Austrian Supreme Court rules on fundamental breach and buyer’s duty to examine the goods

On 16 December 2015, the Austrian Supreme Court rendered a decision in the Andy Warhol «New Coke 1985» hand screen print case. The decision’s full text, originally written in German, has now been translated into English by Lukas Petschning, who is a law student at the University of Vienna and a former Vis Moot participant (29th Willem C. Vis Moot Court). We are very grateful for his translation that can now be accessed via the case presentation about CISG-online 2663 (see below). 

The dispute underlying the decision arose from a contract for the sale of the artwork «New Coke 1985», a unique hand screen print. After noticing something unusual, the buyer arranged for the print to be reframed by a specialist gallery. The gallery informed the buyer that the print had significant defects. Thereupon, the buyer forwarded the status report to the seller and demanded the seller to take back the artwork and repay the purchase price. However, the seller rejected the buyer’s demands. Thus, the buyer filed a claim against the seller claiming for repayment of the purchase price as well as reimbursement for further damages. In response, the seller argued that the buyer’s notice of non-conformity was significantly delayed since it was only issued 20 months after delivery. In addition, it argued that no fundamental breach of the contract occurred.

The Courts of first and second Instance both granted the buyer’s claims. They held that a fundamental breach within the meaning of Art. 25 CISG occurred entitling the buyer to avoid the contract. Moreover, they found that the buyer, who does not trade in artworks, could not be expected to conduct a detailed inspection of the print. Thus, the period for the notice of non-conformity only began upon detecting the defects.

The Supreme Court upheld the prior decisions by stating that a fundamental breach of contract occurred pursuant to Art. 25 CISG. According to the Court, it is natural and foreseeable that the buyer of expensive artwork would lose any interest in the goods upon detecting defects which led to a reduction in value by 35%. Moreover, the Court pointed out that the artwork was not resalable as was evidenced by the seller’s unsuccessful attempts at the beginning of the proceedings.

Regarding the buyer’s duty to examine the goods and give notice to the seller the about non-conformity of the goods under Arts. 38(1) and 39(1) CISG, the Court held that an examination and notice period of 14 days in total is to be considered appropriate unless special circumstances justify a shortening or extension of this period. In the case at hand, the buyer gave notice to the seller long after 14 days since the delivery of the artwork, yet within 14 days of actual awareness. The Court stated that the buyer only would have been required to examine the goods comprehensively, i.e. to remove the frame of the print, if it had acquired the artwork in pursuit of its regular business pursuant to Art. 38(1) CISG. However, the buyer purchased the artwork purely for decorative purposes, namely to display it on its premises. Thus, the Court confirmed the decision of the Court of Appeal to treat the buyer as a «private individual» for the purpose of determining the extent of its duty to examine the goods – it came to the conclusion that the buyer could not have been expected to remove the artwork from its frame. Thus, the period for the notice of non-conformity only began when the buyer was informed about the defects by the specialist gallery. Consequently, the Supreme Court considered the buyer’s notice of non-conformity not to be belated and affirmed the prior decisions in granting the buyer's claims.