UNCITRAL Digest of Article 36 case law

DIGEST OF ARTICLE 36 CASE LAW

Overview of Article 36

1. Article 36 deals with the time at which a lack of conformity must have arisen in order for the seller to be responsible for it. Article 36(1) states a general rule that the seller is liable for a lack of conformity that exists at the time risk of loss for the goods passes to the buyer.[1] In certain circumstances, article 36(2) extends the seller's responsibility by providing that the seller is liable for a lack of conformity occurring even after risk has passed if the non-conformity is caused by a breach by the seller of its obligations, including a breach of a guarantee of the future performance or qualities of the goods.[2] Several decisions illustrate the operation of the two paragraphs of article 36. A flower shop that purchased daisy plants refused to pay the price when the buyer's own customers complained that the plants did not bloom throughout the summer as expected: a court of appeals affirmed the seller's right to the price because 1) the buyer failed to prove, pursuant to article 36(1), that the plants were defective when the risk passed to the buyer, and 2) the buyer failed to prove that the seller had guaranteed the future fitness of the goods under article 36(2).[3] Similarly, another court concluded that the seller was not liable under article 36(1) for damage to pizza boxes that occurred while the boxes were being shipped by carrier because risk of loss had passed to the buyer when the goods were handed over to the first carrier, and the seller was also not liable under 36(2) because the damage was not due to any breach by the seller.[4]

Article 36(1) overview

2. Article 36(1) makes the seller 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." The principle of seller responsibility for defects existing before risk passes is reinforced by the final clause of article 36(1), which confirms the seller's liability "even though the lack of conformity becomes apparent only after [the time risk passes to the buyer]." Thus it is the time that the lack of conformity comes into existence, not the time it is discovered (or should have been discovered), that is critical for the rule in article 36(1).[5] One court decision involving the sale of cocoa beans from Ghana illustrates the general operation of article 36(1).[6] The contract provided that risk would shift to the buyer when the goods were handed over to the first carrier. It also required the seller to supply, before the goods were shipped, a certificate from an independent testing agency confirming that the beans met certain quality specifications. The independent agency tested the goods some three weeks before they were packed for shipment, and issued the required certificate. When the goods arrived, however, the buyer's own testing revealed that the cocoa beans were below contract-quality. The court stated that the seller would be liable for the lack of conformity in three situations: 1) if the pre-shipment certificate of quality from the independent agency were simply mistaken and the goods thus lacked conformity at the time they were inspected; 2) if the deterioration in the quality of the goods occurred in the three week gap between inspection and shipment; or 3) if the defects otherwise existed when the goods were shipped but the defects would only become apparent after they were delivered to the buyer.

Seller's liability for defects existing when risk passed

3. The basic principle of article 36(1), that the seller is liable for a lack of conformity that exists at the time risk passes to the buyer, has been affirmed in several decisions.[7] Conversely, the principle that the seller is not normally liable for a lack of conformity arising after risk has passed has also been applied in several decisions. For example, where a contract for the sale of dried mushrooms included a "C & F" clause, and the mushrooms deteriorated during shipment, one court found that the lack of conformity occurred after risk of loss had passed and the seller was therefore not responsible for it under article 36(1).[8]

Defects not apparent until after risk passed

4. Article 36(1) states that a seller is liable for a lack of conformity existing when risk passed to the buyer "even though the lack of conformity becomes apparent only after that time." This principle has been applied in several cases. Thus where a refrigeration unit that had been sold installed on a truck trailer failed within 15 days of delivery, the court found that a lack of conformity had existed at the time risk passed even though the non-conformity did not become apparent until the unit had been put into use.[9] On the other hand, a buyer of a painting said to be by a specific artist sued the seller when the party to whom the buyer resold the painting determined that it could not be attributed to that artist.[10] The court stated that the seller was not liable because, under article 36(1), the seller was only responsible for non-conformities existing at the time risk of loss passed to the buyer, and there was no indication at that time that the artist indicated was not the painter.[11]

Burden of proof regarding the time a defect arose

5. Under Article 36(1), the parties' rights often hinge on whether a lack of conformity existed at the time the risk of loss passed to the buyer. For this reason, the question of which party bears the burden of proof on this issue is a critical one.[12] A court has noted that some CISG scholars suggest the question should be settled by reference to domestic law applicable under the rules of private international law, whereas other scholars argue that the CISG itself contains a general principle (controlling under CISG article 7(2)) that the party asserting the non-conformity (i.e., the buyer) bears the burden; in the particular case the court did not have to resolve this disagreement because both approaches placed the burden on the buyer.[13] Other courts appear to have taken a factual approach to the question. Thus, one court has concluded that a buyer who accepts goods upon delivery without promptly objecting to their quality bears the burden of proving that they did not conform to the contract.[14] On the other hand, a court from a different country found that where a refrigeration unit broke down shortly after it was delivered, the defect was presumed to have existed when the goods were shipped, and the seller bore the burden of proving it was not responsible for the lack of conformity.[15]

Article 36(2)

6. Article 36(2) provides that a seller is liable for a lack of conformity occurring after the time that risk passed to the buyer, but only if the lack of conformity is due to a breach by the seller. An arbitral tribunal has invoked this provision in finding a seller liable for the lack of conformity of canned fruit that deteriorated during shipment because of inadequate packaging, even though the buyer bore transit risk under the FOB term in the contract.[16] On the other hand, a court has found that the seller was not responsible for damage to pizza boxes occurring after risk of loss passed to the buyer because the buyer did not demonstrate that the damage was due to any breach by the seller.[17] Article 36(2) specifically mentions that the seller will be responsible for post-risk non-conformities if they result from "breach of any guarantee that for a period of time the goods will remain fit for their ordinary purpose [18] or for some particular purpose [19] or will retain specified qualities or characteristics." Another court has placed the burden of proving the existence of an express guarantee of future performance on the buyer, and concluded that a seller of plants was not liable under article 36(2) for the failure of the plants to bloom throughout the summer because the buyer did not prove that the seller had guaranteed future performance of the plants.[20]

FOOTNOTES

* The present text was prepared using the full text of the decisions cited in the Case Law on UNCITRAL Texts (CLOUT) abstracts and other citations listed in the footnotes. The abstracts are intended to serve only as summaries of the underlying decisions and may not reflect all the points made in the digest. Readers are advised to consult the full texts of the listed court and arbitral decisions rather than relying solely on the CLOUT abstracts.

[Citations to cisgw3 case presentations have been substituted [in brackets] for the case citations provided in the UNCITRAL Digest. This substitution has been made to facilitate online access to CLOUT abstracts, original texts of court and arbitral decisions, and full text English translations of these texts (available in most but not all cases). For citations UNCITRAL had used, go to <http://www.uncitral.org/english/clout/digest_cisg_e.htm>.]

1. Rules on risk of loss, including rules on when risk shifts from the seller to the buyer, are given in articles 66-70 of the Convention.

2. The substance of the two paragraphs of article 36 constitutes a mirror image of article 66, which provides:

"Loss of or damage to the goods after the risk has passed to the buyer does not discharge him from his obligation to pay the price, unless the loss or damage is due to an act or omission of the seller."

3. CLOUT case No. 107 [AUSTRIA Oberlandesgericht [Appellate Court] Innsbruck 1 July 1994, available online at <http://cisgw3.law.pace.edu/cases/940701a3.html>].

4. CLOUT case No. 360 [GERMANY Amtsgericht [Lower Court] Duisburg 13 April 2000, available online at <http://cisgw3.law.pace.edu/cases/000413g1.html>] (see full text of the decision).

5. Under article 39(1), in contrast, it is the time of discovery of a lack of conformity that is critical: that article provides that a buyer loses its right to rely on a lack of conformity if it fails to "give notice to the seller specifying the nature of the of the lack of conformity within a reasonable time after he has discovered it or ought to have discovered it."

6. CLOUT case No. 253 [SWITZERLAND Tribunale d'appello [Appellate Court] Lugano, Cantone del Ticino 15 January 1998, available online at <http://cisgw3.law.pace.edu/cases/980115s1.html>] (see full text of the decision).

7. CLOUT case No. 204 [FRANCE Cour d'appel [Appellate Court] Grenoble 15 May 1996, available online at <http://cisgw3.law.pace.edu/cases/960515f1.html>], reversed on other grounds by CLOUT case No. 241 [FRANCE Cour de Cassation [Supreme Court] 5 January 1999, available online at <http://cisgw3.law.pace.edu/cases/990105f1.html>]; CLOUT case No. 253 [SWITZERLAND Tribunale d'appello [Appellate Court] Lugano, Cantone del Ticino 15 January 1998, available online at <http://cisgw3.law.pace.edu/cases/980115s1.html>] (see full text of the decision).

8. CLOUT case No. 191 [ARGENTINA Cámara Nacional de los Apelaciones en lo Comercial [Appellate Court] 31 October 1995, available online at <http://cisgw3.law.pace.edu/cases/951031a1.html>]. To similar effect, see CLOUT case No. 107 [AUSTRIA Oberlandesgericht [Appellate Court] Innsbruck 1 July 1994, available online at <http://cisgw3.law.pace.edu/cases/940701a3.html>] (see full text of the decision); CLOUT case No. 360 [GERMANY Amtsgericht [Lower Court] Duisburg 13 April 2000, available online at <http://cisgw3.law.pace.edu/cases/000413g1.html>].

9. CLOUT case No. 204 [FRANCE Cour d'appel [Appellate Court] Grenoble 15 May 1996, available online at <http://cisgw3.law.pace.edu/cases/960515f1.html>], reversed on other grounds by CLOUT case No. 241 [FRANCE Cour de Cassation [Supreme Court] 5 January 1999, available online at <http://cisgw3.law.pace.edu/cases/990105f1.html>]. See also CLOUT case No. 253 [SWITZERLAND Tribunale d'appello [Appellate Court] Lugano, Cantone del Ticino 15 January 1998, available online at <http://cisgw3.law.pace.edu/cases/980115s1.html>] (see full text of the decision); [MEXICO Compromex Arbitration Award 29 April 1996, available online at <http://cisgw3.law.pace.edu/cases/960429m1.html>].

10. [NETHERLANDS Arrondissementsrechtbank [District Court] Arnhem 17 July 1997, available online at <http://cisgw3.law.pace.edu/cases/970717n1.html>]. On appeal, the court found that the CISG was inapplicable but affirmed the result on the basis of domestic law. [NETHERLANDS Gerechtshof [Appellate Court] Arnhem 9 February 1999, available online at <http://cisgw3.law.pace.edu/cases/990209n1.html>].

11. This statement was an alternative holding. The court also reasoned that the seller was not liable because any claim against the buyer by its own buyer was time-barred.

12. This question is closely related to the general question of which party bears the burden of proof when the buyer claims the goods do not conform to the contract under article 35. See Paragraph 15 of the case summary for Article 35, supra.

13. CLOUT case No. 253 [SWITZERLAND Tribunale d'appello [Appellate Court] Lugano, Cantone del Ticino 15 January 1998, available online at <http://cisgw3.law.pace.edu/cases/980115s1.html>].

14. CLOUT case No. 377 [GERMANY Landgericht [District Court] Flensburg 24 March 1999, available online at <hhttp://cisgw3.law.pace.edu/cases/990324g2.html>].

15. CLOUT case No. 204 [FRANCE Cour d'appel [Appellate Court] Grenoble 15 May 1996, available online at <http://cisgw3.law.pace.edu/cases/960515f1.html>], reversed on other grounds by CLOUT case No. 241 [FRANCE Cour de Cassation [Supreme Court] 5 January 1999, available online at <http://cisgw3.law.pace.edu/cases/990105f1.html>].

16. [MEXICO Compromex Arbitration Award 29 April 1996, available online at <http://cisgw3.law.pace.edu/cases/960429m1.html>].

17. CLOUT case No. 360 [GERMANY Amtsgericht [Lower Court] Duisburg 13 April 2000, available online at <http://cisgw3.law.pace.edu/cases/000413g1.html>].

18. Article 35(2)(a) of the CISG provides that, unless otherwise agreed, goods do not conform to the contract unless they "are fit for the purposes for which goods of the same description would ordinarily be used." This provision does not, however, expressly require the goods to be fit for ordinary purposes for any specified "period of time."

19. Article 35(2)(b) of the Convention provides that, unless otherwise agreed, goods do not conform to the contract unless they "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." This provision does not, however, expressly require the goods to be fit for particular purposes for any specified "period of time."

20. CLOUT case No. 107 [AUSTRIA Oberlandesgericht [Appellate Court] Innsbruck 1 July 1994, available online at <http://cisgw3.law.pace.edu/cases/940701a3.html>].