LIABILITY FOR DEFECTS UNDER THE VIENNA SALES CONTRACT (CISG)

LIABILITY FOR DEFECTS UNDER THE VIENNA SALES CONTRACT (CISG)

INTRODUCTION

The subject of our article is the liability for defects under the 1980 United Nations Convention on Contracts for the International Sale of Goods. In this framework, firstly, general information about the Treaty is given. Subsequently, the Turkish Code of Obligations No. 6098 (“TCO”) and the Vienna Convention on Contracts for the Sale of Goods regulate the impediments to performance.

In the second part of our article, some explanations were made about Article 35 of the Vienna Sales Convention, which covers liability for defects. Subsequently, the concepts of “subjective” and “objective” defect are analyzed in order to determine whether the goods are in conformity with the contract. Finally, in the second part, the obligation of inspection and notice that the buyer must fulfill in order to exercise his rights in the contract of sale is explained.

Finally, the optional rights of the buyer and the claim for compensation are discussed among the consequences of the defect according to the Vienna Sales Convention.

PART ONE

I. Vienna Sales Convention and Turkish Code of Obligations and Regulation of Impediments to Performance under the Vienna Sales Convention

1.Vienna Sales Convention

As a result of the increasing globalization with the development of technology, international trade is becoming widespread all over the world. Accordingly, a number of problems such as which country’s law will be applied in the resolution of disputes arising from the sale contract between people in different countries have been encountered. The Vienna Convention on the Sale of Goods has been prepared in order to eliminate such problems and to achieve a common regulation on the international law of sale of goods.

2.Regulation of Impediments to Performance in the Turkish Code of Obligations

The Vienna Sales Convention was negotiated at a conference held in Vienna on March 10, 1980 and adopted on April 11, 1980. The Convention entered into force in Switzerland in 1991 and in Turkey in 2011, which is a relatively late date. Moreover, as of April 2021, 94 countries are parties to the Convention. In this sense, the Vienna Convention on the Sale of Goods is considered as the basic regulation for the uniformization of international sale of goods law.

As a rule, contracts terminate only upon full and correct performance. What is meant by full and correct performance is that the performance of the agreed performance complies with all the elements of performance. Therefore, in order for the contract to be terminated by performance, the performance must have been performed in accordance with the elements such as the parties, subject matter and time.

Turkish Code of Obligations No. 6098 (“TBK“) does not regulate all non-performance cases. On the contrary, separate regulations have been made for each non-performance. These regulations include impossibility of performance (TBK m.27-112-136), temerrüt (TBK m.117-126) ve sözleşmenin müspet ihlalidir.

The liability arising from the defect is regulated under Article 219 of the TCO. According to the aforementioned regulation, the seller shall be liable firstly for the absence of the qualities promised in the sale. Secondly, the seller shall be liable for the absence of the features that should be present in the sold goods.

3.Regulation of Impediments to Performance in the Vienna Sales Convention

Unlike the TCO, the Vienna Sales Convention makes a distinction between fundamental breach of contract and non-fundamental breach of contract. However, the contract regulates the obstacles to performance uniformly. The concept of defect is not used anywhere in the contract. Instead, the concept of breach of contract is emphasized. Liability arising from defect is one of the situations that constitute a breach of contract. The reason for such a regulation is that the contract has a “Common Law” effect.

PART TWO

II.The Concept of Breach of Contract and the Substantive and Formal Conditions of Liability for Defects under the Vienna Sales Convention

1.The Concept of Breach of Contract According to the Vienna Sales Convention

Article 35 of the CISG is seen as the basic article that meets the liability arising from defects. Accordingly, “(1) The seller is obliged to deliver the goods, the quantity, quality and type of which are stipulated in the contract, in the package or container specified in the contract. (2) Unless otherwise agreed by the parties, the goods shall be deemed to conform to the contract only in the following cases:

(a) they are suitable for the use to which goods of the same kind are customarily put;

(b) they are fit for any particular purpose for which they were expressly or impliedly notified to the seller at the time of conclusion of the contract, unless it appears from the circumstances that the buyer did not rely, or it was unreasonable for him to rely, on the seller’s knowledge and judgment;

(c) they are of the quality of the goods which the seller offers to the buyer as samples or models;

(d) they are packed in the manner customary for goods of the kind concerned or, where no such customary manner exists, in a manner suitable for the preservation and protection of the goods.

(3) The seller shall not be liable under subparagraphs (a) to (d) of paragraph 2 for breaches of contract which the buyer knew or could not have known at the time of conclusion of the contract.”

The above-mentioned article divides the defect into two as subjective defect and objective defect. Since the Vienna Sales Convention adopts freedom of will, the contract between the parties should be examined first in order to determine whether the goods are defective due to the importance given to the will of the parties. In this context, subjective defect can be defined as “The quantity, quality, type and packaging of the delivered goods must be as specified in the contract between the parties” according to Article 35/1 of the CISG. Objective defect, on the other hand, can be defined as “If there is no agreement between the parties on the nature of the goods, the general criteria to be considered are specified.” according to Article 35/2 of the CISG.

As can be understood from the definitions mentioned above, the type of defect may vary depending on the nature of the goods determined by the parties in the contract and whether there is an agreement between the parties on the nature of the goods.

2.Material Conditions of Liability for Defects According to the Vienna Sales Convention

In the Vienna Sales Convention, defect is basically subjective defect. Subjective defect is the delivery of the goods contrary to the quality, quantity, type and packaging of the goods agreed upon by the parties. Accordingly, in order to decide on the conformity of the delivered goods with the contract, first of all, the criteria determined by the parties regarding the goods should be examined.

• Lack of Quality

According to the Vienna Sales Convention, lack of quality constitutes a subjective defect regulated under Article 35/1. Accordingly, the seller must deliver to the buyer the goods agreed upon in the contract in the agreed quality. Otherwise, the seller shall be liable for the defect.

• Lack of Quantity

According to CISG Art. 35/1, the agreed amount of goods must be delivered. If the amount of the delivered goods is more or less than agreed in the contract, the seller’s liability will arise.

• Species Deficiency

The seller must deliver to the buyer the type of goods agreed upon in the contract. In case of delivery of goods other than those agreed in the contract, “Aluid Performance” is in question. Due to the explicit use of the term “type of performance” in Article 35/1 of the Vienna Sales Convention and the adoption of the concept of breach of contract, no distinction is made between aluid performance and defective performance. This is because aluid performance is also the delivery of goods not in accordance with the contract. The decision of the German Federal Court in 1996 on the dispute regarding the delivery of cobalt sulfate is also in this direction.

• Lack of Packaging

In the Vienna Sales Convention, unlike the TCO, the packaging and preservation of the goods are accepted from the nature of the goods, and the packaging of the goods contrary to the agreed packaging constitutes a breach of contract. CISG Articles 35/1 and 35/2 regulate the packaging of the goods. According to Article 35/1 of the Vienna Sales Convention, the issue mentioned here is the breach of the criteria agreed between the parties regarding packaging.

3.Objective Criteria in Determining the Quality of Goods (Objective Defect)

If there is no regulation on the nature of the goods in the contract between the parties, the criteria in Article 35/2 of the CISG are considered when deciding whether the goods are in conformity with the contract. These criteria are the usual purpose of use, the special purpose of use, the packaging of the goods and the agreement on the sample or model.

• Usual (Ordinary) Intended Use

If the parties have not made a regulation regarding the quality of the goods in the contract, the criteria in Article 35/2 of the CISG shall be taken into consideration. According to the criteria listed in Article 35/2 of the CISG, it is decided whether the goods are in conformity with the contract. The first criterion to be looked at in determining the conformity of the goods to the contract is the purpose of the customary use.

Accordingly, the delivered goods must be suitable for their intended use, which is determined by taking into account the purpose for which they are allocated. For example, a refrigerator must be capable of cooling food to a level that prevents spoilage. However, the customary purpose of the goods may differ from country to country. The Vienna Sales Convention is mostly applied to disputes arising from international sales. However, there is no provision in the Vienna Convention on the Vienna Convention on the Sale of Goods as to which party’s domestic law rules will be taken into consideration in determining the customary purpose of use. In this case, it is accepted that the standards of the seller’s country should be applied in determining the customary purpose of use. Otherwise, the seller will have to know the domestic legal rules of each country to which it sells and the seller’s liability will increase unfairly. Nevertheless, depending on the characteristics of the concrete case, the country standards of the buyer may also be applied.

• Special Intended Use

Malın niteliği hususunda taraflar arasında bir anlaşma olmadığı durumlarda CISG m.35/2’ye göre değerlendirme yapılak ikinci ölçüt özel kullanım amacıdır. Yukarıda bahsedildiği üzere taraflar sözleşmede özel kullanım amacı kararlaştırmış olabilirler. Bu durumda CISG m.35/1’e göre sözleşmeye uygunluğuna karar verilir. Burada bahsedilen ise malın özel kullanıma uygun olmasına yönelik taraflar arasında bir anlaşma bulunmamasına rağmen satıcının özel kullanıma aykırılıklardan sorumlu olacağıdır. Sözleşmede özel kullanıma ilişkin herhangi bir hüküm bulunmamasına rağmen satıcının özel kullanım amacına aykırılıklardan sorumluluğunun doğması için ilk olarak “sözleşmenin kurulması esnasında açıkça veya zımnen satıcıya” özel kullanım amacı bildirilmelidir. İkinci olarak alıcı satıcının bilgisine güvenmiş olmalı ve bu güveninde haklı olmalıdır. Bu şartların bulunması halinde satıcının özel kullanıma uygun olmayan mal teslimi sözleşmeye aykırılık teşkil eder.

• Usual and Appropriate Packaging

Even if the parties have not made an agreement on how to pack the goods, the seller has a packaging obligation according to Article 35/2 of the CISG. Accordingly, the goods must be packed and transported in a customary (usual) manner. However, if there is no customary (ordinary) packaging in the sector subject to the contract, then a packaging should be made in a way to prevent damage to the goods. Otherwise, the goods are deemed to have been delivered in violation of the contract.

Despite the seller’s failure to pack the goods in a way to prevent damage to the goods, the goods may have been delivered unharmed. In this case, the buyer’s claim of breach of contract constitutes a breach of good faith according to Article 7 of the CISG.

• Agreement on Sample or Model

The parties may agree on a sample or model to determine the subject matter of the contract. An agreement on sample is an agreement that takes place when the seller has the goods that constitute the subject matter of the contract and offers it to the buyer. The agreement on the model is the goods offered in case the seller does not have the goods subject to the contract.

If the subject matter of the contract of sale is determined by agreement between the parties on a sample or model, the goods delivered must conform to the sample or model in question. Otherwise, the seller shall be liable according to Article 35/2 of the CISG.

4.Formal Conditions of Liability for Defects According to the Vienna Sales Convention

As a rule, the buyer must have fulfilled the inspection and notice obligations in order to exercise his rights arising from the defect. Nevertheless, exceptions are provided for in CISG Art.40 and Art.44.

• Buyer’s Inspection Obligation

According to Article 38/1 of the CISG, “the buyer is obliged to inspect or have the goods inspected within as short a time as circumstances permit.” For this reason, it is a condition for the buyer to inspect the delivered goods in order to exercise his rights regarding liability for defects. Therefore, the buyer’s inspection of the goods is not a debt but a burden.

The purpose of the inspection is to determine whether the goods delivered conform to the contract. Article 38 of the CISG does not stipulate a specific period of time for the inspection to be carried out by the buyer. Instead, the period for the buyer to inspect the goods is stated as “as short a period as circumstances permit”. Therefore, the time for the buyer to inspect the goods may vary according to the characteristics of the concrete case, such as the nature of the goods and the costs of inspection.

• Buyer’s Notice of Defects

The buyer’s notice of defects is regulated in Article 39 of the CISG. First, the buyer must inspect the goods in order to exercise his rights arising from the defect. Then, the buyer must notify the seller of the defects detected by this inspection “within a reasonable time”.

The main purpose of the notice is to inform the seller of the defects in the goods and to enable him to take the necessary measures. In order for the seller to take the necessary measures, the nature of the defect must be clearly stated in the defect notice. Otherwise, the notice is deemed to have never been made and the buyer loses his rights arising from the defect.

PART THREE

5.Consequences of Defects under the Vienna Sales Convention

The legal remedies available to the buyer in case of breach of contract by the seller are regulated in Article 45 of the CISG. Accordingly, “(1) If the seller fails to fulfill one of his obligations arising from the contract or this treaty, the buyer:

• exercise the rights provided for in Articles 46 to 52.
• It may claim the compensation provided for in Articles 74 to 77.”

In case of defective performance, the buyer is granted optional rights. Apart from this, the buyer’s right to claim compensation is reserved. In other words, the buyer does not lose the right to claim compensation regardless of which optional right he has exercised.

6.What are the Buyer’s Optional Rights?

• The Right to Request the Delivery of a Defect-Free Similar Product

According to Article 46/2 of the CISG, the buyer may demand the delivery of defective goods and the delivery of a similar one without defects from the seller. The buyer’s exercise of this optional right depends on the existence of certain conditions. First of these conditions, as stated in Article 28 of the CISG, as per the domestic law of the state party to the Vienna Sales Convention, a court must not have decided on performance in kind. Secondly, in order for the buyer to exercise his right to demand the delivery of a similar product without defects, he must not have exercised any other optional right before. Lastly, there should not be a situation in which the seller will not be liable as specified in Article 79 of the CISG. If the aforementioned conditions are met and the breach of contract constitutes a material breach according to Article 25 of the CISG, the buyer may request the delivery of a defect-free similar product.

• Right to Request Free Repair

According to Article 46/3 of the CISG, if the goods agreed upon by the parties in the contract and delivered to the other party are in breach of the contract, the buyer may assert the right to free repair. The right to free repair includes the improvement of the goods and the replacement of the defective part. In the exercise of the right to free repair, the condition of fundamental breach, which is sought for the exercise of the optional right to delivery of a similar one without defects, is not sought. In addition, it does not matter whether the goods are part or variety debt.

In order to exercise the right to free repair, the repair must not require an excessive expense. Accordingly, the repair must be reasonable and can be expected from the seller. If the goods continue to be contrary to the contract despite the repair, the buyer may re-examine the goods and re-exercise his rights by notifying the contradiction.

• Right to Request a Reduction in Price 

According to Article 50 of the CISG, even if the purchase price has been paid, the buyer may request a reduction in the purchase price in case of delivery of defective goods. As in the case of the request for repair of the goods, the condition of material breach is not required for the exercise of the optional right to discount the price.

According to Article 50 of the CISG, the deduction to be made from the price is calculated by establishing “the proportion of the difference between the value of the goods actually delivered at the time of delivery and the value of the goods in accordance with the contract at the same time”. If the sale price has not been paid, the price must be paid after the deduction to be made according to Article 50 of the CISG; if the sale price has been paid, the buyer may demand the return of the deducted amount.

In practice, it is not common to request a reduction in the sale price. The reason for this is that no fault is required in the claim for compensation pursuant to Article 74 of the CISG and the compensation includes the reduction of the price. Nevertheless, the buyer may still claim compensation as well as a reduction in the sale price. In the event that a claim for compensation is made together with a reduction in the sale price, the decrease in the value of the goods is not taken into account in the calculation of the compensation.

• Right to withdraw from the contract

Alıcının seçimlik haklarından dönme hakkı CISG m.49’da düzenlenmiştir. According to the said article, the right of rescission may be exercised in two cases. Firstly, the buyer has the right of return in the event that “the seller fails to fulfill any of his obligations arising from the contract or this treaty” (Art. 49/1-a).

Secondly, the buyer may rescind the contract if “in the event of non-delivery, the seller announces that he will not deliver the goods within the additional period granted by the buyer pursuant to paragraph 1 of Article 47” (Art. 49/1-b).

In the second case, there is a right of return recognized due to non-performance. Therefore, Article 49/1-a of the CISG shall be applied in relation to liability arising from defects. Accordingly, the breach of contract must be material in order for the buyer to declare that the contract has been terminated due to the defect. Upon the buyer’s rescission of the contract, both parties return what they have received. Unfulfilled obligations will cease to exist.

• Buyer’s Right to Claim Compensation

Article 45 of the CISG states that the buyer may claim compensation in case of breach of the contract by the seller. In this context, the fact that the buyer has exercised one of the four optional rights explained above will not eliminate the right to claim compensation. In addition, the breach of contract does not have to be material for the buyer to claim compensation. Apart from this, the issue of compensation is regulated in detail between Article 74 and Article 77 of the CISG.

Conclusion

The main purpose of the Vienna Sales Convention is to establish common rules of law to be applied in disputes arising from sales contracts concluded internationally. Therefore, the Vienna Sales Convention is organized to cover many legal systems. There are parties to the Convention from both “Common Law” and “Civil Law” countries.

As an effect of the “Common Law” legal system, the concept of defect is not used in the Vienna Sales Convention. Instead, it is generally regulated on the basis of breach of contract. Defective performance is also a breach of contract. Accordingly, Article 35 of the CISG is seen as the basic article that meets the liability arising from defects.

According to the Vienna Sales Convention, in determining the conformity of the goods to the contract, the contract between the parties should be examined first. If the parties have not made an agreement on the nature of the goods, then the conformity of the goods to the contract shall be decided according to Article 35/2 of the CISG.

In case of defective performance, the buyer has optional rights, provided that he fulfills the inspection and notification obligations. These are delivery of a similar one without defects, reduction of the price, free repair and rescission of the contract. In addition, even if the buyer has exercised his optional right, he has the right to claim compensation according to Article 74 of the CISG.

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