Acceptance and rejection of goods, the unpaid seller, and frustration

1. Examination and notice

Under the CISG the buyer must examine the goods within as short a period as is practicable; where carriage is involved, examination may be deferred until arrival (Article 38). He loses the right to rely on a lack of conformity unless he gives the seller notice specifying its nature within a reasonable time after he discovered or ought to have discovered it, and in any event within two years of actual delivery unless a contractual guarantee provides otherwise (Article 39). The seller cannot rely on these rules if the defect relates to facts he knew and did not disclose (Article 40).

The Sale of Goods Act, 1930 gives the buyer a reasonable opportunity of examining the goods (section 41). The buyer is deemed to have accepted the goods (section 42) when he intimates acceptance to the seller, does an act inconsistent with the seller's ownership, or retains the goods beyond a reasonable time without intimating rejection. Once he has accepted, he can only claim damages for breach of warranty. A buyer who rightfully rejects need not return the goods; it is enough to tell the seller he refuses them (section 43).

2. Two rights of rejection in documentary sales

In a CIF or similar contract the buyer has a right to reject non-conforming documents on tender, and a separate right to reject non-conforming goods on arrival. Accepting the documents does not waive the right to reject the goods for a defect not apparent on the documents. But if the buyer accepts documents that show a defect (a late shipment date on the bill of lading), he cannot later reject on that ground: Kwei Tek Chao v. British Traders and Shippers Ltd. (1954).

3. Rejection and the buyer's remedies under the CISG

• Fundamental breach (Article 25): a breach that results in such detriment to the other party as substantially to deprive him of what he is entitled to expect under the contract, unless the result was not foreseeable to a reasonable person in the defaulting party's position. It is the threshold for the drastic remedies.
• Specific performance (Article 46(1)), substitute goods only if the lack of conformity is a fundamental breach (Article 46(2)), or repair (Article 46(3)). A court need not order specific performance where its own law would not (Article 28).
• Additional period for performance (Article 47), the German Nachfrist.
• Seller's right to cure (Article 48), even after the delivery date, if without unreasonable delay or inconvenience.
• Avoidance (Article 49), the CISG word for rejection and termination: (a) where the failure amounts to a fundamental breach, or (b) in non-delivery, if the seller does not deliver within the additional period. Avoidance is by notice (Article 26) and must be declared within a reasonable time.
• Price reduction (Article 50), proportionate to the lower value of the goods delivered.
• Damages (Articles 74 to 77), limited to foreseeable loss, with a duty to mitigate.
• Preservation of rejected goods (Article 86): a buyer who intends to reject goods he has received must take reasonable steps to preserve them, and may sell perishable goods (Article 88).

The CISG thus prefers keeping the contract alive: cure and price reduction come before avoidance. The Sale of Goods Act, by contrast, lets the buyer reject for breach of any condition, such as correspondence with description (section 15) or merchantable quality (section 16(2)), however slight, subject to acceptance under section 42.

4. The unpaid seller

A seller is unpaid when the whole price has not been paid or tendered, or when a bill of exchange taken as conditional payment has been dishonoured (Sale of Goods Act, section 45). His rights against the goods (section 46) are:

• Lien (sections 47 to 49): to retain possession while he holds the goods, where they were sold without stipulation as to credit, the credit has expired, or the buyer has become insolvent. It is lost by delivery to a carrier for transmission without reserving the right of disposal, by the buyer lawfully obtaining possession, or by waiver.
• Stoppage in transit (sections 50 to 52): when the buyer becomes insolvent, the seller who has parted with possession may resume it while the goods are in course of transit, by taking possession or by notice to the carrier. Section 3 of the Bills of Lading Act, 2025, which replaced the Indian Bills of Lading Act, 1856 from 10 September 2025, preserves the right of stoppage in transit.
• Resale (section 54): where the goods are perishable, or after notice of intention to resell, or where the right is reserved in the contract; the seller may recover loss on resale.
• Personal remedies: suit for the price (section 55) and damages for non-acceptance (section 56).

The CISG equivalents: the seller may require payment (Article 62), fix an additional period (Article 63), avoid for fundamental breach (Article 64), and recover damages. Under Article 71 a party may suspend performance if it becomes apparent that the other will not perform a substantial part, and Article 71(2) lets a seller who has dispatched the goods prevent their handing over to the buyer, even if the buyer holds a document entitling him to them. Article 72 deals with anticipatory breach.

5. Frustration: the common law

A contract is frustrated when, without the fault of either party, a supervening event makes performance impossible, or so radically different from what was undertaken that to hold the parties to it would be to make a new contract. Both are then discharged.

• Taylor v. Caldwell (1863): the music hall burned down before the concerts; the contract was subject to an implied condition that the hall would continue to exist.
• Krell v. Henry (1903): the coronation procession was cancelled; the foundation of the contract to hire rooms to view it failed.
• Davis Contractors Ltd. v. Fareham UDC (1956): delay and higher cost did not frustrate a building contract. Lord Radcliffe: “it was not this that I promised to do”.
• Tsakiroglou & Co. Ltd. v. Noblee Thorl GmbH (1962): the closure of the Suez Canal in 1956 did not frustrate a CIF sale of groundnuts from Sudan to Hamburg; shipping via the Cape of Good Hope was longer and dearer but not fundamentally different. The Eugenia (1964) took the same view of a time charter.

6. Frustration in Indian law: section 56

Section 56 of the Indian Contract Act, 1872 makes void an agreement to do an act impossible in itself, and a contract which becomes impossible or, by reason of some event the promisor could not prevent, unlawful after it is made. In Satyabrata Ghose v. Mugneeram Bangur & Co., 1953 INSC 71, AIR 1954 SC 44, the Supreme Court held that the doctrine of frustration falls within section 56; “impossible” is not confined to physical impossibility but includes impracticability in the sense of the object being defeated. Requisition of the land for war purposes did not frustrate a contract to develop plots, because the contract contemplated delay and the requisition was temporary.

In Energy Watchdog v. Central Electricity Regulatory Commission, 2017 INSC 338, (2017) 14 SCC 80, power generators said that an Indonesian law raising the export price of coal had frustrated their long-term supply agreements. The Court held that a rise in the cost of performance, even a steep one, is neither frustration nor force majeure where the contract did not make a particular source of coal or price its foundation. Where a contract contains a force majeure clause, the matter is governed by the contract (section 32), not by section 56.

7. Force majeure and the CISG

International contracts usually contain a force majeure clause listing events (war, embargo, natural disaster, epidemic, government action) and providing for suspension and then termination, often modelled on the ICC Force Majeure Clause. Under Article 79 of the CISG a party is not liable in damages for a failure due to an impediment beyond its control that it could not reasonably have taken into account at the time of contracting or avoided or overcome. The exemption lasts only while the impediment lasts, notice must be given, and it bars only damages; the other party's other remedies, including avoidance, remain (Article 79(5)).

How this is examined

For rejection: examination and notice (Articles 38 and 39; sections 41 and 42), the two rights of rejection in CIF sales, fundamental breach and avoidance, cure and price reduction, and preservation of goods. For frustration: definition, the English cases, section 56 with Satyabrata Ghose, the circumstances that do and do not frustrate, and force majeure under Article 79. For the unpaid seller: section 45, then lien, stoppage in transit and resale, with the CISG Article 71(2) parallel.