5.0 What is lack of conformity according to the CISG?

5.00 Introduction. Our discussion of CISG’s articles concerning lack of conformity with the contract is divided into two parts: First we will discuss situations where the goods do not conform with the contract. Then (paragraph 5.1) we will discuss the consequences of lack of conformity. If the goods do not conform, the buyer may exercise rights according to articles 45 to 52 of the CISG, see article 45. Non-conformity is the main condition for the buyer to be able to execute such rights. Other conditions must be discussed for each particular sanction the buyer may execute.

We will finally mention a special kind of breach; third party claims (paragraph 5.2 below).

5.01 To read the contract is the first step.

The first thing to do is to compare the delivered goods to the contract between the seller and the buyer. This is the principal point when deciding on lack of conformity, see article 35 (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.»

It is up to the contract parties to decide whether to make a contract or not, what goods to be delivered; of first quality, standard quality or even bad quality. This is a question of interpreting a contract. Here the ordinary principles of the law of contract apply, see also CISG article 8.

There are considerable differences within the sales contracts as to how detailed and thoroughly the goods are described. Some contracts are very detailed and comprehensive, especially contracts for the supply of goods to be manufactured or produced. If big values are at stake the contract is likely to contain very detailed descriptions and drawings of the product to be delivered. This is of course of great importance to the conformity evaluation, which generally will consist of comparing the goods delivered to the requirements found in the contract. We may presume that a very detailed and carefully formed contract is meant to be comprehensive in its description of the goods: If the buyer then claims that the goods should meet criteria which are not mentioned in the contract, he may not be heard in cases where the contract is very detailed. Some contracts contain a so-called «entire contract» paragraph, which means that only criteria directly mentioned in the contract apply.

Many contracts are in the other end of the scale though: The buyer needs the goods as soon as possible, and does not want to take the time to agree on a detailed description in a written contract. The goods in question might be standardized or he trusts that the seller understands what is needed. In such cases the oral agreement, for instance by telephone, is often very simple and informal. Here the contract has to be accompanied by other available information, like advertisements, brochures, information on the package and instructions for use or warranty documents. If the information available is scarce, we may have to assume that ordinary and reasonable quality, which is generally accepted in the market, is meant.

5.02 The purpose of the contract.

An important factor when deciding on conformity of the goods is to look at the buyer’s motive; why did he buy these things? This is often obvious: A chair should be able to carry the weight of an adult person, a watch should show the correct time, and raincoats must yield protection against rain. If the things cannot be used for normal purposes, they do not conform. CISG article 35 (2) states: «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».

Even if the price is low, certain basic requirements must be met. Where the parties have not agreed otherwise or there are other clues pointing in different directions, we can assume that the buyer has ordinary motives for making the contract.

In some cases the goods do conform even if they are not fit for the purposes for which goods of the same description would ordinarily be used. If the buyer has bought a lot of wooden chairs to burn for heating, he cannot complain if they break down during ordinary use. This is also the case when the racehorse is sold for meat or the breads are meant for pig feeding. In such cases other circumstances may also be of interest; the price fixed in the contract will indicate if the buyer has actually meant to use the goods in the ways just mentioned.

The above examples concern cases where the buyer cannot expect very much from the goods. On certain occasions, however, the buyer may have needs well beyond ordinary purposes or in another direction: The buyer’s expectations for the goods go beyond «the purposes for which goods of the same description would ordinarily be used», as expressed in article 35 (2) letter a). The buyer’s particular need is therefore not ordinary. On the contrary; it is extraordinary and therefore applied to by article 35 (2) letter b) stating that the goods do not conform if non-ordinary requirements are not met:

«Except where the parties have agreed otherwise, the goods do not conform with the contract unless they: …

(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 judgement».

From carefully reading this paragraph we see that for the buyer to claim that the goods do not conform, two conditions have to be met; visibility and skill.

1) Visibility: The buyer’s purpose must be visible to the seller: It must «expressly or impliedly [be] made known to the seller at the time of the conclusion of the contract».

2) Skill: The seller must possess skill, and the circumstances must also give the buyer reasons to rely on the seller's skill and judgement.

Article 35 (2) letter b) mainly applies to cases where the buyer presents his less ordinary purpose to the seller asking him for advice based on the seller’s skill and judgement. The paragraph does not require the buyer’s purpose to be made known expressly: The buyer’s purpose can be made known «impliedly», as it says. This means that the purpose must be visible to the seller; it must have been possible for the seller to notice it. Further it must be reasonable to expect the seller to notice it, even if he in this particular case actually did not. How obvious the buyer’s purpose should be in order to have been «impliedly made known» to the seller, is not always easy to decide. We must find a certain amount of negligence from the side of the seller for him to be liable.

The buyer’s purpose should be obvious and visible in such a degree that the seller «could not have been unaware» of it, which is how CISG article 40, in another connection, expresses the seller’s negligence (as to examine the goods). It is not sufficient that the seller ought to have known the buyer’s purpose.

CISG article 35 (2), letter b) applies directly to one type of situation, and that situation is regarded as lack of conformity. But what about all the cases concerning unusual purposes which are not covered by this paragraph? For example when the buyer does not rely on – or cannot rely on – the seller’s skill and judgement, or the seller could reasonably be unaware of the buyer’s purpose. Then we have lack of skill or lack of visibility – or both. The CISG does not solve this question. We can then assume that the buyer does not have any legal basis for claims against the seller. The buyer himself must then bear the risk of his extraordinary purpose, which he has not managed to convey visibly to the seller. If the goods fail to function the way the buyer expected them to, the buyer will be the party most likely to bear the costs caused by this failure; provided the conditions in article 35 (2) letter b) are not met.

From this we see that a contract party must carry the risk of his own expectations when he has failed to make them visible to the other contract party.

We may not, however, draw the opposite conclusion and state lack of conformity if the goods do not meet a visible non-ordinary purpose. An example will show that the seller is not always liable even if he knows the buyer’s special purpose: If an oil company buys some bags of marble balls from a toy factory to use in oil drilling, it will be the oil company’s loss if the balls do not function the way the company had expected. Even if the toy factory was thoroughly briefed on the processes in which the marble balls were to be used, the factory will not be liable if the plan does not work. Here the seller lacks the skill, which is required in article 35 (2), letter b). On the contrary, the buyer possesses – or was supposed to have possessed – the necessary technical skill. It is reasonable to ask which party has the best insight in the process in which the goods are to be used. If both parties are equally skilled in the area concerned – or both are without any particular skill – the decision may be more difficult. We should then recognize that we are discussing an extraordinary purpose, and then as a consequence of that make the buyer carry the risk of his purpose. A general principle of the law of contract is that a contract party carries the risk of his own purposes.

A particular case occurs when the goods are to be used as raw materials for developing and manufacturing a brand new product. Even if it is a new product, we cannot really consider it an extraordinary use. Nevertheless it seems reasonable that the party (here the buyer), who develops a new product, carries the risk when both parties possess more or less the same level of skill. Since the buyer is the one to benefit if the new product succeeds, he should accordingly carry the losses in case of failure.

5.03 Price and quality.

It is obvious that the price is an important point in the conformity consideration. The contract of sale should normally be understood in a way in which the parties’ mutual obligations are reasonably balanced, that there is balance between the price to pay and the goods to be delivered.

If the sale concerns a second hand machine at a price of 200 000, it is much easier for the buyer to claim lack of conformity by substantial corrosion than it would be if the price was 5 000. In the latter example the price should make the buyer adjust his expectations as to the quality of the machine. New mass manufactured goods should be dealt with in the same way. We often find considerable differences in quality between the various product brands. Some watches are more precise than others. Some car models are better protected against corrosion than competing models, which again may benefit from better driving properties. We cannot normally name such differences in quality lack of conformity. The fact that cheap watches with a sale price of 10 are not as good as watches at a price of 100 must of course be accepted. It might be lack of conformity, however, if the more expensive watches are not better than the cheaper ones in this example. But we cannot always expect a millimetre conformance between price and quality.

In newspapers and magazines we often find various product tests, and the most expensive model is not always «best in test». In many cases one model may have both plusses and minuses: One car may possess a strong and durable motor, while the resistance against corrosion is weaker. The latter will not be named lack of conformity. The individual factory must be granted a certain amount of freedom to choose what specific product it wishes to offer its customers. Some companies spend a lot of money to protect its cars from corrosion while the competitors work harder on the motor’s duration. This explains why the cheaper car may be better protected against corrosion. This fact alone, however, will not give the buyer reason to complain about the more expensive model.

5.04 Time for judgment on conformity.

For the seller to be liable for lack of conformity, this lack must exist «at the time when the risk passes to the buyer, even though the lack of conformity becomes apparent only after that time», see article 36 (1). The time for the passing of risk is to be decided according to articles 66 to 70 (see paragraph 3.1 earlier in this book): The risk normally passes to the buyer when the goods are delivered. The lack of conformity has to be present at this time. This does not mean, however, that it has to be discovered at this time. Hidden faults are in many cases not discovered until a considerable period of time after delivery. The buyer may still raise claims, provided he does not fail to give the seller notice of this lack of conformity according to article 39 (1) «within a reasonable time after he has discovered it or ought to have discovered it».

Article 36 (1) may raise difficult issues concerning proof. A claim often fails because there is not sufficient proof of lack of conformity being present when the goods are delivered. Examples of fault existing already on delivery of the goods, are manufacturing faults and use of bad raw materials during manufacturing, for instance low sustainability. On the other hand we have breakdowns caused by wrong usage, lack of maintenance, influence from outside (corrosion, accident) or wear and tear. In these latter cases the goods may have been conforming at the time of delivery. But not necessarily: Failures by wear and tear may have been caused by inferior raw materials used in the production. These raw materials were already bad at the time of delivery: If an expensive quality watch stops after just one year of normal use because of wear and tear, this is a clear sign of lack of conformity with the contract. This will not necessarily be the case if a watch is sold at a very low price without any such quality promises from the seller. In the latter case cheap raw materials may be an important factor in keeping the production costs, and thereby the price, at a low level.

Instructions for use. Bad functioning caused by accidents or the wrong use is according to article 36 (1) not to be considered lack of conformity. It would be different if there were errors in the instructions, and these errors led to wrong use. Such insufficient guidance may be considered a breach of contract. See article 36 (2) which makes the seller «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». Even if in this particular case the goods alone may conform, the seller’s total performance will not conform if the instructions are not good enough.

To decide on lack of conformity is a difficult task, especially when some period of time has elapsed since the goods were delivered. Some of the problems concerning proof may be eliminated if in the contract the parties have already agreed on which specific and stipulated faults/problems the buyer may react on by requesting repair or making other claims for breach of contract. This is quite a widespread method of contract formation, and it may take the form of a guarantee:

Also see article 36 (2), which makes the seller liable for lack of conformity «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». In order to decide which specific purpose, qualities or characteristics the seller guarantees we have to closely examine and interpret the contract and the relevant circumstances from the contract formation process.

In general the buyer has a strong case if he is capable of discovering the lack of conformity immediately after delivery has been made. If, however, a substantial period of time elapses before discovery, it is much easier for the seller to claim that the lack of conformity is due to wrong usage, wear and tear, corrosion, lack of maintenance, influence from outside or any other reason that does not represent lack of conformity with the contract.

CISG article 36 (2) makes an exception from the principal rule in article 36 (1) for cases where the lack of conformity is due to a breach of any of the seller’s obligations: The seller is still liable for lack of conformity that occurs after delivery if he has not fulfilled his obligations under the contract: For instance, the goods have been packed so badly that it has resulted in transport damages, or the seller or his assistants made mistakes during installation at the buyer’s place of business.

5.05 Longevity of the goods.

We have all discovered the simple truth that there are great differences as to how well goods function as time goes by. Not many products last forever. A product’s longevity is seldom very precisely stipulated by the seller. To stipulate this is not an easy task. Often the contract parties address these questions by agreeing in the contract that the seller guarantees the goods for a certain period of time, for instance three months or up to two years or even several years in some cases. Thereby both parties know exactly what they can rely on. The goods will hopefully last substantially longer than the stipulated guaranteed period of time. But after this period faults and malfunctions are statistically so numerous that it would be much too costly for the seller to undertake liability for a longer period of time, without increasing the price. An agreement on guarantee is often differentiated in such a way that certain components are guaranteed for a long time, while others for a shorter period of time. Some components may not be guaranteed at all. New cars, for instance, may be sold with a general guarantee of one year, but with six years against corrosion and only six months for short lasting particles.

If the contract parties have not made stipulations of any kind, the CISG article 39 (2) applies:

«In any event, the buyer loses the right to rely on a lack of conformity of the goods if he does 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».

Certain objects cannot be expected to last very long. Therefore lack of conformity cannot always be claimed even if the product stops functioning after a relatively short period of time:

A light bulb is not necessarily defective even if it goes out after some months of use, and thus does not last the two years indicated in article 39 (2) as the limit for notification. This is also true for the cheapest watches.

In general we must accept accidental differences in longevity between individual items, even within the same brand. However, manufacturing faults and other real lacks of conformity cannot be accepted.

It is, of course, fully legal to manufacture goods with short longevity. Various cheap articles are made from materials possessing little wear resistance, thus the product may not last long. If a customer needs a special type of screwdriver and only plans to use it one time or two, he may be perfectly satisfied with the cheapest alternative. However, if the screwdriver is meant for intensive professional use, the buyer may save costs in the end by choosing the best, even if it is also the most expensive.

The seller must not market his product in a way that gives the buyer unrealistic expectations of high quality and longevity. The buyer will then often be able to claim lack of conformity according to the CISG article 35. In addition to the contract itself, the marketing and the information given by the seller, the price will be a crucial factor when deciding if the goods lack conformity.

What we have to interpret is not only the contract itself, but also the whole contract situation; see articles 8 and 9 concerning intentions, usage and practice. If the particular parties are regular business partners, former contracts will be relevant, because in such cases a lot will be assumed and not mentioned expressly. Everything that might shed light on what the parties once agreed upon will be of interest.

Each of the parties must prove the facts, which he claims. For instance if the buyer claims that the seller has orally guaranteed a certain use, the buyer must be able to prove the likeliness of this fact. Both oral and written information from the seller is relevant, but the buyer makes his case easier if he has something written to show to.

It is obvious that the seller is liable for any information he has personally given. Information may also have been given by others on behalf of the seller. The question is then whether the person who has given the information is actually in a position to act on behalf of the seller.

5.06 The goods’ accordance with a sample or model.

If the seller has sent the buyer products «as a sample or model», the CISG article 35 (2) letter c) states that the actual goods ordered must possess the same quality when delivered. We have to look into why the buyer has required (or the seller offered) goods «as a sample or model» since this is of importance for the judgment on the buyer’s examination of the goods and possible negligence, see below.

5.07 The buyer’s examination of the goods. Negligence.

The CISG article 35 (3) declares:

«The seller is not liable under subparagraphs (a) to (d) of the preceding paragraph for any lack of conformity of the goods if at the time of the conclusion of the contract the buyer knew or could not have been unaware of such lack of conformity».

This is a description of a relatively severe negligence by the buyer; he «knew or could not have been unaware of such lack of conformity» and this is clearly a more severe negligence than if the article had said just «ought to have known». If the buyer only ought to have known about the lack of conformity, he has been a bit careless and should have been more careful, but this is not sufficient to exempt the seller from his liability. For the seller to be exempt according to article 35 (3), the buyer must have been more careless than that, and there must be reasons to criticise him more severely for his greater negligence and his obvious lack of attention. Article 35 (3) refers to «the time of the conclusion of the contract» and does not require the buyer to examine the goods at this early stage. If in fact the buyer is given the opportunity to examine the goods (or a sample or model, see article 35 (2) letter c)), this will naturally influence what the buyer «knew or could not have been unaware of».

We have to stress that the seller, too, may have been negligent. See article 40, which declares that 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».

We see that the same term is used here as in article 35 (3). Thus the same degree of relatively severe negligence is meant in both paragraphs.

If the goods lack conformity according to article 35 (2), the seller is, according to article 35 (3), not liable if «the buyer knew or could not have been unaware of such lack of conformity». If the goods, however, lack conformity according to article 35 (1), article 35 (3) does not apply, as the latter paragraph limits itself to article 35 (2). According to article 40 the seller is liable «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», even if the buyer fails to notify the seller according to articles 38 and 39.

If both parties, the seller and the buyer, «knew or could not have been unaware of» the goods’ lack of conformity, the seller is liable for such lack of conformity as described in article 35 (1), but not for such described in article 35 (2). Read article 40 and article 35 (3) respectively.

The distinctions are not quite easy to grasp, especially since there is no clear-cut border between paragraphs (1) and (2) of article 35. Perhaps we may try to distinguish the case by asking if one of the parties seems to be more to blame than the other party. If the seller has knowingly failed to disclose to the buyer a lack of conformity, while the buyer has «only» been severely negligent (he could not have been unaware of the lack), the seller is more responsible and should thus be liable. If the buyer is the one who has been the most to blame the tables will turn. Which party was most likely to discover the fault in the goods? Who possesses the skill necessary to discover it? Should any of the parties have taken the initiative to seek help from experts? These and other such questions may contribute to place the risk of fault discovery with one of the contract parties. Again we refer to article 8 (3), which in general gives consideration «to all relevant circumstances of the case including the negotiations, any practices which the parties have established between themselves, usages and any subsequent conduct of the parties».

When the goods are eventually delivered, the CISG article 38 (1) requires the buyer to «examine the goods, or cause them to be examined, within as short a period as is practicable in the circumstances». This paragraph does not, however, state exactly when this examination is to take place. It seems clear that the buyer should not postpone it. We see that the period is «short», and the question is what «is practicable in the circumstances». The buyer is not always allowed to wait until delivery, if he is given practical opportunities to examine the goods earlier, for example if the seller gives the buyer the opportunity to make a sufficient examination already during the contract formation, provided the goods are available.

Some guidance is given in article 38 (2): «If the contract involves carriage of the goods, examination may be deferred until after the goods have arrived at their destination». As we see, the buyer may wait till the goods have arrived, but it is clearly stated that he can not wait any longer than that, provided examination is «practicable» according to the first paragraph in article 38.

When loading and unloading the goods the transport company regularly examines the packages to uncover possible damages.

Article 38 (1) does not state exactly how the examination is to be undertaken. Practices and usages are relevant, as well as other circumstances generally described in article 8 (3). If the seller has given information and further specifications concerning the goods, the buyer should be able to rely on them. The buyer will not have to check or double check such information from the seller unless there are obvious reasons for doubt.

How skilled the buyer’s examination should be, depends on how skilled he is as a buyer. We expect more from an expert in the particular field, than from one with ordinary qualifications. The buyer does not need to undertake the examination personally. That article 38 (1) says «or cause them to be examined» will be of interest when the buyer is away and has to rely on others to have the goods examined. Does this mean that the buyer has to hire experts to examine the goods? Probably not. To hire experts may be extremely costly. The CISG should have expressed it more clearly if the intention was to require a less experienced or skilled buyer to hire experts to examine the goods. The buyer will often hire an expert in his own interest: Even if the seller may be liable for lack of conformity, it is important for the buyer to have knowledge thereof as soon as possible to be able to clear the situation without delay. By acting quickly the buyer may be able to avoid both inconvenience and losses later on.

During transport, especially if several means of transport are relied on and the goods are redirected, it can be difficult to decide where to undertake the examination of the goods. In this case the «examination may be deferred until after the goods have arrived at the new destination», see paragraph (3) in article 38:

«If the goods are redirected in transit or redispatched by the buyer without a reasonable opportunity for examination by him and at the time of the conclusion of the contract the seller knew or ought to have known of the possibility of such redirection or redispatch, examination may be deferred until after the goods have arrived at the new destination».