International Contracts: Examining and Claiming Defective Products
This article will provide a practical analysis regarding the possibilities to claim defects in goods acquired through international sales contracts.
Before developing these issues, first is an examination of the legal mechanisms applicable to international sales and to the issues at hand. Contracts are governed by the provisions of the parties; however, where the parties have not expressly agreed on an issue, the United Nations Convention on the International Sale of Goods (CISG), adopted in Vienna on 11 April 1980, will govern. The purpose of the CISG is to strengthen international trade by enabling the application of uniform rules in sales contracts.
The CISG is applicable to sales contracts concluded between parties whose businesses are located in different Nation-States, as long as both States are parties to the Convention, or as long as the rules for private International Law of one of them provides for the application of the Laws of another State that is a party to the Convention.
As Spain is a party to the CISG, this Convention will be commonly used when one of the parties to an international sales contract is located in Spain.
There are two essential points to keep in mind regarding goods that may be defective: examination of the goods and the time periods for raising potential claims.
Examination of Goods
Unless otherwise provided in the contract, the buyer must examine the goods within as short a time as practicable under the circumstances (article 38 of the Convention). The CISG does not specify precisely what is understood as the shortest time practicable. Thus, for the sake of legal certainty, contracting parties should agree upon a given time that begins to toll upon receipt or delivery of the goods.
Time Period for Stating Claims
Article 39 of the Convention establishes that the buyer must communicate to the seller any non-conformity in the goods within a reasonable time, from the moment in which such non-conformity was discovered or ought to have been discovered. A buyer has a maximum limit of two years from when the goods are in its possession to declare the goods are non-conforming.
Again, this is a broad provision that can lead to situations of legal uncertainty for the following reasons:
First, as there is no definitive time period for declaring defects, reference being made only made to the shortest time practicable, consequent interpretations may yield disparate results. Furthermore, since the moment from which defects must be disclosed can potentially be up to when such defects were discovered, this can also give rise to distinct interpretations depending on the circumstances at hand.
Therefore, we recommend that parties expressly include specific time periods for raising potential claims in their contracts, and in addition, that these periods begin to toll at a precise moment during the course of the transaction.
Another option is to refer to the applicable provisions of the Spanish law (Code of Commerce), which provide fixed time periods. Our rules distinguish between latent and apparent defects:
- For latent defects, the buyer has 30 days from the time of delivery to raise a claim. Once goods are declared defective, the buyer has six months to take legal action by either filing suit for breach of contract or demanding compliance on the part of the seller, and in both cases, to claim damages.
- For apparent defects, the buyer has only four days from receipt of goods to raise a claim, which must be submitted to the Tribunal in an ex parte proceeding, as set forth in the Spanish Civil Procedural Law.
These time periods are beneficial mostly to the seller, since the periods for raising a claim are much shorter, especially in the event of apparent defects.
Conclusions and Practical Recommendations
For the Seller
- It is best to contract for a short time period in which the buyer may examine the goods, clearly specifying the moment in which this period begins to toll. In addition, you may agree that when the goods are received, the buyer must declare the goods conforming to the seller, and as such, the buyer will not later be able to claim that the goods are defective. In this case, the buyer may be required to sign an acknowledgement of receipt, thus showing it has examined and accepts the goods, thereby renouncing any right to raise subsequent legal claims.
- Particularly where goods have complex operating procedures that require the buyer to start them up in order to test them, it is best to establish a specific time limit for the buyer to examine and raise any claims regarding possible defects, thus making it very clear that once the determined period has elapsed the buyer will no longer have the right to raise a claim, regardless of whether the merchandise has actually been examined.
The foregoing helps to avoid situations where, after a considerable amount of time from the completion of the sale of goods, the buyer brings legal action against seller for breach of contract, or demands substitute goods or repair of the goods.
For the Buyer
- It is best to establish longer and definitive periods for raising legal claims. In addition, it is best to clarify that these time periods begin to toll upon buyer’s examination of the goods and not upon delivery or receipt of the goods. Keep in mind that in certain cases, delivery occurs when the goods leave the seller’s place of business, even before the transport and delivery of goods to the buyer.
- It is equally recommended to include a warranty clause that expressly states what it covers and for what length of time it remains valid.
Irrespective of the terms of the contract, and to provide buyers with optimal protection in the face of potentially defective goods, buyers should examine goods in a reasonably short time and raise any claims as promptly as possible, making sure to document all of this in writing.
Lastly, it is important to indicate, as with any contract but especially in international contracts, that the laws that will apply and Tribunals that will have jurisdiction in the event of any legal claim that may arise.
This article is not considered as legal advice