By René Franz Henschel,
Ph.D., Master of Law, Assistant Professor
Law Department, Aarhus School of Business
Senior Editor
www.unilex.info
Coordinator
www.cisg.dk
An updated and expanded version has been published in july 2005 by Thomson Denmark, see
http://www.thomson.com/cms/assets/pdfs/legal/Intl_catalog_BM.pdf p. 37
and
http://www.thomson.dk/pls/pdb/katpage.show_title?p_vare_id=17991&p_kampid=11
The aim of the dissertation, The Conformity of Goods in International Contracts Governed by the CISG, is to analyse the conformity of goods under Art. 35 of the UN Convention on Contracts for the International Sale of Goods (CISG). The dissertation is divided into four parts: General introduction (Ch. 1), introduction to Art. 35 (Chs. 2-3), an analysis of case law and legal literature on Art. 35 (Chs. 4-9), and a conclusion (Ch. 10).
Chapter 1 opens with a description of the subject, aim and methodological foundations of the dissertation. The subject is defined as the conformity of the goods in contracts for the international sale of goods, see Art. 35. The provisions concerning rights and claims of a third party, see Art. 41, and rights and claims based on industrial property or other intellectual property, see Art. 42, fall outside the scope of the dissertation. The remedies for breach of contract available to the buyer if the goods do not conform with the contract are only discussed in specific instances of general importance. The dissertation aims to give a systematic analysis of the conformity of the goods under the provisions of Art. 35 framed against developments in case law and legal literature as well as Art. 7 concerning the autonomous and uniform interpretation of the Convention.
The starting point of the analysis is the recognition that the rules governing the conformity of the goods – including Art. 35 – do not have an “independent existence” but have to be viewed on the basis of the general rules of contract law in and outside the Convention. This does not mean, however, that the provisions should not to be interpreted autonomously, see below. The dissertation further aims to analyse the relationship between Art. 35 of the Convention and those rules that are important for assessing a lack of conformity, for instance the provisions on the interpretation of contracts, see Art. 8 and Art. 9, and the provisions competing with Art. 35, for instance the provisions on non-contractual liability and the provisions on validity, see Art. 4 and Art. 5. Consequently the aim is also to analyse whether, and if so when, Art. 35 takes precedence over competing rules of national law. Finally, the aim is to draw analogies between Art. 35 and the concept of non-conformity in Danish law, and to a limited extent the law of other Nordic countries.
The two main thesis in this connection are, that the conformity of goods is to be judged according to the sphere of influence, and that it is impossible to expect complete harmonization without having harmonized the basic rules underlying and competing with the principle of conformity of goods in art. 35, i.e. the rules on contract interpretation, contract formation and validity.
The methodological foundation of the dissertation is legal dogmatism, which implies that the courts must be able to apply the results of the analysis. The traditional method of comparative law is also used though it is important to appreciate that the Convention must be interpreted autonomously and in a uniform manner, see Art. 7. Accordingly sources of law and rules of interpretation that are based on the Convention have been given clear prominence, whereas national sources of law and rules of interpretation have been given low priority. However, there is no general consensus on how to prioritise and the courts therefore have to choose between two methods of interpretation, referred to as the dynamic doctrine and the restrictive doctrine. The choice between these doctrines may be described as the choice between a monistic and a dualistic international law approach as the dynamic doctrine gives the highest possible priority to the effectiveness of the provisions of the Convention, whereas the restrictive doctrine gives higher priority to the sovereignty of the states and legality than to considerations of effectiveness.
In accordance with the most widely accepted view of the interpretation of international law in Denmark, the dissertation recommends the dynamic doctrine, but this is not an unconditional recommendation. It is recognised that all Contracting States cannot be expected to use the same methodical approach and it will therefore still be necessary to make a choice of law. The chapter closes with a discussion of the elements of uncertainty in the dissertation and an outline of the text.
Chapter 2 provides a brief outline of the legislative history of Art. 35 and attempts to define its basic principles. These principles are defined as a balance between caveat venditor and caveat emptor with the main emphasis on the former as a result of the distance involved in international trade. Furthermore, these principles can be seen as principles of sphere of influence.
The chapter then briefly describes the relationship between the provisions of the Article and the remedies for breach of contract, including a thorough analysis of the specific question of the seller’s exemption from liability under Art. 79. The conclusion is that Art. 79 may apply in relation to Art. 35 but that some judicial decisions should be disapproved of because the courts have applied Art. 79 too liberally in this respect.
The relationship between Art. 35 and the provisions on non-contractual liability and those on product liability is analysed, see Art. 4 and Art. 5, and it is concluded that the provisions on non-contractual liability should not be applied under the dynamic doctrine in case of lack of conformity in those instances where the Convention provides a functionally adequate solution, except where the seller has acted fraudulently or intentionally fraudulently. Moreover, the provisions of the Convention do not affect national product liability rules. The chapter also includes a brief discussion of the relationship between the provisions of Art. 35 and other rules relevant to the assessment of lack of conformity, i.e. the relevant moment of conclusion of the contract, see Art. 23, and the moment of discovering the lack of conformity of the goods with the contract, which is generally deemed to be the time when the risk passes to the buyer, see Art. 36. The chapter ends with a conclusion.
Chapter 3 examines the importance of contract law as background law and a competing set of rules as a frame of reference for the analysis of the conformity of the goods in chapters 4-9. Contract law is usually divided into three parts, viz. the conclusion of the contract, its validity and its interpretation, though this division cannot be strictly upheld because of considerable overlap between individual issues.
It is not always possible to distinguish between these rules, and a party to a contract may therefore take advantage of one set of rules being more favourable to him than another. This is even more important because the Convention does not address the validity of contracts and because Denmark – like the other Nordic countries – has made an Article 92 declaration. The result is that the provisions of the Convention do not apply, but the provisions of the Danish Contracts Act apply in those cases where the law of a Nordic country governs a contract. The dissertation shows that the elements of competition may water down the effectiveness of the provisions of the Convention.
Art. 35 is then analysed in conjunction with the provisions on interpretation in Art. 8 and Art. 9. In this connection, the implications of Art. 8(1)-(3) are discussed, including the relationship to the parole evidence rule and similar rules of procedure and evidence. It is concluded that the provisions of Art. 35 in conjunction with Art. 8 are rules of presumption; as rules of presumption are also part of the law of evidence, it is natural to conclude that the Convention addresses evidentiary issues. The specific requirements that must be met for discharging the burden of proof are not governed by the Convention, however.
The chapter then discusses which rules of interpretation follow from the provisions of the Convention and which are generally accepted in Danish law or international trade, cf. also the UNIDROIT Principles and PECL. In this context the following rules are examined: qued minimum est, redigenda summe est; contra proferentum/in dubio contra stipulatorem; favor contractus; rules of priority; reasonable and loyal interpretation based on the principle of bona fides and the principle of good faith and fair dealing in Art. 7 and qued pro quo; and the consideration of presupposed conditions and the principle of venire contra factum proprium.
The discussion concerning the conclusion and interpretation of the contract is followed by an examination of the relationship with the rules of validity and the competition between national rules of validity and the provisions on lack of conformity in the Convention. It is concluded that some aspects of this issue require a choice of method, a choice that, in the final analysis, must be deemed political. Some jurisdictions apply the rules of validity together with the rules of lack of conformity, whereas other jurisdictions do not allow this, cf. for instance the “principle of exhaustion” in sales law. The provisions of the Convention are unlikely to provide a solution to this schism and therefore still make a choice of law and forum shopping necessary.
The chapter closes with a discussion of whether it is possible for the parties to specify the rules for assessing whether the goods conform with the contract, see Art. 6, and also the limits to making this specification both under the provisions on validity and the provisions on the basic principles of the Convention.
Chapter 4 concerns the first part of Art. 35, i.e. Art. 35(1), which states that the goods must conform with the contract. The individual elements of the provision – quantity, quality, description and packaging – are analysed in detail in order to properly understand these concepts.
The chapter opens with a discussion of why Art. 35 must be seen as an autonomous concept and by references to case law it shows how the courts actually treat it as such since national concepts such as de minimis lack of conformity, warranties, aliud pro alio, the distinction between qualitative non-conformity and other types of non-conformity, and the distinction between latent and patent defects do not affect the assessment of the conformity of the goods under Art. 35, including Art. 35(1). At the same time the analysis shows that it has not been conclusively settled whether all instances are governed by the provisions on lack of conformity in cases of aliud pro alio.
The analysis shows that courts and legal scholars have readily interpreted Art. 35 in an extensive, autonomous and dynamic way, and that the Article has widely been viewed on the basis of the provisions of Art. 8 and Art. 9. In this context the provisions of the Convention are given priority over national rules.
Chapter 5 concerns Art. 35(2)(a) and it is concluded that the seller has an obligation to deliver goods that are on average fit for the purposes for which goods of the same description would ordinarily be used. The provision that goods must be fit for purposes for which they are ordinarily used is not an objective standard ex lege but a provision relating to the presumed intention of the parties, which has to be interpreted by taking into account all surrounding circumstances of the case. The basic test of fitness for purpose is the objective standard of the relevant trade. The prevailing view in case law and legal literature is that the seller cannot be expected to know special rules that are relevant for the purpose for which the goods are ordinarily used and which apply in the buyer’s country. This supports the case for generally applying the standard of the seller’s country if a general standard for ordinary use has to be laid down. This is also an expression of the principle of sphere of influence. The criticism of leading case law is disapproved of.
However, the legal basis developed by the courts must be derogated from in a number of cases; accordingly the decision as to which standard to use is in effect made on a case-by-case basis taking into account the interpretation of the contract of the parties and all the surrounding circumstances of the case. The same applies to the sale of goods in particularly homogeneous markets with harmonised rules of law, for instance the EC, because the individual member states may have implemented the rules in different ways.
It is important that the goods are fit for the purposes for which they are ordinarily used in respect of the buyer’s own use of the goods and for the purpose of reselling, leasing etc. the goods. In this context the goods must generally be of average quality, but here other contractual aspects are decisive, for instance price, age and condition. It is recommended that the parties explicitly regulate these aspects in the contract because the legal position is unclear.
Moreover, the seller must provide the user with the necessary instructions for use so that the buyer will be able to use the goods for the purposes for which they are ordinarily used.
Chapter 6 analyses Art. 35(2)(b) and it is concluded that the seller has an obligation to deliver goods that are fit for a particular purpose if, on an objective assessment of the buyer’s statements and conduct, the seller knew or should have known this purpose. It must be considered whether the buyer did not rely, or whether it was unreasonable for him to rely, on the seller’s skill and judgement. The buyer must appreciate that his participation in designing, selecting etc. the goods may be important, cf. the provisions of Art. 35 in general.
On the basis of the explicit words of Art. 35(2)(c), recent case law and legal literature, it is concluded in chapter 7 that the assessment of the conformity of the goods is not subject to any other contractual condition except that the goods must possess the qualities of goods that the seller has held to the buyer as a sample or model.
When the seller shows the buyer a sample or model, the buyer has the opportunity to examine it. Even though the buyer has no opportunity to examine the actual goods that are subsequently delivered, the caveat emptor principle is closely linked to the provision of Art. 35(3), which states that the buyer may not rely on any lack of conformity if he knew or could not have been unaware of such lack of conformity. In particular this applies to samples taken from the stock from which the seller intends to deliver and whose quality is inferior to the usual quality of goods of a similar description. However, the buyer’s only obligation is to examine the goods for the qualities that were agreed – in general – that the sample should show. The goods must generally meet the qualities or characteristics of the sample or model unless otherwise agreed; however, according to agreement or custom the sample or model often has to represent only some of the qualities or characteristics that the goods possess. A sample or model may be tangible or intangible.
Chapter 8 examines Art. 35(2)(d), which states that the container and packaging are integrated parts of the assessment whether the goods conform with the contract, i.e. part of the seller’s obligation to render proper performance. If the goods are not contained or packaged in the manner usual or proper for such goods, Art. 35(2) presumes that the goods do not conform with the contract. This presumption will not be rebutted by a mere reference to the fact that the contained or packaged goods are undamaged because the container or packaging may serve a purpose other than merely protecting and preserving the goods in transit from the seller to the immediate buyer.
The buyer may rightfully expect the goods to be contained or packaged in the manner usual or proper for such goods, if this is necessary for the transmission and resale of the goods, if the packaging has an independent value to the buyer, or if the container or packaging otherwise adds to the value of the goods, for instance as a marketing devise etc. Failure to contain or pack the goods in the manner usual or proper for such goods exposes the seller to risk, even if he delivers the goods to the buyer in good condition, in those cases where the seller does not know for certain that the goods are to be used by the buyer. If the goods are not to be contained or packaged in the manner usual for such goods an agreement to this effect is necessary; some legal scholars argue that this agreement must be explicit. This may be recommendable but all the circumstances of the case – for instance any practices that the parties have established between themselves – may indicate how this agreement can be made, see Art. 35(1) and Art. 8. If there is doubt about the terms of the agreement, Art. 35(2)(d) will, however, decide the case.
The definition of container and packaging has been given a wide interpretation so that it may include the labelling of the goods. The standard of usual or proper containing and packaging is based on generally accepted standards in the seller’s country. If the seller’s and the buyer’s countries apply different standards, the standard of the seller’s country is generally decisive, see also the principles of Art. 35(2)(a) and Art. 35(2)(b).
When deciding what is usual and proper account must be taken of the nature of the goods and the mode of transport, including the place of destination. According to Art. 35(2)(d) it is generally irrelevant whether the contract provides for the goods to be collected by or forwarded to the buyer, but the seller merely has an obligation to contain or pack the goods in accordance with the mode of transport in so far as the seller knew or should have known the relevant circumstances. This interpretation is in agreement with Incoterms 2000.
Chapter 9 concerns Art. 35(3) and it is concluded that the provision is a limited caveat emptor principle applying in cases of lack of conformity. The provision will only be applied if a lack of conformity exists and therefore, its scope of application in relation to Art. 35(1) is de facto limited. In both case law and legal literature Art. 35(3) has been applied directly in relation to Art. 35(1) with reference to the principles of good faith and fair dealing, venire contra factum proprium and the observance of good faith in international trade according to Art. 7(1). It appears unnecessary to resort to these principles before an attempt has been made to interpret the requirements concerning the quality of the goods under Art. 35(1).
At the same time the caveat emptor principle has limited application in contracts for the international sale of goods, as it will often be impossible for the buyer to examine the goods prior to the sale. Consequently Art. 35(3) does not impose a general obligation on the buyer to examine the goods prior to the conclusion of the contract on his own initiative. If the buyer examines the goods prior to the sale or in any other way may be deemed to have become aware of any lack of conformity, both case law and legal literature hold that the buyer was not unaware of any such lack of conformity provided he had been grossly negligent. This assessment is largely subjective. Failure to examine the goods may be important under the circumstances if the seller requested the buyer to make such an examination.
The buyer’s examination of the goods must correspond to what is normal and usual in the relevant trade. If the standard of examination in the seller’s country differs from that in the buyer’s country, the required standard will generally be that of the buyer’s country, cf. also the subjective standard of negligence. The buyer does not usually have an obligation to carry out a special analysis of the goods by applying complicated and sophisticated methods.
Even if the buyer must be deemed not to have been unaware of the lack of conformity due to gross negligence, both case law and legal literature agree that a seller in bad faith will not be entitled to rely on the provision of Art. 35(3) in such cases, cf. the principle of Art. 40 and the observance of good faith in international trade under Art. 7(1).
Chapter 10 provides a general conclusion concerning Art. 35 in the light of the discussion and analysis in chapters 2-9. It is concluded that the Article is a balanced compromise between caveat emptor and caveat venditor, and the principle of sphere of influence, and that it is extensively supplemented by the general rules of contract law as reflected in Art. 8 and Art. 9.
The provisions of the Article are generally consistent with the concept of non-conformity in Danish law, as well as in the sales law of the other Nordic countries, apart from a few exceptions, such as de minimis lack of conformity, the seller’s “marketing liability”, and the scope of the caveat emptor principle.
Art. 35 is generally interpreted in an autonomous and dynamic way, so that it generally fulfils its objective. In connection with the rules on validity in particular, the dynamic interpretation is contested, however, and the restrictive doctrine is firmly established in several jurisdictions, thus inviting a choice of law and forum shopping. If the parties allow for this in their contract the problems may be overcome. It should be appreciated, however, that this part of contract law as background law and as a competing set of rules will also give rise to problems in the future, thereby highlighting the necessity of contract law harmonisation or a revision of the Convention.