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Rights and Obligations of the Seller and Buyer

Info: 3918 words (16 pages) Essay
Published: 22nd Sep 2021

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Jurisdiction / Tag(s): International Law

Sellers Obligations

A seller must correspond to the terms of the contract as agreed upon by the parties to the contract. [1] In the absence of said terms a seller “must deliver the goods, hand over any documents relating to them and transfer the property in the goods, as required by the contact”. [2] These obligations would include, but not be limited to, the following: a seller delivering the goods, providing any documentation, and transferring the property but not the passing of title. [3] It must be noted; the passing of ownership is not regulated by the CISG but is governed by domestic law. [4] Case law establishes that courts will facilitate the actions of the parties to establish obligations but will limit recovery for failure to fulfil obligations. [5] The obligations of performance of a seller under a contract are set forth under Articles 31-34 CISG.

Time and Place of Delivery

In practice, time and place of delivery are often agreed to by the parties via the contract or by a subsequent Purchase Order (Kling & Freitag GmbH v. Societa Reference Laboratory S.r.1. (2004)). [6] These terms are of essence, as they not only serve for business purpose but place of delivery is relevant under the CISG because it determines the passage of risk and conformity of goods. [7] In some states it also determines jurisdictional issues. Therefore, Article 31 CISG governing the seller’s duty to deliver applies only if the parties did not agree on a specific place for a delivery. [8] Parties’ contractual autonomy prevails over Article 31 CISG. Further, a party asserting a verbal agreement as to place of delivery has the burden of establishing the terms based on Articles 8 or 9 CISG. [9] However, if various documents are exchanged between the parties with different terms or there is a verbal agreement coupled with party practice based on Article 8 CISG that still fails to resolve this issue, courts have resorted to Article 31 CISG to establish the place of performance of the seller’s duty to deliver the goods. [10]

Seller’s Delivery of Goods

Article 31 CISG establishes the standard of performance by the seller. Where the parties have agreed upon a place of delivery in a contract, then the implicit language in Article 31 CISG provides that the seller is bound to deliver to this place. [11] In essence, this test can be established via physical evidence, for example, a contract or verbal testimony and other evidence facilitating Articles 8 and 9 CISG. Hence, Article 31 CISG, which determines the place of “delivery,” applies only if the parties have not stipulated otherwise to delivery. [12] For example, a provision in a contract regarding cost of freight fails to establish derogation from Article 31(a) CISG. If however, the seller is not bound by the terms of a contract and the contract of sale involves carriage of the goods, delivery consists in handing the goods over to the first carrier for transmission to the buyer. [13] The seller has the obligation to deliver the goods and delivery consists in handing them to an independent carrier. The obligation of the seller is fulfilled upon transfer to the first carrier. [14]

Further, it must be noted, failure to present evidence of delivery by lack of signature of buyer can forfeit rights of seller to payment. In essence, liability for carrier’s failure to perform will not lie with the seller unless the seller has contractually undertaken the obligation to carry out the carriage of goods.”[T]he seller has performed his duty to deliver the goods even where they do not meet their description or are defective in other respects” under subsection (a) of Article 31 CISG and the risk of loss passes at such time. [15]

It must be highlighted, if there are no specific or indentified goods, Article 31(c) CISG then provides that the seller has the obligation to place the goods at the buyer’s disposal at the sellers place of business. Often referred to as the “residue clause,” Article 31(c) CISG lays down the principle that the seller must perform where its place of business is at the time of conclusion of the contract. [16] The seller’s delivery obligation is satisfied by placing the goods at the buyer’s disposal at the seller’s place of business. [17] Furthermore this duty to offer the goods ready and fit for carriage includes all necessary packaging. [18]

Furthermore, it must be highlighted that there are no provisions under the CISG, dealing specifically with the passing of title. The Convention concerns itself with risk rather than title. Title is therefore left to national law and, when it is necessary to determine which national law applies one refers to the rules of private international law (Article 7(2) CISG). It is significant, moreover, that the CISG under Article 67(1) adds: “the fact that the seller is authorised to retain the documents controlling the disposition of the goods does not affect the passage of risk”.

Article 32 CISG supplements Article 31 CISG when the sale involves carriage of goods. In accordance with Article 32 CISG, there must be identification of the goods by the fixing of labels or the address of the receiver if the goods are not clearly identified by markings on the goods, by shipping documents or otherwise, and the seller is required to provide the buyer notice of the consignment specifying the goods. [19] As per Article 67(1) CISG, when these conditions have been met, the risk passes to the buyer at the point of handing over the goods to the first carrier. If the seller is bound to arrange for carriage of goods, Article 32 (2) CISG provides that the seller must make such contracts that are necessary for carriage to the place fixed by means of transportation appropriate in the circumstance and according to the usual terms for such transportation. [20]

Sellers Delivery of Documentation

Based on party autonomy, the terms of the contract control this issue and can range form documents of title, bills of lading, warehouse receipts, insurance policies, invoices, certificate of origin, and certificate of control or quality. [21] Therefore, if a seller is bound to hand over these types of documents that relate to the goods, the seller must hand them over at the time and place, and in the form as required by the contract. [22]

However, courts have found that documentation may be in essence waived if the buyer fails to provide notice of nonconformity pursuant to Article 39(1) [23] CISG or if the actions of buyer mandate that the seller hand over “delivery orders” instead of other documentation. [24] Under Article 34 CISG, if the seller has handed over documents before that time, he may, up to that time, cure any lack of conformity in the documents, if the exercise of this right does not cause the buyer unreasonable inconvenience or unreasonable expense. [25] However, the buyer retains any right to claim damages as provided under the CISG.

Time for Delivery

The time for delivery of the goods is of the essence under the CISG, because the obligation of the buyer to pay for the goods arises upon delivery. Article 33 CISG provides for three circumstances regarding time of delivery. Under subsection (a) of Article 33 CISG, the seller is under duty to deliver the goods on the date “fixed or determinable from the contract”; [26] Article 33 (b) CISG provides that the seller must deliver the goods on any date within the period so fixed, “unless circumstances indicate that the buyer is to choose a date” within that period. [27] If the date cannot be ascertained due to ambiguity or absence in a contract, courts will determine whether the seller delivered the goods within a reasonable time after the conclusion of the contract. [28] In determining ‘reasonable time’, regard must be given to the “nature of goods, the distance covered, and the parties’ statements during negotiations”. [29]

Furthermore, a breach of an obligation under Article 33 CISG qualifies as a fundamental breach in light of Article 25 [30] CISG if the parties had agreed upon a fixed delivery date and if both parties are clearly aware of the fact that delivery should take place at that certain date. Hence, time must be of the essence or equivalent language. A fundamental breach can occur for non-deliverance, delivery after stated date, or failure to deliver after additional time is given provided said time is reasonable. [31] However, it must be stressed a buyer’s tolerance of the late delivery may be considered equivalent to the granting of an “additional period of time” and thereby precluding buyer from declaring avoidance under Article 49 CISG. [32]

Conformity of the Goods

At the heart of many international sale transaction disputes is the question whether the goods delivered conform to the contract. Article 35 CISG is at the very core of the CISG and presents a unified approach on the obligations of the seller in respect of the goods delivered to the buyer. [33]

Accordingly, Article 35(1) CISG provides that “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”. [34] Thus the decisive factor for determining whether the goods conform to the contract is the contractual description of the goods. The characteristics are therefore not based on objective standards of quality but rather on the denomination and description of the required quality in the contract. [35] In one illustrative CISG case [36] on Article 35(1) CISG, a Turkish company had promised to deliver 1,000 tons of fresh cucumbers to a buyer doing business in Germany, but the seller allegedly delivered less than that amount. Since the CISG applied, the seller was obligated to deliver goods of the quantity required by the contract, and thus delivery of less than 1,000 tons constituted a contractual breach.

However, if the parties have not agreed otherwise, the goods only conform with the contract if they are fit for the purposes for which goods of the same description would ordinarily be used (Article 35(2) (a) CISG). In essence, under the CISG, the presumption is that goods “are fit for the purpose for which goods of the same description would ordinarily be used” and are “fit for any particular purpose expressly or impliedly made known to the seller at the time of the conclusion of the contract”. [37] However, this presumption is subject to an express agreement among the parties to the contrary. [38]

Furthermore, it must be stressed goods do not conform with 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 or judgement. [39] A seller will also breach its obligation if the goods do not possess the qualities held out to the buyer in a sample or model (Article 35(2)(c) CISG), or if the goods are not packaged in a manner used for goods or that is adequate to preserve and protect the goods (Article 35(2)(d CISG).

It must be highlighted, if the buyer had knowledge or could have been aware of any lack of conformity at the conclusion of the contract; the seller is not liable for breach of contract (Article 35(3) CISG). In addition, if the buyer fails to adhere to the procedural requirements of the CISG, courts will dismiss a buyer’s claim of nonconformity. [40] Although, it must be stressed the burden of proof is on the buyer to slow lack of conformity. [41]

Buyer’s Obligations

The characteristics of an international sale of goods contract consists of the obligation of the seller delivering the goods and transfer the property in the goods to the buyer, which for its part agrees to pay the price for the goods and take delivery of them. [42] The primary “obligation of a buyer under the contract of sale is to pay the price for the goods delivered”. [43] According to Article 6 CISG, a buyer is under the obligation to pay the purchase price at the deadline agreed and to take delivery of the goods. In lack of a contrary provision in the contract, place of performance shall be the seller’s place of business. In addition to these duties, pursuant to Article 38 CISG, a buyer must examine the goods or cause them to be examined. Further, in cases of nonconformity, the seller must be notified within a reasonable period of time in pursuant to Article 39 CISG.

Payment and Take Delivery

The CISG regulates international sale of goods, which can be defined as a contract by which the seller agrees to deliver the goods and transfer the property in the goods to the buyer, which for its part agrees “to pay the price for the goods and take delivery of them”. [44] This approach is consistent with the understanding that the seller and the buyer have reciprocal obligations toward concluding sales contracts. [45] According to Article 6 CISG a buyer is obliged to pay the purchase price at the deadline agreed and to take delivery of the goods. Where there is no express agreement in the contract between the parties, Article 53 CISG provides that the “buyer must pay the price for the goods and take delivery of them as required by the contract and this Convention”. [46] Proof of delivery is established by means of seller testimony, or invoices as copies of an export bill of lading, as well as communications and/or agreement between the parties. [47] Courts have concluded that this evidence in the field of commerce and general life experiences confirms that it is very likely that the buyer received exactly the goods that were ordered and for which the invoice was sent. [48]

Furthermore, it can be said a buyer’s obligation to pay the price of the goods also includes taking such steps and complying with such formalities as may be required under the express terms of the contract as well as any laws and regulations to enable payment to be made (Article 54 CISG). As such, failure to establish a letter of credit, make payment, or comply with terms of a contract is failure by the buyer to meet its primary “obligation to pay the price” as prescribed by Article 54 CISG. [49]

Take Delivery

In parallel with a buyer’s duty to pay, a buyer also has a duty to take delivery. [50] This obligation consists in carrying out all the acts that could reasonably be expected of a buyer in order to enable the seller to make delivery and in taking over the goods. [51] Further, preparatory measures ‘such as the provisions of plans or data, are also part of the cooperation required of the buyer since ultimately they serve to enable the seller to make delivery”. [52] Should the buyer fail to possession of the goods when delivered, the seller is required to care for the goods until the buyer takes delivery. The buyer is thereafter liable to reimburse the seller for all reasonable expenses relating to the upkeep of the goods (Articles 85 & 87 CISG).

Buyer’s Obligation upon Delivery

Pursuant to the provisions of the CISG, a buyer must examine or have goods examined within a period as short as practical under the circumstances and if defects are found it must notify the seller about them within a reasonable period of time, exactly stating the kind of deficiency (Article 38(1) & 39(1) CISG). The CISG requires “examination and notice to be distinguished and kept separate, even when the facts of the case would permit them to be combined into a single period for giving notice”. [53] Further it must be stressed that “the close link between Articles 38 and 39 CISG does not, however, lead to the conclusion to recover for defective goods, the buyer must previously inspect them. In fact, lack of inspection by the buyer does not necessarily involve the loss of the right to rely on the lack of conformity of the goods, as long as the defects are notified (to the seller) in a timely manner, that is, before ‘a reasonable period’ has elapsed”. [54] Finally it must be noted, “[i]t is up to buyer, who received the goods without reservation, to provide evidence of the alleged nonconformity,” as well of the fact that this nonconformity existed before the risk passed to the buyer. [55] Where the buyer has failed to provide evidence and notice of non-conforming goods, he will lose the right to rely on lack of conformity. [56]

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