Nonconforming Goods in International Sale Contracts

6 October 2023 - Sonia Gumpert Melgosa

The debate on the valid and effective termination of a contract for the international sale of goods is sparked time and again in international trade relations and therefore also in legal relations.

There is abundant case law of the Spanish Supreme Court (Tribunal Supremo) and lesser courts, i.e. the provincial courts, on a wide diversity of cases of breach of contract. Such breach of contract, generally by the seller, defaulting either in terms of the delivery deadline or the quality of the goods delivered, and the resulting dissatisfaction on the part of the buyer cause the latter to wish to terminate the contractual relationship.

Independently of the nature and extent of the breach, which in our general contract theory must constitute a serious breach of a substantive contractual obligation, the regulations on the international sale of goods establish specific requirements for the buyer to be able to effectively and validly terminate, or in CISG terms “avoid”, the contract.

The United Nations Convention on Contracts for the International Sale of Goods, formalised in Vienna on 11 April 1980 (hereinafter, the CISG) was signed so far by 97 Contracting States, including the EU Member States, the United States, Switzerland and Israel. Hence, the CISG as an instrument is undoubtedly widely applied in international trade.

For a valid and effective termination of the sale contract, according to the CISG, the buyer must give notice to the seller of the non-conformity of the goods and its nature, which logically implies prior examination of the goods.

Both actions, examination and notice, must be carried out “within a reasonable time” after the buyer has or should have discovered the non-conformity of the goods. To prevent this time frame from becoming indeterminate, the CISG establishes a maximum period of two years from the day on which the goods are in the buyer’s possession. The relevant deadline to consider is, however, first and foremost and without exception, the aforementioned “reasonable time”. For this reason, each case requires a critical evaluation of what should or can be considered reasonable.

In case of failure to give notice to the seller of the non-conformity of the goods in due time and form, the buyer is penalised with the loss of his or her right to invoke such non-conformity against the seller, i.e. the buyer loses the right to terminate the contract. Nothing more and nothing less.

However, like any regulation, this rule is not absolute, it can be modified by agreement between the parties. In such case, it is advisable to state in the contract, briefly but sufficiently, the cause both of an eventual assignment of concrete dates for such reasonable time and of any extension or reduction of the maximum period of two years. Any differing maximum period must, in any case, be compatible with the product’s guarantee period, if there is one. And, above all, the CISG provides that the said loss of the right to invoke the non-conformity of the goods does not operate against a seller who knew or should have known the facts or causes of the non-conformity of the goods.

In short, the variety of problems is sheer infinite and causes the conflict to flare up time and again.