Defective Product or Non-Conforming Goods? An Introduction to the Sale of Goods Act and the Claim of Non-Conformity.

What Constitutes a Defective or Non-Conforming Product? The Claim of “Non-Conformity”

A defective product is a term used to describe a situation of “non-conformity.” Section 11 of the Sale of Goods Law, 5728-1968 stipulates that non-conformity exists when the seller delivers to the buyer a product that does not conform to the agreement between the parties; more specifically:

1. Only part of the agreed-upon product was delivered. For example: Only the tabletop of a dining set was delivered, without the legs;
2. A larger or smaller quantity than agreed upon was delivered. For example: Only 3 chairs were delivered from a seating set containing 4 chairs;
3. A different product, or a product of a different type or description than agreed upon was delivered. For example: Black sofas were ordered and brown sofas were received; or sofas of size X were ordered and sofas of size Y were received;
4. A product lacking the quality or features necessary for its regular or commercial use, or for a special purpose implied by the agreement was delivered. For example: An orthopedic mattress was ordered and a non-orthopedic mattress was received;
5. A product that, in terms of its type, description, quality or features, does not conform to the model or sample shown to the buyer, except in situations where the aforementioned product was shown to the buyer without acceptance of responsibility for conformity;
6. A product that is otherwise non-conforming to the agreement between the parties.

Note! According to sections 3-1 of the Law, a claim of non-conformity does not apply to products delivered free of charge. The claim applies only to products delivered for a price or in a barter transaction.

When Can a Buyer Not Raise a Claim of Non-Conformity?

A buyer cannot raise a claim of non-conformity in the following circumstances (sections 15-13 of the Sale of Goods Law):

1. The buyer knew of the non-conformity when they decided to enter into the sales contract (section 12 of the Law);
2. The buyer did not comply with the #Examination Rules (section 13 of the Law);
3. The buyer did not comply with the #Notification Rules (section 14 of the Law).

Important Note! There are #Exceptional Circumstances where, even though the buyer did not comply with the above rules (examination and notification), they may still raise a claim of non-conformity.

Examination Rules – Failure to Comply May Bar a Claim of Product Non-Conformity

According to section 13 of the Sale of Goods Law, the buyer must comply with the “examination rules”:

1. The buyer must examine the product immediately upon receipt;
2. If transportation of the product was agreed upon, the buyer must examine it immediately upon arrival at the destination;
3. Transportation to another location without the buyer’s knowledge: To the extent that the seller knew or should have known that there was a possibility that the product would be transported to another location, the buyer must examine the product immediately upon arrival at the other location.

Note! The seller must allow the buyer to examine the product before the earlier of the two dates above; that is, before the buyer receives the product or the product is transported to them.

Notification Rules; Failure to Comply May Bar a Claim of Non-Conformity

According to section 14 of the Sale of Goods Law, the buyer must notify the seller of the non-conformity immediately after the examination date or immediately after the discovery of the non-conformity, whichever is earlier. If the buyer does not notify within these deadlines, they will not be entitled to rely on a claim of non-conformity. (There are exceptions to this)

Example: Itzik purchased furniture that was supposed to arrive at his home within 60 days. About a week later, Itzik discovered a non-conformity, but despite this, did not notify the seller. 60 days passed and the furniture arrived at Itzik’s home. Only then did Itzik examine the furniture and only then did he notify the seller. In this case, Itzik will not be entitled to rely on a claim of non-conformity.

As mentioned, Itzik was supposed to notify the seller on the earlier of the two dates (examination date or discovery date). In this case, the earlier date was the discovery date, and Itzik should have notified immediately thereafter. Since Itzik notified with a delay of about two months, he will not be entitled to rely on a claim of non-conformity. And the law aligns with common sense: If Itzik had notified the seller at the time of discovery, the seller could have corrected the non-conformity in advance and saved time and money.

Did you not notify of the “non-conformity” immediately upon receipt of the product or immediately after discovery? These are the situations in which, despite exceeding the time limits, you can still claim non-conformity: “Justified” Negligence of the Buyer or Intentional Concealment by the Seller

A. “Justified” Negligence of the Buyer:

A buyer will be entitled to a claim of non-conformity even if they did not meet the statutory deadlines for notification (section 15 of the Sale of Goods Law). This is only if all of the following conditions are met:

1. The non-conformity was not discoverable upon reasonable examination;
2. The seller was notified of the non-conformity immediately after its discovery; and there are qualifications to this:

• If notification is given after two years from the date of sale, the buyer cannot rescind the contract. However, the buyer may be entitled to other remedies under the contract or law.
• If notification is given after four years from the date of sale, the buyer will also not be entitled to other remedies for breach of contract. However, the buyer may raise other claims, such as those relating to damages caused by the non-conformity.

B. Concealment of Non-Conformity by the Seller:

A buyer may rely on non-conformity even if, under normal circumstances, they would not be entitled to do so, if all of the following conditions are met (sections 12 and 16 of the Sale of Goods Law):

1. The seller knew or should have known of the non-conformity at the time of concluding the contract;
2. The seller did not disclose the non-conformity to the buyer;
3. The buyer did not know of the non-conformity at the time they decided to enter into the sales contract;
4. The buyer notified the seller of the non-conformity immediately upon discovery.

If all the conditions are met, the buyer may rely on the non-conformity, even if they did not examine the product immediately upon receipt; and even if the non-conformity was discoverable upon reasonable examination. In addition, a buyer who meets the last two conditions above will not be subject to the time limits (two to four years) regarding the remedies the buyer can claim.

What Should the Buyer Do in the Case of a Defective or Non-Conforming Product?

1. Examination: The buyer must examine the product immediately upon receipt (section 13 of the Sale of Goods Law). We note that the speed of examination is in the buyer’s best interest, since they have a limited time to demand “contract cancellation” under both the Law and Consumer Protection Regulations (for more information on contract cancellation under the Consumer Protection Law). Where the non-conformity is not discoverable upon reasonable examination, the buyer must notify of the non-conformity immediately upon discovery. This is in accordance with the #Examination Rules and #Notification Rules.

2. Notification of Non-Conformity: Immediately upon discovery of the “non-conformity,” the buyer must notify the seller (preferably in writing) with a reasonable description of the non-conformity (sections 14 and 17(a) of the Sale of Goods Law).
3. Opportunity to Examine: The buyer must give the seller a reasonable opportunity to examine the product that is claimed to be defective/non-conforming (section 17(a) of the Sale of Goods Law).
4. Reduction in Difference in Value: A buyer who wishes to “live with” the non-conformity is entitled to deduct from the consideration the differences in value resulting from the non-conformity. For example: Itzik purchased a product for NIS 70, but due to the non-conformity, the product is worth NIS 50. Itzik may deduct NIS 20 from the value of the transaction.
5. Notification of Contract Cancellation or Performance: If the seller does not correct the non-conformity within a reasonable time, the buyer has two options:

• To demand performance of the contract (i.e., correction of the “non-conformity”); or –
• To rescind the contract.

What Can Be Claimed in Case of a Defective or Non-Conforming Product?

Transactions Subject to the Consumer Protection Law: The main law designed to regulate relationships between a business and a consumer is the Consumer Protection Law, 5741-1981. The law grants the consumer a unilateral right of withdrawal. This right allows the consumer to withdraw from certain transactions unilaterally, without any justification. A breach of the provisions regarding cancellation of a transaction gives the consumer the right to claim damages without proof of harm. For a complete consumer guide to cancelling transactions.

Remedies under the Sale of Goods Law: There are situations where the consumer does not have a right of action under the Consumer Protection Law and must seek recourse in other legislation. For example, if the products cannot be returned. For a complete consumer guide to transactions that cannot be cancelled.

And there are situations where even if the consumer has a right of action under the Consumer Protection Law, they wish to “have their cake and eat it too.” How? To file a claim under both the Consumer Protection Law and the Sale of Goods Law, and possibly also under the Tort Ordinance.

In a situation of non-conformity, these are the main remedies that can be claimed (sections 28-27 of the Sale of Goods Law):

1. Performance of the contract;
2. Rescission of the contract and return of consideration;
3. Reduction in difference in value: A buyer who wishes to “live with” the non-conformity is entitled to deduct from the consideration the differences in value resulting from the non-conformity. For example: Itzik purchased a product for NIS 70, but due to the non-conformity, the product is worth NIS 50. Itzik may deduct NIS 20 from the value of the transaction.

The buyer is entitled to claim the above remedies from the seller even without resorting to court. If the buyer has to file a lawsuit, they can add other damages to the above remedies. For example: tort damages, damages for breach of the sales contract and any other appropriate remedy.

What is the law if a larger quantity of products/components than ordered was received?

The answer to the question depends on another question: Is the excess quantity separable without unreasonable expense or effort:

1. If yes: The buyer will not be entitled to rescind the contract for this reason (section 29 of the Sale of Goods Law). However, the buyer will be entitled to notify the seller (within a reasonable time) that they are rejecting the excess quantity received. It should be emphasized: The provision preventing the buyer from rescinding the contract for this reason does not prevent them from rescinding the contract for other reasons.
2. If not: The buyer will be entitled to rescind the contract for this reason.

Note! Notification of rejection of the excess quantity within a reasonable time is extremely important. Otherwise, the buyer will have to pay for the excess quantity at the agreed rate.

Sale According to Specifications: What is the law if the buyer delays in providing details?

There are situations where buyers purchase products according to specifications determined by the buyer. Specifications = size, quantity, weight and other data related to the product or the terms of its purchase (section 30(a) of the Sale of Goods Law). If the buyer does not provide the specifications within the time stipulated in the contract, the seller will be entitled, within a reasonable time:

1. To rescind the contract as if it had been breached; or –
2. To determine the missing specifications or data themselves, taking into account the buyer’s needs as known to the seller. Note: The seller’s determination will be binding if: (1) the seller notified the buyer thereof; (2) the buyer did not specify the data immediately after receiving the seller’s notification.