert evidence, preferably obtained in an investigation held under the joint auspices of buyer and seller.[43] This much higher standard of proof in effect gives the seller the benefit of a presumption that he did not breach in every case, thus obviating the need in France for any additional rule to protect sellers against the risk of unfounded claims.

The critique of the evidence gathering rationale should not be construed as an argument that although the notice rule formally changes the issue for the adjudicatory process in the case of a [page 447] warranty claim, it does not affect the results. That will be true only in some portion of the cases. As mentioned above, not every case of delay in raising a breach of warranty claim involves even the potential loss of significant rebuttal evidence. Of those that do, it is difficult to say in what percentage the lost evidence appears to have been significant and the available evidence sufficiently non-dispositive that the delaying buyer would lose with or without the short cutoff, but the recorded cases include some clear examples in which the buyers would apparently not have lost if allowed to try their claims on the merits.[44]

Similarly, it may be argued that cutoff rules protect the seller's ability to avoid some of the costs of its breach by offering cure, but that argument does not justify depriving the buyer of her claim for damages that could not have been avoided. For example, by offering to repair a defective machine which the buyer bought for use in her business, the seller might have been able to prevent the buyer from suffering consequential damages such as lost profits. The seller should therefore not have to bear those consequential damages if the buyer reasonably should have known that her seller, or any other seller, was in a position to avoid the damages. To the extent that the buyer should have known that prompt notice could have avoided damages, a flexible form of special cutoff like the notice rule follows from the mitigation rule. But even if his offer of cure was accepted, the seller still normally would have had to incur costs to repair or replace. The mitigation/cure rationale offers no reason for shielding the seller from liability for those costs. The cure argument thus supports only a much narrower special cutoff rule than most of those presently employed: a notice rule that applies only to the extent the seller can show that he was harmed by the buyer's delay.

The best prejudice argument is the narrowest. A limited type of notice rule may be justified to prevent the buyer's delay in identifying defects in the goods from resulting in a statute of limitations bar to the seller's claim over against a supplier for defective components, materials, or inventory or against a carrier for transportation damage. The argument, however, does not fit the acceptance rule at all because under that rule the seller would always already have lost his claim over against suppliers by the time he delivers to his buyer. Nor does it fit a fixed limitations period that starts to run at delivery because there will virtually always be a gap between expiration of the limitations period that applies to the claim over and expiration [page 448] of the similar limitations period that applies to the buyer's claim against the seller. Finally, sellers that have no prospects of passing the liability on to a third party should not be protected under this rationale. The rationale thus excludes those sellers that are charged with their own misperformance, those that contracted away their rights to indemnity from the third parties, or those that are so positioned in the distribution chain for goods that their claims over either had not yet expired by a reasonable period after the buyer gave notice or had already expired by the time the goods were delivered to the buyer. The class of claims that fits this prejudice argument is not only narrow, but also well-defined. It would therefore not be burdensome to require a seller to show a likelihood that it fits this rationale.[45]

Certain prejudice arguments thus present the strongest functional arguments for special cutoff rules on buyers' damage claims for breach of the warranty of quality, but only for very specific situations or portions of the buyer's damage claim. The chief portion of damages affected by the rationale consists of consequential damages that could have been avoided by the seller's cure, and the chief situation in which bar of the entire damage claim might be appropriate is presented by the case in which the seller has lost a claim over against a supplier or carrier because of the buyer's delay. The overbreadth of most of the current special cutoff rules, which apply without a showing of prejudice, in relation to the prejudice rationale is so great that it is unreasonable to rationalize the current rules on the grounds that a broadly applicable rule saves administrative and litigation costs of identifying the specific cases which fit the rationale. The prejudice arguments thus at most would justify cutoffs that apply, like the common law rule of laches,[46] only if the seller [page 449] demonstrates the likelihood that it suffered prejudice because of the buyer's delay in giving notice.

A final reason to be skeptical of the prejudice arguments for special cutoff rules is the tendency to exempt consumers from the German and United States notice rules.[47] The application of the same cutoff rules to commercial buyers is justifiable, if at all, chiefly on the grounds of the prejudice arguments. Sellers that sell to consumers are business sellers who stand to benefit as much from whatever protection from prejudice the rules secure as those who sell to business buyers. Consumers have generally received special protection in modern commercial law because of concern that they have unequal bargaining power vis-à-vis those who sell to them,[48] but if the prejudice rationales for the notice rule were sound, there would be no reason to exempt consumers on the ground of lack of bargaining power because we would predict that rational buyers and sellers of equal bargaining power would agree on some type of notice rule on the strength of the prejudice rationales. Scholars in Germany and the United States have recognized this by arguing generally for the extension of the notice rule to consumer claims.[49] The continued exemption of consumers shows that the burdens imposed by notice rules have been thought unreasonably great in the case of consumers and raises the question why those burdens are acceptable in the case of business buyers.

In sum, the functional arguments support the prevalent, [page 450] specially short, broadly applicable cutoffs on buyers' damage remedies only if we indulge in dubious assumptions about the planning value of early repose and the likelihood of prejudice to sellers. Because the functional arguments provide such unsatisfactory explanation for the current forms of special cutoffs on the buyer's damage remedy, the balance of Part I of the article considers the political explanation for the prevalence of these rules.

II. The International Unification of Sales Law

In order to understand the dynamics of the political clash over cutoff rules in the Convention on the International Sale of Goods (CISG) and particularly in order to interpret the resulting compromise, it is necessary to depict in some detail the major steps in the long process of international drafting and negotiations that culminated in the CISG.[50] The roots of the effort to unify the law applicable to the transnational sale of goods go back at least 50 years,[51] though as a result of the dislocations of World War II, little progress was made until the 1950s.[52]

Unlike the history to be recounted in Part II concerning the development of cutoffs in national law, however, the evolution of cutoffs at the international level was not part of an evolution of warranty law generally.[53] By the starting point of the unification efforts in the 1930s, there was widespread agreement on the principle that sellers should be held to the qualities they represent the goods as having, as well as to some minimum quality standards in the absence of any representations.[54] Thus the statement of the seller's [page 451] warranty obligation that was adopted in the 1980 Convention [55] does not differ substantively from the version in the 1956 draft.[56] [page 452]

The remedies provisions underwent more of an evolution, but here too, the changes were more of form than of substance. The early drafts reflected the civil law's tendency to provide a special damage remedy for lack of conformity of the goods instead of the general damage remedy for breach of contract.[57] In modern French and German law, the distinction has substantive significance because the special warranty damage remedy excludes consequential damages for breach of the implied warranty against hidden defects in some instances.[58] The distinction in the draft conventions was chiefly formal, however, because already the early drafts contemplated that the buyer had a claim for full damages, including consequential damages, for breach of both express and implied warranties of quality.[59]

The matter of cutoff rules has been much more controversial and an area in which the various drafts exhibit substantive changes. The early drafts, including the one adopted by the 1964 diplomatic conference at the Hague in the form of the Convention relating to a Uniform Law on the International Sale of Goods (ULIS), contained a set of brief cutoff rules for buyers' warranty claims modelled principally after German and French law.[60] The ULIS thus contained [page 453] German-style notice rules requiring the buyer to inspect the goods "promptly" [61] and to give notice to the seller "promptly after he has discovered the lack of conformity or ought to have discovered it."[62] A special limitations provision for buyers' non-conformity claims cutoff the buyers' rights if they failed to institute suit within a year.[63] This rule was less harsh for buyers than the corresponding German rule, which cuts off buyers' warranty claims if not sued on within six months after delivery.[64] Because the ULIS limitations period ran from the giving of notice, instead of delivery, it would have given the courts discretion similar to that conferred by the special French limitations rule which requires buyers to sue "promptly"("dans un bref délai") in order to preserve their warranty claims.[65] Unlike French or German law, the drafts contained no vestige of an acceptance rule.[66]

At the 1964 diplomatic conference representatives from common law countries expressed concern that a number of aspects of the draft rules would overburden buyers.[67] Civil law representatives [page 454] defended the cutoff rules, primarily on the strength of the evidence-gathering rationale and on the grounds that seller protection was necessary to secure support for the ULIS from exporters.[68] In the end, concern for sellers won out, no action was taken on the objections voiced on behalf of buyers, but the diplomatic conference added a two-year cap to the notice provision applying to defect claims.[69]

The ULIS did not achieve wide-spread ratification,[70] principally because so few countries outside of Western Europe had participated in drafting it that it was seen as "essentially the product of the legal scholarship of Western Europe."[71] It therefore became apparent [page 455] that a fresh attempt to achieve a uniform law for international sales would be necessary. The creation of the United Nations Commission on International Trade Law (UNCITRAL) in 1966 provided the needed institutional organization. UNCITRAL was charged with the harmonization and unification of the law of international trade [72] and it was given a structure that guaranteed representation of a much better cross-section of the world community.[73]

It rapidly became clear that special cutoff rules for buyers' warranty claims still constituted one of the most controversial issues. Before attempting a redraft of the ULIS, UNCITRAL chose to try the more modest project of unifying the limitations periods applicable to international sales. The New York conference of 1974 adopted the Convention on the Limitation Period in the International Sale of Goods (Limitations Convention),[74] which provides a four-year limitations period for claims arising out of an international sales transaction.[75] Developing countries strongly pressed in the drafting process for a generous limitations period on buyer's warranty claims,[76] but Western European and East Bloc countries insisted on the desirability of a short period.[77] Because the disagreement could not be [page 456] resolved, the conference drafted the Limitations Convention in a way that left the issue of cutoffs on warranty claims unresolved.[78]

The dispute over cutoff rules for warranty rights was thus deferred to the general renegotiation of the ULIS. The 1978 draft, which UNCITRAL produced to serve as the basis for the 1980 diplomatic conference in Vienna,[79] carried through the ULIS's notice rule with separate statement of the duty to inspect, as well as the two-year cap. The major changes from the ULIS were (1) deletion of the one-year limitations period with discovery rule on accrual in deference to the four-year period running from delivery specified in the 1974 Limitations Convention and (2) a modest relaxation of the notice period by changing the requirement for the duty to inspect from "promptly" to "within as short a period as is practicable in the circumstances," [80] and the requirement for the duty to give notice from "promptly" to "within a reasonable time."[81]

At the 1980 Vienna Conference, Ghana led the main attack on the special cutoff rules on behalf of a group of developing countries, [page 457] chiefly from Asia and Africa.[82] The Ghanaian representative objected to the notice rule on the grounds that it contained a "trap element" for unwary, and especially for illiterate, buyers. He argued that the trap would operate to the disadvantage of developing country buyers of complex machinery, the defects of which might first surface some time after delivery. Illiterate or non-expert buyers might well not anticipate the drastic effects of the notice rule until it was too late because that rule was unknown in countries like Ghana.[83] Moreover, because of the lack of specificity in the "reasonable time" standard, the notice rule imposed the risk that a judge in a developed country might hold buyers in developing countries to too strict a standard.[84] The developing countries did not, however, oppose the two-year cap. They viewed the cap as generous enough not to pose an unfair threat to valid buyer claims.[85] Moreover, they conceded that the notice rule could be argued to protect important seller's interests in offering cure to minimize the damages for which a breaching seller would otherwise be liable.[86] Nevertheless, in statements prior to and at the 1980 conference, representatives of the developing countries attached great importance to ameliorating the impact of the notice rule on buyers.[87]

When the Ghanaian representative proposed in formal drafting sessions to eliminate the notice rule except for the two-year cap, however, his proposal garnered little support and it was accordingly treated as rejected.[88] Alternatively, Ghana proposed to limit the remedy provided by the notice rule to a set-off for the damages that could have been avoided by timely notice, in the manner provided by [page 458] the provision on mitigation.[89] The second proposal was opposed by a large number of countries, primarily the developed nations from the civil law tradition, on grounds that the Ghanaian proposal did not take into account the evidence-gathering function of the notice rule.[90] Because there appeared to be a majority in opposition, Ghana withdrew its proposals in accordance with the procedures followed at the conference.[91]

In private discussions after that meeting, however, the developing countries supporting the Ghanaian proposal expressed great dissatisfaction with the rejection of their proposal, and the Swedish representative took the unusual step at the next session of asking to reopen the discussion on the Ghanaian proposal and to draft compromise language.[92] Finland, Ghana, Kenya, Nigeria, Pakistan, and Sweden formed a working group and a few sessions later presented a compromise proposal [93] that preserved the requirement to give notice and the two-year cap for notice, but added the following provision:

"Notwithstanding the provisions [requiring timely notice as a condition of maintaining remedies for breach of the warranties of quality, title, and non-infringement] the buyer may [page 459] declare the price reduced in accordance with [the remedy of price reduction] [94] or claim damages except for loss of profit if he has a reasonable excuse for his failure to give the required notice. However, the seller shall be entitled to setoff, in any claim by the buyer pursuant to this paragraph any foreseeable financial loss caused him by the buyer's failure to give the notice."[95]

The excuse provision did not apply to the two-year cap.[96]

The compromise provision was strongly supported, chiefly by Third World nations, as providing a better balance between buyer and seller,[97] and it was roundly criticized, chiefly by Eastern and Western European countries, as so lacking in clarity that it would breed litigation.[98] The last sentence in particular attracted a variety of criticism, the most significant of which was objection to imposing the burden of proving prejudice on the seller.[99] Nevertheless, with the omission of the last sentence and a minor editorial change,[100] the conference adopted the compromise proposal and it is found as Article 44 in the final text of the CISG.[101]

Article 44 obviously raises interpretational difficulties because it provides a "reasonable excuse" for the failure to comply with a [page 460] requirement to give notice "within a reasonable time" after the buyer discovers the defect or "ought to have discovered it." There was virtually no discussion at the conference of the type of excuses Article 44 was intended to accommodate. The only clarifying amendments proposed suggested that the sole excusing cause under Article 44 should be force majeure,[102] but the proposals found no support, presumably because they unduly narrowed the scope of Article 44.[103]

The most plausible interpretation of Article 44 is that it was intended to soften a strictly objective interpretation of the "reasonable time" standard for giving notice in the same way that Article 8(2) states that "statements made by . . . a party are to be interpreted according to the understanding that a reasonable person of the same kind as the other party would have had in the same circumstances." In other words, Article 44 may be taken as an injunction to apply the notice rule in a particularly lenient fashion to buyers in Third World countries, especially if they are not familiar with notice requirements because of the absence of such requirements in their domestic sales law. The chief objection to that interpretation would be that the language of Article 44 is a rather indirect way to express that intent, which is so clearly expressed in Article 8, but at least one commentator has suggested that this is one way Article 44 will be interpreted,[104] and it seems to offer the interpretation most likely [page 461] to be adopted.[105]

The one thing that seems clear about the CISG notice rule is that it should not be interpreted as stringently as the German notice rule. Compromise between the common law and civil law views on the value of finality is evident in the standards chosen for the time within which the buyer is to inspect ("within as short a period as is practicable in the circumstances") and to give notice ("within a reasonable time after he has discovered [the defect] or ought to have discovered it"), which represent a softening from the rigorous German standard of "without delay" (unverzüglich) in both cases.[106] In [page 462] addition, the two-year cap represents a compromise between the German six-month limitations period [107] and the UCC (and Limitations Convention) period of four years.[108] Article 44 represents some further compromise intended to favor at least buyers from underdeveloped countries, but it clearly does not eliminate the notice rule.[109] In fact, it seems likely that it will be interpreted to perpetuate a notice rule that applies to cases in which the seller suffers no prejudice, despite virtual unanimity during the drafting and negotiation history of the CISG that the notice rule, with the exception of the two-year cap, is justified chiefly as protection against prejudice.[110]

However, the compromise provision is interpreted by the courts, the potential for the notice rules of the CISG to shield a seller of defective goods unfairly from buyers' claims has been reduced in comparison to the American version of the notice rule, which is generally applied to protect even sellers with knowledge of their breaches.[111] Article 40 of the CISG prevents a seller from hiding [page 463] behind the notice rule with respect to non-conformities "of which he knew or could not have been unaware." This section in effect imposes a mild inspection and notice requirement on the seller though it is not as strong as that imposed on the buyer. On the other hand, the requirement that the buyer's notice "specif[y] the nature" of the defect [112] threatens to introduce some aspects of the formalistic trap-like nature of the American rule unless that requirement is interpreted merely to require the buyer to act in good faith to overcome the seller's informational disadvantage.[113]

The two-year cap on the notice rule, which is not subject to the Article 44 excuse, revives in part the expedient tried in some of the earliest nineteenth century German commercial codes of using a fixed period for the notice rule, though the cap in the CISG also applies to latent defects.[114] It is nevertheless much more generous to buyers than the time periods employed in nineteenth century Germany and seems unlikely to transfer significant risk of latent defects to buyers in most cases. Because the cap does not require filing suit to avoid its bar but only notice, it provides a felicitous compromise point between those desiring finality for buyers' claims sooner than the four-year limitations period of the Limitations Convention and those unwilling to burden buyers with the obligation to file suit in a foreign country sooner than four years after delivery. In order for international buyers to get the full advantage of that compromise, however, it may be necessary to secure general ratification of the Limitations Convention in order to prevent very short domestic limitations periods like the German six-month rule from applying in default of international agreement.[115]

In short, despite vigorous opposition by representatives of Third [page 464] World buyers, seller interests appear to have predominated in the international arena, as Part II will show they have in the formulation of national sales law, principally by inclusion of special cutoff rules. However, the acceptance rule and the special limitations period have been abandoned in favor of a notice rule with a reasonably long cap. Although it is unclear how much of an obstacle the CISG notice rule will be for buyers, it is clear evidence of the persistent tendency to favor sellers' interests.

III. The Political Thesis

The clash over cutoffs in the international arena, both with respect to the CISG and the preceding efforts at sales law unification, is dramatic confirmation of the common-sense supposition that cutoff rules are the product of conflict between buyer and seller interests. Indeed, the travaux préparatoires for the ULIS demonstrate clearly that even before Third World countries were included in sizable number in the international unification effort, the participants tended to handle the debate over cutoff rules as a question of accommodating buyer and seller interests.[116] Moreover, opposition to the notice rule in Germany and in the United States by persons speaking on behalf of consumers, a special subclass of buyers, also confirms our expectation that buyers would tend to oppose the inclusion of cutoff rules in the general law of sales.[117][page 465]

The political thesis must, however, account for one striking aspect of the history of cutoff rules. As Part II will show in detail, in the entire evolution of cutoff rules from Roman law to today, there is only isolated evidence of direct influence by groups that can be identified as representing sellers' interests and not also buyers' interests,[118] and with the exception of consumers and the Third World countries that challenged the CISG notice rule, no evidence of pressure from groups identified as representing buyers. This article has argued that the commercial buyer has been disadvantaged by cutoff rules, yet there has been surprisingly little opposition from commercial buyers even with respect to the notice rule, the most frequently debated of the cutoff rules. Rather, the chief support for adoption of cutoff rules has tended to come from groups representing business interests in general, not interests just of buyers or sellers. In fact, as Part II will show, the notice rule developed during the late Middle Ages and early modern period as merchants' custom,[119] and its acceptance as customary law was used as a major argument for adopting the rule into many of the nineteenth century codifications.[120] The political thesis must thus explain the puzzle why commercial buyers have not more actively opposed adoption of rules which discriminate against them.

A remark made during the drafting of the General German Commercial Code of 1861 points in the direction of a reasonable explanation for the lack of commercial opposition. One drafting [page 466] commission member stated the view that the notice rule was acceptable to the business community but not to consumers because business buyers are also generally sellers so that whatever disadvantage the cutoff imposes on a business entity as a buyer can be equalized by the advantage it will gain from the rule as a seller.[121] This explanation seems especially plausible because merchant-traders are in the business of trying to sell for more than they buy. Similarly, a manufacturer buys components and raw materials and hopes to sell the products it produces at prices substantially above what it paid for the material inputs. It is therefore reasonable to suppose that business buyers who are also sellers probably define their interests affected by sales law chiefly as those of sellers. To be sure, substantial business entities, such as sellers of services and financial institutions are involved in the sale of goods only as buyers, but they are not as likely to participate in the formation of general rules of sales law as manufacturers, distributors, retailers and traders, who perceive that they have an obvious stake in sales law. Businesses like banks or railroads (to mention two types of service businesses that were likely in a position to exercise considerable influence on law formulation in France, Germany, and the United States at least during the nineteenth and twentieth centuries) are probably more likely to define their legislative interests as centering on those aspects of legal regulation that affect the activity by which they derive their income. Thus railroads may be expected to concentrate on the regulation of railroads, and banks on the regulation of banking.

In short, for purposes of the politics of the formation of commercial sales law, the commercial world does not divide into separate groups of buyers and sellers. Rather, it divides into, on the one hand, sellers of goods who are also buyers and, on the other, buyers who sell services or intangibles not subject to the laws governing the sale of goods. If both groups tend to focus their attention on the formation of the law governing their income-producing activity, the merchants who buy and sell will be the only group who will systematically concern themselves about the formation of sales law. [page 467] Because they hope in general to have more at stake as sellers, they will tend not to challenge sales rules that favor sellers.

This explanation for the lack of business buyer opposition to short cutoff rules seems particularly plausible for the late medieval and early modern formative period of Western European law when the notice rule evolved as merchants' custom. at that time, the chief participants in the process of creating the customary notice rule were "merchants" par excellence, traders who both bought and sold. However, the explanation also accounts for the surprising lack of organized commercial buyer opposition to special cutoffs during the nineteenth century codification debates.

Two factors undoubtedly have reinforced this tendency of business buyers not to see short cutoffs as inimical to their interests: the basic conservatism of a legal tradition and the relatively minor nature of the disadvantages that cutoffs impose on buyers. For example, the specially short limitations period on buyers' warranty remedies was already established in Roman law, which exercised a strong and direct influence on later civil law development.[122] As just noted, by the nineteenth century codification period, short cutoff periods on buyers' rights, including various versions of the notice rule, were already widely accepted in Germany and France as a matter of merchants' custom.[123] The burden was on opponents to challenge them, and the parties that recognized the disadvantages the rules would impose on them may simply have decided to devote their political energies to more important issues. Thus, Part II will show that, despite the open-ended possibilities attendant on drafting new codes, there is no record of any challenge to application of the notice rule to business buyers, nor any challenge even on behalf of consumers to the short limitation periods, in the French or German codification debates. There has been very little criticism of short cutoffs in German law since.[124] The French bref délai has escaped amendment despite the existence of a vigorous consumer movement, [page 468] and the United States notice rule has attracted virtually no criticism except from consumer advocates.[125]

The emergence of the notice rule as a key dispute in the negotiation of the CISG appears to be the product of a number of circumstances. In contrast to the earlier general history of the various national legal systems, there was no debate about the principal substance of warranty law. The principle that a seller's contractual obligations should include full liability for an implied warranty of quality had been established long before the CISG negotiations. Although the full damage remedy for breach of implied warranty represents an expansion and strengthening by comparison to the French and German law of warranty, it was also a mere incorporation of the well-established common law rule, and it was not an issue on which sellers could be said to have lost ground during the fifty years of international study and negotiations. Special cutoff rules thus could not be rationalized as necessary counterweights to an expansion of buyer's warranty protections, as they appear to have been in the earlier history to be recounted in Part II.

Moreover, the challenge came from countries outside the legal traditions that have adopted short cutoff rules for buyers' damage remedies.[126] It originated in countries that felt themselves to be grossly disadvantaged vis-à-vis developed countries like France, Germany, and the United States. Their disadvantages, chiefly lack of legal and technical expertise, are especially likely to exacerbate the unfairness of the notice rule if applied to their international traders buying technically sophisticated machinery, the principal goods they would seek on the international market and goods that are particularly likely to be subject to latent defects. Being outside the legal tradition of special cutoff rules liberated the Third World countries to challenge the functional arguments for the rule, and their perceived disadvantages magnified the potential effects of the notice rule sufficiently to make the issue seem worth raising. In addition, the Third World disadvantages only magnify the effects of the notice rule in one direction so that disadvantages to Third World buyers would not be offset by the greater potential advantages of the rule for Third World sellers, who would enjoy no technical or legal superiority over their developed country buyers under the CISG. The [page 469] Third World countries' perception of their special disadvantages freed them to represent the interests of their commercial buyers without concern that they might be sacrificing an interest of their sellers.

The evolution of special cutoff rules for commercial buyers' rights thus appears to reflect a fundamental conflict between buyer and seller interests that is generally resolved in favor of seller interests because most of the commercial buyers that care to participate in the formulation of sales law perceive themselves as having more to gain from short cutoff rules as sellers than they might lose as buyers. Only when unusual circumstances liberate some of the commercial buyers from that dual role is there a chance for political opposition to the cutoffs. It is an intriguing thought that as many of the developed countries' economies are transformed into a "post-industrial" society in which services predominate over manufacturing, there will be increasing numbers of commercial entities that are affected by commercial sales law solely as buyers. They may finally develop an effective political opposition to short cutoff rules for commercial buyers.

Conclusion to Part I

Although functional arguments do not provide satisfactory explanations for the prevalence of special cutoff rules on buyers' remedies for breach of the warranty of quality, a political explanation seems plausible if we assume that the commercial buyers who take an active role in sales law formation tend to be merchants who sell goods as well as buy them and that they therefore tend to define their predominant interest on issues of sales law as sellers. It remains to consider both the political thesis and the conceptual thesis in the light of a more complete review of the history of warranty law to be presented in Part II.

At this point, however, it is worth considering a significant inplication for the use of merchants' custom and usage (the law merchant or lex mercatoria) raised by this model of how commercial buyer and seller interests are brought to bear on issues of sales law formation. The hypothesis that the political pressures normally brought to bear on the process of sales law formation generally underrepresent the interests of the commercial buyer casts doubt on the appropriateness of relying on custom and usage as a model for new international commercial legislation. Yet, as Part II will show, the existence of merchants' custom imposing short cutoff rules has often served as an argument for adopting such rules into a new legal [page 470] code.[127]

The concern does not of course mean that the customary rule will never be the fair accommodation of buyer and seller interests, but only that if the rule is the product of a market in which the chief actors are merchants, that is, parties who both buy and sell, there is little guarantee that the rule will reflect attention to the special interests of buyers. Therefore, the fact that the rule has been customarily adhered to by the merchant community is not sufficient to make it worthy of adoption, for example, in a code of commercial law or a specific contract. Adoption should depend rather on rigorous analysis of the functional rationales for the rule.

Whether custom and usage of international trade should serve as a source of law in the absence of specific party agreement or applicable statute or treaty is a more delicate question. The foregoing hypothesis about underrepresentation of buyer interests suggests that the same skepticism is in order. The rule may simply not be a fair one. Certain Third World countries indicated a similar concern during the negotiation of the CISG that customs and usages of international trade were likely to be based on the practice of actors from the developed countries of the West and therefore biased in favor of the interests of those countries.[128] But if the buyer knows of the usage, there is little unfairness in holding her bound by the custom if she did not expressly contract out of it, much as a common rule of contract formation refuses to give the buyer implied warranty protection with regard to defects that she ought to have discovered because she had an opportunity to inspect the goods before agreeing to [page 471] buy them.[129] These considerations suggest that the Third World countries produced another improvement in the law of international sales by objecting to a provision of the ULIS automatically incorporating established custom and usage into the sales contract.[130] The comparable provision in the CISG imposes custom and usage on a party only if he "knew or should have known" about it.[131]

In view of the Third World concerns, this provision should not be interpreted to require an international trader to learn all the practices of the relevant trade, but rather should be applied to hold each contracting party responsible only for those practices of which he reasonably could have learned, especially those known to him to be readily available in written form. Otherwise he will not have adequate opportunity to contract out of the practices he believes to be unfair. The history of cutoff rules suggests that the customs and usages of merchants come with no warranties of fairness for buyers, but the CISG appears intended at least to protect each party's ability to opt out of unfair customs and usages known to him by exercising the special caution that is required under the rule of caveat emptor. [page 472]


FOOTNOTES

* John C. Reitz is Professor, University of Iowa College of Law. The second part of this article will appear in the 1989 Spring issue under the title "A History of Cutoff Rules as a Form of Caveat Emptor: Part II – From Roman Law to the Modern Civil and Common Law." Unless otherwise indicated, all translations are by the author. The author especially thanks Pat Bauer, David Baldus, Steve Burton, Mary Lou Fellows, Peter Hay, Barry Matsumoto, Mathias Reimann, and Stephen Sass, for their comments on drafts of this article and Klaus Becher, Fritz Raber, Norbert Reich, Robert Robinson and Markus Zoeckler for research help. This work was supported by generous grants from the University of Iowa and the Iowa Law School Foundation. The article would not have been possible without the support and sacrifice of my wife, Sharyn and sons, Christopher and Benjamin, and it is dedicated to them.

The bracket phrase page followed by a number is used to identify the page number of the original publication.

1. The phrase does not occur in Roman law but has been traced to a sixteenth century treatise on English law. Hamilton, "The Ancient Maxim Caveat Emptor," 40 Yale L.J. 1133, 1164 (1931).

2. For the early Roman law, see Nicholas, An Introduction to Roman Law 181 n. 1 (1969) and accompanying text. For the early Germanic law, see Graue, Die mangelfreie Lieferung beim Kauf beweglicher Sachen 114-16 (1964).

3. The Uniform Commercial Code distinguishes between express (U.C.C. § 2-313) and implied (U.C.C. §§ 2-314, 2-315) warranties, but in fact the line between them is quite fuzzy. Under the UCC, express warranties are conceived of as deriving from the parties’ agreement in fact, even if only very indirectly from samples or the parties’ behavior. See U.C.C. § 2-313. The implied warranty of fitness for a particular purpose is similarly derived from the parties’ behavior (see U.C.C. § 2-315), but the minimum implied warranty, the warranty of merchantability, derives simply from the nature of the kind of goods being sold. See U.C.C. § 2-314. Of the three different types of U.C.C. quality warranties, the implied warranty of merchantability is thus the most obvious form of governmental regulation of the sales transaction, but in each case, the degree of governmental regulation of the quality standards for sales depends on the readiness with which the courts find a given type of warranty to have been created either from the nature of the transaction or from the parties’ behavior. Cf. infra n. 54. This article will in general focus on "implied warranty" as the aspect of warranty liability created more by the legal system than by the buyer’s and seller’s agreement, but both express and implied warranties are part of the complete picture, and the article will often refer to both as simply "warranty law."

4. For example, Schwartz and Scott argue that warranty law assigns risks of product defects to the party most likely to be in the best position to bear the risk. Because that risk allocation comports with the one most buyers and sellers would agree upon if they bargained explicitly over the issue, Schwartz and Scott argue that the basic rules of express and implied warranties minimize transaction costs by relieving the majority of buyers and sellers of the necessity of bargaining explicitly over the issue. Schwartz & Scott, Commercial Transactions: Principles and Policies 116, 164-65 (1982). See also infra n. 24 and accompanying text. Any rule that gives contracting parties the protection they would want if they were cautious enough and sufficiently well informed to bargain expressly for protection seems likely to encourage the making of contracts, or at least to prevent the legal system from discouraging such transactions.

5. See infra n. 54 and accompanying text. Part II of this article will show how the basic notion of warranty law has been adopted by German, French, British, and United States sales law.

6. An example is the German six-month limitations period for buyers’ warranty of quality claims. BGB § 477(1). The general limitations period applicable in German law to claims by merchant-sellers against merchant-buyers for payment is four years. BGB § 196 I(1), II. The French special limitations period cuts off warranty claims for hidden defects if not sued on within a "brief period" bref délai). C. civ. § 1648. This limitations rule uses a flexible period that leaves to the courts’ discretion both the determination of when the cutoff period begins to run and how long the cutoff period is. See generally 4 Répertoire de Droit Commercial (Dalloz, 1974), "Ventes Commerciales" ¶¶ 463-65 (1984) [hereinafter "Rép. Comm."]. The general limitations period applicable for claims involving merchants, even if only one party is a merchant, is ten years. C. com. Art. 189 bis.\

7. See, e.g., HGB §§ 377-78 (notice rule in German Commercial Code requiring the buyer to inspect the goods and give notice of defects "without delay" after delivery).

8. The acceptance rule is the most severe type of cutoff rule. The purest form of the acceptance rule would have the buyer’s acceptance cut off all remedies for all types of defects. This rule would be equivalent to an absolute doctrine of caveat emptor, transferring the risks of all defects, patent and latent, to the buyer upon acceptance. No modern sales law has such a harsh rule, but German law, for example, employs an acceptance rule to cut off buyers’ rights with respect to defects of which they knew at delivery unless they expressly reserve their rights, BGB § 464, and the recently adopted French acceptance rule, which Part II of this article will discuss in detail, goes a bit farther by encompassing defects the buyers reasonably could have discovered at acceptance. See generally Ghestin, Conformité et Garanties dans law Vente 214 (1983).

at least in American sales law, an acceptance rule would be to some extent the same as a very short notice period because the buyer’s silence is treated as acceptance after some reasonable time period. See, e.g., U.C.C. §§ 2-602(1), 2-606(1)(b) (failure to make a timely rejection constitutes acceptance). Nevertheless, it is useful to distinguish between acceptance and notice rules because the latter, unlike the former, do not treat express statements of acceptance without reservation of specific claims (see U.C.C. § 2-606(1)(a), or use inconsistent with the seller’s ownership; see U.C.C. § 2-606(1)(c), as barring all claims unless the notice period has expired).

9. For surveys of the special cutoff rules in many different countries, see Graue, supra n. 2 at 251-64; 2 Rabel, Das Recht des Warenkaufs 206-25 (1958). For an analysis of the cutoff rules in the General Conditions of Sale for Comecon (Warsaw Pact) countries and the General Conditions of Sale issued by the Economic Commission for Europe, see Harris, "Time Limits for Claims and Actions," in Unification of the Law Governing International Sales of Goods 201-08 (Honnold, ed., 1966). For sample references to the cutoffs of other countries, see Honnold, Uniform Law for International Sales under the 1980 United Nations Convention 276-77, 280-81 (1982).

10. For example, German law employs a special short limitations rule (see supra n. 6,) a notice rule (see supra n. 7,) and an acceptance rule on known defects (see supra n. 8,). French law employs a special short limitations rule that uses a flexible time period like the German notice rule (see supra n. 6,) and an acceptance rule on discoverable defects (see supra n. 8). The Argentinian Commercial Code has a special short limitations period like the French one, but it also imposes a notice rule. Graue, supra n. 2 at 257.

11. "Avoidance" is the term used by the 1980 UN Convention on the International Sale of Goods (CISG) for what the American UCC terms "rejections" and "revocation of acceptance." Compare CISG Art. 49 with U.C.C. §§ 2-601, 2-608. The analogous remedy in French law is résolution, but it is unusual in that in theory it can be granted only by a court. See generally Nicholas, French Law of Contract 236-38 (1982). German and French law also have special terms for the similar remedy of terminating the sales contract and reversing the exchange because of breaches of warranty. German law terms that remedy Wandelung and French law calls it rédhibition. See BGB § 462; C. civ. Art. 1644. This article will use the CISG term "avoidance" to cover generically all of these types of buyer’s remedy which allow the buyer to reverse the sale by returning the goods and recovering any amount of the price already paid.

12. The term "damages" will be used to designate the right to recover any money because of a seller’s breach, without regard to any limitations on the amount of recovery. The term will thus be used as a generic term to include rights to recover money that are not called "damages" in civil law, which generally has a different term for the money recovery provided for breach of the warranty of quality, Minderung in German and diminution du prix in French. These remedies provide only a partial reduction in price and in particular do not include consequential damages. See BGB § 462; C. civ. Art. 1644. See infra n. 58.

In civil law more commonly than in common law the buyer may also have various types of specific performance claims. For example, the German buyer of defective generic goods has the right to demand replacement by conforming goods. BGB § 480(1). In French law, the buyer has the same right and even has the right to demand repair of defective goods in certain cases. 4 Rép. comm., supra n. 6, ¶ 379. For purposes of this article specific performance remedies will be treated simply as a type of avoidance if they require the seller to take back the defective good and a type of damage remedy if they do not.

13. See, e.g., BGB § 477 (German six-month limitations period applies to both Wandelung and Minderung); HGB §§ 377-78 (German notice rule cuts off all remedies because the goods are "deemed approved"); C. civ. Art. 1648 (French flexible limitations period applies to all remedies the Code grants for hidden defects).

14. The acceptance rule obviously imposes the shortest cutoff period of all. But even in the absence of an acceptance rule, the civil law codes often impose very short cutoffs. Thus, Rabel reported that the Italian notice rule allowed the buyer eight days after discovery to give notice of defects. (2 Rabel, supra n. 9 at 213). The Spanish Commercial Code imposes an acceptance rule for apparent defects but a four-day notice period is allowed for defects that are hidden only by the packing. Id. at 208-09. For truly hidden defects, the Spanish law gives the buyer 30 days to give notice. Id. at 213. The Spanish Commercial Code has exercised great influence over the formulation of sales law, particularly in Latin America. Id. at 208. Honnold reports that the Mexican Commercial Code, for example, sets a five-day cutoff period from receipt for defects of quality and quantity and a 30-day cutoff for "inherent" (hidden?) defects. Honnold, supra n. 9 at 281 n.5.

15. See U.C.C. §§ 2-602(1); 2-608(2); 2-607(3)(a). Since both parts of the U.C.C. avoidance remedy are subject to their own special cutoff rules and since those cutoffs expire more quickly than the more general one in § 2-607 (White & Summers, Handbook of the Law under the Uniform Commercial Code 426 (2d ed. 1980)), the § 2-607 notice rule in fact governs only the damage remedy.

16. U.C.C. § 2-608(1) permits revocation of acceptance only if the non-conformity was difficult to discover or if the buyer reasonably expected the seller to cure.

17. English Sale of Goods Act, 1979, ch. 54 [SGA] § 11(4).

18. The official text of the Convention appears in Annex I of the Final Act of the 1980 Vienna Conference U.N. Doc. A/CONF.97/18. For a copy of the English text, see Honnold, supra n. 9 at 469; Selected Commercial Statutes (forthcoming 1988). The CISG came into force on 1 January 1988, following ratification by the United States and ten other countries. As of 22 July 1988, it had been ratified by 16 countries according to the Treaty Section of the Office of Legal Affairs at the United Nations: Argentina, Australia, Austria, Egypt, Finland, France, Hungary, Italy, Lesotho, Mexico, People’s Republic of China, Sweden, Syria, United States, Yugoslavia, and Zambia.

19. CISG, Arts. 38, 39, 40, and 44.

20. Honnold, supra n. 9, § 7 at 51 (1982).

21. Schlechtriem, Uniform Sales Law 70 (1986). See also Bianca, et al., Commentary on the International Sales Law: The 1980 Vienna Sales Convention 324 (1987) ("probably the most heatedly debated"); Eörsi, "A Propos the 1980 Vienna Convention on Contracts for the International Sale of Goods," 31 Am. J. Comp. L. 333, 350 (1983) ("one of the most dramatic debates" of the conference).

22. CISG Art. 44.

23. The German notice rule expressly does not apply unless both parties to the sales contract are merchants. HGB § 377(1). American consumer have largely been exempted from the UCC notice rule for the damage remedy, U.C.C. § 2-607(3)(a), by a combination of legislative and judicial action even though the language of the UCC rule applies to all buyers. Reitz, "Against Notice: A Proposal to Restrict the Notice of Claims Rule in U.C.C. § 2-607(3)(a)," 73 Cornell L. Rev. 534, 537 n.8 (1988).

24. This kind of argument assumes that rational bargainers will in general agree to put risks on the party best able to control them. A large literature explores this kind of justification for contract rules. See, e.g., Schwartz & Scott, Commercial Transactions: Principles and Policies 19-23 (1982); Goetz & Scott, "The Mitigation Principle: Toward a General Theory of Contractual Obligation," 69 Va. L. Rev. 967, 971 (1983). For criticism of this kind of justification, see Schwartz & Scott, supra at 335-37; Goetz & Scott, "The Limits of Expanded Choice: An Analysis of the Interactions Between Express and Implied Contract Terms," 73 Calif L. Rev. 261 (1985).

25. This section relies on my previously published analysis of the justifications for the UCC notice rule on damages. Reitz, supra n. 23. This section is a condensation of that article’s analysis as well as a generalization of the analysis to other types of special cutoff rules. The reader is referred to the Cornell article for a fuller exposition of both the arguments and counterarguments, which are fundamentally the same for notice rules and the other types of special short cutoffs on the buyer’s remedies for breach of warranty of quality.

26. See supra n. 11.

27. One functional argument that will be rejected at the outset because it does not depend on the informational disadvantage and therefore is not neutral as between buyer and seller is the argument that cutoffs are valued simply as a way to eliminate disputes. Statutes of limitations are sometimes justified as tools to reduce the burden on the courts and conserve public funds devoted to subsidizing the court system, but usually only on the grounds that they eliminate from the case load claims that are likely to be tenuous, inconsequential, or costly to litigate because of loss of evidence. Fischer, "The Limits of Statutes of Limitation," 16 Sw. U.L. Rev. 1, 2 (1986); "Developments in the Law – Statutes of Limitations," 63 Harv. L. Rev. 1177, 1178 (1950). To the extent that this rationale depends on the likelihood of prejudice to the evidence gathering process, it is merely derivative of prejudice arguments to be considered below. See text infra at n. 38ff. To the extent the argument goes beyond prejudice arguments, it provides no principled explanation for discriminating against buyers’ warranty rights.

It should be noted that no one has sought to justify any of the special cutoff rules on this ground.

28. CISG Art. 39(2) states:

"In any event, the buyer loses the right to rely on a lack of conformity of the goods if he odes 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."

29. BGB § 477(1).

30. See supra n. 14 (Spanish and Mexican laws).

31. Both Swedish and Swiss law apparently establish a one-year limitations period. Honnold, supra n. 9, § 258 at 281 n. 5.

32. HGB §§ 377-78.

33. U.C.C. § 2-607(3)(a).

34. The courts have discretion to determine not only the length of the cutoff period, but also its starting point.

35. Cf. U.C.C. § 2-725, comment (four-year limitations period for Art. 2 "within the normal commercial record keeping period").

36. If the seller makes credit purchases without making provision for liability on as yet unasserted but valid breach claims, he may be forced to default on his payments, sell assets at distress values, renegotiate loans, or even file for bankruptcy when the buyer finally assets her claim. Each of these courses of action may result in extra costs that the seller might have avoided by deferring the credit purchase until after satisfying his obligation to the buyer.

It has been argued that specially short cutoff periods save sellers costs of keeping reserves for defective products or otherwise insuring against future defect claims. See, e.g., Lehmann, "Die Untersuchungs- und Rügepflicht des Kaüfers in BGB and HGB," 41 Wertpapieremitteilungen 1162, 1168 (1980). However, the only insurance or self-insurance costs a short cutoff rule will save are costs attributable to valid claims that are in fact cut off. Shifting costs of sellers’ breaches to buyers produces no net savings to both parties and hence does not fit the transaction cost minimization argument. See supra n. 24 and accompanying text.

37. Record retention costs that could be saved are not likely to loom very large in many industries. The financial overextension argument in particular seems quite speculative. The one who is most likely to suffer because of the delay in assertion of a claim is the buyer herself. By delaying, she runs the risk that the seller will not be in a position to pay, and as a unsecured creditor, she will have little leverage to pry her claim out of the seller before his other creditors, except to the extent she has not yet paid all of the price.

38. U.C.C. § 2-607(4). The German law is a bit more complex. One might have thought that BGB § 463, putting the burden of proof on the creditor when he accepts performance but later wants to reject it as "non-fulfillment" of the contract, resolved the matter in the same manner as U.C.C. § 2-607(4), but according to some authorities that BGB section is not applicable to warranty claims because they involve allegations of misperformance instead of non-performance. Palandt, Bürgerliches Gesetzbuch § 463, Anm. 6, at 466 (41st ed. 1982). Nevertheless, the general opinion, endorsed by the Bundesgerichtshof in dictum, is that the buyer must carry the burdens of proof and persuasion for warranty claims whether he is keeping the goods or not. Id.; 4 Brüggemann, Handelsgesetzbuch: Grosskommentar § 377, Anm. 126, at 510 (3d ed. 1970) (discussing literature, including contrary views).

39. But see, e.g., General Matters, Inc. v. Paramount Canning Co., 382 So. 2d 1262 (Fla. App. 1980) (notice rule barred buyer’s claim for defective canned grapefruit because buyer destroyed goods before seller could inspect even though State Department of Agriculture deemed the product unfit for human consumption).

40. Thus, for example, claims that the goods delivered were simply not the type ordered do not fit the evidence gathering rationale, nor do claims involving admitted defects or claims in which the issue is whether the goods in question have a defective design and there is no basis for the seller to allege that the buyer’s misuse caused the damage. But see, e.g., EPN-Delaval, S.A. v. Inter-Equip, Inc., 542 F. Supp. 238 (S.D. Tex. 1982) (applying notice rule to six ten-ton steel heads cast in the wrong shape).

The German notice rule excludes a portion of this type of case. Section 378 of the German Commercial Code applies the notice rule to claims that the seller delivered the wrong goods, but only if "the delivered good does not so clearly differ from the order" that the seller could not reasonably interpret the buyer’s failure to give notice of a defect as approval of the goods as delivered. Part II of this article will show that the Germans adopted this rule for reasons which have nothing to do with the functional argument presented here.

41. Sect. 1315 of the Civil Code place the burden of proof on the debtor to prove satisfaction of his debt. By that rule the seller should have to prove the conformity of the goods delivered, but the trial courts do not consistently observe that rule. Alter, L’Obligation de Déliverance dans la Vente de Meubles Corporels 191-92 n. 73 (1972) (citing contrary lines of authority). Standard contract terms typically reverse the burden of proof and often require proof by jointly conducted examination by an expert). Alter, id. at 192; see also Ghestin, supra n. 8 at 212-13 (same).

42. Herzog, Civil Procedure in France145 (with collaboration of M. Weser 1967); Schlesinger, Baade, Damaska, & Herzog, Comparative Law: Cases – Text – Materials 471 (5th ed. 1988).

43. Alter, supra n. 41 at 192 (in the absence of express contract terms requiring the buyer to prove claims by expert inspection at the shipping point, commercial courts often draw a negative inference from the fact that the buyer did not do so and sometimes show themselves "clearly hostile to a buyer limiting himself to a unilateral expert examination").

44. See, e.g., cases cited supra in nn. 39-40. A larger sampling of such cases is discussed in Reitz, supra n. 23 at 567-68 n. 104. The reported German and French cases generally do not disclose sufficient facts to permit one to assess how likely it is that the underlying warranty claim is valid.

45. A final prejudice argument that has occasionally been advanced in the United States, and by at least one German writer, is the argument that a prompt notice requirement is useful in preserving the seller’s opportunity to examine its other products for defects similar to the one the buyer complains of or to recall similar products in order to avoid similar liability to other buyers. See Lehmann, supra n. 36, at 1168. This argument also does not apply to all sellers. For example, it is not likely to apply to sellers of specially manufactured or otherwise unique goods. Moreover, the argument is quite speculative. It is hard to know under what circumstances complaints from buyers will lead a seller to examine goods or manufacturing processes, eliminate the source of defects, and avoid liability to other buyers. If sellers are forced to negotiate for – and hence pay for – special cutoff rules, it seems unlikely that they would choose to spend their money on the marginal protection to be gained from cutoff rules, especially ones that use discretion-laden standards of reasonableness or promptness, when instead they could spend their money on better monitoring of products by their own employees. Finally, at least in the United States, the possibility of suits in tort for defective products, which are not subject to the cutoff rules, further weakens this argument. See generally Reitz, supra n. 23 at 572-74.

46. Costello v. United States, 365 U.S. 265, 282 (1961) ("Laches requires proof of (1) lack of diligence by the party against whom the defense is asserted, and (2) prejudice to the party asserting the defense.").

47. See supra n. 23.

48. Schmitthof, Commercial Law in a Changing Economic Climate 10 (2d ed. 1981).

49. For the United States: Clark, "The First Line of Defense in Warranty Suits: Failure to Give Notice of Breach," 15 U.C.C. L.J. 105, 116 (1982); cf. Phillips, "Notice of Breach in Sales and Strict Tort Liability Law: Should There Be a Difference?," 47 Ind. L.J. 457 (1972) (arguing to extend the UCC notice provision to all strict liability suits for product defects, including those brought by consumers).

For Germany: Recknagel, Die Trennung von Zivil- und Handelsrecht unter besonderer Berücksichtigung der Untersuchungs- und Rügepflicht nach § 377 HGB 219-21 (1985) (advocating applying the notice rule to all buyers, including consumers but extending the time limits for consumers to inspect the goods and give notice from "without delay" to "within a reasonable (angemessen) time," subject to an overall cap of two years; further changing the six-month limitations period to a one-year period running from the sending of notice); Lehmann, supra n. 36 at 1168 (advocating extension to consumers of duty to give notice, but not duty to inspect); cf. Raisch, Geshichtliche Voraussetzungen, dogmatische Grundlagen und Sinnwandlungen des Handelsrechts 277 ff. (1965) (advocating extension of the Commercial Code notice rule to farmers, foresters, and the "liberal professions").

It should be noted that the concept of "merchant" varies slightly from country to country. For example, under German law, farmers, foresters, and the "liberal professions" do not fall within the Commercial Code definition of merchant unless they register in the commercial register. Horn, Kötz, & Leser, German Private and Commercial Law: An Introduction 214 (Weir, translator, 1982).

50. For a discussion defending resort to travaux préparatoires in the interpretation of the CISG but cautioning against ascribing too much weight to isolated statements made by delegates during the course of diplomatic conferences, see Honnold, supra n. 9, §§ 88-91.

51. Honnold traces the effort back to the early 1930s "when the International Institute for the Unification of Private Law (UNIDROIT) requested a distinguished group of European scholars to prepare a draft of a uniform law for the international sale of goods." Honnold, supra n. 9, § 4 at 49.

52. A preliminary UNIDROIT draft was issued in 1935, but work was suspended during the war, and the next revised draft was not issued until 1956. Id. § 4 at 49.

53. Part II will argue that cutoff rules have tended to be adopted as counterweights to extensions or strengthenings of buyers’ warranty rights.

54. Ernst Rabel – one, if not the principal, leader in the movement to unify the law applicable to international sales, see Dölle, Kommentar zum Einheitlichen Kaufrecht xxxi (1976) – compiled and analyzed the sales law of the world in order to assist that effort. That study led him to the following conclusion:

"The buyer is entitled to expect certain characteristics [of the goods], and the seller can know this. The behavior of the parties determines many individual decisions according to equity and business decency. But those are certainly factors in the entire law of bilateral contracts! We certainly need justify ourselves no longer against the principle of caveat emptor." 2 Rabel, supra n. 9 at 132.

According to Rabel, there was a world-wide trend toward "the simplification of this institution [warranty] and its inclusion in the law of contracts." Id. at 101. He saw that in all countries warranty liability rested on a combination of promises expressly made by the seller and defects that the law would not normally allow the seller to foist off on the buyer. Id. at 103, 106. See also Rabel, "The Nature of the Warranty of Quality," 24 Tul. L. Rev. 273 (1950). Professor Honnold, commenting at the end of the process, suggests that:

"[d]evelopments of the past century have not advanced beyond (and indeed have only obscured) the insight of L.J. Brett in Randall v. Newson, 2 Q.B. 102 (C.A. 1877): "The governing principle . . . is that the thing offered or delivered under a contract of purchase and sale must answer the description of it which is contained in words in the contract, or which would be so contained if the contract were accurately drawn out." Honnold, supra n. 9, § 222 at 249 n. 1.

According to Schlechtriem, that quotation also sums up the understanding that underlay the first drafts for a uniform law of international sales. Schlechtriem, "The Seller’s Obligations Under the United Nations Convention on Contracts for the International Sale of Goods," in International Sales: The United Nations Convention on Contracts for the International Sale of Goods, 6-1, 6-20 (Galston & Smit, eds. 1984).

55. Art. 35 of the CISG provides in relevant part:

"(1) 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.

"(2) Except where the parties have agreed otherwise, the goods do not conform with the contract unless they:

(a) are fit for the purposes for which goods of the same description would ordinarily be used;

(b) are fit for any particular purpose expressly or impliedly made known to the seller at the time of the conclusion of the contract, except where the circumstances show that the buyer did not rely, or that it was unreasonable for him to rely, on the seller’s skill and judgment;

(c) possess the qualities of goods which the seller has held out to the buyer as a sample or model;

(d) are contained or packaged in the manner usual for such goods or, where there is no such manner, in a manner adequate to preserve and protect the goods."

56. Art. 40 of the 1956 Draft Uniform Law on Sale prepared by UNIDROIT provided:

"The seller shall not have delivered goods in conformity with the contract:

(1) where he has delivered part only of the goods sold, or where he has delivered a larger or a smaller quantity of goods than that which he contracted to sell;

(2) where he has delivered goods which are not those to which the contract relates, or goods of a different kind;

(3) where he has delivered goods which do not possess the qualities necessary for their ordinary or commercial use;

(4) where he has delivered goods which do not possess the qualities for some particular purpose expressly or impliedly contemplated by the contract;

(5) where, generally, he has delivered goods which do not possess the qualities and characteristics expressly or impliedly contemplated by the contract.

"No excess or deficiency in quantity, lack of part of the goods or absence of any quality or characteristic shall be taken into consideration where it is not material to the interests of the buyer or where it is permitted by usage. 2 Diplomatic Conference on the Unification of Law Governing the International Sale of Goods, The Hague , 2-25 April 1964: Records and Documents of the Conference 13 [hereinafter "Records 1964 Conf."].

57. See, e.g., 1956 Draft Uniform Law, Arts. 50-58, 65; 1964 ULIS Arts. 41-49, 55.

58. Under German law, the buyer has no claim for consequential damages for breach of the implied warranty against defects, but only a claim for price reduction in the proportion in which the actual value of the object at the time of contracting bore to the value it would then have had if without defect. BGB §§ 462, 463, 472. However, if the good fails to conform to express promises, the buyer can recover full damages, including consequentials. BGB § 463.

The French Civil Code expressly shields the good faith seller without knowledge of hidden defects from liability for consequential damages. He is liable only to give restitution of the price and to reimburse the buyer the expenses occasioned by the sale. C. civ. Arts. 1645-46. However, the French courts have permitted consumer buyers to recover full damages by treating the commercial seller of defective goods as a seller who sells in bad faith with knowledge of defects. Ghestin, supra n. 8 at 244-46. Part II of this article will treat the evolution of the French law in this regard in some detail.

59. See, e.g., 1956 Draft Uniform Law, Arts. 50(c), 94; 1964 ULIS Arts, 41(2), 82, 84-87. As an alternative remedy, the CISG permits a claim for mere proportionate price reduction, see CISG Art. 50, as in German law. See supra nn. 12, 58. For an analysis of the limited occasions when a buyer might prefer that remedy, see Bergsten & Miller, "The Remedy of Reduction of Price," 27 Am. J. Comp. L. 255 (1979).

Formal expression of a unitary theory of contract breach, like that to which we are accustomed in the common law, was introduced into the draft CISG only right before the 1980 diplomatic conference. The 1978 Draft CISG provided just one set of remedies for breach of any of the seller’s obligations, Articles 41-48, and this expression of a unitary theory of contract breach survived in the version of the CISG adopted by the 1980 diplomatic conference. CISG Arts. 45-52.

60. The official comments to the 1956 UNIDROIT draft stated that "[p]roof and notice of the breach result in precise rules in the Draft which are dominated by the fundamental idea of the brevity of the periods of time allowed to the buyer to examine the goods and point out the defects (Arts. 47 to 49)." 2 Records 1964 Conf. at 35.

61. 1956 Draft ULIS, Art. 47 ("without undue delay"); ULIS Art. 38, ¶ 1 (1964) ("promptly"). It should be noted that the official French text in both cases used the same term "dans un bref délai." Compare 2 Records 1964 Conf. at 14 (1956 draft of inspection rule) with 1 Records 1964 Conf. 340 (final version of inspection rule). For the comparable requirement of the German notice rule, see supra n. 7.

62. ULIS Art. 39, ¶ 1. The 1956 draft notice rule required the buyer to "notify the seller . . . without undue delay from the moment when he discovered [the non-conformity] or ought to have discovered it." Art. 48, ¶ 1. The French phrase "dans un bref délai" is used to translate both timeliness standards in the official French versions. See 1 Records 1964 Conf. at 340, 2 id. 14. The same notice rule governed both the remedy of avoidance as well as the remedies leading to a monetary recovery. For the comparable requirement of the German notice rule, see supra n. 7.

63. ULIS Art. 49.

64. BGB § 477.

65. C. civ. Art. 1648.

66. They did, however, include the widely adopted rule that excludes implied warranties in the case of defects which the buyer had an opportunity to discover prior to contract formation. See, e.g., ULIS Art. 36. This rule is found in virtually all regimes of sales law. See, e.g., BGB § 460; U.C.C. § 2-316(3)(b); CISG Art. 35(3). It might be considered a type of acceptance rule, but unlike the other cutoff rules, it is justified as a rule of interpretation for the stage of contract formation. It provides a reasonable rule to interpret the allocation of risk of obvious defects the parties most likely reached when the buyer has occasion to inspect the goods before agreeing to buy.

67. The United States objected to the "heavy requirements of speed and detail in notifying sellers of nonconformity, [which] may produce technical objections to just claims." Doc/V/Prep/8 (Statement of United States submitted before the opening of the Conference) in 2 Records 1964 Conf. 306. The United Kingdom and Israel joined the United States in objecting to the following aspects of the draft rules on the grounds that they would overburden buyers: (a) the articulation of the buyer’s inspection duty in a provision separate and apart from the rule requiring the giving of notice; (b) the emphasis on speed implied by the requirement that notice be given "promptly," and (c) the requirements that the buyer state the "exact nature" of the non-conformity and invite the seller to inspect for itself. See, e.g., 1 Records 1964 Conf. 72, 75, 76 (statements by Honnold, (U.S.), Davies (U.K.) and Yadin (Israel)). The representatives from Yugoslavia agreed with the suggestion that notice should be required only within "a reasonable time." Id. at 74.

68. See, e.g., 1 Records 1964 Conf. 72 (Riese, W. Ger.) arguing against proposals to eliminate separate article on buyer’s duty to inspect); 2 Records 1964 Conf. 74, 76 (Swedish representative argued that two-year cap on notice rule necessary to secure exporter support). A number of representatives in fact thought the draft cutoff rules were not sufficiently protective of sellers because of the somewhat open-ended limitations rule. They therefore advocated a cap on the notice rule to set an outside limit to the period at which sellers remain at risk. See, e.g., 1 Records 1964 Conf. 74 (statements of representatives from Sweden and the International Chamber of Commerce); 2 Records 1964 Conf. at 307-08 (comments and amendments submitted by International Chamber of Commerce (proposing one-year cap), Sweden (proposing two-year cap), and the Federal Republic of Germany (supporting the proposal for a one-year cap)). See also Riese, "Die Haager Konferenz über die Internationale Vereinheitlichung des Kaufrechts vom 2. bis 25 April 1964: Verlauf der Konferenz und Ergebnisse Hinsichtlich der Materiellen Vereinheitlichung des Kaufrechts," 29 RabelsZ 1, 51 (1965).

69. Para. 1 of Art. 39 of the ULIS provided in part:

"In any event, the buyer shall lose the right to rely on a lack of conformity of the goods if he has not given notice thereof to the seller within a period of two years from the date on which the goods were handed over, unless the lack of conformity constituted a breach of a guarantee covering a longer period."

The United States position recognized the greater strength of the seller’s claim for the protection of a short cutoff in the case of a buyer’s claim for avoidance than in the case of a claim for damages, but that insight led them to advocate merely softening the requirements of the notice rule insofar as it governed the right to damages, not abolishing it. See 2 Records 1964 Conf. 306. The conference rejected that proposal, too, by relating the notice periods for damages and for avoidance in such a way that made it clear that the notice period for damages expired first. See ULIS Art. 43 ("The buyer shall loses his right to declare the contract avoided if he does not exercise it promptly after giving the seller notice. . . .")

70. Both the ULIS and its companion treaty, A Uniform Law on the Formation of Contracts for the International Sale of Goods, went into effect in 1972 following ratification by five States. The adherents were primarily European. Honnold, supra n. 9, § 4 at 49. One of the adherents, the Federal Republic of Germany, enacted the uniform laws as its domestic law applicable to the transnational contracts to which the treaties apply. The ULIS is known in Germany as the "Einheitliches Gesetz über den Internationalen Kauf Beweglicher Sachen" or "EKG". See generally Mertens & Rehbinder, Internationales Kaufrecht: Kommentar zu den Einheitlichen Kaufgesetzen 25 (1975).

71. Honnold, supra n. 9, § 9 at 53 (footnote omitted). See also Date-Bah, "Problems of the Unification of International Sales Law from the Standpoint of Developing Countries," in Problems of Unification of International Sales Law 39, 43 (1980) ("An important reason why the [ULIS and its companion treaty] . . . did not find acceptance in most developing countries is the political fact of the non-representation of most developing countries at the diplomatic conference at which these Laws were adopted.").

72. Honnold, supra n. 9, § 5 at 49.

73. UNCITRAL’s membership is limited to 36 States to facilitate efficiency in handling technical legal questions, but the membership is allocated by a quota system among the regions of the world. Honnold, supra n. 9, § 6 at 50.

74. United Nations Conference on Prescription (Limitation) in the International Sale of Goods, New York, 20 May-14 June 1974: Official Records, A/CONF.63/16 at 99 (1975) [hereinafter Records 1974 Conf.). See generally, Landfermann, "Das UNCITRAL-Ubereinkommen über die Verjährung beim Internationalen Warenkauf," 39 RabelsZ 253 (1975); Smit, "The Convention on the Limitation Period in the International Sale of Goods;: UNCITRAL’s First Born," 23 Am. J. Comp. L. 337 (1975) (omitting coverage, however, of the controversy over warranty claims).

75. Limitations Convention Art. 8.

76. As a result of strong pressure from developing countries, the draft which served as a basis for the 1974 conference provided a special limitations rule for warranty claims. It established a limitations period for apparent defects or nonconformities of two years running from delivery of the goods to the buyer, but for latent defects the limitation period was to run only from the time they could reasonably have been discovered, subject to an overall cap of eight years from time of delivery. Records 1974 Conf. at 6. The discovery rule on accrual converted the two-year limitations period into potentially a long one. See Landfermann, supra n. 74 at 267 (draft rule the result of pressure from developing countries). It appears that the developing countries made the same type of argument subsequently advanced by Professor Date-Bah. See text infra at nn. 82-84.

Some of the African countries also proposed lengthening the basic period to three years. Landfermann, supra n. 74 at 267 (Nigeria and Ghana).

77. Records 1974 Conf. at 40 (summarizing comments on the draft submitted prior to the conference by Austria, Byelorussian SSR, the German Democratic Republic, the Federal Republic of Germany, and the Union of Soviet Socialist Republics). A sizable group of participants advocated meeting the concern to avoid loss of evidence through a notice rule for warranty claims so that there would be a single limitations period for all breaches. Denmark, Finland, Norway, Sweden, the United Kingdom, and the International Chamber of Commerce submitted comments prior to the conference to this effect. Records 1974 Conf. at 40. The Netherlands, Japan, and Yugoslavia joined this position in the discussions during the conference. Landfermann, supra n. 74 at 267.

78. The Limitations Convention expressly does not govern notice rules, but only rules that require a party to institute legal proceedings within a particular time limit. Limitations Convention, Art. 1 ¶2. Art. 37 also expressly subordinates its rules to any other convention governing the same subject matter.

The fact that the Limitations Convention left the most contentious cutoff issues for resolution in the context of redrafting the ULIS undoubtedly has contributed to the view that widespread ratification of the Limitations Convention will be dependent on negotiation and ratification of a revised form of the ULIS. Landfermann, supra n. 74 at 275-77. The 1980 Vienna Conference adopted a protocol amending the Limitations Convention in order to make it better conform to the CISG in the expectation that countries would eventually ratify both treaties. United Nations Conference on Contracts for the International Sale of Goods, Vienna, 10 March-11 April 1980: Official Records, A/CONF.97/19 at 191 [hereinafter Records 1980 Conf.]. The Limitations Convention came into force on 1 August 1988, having been ratified by ten countries, including six that have also ratified the CISG, five of which have also acceded to the CISG protocol on the Limitations Convention. United Nations Commission on International Trade, Status Conventions (21st Sess.), Annex ¶¶ 1, 2, U.N. Dec. A/CN.9/304 (19 February 1988). However, the United States and most other countries which have already ratified the CISG have not yet ratified the Limitations Convention.

79. The provisions covering the area addressed by the ULIS were actually completed by UNCITRAL in 1977, but were first combined with the provisions covering the area of contract formation in 1978 when UNCITRAL completed its revision of the ULF. Records 1980 Conf. at 4-5 (historical introduction prepared by the Secretariat).

80. 1978 Draft Art. 36(1).

81. 1978 Draft Art. 37(1).

82. During the conference, the "Group of 77" held coordination meetings, especially for the purpose of protecting the interests of buyers of industrial goods for developing countries. Schlechtriem, supra n. 20 at 20. In the records of the conference, this group is referred to as the "Asian-African Legal Consultative Committee." Records 1980 Conf. at 323. For a list of the countries that spoke in favor of the Ghanaian proposals to amend the draft notice rule, see infra nn. 87, 88, 91.

83. The Official Records contain a brief summary of the argument stated in the First Committee debates by Mr. Date-Bah, the representative for Ghana. Records 1980 Conf. at 320. His argument is also summarized in Honnold, supra n. 9, § 254 at 278. Mr. Date-Bah’s objections are set forth more clearly and in greater detail in the paper he submitted to the 1979 Potsdam Conference on the 1978 draft CISG. See Date-Bah, supra n. 71, at 47-50.

84. Date-Bah, supra n. 71 at 49.

85. See Records 1980 Conf. at 320 (Ghanaian proposal to reduce notice rule to two-year cap). Mr. Date-Bah’s reasons for not objecting to the two-year cap are set forth in his Potsdam Conference paper. See Date-Bah, supra n. 71 at 49.

86. Records 1980 Conf. at 345; Date-Bah, supra n. 71 at 49.

87. Mr. Date-Bah argued before the 1980 conference that failure to modify the notice provisions of the 1978 draft would "induce caution" on the part of developing countries about ratifying the CISG. Date-Bah, supra n. 71 at 48. The representative from Kenya echoed this caution at the conference. Records 1980 Conf. at 321.

88. Records 1980 Conf. at 321. Only the Nigerian representative spoke in favor of the first Ghanaian proposal. Id. at 320.

89. Records 1980 Conf. at 320. The text of the Ghanaian proposal is printed in id. at 107. The provision on mitigation in both the 1978 Draft and the Final draft adopted in 1980 reads as follows:

"A party who relies on a breach of contract must take such measures as are reasonable in the circumstances to mitigate the loss, including loss of profit, resulting from the breach. If he fails to take such measures, the party in breach may claim a reduction in the damages in the amount by which the loss should have been mitigated." 1978 Draft CISG Art. 73; 1980 CISG Art. 77.

90. See, e.g., Records 1980 Conf. at 321-22 (statements of representatives from the Netherlands, Switzerland, Sweden, Bulgaria and the Federal Republic of Germany).

A number of implausible arguments for the notice rule were also raised in opposition to the Ghanaian proposal, for example, the argument that the notice rule promotes prompt settlement of disputes, see, e.g., Records 1980 Conf. at 322 (statements of representatives from Denmark, Australia, and Japan), and the speculation argument that applies only to the remedy of avoidance. Id. (statement of representative from Denmark). For a refutation of the settlement argument, see Reitz, supra n. 24 at 1817-19.

91. Records 1980 Conf. at 323. Only the representatives of Kenya, Pakistan, China, Nigeria, the United Kingdom, Mexico, Singapore, and the Libyan Arab Jamahiriya spoke in favor of the second Ghanaian proposal. Id. at 321-22.

Although the rules of the conference provided that only a simple majority was needed for the First Committee to adopt a proposed text, the Plenary sessions could only adopt final language by a two-thirds vote. An effort was made throughout the conference to secure as large a consensus as possible on each point, and this effort resulted in final approval of the text of the CISG virtually without dissent. Honnold, supra n. 9, § 10 at 55-56.

92. Records 1980 Conf. at 323.

93. Records 1980 Conf. at 345 (records of the 21st meeting of the First Committee). The full text of the proposal, A/CONF.97/C.1/L.204, is set forth in id. at 108.

94. For a brief explanation of the remedy of price reduction, see supra n. 58.

95. Records 1980 conf. at 108.

96. The excuse provision expressly applies to the requirement to give notice set forth in Art. 37(1) of the 1978 draft, Art. 39(1) of the text finally adopted, but not to subparagraph (2) of that article, which sets forth the two-year cap.

It should be noted that the parties can contract out of the two-year cap by specifying a contractual period of guarantee, CISG Art. 39(2), though it is unclear whether the cap period starts running at the end of the contractual guarantee period or whether it is merely extended to the end of the contractual period.

97. See, e.g., Records 1980 Conf. at 345-47 (statements of representatives of Pakistan, Australia, Iraq, and China).

98. Records 1980 Conf. at 345-47 (statements of representatives for Czechoslovakia, Spain, Norway, France, Greece, the USSR, the Federal Republic of Germany). The United States commended the proposal’s "attempt to strike a balance" but indicated considerable concern about the clarity of the proposal. Id. at 346.

99. See Records 1980 Conf. at 346 (statements of representatives of United States and Norway). The Australian representative objected to the use of the term "set off," Records 1980 Conf. at 345, the Austrian representative expressed concern over the lack of clarity in the term "foreseeable financial loss," id. at 346, and the Greek representative objected to the complexity of an exception to an exception created by the last sentence. Id.

100. The phrase "may declare the price reduced" in the first sentence was changed to "may reduce the price." See CISG Art. 44.

101. Following this action, attempts to eliminate the two-year cap, see Records 1980 Conf. at 348 (proposal by representative of the United Kingdom), and to shorten the two-year cap, see id. (proposal by representative of Turkey to shorten the cap to one year); id. at 208 (statements by representatives of Peru and Spain in favor of proposal to shorten the cap to one year), were rejected on the grounds that the two-year cap was an integral part of the compromise reached on Art. 44. See, e.g., id. at 348 (statements by representatives of the Federal Republic of Germany, Sweden, Austria, and Ghana).

102. Records 1980 Conf. at 170 (text of Norwegian proposal providing excuse if buyer gave late notice "because of a circumstance beyond his control or another good ground"), 208 (records of Plenary session in which the proposal was introduced and then withdrawn for lack of support), 346 (statement by representative of Greece advocating that the excuse be limited to force majeure).

103. Whatever types of excuses are covered by Art. 44, there is no basis to maintain, as one German commentator has, that Art. 44 can only excuse the failure to report a defect in a timely manner and not also the failure to inspect as soon as practicable. See Schlechtriem, supra n. 20 at 71. The buyer has a "duty" to inspect under Art. 38 only as part of the Art. 39 requirement of giving notice, upon which the CISG conditions the buyer’s damage recovery, and Art. 44 excuses the buyer generally from failing to fulfill that condition. Nor should we follow the same commentator’s suggestion that the Article 44 excuse could be overridden by the mitigation requirement of Article 77 or the cooperation requirement of Article 80 ("A party may not rely on a failure of the other party to perform, to the extent that such failure was caused by the first party’s act or omission."). Id. at 71. Articles 77 and 80 only require a party to act reasonably and if a buyer has a "reasonable excuse" for not giving notice then she has either acted reasonably or in a way that has not harmed the seller.

104. See, e.g., Honnold, supra n. 9, § 261 at 284 ("Art. 44 could be applied when, for justifiable reasons, the buyer’s inspection is not made as soon as Article 38 specifies or with the degree of thoroughness that some might consider ‘reasonable.’").

Honnold also suggests that Art. 44 might be interpreted to excuse a buyer who fails to specify the nature of the defect as required by Art. 39(1) because of the "difficulty of making such a specification." Id. That excuse would not be necessary, however, if the Art. 39 requirement for specification is interpreted to require the buyer to do no more than to act in good faith to eliminate the seller’s informational disadvantage. See infra n. 113.

105. The most pro-seller interpretation of the compromise would be that Art. 44 takes away nothing from the general requirements for notice, found in Art. 39, because it merely reiterates the reasonableness standard. Based on this interpretation, one might even argue that Art. 44 constitutes a backhanded way of eliminating seller liability for lost profits in all cases, despite the clear language of Art. 74 permitting recovery of lost profits, because even the buyer with a reasonable excuse under Art. 44 cannot recover lost profits. These interpretations should be rejected, however, because they are contrary to the spirit of compromise that apparently prevailed at the conference.

The most pro-buyer interpretation would be that, with the exception of lost profit claims, which are barred by late notice in any event, apparently "in order to discourage fictitious claims," Records 1980 Conf. at 345 (comments by Date-Bah), failure to give notice within a reasonable time should be excused whenever there is no likelihood that the seller has been prejudiced by the delay because the seller then has no need of the protection provided by the notice rule. This interpretation views Art. 44 as a compromise on the scope and strength of the prejudice arguments and especially of the evidence gathering rationale. One of the original Ghanaian proposals had been to limit the notice rule to a set-off for costs that could have been avoided through timely notice. See text supra at n. 89. One of the reasons given for rejecting that proposal was that it neglected the evidence gathering rationale for the rule. See text supra at n. 90. The compromise could thus be seen as one in which Ghana and the other opponents of the notice rule accepted that criticism and accordingly widened the seller protection of their proposal to include situations in which delay in notice causes any other harm to sellers, including loss of potential rebuttal evidence.

The strongest argument for this interpretation of the compromise is that it would conform the CISG notice rule to the limited kind of cutoff rule for which there is the best functional argument. The strongest argument against this interpretation is the final sentence of the compromise proposal, as originally presented to the First Committee. See text supra at n. 95. That sentence, which authorized the seller to set off damages caused by delay in notice, would not have been necessary if the rest of the proposal was intended to convert the whole notice rule into a laches-style rule. Perhaps that sentence can be rationalized as an attempt to deal explicitly with the cases in which the buyer’s delay in giving notice causes prejudice, but in an amount less than the buyer’s total claim. There is also evidence that many delegates agreed to delete the sentence on the grounds that Article 77 on mitigation rendered it superfluous, Bianca, supra n. 21, at 325. But there is no evidence that the delegates discussed the possibility that the last sentence was unnecessary in light of the rest of the compromise proposal. Rather, as already described, the discussion concerning the function of the rest of the compromise proposal revolved around the plight of illiterate, Third-World buyers who might not be familiar with the notice requirement.

106. The German notice rule has been held to cut off the buyer’s remedies with respect to obvious defects in the matter of a few days, and for perishable goods, in a few hours. Schmidt, Handelsrecht 596 (2d. ed. 1982). Under the UCC’s "reasonable time" standard, the most severe cases have tended to find the notice period for obvious defects in non-perishable goods to expire in a matter of weeks. See, e.g., Mariner Water Renaturalizer of Washington, Inc. v. Aqua Purification Systems, Inc., 665 F.2d 1066 (D.C. Cir. 1981) (notice 5 to 8 weeks after delivery was untimely); EPN-Delaval, S.A. v. Inter-Equip, Inc., 542 F. Supp. 238 (S.D. Tex. 1982) (notice after 65 days too late); Fruin-Colnon Corp. v. Air Door, Inc., 157 Ga. App. 804, 278 S.E. 2d 708 (1981) (notice 2 weeks after discovering defect shortly after delivery too late); Societ´e Nouvelle Vaskene v. Lehman Saunders, Ltd., 14 U.C.C. Rep. Serv. (Callaghan) 692 (N.Y. Sup. Ct. 1974) (notice 3 ½ months after most deliveries, 1 ½ months after all deliveries, and at least 1 month after discovery of defects too late.)

107. BGB § 477.

108. U.C.C. § 2-725(1); for the Limitations Convention, see text supra at n. 75.

109. Schlechtriem has voiced the concern that the notice requirement may "lose its practical meaning through an all too lenient interpretation of ‘reasonable excuse.’" Schlechtriem, supra n. 21 at 71 n. 271.

110. The commentary by the UNCITRAL Secretariat for the 1978 draft CISG, one of the official documents of the 1980 conference, relies solely on prejudice arguments (loss of opportunity to cure, rebuttal evidence, and claims over) in justifying the basic notice rule. Records 1980 Conf. at 35 (Commentary to Art. 37, ¶¶ 4, 5). The few discussions of theory during the 1980 conference similarly focused on prejudice rationales, especially the possible loss of rebuttal evidence, see text supra at nn. 86, 90, with the exception of a few remarks that suggested the completely unpersuasive settlement rationale. See supra n. 90.

The official commentary for the 1978 draft CISG hints at the repose rationale for the two-year cap by stating that "the principles which lie behind [the cap provision in the notice rule] and [the limitations and accrual rules] of the [Limitations] Convention are the same. . . . " Records 1980 Conf. at 35 (Commentary to Art. 37, ¶ 6).

111. See Reitz, supra n. 23 at 1810 n. 31. See, e.g., Eaton Corp. v. Magnavox Co., 581 F. Supp. 1514 (E.D. Mich. 1984) (seller knew that it was supplying wrong part, 8-month delay by buyer bars claim). But see United California Bank v. Eastern Mountain Sports, Inc., 546 F. Supp. 945 (D. Mass. 1982), aff’d, 705 F. 2d 439 (1st Cir. 1983) (refusing to apply notice rule to protect seller who misrepresented to buyer despite knowledge of non-conformity).

The German notice rule provides that "[I]f the seller concealed the defect in bad faith, he cannot rely on [the notice rule]." HGB § 377(5). The German bad faith concealment provision has likewise been interpreted to protect sellers with knowledge of the defect unless the seller has deliberately misrepresented, but it may go a little further than the American law by also exempting the buyer from the notice requirement if the seller knew of the defect or the possibility of a defect, knew that the buyer did not know of it, and knew that the buyer either would not have entered into the contract at all if he had known of the defect or would have bargained for different terms. 5 Gessler, Hefermehl, Hildebrandt, Schröder, Schlegelberger Handelsgesetzbuch 156-57 (5th ed. 1982).

112. CISG, Art. 39(1).

113. If the buyer reasonably does not know the precise nature of a complex defect, the specificity requirement should pose no bar to his recovery. Once the buyer has told the seller all he can about his reasons for dissatisfaction with the goods, he has put the seller in his own position and the seller has no informational disadvantage.

114. For example, Baden’s Territorial Code of 1808 laid down a 14-day notice rule for obvious defects, and the 1839 Commercial Code for the Kingdom of Württemberg shortened the period to eight days. Recknagel, supra n. 49 at 48-50.

115. It is not clear that the special short limitations periods on warranty remedies would apply under general choice of law rules. Compare, Huber, "Der UNCITRAL-Entwurf eines Übereinkommens über internationale Warenkaufverträge," 43 RabelsZ 413, 483 (1979) (general 30-year limitations rule, not six-month period,) would apply to case if applicable choice of law rules refer to German law) with Schlechtriem, supra n. 21 at 72 n. 274 (expressing "reservations" about Huber’s view).

116. The minutes of the debates on the ULIS indicate that André Tunc expressed this notion well:

"Mr. Tunc (France) believed that the Committee is faced with an important and delicate problem. He would be pleased if Articles 47 and 48 [setting forth the buyer’s duty to inspect and to give notice] could be simplified. However, on rereading them, he wondered if they are not absolutely necessary. No doubt the expression "without undue delay" was somewhat rigorous. But too great a modification of the article would destroy its equilibrium. In fact the seller must furnish the conformity strictly, but the buyer must make an effort to avoid misunderstandings and this was the purpose of Articles 47 and 48. Goods should be conform [sic] to prescriptions but the buyer must be diligent in making complaints." 1 Records 1964 Conf. 72.

Professor Tunc’s unofficial commentary on the ULIS as adopted by the 1964 Conference, which he prepared for the convenience of governments submitting the ULIS to their national legislatures as part of the process of ratification, id. at 357, also describes the provisions on the notice rule as expressing a "firm policy of balancing the rights of seller and buyer." Id. at 376.

117. For the exception of consumers from the American and German notice rules, see supra n. 23. For academic writing in both countries advocating that consumers should be covered by the rule, see supra n. 49. Part II of the article will examine in some detail the German codification debates over application of the notice rule to consumers.

For another example of the impact on legal development of a readily identifiable consumer group, see Fede, "Legal Protection for Slave Buyers in the U.S. South: A Caveat Concerning Caveat Emptor," 31 Am. J. Legal Hist. 322 (1987). Fede argues, inter alia, that the courts of antebellum South Carolina, unlike those of most of the rest of the United States during that period, never adopted the doctrine of caveat emptor for its sales law but stuck to the principle that a sound price implied a sound product because of the dominant influence of slave owners, who in the case of South Carolina were primarily buyers rather than sellers of slaves. In most other states, according to Fede, and especially in the non-slave-owning Northern states, the dominant interests concerned with sales law were not so clearly identifiable as buyers, but were just as likely to be sellers.

118. For example, at the 1964 Hague conference the Swedish representative opined that exporters would not support the CISG if it did not include a short notice rule. See supra n. 68.

119. For Germany, see, e.g., Raisch, supra n. 49 at 278-80; Recknagel, supra n. 49 at 45-46. For France, see, e.g., Pothier, Treatise on the Contract of Sale 140-41 (Cushing, translator, 1839).

120. For example, official comments or legislative debates to a number of nineteenth century codifications cite merchants’ custom as a source for the notice rule adopted. Recknagel, supra n. 49 at 49-50 (1808 draft Commercial Code for the Kingdom of Württemberg), 45 (1857 draft Prussian Commercial Code), 57 (the 1861 German General Commercial Code), 71 (1897 German Commercial Code). Similarly, some French writers advocating the modern French acceptance rule for apparent defects appear to assign considerable weight to the commercial preference for short cutoff rules manifested by standard terms of form contracts. See Alter, supra n. 41 at 179-82, 187-90; Ghestin, supra n. 8 at 210-11. Even Williston, in introducing the notice rule into American law in his 1906 draft of the Uniform Sales Law, invoked "business practice" as a source for the rule. Williston, The Law Governing Sales of Goods at Common Law and under the Uniform Sales Act 846-47 (1909).

121. The minutes (Protokolle) of the Nuremberg Commission, which drafted the General German Commercial Code (Allgemeines Deutsches Handelsgesetzbuch or ADHGB) in the late 1850’s for the German League (Bund), reported that one member of the Commission stated:

"Only in wholesale trade is there a need for legal sanctioning of the duty to inspect goods as soon as possible after receipt . . .; it is different in the retail trade, namely in transactions by merchants with consumers. It would therefore seem appropriate to limit the requirements [of the notice rule] to those cases in which the buyer is a merchant. . . . Only in transactions of businessmen with each other can their advantage and disadvantage be equalized in that one and the same is today a buyer and tomorrow a seller. Raisch, supra n. 49 at 282-83.

122. Roman law, which came by Justinian’s time to impose an implied warranty against hidden defects, de Zulueta, The Roman Law of Sale: Introduction and Select Texts 49 (1945), cut off the buyer’s right to return the goods and recover the price if not sued on in six months and the right to recover damages if not sued on within one year. Id. at 47, 50. Part II will treat in detail the development of the Roman law on this point and show how it was "received" into modern civil law.

123. See supra n. 119.

124. The only critical voices I have found in recent German scholarship are: 5 Schlegelberger Handelsgesetzbuch, supra n. 111 at 137 ("The requirement in § 377 for notice without delay burdens the purchaser more than commerce demands."); 3 Däubler, et al., Reihe Alternativekommentare: Kommentar zum Bürgerlichen Gesetzbuch – Besonderes Schuldrecht 125 (Reich, contributor, 1979) (the six-month limitations period is "extraordinarily short" and "one-sidedly pro-seller and anti-buyer," especially in the case of technically complex goods) (emphasis in original). See also Huber, supra n. 115, at 483 (passing reference to insufficiency of six-month limitations period for latent defects).

125. The opposition of the American critics has been directed against extension of the notice rule to consumers’ products liability suits. See, e.g., Prosser & Keeton on the Law of Torts § 97, at 691 (Keeton, ed., 5th ed. 1984) (calling the notice rule in the UCC a "booby-trap for the unwary"); James, "Products Liability," 34 Tex. L. Rev. 192, 197 (1955) (notice rule "may prove a trap" to the consumer).

126. To the extent the leading opposition countries, Ghana, Nigeria, Pakistan, and Israel, have been influenced by Western legal systems, they have primarily been influenced by the laws of Great Britain, which has never imposed special cutoff rules on the buyer’s damage remedy for breach of warranty.

127. For a few citations from the history of cutoffs see supra n. 120. Beyond the narrow issue of cutoff rules, merchants’ custom has served a particularly large role as a source of law for modern American sales law because of the influence of Karl Llewellyn, the principal drafter of the Uniform Commercial Code, who thought that the Code should direct the courts to find the content of legal rules principally from prevailing business practices. Gilmore, The Ages of American Law 81-86 (1977); Danzig, "A Comment on the Jurisprudence of the Uniform Commercial Code," 27 Stan. L. Rev. 621 (1975).

Merchants’ custom does not appear to have played as significant a role in the drafting of the CISG. Proponents of the notice rule, for example, do not appear to have based their arguments to any significant extent on custom. Nevertheless, for a strong argument to recognize lex mercatoria in national courts as an independent source of law, presumably not in contravention of an international treaty, but in the absence of contrary positive law, see Berman & Kaufman, "The Law of International Commercial Transactions (Lex Mercatoria)," 19 Harv. Int’l L.J. 221 (1978). For a survey of recent literature on the issue, see id. at 273 n. 197. Specifically, Berman and Kaufman advocate taking lex mercatoria "as a starting point for judicial interpretation and for national and international legislation." Id. at 274.

128. See Date-Bah, supra n. 71 at 46-47. See also "Analysis of Replies and Comments by Governments on the Hague Convention of 1964, Report by the Secretary-General" ¶ 79 (comments by Mexico) in 1 Uncitral Yearbook 159; id. ¶ 80 (comments by U.S.S.R.).

129. See supra n. 66.

130. ULIS Art. 9(2).

131. CISG Art. 9(2).


Pace Law School Institute of International Commercial Law - Last updated August 13, 1999
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