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CISG CASE PRESENTATION

United States 6 April 1994 Federal District Court [New York] (Braun v. Alitalia)
[Cite as: http://cisgw3.law.pace.edu/cases/940406u1.html]

Primary source(s) for case presentation: Case text; case commentary


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Case identification

DATE OF DECISION: 19940406 (6 April 1994)

JURISDICTION: United States [federal court]

TRIBUNAL: U.S. District Court, Southern District of New York [federal court of 1st instance]

JUDGE(S): J.C. Francis

CASE NUMBER/DOCKET NUMBER: 91 Civ. 8484 (LBS)

CASE NAME: S.V. Braun, Inc. v. Alitalia Linee Aeree Italiane, S.p.A.

CASE HISTORY: Unavailable

SELLER'S COUNTRY: U.S.A. (plaintiff)

BUYER'S COUNTRY: Hungary (defendant was the carrier of the goods, Alitalia, not the buyer)

GOODS INVOLVED: Bathing suit material


Classification of issues present

APPLICATION OF CISG: Yes [Article 1(1)(a)]

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Article 50

Classification of issues using UNCITRAL classification code numbers:

50A [Reduction of price: buyer's right to reduce price for non-conforming goods]

Descriptors: Reduction of price, remedy of

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Editorial remarks

EDITOR: Albert H. Kritzer

CISG issues ruled upon:

Reduction of price. This is a proceeding in which a provision of the CISG is cited (Article 50) which, on the facts of the case, the court termed irrelevant. The pertinent facts are:

Stating that seller had stipulated that the goods conformed to the contract, the court termed Article 50 irrelevant.

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Citations to case abstracts, texts, and commentaries

CITATIONS TO ABSTRACTS OF DECISION

(a) UNCITRAL abstract: Unavailable

(b) Other abstracts

English: Unilex database <http://www.unilex.info/case.cfm?pid=1&do=case&id=65&step=Abstract>

Italian: Diritto del Commercio Internazionale (1995) 455 No. 76

CITATIONS TO OTHER TEXTS OF THIS DECISION

Original language (English): Text presented below; see also 1994 U.S. Dist. Lexis 4114; 1994 Westlaw 121680; Unilex database [excerpt] <http://www.unilex.info/case.cfm?pid=1&do=case&id=65&step=FullText>

Translation: Unavailable

CITATIONS TO COMMENTS ON DECISION

English: Flechtner, Journal of Law and Commerce 14 (1995) 153 [169-176] [text presented below]; Richman, International Law and Organization Newsletter, New Jersey Bar Association (March 1995) 17; Spanogle/Winship, International Sales Law: A Problem Oriented Coursebook (West 2000) [price reduction 265-271 (this case at 266-269)]; [2005] Schlechtriem & Schwenzer ed., Commentary on UN Convention on International Sale of Goods, 2d (English) ed., Oxford University Press, Art. 50 para. 2; Keith A. Rowley, "The Convention on the International Sale of Goods", in: Hunter ed., Modern Law of Contracts, Thomson/West (03/2007) § 23:42

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Case text

United States District Court for the Southern District of New York

91 Civ. 8484 (LBS)

S.V. Braun, Inc., Plaintiff
v.
Alitalia-Linee Aeree Italiane, S.p.A., Defendant

Alitalia-Linee Aeree Italiane, S.p.A., Third-Party Plaintiff
v.
AEL International Company and Nikex Hungarian Foreign trading Company, Third-Party Defendants

Decided April 6, 1994
Filed April 6, 1994

Opinion by Judge James C. Francis, IV


Memorandum Opinion and Order

This is an action brought by a shipper, S.V. Braun, Inc. ("Braun"), against a carrier, Alitalia-Linee Aeree Italiane, S.p.A. ("Alitalia"). Braun claims that although Alitalia delivered all the cargo assigned to it, the carrier repeatedly misstated the weight of the shipment, leading the buyer to refuse to pay the full purchase price to Braun. The parties consented to my jurisdiction for all purposes pursuant to 28 U.S.C. § 636(c), and a trial was conducted. This opinion constitutes my findings of fact and conclusions of law under Rule 52 of the Federal Rules of Civil Procedure.

Background

In May 1990, Braun entered into an agreement to sell 62,275.5 meters of bathing suit material to Nikex Hungarian Foreign Trading Company ("Nikex") for a total price of $ 339,401.47. Tr. 9-10;[1] Pl. Exh. 1. Braun, in turn, purchased the material from two manufacturers, Darlington Fabrics Corp. ("Darlington") and Milliken & Company ("Milliken"). Financing for Braun's purchases was provided by Ecoban Finance Limited ("Ecoban"). The fabric was to be delivered to Nikex's agent, Schenker & Co., A.G. ("Schenker") in Vienna, Austria, and then forwarded to Nikex in Budapest, Hungary.

Braun made its shipping arrangements through a freight forwarder, AEL International Shipping Company ("AEL"). Pursuant to the plan, each of the mills turned over its share of the production to truckers for delivery to the air carrier, Alitalia, at its cargo facility at John F. Kennedy International Airport in New York. According to the truckers' tally sheets, Darlington shipped 138 cartons containing a total of 46,992 yards of material and weighing 26,619 pounds, while Milliken shipped 68 cartons containing 20,923 yards of fabric weighing 13,042 pounds. Pl. Exh. 24, 25. Altogether, then, on July 9, 1990, 206 cartons containing 67,915 yards of material weighing 39,661 pounds left the mills. This is equivalent to 62,101.48 meters of material weighing 18,006.09 kilograms.[2] However, one trucker acknowledged that the delivery it made to Alitalia was one carton short. Tr. 148-49, 185.

Alitalia received the shipment on July 10, 1990. The air waybill prepared by AEL on Alitalia's form indicated a shipment of 209 pieces weighing 18,118 kilograms. Pl. Exh. 27.[3] Alitalia's load sheets, however, reflect receipt of 205 cartons weighing 17,299 kilograms. Pl. Exh. 29A. Because Alitalia had expected 209 cartons, the weight discrepancy was not an immediate cause for concern. Tr. 199-200, 209-10.

On July 12, 1990, Alitalia transported the shipment from New York to Milan, Italy. There it divided the shipment into two parts to be trucked overland to Vienna. Tr. 212-13. There is no indication that Alitalia weighed the goods once they had arrived in Milan. Tr. 223, 226. But due to a clerical error, the manifest prepared by Alitalia's Milan office as well as the customs document for transport into Austria misstated the weight of one of the shipments. Tr. 216-23. These documents show shipment of 94 pieces weighing 7,005 kilograms and 111 pieces weighing 9,754 kilograms. Pl. Exh. 32, 33. This results in a correct total of 205 cartons, but a weight of only 16,759 kilograms. These figures were carried over to a notation made on a copy of the original waybill. Tr. 224-29; Pl. Exh. 9.

The shipment was delivered to Schenker, the named consignee, in Vienna. Schenker then arranged for transport to Nikex in Budapest. The bill of lading for this last leg of the journey shows shipment of 155 cartons weighing 13,033 kilograms and 50 cartons weighing 3,776 kilograms, for a total of 205 cartons weighing 16,809 kilograms. Pl. Exh. 8. This document was stamped by Hungarian customs officials. Tr. 32.

Schenker then identified some discrepancy in the shipment it had received. A series of eleven telexes followed in July, as Alitalia attempted to ascertain why only 205 cartons had been delivered when 209 had been indicated on the waybill. Pl. Exh. 35. Only the first of these telexes noted any weight discrepancy, that being the 819 kilogram difference between the weight of 18,118 kilograms in the waybill and 17,299 kilograms as manifested out of New York. Tr. 232.

On July 30, Nikex's principal sent Braun a facsimile transmission reiterating complaints he had made about the goods during a telephone conversation on July 26. Pl. Exh. 4. Nikex contended that four cartons did not arrive and that after measuring the fabric, 5,600 yards were found to be missing.[4] Nikex further claimed that the color of the fabric was defective. On the basis of these claims, Nikex withheld $ 100,000.00 of the purchase price.

Braun's president, Sandor Braun, responded in a letter dated August 28. Pl. Exh. 5. He acknowledged that one carton had not been delivered and that Nikex had been given credit. He further explained that three of the cartons had been repacked so that only 206 should have been expected in any event. Since 205 had been received and credit had been given for one more, the full shipment had been delivered. Mr. Braun also noted that Nikex had been advised that the total weight of the shipment was 18,118 kilograms. Finally, he argued that the fabric was of the highest quality, and any further dispute could be referred to an independent testing agency.

During the period between Nikex's fax and Braun's reply, Schenker, as consignee, filed a preclaim. This document, dated August 7, 1990, asserted that the shipment had arrived 4 cartons short, but it did not mention any weight discrepancy. Tr. 230; Pl. Exh. 34.

The independent inspection that Mr. Braun had requested was completed in August. In a report dated August 31, the inspection agency indicated that the fabric was of first class quality. The color problems that Nikex had identified were due to an unusual quality of the fabric that caused it to spot when pressure was applied; when the fabric was arranged loosely, the spots disappeared. No weighing or measuring of the entire shipment was undertaken, but it was determined by sampling that because of the elasticity of the fabric, each roll contained an average of 2.3% less material than was indicated. Pl. Exh. 6.

At some point in late September or early October, Mr. Braun met with Nikex representatives in Budapest.[5] Tr. 33. According to Mr. Braun, Nikex officials continued to argue that the shipment had been short, and for the first time they showed him the Alitalia documents from Milan indicating a shipment weighing less than 17,000 kilograms. Tr. 33-36.

At about the same time, Braun engaged an attorney in Hungary to represent it in the dispute with Nikex. On October 2, this attorney sent a letter to Mr. Braun voicing his pessimism about the outlook for any resolution. The lawyer stated,

"[b]ased on the documentation I have, it doesn't seem to me that [Nikex] did anything wrong. But I see, based on the documents, that the material did not arrive in Hungary complete. . . . You have to take it as an unquestionable fact that the Hungarian Customs, when they checked the quantity and they made the documentation, what material came into Hungary, it shows clearly that it came in a shortage." Tr. 28-29; Pl. Exh. 7.

Braun then tried to enlist Alitalia to clarify that the complete shipment had been delivered in Vienna. On October 16, Mr. Braun met with Timothy Mallard of Alitalia and Vahik Mekertichian of AEL. Tr. 252. Because Alitalia had not completed its investigation, Mr. Mallard would not issue a cargo charge amendment ("CCA") that would officially amend the air waybill. Tr. 254-56. He did agree, however, to provide a letter simply stating the weight shown on the truckers' invoices. Tr. 256. That letter indicated a weight of 17,951 kilograms. Pl. Exh. 10. A week later, Alitalia did issue a CCA, but it identified the proper weight as 17,299 kilograms, which corresponded to the weight shown on Alitalia's load sheets. Def. Exh. B.

Braun and Nikex continued to negotiate, and in January 1991, Nikex paid approximately half of the $100,000.00 it had withheld from the purchase price. Pl. Exh. 17. In June, 1991, the parties reached a final settlement and Nikex made an additional payment of approximately $ 15,000.00, Pl. Exh. 16. This left an outstanding balance of about $ 35,000.00.

Braun then filed the instant action against Alitalia. Alitalia, in turn, filed a third-party complaint against Nikex and AEL. The claims against Nikex were dismissed for lack of personal jurisdiction, while a default was entered against AEL. Accordingly, only Braun's claims against Alitalia remained to be tried. These claims sound chiefly in tort.

The parties agree that Alitalia delivered to Schenker all the cargo it had received. Nevertheless, Braun contends that Alitalia negligently misstated the weight of the goods in the relevant documents and thereafter failed to exercise due care in investigating and correcting its errors. Plaintiff's Post-Trial Memorandum of Law ("Pl. Memo") at 7 n.6. Braun also asserts a breach of contract claim based on the theory that the air waybill contained an implied warranty of the accuracy of the information supplied by Alitalia. Pl. Memo at 7 n.6. Based on these claims, Braun seeks damages consisting of $ 35,000.00 for the balance due on the purchase price of the goods, $ 3,881.78 for interest paid to Ecoban while Nikex was withholding payment, $ $1,500.00 for fees paid to counsel in Hungary, $ 3,222.00 in incidental damages for travel to Hungary for purposes of negotiation, and $ 15,400.30 for the freight charges paid to Alitalia. Stipulated Pre-Trial Order at 17.

Alitalia contests the validity of Braun's claims, and it also argues that recovery is barred by provisions of the Convention for the Unification of Certain Rules Relating to International Transportation by Air, concluded at Warsaw, October 12, 1929 (The "Warsaw Convention"). Previously, the Honorable Leonard B. Sand, United States District Judge, to whom this case was then assigned, ruled that Article 26(2) of the Warsaw Convention dealing with notice of claim for damaged or missing cargo was not applicable since the parties here agreed that full delivery had in fact been made. Judge Sand, however, explicitly declined to reach any other issue concerning the applicability of the Warsaw Convention. Memorandum Endorsement dated June 8, 1993.

Discussion

The issue of whether the Warsaw Convention governs a claim of negligence in the preparation of an air waybill need not be decided in this case. Based on the evidence presented at trial, the plaintiff's claims have not been proven even under the state tort law principles on which it relies.

In order to prove negligence under New York law, a plaintiff must demonstrate: (1) the existence of a legal duty that the defendant owes to the plaintiff; (2) a breach of that duty; (3) injury, and (4) a reasonably close causal connection between the breach and the resulting harm. See Perrin v. Hilton International, Inc., 797 F. Supp. 296, 299 (S.D.N.Y. 1992); Paulison v. Suffolk County, 775 F. Supp. 50, 53 (E.D.N.Y. 1991); Akins v. Glens Falls City School District, 53 N.Y.2d 325, 333, 441 N.Y.S.2d 644, 648, 424 N.E.2d 531 (1981). Here, Braun has failed to carry its burden of proving the last of these elements.

In order to satisfy the first element, Braun argues that a carrier owes a duty to the shipper to convey an accurate waybill to the consignee. Some support for this proposition may be found in Berisford Metals Corp. v. S/S Salvador, 779 F.2d 841 (2d Cir. 1985), cert. denied, 476 U.S. 1188, 91 L. Ed. 2d 556, 106 S. Ct. 2928 (1986). There, in the context of a claim under the Carriage of Goods by Sea Act ("COGSA"), 46 U.S.C. §§ 1301-1315, the court held that a carrier that issues a clean on board bill of lading erroneously stating that the entire shipment has been received on board the vessel is precluded from enforcing a limitation of liability provision as against the buyer of the goods. Id. at 849. The court noted that such a bill of lading constitutes a warranty to the buyer as to the carrier's conduct. Assuming that it has received the goods, the buyer then makes payment to the seller. Id. at 847-48. In that case, the buyer had paid in full for the goods, only to discover that the carrier's bill of lading certifying the shipment to be complete was in error. Berisford does not, by its terms establish that any duty to provide accurate documentation runs from the carrier to the seller. Nevertheless, solely for purposes of this case it will be assumed that such a duty exists, fulfilling the first element of a claim of negligence.

The second and third requirements are likewise satisfied. If such a duty exists, Alitalia breached it. It is undisputed that the waybill prepared in Alitalia's Milan office misstated the weight of the shipment due to a clerical error. And there is no doubt that Braun, having been unable to recover the full purchase price, has suffered injury.

What Braun has failed to demonstrate is that its injury was a foreseeable consequence, proximately caused by Alitalia's negligence. "Proximate cause, which reflects a judgment regarding the permissible extent of liability for negligence, limits a defendant's liability to those foreseeable consequences that the defendant's negligence was a substantial factor in producing." Bonsignore v. City of New York, 683 F.2d 635, 637 (2d Cir. 1982). Here, several factors serve to break the causal chain.

First, at the time that Nikex withheld payment for the goods, it stated that it was relying on its own measurements; it did not suggest that it was referring to any figures contained in the air waybill. A party seeking to impose liability on a carrier for erroneous shipping documents must demonstrate reliance on those documents. See Metro Leather Corp. v. M.V. "Savannah", No. 90 Civ. 2971 (MBM) (S.D.N.Y. June 16, 1992); Condor Industries International, Inc. v. M.V. "American Express", 667 F. Supp. 99, 101-02 (S.D.N.Y. 1987). Braun has not done so here.

Furthermore, consistent with the terms of the contract of sale, Nikex complained about the number of yards of fabric allegedly missing, not about any deviation in weight. There is no evidence that Nikex estimated the yardage allegedly missing by calculating from the weight discrepancy. Thus, any negligence by Alitalia in recording the weight of the goods was not causally related to the withholding of payment by Nikex.

Nevertheless, Braun argues that its position is supported by the United Nations Convention on Contracts for the International Sale of Goods done at Vienna on April 11, 1980 (the "Vienna Convention"). Article 50 of the Vienna Convention provides that "if the goods do not conform to the contract . . . , the buyer may reduce the price in the same proportion as the value that the goods actually delivered had at the time of the delivery bears to the value that the conforming goods would have had at that time." Thus, according to Braun, Nikex was legally warranted in withholding payment.

This argument, however, is wholly inconsistent with Braun's position both in its negotiations with Nikex and in this litigation that Nikex received everything to which it was entitled under the contract. The Vienna Convention may permit a proportionate reduction in price for non-conforming goods, but Braun has stipulated here that the goods delivered to Nikex were conforming. Accordingly, Nikex had no legal justification for withholding payment.[6]

This conclusion is not undermined by the opinion of Braun's Hungarian counsel that it would have been futile for Braun to pursue its claim against Nikex. That opinion, contained in a letter and untested by cross-examination, is inadmissible as evidence. Moreover, even if admissible, the opinion refers generally to documentation of a "shortage" which is at least as likely to mean the discrepancy in the number of cartons as any difference in weights. Finally, the document that the lawyer apparently considered dispositive because it was stamped by Hungarian customs officials, Pl. Exh. 8, contains weights different from those indicated in the erroneous Alitalia document. Pl. Exh. 9. Indeed, the lawyer evidently thought that employees of Hungarian customs themselves "checked the quantity." Even this legal opinion, then, tends to undermine any causal connection between Alitalia's errors and Nikex's position.

Braun's argument is therefore reduced to the proposition that the erroneous documentation gave Nikex an excuse, albeit a nonmeritorious one, for continuing to decline payment. Even if such a theory were legally tenable, Braun is still unable to demonstrate causation. Nikex did indeed use the weight discrepancy as one excuse for not paying the full purchase price. It also relied on the difference in the number of cartons, the yardage measurements, and the purported shortcomings in quality as reasons for declining payment. It is certainly true that there may be multiple causes for an injury, any of which may create liability. See Prunier v. City of Watertown, 936 F.2d 677, 679 (2d Cir. 1991). However, in this case the evidence shows that Nikex would have utilized any excuse, or none at all, to resist payment. Alitalia's negligence therefore cannot be said to have been a substantial contributing cause of Braun's injury.

Because Braun has failed to prove causation, its negligence claims must fail. This same deficiency precludes recovery on the breach of warranty claim. See Nutting v. Ford Motor Co., 180 A.D.2d 122, 130, 584 N.Y.S.2d 653, 658 & n.1 (3d Dep't 1992) (lack of causation fatal to implied warranty claim.) Finally, Braun is entitled to no reimbursement of freight charges, because Alitalia fulfilled its contract by delivering the goods that it received.[7]

Conclusion

For the reasons set forth above, judgment shall be entered in favor of Alitalia dismissing the complaint. The Clerk of Court shall enter judgment accordingly.

SO ORDERED

JAMES C. FRANCIS IV

UNITED STATES MAGISTRATE JUDGE

Dated: New York, New York
April 6, 1994


FOOTNOTES

1. "Tr." refers to the trial transcript.

2. One pound equals 0.454 kilograms, while one yard equals 0.9144 meters.

3. The financing company, Ecoban, is identified as the shipper on the waybill.

4. The original fax was in Hungarian. An English translation of unidentified origin reads in part, "After weighting [sic] the full material it was stated that altogether 5600 yard [sic] is missing." However, the reference to weighing appears to be a mistranslation. First, Sandor Braun, the president of the plaintiff corporation, translated the same sentence to read, "After measuring the whole material it was found, that 5,600 yards (6,124.2M) material lacking altogether." Pl. Exh. 5. Second, the word originally translated as "weighing" is "osszes," which appears again as "osszesen" immediately before "5600 yard." Since in the latter context this word clearly refers to length, it may be inferred that it has a similar meaning earlier in the sentence.

5. Mr. Braun testified that the meeting took place "maybe in October." Tr. 33. His airline tickets indicate that he was in Budapest between September 23 and October 5. Pl. Exh. 19.

6 Braun has never argued that a waybill is finally determinative of the legal rights as between a buyer and seller. Such a contention would be unavailing. Although waybills and bills of lading constitute prima facie evidence of delivery of the cargo indicated, the presumption they create is a rebuttable one. See Insurance Co. of North America v. S/S "Globe Nova", 820 F.2d 546, 549 (2d Cir.), cert. denied, 484 U.S. 965 (1987); Internatio, Inc. v. M/V Yinka Folawiyo, 480 F. Supp. 1245, 1251-53 (E.D. Pa. 1979)(consignee recovers for shortage where goods delivered exceeded quantity indicated in bill of lading but consignee proved more goods in fact loaded on vessel).

7. If anything, Alitalia has been paid freight charges based on a weight lower than that which Braun contends is correct.

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Case commentary

Reproduced with permission from 14 Journal of Law and Commerce 153-176 (1995)

excerpt from

MORE U.S. DECISIONS ON THE U.N. SALES CONVENTION:

SCOPE, PAROL EVIDENCE, "VALIDITY" AND REDUCTION
OF PRICE UNDER ARTICLE 50

Harry M. Flechtner[*]

The inventory of U.S. cases that apply or discuss the United Nations Convention on Contracts for the International Sale of Goods ("CISG" or the "Convention"),[1] a treaty that has been in force in the United States since January 1, 1988[2], continues to grow.[3] Two recent decisions by U.S. courts raise CISG issues of interest to American lawyers--the status of the parol evidence rule in transactions governed by CISG, the applicability of CISG to settlement agreements arising out of international sales, the "validity" limitation on the scope of CISG, and the operation of CISG Article 50, a remedy provision without analogy in U.S. sales law. The following article analyzes these cases and the issues they raise. It concludes that, although knowledge of the Convention and its significance for international transactions continues to grow, U.S. courts still sometimes fail to appreciate the changes it works. To comprehend those changes, judges must transcend their usual perspective shaped by familiar domestic sales concepts. Only that will satisfy the mandate of Article 7(l)--the promotion of uniformity in the application of CISG.

(. . .)

II. Braun v. Alitalia-Linee: Reduction in Price Under Article 50

Another recent opinion by a federal court -- S.V. Braun, Inc. v. Alitalia-Linee Aeree Italiane, S.p.A.[62] -- deals with an interesting aspect of Convention remedies: proportional reduction of price by a buyer who has received non-conforming goods. In 1990 S.V. Braun, Inc. sold a shipment of bathing suit material to the Nikex Hungarian Foreign Trading Co. Nikex claimed that the material was defective and that the shipment was short in quantity. The parties later settled their dispute by allowing Nikex to retain $35,000 of the purchase price. Braun then sued the carrier that had transported the material for tortiously misstating the weight of the delivery in the shipping documents, giving Nikex grounds for withholding payment. One of Braun's arguments was that Nikex had the right to withhold part of the price under CISG Article 50,[63] which provides:

If the goods do not conform with the contract and whether or not the price has already been paid, the buyer may reduce the price in the same proportion as the value that the goods actually delivered had at the time of the delivery bears to the value that conforming goods would have had at that time.[64]

The court rejected Braun's argument, explaining that

[t]he Vienna Convention may permit a proportionate reduction in price for non-conforming goods, but Braun has stipulated here that the goods delivered to Nikex were conforming. Accordingly, Nikex had no legal justification for withholding payment.[65]

According to the court's statement, Braun stipulated only that the goods shipped to the buyer met the quality specifications of the contract ("the goods delivered to Nikex were conforming" (emphasis added)). But Article 35(l) of CISG -- the first provision of the section of the Convention entitled "Conformity of the Goods and Third Party Claims"-- states that "[t]he seller must deliver goods which are of the quantity, quality and description required by the contract......... On the basis of this text at least one commentary declares that a failure of quantity constitutes a "nonconformity," and that reduction of price is therefore available when the goods are insufficient in either quality or quantity.[66] If so, a stipulation going merely to the conforming quality of the goods would be insufficient to establish that Nikex could not justifiably reduce the price under Article 50. Elsewhere in the Braun opinion, however, the court indicates that the seller also stipulated that "full delivery had in fact been made."[67] There is a textual argument, furthermore, that the phrase in Article 50 describing when the remedy applies--"If the goods do not conform with the contract"-- refers only to situations where the goods fail to meet the quality obligations of the contract.[68] Finally, it is worth noting that most commentators have not taken up the suggestion that price reduction is available when the seller ships the wrong quantity.[69]

Many other aspects of Article 50 deserve careful attention from U.S. lawyers. It is a remedy distinct from the damage remedies with which we are familiar. Indeed, reduction of price is available even if the seller is exempt under Article 79 from liability for damages."[70]

To date, English-language commentaries on Article 50 have focused on the provision's Civil Law origins;[71] methods for calculating the amount of the price reduction;[72] the distinction between damages governed by CISG Articles 74-77 and proportional price reduction under Article 50;[73] and the tendency of common law lawyers to misperceive the price reduction remedy as a mere setoff provision.[74] One of the more striking observations on Article 50, made by several commentators, is that in some circumstances the provision yields results inconsistent with a fundamental principle of common law remedies: protection of the expectation interest.[75]

Indeed, the price reduction remedy of CISG operates in a fashion that cannot be justified by any of the remedial principles recognized in U.S. contract law. In other words, Article 50 is not designed to protect the expectation interest, the reliance interest, or the restitution interest.[76] An example will illustrate. On April 1 Seller contracts to sell 100,000 barrels of oil with a sulphur content not to exceed 1% for $25/barrel, delivery on May 1. On May 1 Seller delivers 100,000 barrels with a 2% sulphur content, and Buyer elects to accept the shipment. By May 1 the market value of 1% sulphur oil is only $20/barrel, and the 2 % sulphur oil actually delivered is worth even less--$15/barrel. If Buyer chooses to pursue damages, which it can do under Article 74 of the Convention, its recovery will be measured by the difference between the $20/barrel value that 1% sulphur oil would have had and the $15/barrel value of the 2% sulphur oil that was actually delivered.[77] Thus Buyer is entitled to damages of $5/barrel, with the result that Buyer would end up paying $20/barrel ($25/barrel contract price less $5/barrel damages[78]) for the 2% sulphur oil worth $15/barrel.[79] Article 74 damages calculated in this fashion will (as the common law has long viewed the matter) put Buyer in the position it would have been if Seller properly performed the contract.[80]

If Buyer chooses to reduce the price under Article 50, on the other hand, it would pay only $18.75/barrel -- $6.25/barrel less than the contract price. The reduction is calculated by multiplying the contract price by a fraction--the ratio of the value, as of the delivery date, of the goods actually delivered to the value of conforming goods on that date.[81] Since the 2% sulphur oil was worth $15/barrel on the delivery date, and conforming (1% sulphur) oil would have been worth $20/ barrel, the ratio is 15/20, or 3 /4. Multiplying the $25/barrel contract price by 3 /4 yields $18.75/barrel. Obviously that result departs from expectation damages as calculated under Article 74.[82] Nor does it correspond to a reliance-based or restitutionary recovery.[83] If the market value of oil was higher than the contract price on the delivery date, the result under Article 50 would again differ from expectation damages under Article 74 -- although in that case the Article 74 damages would exceed the reduction in price under Article 50.[84]

In other words, the amount of the price reduction under Article 50 seems to be based on a principle unknown to the common law. To phrase the matter in a fashion that echoes the traditional description of common law remedy principles, one could say that Article 50 puts an aggrieved buyer in the position she would have been in had she purchased the goods actually delivered rather than the ones promised -- assuming she would have made the same relative bargain for the delivered goods. For example, if at the time non-conforming goods were delivered the contract price was 80% of the market price of conforming goods, the buyer can buy the non-conforming goods for 80% of their market value. Put another way, expectation damages are designed to preserve for an aggrieved party the benefit of her bargain; reduction in price under Article 50 attempts to preserve the proportion of her bargain.[85]

Alternatively one could view the Article 50 remedy as a modification of the sales contract. From this perspective a seller could be seen as offering such a modification by shipping non-conforming goods. The buyer accepts the offer by keeping the goods at an implied price proportional to the original contract price.[86] The "modification" view, however, should be handled with care. There are important differences between the fictitious modification permitted by Article 50 and an actual modification. For one thing, a buyer who accepts non-conforming goods and reduces the price under Article 50 is entitled to recover damages beyond the amount of the price reduction[87] -- although this could be rationalized as part of the implied price term of the modification. Additionally, the seller might be bound to a price reduction under Article 50 even if she made it clear that she did not intend to be so bound. Thus suppose a seller shipped non-conforming goods accompanied by notice that, if the buyer was unwilling to pay full price despite the nonconformity, the goods should be returned to the seller. It is not clear whether this expedient would prevent the buyer from keeping the goods and reducing the price under Article 50.[88]

There are many other issues surrounding Article 50.[89] For example, although the provision specifies the time as of which the value of goods is to be determined ("the time of the delivery"), it is unclear where (i.e., in what geographical market) value should be measured.[90] It is also unclear whether the Article 50 remedy is available against sellers who violate their obligations under Articles 41 or 42 to deliver goods free of rights and claims of third parties[91] and whether a buyer is bound by an election of remedies if it avails itself of Article 50.[92] For U.S. lawyers, however, the most pressing job is to apprehend the nature of the price reduction remedy -- how it departs from the remedial concepts with which we are familiar, and how it establishes a new remedy principle of substantial potential significance in certain scenarios.

(. . .)

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FOOTNOTES

[*] Professor, University of Pittsburgh School of Law. A.B. 1973, Harvard College; A.M. 1975, Harvard University; J.D. 1981, Harvard University School of Law. The author thanks Cathy Sakach for her intelligent and diligent assistance with this article, and the University of Pittsburgh School of Law for supporting this project through a summer research grant. I also thank Professor Volker Behr of the Law Faculty at the University of Augsburg, Germany for his generous help on certain issues. See infra note 32.

[1] U.N. Conference on Contracts for the International Sale of Goods, Final Act (April 10, 1980), U.N. DOC. A/CONF. 97/18, reprinted in S. Treaty Doc. No. 98-9, 98th Cong., 1st Sess. and 19 I.L.M. 668 (1980) [hereinafter CISG or Convention].

[2] Journal of Law & Commerce CISG Contracting States and Declarations Table, 14 J.L. & COM. 237, 244 (1995).

[3] The following U.S. cases cite CISG: Beijing Metals & Minerals Import/Export Corp. v. American Bus. Ctr., Inc., 993 F.2d 1178, 1183 (5th Cir. 1993); Orbisphere Corp. v. United States, 13 Ct. Int'l Trade 866, 882 (1989); Graves Import Co., Ltd. v. Chilewich Int'l Corp., No. 92 CIV. 3655, 1994 U.S. Dist. LEXIS 13393, at *13 (S.D.N.Y. Sept. 21 1994); Delchi Carrier SpA v. Rotorex Corp., No. 88-CV-1078, 1994 U.S. Dist. LEXIS 12820, at *11, *12 (N.D.N.Y. Sept. 9, 1994); Filanto, S.p.A. v. Chilewich Int'l Corp., 789 F. Supp. 1229, 1237 (S.D.N.Y. 1994); S.V. Braun Inc. v. Alitalia-Linee Aeree Italiane, S.p.A. No. 91 CIV. 8484 (LBS), 1994 WL 121680, at *5 (S.D.N.Y. Apr. 6, 1994); Interag Co. Ltd. v. Stafford Phase Corp., No. 91 Civ. 3253, at *11 (S.D.N.Y. May 22, 1990); Promaulayko v. Amtorg Trading Corp., 540 A.2d 893, 897 (N.J. Super. Ct. App. Div. 1988), rev'd (on grounds unconnected to CISG) 562 A.2d 202 (N.J. 1989).

(. . .)

[62] No. 91 CIV. 8484 (LBS), 1994 WL 121680 (S.D.N.Y. Apr. 6, 1994).

[63] The court assumed (without discussion) that the Convention applied to the sales transaction between Braun and Nikex. The assumption was probably correct. The seller was presumably located in the United States (although the court never specified Braun's location) and the buyer operated out of Hungary. Because CISG was in force with respect to both Hungary and the U.S. when the sale occurred in 1990, and because there is no evidence that the parties agreed to displace CISG with other law, the Convention would apply under Article 1(1)(a). See CISG Art. 6.

[64] Article 50 continues: "However, if the seller remedies any failure to perform his obligations in accordance with article 37 or article 48 or if the buyer refuses to accept performance by the seller in accordance with those articles, the buyer may not reduce the price."

[65] 1994 WL 121680 at *5.

[66] Eric E. Bergsten & Anthony J. Miller, The Remedy of Reduction of Price, 27 AM. J. COMP. L. 255, 258, 265-67. Bergsten and Miller were not working with the final text of CISG, but were analyzing an earlier draft.

[67] 1994 WL 121680 at *4.

[68] Article 35(l) itself does not explicitly state that delivery of an insufficient quantity of goods creates a "non-conformity." In contrast, Article 35(2) expressly declares that goods do not conform to the contract unless they meet quality specifications. Article 37, furthermore, seems to draw a distinction between a "deficiency in the quantity of the goods" and "non-conforming goods."

[69] See, e.g., BIANCA & BONELL, supra note 43, art. 50 para. 1.1-3.4 (fails to mention the availability of price reduction where the seller delivers the wrong quantity of goods); HONNOLD, supra note 12, § 313.1 (fails to mention insufficient quantity as among the "types of non-performance" for which Article 50 arguably might provide a remedy).

[70] Professor Honnold declares that Article 50 has its "principal significance" in situations where the seller can claim exemption from damages under Article 79. HONNOLD, supra note 12, § 312, at 393.

[71] BIANCA & BONELL, supra note 43, art. 50 para. 1.2 at 368; HONNOLD, supra note 12, § 313 at 395; KRITZER, supra note 12, at 375; Bergsten & Miller, supra note 63, at 256-58, 272; Winship, supra note 12, at 49; Sara G. Zwart, The New International Law of Sales: A Marriage Between Socialist, Third World, Common, and Civil Law Principles, 13 N.C. J. INT'L L. & COM. REG. 109, 120-21 (1988).

[72] BIANCA & BONELL, supra note 43, art. 50 para. 2.1.2; HONNOLD, supra note 12, § 312; KRITZER, supra note 12, at 375-78; Bergsten & Miller, supra note 66, at 259-63 (n.b., the discussion in the Bergsten & Miller article is based on an earlier draft of the Convention, and their analysis would change under the version of Article 50 finally adopted).

[73] BIANCA & BONELL, supra note 43, art. 50 para. 1.2 at 368-69 & para. 2.1.3 at 372; HONNOLD, supra note 12, § 311; Andrew Babiak, Comment, Defining "Fundamental Breach" Under the United Nations Convention on Contracts for the International Sale of Goods, 6 TEMP. INT'L & COMP. L.J 113, 131; Bergsten & Miller, supra note 66, at 256, 271-72.

[74] BIANCA & BONELL, supra note 43, art. 50 para. 1.2 at 368-69; HONNOLD, supra note12, § 313 at 396; Bergsten & Miller, supra note 66, at 255-56, 267-72.

[75] At the request of the UNCITRAL working group drafting the Convention, the U.N. Secretariat prepared a report dealing, inter alia, with the reduction in price remedy. The report criticized the remedy for producing results inconsistent with "acceptable principles for measuring damages" -- specifically for violating the principle that, "to the extent practicable, the injured party should be placed in the same position as would have resulted from performance of the contract." REPORT OF THE SECRETARY-GENERAL: OBLIGATIONS OF THE SELLER IN AN INTERNATIONAL SALE OF GOODS; CONSOLIDATION OF WORK DONE BY THE WORKING GROUP OF THE INTERNATIONAL SALE OF GOODS AND SUGGESTED SOLUTIONS FOR UNRESOLVED PROBLEMS, IV UNCITRAL Y.B. 36 at para. 150, U.N. Doc. A/CN.9/WG.2/WP.16 (1973), reprinted in JOHN O. HONNOLD, DOCUMENT INTERNATIONAL SALES 112, 134 (1989). See also Bergsten & Miller, supra note 66, at 274 ("to allow the buyer to reduce the price where he has made a bad bargain would put him in a better position than he would be in if the seller were to perform the contract, a situation which cannot be justified by the usual explanation of the function of damages" (emphasis added)). Flechtner, supra note 47, at 59 n.28 ("Article 50 offers aggrieved buyers an alternative to damages which, in certain situations, yields results at odds with expectation-based remedies") and 102-03 (the Article 50 remedy "will in some circumstances violate expectation principles").

[76] See MURRAY, supra note 12, § 117(A) for discussion of the three interests protected by common law contract remedies.

[77] See Commentary on the Draft Convention on Contracts for the International Sale of Goods, Prepared by the Secretariat, art. 70, para. 7, U.N. Doc. A/CONF.97.5 (1979) [hereinafter Secretariat Commentary], reprinted in JOHN 0. HONNOLD, DOCUMENTARY HISTORY OF THE UNIFORM LAW FOR INTERNATIONAL SALES 404, 449 (1989); BIANCA & BONELL, supra note 43, art. 74 para. 3.12-3.16; Flechtner, supra note 47, at 107 and authority cited n.262. Article 74 of the Convention does not specify when or where values are to be measured for purposes of determining damages, but there is authority for measuring value at the time and place of delivery. BIANCA & BONELL, supra note 43, art. 74 para. 3.16; Flechtner, supra note 47, at 107 n.262.

[78] There is nothing in CISG equivalent to § 2-717 of the U.C.C., which permits a buyer to set off its damages before paying the contract price. Professor Honnold, nevertheless, suggests that a buyer with a damage claim may have a right of "set-off and counterclaim" as a matter of "procedural systems" and "payment and settlement practices" that are outside the scope of the Convention. HONNOLD, supra note 12, § 313.2. CISG's drafting history, furthermore, contains suggestions that parties to a sale governed by the Convention retain setoff rights they enjoy under otherwise-applicable domestic law. Cf. Secretariat Commentary, supra note 77, art. 77, para. 9, reprinted in HONNOLD, supra note 77, at 453 (1989)(stating that party who has "claims arising out of the contract or its breach" and who resells goods under the CISG provision that became Article 88(3) retains whatever rights it had "under the applicable national law" to "defer the transmission of the balance [from the resale] until the settlement of those claims").

[79] The fact that Buyer would end up paying $20/barrel for oil worth only $15/barrel suggests that it may look for an alternative remedy. Buyer can refuse the tendered oil and "avoid the contract" if the non-conformity (the excessive sulphur content of the oil) constitutes a "fundamental breach." See CISG Arts. 49(1)(a) and 25. By relieving Buyer of its obligation to pay the price (see CISG Art. 81), avoidance would put Buyer in a better financial position than if Buyer kept the oil, no matter what remedy it chose in the latter case -- i.e., whether it claimed damages under Article 74 or reduced the price under Article 50. The point of the textual discussion, however, is not to identify Buyer's best remedy, but to demonstrate that the remedy of price reduction under Article 50 departs from expectation-based remedies. For a more complete discussion of the remedies available to someone in Buyer's position see Flechtner, supra note 47, at 54 ff.

[80] In other words, if Seller had shipped conforming 1% oil Buyer would have paid the contract price of $25/barrel for oil worth $20/barrel, losing $5/barrel. By paying $20/barrel for 2% oil worth only $15, buyer similarly loses $5/barrel --its "expectation" is "protected."

[81] Formulas for calculating the price reduction are given in BIANCA & BONELL, supra note 43, art. 50 para. 2.1.2, and KRITZER, supra note 12, at 377. Note that the Article 50 calculation is based on the value of goods "at the time of the delivery." In earlier drafts of the Convention price reduction was based on values "at the time of the conclusion of contract." The change was made to avoid requiring proof of the value of goods as of a time when the goods might not exist. BIANCA & BONELL, supra note 43, art. 50 para. 1.3.2; HONNOLD, supra note 12, § 313 at 396. The discussion of price reduction in Bergsten & Miller, supra note 66, at 258-63, is based on the earlier version of the price reduction provision under which value was measured at the time the contract was formed; in other respects the analysis and examples in that article are consistent with the methodology used in the text.

[82] "[W]hen, between the date of the contract and the date of delivery, there has been a decline in the value the goods would have had when delivered if the goods had conformed to the contract . . . the Article 50 formula can enable the buyer to obtain a larger recovery than the Article 74 formula." KRITZER, supra note 12, at 377.

[83] On the facts of the example there are no apparent reliance damages or restitutionary amounts for Buyer to recover from Seller. Of course one might require Buyer to pay for the goods it has received at a restitutionary rate -- i.e., the reasonable value of the 2% sulphur oil, which is $15/barrel. This amount does not correspond to the $18.75/barrel price produced by Article 50. Under the U.C.C., furthermore, Seller would not be limited to a restitutionary recovery against Buyer: Because Buyer has accepted the non-conforming oil, it must pay for the goods "at the contract rate," U.C.C. § 2-607(l), with an offset for damages, U.C.C. §§ 2-714 and 2-717. The result would correspond to the CISG Article 74 damages described in the text. At any rate, it is clear on the facts of the example in the text that the amount of the price reduction under CISG Article 50 does not conform to common law restitutionary principles.

[84] Thus if on May 1 the market value of 1% sulphur oil was $35/barrel and 2% sulphur oil was worth $30/barrel, Buyer could claim $5/barrel damages under Article 74 (the difference between the value of conforming 1% sulphur oil and the 2% sulphur oil actually delivered). Subtracting these damages from the $25 contract price, Buyer ends up paying $20/barrel. The reduced price under Article 50 on these facts, in contrast, is approximately $21.43/barrel (30/35, or 6/7, times $25/barrel).

[85] "The proportion between the purchase price and the objective value of the goods is maintained." BIANCA & BONELL, supra note 43, art. 50 para. 2.1.1 at 370. Bergsten & Miller, supra note 66, at 262 & 274, use the phrase "balance of the bargain."

[86] See Bergsten & Miller, supra note 66, at 274 ("The justification for a reduction of price for defect in quality is a reformation of the original contract which retains the relative balance of the bargain made by the parties.").

[87] CISG Art. 45(2) provides that "[t]he buyer is not deprived of any right he may have to claim damages by exercising his right to other remedies." See also HONNOLD, supra note 12, § 312 at 395; KRITZER, supra note 12, at 377-78; Bergsten & Miller, supra note 66, at 259; Flechtner, supra note 47, at 106.

[88] The situation also raises questions concerning damage remedies: could the buyer keep the goods and claim difference-in-value damages under Article 74 despite the seller's notice?

[89] So many, in fact, that one commentary states: "Price reduction as a remedy in international sales law meets with the greatest difficulties." BIANCA & BONELL, supra note 43, art. 50 para. 1.2 at 368.

[90] Id. para. 3.3; FRITZ ENDERLEIN & DIETRICH MASKOW, 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 art. 50 para. 4 (1992).

[91] BIANCA & BONELL, supra note 43, art. 50 para. 3.4; HONNOLD, supra note 12, § 313.1.

[92] HONNOLD, supra note 12, § 312 at 394-95; Bergsten & Miller, supra note 66, at 264. Other questions include what notice, if any, a buyer who wishes to reduce the price must give the seller (compare BIANCA & BONELL, supra note 43, art. 50 para. 2.1.3 (implying that reduction in price requires notice that takes effect upon dispatch) and HONNOLD, supra note 12, § 312 at 394 (assuming that a buyer will give notice of price-reduction) with Bergsten & Miller, supra note 66, at 263 (stating that "no [notice] requirement is placed on the declaration of reduction of price")); the time limits for invoking Article 50 (see BIANCA & BONELL, supra note 43, art. 50 para. 2.1.3); how the reduction is to be calculated if the price is payable other than in money (id., art. 50 para. 3.1); and the consequences of the "unilateral" nature of remedy (id., art. 50 para. 2.1.3; HONNOLD, supra note 12, § 313.2; Bergsten & Miller, supra note 66, at 263).

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