191

CHAPTER – IV

OBLIGATIONS OF BUYER UNDER CONVENTION ON

INTERNATIONAL SALE OF GOODS (CISG)

4.1. Summary of Buyer's Obligations

Buyer's primary obligations are to pay the purchase price and accept delivery

of the goods (Arts. 53 - 70 CISG). Buyer must make payments in legal form and in

the relevant currency.

Whenever doubt arises, payment is to be made in the legal currency in use at

the seat of buyer's business. The purchase price of the goods can usually be

determined by the agreements of the parties or relevant circumstances at the time the

contract was concluded. Arts.55 and 56 CISG contain specific regulations on

determining the proper price.

Art. 57 CISG regulates the place at which payment is to be made. When

payment is made against the handing over the goods or documents, payment is to be

made at the place at which the goods or documents are transferred to buyer, Art. 57(1)

(b) CISG.

Buyer must make payments at the proper time. Determinative is the timely

receipt of payment at the place of payment. Unless other circumstances for the due

date of payment are obvious, payment must be made as soon as the goods or the

documents relating to the goods have been made available to buyer (Art. 58 CISG). In

addition to payment obligations, the buyer must take delivery of the goods delivered

by seller (Art. 60 CISG). Taking delivery is the counterpart of seller's obligation to

deliver and applies also to accepting delivery of relevant documents. Art. 54 CISG

requires that the buyer take all steps and comply with required formalities under the

contract or any applicable laws and regulations to enable payment to be made.

Otherwise the buyer is in breach of contract so that the seller may seek such remedies

as provided in Arts.61 - 65 CISG.

192

4.2. Payment of the price

4.2.1. Problems arising in relation to the price.

The problems arising in relation to the price are at least those of "what?",

"where?" and "when?”

Under Arts.53 and 54 of the CISG, one of the buyer's main obligations is to

pay the price for the goods. Normally the parties agree on the price as well as on the

time and place for payment. It follows from the non-mandatory character of the CISG

that the parties may derogate from the CISG on these points. On the other hand, the

CISG does not deal with the validity, in other respects, of the agreed provisions on the

price under national law. They may be in conflict, e.g., with rules on the regulation of

prices or on foreign exchange. Nor does the CISG provide an answer to the question

what effect such rules of law would have if invoked in a court outside the country

where the provisions have been enacted. The fact that one of the parties has concluded

a contract containing provisions on the price which are in conflict, e.g. with that

party's national law on foreign exchange does not necessarily preclude a court in

another country from deciding in accordance with the provisions of the contract.

4.2.2. Calculation of the price.

The CISG contains two provisions on the calculation of the price when this

issue has not been settled in the contract.

4.2.2.1. Net weight.

Art. 56 provides that “if the price is fixed according to the weight of the goods,

in case of doubt it is to be determined by the net weight.” This is only the standard to

determine the price if the price is to be determined by the weight of the goods, but the

contract does not specify the standard to determine the weight. The provision in Art.

56 does not purport to answer the question of whether the buyer is entitled to keep the

packaging. Normally, this standard would be determined by the parties' performance

in the contract, as well as trade usage or practices established between the parties.

Thus, this article applies when there is no applicable course of performance, practices

established between the parties, or trade usage. 610

610 See CISG Art. 9 (the applicability of trade usage and course of dealing).

193

4.2.2.2. Open price

Art. 55 of CISG deals with the question of how the price is to be calculated if

the contract has been validly concluded but does not directly or indirectly fix or make

provision for determining the price. Art. 55 is subject to the intention of the parties,

and therefore Art. 55 does not provide for the establishment of a price if it has already

been determined611 or made determinable by the parties.612 Art. 55 is also inapplicable

if the parties have made the contract subject to a subsequent agreement on the

price.613

This provision was a problem throughout the preparation of the CISG. Art. 57

of ULIS envisaged the same situation but the term of reference was the price

"generally charged by the seller."614 Differences of opinion persisted until the issue

was settled in Committee I of the CISG.615 The difficulties were due to the fact that

under the law of some States, a contract of sale must necessarily set forth the price or

provide a mechanism for determining the price. This seems to be the case under

Austrian, Belgian, Dutch, French and Soviet Law. For these countries and others

having a similar rule, the CISG represents a philosophy different than that on which

their national law is based.

Art. 55 must be read together with Art. 14. There is a debate on the

relationship between Art. 14 and Art. 55. Art. 14(1) provides that:

“A proposal for concluding a contract addressed to one or more specific persons

constitute an offer if it is sufficiently definite and indicates the intention of the offeror

to be bound in case of acceptance. A proposal is sufficiently definite if it indicates the

goods and expressly or implicitly fixes or makes provisions for determining the

quantity and the price.”

611 CLOUT Case No. 151 Court of Appeal of Grenoble, France, 26 Apr. 1995. 612 Court of Arbitration of the International Chamber of Commerce, Award No. 8324, 1995, published in JOURNAL DU DROIT INTERNATIONAL 1019 (1996); CLOUT Case No. 106 Supreme Court, Austria, 10 Nov. 1994. 613 CLOUT Case No. 139 Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry, 3 Mar. 1995. 614 The UNCITRAL Draft Convention took an intermediate position (Art. 51). Cf. ULIS Art. 57; Dölle 353-357. 615 United Nations Conference on Contracts for the International Sale of Goods. Official Records, pp. 363-364. The Art. was adopted in the plenary after a vote, Official Records, p. 211.

194

This provision has been read by some as requiring an express or implicit price

term in the offer, and therefore the absence of a price term would cause the offer to

fail for indefiniteness. This would suggest that there is at least an apparent

contradiction between these two texts. Art. 14, of course, fails to take into

consideration that there are two sentences in Art. 14. The first sentence states that an

offer needs definiteness, but does not require a price term. The second sentence

simply sets out a safe harbor which provides that if there is a price term and the goods

are specified, then the offer will not fail for indefiniteness. Moreover, this argument

does not take into consideration the circumstances under which an agreement is

formed by performance and the terms, such as price, which must be determined at a

later time.

It has been noted that Art. 14's notion of "implicitly" fixing the price term can

be read broadly to include external factors not stated in the offer. This could include

setting a price based open "objective parameters agreed to by the parties previously or

tacitly."616

The question then arises whether there is a conflict between Arts.14 and 55 or

whether the latter provision lacks meaning. This question is interesting from a

theoretical point of view. It might, however, also be interesting to ascertain its

practical importance. Art. 55 provides a default rule that allows a court or arbitral

panel to imply a price without the guidance of the contract. It states that when a

contract does not expressly or implicitly make provision for determining the price

then a price may be implied by looking "to the price generally charged at the time of

the conclusion of the contract for such goods sold under comparable circumstances in

the trade concerned." under Art. 14, a proposal for concluding a contract must fix or

make provisions for determining the quantity and the price while Art. 55 only applies

to a concluded a valid contract. The relation between the two Articles would not seem

to pose any problems when the parties have agreed, explicitly or implicitly, that the

price may be fixed by a third party. Whether it would also be sufficient to provide that

the buyer shall pay the price generally charged for such goods at the time of delivery

seems to be uncertain, at least in some legal systems. Recent French case law seems

616 J.O. Alban, (2007) "Criteria for an offer," An International Approach to the Interpretation of the United Nations Convention on Contracts for the International Sale of Goods (1980) as Uniform Sales Law (ed. J. Felemgas), Cambridge University Press, New York 2007, 79.

195

to indicate that a reference to the price usually charged for similar goods at the same

place might not be sufficient even if explicitly made.617

This dilemma is produced because Art. 14 does not reference Art. 55 as a

means of fixing a price. On the surface, Art. 14 states that an offer must fix the price

expressly or implicitly while Art. 55 only applies to a concluded contract.618

The main reason for opposition to the proposals requiring that the contract

must set forth the price or a method for determining the price was that this

requirement might lead to strange results in situations where a buyer has an urgent

need for goods, e.g., spare parts for a computer, and orders them by phone, no

reference being made by either party to the price.

The majority view is that if the offer implicitly fixes or provides a mechanism

to fix the price, then Art. 55 is not available if the price becomes indeterminable. If

the parties do not implicitly or expressly fix a price or expressly agree to an open

price, then the Art. 14 analysis, as noted above, would recognize the proposal as a

non-offer and therefore, no contract is formed. A rule under which no contract is

considered to have been validly concluded unless it provides at least for a method of

determining the price, would then cover not only a situation where the buyer

immediately after ordering the goods informs the seller that he actually does not need

them, but also situations where the seller ships the goods and the buyer takes delivery

of and uses the goods. The result would not seem to be totally unacceptable in the first

case. On the other hand, one may consider the possibility that the seller has started

production and incurred costs in an effort to assist the buyer. The result would seem

quite unacceptable in cases where the goods have been used up by the buyer, who

then informs the seller that no contract was ever concluded and that he therefore need

not pay for the goods.

617 Denis Tallon, "The Buyer's Obligations under the Convention on Contracts for the International Sale of Goods," in N.M. Galston and H. Smit, eds., International Sales: The United Nations Convention on Contracts for the International Sale of Goods (New York 1984), pp. 7-11. 618 Dr. Larry A. DiMatteo (2011) Reproduced with permission of the University of Belgrade, Belgrade Law Review, no. 3, 73.

196

4.2.2.3. Other issues

The CISG does not contain detailed provisions on what is considered to be

included in the price and what costs the seller may charge separately. Some

conclusions can, however, be drawn from different provisions.

Under Art. 35(2)(d) the goods do not conform with the contract unless they are

contained or packaged in the manner usual for such goods. It follows from this

provision that packaging is part of the seller's obligation and that the cost for

packaging must be calculated in setting the price. Again, an agreement, usage, or

practice established between the parties may lead to a different result.

One may also assume that the costs for transportation and other measures to

bring the goods to the place of delivery must be taken into account when calculating

the price and may not be charged separately.

4.2.3. Place of payment

Art. 57 designates the place for payment when the parties fail to do so in the

contract. Under this Article, “if the buyer is not bound to pay the price at any other

particular place, he must pay it to the seller at the seller's place of business. If payment

is to be made against the handing over of the goods or of document, the buyer must

pay the price at the place where the handing over takes place.”

Under this Article, the buyer has to bear the costs and risk for the transfer of an

amount corresponding to the price to the seller's place of business at the time of

conclusion of the contract. If the contract does not designate a place of payment,

normally payment would be at the seller's place of business as determined under Art.

10.619 However, if payment is to be made against the handing over of the goods or the

documents, payment is to be made at the place where the goods or documents are to

be received. The uncertainty inherent in this provision is unlikely to cause problems

in practice as the place of payment is often stated in the contract. In addition, payment

is usually made only after the seller has received an invoice. The invoice may indicate

which place of business the seller considers to be relevant, and such a statement may

619 CISG Art. 10 provides: For the purposes of this Convention:(a) if a party has more than one place of business, the place of business is that which has the closest relationship to the contract and its performance, having regard to the circumstances known to or contemplated by the parties at any time before or at the conclusion of the contract; (b) If a party does not have a place of business, reference is to be made to his habitual residence.

197

be interpreted as acceptance of payment being made at that place. On the other hand,

the buyer is not bound by such an indication. It may well be that the seller, for his

own convenience, wishes payment to be made at a particular place. The buyer may, in

spite of such a reference, pay the price at the seller's place of business which has the

closest relationship with the contract.

Read together with Art. 58, Art. 57 states that if there is a delay in the transfer

of the amount, e.g., due to lack of the authorization of transfer by the appropriate

authorities or to a mistake by the buyer's bank, thus having the effect that the amount

is not available at the place of payment in time, there is a breach of contract on the

part of the buyer. As was noted above, the provision also has a bearing on the

distribution of costs between the parties.

As the obligation to pay at the seller's place of business arises from the

agreement and, as a result, is part of the party obligations at the time of contract

formation, paragraph (2) sets out the seller's obligation to pay incidental expenses that

are caused by a change in the seller's place of business after the conclusion of the

contract but before payment. The provision only deals with the distribution of costs.

The fact that there is a change in the seller's relevant place of business does not seem

to alter the buyer's obligation to pay the price at the right moment at the new place of

business. If this is the case, the question arises, but remains unanswered in the CISG,

whether a delay in payment caused by late information by the seller of the new place

of payment is to be considered a breach of contract by the buyer and whether that

would also be the case if the buyer can offer payment at the original place of business

in time. It would seem that the answer may be negative in both cases in view of the

provision in Art. 79(1).

Art. 57(1) (b) deals with the place of payment when payment is to be made

against the handing over of the goods or of documents. If the contract provides that

payment is to be made against a bill of lading or on CAD or COD terms, the provision

settles the problem of errors or delay in transmission of the payment. If the documents

are to be presented at the seller's place of business, there is a delay in payment if

payment is not made when the documents are presented in accordance with the

contract. If there is a delay in the transmission of the amount which the buyer has paid

upon presentation of the documents at his place of business, this is no longer any

concern of the buyer.

198

The provision on place of payment seems to have caused problems in some

jurisdictions because under national law a party may be entitled to bring suit at the

place where payment is to be made.620 However, this result does not follow from the

CISG. During the CISG an attempt was made to clarify that the CISG did not settle

the question of jurisdiction and that it was thought inappropriate to solve this problem

in the CISG. If the result is deemed inappropriate, it can be altered by amending

national law.

4.2.4. Time for payment.

Art. 58621sets the time for payment absent a contrary agreement on this term

by the parties.622The basic rule is that the goods should be exchanged for payment of

the price. The seller is not obliged to extend credit to the buyer and the buyer is not

required to pay until he receives the goods or documents controlling their disposition.

4.2.4.1. Documents controlling disposition.

The expression "documents controlling their disposition" clearly covers the

situation where the goods are to be delivered only against surrender of the documents.

This would be the case with a bill of lading where, at least under the applicable legal

rules, the carrier may only deliver the goods to the person presenting the bill of

lading623.

620 Ulrich Huber, "Der UNCITRAL-Entwurf eines Übereinkommens über internationale Warenkaufverträge," 43 Rabels Z (1979) pp. 512-513; J. Honnold, Uniform Law for International Sales under the 1980 United Nations Convention (Boston 1982), p. 343. 621 CISG Art. 58 provides: (1) If the buyer is not bound to pay the price at any other specific time, he must pay it when the seller places either the goods or documents controlling their disposition at the buyer's disposal in accordance with the contract and this Convention. The seller may make such payment a condition for handing over the goods or documents. (2) If the contract involves carriage of the goods, the seller may dispatch the goods on terms whereby the goods, or documents controlling their disposition, will not be handed over to the buyer except against payment of the price. (3) The buyer is not bound to pay the price until he has had an opportunity to examine the goods, unless the procedures for delivery or payment agreed upon by the parties are inconsistent with his having such an opportunity. 622 CISG Art. 58. See generally Lief Sevón, (1990) Obligations of the Buyer under the Vienna Convention on the International Sale of Goods, Suomalainen Lakimiesten Yhdistys: -- Tidskrift Utgiven Av Juridiska Foreningen I Finland 327- 43 (1990), available at http://cisgw3.law.pace.edu/cisg/biblio/sevon.html>. 623 Report of the Secretary General: Issues presented by chapters IV to VI of the Uniform Law on the International Sale of Goods, at para. 22-35, UNCITRAL V Yearbook, 14.

199

However, this does not correspond to current reality. Since the goods often

arrive at the port of destination prior to arrival of the bill of lading, they are often

handed over to the consignee although he cannot present the bill of lading.

The expression would also seem to cover a warehouse receipt entitling the

holder to claim the goods.

It is uncertain whether the expression covers international way bills issued

under the CMR and CIM Conventions governing carriage by road and rail

respectively. Under these documents the carrier is required to deliver the goods to the

consignee named in the document. The sender may appoint another consignee, but he

may do so only if he can produce the relevant copy of the way bill. Having acquired

the way bill, the consignee/buyer is thus protected against dispositions by the

seller/sender. 624 It is to this extent that the holder of the way bill controls the

disposition of the goods, which would seem sufficient for the purposes of Art. 58(1).

Art. 58(2) deals with the situation where the contract involves the carriage of

goods. The general rule stated in CISG Art. 58(1), which is based on the principle of

simultaneous payment of the price and handing over of the goods, is also applicable to

contracts involving carriage of goods such an arrangement is common in international

sales. This expression covers cases where the seller is required or authorized to ship

the goods. The contract does not involve carriage if the buyer takes delivery at the

seller's place of business or if the buyer makes arrangements for the goods to be

shipped.625

Where the contract involves carriage, a seller may dispatch the goods on terms

according to which the goods will not be handed over to the buyer except against

payment of the price. In effect, the seller may deliver the goods to the carrier in

exchange for documents controlling the disposition of the goods626"usually a bill of

lading providing that the goods will only be delivered in exchange for the surrender of

624 Selvig, Fra kjopsrettens og transportrettens grenseland The Functions of Transport Documents in Sales (Oslo 1975), p. 55. 625 Commentary of the Draft Convention on Contracts for the International Sale of Goods, prepared by the Secretariat, Official Records p.64. 626 See the Text of Secretariat Commentary, op. cit., Comment 4: "CISG Art. 58(2) states a specific rule in implementation of CISG Art. 58(1). ... The goods may be so dispatched unless there is a clause in the contract providing otherwise, in particular by providing for credit."

200

the document".627 The impact of the provision with reference to the time of payment

seems to be that the seller may not, unless agreed upon in the contract, require

payment before dispatching the goods. On the other hand, the provision states that an

arrangement whereby the seller dispatches the goods but does so on terms enabling

him to retain control over them until payment is made, does not amount to a breach of

contract.

An alternative approach would be to confine Art. 58 narrowly to traditional

negotiable bills of lading, so that no other kind of transport document could trigger

the buyer's obligation to pay the price under Art. 58 (1). If any of the other kinds of

transport document were to be used, the buyer's obligation to pay would be triggered

only by the seller placing the goods at the buyer's disposition, there being no

"documents controlling the disposition" of the goods. These two alternative

interpretations will be considered in Section 4; the former is preferred. Section 3

considers other kinds of documents, such as warehouse receipts, ship's delivery orders

and the other documents that a buyer typically asks to see as applicant under a letter

of credit.628

4.2.4.2. Exchange of goods for price.

Under Art. 58(1) and (2) subject to a contrary arrangement agreed by the

parties to the contract, the buyer is obliged to pay the price at the time the seller

makes the goods available to the buyer, by placing either the goods or documents

controlling their disposition at the buyer's disposal.629 The converse of the general

rule - i.e., that, unless otherwise agreed, the buyer is not obliged to pay the price until

the seller places either the goods (or documents controlling their disposition) at the

buyer's disposal - also follows as a logical corollary of the stated general rule.630

It must further be noted that the buyer is not obliged to pay the price until he

has had an opportunity to examine the goods631 (see CISG Art. 58(3)), unless the

627 Honnold,op, cit, p. 364. 628 Martin Davies, LLM (Harvard) (2011) Documents That Satisfy the Requirements of CISG Art. 58, Reproduced with permission of the University of Belgrade, Belgrade Law Review, no. 3, 43. 629 See the Text of the Secretariat Commentary on Art. 54 of the 1978 Draft draft counterpart of CISG Art. 58, available online at <http://cisgw3.law.pace.edu/cisg/text/secomm/secomm-58.html>. 630 See Text of Secretariat Commentary, op. cit., Comment 3. See also Honnold J.O., Uniform Law for International Sales, Kluwer Law International, 3rd ed. (1999), at 364 "In short, goods are to be exchanged for the price." 631 See Enderlein F. & Maskow D., International Sales Law, Oceana (1992), p. 226.

201

procedures for delivery or payment agreed upon are inconsistent with his having such

an opportunity. In implementing this rule, it is commented that it is the seller's

obligation "to provide a means for the buyer's examination prior to payment and

handing over".632

This Article was invoked by the tribunal in one case to support the buyer's

claim for getting the documents for the goods and an opportunity to examine the

goods before he paid the price.633

The reason for the exception at the end of the provision is that buyers

sometimes put pressure on the seller by refraining from taking delivery of the goods

on the alleged ground of non-conformity. When the goods have arrived at the port of

destination, the seller has incurred costs of transportation. Normally the goods cannot

be sold to another buyer at the port of destination at a price corresponding to the

contract price. If that would be possible, the buyer would be likely to take delivery of

the goods. The seller may protect himself against such claims for reduction of the

price by having a provision included in the contract specifying a procedure for

delivery according to which the buyer may not inspect the goods until payment has

been made.

If the provision is included for this reason, there would seem to be no ground

for objecting to a demand by the buyer to inspect the goods before they are dispatched

even if the procedures for delivery or payment would be inconsistent with an

inspection at the place of destination.

If the goods are to be shipped, absent a contrary agreement between the parties,

the seller may provide for a documentary exchange for goods, and in that case,

payment is due upon proper tender of the documents to the buyer.634 The documents,

however, must provide the buyer the right to receive the goods, and therefore the

decisions have properly noted that documents, such as certificates of origin and

632 Text of Secretariat Commentary, op. cit., Comment 5. See also Comment 6 of the Secretariat Commentary. 633 E.g., CIETAC(China International Economic & Trade Arbitration Commission) Award of 30 March 1994 CISG/1994/04 (Boletus edulis case). available at: http://cisgw3.law.pace.edu/cases/940330c1.html. 634 CISG Art. 58(2); CLOUT Case No. 216, Kantonsgericht St. Gallen, Switzerland, 12 Aug. 1997. This provision simply acknowledges the widespread commercial practice of using documents of title as the basis to provide for a cash sale if the goods are to be shipped.

202

quality635 and customs documents,636 which do not provide the buyer with the right to

take possession of the goods, do not trigger the buyer's obligation to pay for the goods

under Art. 59. In addition, the decisions have sensibly read into Art. 58 that the time

for payment also triggers the time interest begins to run under Art. 78 if payment is

not timely.637

4.2.4.3. Payment without request.

Art. 59 of CISG provides that: “the buyer must pay the price on the date fixed

by or determinable from the contract or the CISG without the need for any request or

compliance with any formality on the part of the seller.” This Article may be another

source of contention in providing that payment is due without any request or

compliance with any formality on the part of the seller. This solution was already in

ULIS in a slightly different form. And it is embodied in the old Latin tag: "Dies

interpellat pro homine," which was enacted in some legal systems.

The provision is not designed to deal with the question whether the buyer is

required to pay before he has received an invoice. In cases where the buyer does not

know the price until he receives an invoice, he cannot pay the price earlier. In other

cases commercial usages will call for the sending of an invoice, which could be

considered as a necessary preliminary to payment.638 And when the contract makes

payment due when the seller places the goods at the buyer's disposal, the seller has to

notify the buyer of this fact, a notice which may be considered as a request for

payment.639

Finally, we must remember that Art. 59 may be varied by agreement. Such an

agreement could be useful in many situations and may be found in many standard

contracts.

635 CLOUT Case No. 171 Bundesgerichtshof, Germany, 3 Apr. 1996. 636 CLOUT case No. 216 Kantonsgericht St. Gallen, Switzerland, 12 Aug. 1997. 637 CLOUT Case No.123 Bundesgerichtshof, Germany, 8 Mar. 1995; CLOUT Case No. 1 Oberlandesgericht Frankfurt a.M, Germany, 13 June 1991. 638 Honnold, op. cit, no. 340. 639 Ibid.

203

4.2.5. Extension of the obligation

4.2.5.1. Price generally charged

The CISG answers few questions relating to the amount that the buyer is

obligated to pay. In the absence of an express or implicit price term, the parties are

presumed to have agreed to the price generally charged at the time of the conclusion

of the contract for goods sold under comparable circumstances in the trade concerned.

The provision does not refer to the prices charged by the seller. It was felt important

to eliminate the possibility of the seller charging excessive prices. 640

The rule adopted achieves this result. It has the flexibility needed in cases

where the quality of the seller's goods is higher than that of other sellers in that it

refers to the price generally charged for "such goods." However, the provision does

not lead to an appropriate result in cases where the prices charged by the seller are

lower than those generally charged. In order to deal with such cases, one would have

to construct an implicit reference to the price charged by the seller.

4.2.5.2. Other issues.

The CISG does not deal with questions such as the currency in which payment

shall be made. National law would thus apply on this point. At the CISG a proposal

was made to provide for situations where payment in the currency stipulated by the

contract is not possible. According to the proposed rule, the seller would be entitled to

require equivalent payment in the currency of the buyer's place of business. However,

it was thought that these problems were much too complex to be dealt with in this

way. The proposal was therefore rejected. 641

Nor does the CISG deal with the question of whether the seller is obliged to

accept partial payment. A proposal making it clear that this is not the case was

rejected on the grounds that this problem was not practical.642

Traditionally, the buyer's obligation to pay the price consisted of handing over

the seller an amount of money corresponding to the price. Today, this is an unusual

640 Report of the first committee, Official Records pp. 120-121, and Summary Records, Official Records, pp. 363-367. 641 Report of the first committee, Official Records, p. 120, and Summary Records, Official Records, pp. 362-363. 642 Official Records, p. 370.

204

method of payment. More often the buyer arranges for the seller to receive payment in

the form of a claim against the bank to which the buyer transfers the amount or where

he has an account, or which otherwise has agreed to pay the seller an amount

corresponding to the price. The CISG does not deal with the manner in which

payment is to be made. Whether the buyer may pay the amount to the seller's bank or

has to transfer the amount to the seller's place of business is left to national law. The

issue may arise in cases where there is a banking strike at the seller's place of

business.

The CISG extends the obligation to pay the price beyond the traditional handing

over of money. According to Art. 54 of CISG, “the buyer's obligation to pay the price

includes taking such steps and complying with such formalities as may be required

under the contract or any laws and regulations to enable payment to be made.”

As pointed out above, this provision specifies that the buyer’s obligation to pay

the contract price extends beyond the abstraction of owing the money. As pointed out

above, this provision indicates that the buyer must bear the costs for measures

necessary to enable him to pay the price. In addition, the seller may consider the

buyer’s failure to follow “such formalities” as either an anticipatory breach643 or as a

breach of contract.644 The obligation also includes whatever steps and costs that are

necessary to ensure that the payment is actually made.645

Several cases have addressed the question implicit in Art. 54 as to which

currency payment is to be used. The cases have generally come to the proper

conclusion that the currency of payment, absent a specific agreement otherwise,

should be made in the currency where the seller has his business or the place where

the payment is to be made.646

643 CISG arts.71-73 (remedies for anticipatory breach). 644 See CISG arts. 74-77 (damages for breach of contract). 645 CLOUT Case No. 142 Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry, Russian Federation, 17 Oct. 1995 Of course, most decisions involving this Art. are concerning payment, usually the currency required. See, e.g., CLOUT Case No. 281 Oberlandesgericht Koblenz, Germany, 17 Sept. 1993 (currency determined by the seller’s place of business); CLOUT Case No. 52 Municipal Court Budapest, Hungary, 24 Mar. 1992. 646 See CLOUT Case No. 80 Kammergericht Berlin, Germany, 24 Jan. 1994 (currency of payment should, in the case of doubt, be that of the place of payment); CLOUT Case No. 281, Oberlandesgericht Koblenz, Germany, 17 Sept. 1993] (currency of the place where the seller has his place of business is the currency in which the price should be paid); CLOUT Case No. 52. Municipal

205

Application for a license to transfer money abroad is, no doubt, a formality

that may be required under the relevant national law. Nevertheless, the fact that such

an application has not been filed by the date normally necessary in order to obtain

such a license in time can hardly be treated as more than an anticipatory breach of

contract. There is always the possibility that the authorities may surprise everyone by

a speedy handling of the application so that payment may be made in time.

4.3. Taking delivery

4.3.1. Requirement to take delivery

The seller may require the buyer to take delivery of the goods as long as he

has not resorted to a remedy which is inconsistent with this requirement. Again, what

is covered by the reference to an inconsistent remedy is avoidance. The ground for

declaring the contract avoided is irrelevant: It is the remedy, not the reason for

resorting to it that is inconsistent with a requirement for taking delivery.

If the buyer has neither paid the price nor taken delivery, the remedy may be

used together with, or separately from, a requirement for payment. Situations can be

envisaged where the seller is more anxious to receive payment than to force the buyer

to take delivery of the goods. He may therefore present these requirements

simultaneously or separately.

In cases where the buyer has paid the price but fails to take delivery, the seller

may require him to take delivery.

The use of the remedy is limited by Art. 28 on specific performance. When

dealing with buyers from countries where the legal system limits the resort to specific

performance, a seller should have a closer look into that system in order to find a

suitable remedy before requiring the buyer to take delivery of the goods.

4.3.2. Obligation to take delivery.

Under Arts.53 and 60 of the CISG, the buyer shall take all reasonable acts

which could reasonably be expected of him in order to enable the seller to make

delivery and for the buyer to take delivery of the goods. In addition to paying the

price, the buyer must take delivery of the goods.

Court Budapest, Hungary, 24 Mar. 1992 (court compelled the buyer to pay the seller in the seller’s currency without giving a reason).

206

Art. 60 corresponds with the seller's obligation to deliver under Art. 31.647

Absent a contrary agreement, the buyer's obligation to take delivery does not occur

until the seller has met the requirements to deliver the goods.648 The extent of the

obligation to take delivery is not defined in great detail. It clearly covers obligations

relating to the transmission of the goods from the seller to the buyer. It is less clear

whether this obligation also covers the duty to provide information relevant to the

production of the goods. This issue, which is partially covered by Art. 65, is relevant

with respect to the remedies available to the seller in cases of breach of obligation. It

may be assumed that the obligation to enable the seller to make delivery covers these

situations too.649

As can be seen from the situation just discussed, the extent of the obligation to

do all the acts which could reasonably be expected of the buyer in order to enable the

seller to make delivery depends heavily on the contract. If the buyer is obliged to

provide information during the production or to participate otherwise in it, e.g., by

delivering components for the ultimate product, Art. 60(a) might be applicable and

expands the remedies available to the seller. This would, however, be modified to the

extent another result would follow from Art. 65.

If the contract of sale involves carriage of the goods and the buyer participates

in the arrangements for the carriage, the extent of the buyer's obligation depends on

the type of arrangements. The obligation covers the duty to enter into a contract of

carriage. The duty to take over the goods relates to the physical possession of them.

Since references in the CISG to the buyer also cover persons acting on his behalf, it

would seem that the obligation referred to in Art. 60(b) also covers cases where the

carrier refuses to accept the goods for carriage, e.g., because of their dangerous

nature, if the buyer should have informed the carrier of the nature of the goods in

advance. This obligation also covers the late arrival of a carrier engaged by the buyer

at the place where the buyer is to take over the goods. Lastly, it covers the obligation

of the buyer himself to take over the goods after carriage arranged by the seller as

well as in cases where the contract calls for the seller to make delivery of the goods

647 CISG Art. 31 648 CISG Art. 58. 649Ulrich Huber, "Der UNCITRAL-Entwurf eines Übereinkommens über internationale arenkaufverträge," 43 Rabels Z (1979) p. 515.

207

by placing them at the buyer's disposal at the seller's place of business or at another

particular place.

The time when the goods are to change hands is also important for the passing

of risk. In the rather elaborate system of CISG, the principle is that the risk passes to

the buyer "when he takes over the goods" or, if he is late, from the time when the

goods are placed at his disposal (Art. 69(1)) or, under different conditions already

mentioned (Art. 69(2)), when delivery is due and the buyer is aware of the fact that

the goods are placed at his disposal.

Under Art. 86(2), the buyer must take delivery "on behalf of the seller, if

goods dispatched to him have been placed at his disposal at their destination and the

buyer exercises the right to reject them." He has then the obligation to take all

reasonable measures to preserve the goods, which is an application of the duty under

Art. 77 to mitigate. The same obligation exists when he has received the goods and he

intends to exercise his right of rejection (Art. 86(1)).

4.4. Other obligations of the buyer

The CISG requires buyers to examine goods, and provide adequate and timely

notice, with respect to any defects in the seller's performance and preserve the goods

in the event the buyer elects to reject the seller's tender. These obligations are set forth

in Arts.38, 39, 44 and 86. The initial obligation of all buyers is the duty of

examination. The failure to comply with the provisions of Art. 38 deprives the buyer

of the right to rely upon the defense of non-conformity of the goods in a future dispute

with the seller. The buyer also loses this defense in the event its notice does not

specify the nature of the lack of conformity within a reasonable time. The buyer's

ability to reject non-conforming goods is accompanied by a corresponding duty to

preserve such goods for the benefit of the seller.

4.4.1. Examination of the goods

The issue of examining the goods and giving notice is one of the most

important issues of the CISG. The duty to examine the goods is governed by Art. 38

of the CISG, in Chapter II Obligations of the Seller. However, it is important to stress

that this provision defines the buyer’s duty to inspect the goods and, therefore, in fact

is not the obligation of the seller. In the practical application of the CISG, it should be

noted that the duty to examine the goods and the duty to notify the seller of non-

208

conformity of the goods are established in the seller’s favor, while being an additional

burden on the buyer. In the international law of sales it is, therefore, of essential

importance not to impose overly harsh requirements on the buyer because the risk of

non-conformity of the goods would thereby be shifted to the buyer.650

When goods are delivered, Art. 38(1) imposes an obligation on the buyer to

"examine the goods, or cause them to be examined, within as short a period as is

practicable in the circumstances." The buyer has the duty to examine the goods for

every lack of conformity within the meaning of Art. 35 of the CISG.

When the sale of goods contract is concluded on the basis of a sample or

model, the buyer has to begin with the examination of the sample or model itself and

to notify the seller of possible defects. Afterwards, the buyer is nevertheless required

to examine the main delivery even though the sample or model was free of defects.

The Art. 38 concerning the examination process of the goods is a crucial point in

terms of claiming for remedies upon defective goods. This Article is in a strict

connection with the following one as it requires the buyer to give notice to the seller

specifying the nature of the lack of conformity within a reasonable time after he has

discovered it. The strict connection between Art. 38 and Art. 39 means that the buyer

has a burden rather than a duty to examine the goods in a short time. The failure to

comply with this burden is not a breach of contract but as a result of such a conduct

the buyer may lose his rights under the Art. 45.

Art. 38 provides: “(1) the buyer must examine the goods, or cause them to be

examined, within as short a period as is practicable in the circumstances.

(2) if the contract involves carriage of the goods, examination may be deferred until

after the goods have arrived at their destination.

(3) if the goods are redirected in transit or redispatched by the buyer without a

reasonable opportunity for examination by him and at the time of the conclusion of

the contract the seller knew or ought to have known of the possibility of such

redirection or re-dispatch, examination may be deferred until after the goods have

arrived at the new destination.”

650 Dr. Sandra Fišer-Šobot, (2011) Duty to Examine the Goods in International Law of Sales, Annals FLB – Belgrade Law Review, Year LIX, 2011, No. 3, 198.

209

4.4.1.1. Legal Nature and Purpose of the Duty to Examine

Despite the fact that the Article beginning by stating that "the buyer must,” this

does not constitute a legal obligation, but is, by its legal nature, a duty; the duty

represents "an obligation to oneself" and not to the other party in a contract. Thus, the

examination of the goods is an additional burden on the buyer it only means that the

burden of examination is the buyer's responsibility. Therefore, Failure to comply with

this burden does not constitute a breach of a contract and, accordingly, the seller can

neither require the examination nor can non-performance of the examination represent

a ground for claim for damages. 651

Art. 38 seeks to clarify, in a speedy fashion, whether the seller has properly

implemented the contract.652 The Secretariat's commentary specified the purpose of

the buyer's notice of nonconformity, which is the result of examination; it is to protect

the seller's right to remedy the lack of conformity, and to conduct his own

examination of the goods, in order to preserve his right in any dispute with the buyer

over the alleged nonconformity.653 On the other hand, the seller may also want to

know whether the buyer is satisfied with the goods or will press claims.654

The reason for examination was also linked, in a Netherlands court decision,

to the principle of good faith, as the objective notion of Art. 7(1) requires the buyer to

examine the goods and discovered effects before selling them to foreign customers.

As the purpose of examining the goods and giving notice to the seller is mainly

to protect the seller's rights, the balance between parties should be considered as well.

It can be argued that it is difficult to adhere to the requirement of examination in all of

cases, because in some cases the purpose of this Article will not apply. Therefore, it

would create imbalance between the parties to implement this harsh sanction, as

described by some commentators, 655 without considering the actual and real

consequence of this for both parties, whereas one of the purposes of the establishment

of the CISG is to seek balance among traders from different countries. In addition, it

can be argued that using good faith to protect the seller's right of requiring

651 Sandra Fišer-Šobot, (2011) op, cit, p. 200. 652 Enderlein F , in Sarcevic/Volkcn, (1986) op. cit. p.167. 653 Lookofsky J, (2008), op. cit, p.8 7; SchwenzerI , in Schlechtriem/Schwenzer (2005), op. cit., pp.462. 654 Enderlein F, in Sarcevic/Volken (1986) , op. cit., p. 167. 655 See: Lookofsky J (2008), op. cit., p.326.

210

examination and notice may apply to protect the right of the buyer who fails to

examine goods and give proper notice.656 In other words, the buyer's fault in failing to

examine the goods contrasts with the seller's fault in sending defective goods.

4.4.1.2. Examination by the Buyer or a Third Party

The goods need not be examined personally by the buyer or his own staff. The

buyer may also order third persons, for instance, specialized and impartial control

organizations, to examine the goods. The purpose of the examination is to decide

whether the goods conform with the contract or not. In any case, it has to be carried

out with due care.

Pursuant to Art. 38(1) of the CISG, the buyer must examine the goods, or

cause them to be examined, within as short a period as is practicable in the

circumstances. Contracts of international sale usually contain detailed rules regulating

subjects effecting the examination of the goods. Sometimes this issue can be

determined by usages or previous practice established between parties. It is

conceivable for parties to agree to examine the goods together. However, that will not

often be the case because of the distant character of international sales.

By stating that the buyer must either examine the goods or "cause them to be

examined", Art. 38(1) implies that the buyer need not personally carry out the

examination.657 In other words, the examination can be carried out by the buyer, his

employees, as well as third persons acting in accordance with the buyer's instructions.

These persons should be treated as the buyer's assistants and the buyer is liable for

their work, i.e. the buyer will have to bear the consequences of inadequate

examination. According to the agreement the buyer can be obligated to entrust the

examination with the third independent party. It is possible for the examination to be

carried out by impartial controlling organizations, as well as by official bodies.

The examination of the goods by controlling organization is very common in

international trade practice. In contracts of sale, however, parties must explicitly

provide for this. Even though appointing an impartial controlling organization raises

costs of transaction, the parties usually opt for this due to the distant character of

656 Flechtner H, (2008) 26 B. U.L L.J, op. cit., p. 19. 657 Digest of Art. 38 case law, 2008 UNCITRAL Digest of case law on the United Nations Convention on the International Sale of Goods, <http://www.cisg.law.pace.edu/cisg/text/digest-Art.-38.html.

211

international sales. Quite often, the examination by third person is a necessity because

parties are neither proficient nor have the equipment required for specialized

operations. Finally, after the examination, the controlling organization issues a

certificate of quality that informs the buyer of the condition of the goods before

arrival at their destination. It is important to distinguish two situations that can

directly influence the liability of the parties. In other words, a distinction should be

made between cases where the parties agree on third impartial persons or where the

seller insists on the appointment of the controlling organization and where the buyer

chooses the person carrying out the examination. In the first case, the buyer is not

liable for the third person's work and does not have to bear the consequences of

inadequate examination and the duty to examine the goods is fulfilled by giving

necessary instructions. In the second case, the third person acts as the buyer's assistant

and the buyer is liable for his work.658 It is commonly accepted that the buyer is not

responsible for the consequences of an improper examination effected by official

bodies.

Finally, there is a possibility for the duty to examine to be shifted to the

customer in cases of the sale of goods in transit.659

4.4.1. 3. Timely examination

The provision in terms of the buyer’s obligation to examine the goods “within

as short a period as practicable in the circumstances” defines a very flexible rule.

Regarding the beginning of period, Para. (1) of Art. 38 does not specify a time at

which the period begins. It can be suggested that the start of a short period of

examination should take place upon delivery, when the buyer has physical possession

of the goods."660

It avoids fixing a precise amount of time. A unique fixed period cannot

indeed be proper in relation to all contracts of sale. It is, instead, clearly related to

what is proper for all the circumstances. This framework-formula objectively gives

658 Sandra Fišer-Šobot, (2011) Duty to Examine the Goods in International Law of Sales, Belgrade Law Review, Year LIX (2011) no. 3 p. 659 CISG-online 570, Germany, OLG Koblenz, 18 November 1999; CISG-online 918, Germany, OLG Duselldorf, 23 January 2004. 660 SchwenzerI, in Schlechtriem/Schwenzer (2005), op. cit., p.455.

212

the same indication for each and every case by referring to situations and factors

influencing the examination's length. 661

Unlike Para.38 (1), in Paragraphs 38(2), (3) the beginning of the short period

to run was determined in two cases; the first case, as stated in Para. (2) is where the

goods have to be carried in order to be delivered to the buyer. In this case, the period

for examination does not begin to run until their arrival at the contractual

destination.662

The second case of a specific time for the period of examination to begin is

provided in paragraph (3), which covers two different cases; the case of redirection in

transit, when the buyer resells the goods before they have been handed over in the

first place. The other case is that of redispatching the goods: when the buyer sends the

goods after receiving them at the place of delivery for further carriage to the place of

destination. In these circumstances the period of examination begins to run when the

goods have arrived at their new destination. However, in such cases it is

understandable, why the seller's knowledge about the possibility of a redirection in

transit or a redispatch of the goods is relevant only when the seller knew or ought to

have known of such redirection or redispatch at the time of the conclusion of the

contract. It means the seller must face this possibility when the buyer has expressly

mentioned or impliedly let it him know, as when the buyer is an international

professional trader.663 However, A German court 664found under this provision, an

examination of rare hard woods that the buyer (with the seller's knowledge)

redispatched to the buyer's customer could be postponed until the goods arrived at the

customer's facilities.

The length of the reasonable period of examination may vary depending on

the commercial practice. One of these factors is the nature of the goods665 and in

practice courts differentiate among cases on this basis. For instance, in a case

involving the sale of flowers the court held that in the international flower trade it is

661In ULIS Art. 38 (1) the required examination is to be made promptly. It was often determined in civil law codes that the time for examination is fixed precisely. See Bianca C, in Bianca-Bonoll, op. cit., p. 299. 662 Ibid, p.456. 663 Enderlein F, in Sarcevic/Volken (1986), op. c It., pp.169-70. 664 GERMANY Oberlandesgericht, Appellate Court Köln, 22 U 202/93. 665 CISG-AC, Opinion No.2 , op.c it., Art. 38, para2.

213

reasonable for a buyer to inspect on the day of receiving the goods. In another case

where a buyer of rolled metal sheets gave notice five weeks alert the delivery of the

goods, it was held that this period is timely under the CISG, "having regard to the

heavy handling which the sheet metal required". In a similar case regarding the sale

of complex equipment designed to produce plastic gardening pots, it was held that it

is not practical to inspect and notify within a matter of weeks.

4.4.1. 4. Method of Examination of the Goods

Under the CISG it is irrelevant whether the buyer examines the goods through

his employees of his own or through other empowered persons. The parties usually

agree upon the method of the examination. If there is no agreement for the type of

examination, the CISG does not expressly state exact rules how the examination must

be performed. 666 On the contrary, pursuant to the Art. 38(4) of the ULIS, the methods

of examination shall be governed by the agreement of the parties or, in the absence of

such agreement, by the law or usage of the place where the examination is to be

effected.667 In spite of this, it can be deduced from Arts.38 and 39 that the buyer must

take reasonable measurement to examine the goods in such a way as to achieve the

purpose of discovering any defects that may be present.668 The nature of examination

can be illustrated in the above case of the Germen district court holding that the

defective composition of the PVC could only be discovered by virtue of special

chemical analyses, which the buyer was not bound to have conducted. In similar case

where the examination required some extra inspection, the court held that the buyer

did not need to conduct special chemical analyses of a plastic compound.

On this point it has been said that because of the international nature of the

transaction, the determination of the type and extent of the required examination

should be conducted according to the law or usage of the country where examination

takes place.669 One must still, however, ascertain which criteria are to be followed in

examining the goods when there are no international usages or practices to rely on.

However, it does not necessarily mean that the application of usages of the place of

examination is always excluded. Namely, the usages will be relevant when parties 666 Lookofsky J, in Iierbots/Blanpain, op. cit., p.103. 667 Sandra Fišer-Šobot Year LIX (2011) Duty to Examine the Goods in International Law of Sales Reproduced with permission of the University of Belgrade, Belgrade Law Review, no. 3, 204,205. 668 Secretariat's commentary, O .R. P .3 4, (3). 669 SchwenzerI , in Schlechtriem/Schwenzer (2005), op. cit., p.451; Honnold J, (2009), op. cit., p.356.

214

reach such agreement, when it results from express or tacit application of the general

terms and conditions or when the basis for their application lies in Art. 9 of the CISG.

Moreover, the examination should not have to be more in-depth than those possessing

reasonable skill levels could conduct to discloser recognizable defects.670

The scope of the examination depends on the circumstances of each

individual case. In particular, it is firstly influenced by the type of the goods. In the

case of perishable goods, the buyer has to react promptly and reasons of urgency

cannot justify a time consuming and complex examination.671 In contrast, durable

goods may be examined in a manner that is more intensive and lasts longer.

Generally, the method of the examination is determined by the relevant

circumstances. This depends on the nature of the goods, their quantity, packaging,

complexity, as well as on the time in which the examination is to be effected. If the

existence of the defects can be relatively easily established or if, in cases of perishable

goods, the examination has to be effected in a quick manner, a simple examination

would be sufficient, especially viewing, smelling, cutting open individual fruits and/or

counting, weighting etc.672

4.4.2. Notice of lack of conformity

Besides the provision of Art. 38, which imposes a general obligation on

buyers to examine the goods in order to retain their right to claim non-conformity;

Art. 39 continues by setting forth rules regarding the buyer's duty to give notice when

the examination reveals that the goods do not conform to the contract. The Article

specifies the consequences of the buyer's failure to give such notice of a 'discoverable'

defect. Art. 39 provides that:

“(1) The buyer loses the right to rely on a lack of conformity of the goods if he

does not give notice to the seller specifying the nature of the lack of conformity

within a reasonable time after he has discovered it or ought to have discovered it.

670 SchwenzerI , in Schlechtriem/Schwenzer (2005), op. cit., p.45; Bianca C, in Bianca-Bonoll, op. cit., p.298. 671 Sandra Fišer-Šobot (2011) op, cit, p. no. 3. p.205. 672 Schwenzer in: P. Schlechtriem, I. Schwenzer (ed.), Art. 38, para 14. Netherlands, Arrondissementsrechtbank Zwolle, 5 March 1997 (perishable food products), available at www.unilex.info.

215

(2) In any event, the buyer loses the right to rely on a lack of conformity of the

goods if he does not give the seller notice thereof at the latest within a period of two

years from the date on which the goods were actually handed over to the buyer, unless

this time-limit is inconsistent with a contractual period of guarantee.”

The purpose of such obligations, as mentioned earlier regarding Art. 38, is to

require buyers to provide sellers with specific notice of non-conformity in order to

retain their rights.673

4.4.2.1. Requirement of a buyer's notice

Notice of non-conformity, in this Article, relates to quality, quantity and the

description of the goods, 674 as well as false deliveries 675 and defects in

documents.676Notice of third-party rights and claims are dealt with in Art. 43 (1). It is

important in such a notice to specify the available essential nature of the lack of

conformity to an extent that allows the seller to have the opportunity to know exactly

what defects are in the goods, as discussed in the obligation of examination.677 In the

acrylic blankets case cited above, the court held that the buyer lost the claim of non-

conformity because his notice did not specify design, which would have enabled the

seller to resolve the non-conformity (as there was more than one design in the

delivery).

The failure to give notice within a reasonable time results in the loss of the

buyer's rights to rely on a lack of conformity for the various remedies provided under

the CISG. The loss of rights referred to by this Article involves the right:

(i) to claim damages (Art. 45 para. 1 point b),

(ii) to require delivery of substitute goods (Art. 46 para. 2),

(iii) to require repair (Art. 46 para. 3), 673 There was a controversial discussion about this Article during the preparation work of UNCITRAL and at the Vienna Conference. Many delegations from developing countries considered the loss of all buyer's rights of remedies, because of failure to give notice in the right time, unjustifiable, whereas other delegations were in favor of the provision as the short period of notice had stood the test of time in their countries, and there is also no reason was seen for the buyer not to notify the seller of the defects. See Schlcchtriem P, (1986), op. cit. p69. The result of this discussion was the introduction of Art. 44, which was not contained in the 1977 draft. 674 Art. 35. 675Honnold, J (2009), op. cit., p.368-9; Maskow/Enderlein,o p.c it., p.158. 676 Honnold J, (2009), op. cit., p. 367. 677 CISG-AC, Opinion No. 2, op. cit., Art. 39, Para 4 ; Schwenzer I , in Schlechtriem/Schwenzer (2005), op. cit. p. 462,463.

216

(iv) to fix an additional period of time for performance (Art. 47),

(v) to declare the contract avoided (Art. 49),

(v)to reduce the price (Art. 50).

Also, as a result of failing to give notice, the buyer has to pay the purchase

price of the goods in spite of the non-conformity, unless Arts. 40 and 44 apply.678

The issue of whether the buyer or the seller bears the risk of transmission if

the buyer's notice does not reach the seller in time or at all was dealt with in Art. 27 of

the CISG, which states that it "does not deprive that party of the right to rely on the

communication" as long as the notice deliver "by means appropriate in the

circumstances".

4.4.2.2. Time for notice

Under Art. 39 (l) the buyer must give notice specifying the lack of conformity

"within a reasonable time." It should be emphasized that, the reasonable time will be

calculated from the time the buyer has actually discovered the nonconformity or ought

to have discovered it. In any case, it is a short period as it is in the interest of the buyer

himself to inform the seller if he is interested in having the goods replaced or repaired.

Reasonable, in many cases, will mean giving notice immediately. At the same time, it

is the interest of the seller as well, in order to be able to rely on the conformity of the

sold goods after a while.679 For the beginning of the period of reasonable time, it is

important to differentiate between whether the buyer has examined the goods and

discovered defects or not.680 If the buyer discovers or should have discovered the

defects, the time begins to run from that moment of discovery of the non-conformity

even before completing the examination.681

Here, the burden of proof is noteworthy. Since it is allocated to the buyer to

prove the fact that he sent the notice within the due time, it is highly advisable to

bring about it in written, documented form. The best solution is if the parties agree on

the manner of keeping touch. The parties should define on one hand the person whom

678 Endcrlein F, in Sarcevic/Volken, op. cit., p. 171. Further discussion for the exemption in these articles will be given later. 679 Maskow/Enderlein (1992) op. cit., p. 160. 680 Girsbcrger, D, “The Time Limits of Art. 39 CISG”, (2005-06) 25 J.L . &Com, p.24 I. 681 CISG-AC, Opinion No. 2, op. cit., Art. 39, para.1 ; SchwenzerI , in Schlechtriem/Schwenzer (2005), op. cit, 469.

217

they address their messages and on the other hand the channel of communication.

Additionally, they may agree on the means of evidence in which have to be attached

to the notice. Furthermore it is recommended that the buyer specify his claims at the

time of giving notice. Whether he requests substitute goods or repair, he has to leave

the seller know about his choice – if there is any – between his rights to remedies.

However, There are several case decisions emphasizing the beginning of the

period of giving notice and the beginning of the period of examination have not been

clearly distinguished.682 A German court rejected the buyer’s claim with referring to

the insufficient content of notice.683The Italian seller delivered a single piece of

agricultural machine to the German buyer who redispatched the machine after some

weeks. At the buyer’s client the machine immediately proved faulty. The buyer gave a

notice that the machine did not function properly but he got no response from the

seller. The Court stated that these notices were not specific enough as neither of them

specified the serial number of the machine nor its date of delivery – regardless of the

fact that the buyer had only ever bought one such machine from the seller – the seller

could not be required to search through sales ledgers to locate the documents for the

machine in question. The buyer further claimed to have telephoned to specify the

defect; however this was not acknowledged by the seller. Since this phone

conversation could not be proven the Court found that this was not a valid notice.

It can be said that the approach to the reasonable time for giving notice to be

fixed to the period of a month as a starting point is an important step in developing the

unification of the practice of the CISG to meet its aim of unifying the law of the sale

of goods and, expressly stated in Art. 7 (1), to increase the stability and harmony

among traders. However, it should be taken into account that this fixed period may

not be the same from region to region. In some countries the laws of trade have not

developed to the level of international standards. Hence, the matter of dispute about

Art. 39 (l) between the developed and developing countries which was revealed in the

diplomatic conference during the preparation of the CISG should be considered here.

It is important for the practice of the determination of reasonable time to give notice

682 Girsberger D, (2005-06) 25 J.L. &Com, op. cit., p.241.242. 683 Germany Landgericht, District Court Marburg, 2 O 246/95.

218

to take into account the different usages and customs between countries and

cultures684.

4.4.2.3. Time limit

Despite the estimated period of reasonable time under Art. 39 (1), Paragraph

(2) of Art. 39 provides a maximum period of a two-year time limit for the notice to be

given. Such provision applies to further the right of the buyer to give notice. In cases

where the defects were not discoverable upon a proper examination and it may also

apply when the buyer has a reasonable excuse for failing to give notice in the proper

time. 685The reason for the cut-off period is to minimize the difficulty in deciding

whether the defects were caused by a breach of an obligation of the seller or by other

factors such as wrongful use or normal wear and tear.686 On the other hand, it serves

the seller in rendering the transaction as completely finished at a certain point in

time.687 The time for the two-year period to begin to run is provided in paragraph

39(2): "from the date on which the goods were actually handed over."688 Art. 39(2)

provides an exception to the rule of the two-year period if it "is inconsistent with a

contractual period of guarantee", which means that it, can be extended or shortened.689

4.4.3. Buyer’s duty to preserve the goods

The buyer's ability to reject non-conforming goods is accompanied by a

corresponding duty to preserve such goods for the benefit of the seller. Art. 86

provides that the buyer must take steps to preserve the goods as are "reasonable in the

circumstances." 690 The buyer is entitled to reimbursement from the seller of

reasonable expenses incurred in preservation of the goods and is entitled to retain the

goods until its receipt of such payment. In the event the goods have been placed at its

disposal by the seller and are subsequently rejected, the buyer must take possession on

the seller's behalf.691 The buyer's obligation in this regard is contingent upon its ability

to take possession of the goods without payment of the price and without

684 CISG-AC, Opinion No. 2, op. cit., Art. 39, Para. 3; Akaddaf F, (2001) 13 P. I. L. R, op. cit., pp. 12-15. 685 Schwenzer in Schlechtriem/Schwenze (2005), op. c it., p.470. 686 Sono K, in Bianca-Boncil, op. cit., p. 307. 687 Schwenzer I, in Schlechtriem/Schwenzer (2005), op. cit., p.471. 688 Ibid. 689 Ibid. 690 CISG, Art.86(1). 691 CISG, Art.86(2).

219

"unreasonable inconvenience or ... expense." 692 Buyer's duties under Art. 86 are

inapplicable in the event the seller or a person authorized to take control of the goods

on its behalf is present at the destination at the time of the arrival of the goods.693

4.5. Remedies for Breach of Contract by the Buyer

4.5.1. Remedies available to seller

The remedies available to the seller are set out in Art. 61 (1) CISG, as the

introductory provision to this section. This Article provides a cohesive catalogue of

the principal remedies available to the seller if the buyer does not comply with any of

its duties under the contract.

Contrary to the law of several countries and some international instruments,694

this Convention does not provide punitive damages for the delay. As to passing of the

risk to the buyer if he did not take over the goods in due time, (see Art. 69.)

By virtue of this provision, if the buyer fails to perform any of his obligations

under the contract or this Convention, the seller may: (a) exercise the rights provided

in Art. 62-65 CISG; (b) claim damages as provided in Arts. 74-77 CISG. While the

statement under letter (a) is a simple reference to other Articles of the CISG, Art.

61(1)(b) is the actual legal basis for the seller's right to claim damages, since the

Articles regarding this issue (Arts.74-77) only deal with the determination of the

amount of damages.

As to the first kind of remedies Art. 61(1) (a) provides that in case of the

buyer's breach, the seller may «exercise the rights provided in Arts.62 to 65».

Although Arts.62 to 65 on the seller's remedies are drafted in terms comparable to

those of Arts.46 to 52 on the buyer's remedies, they are less complicated. This is so

because the buyer has only two principal obligations, to pay the price and to take

delivery of the goods, whereas the seller's obligations are more complex. Art. 61

mirrors Art. 45 on the remedies for breach of contract by the seller. In addition to Art.

61, the seller may be entitled to interest (Art. 78) or to resell the goods (Art. 88). Its

692 CISG, Art.86(2). 693 Since This duty, applies to any party to the transaction so it will be discussed in Chapter 5. 694 See, e.g., the Conditions of Delivery of the Council for Mutual Economic Assistance.

220

rights in case of an anticipated breach of contract are set out in Arts 71, 72, and 73

CISG.

Art. 61(1) describes in general terms the various remedies available to the

seller when the buyer does not perform one of its obligations. That merely refers to

these provisions without independently giving them legal force: each of the

referenced provisions itself authorizes an aggrieved seller to exercise the rights

described therein, so that those rights would be available to the seller even absent the

reference in Art. 61(1)(a).695 The seller may resort to a remedy for the buyer's breach

of contract when the buyer fails to perform any of his obligations (a) under the

contract or (b) under this Convention, even if not stipulated in the contract, such as

the obligation to examine the goods or cause them to be examined under Art. 38(1).

Under the CISG, Art. 45/61 provides that if the seller/buyer fails to perform

any of his obligations under the contract or the Convention, the other party may

"claim damages as provided in Arts.74 to 77" (Art. 45(1) (b)/61(1) (b)). Furthermore,

the entitled party "is not deprived of any right he may have to claim damages by

exercising his right to other remedies" (Art. 45(2)/61(2)).

According to Art. 61, the failure to perform any obligation under the contract

of sale may justify a claim for damages, independent of the existence of a fault of the

buyer.696 This leaves space for a wide application of this remedy. Art. 61(1) (b)

provides that the seller may «claim damages as provided in Arts.74 to 77», «if the

buyer fails to perform any of his obligations under the contract or this Convention».

In order to claim damages it is not necessary to prove fault or a lack of good faith or

the breach of an express promise, as is true in some legal systems. Damages are

available for loss resulting from any objective failure by the buyer to fulfill his

obligations.

Art. 61(2) provides that the seller is not deprived of any right to claim

damages by choosing to exercise its right to other remedies. This provision is contrary

695 Art. 61(1)(a) is, nevertheless, cited in some decisions: GERMANY Landgericht Münchengladbach 15 July 2003 (Filters case); SWITZERLAND Kantonsgericht Zug 12 December 2002 (Methyl tertiary-butyl ether case); SWITZERLAND Handelsgericht St. Gallen 3 December 2002 (Sizing machine case); ARGENTINA Cámara Nacional de Apelaciones en lo Comercial de Buenos Aires 21 July 2002 (Malt case). 696 CLOUT Case No. 281 Oberlandesgericht Koblenz, Germany, 17 Sept. 1993, available at <http://cisgw3.law.pace.edu/cases/930917g1.html>.

221

to the legal tradition of certain countries, including that of Germany before the reform

of the law of obligations which entered into force on 1 January 2002 and which

authorized combined remedies.697

Art. 62(3) provides that no court or arbitral tribunal may delay the maturation

of the buyer's obligations by granting him a period of grace. It follows that, as far as

payment of the price is concerned, the court or the arbitral tribunal may not delay the

payment as a whole, nor can it grant the buyer permission to pay the price by

instalments. Similarly, it must not grant the buyer permission to take over the goods in

parts, nor can it delay taking over of the goods.

4.5.2. Seller’s Right to Compel Performance

4.5.2.1. General Application

It follows from the plain language of Art. 62 that the seller may require the

performance by the buyer of any obligation such as payment of price, taking delivery

or any other obligation that arises from the contract. However, it is said that this is

simply what may be demanded of the buyer, "The addition of a provision allowing

specific performance in favour of the seller is unlikely to have a significant practical

effect except in exceptional circumstances."698

Knapp states that the seller's right to performance "contrasts with other

remedies provided in Art. 61 because it does not create any new right to the seller or a

new obligation of the buyer. It is simply a pursuance of their initial rights and

obligations under the contract. Hence, the intention of Art. 62 is to emphasize that the

mere non-performance by the buyer of his obligations does not cause an ipso facto

avoidance of the contract and that the contractual obligations continue in force even if

697 German courts have succeeded in departing from their national law and granting damages in conjunction with other remedies such as avoidance of contract; see the following decisions (applying Art. 45(2), which with respect to buyer's remedies incorporates the same principle as Art. 61(2): GERMANY Oberlandesgericht Hamburg 26 November 1999 (Jeans case); GERMANY Landgericht Heilbronn 15 September 1997 (Film coating machine case); GERMANY Landgericht Landshut 5 April 1995 (Sport clothing case); GERMANY Landgericht München 20 March 1995; GERMANY Landgericht Baden-Baden 14 August 1991 (Wall tiles case); implicitly, see, GERMANY Bundesgerichtshof 25 June 1997 (Stainless steel wire case). 698 See Peter A. Piliounis in "The Remedies of Specific Performance, Price Reduction and Additional Time (Nachfrist) under the CISG: Are these worthwhile changes or additions to English Sales Law? “ 12 Pace International Law Review (Spring 2000); pp. 1-46. Available online at: <http://www.cisg.law.pace.edu/cisg/biblio/piliounis.html>.

222

not performed in due time."699 Nonetheless, Treitel combined several of the unclear

points to illustrate a situation where it would be appropriate for a seller to seek

specific performance. A seller could have contracted to supply all of the requirements

of the buyer's manufacturing business over an extended period of time (therefore the

goods are neither specific nor necessarily ascertained) for a contracted price. The

seller may have made a significant initial investment and the market price might vary

in such a way as to make any damage award speculative. Under these circumstances,

the seller has some justification to seek specific performance.700

The CISG also provides for the seller's right to specific performance. Art. 62 is

drafted in an analogous way to Art. 46. It states that "the seller may require the buyer

to pay the price, take delivery or perform his other obligations, unless the seller has

resorted to a remedy which is inconsistent with this requirement."701According to this

Article, the seller may force the buyer to perform his obligations, which are primarily

taking delivery and paying the price.702

4.5.2.2. Rationale of Art. 62

The rationale behind Art. 62 is the same as Art. 46: to promote respect for the

agreement and to ensure there is adequate compensation.703 Damages may take time

to be assessed and may be inadequate because they do not compensate for certain

expenses suffered by the innocent party.704 Another rationale behind Art. 62 is the

difficult task of the seller to dispose of goods when the buyer refuses to take

delivery.705

This is an especially important right in cases where the goods have reached the

destination port and the buyer refuses to take delivery. In such a situation the seller

may not be able to resell the goods in that market because it may be a foreign market,

unknown to the seller. In this way, specific performance provides a more appropriate

699 Knapp in: Bianca & Bonell eds., Commentary on the International Sales Law, the 1980 Vienna Sales Convention (Milan: Giuffrè 1987), Art. 61 Comments 2.10. 700 See G.H. Treitel (1966), in "Specific Performance in the Sale of Goods": J.B.L. 211(1966); p. 230. 701 CISG, Art. 62. 702 John Honnold, Uniform Law for International Sales Under the 1980 United Nations Convention 3rd edition (1999),p. 434. 703 A.H. Kastely, The Right to Require Performance in International Sales: Towards an International Interpretation of the Vienna Convention, 64 Wash. L. Rev. 6014, 6015 (1988). 704 Ibid. 705 Ibid.

223

form of compensation than damages because it gives a seller exactly what he expected

from the contract. "706

Art. 62 includes a provision similar to that of Art. 46 whereby the seller may

not resort to inconsistent remedies. The seller may not compel performance if he has

chosen a remedy consistent with specific performance.707 An inconsistent remedy in

the case of breach by a buyer is avoidance.708

In considering the CISG provisions that govern the right to compel payment of

price as one type of specific performance, the CISG is markedly different from some

domestic laws. In certain domestic systems, the right to compel payment of the price

when the buyer has accepted the goods is presented as a right to collect a debt. This

right to collect, however, does not fall under the rules regulating specific

performance. Another difference between domestic systems and the CISG is that

certain domestic legal systems provide that the seller cannot force the buyer to accept

the goods unless he is unable to resell them after reasonable effort. The CISG gives

the seller the right to compel acceptance without the aforementioned condition. 709

4.5.2.3. Assessing Art. 62

The right of the seller to enforce performance eliminates the expense and

delay of seeking another buyer or negotiating a substitute transaction. This is an

especially important right in cases where the goods have reached the destination port

and the buyer refuses to take delivery.710 In such a situation the seller may not be able

to resell the goods in that market because it may be a foreign market, unknown to the

seller. 711 In this way, specific performance provides a more appropriate form of

compensation than damages because it gives a seller exactly what he expected from

the contract. 712

706 See Nayiri Boghossian (1999-2000) in "A Comparative Study of Specific Performance Provisions in the United Nations Convention on Contracts for the International Sale of Goods": Pace Review of the Convention on Contracts for the International Sale of Goods, Kluwer PP, 24, 25. 707 CISG, Art. 62. 708 J. Fitzgerald, (1997) Recent Development Relating to CISG: CISG, Specific Performance, and the Civil law of Louisiana and Quebec, 16 J.L. & Com. 295. 709 John Honnold, (1999), op. cit., p, 434-36. 710J. Fitzgerald, Recent Development Relating to CISG: CISG, Specific Performance, and the Civil law of Louisiana and Quebec, 16 J.L. & Com. 295(1997). 711 Ibid. 712 See Fitzgerald, op. cit., p, 105.

224

Forcing the buyer to perform may prove burdensome as the refusal of the

buyer to take delivery may be due to certain changes in the market where he planned

to resell the goods, which make it either difficult to sell or at least unprofitable.

Specific performance, in such cases, is not entirely fair because the buyer is not

responsible for changes in conditions of the marketplace, which are often

unpredictable, even for a prudent businessman. This is especially true in countries

where the economy is strictly regulated by a government that issues regulations

limiting the price of selling to consumers, thus reducing the profit margin for the party

who has already made an international contract. Other regulations that may reduce the

profits are ones that increase the tariffs imposed on imported goods. In these

circumstances, it is unjust to compel the buyer to take delivery or pay the price.

4.5.3. Seller’s notice fixing additional final period for performance

By its terms, Art. 63(1) CISG is not limited to non-payment and/or non-taking

delivery, but is also applicable, e.g., to buyer's failure to specify goods in accordance

with Art. 65 CISG 713or his non-compliance with the obligation not to re-export the

goods 714when the seller notifies the buyer of the non-performance and demands

performance within the Nachfrist. In context with Art. 64(1)(b) CISG, however, it

becomes clear that fixing of a Nachfrist is only of relevance in cases of non-payment

and/or non taking delivery, and where the seller wants to provide the basis for

avoidance without proof that the delay constitutes a fundamental breach should the

seller fail to comply with a Nachfrist.715

The idea behind Nachfrist is that the seller should not be able to avoid the

contract merely because the goods are not accepted or payment is not made on time.

A contract can be avoided under the principle of fundamental breach as defined in

CISG Art. 25. Under certain circumstances, such as when time is of the essence, late

payment or refusal to accept goods may become a fundamental breach. Art. 63 in

itself is not a remedy, it clarifies a situation which otherwise would be unclear. If the

seller is in a situation where there is uncertainty as to the existence of a reason to

avoid the contract, he can overcome this by fixing a Nachfrist. As far as the buyer is 713 See Honnold, (1999),op, cit, p. § 351. 714 See France 22 February 1995 Cour d'appel ,Appellate Court Grenoble (BRI Production "Bonaventure" v. Pan African Export), case presentation including English translation available online at http://cisgw3.law.pace.edu/cases/950222f1.html>. 715 Honnold, (1999), op, cit, p. § 351.

225

concerned the additional period is a final period, however, the seller is not barred

from fixing additional periods if he so wishes or if he wants to respond to the buyer's

request for additional time.

The importance the CISG places in reading provisions within the context of the

Convention is clearly demonstrated in this instance. Art. 63 is closely linked to Art.

64(1). In Art. 64(1)(a) the seller is entitled to avoid the contract if the failure of the

buyer amounts to a fundamental breach. Late payment or refusal to accept delivery

unless time is of the essence does not amount to a fundamental breach. A seller may

not be certain whether late payment may be construed as a fundamental breach but by

fixing a Nachfrist this problem is overcome as the seller now can rely on Art. 64(1)(b)

which takes away the uncertainty. The only uncertainty is the question of "reasonable

length" of the additional period of time fixed by the seller. The seller will have

assistance in such a definition through Art. 9 (customary practices) or Art. 6

(definition of additional time is a clause in the contract) as well as Art. 8 (previous

conduct or statements made by parties). Most importantly, the seller will rely on the

general principle of reasonableness as well as the principle of good faith, which is

contained in Art. 7. An Austrian case can be used to illustrate the above. The seller

declared the contract avoided after the buyer failed to pay the price without fixing a

Nachfrist. The court found that there was no need to fix such a period as the buyer

implicitly agreed to the avoidance of the contract.

While the additional period is in existence the seller can only rely on

damages for late payment or refusal to accept delivery but most importantly, the buyer

is protected while he is making efforts to remedy the situation.

4.5.3.1. The Nachfrist716 procedure under Arts.47 and 63

4.5.3.1.1. Fixing additional time

Both the buyer and the seller may fix additional time for the other party to

perform obligations, irrespective of whether the obligation is basic or ancillary.717 For

the buyer, the additional period may be applied for the seller to deliver, supply

substitute goods in the case of non-conformity with the contract, repair non-

716 Additional respite. 717 See Peter Schlechtriem, (1998) Commentary on the UN Convention on the International Sale of Goods (CISG) 395 (Geoffrey Thomas, trans., Clarendon Press 2d ed.

226

conforming goods, deliver necessary documents, 718 or perform other acts in the

contract, such as assembly of the goods. For the seller, the additional period may be

applied for the buyer to perform acts required to enable the seller to make the

delivery,719 to take over the goods, or to pay the price for the goods.720

4.5.3.1.2. Content of the Notice

The Nachfrist notice does not have to meet any formal requirements. While in

theory, even an oral notice suffices,721 from the practitioner's viewpoint a written

notice is more than advisable since in case of a dispute it is up to the seller to prove

that buyer has received the notice. The notice must contain a specific demand for

performance and a fixed (given date) or determinable (e.g., "one week from today")

deadline when performance will be accepted at the latest. A general demand by the

seller that the buyer performs or that he performs "promptly" or the like is not a fixing

of a period of time under Art. 63(1) CISG.722

4.5.3.2. Determination of Nachfrist's reasonable length

The Nachfrist must be "of reasonable length". In the absence of an express

agreement between the parties, the determination of whether the Nachfrist is

"reasonable" must be made in light of the circumstances of the case at hand. Special

consideration may be given to the period of time originally set for payment, the

seller's need for quick payment of the goods, currency and market price fluctuations,

the nature of the goods, the event which caused the delay, and with regard to buyer's

obligation to take delivery, seller's need to clear his warehouse.

4.5.3.3. The effect of Nachfrist after the additional period has passed

When a party fixes an additional period of time, the party may not resort to

any other remedy until the period has passed, even if non-performance by the other

party otherwise constitutes fundamental breach.723 The party who fixed the time is

precluded not only from avoiding the contract but also from resorting to such

718 See Peter Schlechtriem, Ibid. 719 CISG, Art. 60. 720 See Schlechtriem,op, cit, p. 486. 721 See, P. Huber, in: Münchener Kommentar zum Bürgerlichen Gesetzbuch, Vol. 3, Chapter on CISG Art.-by-Art. commentary - in German (4th ed., München: Beck 2004), Art. 63, Comment Comment 7. 722 See, e.g., Knapp in: Bianca & Bonell eds., Commentary on the International Sales Law, The 1980 Vienna Sales Convention (Milan: Giuffrè 1987), Art. 63, Comment 2.10. 723 Schlechtriem,op, cit, p. 399.

227

remedies as demanding a price reduction, recovering costs for curing defects,

demanding delivery of substitute goods, or demanding that the other party perform

under the contract.724

When a party has used the Nachfrist procedure, he may resort to a remedy in

two situations. First, the day the Nachfrist period expires, the other party must have

performed or the aggrieved party may resort to a remedy. Second, if the party who

must perform refuses to perform and notifies the aggrieved party, then the aggrieved

party need not wait until the Nachfrist period has expired. In either situation, the

aggrieved party gains a right to avoid the contract, a right to claim damages, and other

rights provided in the CISG.

4.5.3.4. Flexibility of the Nachfrist procedure in the CISG

The Clod Jumper example given above illustrates that the Nachfrist option is a

right of an aggrieved party, rather than an option to create a supplemental agreement.

The provisions in Arts.47 and 63 permit flexibility for parties to a contract and

facilitate reasonable performance. The Nachfrist provisions in both the CISG and the

UNIDROIT Principles differ somewhat from the provisions in the German Civil Code

("Bürgerliches Gestzbuch" or "BGB"),725upon which the provisions in the Convention

and the Principles is partially based.726 Under German law,

"Where delay per se would not frustrate the purpose of the contract, i.e. where

time is not of the essence, the obligee must fix a reasonable period of grace

(Nachfrist) for the obligor before resorting to either remedy. The period of

grace must be long enough to allow an obligor, who has already taken the

necessary preparatory steps, to perform the contract within this time. The

obligee must make it clear in his notice that after the period of grace he will

refuse to accept any performance. If the obligee has given notice and the

obligor has not performed within the period of grace, the obligee may no

longer claim performance. The contract can now only be wound up, either by

a claim for damages for non-performance, or by a claim for rescission. A

claim for specific performance is expressly prohibited by § 326(1) of the BGB

724 Ibid. 725 Bürgerliches Gesetzbuch (Civil Code) BGB § 326(1) (Otto Palandt ed. 44th ed. 726 See Richard Schaffer et al. (1993), International Business Law and Its Environment 111 (2d ed. 1993).

228

and the options available to the aggrieved party are thereby limited. The

obligee is not required at this stage to indicate whether he will rescind and

claim restitution or claim damages, but he has to stay with the choice once it

is unequivocally made. The choice is exercised … without undue delay,

otherwise the aggrieved party may lose his right to rescind. It is generally

more favourable to claim damages."727

Like German law, the party giving the Nachfrist notice under the CISG (as well

as the UNIDROIT Principles) may not resort to any other remedy during the stated

period, with the exception of the right to claim damages for the delay.728 After the

stated period, the aggrieved party may avoid the contract or may bring a claim for

specific performance. The latter option is contrary to German law, which expressly

prohibits an action for specific performance after the Nachfrist period has expired.729

Both the CISG and the Principles also grant the aggrieved party the right (or option)

to use the Nachfrist procedure even if non-performance rises to a level of a

fundamental breach.730 Where CISG applies (or where the UNIDROIT Principles are

considered), aggrieved parties have available to them more options and may proceed -

- in many cases extrajudicially -- with greater certainty than would be available

without the Nachfrist procedure or even with the procedure found in German law.731

The drafters of both the UNIDROIT Principles and the CISG recognized that

late performance differs significantly from other forms of defective performance.732

According to the official comments to the UNIDROIT Principles, "Late performance

can never be remedied since once the date for performance has passed it will not

occur again, but nevertheless in many cases the party who is entitled to performance

will much prefer even a late performance to no performance at all. Secondly, at the

moment when a party fails to perform on time it is often unclear how late

performance will in fact be. The commercial interest of the party receiving

727 Gerhard Dannemann, (1993) An Introduction to German Civil and Commercial Law 29 (1993). 728 CISG, Art. 47(2). 729 See BGB, op. cit., § 326(1). 730 CISG, Art. 47, 63. 731 See Elbi Janse van Vuuren, (1998) Termination of International Commercial Contracts for Breach of Contract: The Provisions of the UNIDROIT Principles of International Commercial Contracts, 15 Ariz. J. Int'l & Comp. Law. 530. 732 See International Institute for the Unification of Private Law, Official Comments on Art. of the UNIDROIT Principles (visited Nov. 18, 2000) <http://www.cisg.law.pace.edu/cisg/principles/uni47.html.

229

performance may often therefore be that a reasonably speedy completion, although

late, will be perfectly acceptable but that a long delayed completion will not. The

Nachfrist procedure enables that party to give the performing party a second chance

without prejudicing its other remedies."733

4.5.4. The Seller's Right to Avoid the Contract

The remedy of avoidance is indexed as one of remedies available to the seller

for a breach of contract by the buyer under Art. 61 of the CISG.

4.5.4.1. Grounds for avoidance by the seller

4.5.4.1.1. Grounds for avoidance under the CISG

The grounds for avoidance by the seller are provided in Art. 64(1) of the

CISG. According to it, he may exercise his right: a) if the buyer fails to perform any

of his obligations under the contract or the Convention and the failure amounts to a

fundamental breach of contract; or b) in case of non-payment or non-taking of the

delivery by the buyer, if he does not perform his obligations within an additional

period of time fixed by a seller's notice made in compliance with Art. 63 of the

Convention, or declares that he will not perform within the period so fixed. These are

the conditions constituting the justification of the avoidance of a contract and if they

are met, the seller is authorized, but not obliged, to declare the contract avoided. In

case of dispute, the seller has to prove that the conditions are present. Avoidance of

the contract with its further consequences will normally be chosen by the seller only

when it might lead to the recovery of the goods and the goods are wanted.

4.5.4.1.2. Other situations

Other situations in which the seller may avoid the contract are regulated under

the Convention in the same way as those in which the buyer is entitled to the remedy

of avoidance because provisions concerning them are common to the buyer and seller.

Having considered them thoroughly in the previous chapter, I will discuss them at

present in a limited extent, taking into account specificity of the seller's position.

Under Art. 72 the seller may avoid the contract if prior to the date for

performance of the contract it is clear that the buyer will commit a fundamental

733 Ibid.

230

breach of contract, unless the buyer provides adequate assurance of his performance.

Suffice it to say that the serious worsening of creditworthiness of the buyer to such an

extent that a fundamental breach of contract will be committed may play a role if he is

the one to perform first (for example, in the case of advance payment or if it is clear

that the buyer will not be in a position at the time of delivery to open a letter of

credit).734

The seller may avoid the contract in a case of an installment contract,

according to Art. 73, because the buyer may breach a contract with respect to a

particular installment, either by not taking delivery of the goods or not paying for

them if prior payment for that installment is required.735 The provisions of Art. 73(1)

and (2) are said to apply to the buyer directly, although, according to another opinion,

by analogy;736 in situations in which the buyer has the right to pay in installments for

one delivery, the provisions of Art. 73 should not be applied, because if the buyer

does not fulfill his obligations to pay in installments, the seller may exercise the right

to avoid the contract under Art. 64 or Art. 72 of the Convention.737

Under Art. 79(5), the remedy of avoidance may be exercised, even if the

situation, described in preceding paragraphs of the Article, justifies exemption of the

buyer for damage claims. The provision applies indifferently to either party to the

contract. Even though the failure to perform is attributable to an impediment which

was beyond the buyer's control, it is possible that this failure to perform will

constitute a fundamental breach of contract, and the seller's right to avoid the contract

will not be precluded.

4.5.4.2. Fundamental breach by the buyer

The legal character of fundamental breach of contract under the CISG,

discussed under the previous chapter referring to the buyer's remedy of avoidance, is

applicable also to the seller's right. Taking this into account, I would like to consider

734 See LG Krefeld, 28 April 1993, 11 O 210/92 (Germany) (UNILEX): http://cisgw3.law.pace.edu/cases/930428g1.html> 735 See Fritz Enderlein, (1996) Rights and Obligations of the Seller Under the UN Convention on Contracts for the International Sale of Goods, in International Sale of Goods - Dubrovnik Lectures 295 (Petar Šarcevic and Paul Volken eds. 736 See Victor Knapp, Seller's Remedies in General, in Commentary on the International Sales Law op. cit. at 447. 737 Schlechtriem, Uniform Sales Law, op, cit, p. 96.

231

the fundamental breach of contract committed by the buyer in the particular aspect of

his obligations under the contract.

As far as the most important obligations of the buyer are concerned, for

example, payment of the price and taking delivery, the possibility of avoidance by the

seller can be reached by using the Nachfrist procedure provided in Art. 64(1) (b). In

the event of other buyer obligations under the contract or the Convention, avoidance

is possible only when, according to Art. 64(1)(a), the non-fulfillment is a fundamental

breach. To what extent a non-fulfillment of an obligation is a fundamental breach will

depend on the purpose of the contract for the achievement of which the given

obligation is relevant.738 A non-fulfillment can be ascertained in many cases only after

the awaiting for fulfillment of obligations.

If payment is to be made at the fixed date or taking the delivery should occur

at the date specified in the contract, and where time is of the essence, non-

performance at the time indicated for performance will constitute a fundamental

breach of contract. In other cases the late payment can amount to a fundamental

breach of contract if there is a rapid decline in currency, and taking late delivery can

be a fundamental breach of contract when the goods cannot be stored.

The longer the delay in payment or in taking the delivery, the more a breach

becomes fundamental so that the seller will always be entitled to avail himself of a

right to avoid the contract in the event of non-payment or not taking delivery.739 Cases

where the fundamental breach takes place can also include non-supply by the buyer of

agreed drawings or of part of the materials.740

The requirement of a fundamental breach of contract as a basis for avoidance

is less formal and thus less clear than avoidance after the expiration of a Nachfrist.

Therefore, it is better for the seller, having a doubt as to whether the buyer's delay in

making payment or taking delivery constitutes a fundamental breach, to fix an

additional period of time for the buyer to perform. When the buyer continues not to

pay the price or take the delivery of the goods, the seller, by fixing a Nachfrist, always

738 Fritz Enderlein & Dietrich Maskow, (1992) International Sales Law, United Nations Convention on Contracts for the International Sale of Goods - Convention on the Limitation Period in the International Sale of Goods 244. 739 In OLG Hamm, 22 September 1992 19 U 97/91] (Germany) (UNILEX) <http://cisgw3.law.pace.edu/cases/920922g1.html> (PACE), 740 See Enderlein & Maskow, (1992) op, cit, p. 115.

232

has the option to avoid the contract, as a non-performance of these essential

obligations also within the Nachfrist is said to constitute a fundamental breach of

contract.741 In case of other obligations whose non-performance becomes fundamental

when the time passes (for example, the obligation to participate in the manufacture of

the goods) setting a Nachfrist also may be helpful for the seller. However, it will not

be sufficient for the avoidance of the contract to prove that the Nachfrist expired and

performance was not made. The seller will have to show that a breach of a

fundamental character exists. Otherwise, the contract is avoided without justification

and the seller's non-performance resulting from it will be considered a breach of

contract.

4.5.4.3. The buyer's delay in performance

The typical breach by the buyer of an obligation under the contract is a delay.

In a case of a delay in payment or in taking the delivery, the seller is entitled to decide

how long he intends to wait. This is the advantage of lack of strict prescription of the

period during which the right to avoidance must be exercised. However, the seller will

not be allowed to speculate at the cost of the buyer, because he would have to make

up his mind within a reasonable time, at least at the inquiry of the buyer.742 If the

seller wishes to avoid the contract when the buyer breaches his obligations to pay the

price or to take the delivery and the breach is not fundamental, he may declare the

contract avoided after following the procedure described in Art. 64(1)(b). He should

fix an additional time of reasonable length for the buyer to pay the price or, as the

case may be, to take delivery. The nature of a Nachfrist set by the seller is the same as

in the case of the buyer's right to avoidance. The fixing of an additional period of time

must be done by a written or oral notice addressed to the buyer. Its transmission

which may be done by any means is subject to Art. 27 and the seller can rely on the

dispatched notice.743 Determination of the additional time is left to the reasonable

discretion of the seller, according to his commercial needs. However, he is expected

to state it unequivocally by indicating the date by which performance must be made or

a period of time.

741 See Enderlein & Maskow, (1992) op. cit. at 245. 742 See Enderlein & Maskow, (1992) op, cit, p. 243. 743 see V. Knapp, Additonal Period for Performance, in Commentary on the International Sales Law,op, cit, p. 460.

233

The expiration of the Nachfrist without expected performance from the

buyer, entitles the seller to resort to the remedy of avoidance. However, the first

Nachfrist is not final and the seller can set another one, as the expiration of the

Nachfrist gives the seller an option to stick to the contract or to avoid it.744 Moreover,

the seller is entitled to take advantage of his right to avoidance without waiting for the

expiration of the Nachfrist, if he receives the buyer's declaration that he will not pay

or he will not take the goods within the additional time.745

The seller is allowed under the Convention to avoid the contract for delay in

payment irrespective of whether the buyer has already taken the delivery of the goods.

The obligation to pay the price includes steps and formalities required under Art. 54

of the Convention. In case of the buyer's delay to take such steps, the procedure of a

Nachfrist provided in Art. 64(1) is applicable, 746 unless the failure to make the

necessary preparations for payment in itself constitutes a fundamental breach of

contract. Apart from non-payment and not taking delivery, the procedure of fixing an

additional period of time may be applied by the seller in cases of delay in

performance of the buyer's other obligations (for example: delay in examination of the

goods). However, the fixing of an additional period of time for performance of

obligations other than payment and taking delivery, mentioned in Art. 64(1)(b), has

only the consequences provided in Art. 63(2), sentence 1, namely, that the seller

cannot resort to the remedy of avoidance for the breach during the fixed period. It

would be inconsistent with the requirement to perform. Only when the passing of time

makes the delay in performance a fundamental breach of contract can the seller

exercise his right to avoidance.

4.5.4.4. Declaration of avoidance

As in the chapter dealing with the buyer's remedy of avoidance, it should be

stated that the declaration of avoidance is a unilateral right vested in the seller if the

conditions provided under the Convention are satisfied. The declaration of avoidance

should be made by a written or oral notice, which according to Art. 26, has to be

communicated to the other party. 747 The wording of the declaration should be.

744 See Enderlein & Maskow, (1992)op, cit, p. 238. 745 Enderlein & Maskow, (1992)op, cit, p. 246. 746 See Honnold, Uniform Law,op, cit, p. 363. 747 See ICC Ct. of Arb. 7197 (1992) (UNILEX) http://cisgw3.law.pace.edu/cases/927197i1.html.

234

Conduct of the seller implying intent is not sufficient to constitute a declaration of

avoidance.748 Prior notice of the seller's intention to declare the contract avoided in the

case of a fundamental breach is not necessary. Pursuant to Art. 27, the declaration of

avoidance is effective after dispatch. Accordingly, the seller may rely on the notice

even if it does not reach the buyer.749

4.5.4.5. Time for exercising the right to avoidance by the seller

The Convention does not include strict rules prescribing the moment for

exercising the right to avoidance by the seller, similar to the case of the buyer. This

may result from the assumption that the exercise of the right to avoidance, even if

there are grounds for it, is left to the decision of the aggrieved seller. The seller should

not be forced by strict rules on time, to avoid the contract. On the other hand, the

Convention does not leave the choice of time for avoidance completely to the

discretion of the seller.

The seller is entitled to avoid the contract immediately for a fundamental

breach of the contract. The rule of Art. 64(1)(a) assumes that the breach is committed

under the conditions in which the seller's right is effective at once, starting from the

day the non-fulfilled obligation became due. Immediate avoidance is also at the

seller's option when the buyer declares that he will not pay the price or take delivery

of the goods within the additional period of time set by the seller according to Art.

64(1) (b), or if the seller otherwise receives a notice from the buyer that he will not

perform, even if the delay in performance has not amounted to a fundamental breach

of contract. When the seller has set a Nachfrist in the case of non-payment or not

taking delivery by the buyer, as provided in Art. 64(1)(b), he may avoid the contract

after inefficient expiration of the additional time. Time for avoidance in the event of

anticipatory breach of contract or in case of an installment contract has been discussed

under the previous chapter on the right to avoidance by the buyer. The same remarks

are relevant for the time of the seller's avoidance in these situations; however, one

should take into consideration the specific obligations of the buyer. The time when the

seller exercises his right to avoidance is significant for the buyer, a party in breach.

748 See OLG München, 2 March 1994 7 U 4419/93 (Germany) (UNILEX) http://cisgw3.law.pace.edu/cases/940302g1.html. 749 See V. Knapp, Right to Avoid Contract, in Commentary on the International Sales Law, op, cit, p. 468.

235

The situation when the seller waits and watches the market developments before

making his decision to avoid the contract would constitute an abuse of the seller's

right and he should be prevented from speculating at the buyer's cost. Once the buyer

has paid the price (in full), the seller must exercise his right to avoidance within the

time limits set by the Convention.

The seller may, according to Art. 64(2)(a), avoid the contract with respect to

the late buyer's performance, before the seller has become aware that the performance

has been rendered. The late performance under this rule covers late payment and/or

late performance of other obligations. 750 This will embrace situations where the

performance was not performed at the time it was due or it was refused due to lack of

conformity with the contract (place of performance was different than that stipulated

in the contract or in the law) or performance was partially performed, where this was

not allowed by the contract.

In the case of breaches other than late performance, if the breach gives grounds

for avoidance according to the Convention, the seller may exercise his right, under the

rule in Art. 64(2)(b), within a reasonable time and the time begins to run: (a) after the

seller knew or ought to have known of the breach; or (b) after expiration of any

additional period of time set under the Convention for performance, or after the buyer

has declared that he will not perform within this period.751 The "reasonable time" limit

is not defined under the Convention; it will depend on all circumstances of a case.752

The rule refers to cases like sub-supply of defective materials, breaches of the

prohibition to re-export goods, pledging of goods which were not sold under a

reservation of title. 753 The time limits imposed on the seller have a disciplining

character. In the event he exceeds them, he loses his right to declare the contract

avoided. The Convention provides in Art. 61(3) (similar to Art. 45(3)) that no period

of grace may be granted to the buyer by a court or arbitral tribunal when the seller

resorts to a remedy for breach of contract. This includes the remedy of avoidance. The

seller's right to avoidance cannot be deferred by any judge or arbitral tribunal either

750 See Enderlein & Maskow, (1992) op, cit, p. 246. 751 See CISG Art. 64(2) (b) (ii). 752 See V. Knapp, Right to Avoid Contract, in Commentary on the International Sales Law, op. cit.,, at 473. 753 See Enderlein & Maskow, (1992) op, cit, p. 247.

236

before, at the same time as, or after the seller has resorted to the remedy for breach of

contract by the buyer.

4.5.4.6. Loss or suspension of the seller's right to avoid the contract

The rules of the Convention governing the right to avoid the contract by the

seller also provide for restrictions upon its exercise even if there are substantive

grounds authorizing its existence. The main purpose is not to allow the seller to abuse

his right to the disadvantage of the buyer. The restrictions on the seller's right to

exercise the remedy of avoidance are regulated in the provisions governing the time

limits for avoidance under Art. 64(2), discussed above. It is worth remembering that

under paragraph 2(a) of this Article, the seller's right to avoid the contract lapses when

the obligation on whose breach it is based has been fulfilled and the seller has known

about its fulfillment.754 Under paragraph (2)(b) of Art. 64 the right is lost when the

seller has not exercised his right within a reasonable time, which has run from the

moment indicated in the provision for its commencement. The Convention does not

describe in detail the relation between the remedy of avoidance and other remedies

available to the seller. The relation is not as complex and controversial as in the cases

of the buyer's remedy of avoidance for a breach of contract by the seller. Generally

speaking, the seller cannot exercise the remedy of avoidance when he resorted to

other remedies inconsistent with it, namely the remedy to require performance.

Under Art. 63(2), if the seller fixes an additional period of time for

performance of the buyer's obligations, the breach of which is already fundamental, he

cannot resort to his remedy of avoidance, which is suspended during this period.

However, if the seller has fixed an additional period of time for payment, avoidance is

not excluded during this period, because of the occurrence of another fundamental

breach, for example, not taking the delivery.755 In addition, if the seller has set a

Nachfrist in accordance with Art. 64(1)(b), avoidance of the contract is suspended

under Art. 63(2) as long as the Nachfrist runs and the performance is not refused. To

reassure the seller that his right to avoidance is retained after the inefficient expiration

of that period, he is granted an additional reasonable time for its exercise.756

754 Ibid. 755 See Sevón, (1990) op. cit., 253, at, 226; see also Enderlein and Dietriech Maskow,op, cit, p. 241. 756 See Enderlein & Maskow, (1992) op, cit, p. 248.

237

The realization of the seller's right to avoidance is said to be blocked when

concurrent restitution cannot be made (when the price cannot be refunded or goods

returned, because of the party's bankruptcy). The seller may also be prevented from

making restitution because of foreign trade rules that may result in the suspension of

avoidance.757

If the seller has not received performance because he contributed to the buyer's

failure by his own act or omission, he has, under Art. 80, no right to avoidance.

Moreover, under Art. 79, such conduct may constitute an exemption for the buyer for

damage claims. This solution is justified, because the seller cannot have rights based

on his wrongful action.

4.5.4.7. Effect of Avoidance

The consequences of avoidance are governed by Art. 81 and following it other

Arts.of the Convention. According to Art. 81, avoidance of the contract releases both

parties from their obligations under it subject to any damages which may be due. The

most important obligations are generally: a) the obligations of the seller to deliver the

goods, to transfer title to the goods and to hand over the documents; and b) the

obligations of the buyer to pay the price and to take delivery of the goods. If the

obligations have not been fulfilled by the moment of the avoidance of the contract, the

parties do not have to fulfill them later. Apart from the avoidance of the contract,

claims for damages which have arisen in connection with the non-performance of the

obligations can be asserted by the aggrieved party.

Avoidance, pursuant to Art. 81, does not affect any provision of the contract

for the settlement of disputes. It also does not influence any other provision of the

contract governing the rights and obligations of the parties that arise due to the

avoidance of the contract. This concerns rights and obligations which are ancillary to

the avoidance of the contract, for example, penalty provisions, but also provisions for

the purpose of helping to resolve a conflict between the parties (especially in a

situation in which the contract is avoided), such as arbitration and renegotiation

clauses and forum selection clauses. Other rights and obligations not affected by

757 See Enderlein & Maskow, (1992) op, cit, p. 347.

238

avoidance are the obligation of the party to preserve the goods, and rights based on

the provisions governing the amount of damages.

Under the provisions of Art. 81, a party who has performed the contract either

entirely or in part may claim restitution from the other party of whatever the first

party has supplied or paid under the contract. Thus, the parties are free to claim

restitution as they may wish to leave what has been supplied or paid with the other

party.758 In the case of a contract for delivery and payment of goods by installment,

they may agree to retain what they received prior to the avoidance.759 Usually, the

avoidance of the contract is at the same time accompanied by a claim to return that

which has been supplied or paid. 760The buyer, however, will be freed from his

obligation to return the goods when the contract is avoided insofar as such restitution

is made impossible because of an event for which he already bears the risk, such as

avoidance, under the provision of Art. 70, which does not influence the rules on

passage of risk.761

If both parties are bound to make restitution, they must do so concurrently.762

Moreover, the non-performing party may be required by the other party to cover all

costs incurred to return that which has been supplied or paid. This rule, although not

provided in the Convention, is acknowledged by the doctrine.763 If the contract is

partially avoided, the rules governing its effects are relevant to that part of the

contract, which has been avoided.

The Convention, under Art. 84, provides for additional rules requiring

restitution of benefits received by the parties. If the seller is obliged to refund the

price, he is accountable for interest on it which he will have to reimburse from the

date on which the price was paid.764 This obligation is irrespective of the grounds for

the avoidance and is based on the assumption that the seller has acquired a benefit

758 See Enderlein & Maskow, (1992) op, cit, p. 342. 759 See Denis Tallon, Effects of Avoidance, in Commentary on the International Sales Law, op. cit., 605. 760 See Enderlein & Maskow (1992) op. cit., 13, at 343; See OLG Celle, 24 May 1995 20 U 76/94 (Germany) (UNILEX) <http://cisgw3.law.pace.edu/cases/950524g1.html>. 761 Honnold, Uniform Law, op, cit, p. 382. 762 See LG Landshut, 5 April 1995 54 O 644/94 (Germany) (UNILEX) http://cisgw3.law.pace.edu/cases/950405g1.html. 763 See Denis Tallon, Effects of Avoidance, in Commentary on the International Sales Law,) op, cit, p. 605. 764 See ICC Ct. of Arb. 7660 (1994) (UNILEX) http://cisgw3.law.pace.edu/cases/947660i1.html.

239

from the price since it was at his disposal. The buyer, if he is expected to make

restitution of the goods or part of them or if it is impossible for him to make

restitution of the goods at all or substantially in the condition in which he received

them (because the goods were destroyed), must account to the seller for all benefits he

has derived from the goods or part of them (also those which accrued before the

goods were destroyed).765 The benefits gained by the use of the goods usually will be

returned in money. This will enable the parties to set off against each other the claims

they might have under this Article.766

It should be concluded that the contract is not nullified upon the exercise of

the remedy of avoidance. Some obligations of the parties are terminated and some

remain in existence. The specific obligations characteristic of the sales contract end or

performance already made in fulfilling these obligations has to be returned in goods

or in price so that a situation is achieved as from before the conclusion of the contract.

However, the contract remains in force as long as there are still claims of the parties

under it, including claims for returning the goods or the price.767

On these grounds, the contract cannot be considered as terminated either ex

nunc or ex tunc, although legal doctrine does not adopt unified opinion on that

question. 768 The discussion whether the avoidance operates retrospectively or

prospectively is said to be of little help as avoidance always releases the parties from

future characteristic obligations and, at the same time, imposes on the parties

reciprocal duties of restoration having retrospective effect. The buyer who avoids the

contract because of non-conformity of the goods is released from the obligation to pay

the price but, if he has already paid, he is entitled to restitution.

Avoidance does not have the effect of termination. The right to avoid the

contract is narrower in its scope than the right to terminate the contract because

avoidance does not release a party whose breach leads to avoidance from his

contractual obligation to compensate the aggrieved party for the loss.769 In the case of

765 See CISG Art. 84(2). 766 See Enderlein & Maskow, (1992) op, cit, p. 349. 767 Ibid. 768 See Schlechtriem, Uniform Sales Law, op, cit, p. 107. 769 See Enderlein & Maskow, (1992) op, cit, p. 329, 443.

240

a contract for delivery by installment the avoidance might be said to have the effect of

a termination of the contract.770

4.5.4.7.1. Effect of CISG Avoidance on Third Parties

The CISG is restricted in scope when it comes to the conflicting rights of

third parties. Art. 4 CISG provides that “the Convention governs only the formation

of the contract of sale and the rights and obligations of the seller and the buyer arising

from such a contract.” 771 Some commentators derive from this sentence as well as

from the explicit exclusion of the effects on property rights in Art. 4 (b) CISG that the

Convention does not govern the rights of third persons who are not parties to the

contract.772 Most importantly it is undisputed that the CISG rules yield to the rights of

creditors.773 Therefore, while the CISG will preempt contrary state sales law such as

Art. 2 of the UCC when we are concerned with the rights and obligations of seller and

buyer,774a seller can never prevail with his claim for restitution of goods against the

buyer, when compliance with the restitution claim would violate superior rights to the

goods of a creditor.

This does not mean that Art. 81 CISG is always without influence on the

rights to the goods sold: property in the goods sold may either revert back to the seller

upon declaration of contract avoidance under domestic law following the principle

that title passes upon conclusion of the contract775 or the seller may be able to claim

back title to the goods in jurisdictions following the “Abstraktionsprinzip”. 776

However, the position of the seller after declaration of contract avoidance may be

weaker than the right of a third party to the property. The question, therefore, is what

a seller can do to strengthen his avoidance of contract rights.

770 See Enderlein & Maskow, (1992) op, cit, p. 329, 442. 771 CISG Art. 4. 772 Speidel, id. at 173; Caroline Delisle Klepper, The Convention for the International Sale of Goods: A Practical Guide for the State of Maryland and its Trade Community, 15 Md. J. Int’l L. & Trade 235, 239 (1991); see also Honnold, op. cit. at § 444. 773 Honnold, Ibid. at § 444.1. 774 See Speidel, id. at 166. 775 Leser/Hornung, Ibid. Art. 81 cmt. 9c, the so-called Konsensualprinzip. 776 Ibid.

241

4.5.4.7.2. Retention of Title Clause Effect on Third Parties Determined by

Domestic Law

One popular and widely-used possibility for the seller in an installment or

credit sale to protect his rights is to retain title to the goods until payment.777 Because

of the restricted scope of the Convention, the effectiveness of this protection,

however, must be measured against the laws of the jurisdiction to which the goods

have been delivered since the lex rei sitae will likely point to the law of the location of

the goods as the applicable law under private international law rules.778

The validity of title retention, or Romalpa clauses as they are called in the

English and Australian legal system,779 is not governed by the Convention.780 Thus,

domestic law will determine the validity of such a clause. 781 This has been the

position in literature and commentaries,782 and in reported case law from civil law

jurisdictions.783 Now, common law jurisdictions take the same position:

In Roder Zelt- und Hallenkonstruktionen GmbH v. Rosedown Park Party Ltd., 784 the Federal Court for the Southern Australian District in Adelaide was confronted

with an installment contract between a German seller of tents and other prefabricated

structures for public functions and an Australian buyer of such equipment for its

rental business for large sports events.785 After the buyer had fallen behind on his

payments and the company was placed under administration, the German seller

claimed the unpaid equipment back under the title retention clause in the contract.786

The court found that the CISG governed the construction and meaning of the

777 See only Jan Ramberg, International Commercial Transactions, §4.6 p. 46 (2000). 778 Franco Ferrari, in Schlechtriem (ed.) id. Art. 4 cmt. 29; see also infra chapter IV. 779 Jacob S. Ziegel, Comment on Roder Zelt- und Hallenkonstruktionen GmbH v. Rosedown Park Pty Ltd, in Review of the Convention on Contracts for the International Sale of Goods (CISG) 1998, Kluwer Law International (Pace ed. 1999) 53, 54. 780 See Ferrari, The Draft UNCITRAL Digest and Beyond, supra FN 18 at p. 525. 781 Ferrari in Schlechtriem (ed.), Art. 4 cmt 30. 782 Ibid. FN 118. 783 See Oberlandesgericht (OLG) Koblenz, Recht der Internationalen Wirtschaft (RIW) 1019, 1020 (1992); OLG Hamm, Neue Juristische Wochenschrift-Rechtsprechungs Report (NJW-RR) 489, 490 (1990). 784 Roder Zelt- und Hallenkonstruktionen GmbH v. Rosedown Park Party Ltd., (1995) 57 Fed. Ct. Rep. (Austl.) 216-240, CLOUT No. 308 (Fed. Ct., S. Austl. District, Adelaide Apr. 28, 1995). 785 Facts adopted from Ziegel, id. at 53. 786 Ibid.

242

Romalpa clause, but that domestic law would govern its validity. 787 Since both

Australian and German law recognized the validity and effects of title retention

clauses as not allowing title in the delivered goods to pass until the purchase price has

been paid, the seller had retained his title and was able to reclaim his goods from the

buyer against the conflicting claims of other creditors.788

While Judge Van Doussa maintained the distinction that construction

andmeaning of title retention clauses were governed by the CISG and only its validity

was excluded from the Convention’s scope,789 this distinction has been criticized as

“terribly unreal” since the Romalpa clause only serves a security function. 790

Regardless of whether only the question of validity or all aspects of the title retention

clause fall outside the scope of the Convention, domestic law will determine the

effects of the clause.791

According to one study, title retention clauses are more readily accepted in

jurisdictions which use the passing of property as the decisive criterion to determine

ownership as opposed to jurisdictions using the conclusion of the contract. 792This

means that while an international seller may conclude contract negotiations in a credit

sale believing that his rights to the goods are not only contractually preserved inter

partes but also preserved as to any third party creditor of the buyer, this is far from

true as we will find out.

4.5.5. Seller’s notice supplying missing specifications

4.5.5.1. Introduction

A fundamental principle of the United Nations Convention on Contracts for the

International Sale of Goods is the recognition of the international character of the

transactions it regulates. Cancellation of an international contract can impose greater

burdens than the typical domestic transaction. Accordingly, the Convention contains a

number of provisions designed to help preserve the bargain the parties have made.

Art. 65 is one such provision. It states: (1) If under the contract the buyer is to specify

787 Roder, id. 788 Ibid. 789 Ibid. 790 Roder Zelt- und Hallenkonstruktionen GmbH v. Rosedown Park Party Ltd., (1995) 57 Fed. Ct. Rep. (Austl.) 216-240, CLOUT No. 308 (Fed. Ct., S. Austl. District, Adelaide Apr. 28, 1995). 791Ibid. 792 Ferrari, The Sphere of Application of the Vienna Sales Convention, p. 4 En 59 (1995).

243

the form, measurement or other features of the goods and he fails to make such

specification either on the date agreed upon or within a reasonable time after receipt

of a request from the seller, the seller may, without prejudice to any other rights he

may have, make the specification himself in accordance with the requirements of the

buyer that may be known to him.

(2) If the seller makes the specification himself, he must inform the buyer of

the details thereof and must fix a reasonable time within which the buyer may make a

different specification. If, after receipt of such a communication, the buyer fails to do

so within the time so fixed, the specification made by the seller is binding.

The word "receipt" appears in both section (1) and section (2) of Art. 65. The

general rule under Part III of the Convention is that "if any notice, request or other

communication is given or made by a party . . . by means appropriate in the

circumstances, a delay or error in the transmission of the communication or its failure

to arrive does not deprive that party of the right to rely on the communication."793

This rule does not apply to either a request under Art. 65(1) or a notice of

specification made by the seller pursuant to Art. 65(2). In either case, to be effective,

the communication must be received by the buyer. This places an added burden on the

seller who must ensure that the communication is received.794

Since the discussion over its retention at the CISG, Art. 65 has generated little

academic debate beyond the commentaries in which it appears and even less

"litigation." This paper examines the working of the provision through analysis of its

key words. It seeks to develop and supplement an understanding of their meaning by

reference to the legislative history of this provision, scholarly writings on it and,

where possible, by analogy to other parts of the Convention. An attempt has been

made to place Art. 65 within the context of the Convention as a whole.

Art. 65 applies in circumstances where not all the details related to the

characteristics of the goods are fixed in the agreement. It is agreed or assumed from

the Art. that the buyer should specify the missing details later. The Art. leaves no

793 CISG, Art. 27. 794 A German court has added a further definition to the Convention’s term "reaches." See Amstergericht Kehl 6 October 1995 (3C 925/93) Wirtschaftsrechtliche Beratung (München) 1996, 398.

244

doubt that the contract is formed without the details, which are yet to be provided by

the buyer.

Where the buyer fails to provide these specifications, the Art. facilitates the

seller's ability to perform, providing a convenient mechanism for the seller to keep the

contract alive by laying down a procedure whereby the seller can ultimately supply

the seller's own specifications.795 This enables the seller to perform a contract that

would otherwise have been too vague. The Art. protects the buyer by the obligations it

places on the seller who chooses to use the provision. 796It also gives the buyer every

opportunity to make its own specifications, even after the time that the buyer should

have done so. By allowing the fixing of the goods in a specification sale, Art. 65 may

assist in the determination of damages under Arts.74 to 77.

4.5.5.2. Purpose and effect of Art. 65

It has been suggested that, “It is difficult to become excited over Art. 65 one

way or the other”.797 It was, however, controversial at its birth. There were delegates

who thought the seller was sufficiently protected without it, while its proponents

argued that it achieved a better balance between buyers and sellers.

The classic example is a contract for the purchase and sale of a thousand pairs

of shoes under which the buyer is to make a selection among styles, sizes and colors.

Art. 65 contemplates a contract under which the parties agree that, either by a certain

date or within a reasonable time after a request from the seller, the buyer will provide

the necessary specifications to allow the seller to make delivery. The contract,

however, is clearly formed before the buyer provides the specifications. The buyer has

an obligation under the contract to cooperate in providing the specifications. The

buyer’s obligation to set the specifications may be expressly stated in the contract or

may arise under the contract pursuant to Art. 8 (interpretation of statements or other

conduct of a party)798 or Art. 9 (usages and practices applicable to the contract).799

The Secretariat Commentary appears to distinguish between a buyer’s contract right

to set the specifications and contract obligation to set the specifications. Other

795 CISG,Art. 65(1). 796 CISG,Art. 65(2). 797 Jacob S. Zeigel, (1981) Report to the Uniform Law Conference of Canada on Convention on Contracts for the International Sale of Goods (comment on Art. 65). 798CISG, Art. 8. 799 CISG, Art. 9.

245

commentators do not make that distinction. Instead, they hold that a right to specify

should be interpreted as an obligation to specify.800 The latter is the preferred view.

Art. 65 only applies when a contract of sale has been concluded. Under the

Convention, for a proposal to be capable of ripening into a contract, it must be

"sufficiently definite."801 A prerequisite to a proposal ripening into a contract is that

the proposal must indicate the goods.802 A general agreement that the buyer should

specify the goods required would be too broad to qualify under Art. 65 and "would

have no legal effect."803 However, an indication of the goods without specifying their

"form, measurement or other features,"804 can be regarded as sufficient.805

Thus, this Art. not only recognizes that a contract may be concluded though

its terms have yet to be finally determined; it also recognizes that an offer that allows

the buyer to make such specifications after the contract is formed can meet the

standard of sufficient definiteness under Art. 14(1) to create a power of acceptance in

the offeree. The concept clearly implies that a determinable price under 14(1) or an

impliedly referenced, generally charged price under Art. 55 is clearly contemplated in

such contracts.

Art. 65 provides an additional seller’s remedy. If the buyer’s failure to make

the specification constitutes a breach, the seller may provide the specification. Art.

65(1) provides this seller’s remedy “without prejudice to any other rights he may

have”. Thus, in place of or in addition to making the specification, the seller could

claim damages under 61(1)(b). If the buyer’s failure constituted a fundamental breach,

the seller could avoid the contract under 64(1)(a). The seller could also fix an

additional period of time under its Nachfrist remedy (63(1)), and if the buyer failed to

specify during the additional fixed time, the seller could avoid the contract under

64(1) (b).

800 See V. Knapp, (1987) Specification by Seller, in Commentary on the International Sales Law: The 1980 Vienna Sales Convention 482 (C. M. Bianca & M. J. Bonell eds. 801 CISG, Art. 14. 802 Knapp,op, cit, p. 477. 803 İbid. 804 CISG, Art. 65. 805 Secretariat Commentary, CISG Ann. Art. 65, (1993).

246

4.5.5.3. Seller’s right to specify (65(1))

If the buyer fails to specify as required by the contract, the seller may make the

specification himself in accordance with the requirements of the buyer that may be

known to him. The right to request the buyer to make the specification is beneficial to

the seller because it has "teeth." If the buyer fails to make the specification, the seller

may do so.806 However, whether it will be prudent for the seller to take advantage of

this right will depend on the circumstances. In the normal situation, the request alone

should produce the response desired. When it does not, the reasons may range from

the buyer who does not care as to the unspecified form, measurement or other features

of the goods that he has ordered, to the recalcitrant buyer who no longer desires to

consummate the contract.

The implication is that the requirements of the buyer may not be known to the

seller. A seller’s substitute specification that is not made in accordance with the

requirements of the buyer would not be binding on the buyer. 807 The buyer’s

requirements may be known to a seller through trade usage or “practices which they

have established between themselves” (Art. 9). It may also be known through “all

relevant circumstances” or “negotiations” between the parties (8(3)). If the seller

avails himself of Art. 65 -- on failure to make specifications in accordance with the

provisions of Art. 65, the seller is himself in breach of contract.808 The remedies

available to the buyer are all those that may be relevant in the circumstances as

resulting from the seller’s breach. Where the seller does not take into account

requirements which "may be known to" him, and subsequently delivers goods, such

goods would be regarded as non-conforming goods. 809 Also, in considering

evidentiary issues, the seller must be mindful of the Convention’s "informality

principle," pursuant to which evidence of such knowledge need not be confined to

written communications.810

806 CISG, Art. 65. 807 Secretariat Commentary to the 1978 CISG Art. 61 , reprinted in Documentary History of the Uniform Law for International Sales 441 (John O. Honnold ed.1989). 808 See Enderlein & Maskow, (1992), op. cit., 809 CISG, Art. 35. 810 See J. Rajski Form of Contracts, in Commentary on the International Sales Law: The 1980 Vienna Sales Convention 121 (C. M. Bianca & M. J. Bonell eds., 1987).

247

4.5.5.4. Notice of seller’s specification (65(2))

Where the seller makes the specification himself, he must inform the buyer

of its details and fix a reasonable time within which the buyer may choose a different

specification. The buyer must receive the seller’s proposed specification. If the buyer

fails to provide a different specification within the time fixed by the seller, the seller’s

specification is binding. The phrase "reasonable time" appears in Art. 65(1) and (2).

Art. 65(1) provides that where the contract does not set the date on which the buyer is

to make the specification, the seller may request him to make the specification within

a "reasonable time";811if the seller proceeds to fix the specification pursuant to Art.

65(2), the buyer must be given a "reasonable time" within which to make a different

specification. In either instance, what is "reasonable" will vary depending on the

circumstances of the case, including such factors as the location of the parties and

their known requirements. With respect to the seller’s Art. 65(2) notice, it has been

said that the reasonable time "will be a short time in general because the buyer is

already in breach of contract and he is only required to make a decision."812 With

respect to the time in which the seller is to act, "the seller should specify early enough

to leave the buyer a reasonable time to react before manufacture must commence.

Where this is no longer possible, the seller will reflect on whether he exercises his

right at all."813

Art. 65 applies in cases where a contract of sale has been concluded38 but the

buyer has failed to specify all the characteristics of the goods. The intention is to

prevent a buyer from evading its obligations by not supplying missing

specifications.814Two types of cases may be distinguished: 1) when the contractually

agreed date for the buyer to give the specifications has elapsed, and 2) when the buyer

has failed to provide specifications within a reasonable period of time after receiving

a request for such specifications from the seller.

811 CISG, Art. 65(1). 812 See Enderlein & Maskow, (1992), op, cit, p. 252. 813 See Enderlein & Maskow, (1992), op, cit, p. 251. 814 John Honnold, (1999) Uniform Law for International Sales Under the 1980 United Nations Convention § 357 (3d ed. 1999).

248

In both cases, if the buyer fails to provide necessary specifications as to form,

measurement, or other features of the goods, the seller may ultimately supply the

specifications himself, taking account of the buyer’s requirements.815

However, as the draft Digest notes, the seller is under no obligation to make the

specifications: it is up to the seller to decide whether or not to “keep the contract

alive”.816 Art. 65 operates without prejudice to the seller’s other rights. Thus, as has

been noted by Amissah, where the seller chooses not to make his own specifications

but instead requests the buyer to perform, the breach may eventually become

fundamental in the sense of Art. 62 if the buyer continues to refuse to perform.817 In

my opinion, however, if the seller assumes the duty to supply the specifications, this

should be interpreted as forfeiting his right to avoid the contract on that ground.

Action under Art. 65 is "without prejudice" to other remedies available to the seller.

Damages are the typical remedy sought for breach of contract. When asserting his

right to damages, seller is expected to have taken "such measures as are reasonable in

the circumstances to mitigate the loss."818

The setting of specifications can also have a bearing on the seller’s right to

obtain specific performance under Art. 62, or to avoid the contract under Art. 64. In

the case of specific performance, Art. 65 is designed to assist in the prevention of the

buyer escaping its obligations by refusing to supply missing specifications when

contractually bound to do so. However, an attempt to use Art. 65 as a device for

making the buyer perform his part of the contract in circumstances in which he is

reluctant or refuses to do so, will in practice seldom be the most beneficial legal

solution for the seller. In these circumstances, Art. 65 leaves room for the buyer to

raise complicated questions of evidence and appraisal.

815 Ralph Amissah, Missing Specifications in International Sales, available at http://www.cisg. law.pace.edu/cisg/text/cross/65.html. 816 Draft UNCITRAL Digest Art. 65, 1. 817 Amissah, op, cit, p. 6. 818 The same principle would apply to specifications as to the nature of the goods under fact patterns encompassed by Art. 65.