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CISG Article 78: Endless disagreement among
commentators, much less among the courts

Francesco G. Mazzotta
July 2004

Appendix 14

UNITED STATES OF AMERICA

1. U.S. District Court, Northern District of New York, September 9, 1994, available at <http://cisgw3.law.pace.edu/cases/940909u1.html>.

Original language:      English

Court:

"[Buyer] is entitled to prejudgment interest pursuant to UNCCISG Article 78. Because Article 78 does not specify the rate of interest to be applied, the court in its discretion awards [Buyer] prejudgment interest at the United States Treasury Bill rate as set forth in 28 U.S.C. 1961(a)."

2. U.S. District Court, Northern District of Illinois, August 28, 2001, available at <http://cisgw3.law.pace.edu/cases/010828u1.html>.

Original language:      English

UNCITRAL abstract:

"The plaintiff argued that express provisions in its invoices called for the payment of interest and proposed a calculation of the amount of interest owed. The defendant denied that it was liable for interest because the parties' course of conduct demonstrated that the defendant was never in arrears. It did not present to the jury a proposed calculation of interest. The jury resolved the dispute in favor of the plaintiff. The defendant then objected to the amount of interest awarded and asked the court to take judicial notice of the Illinois statutory rate and the U.S. treasury bill rate .... [T]he court turned down the defendant's request. Purporting to apply article 78 CISG, the court stated that the amount of interest should reflect a reasonable commercial rate as between merchants. It reduced the jury award of interest to reflect the amount of principal shown to be owed to the plaintiff."

To this end, Jury Instruction No. 28 (the instruction that spoke to the damages recoverable by [seller] if the jury found a breach of contract on [buyer's] part) reads in relevant part:

"Unless you find that the parties agreed otherwise, either expressly or through a course of conduct, [seller] is also entitled to recover interest on the amounts past due. If interest is recoverable, the rate of interest is that rate, if any, to which the parties agreed. If you find that no rate was agreed to by the parties, then the rate is that which you determine to be reasonable."

3. U.S. District Court, Northern District of Illinois, Eastern Division [federal court of 1st instance], 01 C 4447, 24 May 2004, (U.S.A.), available at <http://cisgw3.law.pace.edu/cases/040524u1.html>

Original language:      English

"Damages

The final matter before court is the award of damages. In its Amended Complaint, Chicago Prime seeks judgment "in the amount of $178,200 plus interest, attorney's fees, costs, and other and further relief as this Court shall deem just and appropriate." (Am. Compl., Count I.)

The CISG provides:

"Damages for breach of contract by one party consist of a sum equal to the loss, including loss of profit, suffered by the other party as a consequence of the breach. Such damages may not exceed the loss which the party in breach foresaw or ought to have foreseen at the time of the conclusion of the contract, in the light of the facts and matters of which he then knew or ought to have known, as a possible consequence of the breach of contract." CISG, Art. 74.

This provision is "designed to place the aggrieved party in as good a position as if the other party had properly performed the contract." Delchi Carrier SpA, 71 F.3d at 1029 (quotation omitted). It is undisputed that Chicago Prime's loss is $178,200.00.

The CISG further provides that "[i]f a party fails to pay the price or any other sum that is in arrears, the other party is entitled to interest on it, without prejudice to any claim for damages recoverable under article 74." CISG, Art. 78. Thus, Chicago Prime is clearly entitled to prejudgment interest. However, Article 78 does not specify the rate of interest to be applied or how the rate should be determined; and the parties have not addressed the issue. The court's research has revealed that the interest issue under the CISG has been the subject of great controversy. In fact, "[t]he interest issue, while relatively mundane-sounding, has been the subject of up to 30 percent of total CISG cases worldwide." Tom McNamara, U.N. Sale of Goods Convention: Finally Coming of Age?, 32-FEB Colo. Law. 11, 19 (February, 2003) (citation omitted); see also Louis F. Del Duca & Patrick Del Duca, Practice Under the Convention on International Sale of Goods (CISG): A Primer for Attorneys and International Traders (Part II), 29 UCC L.J. 99, 157 (1996) (stating that "[42] of the 142 cases reported thus far involve issues as to what interest rate should be applicable to overdue payments or refunds"). One author outlined nine different approaches that courts have used (or authors have suggested) in determining the rate of interest under the CISG, including using the law applicable to the contract in the absence of the CISG, the law of the creditor's place of business, the law of payment currency, trade usages observed in international sale, general principles of full compensation and the law of the forum. See Christian Thiele, Interest on Damages and Rate of Interest Under Article 78 of the U.N. Convention on Contracts for the International Sale of Goods, <http://www.cisg.law.pace.edu/cisg/biblio/thiele.html> (updated July 5, 2001). Another author, finding that the current approaches do not fully satisfy the objectives of a default rule (such as international uniformity), suggests that adjudicators should "customize" the rate by awarding the actual borrowing or savings rate or the lending rate in the absence of evidence of borrowing costs. Karin L. Kizer, Minding the Gap: Determining Interest Rates Under the U.N. Convention for the International Sale of Goods, 65 U. Chi. L.Rev. 1279, 1302- 05 (Fall 1998).

However, because there is no single approach used by all courts and the parties have failed to address the interest issue or provide information necessary to "customize" a rate, this court will award interest according to the principles used by federal courts in determining choice of law issues. It is well-settled that "[a] federal court sitting in diversity jurisdiction must apply the substantive law of the state in which it sits," including its choice of law. Land v. Yamaha Motor Corp., U.S.A., 272 F.3d 514, 516 (7th Cir.2001) (citing Erie R.R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938)). See also Allen & O'Hara, Inc. v. Barrett Wrecking, Inc., 964 F.2d 694, 695 n. 3 (7th Cir.1992) ("In diversity cases, federal courts look to state law to determine the availability of and rules for computing prejudgment interest.").

In contract disputes, Illinois follows the Restatement (Second) of Conflict of Laws, which refers courts either to a choice of law provision in the contract at issue, or to the place of performance. Midwest Grain Prods. of Illinois, Inc. v. Productization, Inc., 228 F.3d 784, 787 (7th Cir.2000) (citing Esser v. Mclntyre, 169 Ill.2d 292, 214 Ill.Dec. 693, 661 N.E.2d 1138, 1141 (Ill.1996)). In this case, there is no choice of law provision found in the contract but performance undoubtedly took place in Illinois. The contract was one for the purchase of ribs and the ribs were delivered to Northam's agent in Illinois. "In Illinois, prejudgment interest, whether grounded in a statute or equity, is based on the concept of fairness and is awarded to make the plaintiff whole for the loss of use of money wrongfully withheld ." Platinum Tech., Inc. v. Federal Ins. Co., 282 F.3d 927, 933 (7th Cir.2002) (citing In re Estate of Wernick, 127 Ill.2d 61, 129 Ill.Dec. 111, 535 N.E.2d 876, 888 (Ill.1989)). The Illinois Interest Act, 815 ILCS 205, provides a statutory rate of 5% per annum, calculated from the time the money was due under the contract:

"Creditors shall be allowed to receive at the rate of a five (5) per centum per annum for all moneys after they become due on any bond, bill, promissory note, or other instrument of writing; on money lent or advanced for the use of another; on money due on the settlement of account from the day of liquidating accounts between the parties and ascertaining the balance .... " Id. 205/2.

Coincidently, the result of applying Illinois choice of law rules in this case is to apply the law of Illinois, the forum state. Using the forum's interest rate is a common choice in CISG cases, notwithstanding its tension with the CISG's goal of promoting international uniformity. See McNamara, supra, 32- FEB Colo. Law. at 19 ("In the absence of direction, courts have often awarded interest according to the applicable law of the forum jurisdiction.").

The undisputed contract price for the ribs was $178,200.00, which is evidenced in the Confirmation and the Invoice. Based on the statutory rate of 5% and the finding that $178,200.00 was due under the contract on May 1, 2001, simple prejudgment interest is $27,242.63. Therefore, Chicago Prime is entitled to damages in the amount of $178,200.00 plus prejudgment interest in the amount of $27,242.63.

A claim for attorney's fees is a procedural matter governed by the law of the forum. Ajax Tool Works, Inc., 2003 WL 223187 at *7. The Seventh Circuit recently decided that the term "loss" in Article 74 of the CISG does not include attorney's fees incurred in the litigation of a suit for breach of contract. Zapata Hermanos Sucesores, S.A. v. Hearthside Baking Co., Inc., 313 F.3d 385, 389 (7th Cir.2002). Accordingly, Chicago Prime's claim for attorney's fees is denied.

Conclusion

In accordance with the foregoing Findings of Fact and Conclusions of Law, the Clerk of the Court is directed to enter judgment in favor of the plaintiff Chicago Prime Packers, Inc. and against the defendant Northam Food Trading Co. in the sum of $178,200.00 plus $27,242.63, representing prejudgment interest calculated at a rate of 5% from May 1, 2001, for a total payment of $205,442.63."

SUMMARY

Cases involving Article 78: 3
Cases for which an English translation/text is available: 3
Cases for which only an abstract was available: 0
Cases for which neither translation nor abstract was available: 0


Pace Law School Institute of International Commercial Law - Last updated November 16, 2004
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