Published by Manz, Vienna: 1986. Reproduced with their permission.

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b) Examination and Notice by the Buyer (Articles 38-40, 44)

As a prefatory [262] provision, Article 38 controls the time when the goods must be examined.[262a] It is uncertain whether, in cases of early delivery, the "short period" in paragraph (1) begins from actual delivery or from the date when performance was due under the contract.[263]

If the goods must be transported, Article 38(2) postpones the time for examination until the goods have arrived at their destination. Difficulties arose - even in Vienna - concerning goods which are redirected in transit or redispatched by the buyer after resale. The version finally adopted in Article 38(3) should make clear that, in the case of reshipment due to resale, examination may be deferred until the goods arrive at their new destination. Thus the packaging, for example, need not be opened beforehand.[264] In order to postpone the examination, it is also necessary that the seller knew or ought to have known that a redirection or redispatch was possible, so that the seller does not assume prematurely - in regard to the time of arrival at the buyer's - that the examination took place and produced no objections.

Unfortunately, unlike under ULIS Article 38(4), the law and usages of the place of examination are irrelevant with regard to the procedures for examination.[265] Yet the international usages mentioned in the Secretariat's Commentary are often of little help. On the other hand, it may frequently be possible to find an implied agreement under Article 9(1), or habitual practices between the parties, in order to allow for application of local examination customs.[page 69]

If the buyer discovers or ought to have discovered a lack of conformity, then he must notify the seller of defects within a "reasonable" time. Notification must also be given if entirely different goods are delivered.[266] As in ULIS and the German Commercial Code, the notice is effective upon dispatch (Article 27), but it must be sent by a means of communication appropriate to the circumstances and generally designed to reach the addressee. The notice must specify the nature of the lack of conformity in the delivered goods (Article 39(1)). It is irrelevant whether the non-conformity is discovered or ought to have been discovered during the required examination or does not appear until later as a "hidden" defect. In any case, notice must be given when the defect becomes known or recognizable.

The seller cannot object to the failure to examine and notify of defects if the defects are based on circumstances of which he knew or ought to have known and which he did not disclose to the buyer (Article 40). The provision concerns not only the seller's deceit (as in § 377(5) of the German Commercial Code) but also his gross negligence. The circumstances which must be disclosed include not only the qualities of the goods themselves but also facts which could influence or alter the goods once they have left the seller's control. CISG does not retain the provision of ULIS Article 39(2) that the seller is obligated to invite examination by the buyer.

One of the Conference's most difficult problems concerned the consequences of failing to give timely notice of non-conformity. The preliminary drafts had already adopted a more flexible formulation of the notice requirement by substituting "a reasonable time" for the "short period" of ULIS Article 39(1) sentence 1. Two elements of the 1978 Draft Convention's provision were controversial in Vienna: the buyer's loss of all rights for his failure to notify and the absolute exclusion of all claims after two years, whether or not the defects were discoverable during that time. While the industrialized countries were, in the end, able to uphold the two-year limitation,[267] the developing countries were successful in maintaining the remedies of price reduction and compensatory damages (except for lost profits)[268] for the buyer who can offer a reasonable excuse for his failure to give timely notice (Article 44).

This inroad into the protection of the seller's interest in regarding the transaction as fully completed may put a considerable burden on the seller, particularly because "reasonable excuse for his failure to give the required notice" is indefinite and open to an interpretation favorable to the buyer.[268a] Certainly there is some danger that buyers may assert non-conformity for two years and, on [page 70] the basis of Article 44, withhold remaining payments or take recourse against securities (suretyships or guarantees). On the other hand, the improvement in the position of the buyer who has failed to inspect the goods and to send notice of objections was for quite a number of countries an absolute precondition for approving CISG.[269]

It is not certain whether Article 44 is the final word or whether other, more general rules can override this provision. For example, even if the buyer has a "reasonable excuse" for not sending timely notice, it must still be determined whether his claim for damages may be reduced under Article 77 or whether his demand for a price reduction could be countered on the basis of Article 80. The seller might argue, for example, that he would have had an opportunity to cure the lack of conformity if he had been notified in a timely manner. Though notice cannot be regarded as a measure "reasonable in the circumstances" under Article 77, even in cases where the buyer has a "reasonable excuse" in the sense of Article 44, the failure to examine the goods (which is not excusable on the basis of Article 44) might be the cause of increased damages.[270] And the seller, on the basis of Article 80, could maintain that timely examination and notice would have permitted him to cure the defects completely. Finally, the seller might claim damages for the buyer's violation of his obligations of inspection and timely notification.[271]

It would be contrary to the sense and purpose of a uniform law to apply remedies for defects under domestic law which are either more extensive than those provided in the Convention or unaffected by the failure to notify, such as avoidance for mistake or claims in tort for the decrease in value of the goods.[272]

The time limit for the notification of defects is determined by the actual handing-over of goods to the buyer. The rule is uncertain in the case of resale and direct shipment to the ultimate purchaser. It was generally assumed that, in such a [page 71] case, the time limit would begin to run from the moment the goods are handed over to the third person.[273]

The provisions of Articles 38, 39 and 44 are optional. Article 39(2) permits prolongation of the two-year time limit by virtue of a contractual guarantee period. But the contract may also contain special provisions for the examination and notice of defects as, for example, when the contract provides for a test run in the presence of the seller or when both sides sign a report concerning the machine's conformity to the contract.

The Convention does not contain a statute of limitations. Domestic law remains applicable.[274] However, at the Vienna Conference, the UNCITRAL Convention on the Limitation Period in the International Sale of Goods [275] was adjusted to the sphere of application of CISG by a Protocol Amending the Convention on the Limitation Period, which is attached as Annex II to the Convention. Ratification and application of the Limitation Convention would complete the unification of international sales law. [page 72]

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FOOTNOTES

* The author of this book participated at the Conference as a member of the delegation from the Federal Republic of Germany. The views expressed here are personal to the author and do not necessarily represent the position of the F.R.G. or its delegation.

262. See Secretariat's Commentary at 99 § 2.

262a. Although Article 38 mentions only "goods", the buyer also has to examine the relevant documents. See Ziegel, Remedial Provisions at 9-7.

263. Apparently the Secretariat's Commentary assumes that it does. See id. at 97 note 2 (on Article 35). In my opinion, this view is subject to challenge, since the seller may remedy a delivery of non-conforming goods until the date scheduled for delivery. If the packaging is opened, which would be necessary for inspection, the goods would be impaired. Furthermore, the buyer cannot be expected to prepare for inspection before the scheduled time of delivery. But if the view in the Secretariat's Commentary is accepted, the scheduled date for delivery must at least be considered an important "circumstance" under Article 38 for determining the short period permitted for examination.

264. See A/Conf. 97/C.1/SR.16 at 2 et seq. (= O.R. 319) (discussion).

265. See Huber's criticism in Huber at 482.

266. See supra at VI.B.1.

267. However, the industrialized countries' position on the question of the time permitted for giving timely notice was not uniform. France and the U.K. voiced concerns about cases where there were hidden defects and where an importer's liability due to defects would, under domestic law, exist for a longer period. See A/Conf. 97/C.1/L.137 (= O.R. 108) (British motion).

268. Practically speaking, this should probably mean the reduced value of the goods and any expenditures frustrated because of the defects. Consequential damages, such as loss of working time because of machine failure and resale profits, are excluded.

268a. But see Honnold, Commentary § 261. Honnold rightly points out that Article 44 refers to Article 39, but that a buyer who discovers or ought to have discovered a defect can hardly be excused for neglecting the requirement of notice.

269. See generally Date-Bah at 47 et seq. (an informative account of the reasons behind the developing countries' rejection of the notice requirement); see also A/Conf. 97/C.1/SR.16 at et seq. (= O.R. 322) (discussion in the First Committee based on Ghana's motion (A/Conf. 97/C.1/L.124= O.R. 107); A/Conf. 97/C.1/L.204 (= O.R. 108) (proposal by a working group); A/Conf. 97/C.1/SR.21 at 2 et seq. (= O.R. 345 et seq.) (discussion thereon).

270. Cf., e.g., the hypothetical raised by the British delegate in A/Conf. 97/C.1/SR.21 at 4 § 12 (= O.R. 346), which resembles the case in the Judgment of Nov. 24, 1976 BGH, 67 BGHZ 359.

271. Since the problems of overlap were not seen or regulated by the Convention, one might ask whether the compromise agreed to in Vienna is sound and practicable, or whether the notice requirement will lose its practical meaning through an all too lenient interpretation of "reasonable excuse". If the latter were the case, the situation should be corrected in favour of the sellers by applying Articles 77 and 80. One could counter this possible interpretation by arguing that Article 44 relates back to a compromise proposal by a working group, which had expressly provided the seller's right to set-off claims against losses incurred as a result of the buyer's late notice (A/Conf. 97/C.1/L.204 = O.R. 108), and which was rejected. In the conversations after the vote, however, it became clear that some delegates, who had voted against the right to a set-off, had presumed that the seller's claims for damages, based on the buyer's breach of his obligation to inspect and send timely notice, remain unaffected. In general, the theoretical question whether examination and notice are (only) incidental responsibilities or also duties of the buyer, was not discussed in depth.

272. See infra at VI.B.6.

273. See A/Conf. 97/C.1/SR.21 at 9-10 (= O.R. 349) (also contains further discussion about the meaning of the term "handing over").

274. I have some reservation with regard to Huber's view, that § 195 and not § 477 of the German Civil Code should govern claims of the seller in case German domestic rules on limitation are applicable. ULIS Article 49(1) shows that the two-year limitation period for failure to give notice does not sufficiently protect the seller, and that, therefore there is a point in prescribing short limitation periods. Even if the buyer gives timely notice, he should not have 30 years to make up his mind. See Huber at 483.

275. See Landfermann, 39 RabelsZ 253 (1975); id. at 342 et seq. (the text of the Convention); infra at VIII. (commentary thereto).

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