The Finnish Sale of Goods Act (355/1987)1 is applicable when both of the parties to a contract of sale are Finnish, or when in the contract it is expressly stated that the contract is to be governed by Finnish law. This being the case, the provisions of the United Nations Convention on Contracts for the International Sale of Goods (1980) (hereafter CISG) shall also apply, unless excluded in the contract. In this article, however, we shall only deal with contracts of sale which are not subject to the CISG.

In general, the parties to a contract are free to choose the law applicable to the whole or parts of the content of their contract. It has to be kept in mind that the form of the contract must be such that it satisfies the requirements set for the formation of the contract as required by the applicable law.

Delivery and the transfer of risk

According to the Finnish Sale of Goods Act, the delivery of goods from the seller to the buyer should occur at the place of business of the seller, unless the parties agree upon a different arrangement. The delivery is considered complete when the goods pass into the possession of the buyer. The contract of sale can also involve carriage of goods, in which case the seller or a third party carrier should deliver the goods to the buyer.

Determining the time of delivery is important because it defines the moment of passing of risk from the seller to the buyer. Save for the provisions of the warrantees and the guarantees, if a product becomes defective after the delivery to the buyer, the defects are no longer the responsibility of the seller.

The specific terms of delivery and the time of delivery are critical points to be agreed upon when drawing up a purchase agreement. It is advisable to agree both on the time and the exact location of the delivery. A timetable or schedule can also be annexed to the contract if the delivery of goods occurs in more than one instance.

If the delivery does not take place due to a cause attributable to the buyer, the liability for risk of the goods passes to the buyer in any case as soon as the seller has fulfilled its obligations of delivery towards the buyer. A clause providing for the option to return goods does not affect the passing of risk from the seller to the buyer.2

The delay in delivery on the part of the seller may give rise to a right of the buyer to terminate the contract if the breach of contract is of substantial importance to the buyer and the parties knew or should have known about it. In such case the buyer has various options provided by law besides the termination. The buyer may demand immediate delivery of goods, assign a new time of delivery or withhold payment of the contract price in an amount corresponding to his claim. The buyer is entitled to damages for losses suffered due to the seller's delay in delivery unless the delay has been caused by an event of force majeure. Indirect damages, however, are not compensated.

Conformity with the contract

The goods delivered should be in conformity with what has been agreed and described in the contract. The conformity of goods is measured in regard to description, quantity, quality and other properties, but it includes also packaging. If the latter has not been agreed upon in the contract between the parties, the Sale of Goods Act requires that it should be appropriate and as expected for the proper preservation of the goods. If the goods do not conform with the provisions set forth in the law or what has been agreed between the parties, the goods are regarded as defective. Furthermore, according to the law, the goods are also defective if their properties or use do not conform with the information the seller has provided when marketing the goods or otherwise before the conclusion of the contract, and which can be presumed to have had an effect on the contract.

However, if the buyer fails to notice any defect or shortcoming of the product that was present before the conclusion of the purchase agreement, not out of bad faith of the seller but out of negligence of inspection and evaluation of the buyer, there shall not be any inconformity attributable to the seller.

According to the Finnish Sale of Goods Act as well as the provisions of CISG, a notification of defect on delivered goods that is not in conformity with the contract is to be made within a reasonable time after the buyer has discovered or should have discovered such defect. In the CISG the possibility to give notice of defect of goods is in principle limited for the period of two years from the coming into possession of such goods. No such exact time limit has been stipulated in the Finnish Sale of Goods Act. Since the term â€Üreasonable time' is rather vague, it is advisable to state in the contract that the reasonable time should not exceed, for example, two months after the goods have come into the possession of the buyer. Relatively short periods of notification are one effective way of limiting the seller's liabilities.

Another significant difference between the Finnish law and the CISG lies in the fact that, under Finnish law, unless otherwise expressly agreed in the contract, the seller is, in principle, obliged to indemnify the buyer only for direct damages arising from the supplied goods. Indirect losses are compensated, however, if the delay or loss is due to negligence of the seller. According to the Finnish law, indirect loss consists of the following: 1) loss due to reduction or interruption in production or turnover; 2) other loss arising because the goods cannot be used as intended; 3) loss of profit arising because a contract with a third party has been lost or breached; 4) loss due to damage to property other than the goods sold; and 5) other similar loss that is difficult to foresee. Under CISG the seller would be liable to indemnify against both direct and indirect damage.

How to further limit the seller's liability of risk?

Although the Finnish Sale of Goods Act is in some measure more favourable compared to the terms of CISG as regards the seller's liabilities, it is still advisable to include a few specific provisions further limiting the liability in the contract.

First of all, short notice periods mentioned above are a good example of such provisions. For the sake of clarity, all indirect or consequential damages including for instance loss of business, contracts, good will or revenue of profits should also be expressly ruled out in the contract. Another useful contractual term to be used is a provision limiting the maximum and aggregate liability of the seller. The liability could be limited to e.g. a certain fixed amount or a percentage calculated from the contract price.

All these aforementioned clauses are just a few useful examples of the possibilities the seller may use when trying to limit its liabilities towards the other party. Nevertheless, none of the clauses should be used carelessly without actually understanding the purpose and meaning of each clause -a leading principle for drafting each contract.

Footnotes

1. In Finnish, Kauppalaki 27.3.1987/355

2. Section 16 Sale of Gods Act.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.