MEMORANDUM

To : Dr Trinh Thuc Hien

From : Nguyen Le Anh, student of class…
Date : 15 February 2020
Re : Seller A – apple juice concentrate case
QUESTION PRESENTED
Can Buyer B, even though cannot return the goods in the original condition as it received them,
recover the right to avoid the contract under the CISG Article 82(2)(c) which requires that (1) the
goods have been sold or transformed by the buyer in the ordinary course of business and (2) at
that time, the buyer did not discover or was not required to discover the non-conformity?
(1) Is the apple juice concentrate sold or transformed in the ordinary course of business by
the buyer when it was delivered directly to Buyer B’s customer, Company C, and
Company C processed it into apple drinks?
(2) Is the buyer required to discover the non-conformity at the time the apple juice
concentrate is processed when an initial control analysis does not cover the test for
glucose syrup, and sugar additives are only revealed under a fine analysis after the goods
are processed into end-products?
SHORT ANSWER
Buyer B cannot have the right to avoid the contract under the CISG Article 82(2)(c).
(1) The apple juice concentrate is not sold or transformed in the ordinary course of business
because the buyer has a duty to examine the goods under the CISG Article 38, but the
inspection is not taken adequately to discover the sugar additives.
(2) Buyer B is required to examine for conformity before it resells the goods or Company C
must wait for the result of a fine analysis to mix and process the apple juice concentrate
where the conduct of Company C is attributed to Buyer B, and Buyer B and Company C
as experts in the food industry must know that the sugared fruit concentrate is a decisive
factor to label the end-products.
STATEMENT OF FACTS
In January 2016, Buyer B ordered from Seller A 10.000 kgs apple juice concentrate at the price of
$1.69 per kilogram. Seller A accepted the order in writing on the next day. They agreed that the
applicable law is the CISG.
The goods were delivered to Buyer B's customer, company C and arrived at the port of
destination on 27 January 2016 in four tankers. Company C took samples and have them
examined. The initial control analysis only checked a few parameters and did not discover any
problem.
After that, the goods were mixed with products from other suppliers, diluted with water to make
drinks, and filled into individual tetra packs. At that stage, the reserved samples kept by Company
C went through a fine analysis on 2 February 2016 in which glucose syrup was found in the apple
juice concentrate supplied by the Seller A. Because drinks were manufactured from sugared
concentrate, Company C could not label them as “apple juice” but “apple nectar” under the
requirement of the law on food production and distribution. As soon as Company C received the
report of the inspection, it immediately informed Buyer B about the problem on 4 February. On
the same day, Buyer B sent an email notifying the non-conformity and requested substitute
delivery within an additional period of time.
However, Seller A could not make a substitute delivery until that point of time. Buyer B sent an
email to declare the contract avoided on 25 February 2016.
Seller A came to your office, seeking advice on the matter about whether they can claim for full
payment.
DISCUSSION
Buyer B cannot rely on the CISG Article 82(2)(c) to avoid the contract. There is no strong evidence
to prove that (1) the goods have been sold or transformed by the buyer in the ordinary course of
business and (2) at that time, the buyer did not discover or was not required to discover the non-
conformity. Even the two issues involve the duty to examine under Article 38 of the said
convention, they deserve separate discussion, and the duty to examine is analyzed first.
(1) Duty to discover the lack of conformity
Buyer B has a duty to examine the goods for sugar additives. To decide on the manner of
examination, courts consider whether there are a hidden shortcoming and the possibility of
unexpected substance. Besides, Buyer B and Company C, as experts in the food industry must
acknowledge the requirement of non-sugared concentrate to market their products as “apple
juice”.
…
(2) Sold or transformed in the ordinary course of business by the buyer
To conclude the apple juice concentrate is not sold or transformed in the ordinary course of
business, it must be considered whether the buyer is free from the duty to examine under Article
82(2)(c) when it resells or processed the goods at least within the seller’s awareness., and if not,
in which manner of examination to fulfill the duty of this kind.
…