CROSS-REFERENCES AND EDITORIAL ANALYSIS

Article 40


Editor:

Vivian Grosswald Curran[*]


Article 40 states:

"The seller is not entitled to rely on the provisions of articles 38 and 39 if the lack of conformity relates to facts of which he knew or could not have been unaware and which he did not disclose to the buyer."


A precedent and the closest counterpart to official commentaries on Article 40 and its ULIS antecedent

The Secretariat Commentary on the provision that became Article 40 of the CISG states:

"[Article 40] relaxes the notice requirements of [articles 38 and 39] where the lack of conformity relates to facts which the seller knew or of which he could not have been unaware and which he did not disclose. The seller has no reasonable basis for requiring the buyer to notify him of these facts" (see footnote 1).

CISG Article 40 was taken from and is substantively identical to Article 40 of the 1964 Hague Uniform International Sales Law (ULIS) (see footnote 2). Case law and commentaries on ULIS Article 40 can thus be relevant to the interpretation of CISG Article 40 (see footnote 3 for identification of cases citing ULIS Article 40 and CISG Article 40). The Tunc Commentary on the ULIS provision states:

"In determining that the seller may not rely on the barring of rights provided for in Articles 38 and 39 if the lack of conformity relates to facts of which he knew, or of which he could not have been unaware of and did not disclose, Article 40 does no more than sanction a rule of good faith" (see footnote 4).


Relationship with Articles 38 and 39

To avail oneself of remedies for lack of conformity of the goods under the CISG, the path is compliance with Articles 38 and 39 except when Article 40 applies.

Articles 38 and 39 deal with buyer's duty to examine the goods (Article 38(1)), when the examination must take place (Article 38(2) and (3)), the buyer's duty to give timely and specific notice of nonconformity (Article 39(1) and (2)).

These are "gatekeeping" provisions: the buyer loses all remedial rights for lack of conformity of the goods under the CISG unless he gives the seller notice of the lack of conformity as required by Article 39. However, the situation is different when Article 40 can be properly invoked. When Article 40 applies, buyer will not lose remedies under the CISG for failure to comply with Article 39. In this situation Article 39's notice requirements do not apply.


Another relationship

In certain circumstances, facts that invoke Article 40 can open another "gate": a remedy for fraud under domestic law (see footnote 5).


The Article 40 trigger

The Article 40 trigger is "facts of which [the seller] knew or could not have been unaware and which he did not disclose to the buyer."


The facts to be disclosed

It has been said that "[t]he 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" (see footnote 6).


The seller

At the Vienna Diplomatic Conference it was stated in another context that a party's act or omission is intended to include the acts or omission of the party's employees (see footnote 7). By analogy, this is authority for the proposition that knowledge of persons employed by the seller for the purposes of the performance of the contract may, in the proper circumstances, be deemed to be knowledge of the seller.


"knew or could not have been unaware"

While "known to" does not require the seller to make efforts to obtain such knowledge, it has been said "he must not ignore clues" (see footnote 8). An example of "known or could not have been unaware" deriving from seller's predictably superior knowledge of the goods is said to be where a seller may have sold previous items from a large lot, and would have been informed by prior buyers of nonconformities likely to exist in all of the goods from the same lot (see footnote 9).

Degrees of knowledge referred to in the Convention include:

- "known" or is "aware" (Articles 31(b), 43(2), 64(2)(a), 65(1) and 69(2);

- "could not have been unaware" (Articles 8(1), 35(3), 40, 42(1) and 42(2)(a);

- "ought to have known" or related thereto (Articles 9(2), 38(3), 39(1), 43(1), 49(2)(b)(i), 64(2)(b)(i), 68, 74, 79(4) and 82(2)(c).

A subject of debate at the Vienna Diplomatic Conference, which at one time even got into principles of Kantian philosophy (see footnote 10), the difference between "known" and "could not have been unaware" is said to be, as a practical matter, slight (see footnote 11). "Ought to have know" has been defined in Article 13 of the antecedent to the CISG, the 1964 Hague Uniform International Sales Law (ULIS), as that which "should have been known to a reasonable person in the situation". The difference between "could not have been unaware" and "ought to have known" is said to be more significant:

"The facts one 'ought to have known' include those facts that would be disclosed by an investigation or inquiry that the party should make. But an obligation based on facts of which one 'could not have been unaware' does not impose a duty to investigate -- these are the facts that are before the eyes of one who can see" (see footnote 12).

On the other hand, regarding Article 40 as an aspect of a rule of good faith (see footnote 13), some commentators go beyond the literal language of this provision, suggesting that the seller has an obligation to examine the goods to ascertain their conformity (see footnote 14), despite the absence of any express requirement to do so in the text of CISG.

"Could not have been unaware" is nowhere precisely defined in the CISG. Different views as to a failure to disclose relevant facts of which one could not have been unaware are: it includes simple negligence; it is equivalent to gross negligence; it is slightly less than cunning and slightly more than gross negligence (see footnote 15); it is a standard of great negligence that exceeds gross negligence and approaches conscious negligence (see footnote 16).


The impact of general provisions of the Convention

General provisions of the CISG, particularly Articles 7 (interpretation of the Convention), 8 (intent of the parties) and 9 (usages and practices) can have a bearing on Article 40 and on fact patterns related to it.

For example, an obligation to examine the goods would stem not from Article 40 per se, but from general principles of the Convention introduced in Article 7 considered in the context of an Article 40 fact pattern. Similarly, intent of the parties and usages and practices can have a bearing on facts to be disclosed and can influence the manner in which Article 40 is to be applied.


A parallel provision of the CISG

Parallel settings are a feature of the Convention. See, for example, Article 45 (remedies for breach of contract by the seller) and Article 61 (remedies for breach of contract by the buyer). A parallel to Article 40 is found in Article 35(3). Its setting is seller's obligation to deliver conforming goods and the relief provided where buyer "knew or could not have been unaware of" a lack of conformity.

Article 35(3) contains the phrase "at the time of the conclusion of the contract". Article 35(3) is in addition set in a context that explicitly repeats the Article 6 precept, "except where the parties have agreed otherwise" (see footnote 17).

- "at the time of the conclusion of the contract". This phrase is not recited in the Article 40 analog to Article 35(3). And when one considers the purpose of Article 40 (relief of buyer's obligation to give notice of lack of conformity), the seller would have no reasonable basis for requiring the buyer to notify him of the relevant facts if he knew or could not have been unaware of them at any time prior to the time buyer was otherwise obligated to provide his notice. In a similar vein, it would seem that Article 40 could be invoked to provide relief for a partial non-compliance with Article 39, e.g., where buyer's notice was timely but lacking in the specificity customarily required. If seller "knew or could not have been unaware" of the added information, there would be no reason to deny buyer relief because he did not provide it.

- "except where the parties have agreed otherwise". Articles 38 and 39, like most provisions of the Convention, are "gap-fillers". In other words, they do not apply where the parties have otherwise attended to the subject in their contracts. And it is not uncommon for contracting parties to so attend to the subjects of Articles 38 and 39. Literally, Article 40 does not provide relief from such contract inspection and notice requirements as it refers solely to the Article 38 and 39 requirements. However, it would not appear illogical for a tribunal to deduce from Article 40 a general principle (see Article 7(2)) applicable to inspection and notice provisions negotiated by the parties, as well as the inspection and notice provisions recited in Articles 38 and 39.


FOOTNOTES

*Assistant Professor of Law, University of Pittsburgh.

1. Secretariat Commentary on Article 38 of the 1978 Draft of the CISG. Official Records, p. 35.

2. For relevant citations, see Roadmap to the legislative history of Article 40.

3. For case law interpretations of ULIS' Article 40, a good source to mine is the German text: Peter Schlechtriem & Ulrich Magnus, Internationale Rechtsprechung zu EKG und EAG (Nomos Verlagsgesellschaft: Baden-Baden 1987). For links to presentations on CISG cases that cite Article 40, enter "Article 40" in the Search Form that accompanies the Country Schedule of CISG Cases.

4. André Tunc Commentary, I Hague Conf. Records 376 (1964).

5. John O. Honnold, "Uniform Law for International Sales under the 1980 United Nations Convention", 2d. ed. (Kluwer 1991) 260 n.10. "Article 4 . . . limits the Convention's sphere of application to the rules on formation of contract and the rights and obligations of the seller and the buyer arising from it . . . Therefore, domestic law still regulates such matters as . . . fraud." Peter Schlechtriem, "Uniform Sales Law: The UN-Convention on Contracts for the International Sale of Goods" (Vienna 1986) 32.

6. Peter Schlechtriem, "Uniform Sales Law: The UN Convention on Contracts for the International Sale of Goods" (Manz: Vienna 1986) 70.

7. Article 80 states, "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." The following Vienna Conference colloquy on Article 80 can be relevant to the definition of the term "seller" in Article 80.

"Mr. ROGNLIEN (Norway) asked whether the expression 'by his own act or omission' covered the acts and omissions not only of the party concerned but also of persons whom the party might employ in the performance of the contract. After an exchange of views in which Mr. MASKOW (German Democratic Republic), Mr. MICHIDA (Japan), Rapporteur of the Committee, Mr. KHOO (Singapore), Chairman of the Drafting Committee, and Mr. SHAFIK (Egypt) took part, the CHAIRMAN [Mr. LOEWE (Austria)] proposed that the Committee should keep the current wording of [Article 80] on the understanding that the expression 'by his own act or omission' was unanimously recognized as covering not only the acts or omissions of the party concerned but also those of persons who might be employed by him for the purposes of the performance of the contract. It was so decided." Official Records, p. 430.

8. Fritz Enderlein & Dietrich Maskow, "International Sales Law: United Nations Convention on Contracts for the International Sale of Goods" (Oceana 1992) 251.

9. Karl H. Neumayer & Catherine Ming, "Convention de Vienne sur les Contrats de Vente International de Marchandises: Commentaire" (1993) 310; see also their notes 8 and 9 and sources cited therein.

10. Official Records, p. 260.

11. Honnold, supra note 5 at 229-230.

12. Id.

13. Neumayer & Ming, supra note 9 at 308.

14. Id. at n.3 and sources cited therein.

15. Enderlein & Maskow, supra note 8 at 164; Neumayer & Ming, supra note 9 at 309 ("plus qu'une négligence grossière" and "rapprochant de la négligence consciente").

16. U. Huber, "Der UNCITRAL-Entwurf eines Übereinkommens über internationale Warenkaufverträge", RabelsZ (1979) 482.

17. Article 6 states, "The parties may exclude the application of this Convention or . . . derogate from or vary the effect of any of its provisions."


Pace Law School Institute of International Commercial Law - June 1997