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2008 UNCITRAL Digest of case law on the United Nations Convention on the International Sale of Goods

Digest of Article 36 case law [reproduced with permission of UNCITRAL] [*]

[Text of article
Overview
Article 36(1) overview
Seller's liability for defects existing when risk passed
Defects not apparent until after risk passed
Burden of proof regarding the time a defect arose
Article 36(2)]

Article 36

(1) The seller is liable in accordance with the contract and this Convention for any lack of conformity which exists at the time when the risk passes to the buyer, even though the lack of conformity becomes apparent only after that time.
(2) The seller is also liable for any lack of conformity which occurs after the time indicated in the preceding paragraph and which is due to a breach of any of his obligations, including a breach of any guarantee that for a period of time the goods will remain fit for their ordinary purpose or for some particular purpose or will retain specified qualities or characteristics.

OVERVIEW

1. Article 36 deals with the time at which a lack of conformity in the goods must have arisen in order for the seller to be liable for it. Article 36(1) states a general rule that the seller is liable for a lack of conformity that exists at the time risk of loss for the goods passes to the buyer.[1] Article 36(2) extends the seller's responsibility in certain circumstances by providing that the seller is liable for a lack of conformity occurring even after risk has passed if the non-conformity is caused by a breach by the seller of its obligations, including a breach of a guarantee of the future performance or qualities of the goods.[2] Several decisions illustrate the operation of the two paragraphs of article 36. A flower shop that purchased daisy plants refused to pay the price when the buyer's own customers complained that the plants did not bloom throughout the summer as expected: a court of appeals affirmed the seller's right to the price because (1) the buyer failed to prove, pursuant to article 36(1), that the plants were defective when the risk passed to the buyer, and (2) the buyer failed to prove that the seller had guaranteed the future fitness of the goods under article 36(2).[3] Another court concluded that the seller was not liable under article 36(1) for damage to pizza boxes that occurred while the boxes were being shipped by carrier because risk of loss had passed to the buyer when the goods were handed over to the first carrier; the result was not changed by article 36(2) because the damage was not due to any breach by the seller.[4]

Article 36(1) overview

2. Article 36(1) provides that the seller is liable "in accordance with the contract and this Convention for any lack of conformity which exists at the time when the risk passes to the buyer." The principle of seller responsibility for defects existing before risk passes is reinforced by the final clause of article 36(1), which confirms the seller's liability "even though the lack of conformity becomes apparent only after [the time risk passes to the buyer]." Thus it is the time that the lack of conformity comes into existence, not the time it is discovered (or should have been discovered), that is critical for the rule in article 36(1).[5]

One court decision involving the sale of cocoa beans from Ghana illustrates the general operation of article 36(1).[6] The contract provided that risk would shift to the buyer when the goods were handed over to the first carrier. It also required the seller to supply, before the goods were shipped, a certificate from an independent testing agency confirming that the beans met certain quality specifications. The independent agency tested the goods some three weeks before they were packed for shipment, and issued the required certificate. When the goods arrived, however, the buyer's own testing revealed that the cocoa beans were below contract-quality. The court stated that the seller would be liable for the lack of conformity in three situations:

(1) if the pre-shipment certificate of quality from the independent agency were simply mistaken and the goods thus lacked conformity at the time they were inspected;

(2) if the deterioration in the quality of the goods occurred in the three week gap between inspection and shipment; or

(3) if the defects otherwise existed when the goods were shipped but the defects would only become apparent after they were delivered to the buyer.

Seller's liability for defects existing when risk passed

3. The basic principle of article 36(1), that the seller is liable for a lack of conformity that exists at the time risk passes to the buyer, has been affirmed in several decisions.[7] Conversely, the principle that the seller is not normally liable for a lack of conformity arising after risk has passed has also been invoked in several decisions. For example, where a contract for the sale of dried mushrooms included a "C & F" clause, and the mushrooms deteriorated during shipment, one court found that the lack of conformity arose after risk of loss had passed and the seller was therefore not responsible for it under article 36(1).[8]

Defects not apparent until after risk passed

4. Article 36(1) states that a seller is liable for a lack of conformity existing when risk passed to the buyer "even though the lack of conformity becomes apparent only after that time." This principle has been applied in several cases. Thus where a refrigeration unit that had been sold installed on a truck trailer failed within 15 days of delivery, the court found that a lack of conformity had existed at the time risk passed even though the non-conformity did not become apparent until the unit had been put into use.[9] On the other hand, a buyer of a painting said to be by a specific artist sued the seller when the party to whom the buyer resold the painting determined that it could not be attributed to that artist.[10] The court stated that the seller was not liable because, under article 36(1), the seller was only responsible for non-conformities existing at the time risk of loss passed to the buyer, and there was no indication at that time that the artist indicated was not the painter.[11]

Burden of proof regarding the time a defect arose

5. Under article 36(1), the parties' rights often hinge on whether a lack of conformity existed at the time the risk of loss passed to the buyer. For this reason, the question of which party bears the burden of proof on this issue is a critical one.[12] A court has noted that some CISG scholars suggest the question should be settled by reference to domestic law applicable under the rules of private international law, whereas other scholars argue that the CISG itself contains a general principle (controlling under CISG article 7(2)) that the party asserting the non-conformity (i.e., the buyer) bears the burden; in the particular case the court did not have to resolve this disagreement because both approaches placed the burden on the buyer.[13] In another case, a lower court had dismissed a buyer's claim because it was not clear whether the goods lack of conformity arose before or after risk passed to the buyer; the buyer appealed, arguing that article 36, in conjunction with article 7(2), allocates to the seller the burden of proving that the goods were conforming when risk passed; the appeals court, however, held that the lower court decision had not reversed the burden of proof and dismissed the appeal.[14] Other courts appear to have taken a factual approach to the question. Thus, one court has concluded that a buyer who accepts goods upon delivery without promptly objecting to their quality bears the burden of proving that they did not conform to the contract.[15] On the other hand, a court from a different country found that where a refrigeration unit broke down shortly after it was delivered, the defect was presumed to have existed when the goods were shipped, and the seller bore the burden of proving it was not responsible for the lack of conformity.[16]

Article 36(2)

6. Article 36(2) provides that a seller is liable for a lack of conformity arising after the time that risk passed to the buyer, but only if the lack of conformity is due to a breach by the seller. An arbitral tribunal has invoked this provision in finding a seller liable for the lack of conformity of canned fruit that deteriorated during shipment because of inadequate packaging, even though the buyer bore transit risk under the FOB term in the contract.[17] On the other hand, a court has found that the seller was not responsible for damage to pizza boxes occurring after risk of loss passed to the buyer because the buyer did not demonstrate that the damage was due to any breach by the seller.[18] Article 36(2) specifically mentions that the seller will be responsible for post-risk non-conformities if they result from breach of any guarantee that for a period of time the goods will remain fit for their ordinary purpose [19] or for some particular purpose [20] or will retain specified qualities or characteristics. Another court has placed the burden of proving the existence of an express guarantee of future performance on the buyer, and concluded that a seller of plants was not liable under article 36(2) for the failure of the plants to bloom throughout the summer because the buyer did not prove that the seller had guaranteed future performance of the plants.[21]


NOTES

* This presentation of the UNCITRAL Digest is a slightly modified version of the original UNCITRAL text at <http://www.UNCITRAL.org/pdf/english/clout/CISG_second_edition.pdf>. The following modifications were made by the Institute of International Commercial Law of the Pace University School of Law:

   -    To enhance access to contents by computer search engines, we present in html rather than pdf;
 
   -    To facilitate direct focus on aspects of the Digests of most immediate interest, we inserted linked tables of contents at the outset of most presentations;
 
   -    To support UNCITRAL's recommendation to read more on the cases reported in the Digests, we provide mouse-click access to (i) CLOUT abstracts published by UNCITRAL (and to UNILEX case abstracts and other case abstracts); and also (ii) to full-text English translations of cases with links to original texts of cases, where available, in [bracketed citations] that we have added to UNCITRAL's footnotes; and
 
   -    To enable researchers to themselves keep the case citations provided in the Digests constantly current, we have created a series of tandem documents, UNCITRAL Digest Cases + Added Cases. The new cases and other cases that are cited in these updates are coded in accordance with UNCITRAL's Thesaurus.

In addition, this presentation introduces each section of the UNCITRAL Digest with a Google search button. This is to help you access doctrine (relevant material from the over 1,200 commentaries, monographs and books on the CISG and related subjects that we present on this database) as well as the texts of the cases that UNCITRAL cites in its Digests and that we present in our updates to UNCITRAL's Digests.

1. Rules on risk of loss, including rules on when risk shifts from the seller to the buyer, are given in articles 66-70 of the Convention.

2. The substance of the two paragraphs of article 36 constitutes a mirror image of article 66, which provides: Loss of or damage to the goods after the risk has passed to the buyer does not discharge him from his obligation to pay the price, unless the loss or damage is due to an act or omission of the seller.

3. [AUSTRIA Oberlandesgericht Innsbruck 1 July 1994 (Garden flowers case)].

4. [GERMANY Amtsgericht Duisburg 13 April 2000 (Pizza cartons case)] (see full text of the decision).

5. Under article 39(1), in contrast, the time of discovery of a lack of conformity is critical: that article provides that a buyer loses its right to rely on a lack of conformity if it fails to give notice to the seller specifying the nature of the of the lack of conformity within a reasonable time after he has discovered it or ought to have discovered it.

6. [SWITZERLAND Tribunale d'apello Lugano 15 January 1998 (Cocoa beans case)] (see full text of the decision).

7. [FRANCE Cour d'appel, Grenoble 15 May 1996 (Refrigeration equipment for transportation of produce, etc. case)], reversed on other grounds by [FRANCE Cour de cassation 5 January 1999 (Refrigeration equipment for transportation of produce, etc. case)]; [SWITZERLAND Tribunale d'appello Lugano 15 January 1998 (Cocoa beans case)] (see full text of the decision).

8. [ARGENTINA Cámara Nacional de Apelaciones en lo Comercial 31 October 1995 (Dehydrated mushrooms case)]. To similar effect, see [AUSTRIA Oberlandesgericht Innsbruck 1 July 1994 (Garden flowers case)] (see full text of the decision); [GERMANY Amtsgericht Duisburg 13 April 2000 (Pizza cartons case)].

9. [FRANCE Cour d'appel, Grenoble 15 May 1996 (Refrigeration equipment for transportation of produce, etc. case)], reversed on other grounds by [FRANCE Cour de cassation, 5 January 1999 (Refrigeration equipment for transportation of produce, etc. case)]. See also [SWITZERLAND Tribunale d'appello Lugano 15 January 1998 (Cocoa beans case)] (see full text of the decision); [MEXICO Compromex Arbitration 29 April 1996 (Canned fruit case)].

10. [NETHERLANDS Rechtbank Arnhem 17 July 1997 (Work of art / painting case)]. On appeal, the court found that the CISG was inapplicable but affirmed the result on the basis of domestic law. [NETHERLANDS Gerechtshof Arnhem 9 February 1999 (A painting case)].

11. This statement was an alternative holding. The court also reasoned that the seller was not liable because any claim against the buyer by its own buyer was time-barred.

12. This question is closely related to the general question of which party bears the burden of proof when the buyer claims the goods do not conform to the contract under article 35. See the Digest for article 35, para. 15.

13. [SWITZERLAND Tribunale d'appello Lugano 15 January 1998 (Cocoa beans case)].

14. [FRANCE Cour de cassation 24 September 2003 (Decorated laminated glass panels case)], on appeal from [FRANCE Cour d'appel Paris 14 June 2001 (Decorated laminated glass panels case)].

15. [GERMANY Landgericht Flensburg 24 March 1999 (Vine wax case)].

16. [FRANCE Cour d'appel, Grenoble 15 May 1996 (Refrigeration equipment for transportation of produce, etc. case)], reversed on other grounds by [FRANCE Cour de cassation 5 January 1999 (Refrigeration equipment for transportation of produce, etc. case)].

17. [MEXICO Compromex Arbitration 29 April 1996 (Canned fruit case)].

18. [GERMANY Amtsgericht Duisburg 13 April 2000 (Pizza cartons case)].

19. Article 35(2)(a) of the CISG provides that, unless otherwise agreed, goods do not conform to the contract unless they are fit for the purposes for which goods of the same description would ordinarily be used. This provision does not, however, expressly require that goods be fit for ordinary purposes for any specified period of time.

20. Article 35(2)(b) of the Convention provides that, unless otherwise agreed, goods do not conform to the contract unless they 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 judgement. This provision does not, however, expressly require that goods be fit for particular purposes for any specified period of time.

21. [AUSTRIA Oberlandesgericht Innsbruck 1 July 1994 (Garden flowers case)].


©Pace Law School Institute of International Commercial Law - Last updated June 11, 2009
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