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Reproduced with the permission of Oceana Publications

(1) The buyer loses the right to declare the contract avoided [1] or to require the seller to deliver substitute goods [3] if it is impossible for him to make restitution of the goods substantially in the condition in which he received them [2].

(2) The preceding paragraph does not apply:

(a) if the impossibility of making restitution of the goods or of making restitution of the goods substantially in the condition in which the buyer received them is not due to his act or omission [4];
(b) if the goods or part of the goods have perished or deteriorated as a result of the examination provided for in article 38 [5]; or
(c) if the goods or part of the goods have been sold in the normal course of business or have been consumed or transformed [6] by the buyer in the course of normal use before he discovered or ought to have discovered the lack of conformity [7].

[WORDS AND PHRASES, CONCEPTS

[COMMENTARY]

[1] [the buyer loses the right to declare the contract avoided …]

      [1.1] The norm relates merely to the right of the buyer to avoid the contract.

      [1.2] The right to avoid the contract lapses when the goods can no longer be restituted. But there are so many important exceptions to this principle that the principle itself should constitute an exception.

      [1.3] In FRG publications (Huber, 494 fol; Schlechtriem, 503) the question was raised what happens when restitution becomes impossible after the buyer has declared the contract avoided. We believe that basically it should be proceeded analogously to how one would have proceeded before the declaration of avoidance. Where the impossibility is caused because of circumstances under paragraph 2 (of which only subpara. (a) is of relevance here), the right to avoid the contract remains in effect on the general conditions. This is justified because it presupposes a fundamental breach of contract by the seller. Where the impossibility is caused by grounds which would have led to the lapsing of the right to avoidance, the implementation of the avoidance of the contract would also be thwarted by it (see also Huber, 495). This also follows from the synallagmatic connection of the obligations involved in restitution. There may be modifications to the disadvantage of the seller when he delays a justified avoidance or does not demand restitution of the goods within a reasonable period. Even more radical solutions, even though not applicable in our view, are offered by those authors who infer from Article 70 a deferral of the passing of risk or a falling back of the risk on the first party (Article 70, note 1).

[2] [… if it is impossible for him to make restitution of the goods substantially in the condition in which he received them]

      [2.1] Normal wear and tear of the goods would not be in the way of their restitution. It would be different, however, in the case of greater damage which has its cause in the improper use or maintenance of the goods by the buyer. The latter can insofar not rely on grounds for exemption. They would only refer to claims for damages.

      [2.2] We hold that what is at issue in regard to the obligation to restitute the goods is exact restitution of the delivered goods. Obligations cannot be fulfilled by delivering substitute goods as Tallon (BB, 608) believes. Typically, the buyer will withdraw from a contract on goods which have already been delivered and taken by him on grounds of non-conformity of the goods, and then, only those goods will have to be restituted.

[3] [the buyer loses the right to declare the contract avoided or to require the seller to deliver substitute goods …]

Here the conditions for the right to delivery of substitute goods are rendered more precise, but in a not very fortunate way from a legislative point of view (reference to Article 46, paragraph 2, would have been better).

[4] [the preceding paragraph does not apply if the impossibility of making restitution of the goods or of making restitution of the goods substantially in the condition in which the buyer received them is not due to his act or omission …]

      [4.1] The right to avoid a contract must have existed. Hence, in general, it will have nothing to do with the event which causes the impossibility of restitution.

In note 2 we have given examples for when the buyer has caused the impossibility of restitution. This is not the case where the perishing or deterioration was accidental (Article 70, note 1), unless they occurred because the buyer did not protect the goods in the customary manner. He will also be responsible for an impossibility of restitution because of omission on his part. This, however, does not apply when the goods could not be restituted even earlier for grounds which were not caused by the buyer.

      [4.2] It happens sometimes that the buyer himself is in a position to restitute the goods in the manner required, but that he is prevented from doing so because of foreign trade rules. The right to avoid the contract remains in our view untouched, but its realization may be thwarted insofar as concurrent restitution (Article 81, paragraph 2) cannot be made. This may also happen when the price cannot be refunded. Applying the underlying legal idea of Article 71 fol we are of the opinion that an avoidance is blocked when it is clear that there can be no concurrent restitution.

[5] [the preceding paragraph does not apply if the goods or part of the goods have perished or deteriorated as a result of the examination provided for in article 38 …]

The goods should, in general, withstand examination so that cases are referred to here where the goods do not survive it because of non-conformity, e.g. a motor gets stuck during an orderly test run. In most cases the goods would later be damaged during normal use, but it is specifically registered when higher demands are made on the customary goods during the examination. Where the buyer has overstrained the goods, however, or has not examined them in the prescribed way, he may have caused the impossibility of restitution.

[6] [… or if the goods or part of the goods have been sold in the normal course of business or have been consumed or transferred …]

Reference is made here to goods with hidden defects (note 7). Material, for instance, is used to manufacture goods, and later when the goods are finished it becomes apparent the goods delivered do not conform to the contract. It is obvious that the right to avoid the contract shall not be influenced by the manufacturing process. Less convincing is that a normal resale relieves from the obligation to restitution (c. also Vischer/Lausanne, 183 fol.; Tallon/BB, 609). Either the final purchaser avoids the contract and has to restitute the goods or he retains them and asserts other claims because of [page 347] breach of contract. Where he declares the contract avoided, he can restitute the goods to the buyer; where he retains them, it is not understandable why he should be allowed to avoid the contract. This undesirable consequence under a legal policy point of view, which has been interpreted very differently in publications (Honnold, 452), can best be circumvented when it is assumed that a breach of contract cannot be fundamental in that event. It does, therefore, not entitle to avoidance or delivery of substitute goods when the goods are resold and the final purchaser does not avoid the contract. In that case, the buyer will not lose what he could have been entitled to expect under the contract (Article 25). This aspect of the rule would thus apply only when the final purchaser declares the contract avoided without having the obligation to restitute the goods, e.g. for the reasons given under subparas. (a) and (b) if the CISG applies also to that contract.

This applies similarly to the right to delivery of substitute goods when the final purchaser cannot restitute the goods.

[7] [… by the buyer in the course of normal use before he discovered or ought to have discovered the lack of conformity]

The buyer must have examined the goods under Article 38, and there must have been a non-conformity which could not be established during the examination. [page 348]

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