Subsequent Performance and Delivery Deadlines - Avoidance of CISG Sales Contracts due to Non-Conformity of the Goods

Pace International Law Review Volume 18 Issue 1 Spring 2006 Article 3 April 2006 Subsequent Performance and Delivery Deadlines - Avoidance of CISG Sales Contracts due to Non-Conformity of the Goods Peter Schlechtriem Follow this and additional works at: https://digitalcommons.pace.edu/pilr Recommended Citation Peter Schlechtriem, Subsequent Performance and Delivery Deadlines - Avoidance of CISG Sales Contracts due to Non-Conformity of the Goods, 18 Pace Int'l L. Rev. 83 (2006) Available at: https://digitalcommons.pace.edu/pilr/vol18/iss1/3 This Article is brought to you for free and open access by the School of Law at DigitalCommons@Pace. It has been accepted for inclusion in Pace International Law Review by an authorized administrator of DigitalCommons@Pace. For more information, please contact . SUBSEQUENT PERFORMANCE AND DELIVERY DEADLINES - AVOIDANCE OF CISG SALES CONTRACTS DUE TO NON-CONFORMITY OF THE GOODS Peter Schlechtriemt I. Avoiding a Contract on Account of Non-Conformity with Tendered Goods .............................. II. Non-Conformity of the Goods to the Contract as Fundam ental ...................................... A. Breach and the Right of the Seller to Offer a Second Tender ................................ III. The Refusal to Accept Goods as the Exercise of a General Right to Withhold Performance ........... IV. Costs and Risks of Undoing the Transaction ...... I. 83 88 88 91 94 AVOIDING A CONTRACT ON ACCOUNT OF NON-CONFORMITY WITH TENDERED GOODS The rules regarding the prerequisites for avoidance of sales contracts due to non-conformity of the goods-referred to in the Birgerliches Gesetzbuch (German Civil Code) [hereinafter BGBI as rescission (Ricktritt), previously cancellation (Wandelung)-aredifficult and have been the object of interna- tional controversy in uniform sales law.' There are, in particular, three interests to be considered and weighed against each other in the avoidance of a sales contract due to non-conformity of the goods, especially due to defects in the quality of goods. The buyer has an interest that the threshold for avoidance be as low as possible, so that in the event of non-conformity of the goods he can readily get out of t M.C.L. (Univ. of Chicago). D. Jr., Drs. honoris causa. Professor Emeritus, Albert-Ludwigs-University of Freiburg, Germany. The translation of this text is by Todd Fox. 1 The following tentative considerations are part of a collection of essays to be published in 2006 in honor of an eminent German scholar. 1 PACE INT'L L. REV. [Vol. 18:83 the contract. The old BGB, with its remedy of cancellation that could always be claimed as long as the "reduction in value or fitness" of the goods caused by the defect was not "immaterial" (§ 459 (1) BGB old version), acknowledged this interest. The new version of the BGB, through the reform of the Law of Obligations, retained the materiality threshold (§ 23 (5) BGB), but with the precedence of claims for cure and the corresponding possibility of a second tender, it strengthened the position of the seller. Such a tender would under the new BGB, however, generally only occur in the form demanded by the buyer. (§ 439 (1), (3) BGB). The possibility of salvaging the contract through a "second tender" conforming to the contract (this being the second interest to consider) is granted to the seller, who is thereby provided a "second chance." 2 The third interest to be considered and weighed is costs of unwinding the contract, and it is especially important with sales requiring shipment to the buyer. This interest is not clearly ascribed to buyer or seller as such, but rather depends upon the system for restitution: avoidance of a contract that the seller has already partially or fully performed, a situation that makes return shipment of the goods necessary and often requires temporary storage as well. This creates costs and can increase the risks of loss and damages. Who finally bears these costs and risks depends on the various circumstances of the individual case and the differing rules (responsibility for breach of contract and the corresponding liability to pay damages; responsibility for restitution and the risk of loss). Undoing the deal in such cases (where shipment is involved) can make the whole transaction more expensive and is often cited as the explanation for why the CISG, with its requirement of "fundamental breach," sets the threshold for avoidance of the contract due to non-conforming goods much higher than the BGB. 3 Another reason the CISG's Still the seminal work, see HANS GROIIMANN-DOERTH, DIE RECHTSFOLGEN (1934) [his explanations, particularly pages 191193, likely influenced Ernst Rabel in the drafts and texts of the Uniform Sales Laws]. See also Ulrich Huber, in KOMMENTAR ZUM EINHEITLICHEN KAUFRECHT art. 48 para. 5 n.6 (Ernst von Caemmerer & Peter Schlechtriem eds., 1990). 3 Bundesgerichtshof [BGH] [German Supreme Court] Hamburg No. VIII ZR 51/95, 3 Apr. 1996 (F.R.G.) at http://www.cisg.law.pace.edulcases/960403gl.html (stating that contract avoidance and restoration are to be restrained); see also Peter Schlechtriem in COMMENTARY ON THE UN CONVENTION ON THE INTERNATIONAL SALE OF GOODS (CISG), art. 25, para. 21a (Peter Schlechtriem & Ingeborg 2 VERTRAGSWIDRIGER ANDIENUNG, https://digitalcommons.pace.edu/pilr/vol18/iss1/3 2 2006] SUBSEQUENT PERFORMANCE threshold is so high-and according to the decisions of the Bundesgerichtshof (German Supreme Court) almost insurmountable-is because the CISG provision concerning a seller's breach of contract by delivery of non-conforming goods does not provide for a compromise between the avoidance interest of the buyer and the interest of the seller in a second chance by way of an extension of time, which (as in the case of a total failure to deliver) would put the buyer in a position to set an additional period of time for the cure of the non-conformity, and after its expiration to avoid the contract. That means that the buyer must also accept and retain defective goods that have not yet been delivered, even when the defects become known before delivery (but after formation of the contract) and the costs and the risks from the return shipping could not be triggered at all. In the Anglo-American realm, the rule that the buyer must accept non-conforming goods meets with particular resistance and incomprehension, since the so-called "perfect tender rule," which is considered a commercial axiom and allows the buyer to reject the goods due to a (but not every) lack of conformity to the contract, 4 does not apply within the sphere of application of the CISG. In England, this is viewed as one of the reasons for not ratifying the CISG 5 and in American writing as a motive to con6 tractually exclude application of the CISG. Schwenzer eds., 2d ed. 2005) [hereinafter Schlechtriem COMMENTARY]; CISG-AC (Advisory Council on the CISG) Opinion No. 5 (May 7, 2005) (Rapporteur Schwenzer). It appears that the c (...truncated)