Liability for Defects Under the CISG

I. United Nations Convention on Contracts for the International Sale of Goods (CISG)

The CISG applies to contracts for the sale of goods between parties whose places of business are in different states. It is applicable when the states where the businesses are located are contracting states, or when the rules of private international law refer to the law of a contracting state.

Adopted in Vienna in 1980, the CISG entered into force on January 1, 1988. Turkey became a party to the convention in 2011. The convention regulates the formation of sales contracts and the rights and obligations of the buyer and seller arising from the sales contract.

The CISG consists of four parts and 110 articles. First part deals with the scope of application and general provisions, the second part addresses the formation of contracts, the third part covers the sale of goods, and the fourth part contains final provisions.

Unless the parties agree otherwise, the CISG applies to sales contracts between parties with places of business in different states.

However, the CISG does not apply to certain types of sales, including:

• Goods purchased for personal, family, or household use,
• Sales conducted by auction,
• Sales made by execution or under legal authority,
• Sales of securities, negotiable instruments, and money,
• Sales of ships, vessels, hovercraft, or aircraft,
• Sales of electricity.

The parties may also agree not to apply any provisions of the CISG, except for Article 12. Article 12 states: “Any provision of article 11, article 29 or Part II of this Convention that allows a contract of sale or its modification or termination by agreement or any offer, acceptance or other indication of intention to be made in any form other than in writing does not apply where any party has his place of business in a Contracting State which has made a declaration under article 96 of this Convention. The parties may not derogate from or vary the effect or this article.”

II. Liability for Defective Goods Under the CISG

1. Defects and Lack of Conformity

The concept of “defect” is not specifically defined in the CISG. Instead, the term “lack of conformity” is used. One of the seller’s obligations under the CISG is to be liable for non-conformity. According to the convention, any discrepancy between what the parties agreed upon and what the seller delivers constitutes a non-conforming performance. This includes differences in quality, quantity, or packaging of the goods.

Article 35 of the CISG states: “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.  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;

(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;

(c) possess the qualities of goods which the seller has held out to the buyer as a sample or model;

(d) are contained or packaged in the manner usual for such goods or, where there is no such manner, in a manner adequate to preserve and protect the goods.”

The seller is not liable for any non-conformity that the buyer knew or could not have been unaware of at the time of the contract, according to subparagraphs (a) to (d) of paragraph 2.

The primary focus of the CISG is the sales contract. If the contract includes provisions regarding the conformity of goods, these provisions take precedence. If there are no such provisions, the characteristics outlined in Article 35 must be met for the goods to be considered conforming to the contract.

2. Seller’s Liability

For the seller to be liable for defects, the following conditions must be met:

• The defect must have existed at the time the risk passed to the buyer,
• The defect must be significant,
• The buyer must not have been aware of the defect.

Article 36 of the CISG states: “The seller is liable in accordance with the contract and this Convention for any lack of conformity which exists at the time when the risk passes to the buyer, even though the lack of conformity becomes apparent only after that time.The seller is also 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, 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.”

The moment when the risk passes is determined by the contract, commercial customs, or business practices. While the CISG does not explicitly state that the defect must be significant, legal doctrine and the Turkish Supreme Court interpret that the defect should be substantial.

If the buyer accepts the goods knowing or should have known they were defective, it is considered that the buyer has accepted the defective goods. In this case, the buyer cannot exercise their remedies for non-conforming goods.

If goods are delivered before the delivery date, the seller has the right to correct any deficiencies or deliver the missing quantity until the delivery date. The seller may also replace the non-conforming goods with conforming ones or remedy any other non-conformities. However, even in such cases, the buyer still retains the right to claim damages.

3. Buyer’s Obligation to Inspect and Notify Within a Reasonable Time

Article 38 of the CISG states: “The buyer must examine the goods, or cause them to be examined, within as short a period as is practicable in the circumstances.” Inspection is an obligation imposed on the buyer.

The parties may agree on the method and timing of the inspection. They may change the place or manner of inspection, and it is also possible for the parties to completely waive the inspection obligation. The inspection must be thorough enough to reveal any obvious defects. In cases of large quantities of goods, the buyer is not obligated to inspect every item but may use sampling methods for the inspection.

If the buyer intends to resell the goods, the inspection must be completed before the resale. Similarly, if the buyer plans to mix the goods with other goods, the inspection must be done before the mixing.

Article 39 of the CISG states: “The buyer loses the right to rely on a lack of conformity of the goods if he does not give notice to the seller specifying the nature of the lack of conformity within a reasonable time after he has discovered it or ought to have discovered it. 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.”

The “reasonable time” is determined based on commercial customs, the practices between the parties, the nature of the goods, and the specific circumstances of the case. The moment the buyer should have discovered the non-conformity also depends on the nature of the defect. If the non-conformity could have been discovered through proper inspection, the notification period starts from the end of the inspection. If the non-conformity was not detectable, the notification period starts from the moment the buyer discovered or should have discovered the non-conformity.

To be valid, the notice must specify the nature of the non-conformity. General or vague complaints will not be considered as proper notice. The notice of the defect can be given either orally or in writing, and there is no formal requirement for it. Any delay, error, or failure in the delivery of the notice is at the seller’s risk.

The buyer must notify the seller of the defect within two years at the latest. This two-year period is a statute of limitations and is strictly enforced by the court. If the buyer fails to notify the seller within this time or does not give proper notice, they lose their rights and are considered to have accepted the goods.

There are three exceptions to the buyer’s loss of rights. These are:

1. If the non-conformity is based on facts that the seller knew or could not have been unaware of and did not disclose to the buyer, the buyer’s failure to give notice of the defect has no legal consequences.
2. If the buyer has a reasonable excuse for not giving the required notice, they may still claim a reduction in price or damages, except for lost profits.
3. The seller may waive any objection regarding the buyer’s failure to give timely or proper notice of the defect.

III. Rights Arising from Defects Under the CISG

1. General Rights of the Buyer

If the seller delivers goods that are defective and non-conforming to the contract, the buyer has several options to choose from. The buyer can select from the following remedies and may also claim damages:

• Right to Demand Specific Performance
• Right to Demand Delivery of Non-Defective Goods
• Right to Withdraw from the Contract
• Right to Request Free Repair
• Right to Demand a Reduction in Price

These remedies are applicable to all breaches of contract and all obligations. The buyer is not required to provide the seller with a deadline to exercise these rights. However, the buyer may grant the seller a reasonable additional period to fulfill its obligations if desired. During this additional period, the buyer cannot resort to any legal remedies available for non-conformity unless they receive a notice from the seller indicating that the seller will not perform their obligations within this extended time frame. Nonetheless, the buyer does not lose the right to claim damages for delayed performance.

2. Right to Demand Specific Performance

Article 46, paragraph 1 of the CISG states: “The buyer may require performance by the seller of his obligations unless the buyer has resorted to a remedy which is inconsistent with this requirement.”

The right to demand specific performance can be invoked in cases where:

• The goods are not delivered within the agreed timeframe,
• The goods are not delivered at all,
• The goods are delivered to a location other than the agreed place,
• Only a portion of the goods is delivered,
• The required documents as per the contract or commercial practices are not provided,
• Other contractual obligations agreed upon are not fulfilled.

A court may order specific performance only if similar sales contracts not covered by the CISG also allow for specific performance under the applicable domestic law. Additionally, the buyer should not use the right to demand specific performance if they have already exercised a remedy that is inconsistent with this right.

3. Right to Demand Replacement Goods

Article 46, paragraph 2 of the CISG states: “If the goods do not conform with the contract, the buyer may require delivery of substitute goods only if the lack of conformity constitutes a fundamental breach of contract and a request for substitute goods is made either in conjunction with notice given under article 39 or within a reasonable time thereafter.”

For the buyer to exercise the right to demand replacement goods:

• There must be a specific performance obligation.
• There must be a fundamental breach of the contract.
• It must not have become impossible to return the goods in a condition substantially similar to the condition at the time of delivery.
• The buyer must exercise this right at the time of giving notice of the defect or within a reasonable time thereafter.

4. Right to Request Free Repair

Article 46, paragraph 3 of the CISG states: “If the goods do not conform with the contract, the buyer may require the seller to remedy the lack of conformity by repair, unless this is unreasonable having regard to all the circumstances. A request for repair must be made either in conjunction with notice given under article 39 or within a reasonable time thereafter.”

Repair can be carried out by replacing defective parts or by fixing the goods. For the buyer to exercise the right to request repair:

• Defective goods must have been delivered.
• The repair request must be reasonable and something that can be expected from the seller.
• The right to request repair must be exercised at the time of giving notice of the defect or within a reasonable time thereafter.

5. Right to Withdraw from the Contract

Article 49 of the CISG states: “The buyer may declare the contract avoided:(a) if the failure by the seller to perform any of his obligations under the contract or this Convention amounts to a fundamental breach of contract; or (b) in case of non-delivery, if the seller does not deliver the goods within the additional period of time fixed by the buyer in accordance with paragraph (1) of article 47 or declares that he will not deliver within the period so fixed.”

To withdraw from the contract, the buyer must declare that the contract is avoided, and it must be possible to return the goods. Whether a fundamental breach exists will be determined according to Article 25. The buyer must be deprived of a significant part of what they were entitled to expect from the contract. Any breach that prevents the buyer from obtaining the benefit they expected from the contract is considered fundamental.

The buyer may also withdraw from the contract if the goods are not delivered or if the required documents for disposing of the goods are not provided.

If the buyer grants an additional period and the seller fails to perform within that period, the buyer must explicitly declare the contract avoided. The declaration may be made verbally, in writing, or implicitly. It is not necessary for the declaration to reach the seller; it becomes effective upon the buyer’s sending of it.

If the seller delivers the goods, the buyer’s right to withdraw from the contract is limited by a reasonable time. The reasonable time is determined according to the specifics of the case.

6. Right to Request a Reduction in Price

Article 50 of the CISG states: “If the goods do not conform with the contract and whether or not the price has already been paid, the buyer may reduce the price in the same proportion as the value that the goods actually delivered had at the time of the delivery bears to the value that conforming goods would have had at that time. However, if the seller remedies any failure to perform his obligations in accordance with article 37 or article 48 or if the buyer refuses to accept performance by the seller in accordance with those articles, the buyer may not reduce the price.”

The right to reduce the price applies when:

• The goods are non-conforming,
• The goods are defective,
• The goods are delivered partially,
• Goods other than those ordered are delivered, or
• There are deficiencies in the documents related to the goods.

The calculation is as follows:

“Discounted Price = Value of the delivered goods × Contract Price / Hypothetical Value of conforming goods.”

The right to request replacement goods and the right to request repair take precedence over the right to a reduction in price.

7. Right to Claim Damages

If the seller fails to fulfill any of their obligations under the contract or the CISG, the buyer has the right to claim damages. The seller’s fault is not required for a damages claim; it is a form of strict liability.

Article 74 of the CISG states: “Damages for breach of contract by one party consist of a sum equal to the loss, including loss of profit, suffered by the other party as a consequence of the breach. Such damages may not exceed the loss which the party in breach foresaw or ought to have foreseen at the time of the conclusion of the contract, in the light of the facts and matters of which he then knew or ought to have known, as a possible consequence of the breach of contract.”

The buyer can claim both positive and negative damages from the seller due to the non-conformity of the contract.