Distinction between inspection period and notification period in foreign legal systems

In many foreign legal systems, the period for inspection and the one for notification cannot be, in principle, combined as one period, and the requirements for them can be different.

6.1.1 Inspection after delivery and notification after appearance of defects in German law

The duty to inspect the subject matter and to notify of defects cannot be found in Articles 434, 435 and 438 of the BGB, which merely stipulate the prescription for actions (Lettl, 2011, p. 266). These duties only exist in the case of commercial sales. According to Article 377(1) of the German Commercial Code (HGB), if the sale is bilateral mercantile, the buyer shall inspect the subject matter promptly (unverzüglich) after the seller tendered delivery, in light of the practicability in the ordinary course of business, and notify the seller promptly as soon as the defect appears. According to Article 377(2) and (3), if the buyer fails to notify the seller of the defect promptly, the subject matter will be deemed to be approved (genehmigt) (Boujong, Ebenroth, & Joost, 2001, p. 474). These rules, as Professor Canaris (2006) has emphasized, aim to protect the seller (p. 437). If the buyer delays in giving notice, the legal effect is a fiction of approval (Genehmigungsfiktion), and the buyer will lose all remedies based on defects, including requiring supplementary performance, termination of contract, price reduction, and refund of fees provided in BGB Article 478(2) (Canaris, 2006, p. 448).

The duty to inspect and to notify established in HGB Article 377 can, from the courts’

view, promote rapid settlement and the stability of legal relationship, protect the seller from repeatedly complaining about the defects, and promote the seller’s supplementary performance.

Hence, this system is considered to be specifically beneficial in enhancing the efficiency in commercial transactions (Boujong et al., 2001, p. 478), and therefore differs from the rules on prescription under BGB Article 438. In my view, it is HGB Article 377, but not BGB Article 438, that is the comparable rule with CCL Articles 157 and 158.

Under German commercial law, although the time requirements for inspection and for notification are both “promptness”, they are not combined as one general phase. The inspection period is followed with the seller’s tender of delivery, while the notification period starts to run as soon as the defects appear. This distinction may be of little value when the defects can be easily discovered when inspecting, but if the defects are latent and cannot be discovered until a considerable period elapses, such a distinction becomes very important, because in such a case, the notification is required only after the latent defect appears (HGB Art. 377(2)). This kind of

design demonstrates that the period for inspection and the one for notification should be, in principle, distinctive and separated. In judicial practice, the judges usually consider the time for inspection and the one for notification separately (Boujong et al., 2001, §377 Rn. 73).

6.1.2 Inspection before acceptance and notification after it in U.S. law

The rule concerning the notice of breach applied in the majority of the United States is stipulated in Section 2-607(3)(a) UCC, according to which once a tender has been accepted, the buyer must notify the seller of the breach within a reasonable time after he discovered or should have discovered such a breach, otherwise he will be barred from all remedies (ALI &

NCCUSL, 2010, p. 2204). Compared with HGB Article 377, there are two characteristics of the UCC’s notice rule. First, the scope of its application is not limited to defects, but has expanded to any breach, although in the case of delay in performance, the recent trend

reflected in judicial practice is that the seller’s actual knowledge constitutes a sufficient ground to exclude the buyer’s duty to notify (White & Summers, pp. 654-655).Second, the time requirement for notification is within a reasonable time, but not promptness, and its connection with good faith is emphasized in the official comment on Section 2-607 of the UCC, according to which, the purpose of the notice rule is to defeat bad faith in commercial transactions, but not to exclude the remedies of a good faith consumer (ALI & NCCUSL, 2010, p. 2205).

It is important to note the content and function of acceptance of goods in the UCC.

Generally speaking, acceptance of goods under the UCC may not only justify the seller’s right to demand price (ALI & NCCUSL, 2010, p. 2204), but also indicate, after having a reasonable opportunity to inspect the goods, a confirmation that the goods do conform with contractual requirements or, in the case of nonconformity, a confirmation that the buyer will retain the goods despite the nonconformity (UCC §2-606(1)) (ALI & NCCUSL, 2010, p. 2203). Hence, the acceptance of goods does not mean taking the physical delivery of goods, but indicates certain approval of the conditions of such goods. Before the acceptance, there should be a reasonable opportunity for the buyer to inspect; after the acceptance, there should be a reasonable time for him to give notice. Evidently, inspection and notification are generally divided into two stages, instead of combined as one phase.

6.1.3 Distinction between examination and notification periods under the CISG During the drafting of the CISG, the notice rule became one of the most disputable issues and was fiercely debated between developing countries and industrialized countries

(Schwenzer, 2007, pp. 107-109).The requirement for giving notice was changed from original

“promptness” to “within a reasonable time” (Schwenzer, 2007, p. 109).According to the first paragraph of CISG Article 39, the buyer shall notify the seller of any nonconformity after he has discovered or should have discovered such nonconformity and shall specify the nature of it, otherwise all remedies relied on such nonconformity cannot be admitted. Moreover, a new article -Article 44- was created: if the buyer has a reasonable excuse for his failure to give the required notice, he may reduce the price in accordance or claim damages, except for loss of profit. It has been argued that the notice rule under the CISG is closer to those legal systems in which there is a duty to give notice within a reasonable period (Schwenzer, 2007, p. 109).

Differing from the requirement for giving notice under CISG Article 39, Article 38 of the CISG requires the examination to be undertaken within as short a period as is practicable in the circumstances (CISG Art. 38(1)); however, “if the contract involves carriage of the goods, examination may be deferred until after the goods have arrived at their destination” (CISG Art.

38(2)). Articles 38 and 39 of the CISG have separated the time period for examination and for notification, making them with different starting points and time requirements. As the CISG Advisory Council (2004) stated in the second opinion:

“[U]nless the lack of conformity was evident without examination of the goods, the total amount of time available to give notice after delivery of the goods consists of two separate periods, the period for examination of the goods under Article 38 and the period for giving notice under Article 39. The Convention requires these two periods 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.”

The view that the period for examination and the one for notification should be

distinguished and separated under the CISG has also been supported by judicial practice. In a prominent decision made by the German Supreme Court in 1999, which involved

nonconformity in a grinding device used for paper-making, the court assumed three weeks was

sufficient for examination; after the three weeks, there were four additional weeks for the buyer to decide to and actually give notice.^① In other words, the buyer had three weeks to

accomplish the examination and four weeks to give notice. In this case, the judge regarded four weeks to give notice as “regelmässig”, namely, “regular” or “normal” (Schwenzer, 2007, p.

103; Boujong et al., 2001, p. 494).