Section 26 of the Norwegian Sale of Goods Act governs termination of contracts involving goods to be manufactured. The provision means that a higher threshold applies for terminating such contracts than for “ordinary” sales contracts. Where the seller is left with an expensive, custom-made item that cannot be used by anyone other than the buyer, termination may have severe consequences for the seller. The provision therefore affords the seller stronger protection against termination in contracts for goods to be manufactured than in other sales situations.
The buyer may terminate only if the purpose of the purchase is substantially frustrated
If termination would cause a substantial loss to the seller, the buyer may terminate the contract only if the delay means that “the purpose of the purchase is substantially frustrated.” This follows from Section 26(1) of the Sale of Goods Act.
Accordingly, a balancing of interests must be carried out between the seller’s and the buyer’s interests, and it is only when the purpose of the purchase is substantially frustrated that the buyer’s interests will outweigh those of the seller. If the buyer can no longer make practical use of the goods, it is irrelevant that the seller would suffer a substantial loss as a result of the contract being terminated. Conversely, if the buyer can still make use of the goods despite the delay, the starting point is that the buyer is not entitled to terminate the purchase.
