Question:
During the performance of a contract to purchase equipment from a company headquartered in South Korea, I discovered that the delivered goods did not meet the quality specifications described in the contract. Specifically, the joints failed to meet technical standards, causing the crane to collapse after a period of use and resulting in damages to a third party. I have notified the seller to return the goods and wish to cancel the contract. According to the 1980 CISG, is such delivery of non-conforming goods considered a fundamental breach of contract? And do I have the right to cancel the contract?
Answer:
The seller’s delivery of goods that do not conform to the quality described in the contract is considered a fundamental breach under Article 25 of the United Nations Convention on Contracts for the International Sale of Goods 1980 (CISG). A fundamental breach occurs when the breach causes such detriment to the other party as substantially to deprive them of what they were entitled to expect under the contract, except where the breaching party could not have foreseen such consequences and a reasonable person in the same situation could not have foreseen them either.
In your case, the equipment delivered by the seller had serious defects in the joints—failing to meet the technical standards stipulated in the contract appendix—resulting in the crane collapsing and affecting a third party. This consequence frustrates the primary purpose of the contract, which is project execution. According to Article 35 CISG, the seller is obligated to deliver goods that conform to the quantity, quality, and description required by the contract, and non-conforming delivery constitutes a serious breach.
However, under point (b) Clause 2 Article 49 CISG, to exercise the right to declare contract avoidance (cancellation), you must notify the seller of the breach within a reasonable time after discovery and allow an opportunity for remedy. In this case, since you did not notify the seller in a timely manner and continued to install and use the equipment, this conduct may be interpreted as acceptance of the goods.
According to Articles 47 and 48 CISG, you are obligated to grant the seller a reasonable time to remedy the defect if repair is possible before exercising the right to cancel the contract. Because you did not follow these steps, although the seller committed a fundamental breach, you are not entitled to unilaterally cancel the contract under the CISG provisions.
Therefore, to be recognized as having the right to cancel, the customer must prove compliance with the notification and opportunity-to-remedy obligations under the Convention
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