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Price Reduction for Non-Conformity:
Perspectives from the CISG, UNIDROIT Principles, PECL and Case Law

[2nd edition: Case annotated update (March 2005)]

Chengwei Liu
LL.M. of Renmin University of China; E-mail: <lexway@mail.com>.

  1. Introduction
  2. Unilateral Nature of the Price Reduction Remedy
  3. The Remedy Compared with Damages
    3.1  Primarily concerned with preserving the bargain in contrast with damages' focusing on actual economic efficiency
    3.2  Especially advantageous in several particular cases as an alternative to damages
    3.3  Incompatible with damages only to the extent they overlap
  4. Prerequisites for Invoking Price Reduction
    4.1  Existence of non-conformity
    4.2  Notice of non-conformity already given
    4.3  Lack of cure by non-performing seller
    4.4  Intention of the reduction expressed with a valid declaration
  5. Calculation of the Reduction
    5.1  A proportional calculation
    5.2  Time and place for measuring the reduction

Key provisions at issue

1. Introduction

Price reduction, a unilateral right of the aggrieved buyer to whom non-conforming goods have been delivered, is one of the remedies reflecting the focus on preserving the contract. There is agreement that this remedy enables the bargain to be preserved.[2] Reduction of price presupposes, however, that the seller delivers non-conforming goods, and that the buyer decides to accept them nevertheless.[3]

The remedy of reduction of price for the purchaser of defective goods derives from the actio quanti minoris in Roman Law.[4] A remedy allowing the buyer to pay a reduced price for defective goods delivered by the seller has been recognized since Roman times, under the Roman law remedy of actio quanti minoris. As originally framed, where there was a latent or hidden defect in the goods purchased which reduced their value, the buyer could sustain an action against the seller to reduce the purchase price payable. The purpose of the remedy is to allow the buyer to keep defective goods and pay the price the buyer otherwise would have paid had it been aware of the hidden defects in the goods.[5]

Initially a Roman law tradition (actio quanti minoris), price reduction has since been carried forward into the main civil law codes, "as a supplement to the remedy of damages, a remedy which these legal systems limit to cases where there is fault."[6] Under these codes, the remedy is particularly useful, since, unlike contractual damages, the buyer can obtain the remedy without having to prove fault on the part of the seller.[7] In those jurisdictions, where the buyer accepts that goods do not conform with the contract, and the seller is not at fault, price reduction provides a further remedy of pecuniary compensation; it is a popular and important remedy in daily national and international practice. Always fiercely defended by civil law countries, it is however unknown in common law jurisdictions. Common law lawyers experienced great difficulty in understanding the nature of the remedy of price reduction and tended to confuse it with the remedy of damages.[8]

The United Nations Convention on Contracts for the International Sale of Goods (1980; "CISG" or "Convention") has gone further into incorporating a full price reduction remedy.[9] It is made expressly clear in CISG Art. 50, which derives from the traditional actio quanti minoris and retains certain important uses for commerce,[10] that the buyer can reduce the price even after he has paid. CISG Art. 50, a part of the remedial scheme of the CISG,[11] deals with this remedy in the way that:

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. 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.

The compromise reached by the present Convention is "the simultaneous availability of damages without fault and of the price reduction remedy."[12] On this basis, to some extent, the damages provisions of the Convention undermine the need of a price reduction remedy contained in its Art. 50 because, unlike the Civil Law system, the CISG, following the Common Law approach, does not require fault of the seller in order to make him liable for damages.[13] Case law indicates that damages have generally been the preferred remedy. The narrow application of Art. 50 does throw some doubt on the necessity for a price reduction remedy. In any event, however, the worth of a provision should not be determined on the basis of its frequency of use. Apart from its use as a familiar tool to those comfortable with civil law systems, it does protect the buyer from certain inequitable situations that would otherwise not be properly remedied by damages alone.[14] Several such situations have been noted in the Secretariat Commentary:[15]

"First, article 46 [draft counterpart of CISG article 50] itself makes it clear that the price can be reduced by the buyer even though he has already paid the price. Article 46 does not depend on the buyer's ability to withhold future sums due.

"Second, even if the seller is excused from paying damages for his failure to perform the contract by virtue of article 65 [draft counterpart of CISG article 79], the buyer may still reduce the price if the goods do not conform with the contract.

"Third, the right to reduce the price is not affected by the limitation to which a claim for damages is subjected under article 70 [draft counterpart of CISG article 74], i.e. that the amount of 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 contracts a possible consequence of the breach of the contract."

On top of such above useful functions, CISG Art. 50 provides for "another remedial option to the buyer".[16] Art. 9:401 of the Principles of European Contract Law (1998; "PECL") gives the buyer the same right of reducing the price, even though it does not apply the term "buyer" but instead a "party who accepts the tender of performance".[17] Indeed, more details have been provided in PECL Art. 9:401, favoring a better understanding of CISG Art. 50. PECL Art. 9:401 provides under the title Right to Reduce Price that:

(1) A party which accepts a tender of performance not conforming to the contract may reduce the price. This reduction shall be proportionate to the decrease in the value of the performance at the time this was tendered compared to the value which a conforming tender would have had at that time.

(2) A party which is entitled to reduce the price under the preceding paragraph and which has already paid a sum exceeding the reduced price may recover the excess from the other party.

(3) A party which reduces the price cannot also recover damages for reduction in the value of the performance but remains entitled to damages for any further loss it has suffered so far as these are recoverable under Section 5 of this Chapter.

Again, PECL Art. 9:401 "generalizes the remedy provided by the action quanti minoris."[18] Indeed, both CISG Art. 50 and PECL Art. 9:401, sharing similar rationale and modus operandi, are somewhat qualified expressions of actio quanti minoris. As Vanto notes, the terminology employed by both CISG Art. 50 and PECL Art. 9:401 appears similar and would presumably produce largely similar results in resolving a contractual dispute. PECL Art. 9:401 lays out many of the criteria for the application of the remedy of price reduction that in the CISG have to be drawn from many intertwined articles of the Convention. According to Vanto, the utility of the PECL to interpret CISG Art. 50 is more extensive in civil law jurisdictions where the concept underlying PECL Art. 9:401, i.e., actio quanti minoris, as a conceptual tool for understanding price reduction has more weight. Common law systems do recognize the remedy of price reduction but it assumes a narrower scope than it does in civil law systems. PECL Art. 9:401, however, is of use even for a common lawyer wanting to understand the remedy of price reduction in a CISG-related dispute.[19]

Strikingly, however, no existence of a counterpart rule has been found under the UNIDROIT Principles of International Commercial Contracts (1994; "UNIDROIT Principles"). There is no explanation within the UNIDROIT Principles for this exclusion. Despite this, as supported by either CISG Art. 50 or PECL Art. 9:401, "the prevailing view among most scholars that price reduction is a remedy provides a solid starting point."[20] Thus, the following will continue to discuss this remedy, focusing on the elements of CISG Art. 50 and PECL Art. 9:401. But before details given on the claim and calculation of price reduction, the unilateral nature of this remedy will be firstly discussed.

2. Unilateral Nature of the Price Reduction Remedy

Art. 50 of the CISG provides the buyer with the unilateral right to reduce the price of the purchased goods if they do not conform to the contract, to the amount that buyer would have been paid had the buyer known of the non-conformity, unless the seller cures the non-conformity.[21]

Price reduction under CISG Art. 50 is said to be advantageous because it is a self-help remedy.[22] It was drafted from the perspective of the buyer. It is the buyer that has the option and the power to reduce the price paid (or to be paid) to the seller. While civilian legal systems require expert advice or the court to determine the difference in value between the contract price and the actual value, the CISG gives this power of determination solely to the buyer. On this basis, price reduction can be seen as a self-help remedy that can be implemented by the buyer without any requirement to have the determination upheld by a court, expert or other tribunal.[23] Similarly, Will submits that:[24]

"As to the effects it differs from many models offered by national laws in that it gives the buyer a stronger position. If the buyer wants the non-conforming goods he can unilaterally adapt the contract to the new circumstances. He need not look to a judge, nor need he depend in any way on the seller. His unilateral declaration suffices. Such declaration travels at the risk of the seller (see Article 27). It takes effect upon dispatch and immediately -- even if it never reaches the seller -- transforms the contract. As a further consequence, the buyer immediately loses any right to choose another remedy."

In practice, however, this unilateral nature as opposed to some domestic systemes is largely illusory. Any price reduction by the buyer must certainly be reasonable, otherwise it would be disputed by the seller and subject to review by a court. During these proceedings, expert evidence would in all likelihood be adduced as to the value of the goods. Additionally, the burden of proof on the value of the goods (both the value of delivered goods and conforming goods) is squarely on the buyer. The self-help view of the remedy is further reduced where the buyer has already paid the purchase price. Art. 50 applies "whether or not the price has already been paid." If the buyer chooses to reduce the price before it has paid, it can merely deduct the difference in value from what it pays to the seller. Where the price has already been paid, the buyer must seek a refund from the seller for a portion of the purchase price. If the seller refuses to cooperate with the price reduction, the buyer will be required to commence legal proceedings to recover the price difference. This is a much more onerous remedy than the buyer unilaterally determining a price reduction and deducting it from the price it pays to the seller.[25]

In any event, if the seller disagrees with the buyer as to the existence of a non-conformity in the goods - or as to the monetary consequences of that non-conformity, the issue must ultimately be settled in court. From the point of view of the final adjustment of the financial obligations of the parties, it is of no consequence that the price is reduced by the buyer's unilateral declaration.[26] Indeed, once the matter proceeds to litigation, the buyer who has already paid the purchase price would in most cases seek the full level of damages for the breach rather than merely reducing the price. Thus, price reduction would usually only come to light where the seller is making a claim against the buyer for the purchase price and the buyer is seeking to reduce or eliminate the obligation to pay the price.[27] This deduction is supported in CISG case law, which evidences that CISG Art. 50 has rarely been used between the contracting parties offensively; it has mostly been used as a counterclaim or as a defense stemming from the buyer's withholding of the payment.[28]

Even though in practice, price-reduction has assumed a character of a defense rather than a claim, it must be emphasized that it is still a unilateral right of the buyer.[29] According to CISG Art. 50, the buyer has the right to price reduction if the delivered goods do not conform with the contract. The right is independent of whether the buyer has sold the goods further and at what price or whether the buyer has been subject to complaints or demands for compensation. These issues may, however, have an effect on the amount of price reduction.[30]

3. The Remedy Compared with Damages

      3.1 Primarily concerned with preserving the bargain in contrast with damages' focusing on actual economic efficiency

Price reduction is a remedy which is not known in some legal systems (especially in common law). In those legal systems it would be natural to see this remedy as a form of damages for non-performance of the contract. The price reduction under CISG Art. 50 may have originated as a concession by common law lawyers to civil law lawyers, but represents more than a mere vestige: it will no doubt be of current utility. The utility of the remedy in question, a pecuniary remedy, can best be measured by comparing it with the only other pecuniary one: damages.[31]

Although the two remedies lead to the same result in some situations, they are two distinct remedies to be used at the buyer's choice.[32] In this respect, Sondahl further notes that:[33]

"Article 50 is especially unique since it is not designed to protect a buyer's expectation, reliance, or restitution interests, and it may at times violate expectation principles. While Article 74 damages put the buyer in the position she would have been in had the seller properly performed the contract, Article 50 departs from the expectation damage calculation method. The amount of the price reduction under Article 50 is based on a principle unknown to the common law. Unlike expectation damages, which are designed to preserve the benefit of the bargain for the aggrieved party, price reduction attempts to preserve the proportion of the bargain. Assuming that the buyer would have made the same relative bargain, Article 50 treats the buyer as though she has purchased the non-conforming goods that were actually delivered."

That is to say, price reduction under CISG Art. 50 has a different objective than damages - to preserve the bargain; it is concerned with the promise, the moral duty to keep it and more specifically with the moral right of the buyer to have the promise kept, and not as concerned with the actual economic efficiency of the promise as the damages remedy.[34] Thus, "[u]nlike damages-based remedies, the principle of the price reduction remedy is not dependent on actual loss being suffered by the buyer, but is solely dependent on the abstract relationship between the actual value of the goods delivered and the hypothetical value of conforming goods."[35] In this sense, it may be argued that: "A declaration of price reduction always gives the buyer some immediate relief, while a claim for damages remains subject to negotiation or litigation (citation omitted)."[36] Of course, as already discussed above, this unilateral nature of price reduction is some illusory. Despite this, by virtue of the price reduction under CISG Art. 50, the buyer is given "the opportunity to retain non-conforming goods and bring the contract in line with the changed circumstances through proportionate reduction of the purchase price."[37]On the other hand, Art. 50 of the Convention "is reflective of the general CISG approach of trying to balance the rights of the buyer and the seller, in the sense that it gives the buyer the right to reduce the price, but the seller may remedy the non-conformity and subsequently obtain the original price agreed on in the contract."[38] Art. 50 can thus be seen as an additional form of risk allocation between the buyer and seller. The policy rationale for such a rule is that it would otherwise be unjust for the buyer to be forced to pay full price for non-conforming goods.[39]

In sum, as already stressed at the outset, price reduction is primarily concerned with preserving the bargain between the parties and being used as a means of rebalancing the performance required by both sides.[40] As a matter of fact, however, it applies only where the aggrieved party accepts the non-conforming tender. If it does not, its remedy is either to pursue a restitutionary claim or to claim damages.[41]

      3.2 Especially advantageous in several particular cases as an alternative to damages

As mentioned in the Introduction, "the importance of the price-reduction remedy in international sales law is somewhat limited because, by virtue of Article 45(1)(b) of the CISG, damages are, in principle, readily available for every breach of contract on a no-fault basis. On top of that, the remedy of damages often serves the buyer better since the amount recoverable under Articles 45(1)(b) and 74 is usually higher than the sum by which the price can be reduced according to Article 50 of the CISG."[42]

Nevertheless, Art. 50 confers on the buyer a right to reduce the price of non-conforming goods in lieu of claiming damages (assuming there is a right to damages).[43] At least, it cannot be said that the price-reduction remedy is superfluous because under certain circumstances it is advantageous or even necessary to rely on this right instead of damages.[44] The most straightforward situation is where the buyer has difficulty in proving its loss, such as where it has purchased the goods for altruistic/non-commercial purposes. If, for example, the buyer has purchased foodstuffs to donate to charity, it has not necessarily suffered any loss from the diminution in value of the non-conforming goods. Without any loss or necessarily the ability to prove any damage, the buyer's preferred remedy would be a reduction in the price to be paid to the seller.[45]

Another special role of price reduction is to determine how much the buyer owes the seller for non-conforming goods when special circumstances relieve the seller of liability for damages.[46] Price reduction is indispensable in such cases where the seller according to CISG Art. 79 is relieved of liability. In such cases the remedy of price reduction is the only one giving the buyer monetary relief.[47] In situations where the vendor comes under the protective scope of CISG Art 79(1), CISG Art. 79(5) makes it clear that this exemption only applies to claims for damages and that it does not prevent either party from exercising any other remedy under the Convention. As CISG Art 50 is separate from any claim for damages, the buyer can still claim a price reduction for defects under those circumstances.[48] Similarly, under PECL Art. 8:101(2), the only remedies which are excluded in the case of an excused non-performance are specific performance and damages. Therefore, the fact that a shortfall in performance is excused under PECL Art. 8:108 does not affect the aggrieved party's right to a price reduction under PECL Art. 9:401.[49] Thus, both CISG Art. 50 and PECL Art. 9:401 give the buyer an opportunity to demand price reduction even if damages are not or cannot be claimed, for instance, when CISG Art. 79 is applicable.[50]

Of course, under the Convention specifically, since the force majeure exemption does not affect the buyer's rights other than damages, he may reject the goods and declare the contract avoided if the seller's failure amounts to a fundamental breach in terms of CISG Art. 25. However, in case he has a particular interest in the goods and thus decides to accept them, the buyer cannot claim damages under Art. 45(1)(b) because, according to Art. 79(1) of the CISG, the seller is free from liability. Under these circumstances, reduction of the purchase price is the only (pecuniary) remedy to which the buyer can resort.[51]

In any event, price reduction has been designed both as an alternative to damages and for cases where the non-performing party is excused from liability for damages.[52] However, CISG Art. 50 does not (nor does PECL Art. 9:401) confine "price reduction" to cases where sellers are excused from liability for damages[53] Of particular notice is the case of a falling market -- a third situation where price reduction is more useful to the buyer than damages. Where the market price of conforming goods has substantially decreased between the time of contracting and delivery, the buyer is well advised to opt for the reduction of the purchase price instead of damages. This results from the different methods of calculating the price reduction and damages, respectively.[54] In respect of this difference regarding the calculation, it is noted:[55]

"The differences in calculating the monetary compensation under the two remedies can be summarized as follows: damages are measured as of the time of delivery; reduction of price is measured as of the time of conclusion of the contract. Damages are calculated as the absolute sum of money necessary to reimburse the loss suffered by the buyer; reduction of price is calculated in terms of an amount proportional to the difference in value of the goods as contracted and the goods delivered."

In view of these significant differences, Art. 50 would provide a greater benefit on a fall in market price. On the other hand, it is also noted that if there were a reduction in market price from the time of contracting, the buyer would most likely reject the goods, since it could obtain conforming replacement goods on the open market at less than the contract price. The application of Art. 50 appears to give the buyer the upper hand, since it can elect to pursue the remedy that offers it the highest return.[56] Conversely, in any event, where the price increases, the buyer would be best advised to seek damages since the difference in value between what was contracted for versus what was received would likely be greater than the difference calculated under Art. 50. Of course, if the market price stays the same as the contract price, there would be no difference in the amount that could be claimed as damages versus a price reduction under Art. 50. In that case, the two remedies are to be used at the entitled buyer's choice.

Interestingly, however, an examination of German case law on Art. 50 of the CISG reveals that, so far, neither Art. 79(1) nor falling markets seem to have induced buyers to resort to this remedy. From this, according to Gärtner, it can be inferred that the price-reduction remedy does not only serve a useful purpose in the above mentioned situations. Instead, it may be presumed that merchants prefer to make use of this self-help remedy because it enables them to immediately restore the parity of performances without having to resort to a court. Indeed, it appears sensible to assume that this advantage is also the reason why many international contracts for the sale of generic goods provide for price-reduction in cases of non-conforming goods. With regard to this particular problem, one can therefore draw the conclusion that Art. 50 of the CISG reflects commercial practice which indicates that it provides for an economically sensible solution. Accordingly, a price-reduction remedy, which was obviously modeled upon Art. 50 of the CISG, has also been included in Art. 9:401 of the PECL.[57]

In any event, it must be emphasized that price reduction is a unilateral right of the buyer.[58] The buyer's ability to choose between price reduction and damages is no different from its being able to choose between specific performance and damages instead of avoidance of a contract. The non-breaching party has a choice between being bound to a breached contract or not, whatever is in her best interest.[59]

      3.3 Incompatible with damages only to the extent they overlap

CISG Art. 50 authorizes an aggrieved buyer to reduce the price according to a stated formula when it receives and keeps non-conforming goods. The buyer may waive its right to damages under Arts. 74 to 76 by claiming instead for the reduction of the price under Art. 50.[60] For instance, it is held in [Russian Federation 24 January 2000 Arbitration award 54/1999] that: "Having demanded the reduction of the price, the buyer thereby waived his claim, formulated in his Supplement to the statement of claim, for compensation of expenses in accordance with Article 45, in excess of payment of the amount of reduction of the price."[61]

In principle, in some cases buyers who accept defective goods may have a choice between two remedies--price reduction under Art. 50 and a claim for damages under Art. 74.[62] However, difficult problems can arise in integrating price-reduction under Art. 50 with the general rule on damage-measurement in Art. 74. Suppose that a buyer notifies the seller of price-reduction under Art. 50 and later seeks to prove a more generous measure of the loss available under Art. 74. The Convention does not seem to deal with this question of election of remedies. Article 45(a) and (b) does indicate that "rights provided in articles 46 to 52" (note the inclusion of article 50) do not bar damages under Art. 74. On this basis the buyer could claim both price reduction and consequential losses -- e.g., delays in production because of defects in the goods.[63] However, as noted in [Germany 22 August 2002 Oberlandesgericht [Appellate Court] Schleswig], a creditor is not in the position to claim for damages any longer, if he successfully claimed for another legal remedy, so that he has already achieved his aim to have the damages occurred entirely or partly removed. Insofar, claims for reduction of price and damages overlap, the concurrent granting of a claim for reduction of price and damages could lead to certain disadvantages for the seller.[64]

In any event, as Honnold states, CISG Art. 45 should not be construed to permit double recovery based on the reduced value of the goods.[65] That is to say, the reduction in value may not be claimed both as price reduction and as damages and that in this sense the effect of CISG Art. 50 and PECL Art. 9:401 is similar, even though both PECL and the CISG give the buyer the right to claim any further losses as damages.[66] But, in contrast with CISG Art. 50, PECL Art. 9:401(3) has provided a clearer guidance in subtly defining the relation between damages and price reduction:

"A party which reduces the price cannot also recover damages for reduction in the value of the performance but remains entitled to damages for any further loss it has suffered so far as these are recoverable under Section 5 of this Chapter."

That is to say, where the aggrieved party reduces the price under this Article it cannot also claim damages for reduction in the value of the performance as tendered compared with the value of a conforming tender. The two remedies are incompatible so that there is no right to cumulate them.[67] Indeed, in general, claim for damages competes with other legal remedies, particularly with the claim for a reduction of the purchase price.[68] Although the two remedies lead to the same result in some situations, they are two distinct remedies to be used at the buyer's choice.[69]

However, on the other hand, other loss remains recoverable within the limits.[70] As is clear, the two remedies are incompatible only to the extent that they overlap.[71] To the extent that buyer's aim to have the loss it suffered removed could not have been achieved entirely by claiming price reduction, he can claim damages in conjunction with the reduction in price. At the same time, however, it is to be stressed that where damages are claimed in combination with price reduction, damages can only be awarded for any loss other than the reduced value of the goods because this loss is already reflected by the price reduction. Moreover, when the claim comes under damages, it remains to be explored whether damages could be generally recovered on the basis of the fundamental provisions relating to damages (CISG Art. 74 or PECL Arts. 9:503 to 9:505). Among other things, this means that any further damage is limited as to its foreseeability. In this case, too, it is a prerequisite that the injured party claims damages and proves the loss.[72]

4. Prerequisites for Invoking Price Reduction

      4.1 Existence of non-conformity

When considering whether buyer is entitled to price reduction, it is decisive to determine whether he has received non-conforming goods.[73] The objective of CISG Art. 50 is to give the buyer an opportunity to keep the received goods which, even though not entirely conforming to what had been agreed on in the contract, he may still make use of but may take the non-conformity into account when paying the purchase price. This means that price reduction is a remedy that is available to the buyer only if the goods are not in conformity with what the parties had agreed on in the contract and not, for example, in cases where the price of the contracted goods has gone down in the world market after the conclusion of the contract and the buyer feels trapped in a bad contract.[74]

In general, under the Convention, non-conformity is to be understood in the sense of Art. 35, i.e., defects as to quantity (or weight), quality, description (aliud) and packaging. Also defects of documents relating to the goods can be treated as a case of non-conformity.[75] Indeed, "[n]o distinction is drawn in Article 50 between different types of non-conformity. The same remedy applies regardless of the reason of non-conformity and there is no difference between the approach to defects of quantity and defects of quality."[76] Similarly, as noted in the UNCITRAL Digest: "Price reduction applies irrespective whether the non-conformity constitutes a fundamental or a simple breach of contract, whether or not the seller acted negligently or whether the seller was exempted from liability under article 79. The remedy does also not depend on the fact whether the buyer has already paid."[77] In short, the aggrieved party is entitled to a reduction in the contract price where the other party's performance is incomplete or otherwise fails to conform to the contract. The remedy is given whether the non-conformity relates to quantity, quality, time of delivery or otherwise.[78]

However, the subject of whether price reduction should apply to third-party claims generated debate during the drafting of the 1980 Convention.[79] Finally, a Norwegian proposal supporting the applicability of price reduction to defects in title was withdrawn, saying that the matter should be left up to the courts.[80] Due to the "dogmatic gap between non-conformity of goods, and third party rights or claims" which was not closed completely,[81] controversy has arisen among legal scholars as to whether price reduction under CISG Art. 50 should also be applied to the cases where goods are not free from third party rights or intellectual rights (CISG Arts. 41, 42).[82] Unfortunately, to date no decision has been reached as to whether the price may be reduced for defects in title or third-party claims based on industrial or other intellectual property rights. Thus, the "open" status of this debate remains unchanged; and it may only be generally submitted that: "The absence of a clear decision in the text of the Convention demonstrates the decision to apply or not to apply price reduction rests with the courts."[83]

Among other things, the courts in this respect will hardly fail to look at Art. 44, which contains a reference to Art. 50 with regard not only to non-conformity but also to third party claims.[84] According to Will, this seems to indicate that CISG Art. 44 presupposes the possibility of price reduction in such cases. This line of reasoning, however, is not in complete harmony with the above-mentioned discussion which expressly left open whether third party claims may lead to price reduction. The courts and arbitral tribunals will have to choose one of two interpretations. They may interpret Art. 44 so restrictively as to practically delete the reference to third party claims. One might point to the fact that the provision, introduced late in the debates, was always considered in the context of non-conformity, not of third party claims. However, the argument lacks strength because in the end the provision was precisely taken out of that context, put at the end of the section and elevated to the level of a separate article. The other way would be to interpret Art. 50 so extensively as to make the remedy of price reduction available beyond the narrow scope of Art. 44. Whether the latter solution is the better solution, as one might be inclined to think, will need further exploration.[85]

In addition to the above vagueness, questions have been further raised as to whether price-reduction under Art. 50 applies to other types of non-performance such as delay, delivery at the wrong place, and the like. Indeed, as Honnold notes, the debate that led to the failure of the Norwegian proposal recognized the difficulty of applying the price-reduction formula of Art. 50 outside of its stated sphere--claims of non-conformity.[86] In any event, both CISG Art. 50 and PECL Art. 9:401 set as a prerequisite for their application that the goods (or service under PECL Art. 9:401) do not conform with the contract.[87] The remedy of price reduction, therefore, is not available if the breach of contract is based upon late delivery or the violation of any other obligation of the seller.[88] Thus, for instance, the Court in [Germany 24 April 1997 Oberlandesgericht Düsseldorf] does not grant the buyer price reduction, on the ground that CISG does not provide for this remedy in the case of late delivery.[89] Indeed, there is no need to stretch Art. 50 beyond its stated scope. Arguably, Art. 74's general provisions on the measurement of damages provide a flexible measure of the buyer's loss in diverse circumstances and in most situations are more appropriate than the formula stated in Art. 50, recourse to which is, of course, optional.[90]

In all cases, it is the buyer that bears the burden of proof with regard to the nature and extent of the non-conformity of the goods.[91] Therefore, when it cannot be ascertained whether the goods possessed a non-conformity at the decisive point in time, the Court in [Germany 24 March 1999 Landgericht [District Court] Flensburg] holds that "[t]his uncertainty goes to the disadvantage of the [buyer]" since "[buyer] bears the burden of proof for the non-conformity of the goods at the time of the passing of risk (citations omitted)."[92]

      4.2 Notice of non-conformity already given

As noted above, when the goods delivered are not in conformity with the contract, the aggrieved buyer is entitled to reduce the price according to CISG Art. 50. Price reduction presupposes, however, that the buyer has given notice of the lack of conformity of the goods in accordance with Art. 39 (or 43).[93]

This prerequisite results particularly from the provision of CISG Art. 39,[94] which "shows that the Convention evidently requires a proper notice of the lack of conformity of the goods to the other party."[95] Without due notice, the buyer is not allowed to rely on the lack of conformity and loses all remedies (including price reduction).[96] In other words, as the Tribunal in [ICC June 1996 International Court of Arbitration, Case 8247] rules, "the purchaser loses his right to avail himself of the fault of non-conformity of the goods if he does not denounce it to the seller within a reasonable time from the moment when he has discovered it or should have discovered it (Article 39)."[97] Similarly, in [Germany 12 October 2000 Landgericht [District Court] Stendal], the Court rules: "The buyer loses the right to demand a reduction in price under Art. 50(1) CISG if she does not give a proper notice specifying the lack of conformity of the goods (citations omitted). This corresponds to the general rule contained in Art. 39(1) CISG which stipulates that the buyer loses the right to rely on a lack of conformity of the goods if she does not give notice to the seller specifying the nature of the lack of conformity within a reasonable time after she has discovered it or ought to have discovered it."[98]

However, one must note that this prerequisite is subject to three exceptions:

(a) In respect of buyer's notice of non-conformity to be given under CISG Art. 39, the seller would be prevented from relying on buyer's failure to give that notice if, according to CISG Art. 40, "the lack of conformity relates to facts of which he knew or could not have been unaware and which he did not disclose to the buyer." In this regard, it is however to be noted that the buyer bears the burden of proving that the seller knew or could not have been unaware of a lack of conformity.[99] At the same time, however, this onus should be distinguished from the proving that the seller disclosed the lack of conformity to the buyer. It seems reasonable for the seller to bear the latter.[100]

(b) In respect of buyer's notice of defects in title (with respect to breaches of CISG Art. 41 or 42) to be given under CISG Art. 43(1), the seller is not entitled to rely on buyer's failure to give that notice if, according to CISG Art. 43(2), "he knew of the right or claim of the third party and the nature of it." The provisions of Art. 43 parallel in many ways the notice requirement and defense thereto that Arts. 39 and 40 establish with respect to breaches of Art. 35.[101] However, there is very little in the way of decisions construing Art. 43. Presumably those called upon to interpret Art. 43(1) or 43(2) may look for guidance from the numerous decisions that apply the parallel provisions of Arts. 39 and 40, although the differences between those provisions and Art. 43 should certainly be kept in mind.[102]

(c) In addition to the above, CISG Art. 44 establishes an exception where the buyer can reasonably excuse its failure to give notice of defect.[103] Art. 44 of the Convention provides that: "Notwithstanding the provisions of paragraph (1) of article 39 and paragraph (1) of article 43, the buyer may reduce the price in accordance with article 50 or [], if he has a reasonable excuse for his failure to give the required notice." Again, the onus of proof is on the buyer.[104] The buyer who relies on the exception provision under Art. 44 CISG, "has the burden of showing that the actual requirements for its application, especially those concerning reasonable excuse [for buyer's failure to comply with the notice requirements of CISG Art. 39(1) or 43(1)], have been met."[105] But summed up, only in exceptional cases will the buyer have a chance to successfully invoke CISG Art. 44.[106]

Regardless whether a notice of non-conformity shall be given or it is not necessary due to one of the above exceptions, one must note that CISG Art. 36 implies that the seller is not liable for any lack of conformity or destruction of the goods which occurs after the passing of risk (CISG Arts. 66 to 70), unless this is due to an act or omission on his part.[107]

      4.3 Lack of cure by non-performing seller

As noted above, if the goods do not conform to the contract, the buyer is always entitled, by virtue of Art. 50 CISG (first sentence), to reduce the price corresponding to the lower value of the goods. This is independent of whether or not the price has already been paid. However, if the seller remedies the non-conformity or the buyer refuses to accept the remedy, buyer is not entitled to reduce the price. In this case, the only (pecuniary) option left to the buyer is to claim damages under Art. 45 CISG.[108]

Expressly, CISG Art. 50 is made subject to the seller's right to cure any defect under Art. 37 or Art. 48. Of particular relevance, the second sentence of CISG Art. 50 states that, "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." According to the UNCITRAL Digest,[109]

"Article 50, second sentence, states the more or less self-evident rule (emphasis added) that the remedy of price reduction is no longer available when the seller has remedied any defects either under article 37 (cure in case of early delivery) or under article 48 (cure after date for delivery). The same result applies if the buyer refuses to accept performance when the seller has offered cure in accordance with articles 37 or 48."

Above all, the buyer has no right to reduction if the seller cures the defective goods. Insofar as this is done according to Art. 37, before the time of delivery, this should be quite natural. And also if the seller remedies a defect under Art. 48, there will be no need for a price reduction because equivalence will be re-established.[110] Thus, for instance, the Court in [Germany 31 January 1997 Oberlandesgericht [Appellate Court] Koblenz] rules that the buyer is not entitled to reduce the price as it has refused to accept performance by the seller in accordance with Art. 48 CISG.[111] Also, in [Finland 12 November 1997 Hovioikeus / hovrätt [Appellate Court] Turku], the Seller alleges that buyer is not entitled to price reduction because buyer has not given the seller an opportunity to remedy the alleged non-conformity of the goods.[112] Indeed, the courts have been quite clear on the seller's right to cure and the buyer's obligation to let the seller cure.[113]

The reason for this rule, among other things, lies in the obligation to mitigate losses. It is of no importance here why the buyer refuses the cure, e.g., because of unreasonable inconvenience. In this case, the buyer might retain the right to claim damages taking account of the probable mitigation of losses under Art. 77. What is of significance here is that the right to price reduction will be lost when the buyer refuses to have the defect cured by the seller.[114] And there is a refusal to accept the offered remedy, if the buyer unequivocally and seriously declares to the seller that she will not accept a remedy.[115]

In any event, CISG Art. 50 contains the remedy of price reduction but clearly limits it if the seller has a right to cure. It is made expressly clear in the text of CISG Art. 50 that the right to cure (both Art. 37 and Art. 48) prevails over the right to reduce the price, just as it prevails over all other remedies.[116] Thus, the buyer cannot rely on the remedy of price reduction whenever the seller remedies its failure to perform or the buyer refuses the seller's offer to cure notwithstanding the fact that this does not cause an unreasonable delay or other inconveniences to the buyer.[117] It seems very reasonable that the seller can opt to cure the defect rather than being obligated to receive less money.[118] This deserves to balance the position between buyer and seller so that the seller has an opportunity to have some input into the resulting remedy pursued by the buyer. The combination of these two remedies can be viewed in light of the CISG's purpose to preserve the parties' bargain wherever possible.[119]

      4.4 Intention of the reduction expressed with a valid declaration

It has been observed that CISG Art. 50 further requires that the buyer express its intention to reduce the price.[120] This is supported in case law. For instance, the Court in [Germany 2 March 1994 Oberlandesgericht [Appellate Court] München] rules: "A reduction in price under Art. 50 CISG cannot be considered in regards with the alleged lack of conformity of the coke. This is because the [buyer] did not make a corresponding declaration, which would have been necessary (citations omitted)."[121] It is similarly held in [Switzerland 11 June 1999 Handelsgericht [Commercial Court] Aargau] that, the buyer could not avail itself of the remedy of price reduction since it has failed to make a valid declaration thereof.[122]

At the same time, one should also note that: "The price is reduced by a simple declaration of the buyer. There is no need for the seller's agreement (annotation omitted). It is surely always more appropriate that the parties agree on the amount of the reduction. Compared to cure and avoidance, a reduction of the price of goods is the simplest remedy where the least additional expenses occur and should, therefore, be facilitated (citation omitted)."[123] Of course, it must be kept in mind that once the reduction is disputed and the matter proceeds to litigation, the buyer has to bear the burden of proof with regard to the extent of the non-conformity of the goods and the amount of non-conforming goods.[124]

5. Calculation of the Reduction

      5.1 A proportional calculation

According to CISG Art. 50, the reduction in price is determined by a proportional calculation. The reduced sales price is supposed to bear to the contractual purchase price 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. This is the mandatory method of calculation and it is therefore inadmissible to instead simply use the estimated value of the delivered goods as the reduced purchase price, or to determine the reduced purchase price by subtracting the cost of repair from the contractually agreed price.[125]

The issues presented by Art. 50 are subtle and complex.[126] According to Flechtner, "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."[127]

A mathematical model may help. Mathematically speaking, the relation of the stipulated to the reduced prices equals the relation of the market-values of conforming to non-conforming goods. In this respect Will provides the following formula:[128]

   stipulated price  
   reduced price
  =                      value of conforming goods                   
                   value of non-conforming goods   

 and consequently:
 
    reduced price       =  

 value of non-conforming goods X stipulated price  
                   value of conforming goods

The goal of this formula is to enable the buyer to preserve the bargain.[129] Rather than adopting the absolute method of deducting from the stipulated purchase price the objective value of the goods received, the Convention, following the civil law, uses a relative approach. This allows for the parties to keep in line with their good or bad bargain.[130] In this relative approach, the defining moment for determining the price is the time of delivery of the goods. This means that if the price of the goods has fallen when the buyer demands price reduction he may still calculate the price reduction based on the original, higher, price which results in price reduction being beneficial to him. Then again, if the price of the goods has risen after the non-conforming goods were delivered, the buyer may only demand the price to be reduced in proportion to the contracted lower price. In these situations, it may be more beneficial for the buyer to claim damages as an alternative to price reduction.[131] In other words, if the buyer made a good bargain she may keep its advantages and if she had made a bad bargain she could theoretically keep the disadvantages. At this juncture, however, it is important to take into account that, since it is up to the buyer to sue for damages or to reduce the price in case of non-conformity, the buyer will be unlikely to wish to keep the bargain if it was a bad bargain.[132]

In any event, the proportion between the purchase price and the objective value of the goods is maintained.[133] In this respect, both PECL Art. 9:401 and CISG Art. 50 calculate the reduction in price in the same manner.[134] Pursuant to well-settled case law, reduction of the price is performed in accordance with the following formula: reduced price: convened price = objective value of the non-conforming goods: value of conforming goods.[135] That is to say, the amount of the price reduction is proportional to the reduction in the value of the promised performance. In some cases the value of the performance will be directly related to the proportion of the contract performed and the contract price may simply be reduced accordingly. In other cases the value of the performance may be reduced by a greater (or less) proportion.[136]

However, it has to be noted that a reduction of the price pursuant to the provisions of Art. 50 of the CISG, does not represent a refund for repair expenses, yet would be an adjustment of the price to the actual value of the goods. The objective value of the conforming goods is presumed to correspond to the agreed upon price. The difference between the value of the conforming goods and the value of the non-conforming goods does not necessarily coincide with the cost to repair, but most of the time it would.[137]

      5.2 Time and place for measuring the reduction

With the proportional calculation method kept in mind, real issues remain concerning the calculation of a proportional reduction of the price. Although there is agreement that this remedy enables the bargain to be preserved, there have been also problems in determining the time and place for measuring the value of non-conforming and conforming goods.[138]

As expressly indicated in the text of CISG Art. 50, the defining moment for determining the price is the time of delivery of the goods,[139] which will be established on the basis of the contract and CISG Art. 33.[140] This approach, proposed by the representative for Norway produced some controversy. In fact, it was disputed to the very last minute. It was argued about both during the meeting in which it was discussed and during the final approval of the Article.[141] The substance of the UNCITRAL Draft Convention was materially changed at the Vienna Conference as to the moment for calculating values. Instead of the time of conclusion of the contract, as in Art. 46 of ULIS, now the time of delivery is relevant. According to Will, this change was based mainly upon two reasons. On the one hand, it was argued that at the moment of concluding the contract, the goods might not yet exist and hence neither the value of conforming goods nor that of non-conforming ones could be ascertainable. On the other hand, the buyer can now calculate more easily which of the two remedies -- damages or price reduction -- would be more advantageous to him. The calculations for both remedies are now based on the same figures -- those valid at the moment of delivery.[142]

In any event, the present Convention makes it clear: "The decisive time for the calculation of the price difference between proper goods and non-conforming ones is not, as in some national legal systems, the time of the conclusion of the contract but the time of the delivery of the goods."[143] Thus, for instance, the Court in [Austria 9 November 1995 Oberlandesgericht [Appellate Court] Graz] rules: "In contrast to Austrian law, the CISG places importance on the value of the goods at the time of delivery, not at the time of the conclusion of the contract."[144] It is to be further noted that the time of delivery is decisive "both for the value of the non-conforming goods and for conforming ones."[145]

In contrast with the express reference of the time, the Convention does not stipulate at which place or market the prices have to be compared.[146] A problem first raised but not decided at the Vienna Conference was left to the risk of the buyers who wish to reduce the price. The problem lies in determining from where to take the figures for comparing the value of the goods contracted and of those delivered.[147] In this regard, it is recalled that: "As for the place to measure the market value in calculating the reduction, the representatives of Argentina, Portugal and Spain made a joint proposal to include language determining that the prevailing value would be that of the residence of the buyer. The representative of Norway, while expressing his preference to avoid such a complicated question, suggested the place of delivery was a better reference point. The joint proposal was defeated."[148]

Following that defeat are the variations generated among CISG commentators. For instance, Enderlein & Maskow argue that according to the sense and purpose of the price-reduction provision, the decisive place must be the place where the seller has to perform; in the case of sales involving carriage, it should be the place of destination.[149] Will suggests a three-step solution: In the first instance it should be the place of the first destination of the goods as contracted which is relevant for the evaluation. If this solution fails for want of such a place of first destination or of a market-price at that place, it should be the place of delivery of the non-conforming goods. Where this solution fails for want of a market-price at that place, the catch-all, at the buyer's choice, should be either the place of business of the buyer or of the seller.[150] Deciding bodies are of the same variations. For instance, in [Austria 9 November 1995 Oberlandesgericht [Appellate Court] Graz], it is held that: "By virtue of an analogous application of Art. 76 CISG, the value of the goods at the place of delivery is decisive (citations omitted)."[151] The Tribunal in [Hungary 5 December 1995 Budapest Arbitration award Vb 94131] rules: "Generally, it is in accordance with the idea of CISG Art. 50 to set a reduction of price in accordance with the price level at the place where the goods are being directed that the seller knows of; or in accordance to the price level at the place where the buyer is situated (citations omitted)."[152]

In any event, the CISG leaves open where the value of the conforming and/or non-conforming goods will be assessed.[153] Nevertheless, "in view of the close relationship between date and place of delivery, this place should be decisive. It is not excluded, however, that buyers may consider the place of destination."[154] Regardless of the vagueness regarding the reference place, what is certain is that the amount of price reduction has to be calculated in a proportionate way. The contract price has to be reduced in proportion of the value of the delivered goods to the value conforming goods would have.[155] This "differs from the standard method of calculating damages," which has been referred to as "linear" or "absolute" and under which "the difference can vary depending on whether the price rises, falls or stays the same."[156]


FOOTNOTES

1. See Erika Sondahl in "Understanding the Remedy of Price Reduction - A Means to Fostering a More Uniform Application of the United Nations Convention on Contracts for the International Sale of Goods" (2003), fn. 38; available at: <http://www.cisg.law.pace.edu/cisg/biblio/sondahl.html>.

2. See Arnau Muriá Tuñón in "The Actio Quanti Minoris and Sales of Goods Between Mexico and the U.S.: An Analysis of the Remedy of Reduction of the Price in the UN Sales Convention, CISG Article 50 and its Civil Law Antecedents" (1998); available at: <http://www.cisg.law.pace.edu/cisg/biblio/muria.html>.

3. See Will in Commentary on the International Sales Law: The 1980 Vienna Sale Convention, Cesare Massimo Bianca & Michael Joachim Bonell eds., Milan (1987), p. 370; available at: <http://www.cisg.law.pace.edu/cisg/biblio/will-bb50.html>.

4. See Eric E. Bergsten & Anthony J. Miller in "The Remedy of Reduction of Price": 27 American Journal of Comparative Law (1979), pp. 255-277; available at: <http://www.cisg.law.pace.edu/cisg/biblio/bergsten.html>. (This is a commentary on the remedy of reduction of price under Article 46 of the 1978 Draft Convention.)

5. 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 1 (2000); available at: <http://www.cisg.law.pace.edu/cisg/biblio/piliounis.html>.

6. See Will, supra. n. 3; p. 368.

7. See Peter A. Piliounis, supra. n. 5.

8. See Will, supra. n. 3; pp. 368-369.

9. See Peter A. Piliounis, supra. n. 5.

10. See Arnau Muriá Tuñón, supra. n. 2.

11. See Jarno Vanto in "Remarks on the manner in which the Principles of European Contract Law may be used to interpret or supplement Article 50 of the CISG"; September 2003; available at: <http://www.cisg.law.pace.edu/cisg/text/peclcomp50.html>.

12. See Will, supra. n. 3; p. 369.

13. See Eric E. Bergsten & Anthony J. Miller, supra. n. 4.

14. See Peter A. Piliounis, supra. n. 5.

15. See Secretariat Commentary on 1978 Draft Art. 46 [draft counterpart of CISG Art. 50]: Comment 5; available at: <http://www.cisg.law.pace.edu/cisg/text/secomm/secomm-50.html>.

16. See Arnau Muriá Tuñón, supra. n. 2.

17. See Jarno Vanto, supra. n. 11.

18. See Comment and Notes on PECL Art. 9:401: Comment A; available at: <http://www.cisg.law.pace.edu/cisg/text/peclcomp50.html>.

19. See Jarno Vanto, supra. n. 11.

20. See Albert H. Kritzer in "Guide to Practical Applications of the United Nations Convention on Contracts for the International Sale of Goods" (1989); p. 375.

21. See Arnau Muriá Tuñón, supra. n. 2.

22. See Alison E. Williams in "Forecasting the Potential Impact of the Vienna Sales Convention on International Sales Law in the United Kingdom": Pace Review of the Convention on Contracts for the International Sale of Goods (CISG), Kluwer Law International (2000-2001), pp. 9-57; available at: <http://www.cisg.law.pace.edu/cisg/biblio/williams.html>.

23. See Peter A. Piliounis, supra. n. 5.

24. See Will, supra. n. 3; p. 372.

25. See Peter A. Piliounis, supra. n. 5.

26. See Eric E. Bergsten & Anthony J. Miller, supra. n. 4.

27. See Peter A. Piliounis, supra. n. 5.

28. See Arnau Muriá Tuñón, supra. n. 2.

29. See Jarno Vanto, supra. n. 11.

30. See Judgment by Tampere Court of First Instance, Finland 17 January 1997. English translation by Jarno Vanto; available at: <http://www.cisg.law.pace.edu/cases/970117f5.html>.

31. See Will, supra. n. 3; p. 372.

32. Comment 3, supra. n. 15.

33. See Erika Sondahl, supra. n. 1.

34. See Arnau Muriá Tuñón, supra. n. 2.

35. See Peter A. Piliounis, supra. n. 5.

36. See Will, supra. n. 3; p. 373.

37. See Anette Gärtner in "Britain and the CISG: The Case for Ratification - A Comparative Analysis with Special Reference to German Law": Pace Review of the Convention on Contracts for the International Sale of Goods (CISG), Kluwer Law International (2000-2001), pp. 59-81; available at: <http://www.cisg.law.pace.edu/cisg/biblio/gartner.html>.

38. See Jarno Vanto, supra. n. 11.

39. See Peter A. Piliounis, supra. n. 5.

40. See Erika Sondahl, supra. n. 1.

41. Comment A, supra. n. 18.

42. See Anette Gärtner, supra. n. 37.

43. See Jacob S. Ziegel in "Report to the Uniform Law Conference of Canada on Convention on Contracts for the International Sale of Goods"(1981); available at: <http://www.cisg.law.pace.edu/cisg/text/ziegel50.html>.

44. See Anette Gärtner, supra. n. 37.

45. See Peter A. Piliounis, supra. n. 5.

46. See John O. Honnold, Uniform Law for International Sales under the 1980 United Nations Convention, 3rd ed., Kluwer Law International, The Hague (1999), p. 335; available at: <http://www.cisg.law.pace.edu/cisg/biblio/ho50.html>.

47. See Will, supra. n. 3; p. 373.

48. See Peter A. Piliounis, supra. n. 5.

49. Comment B, supra. n. 18.

50. See Jarno Vanto, supra. n. 11.

51. See Anette Gärtner, supra. n. 37.

52. Comment A, supra. n. 18.

53. See John O. Honnold, supra. n. 46; p. 337.

54. See Anette Gärtner, supra. n. 37.

55. See Eric E. Bergsten & Anthony J. Miller, supra. n. 4.

56. See Peter A. Piliounis, supra. n. 5.

57. See Anette Gärtner, supra. n. 37.

58. See Jarno Vanto, supra. n. 11.

59. See Arnau Muriá Tuñón, supra. n. 2.

60. See UNCITRAL Digest of case law on the United Nations Convention on the International Sale of Goods (8 June 2004), A/CN.9/SER.C/DIGEST/CISG/74: Digest 9; available at: <http://www.uncitral.org/english/clout/digest_cisg_e.htm>.

61. See Judgment by Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry, Russia 24 January 2000; No. 54/1999. Synopsis and commentary by M.G. Rozenberg; English translation by Djakhongir Saidov; available at: <http://www.cisg.law.pace.edu/cases/000124r1.html>.

62. See John O. Honnold, supra. n. 46; p. 338.

63. See John O. Honnold, supra. n. 46; pp. 338-339.

64. See Judgment by Oberlandesgericht [Appellate Court] Schleswig, Germany 22 August 2002; No. 11 U 40/01. English translation by Stefan Kuhm; available at: <http://www.cisg.law.pace.edu/cases/020822g2.html>.

65. See John O. Honnold, supra. n. 46; p. 339.

66. See Jarno Vanto, supra. n. 11.

67. Comment D, supra. n. 18.

68. Supra. n. 64.

69. Comment 3, supra. n. 15.

70. Comment D, supra. n. 18.

71. See Jarno Vanto, supra. n. 11.

72. See Fritz Enderlein & Dietrich Maskow, International Sales Law: United Nations Convention on Contracts for the International Sale of Goods, Oceana Publication (1992), p. 304; available at: <http://www.cisg.law.pace.edu/cisg/biblio/enderlein.html>.

73. Supra. n. 30.

74. See Jarno Vanto, supra. n. 11.

75. See UNCITRAL Digest of case law on the United Nations Convention on the International Sale of Goods (8 June 2004), A/CN.9/SER.C/DIGEST/CISG/50: Digest 2; available at: <http://www.uncitral.org/english/clout/digest_cisg_e.htm>.

76. See Peter A. Piliounis, supra. n. 5.

77. Digest 3, supra. n. 75.

78. Comment A, supra. n. 18.

79. See Erika Sondahl, supra. n. 1. (In this respect, Sondahl notes: "In accordance with Article 41, a seller is required to deliver goods 'free from any right or claim of a third party.' It was suggested that price reduction might be useful in its application toward a partial claim against a third party in order to determine the diminished value of the goods. Seeing no reason why 'a distinction should be made between remedies for goods that were defective in the physical sense and goods that were defective in other senses,' another delegate voiced his support for the applicability of price reduction to third-party claims (and the inclusion of such claims in the conception of a non-conformity). While a number of other delegates registered support for the amendment allowing for the applicability of price reduction to third-party claims, ultimately the concerns of other representatives led to the withdrawal of this amendment.")

80. See Arnau Muriá Tuñón, supra. n. 2.

81. See Fritz Enderlein & Dietrich Maskow, supra. n. 72; p. 195.

82. Some believe that price reduction should not be available in such situations. For instance, Bergsten & Miller state, "the fact that the goods are subject to a right or claim of a third party, including a right or claim based on industrial or intellectual property, does not make them non-conforming goods as that term is used in the Draft Convention." (See Eric E. Bergsten & Anthony J. Miller, supra. n. 4.). Muriá Tuñ0n gives several grounds on which the approach to apply price reduction to defects in title is denied (See Arnau Muriá Tuñón, supra. n. 2.). Also, Piliounis submits: "While by no means clear, it appears that Article 50 does not apply to defects in title. This interpretation is supported by the wording of Article 50 itself, which refers to goods not conforming to the contract. While arguably a defect in title does not 'conform to the contract', it is more properly characterised as an obligation of the seller rather than a particular character of the goods under the contract." (See Peter A. Piliounis, supra. n. 5.). On the other side, others consider that Art. 50 may be applicable to international sales where the goods are subject to third-party claims. For instance, Enderlein & Maskow submit that it would indeed be justifiable to grant a right to price reduction in the case of third party rights or claims. (See Fritz Enderlein & Dietrich Maskow, supra. n. 72; pp. 195-196.). Similarly, Vanto indicates that unless the third party claim would amount to a fundamental breach of contract, e.g. the consignment is owned entirely by a third party, that price reduction could be used as a remedy also in relation to such claims would seem plausible. (See Jarno Vanto, supra. n. 11.). Schlechtriem also believes that the general similarity of the prejudice caused by defects in title with that caused by other defects justifies the availability of price reduction in cases of defects in title as well. (See Peter Schlechtriem, Uniform Sales Law - The UN-Convention on Contracts for the International Sale of Goods, Manz, Vienna (1986); p. 79; available at: <http://cisgw.law.pace.edu/cisg/biblio/schlechtriem-50.html>.)

83. See Erika Sondahl, supra. n. 1.

84. CISG Art. 44 reads: "Notwithstanding the provisions of paragraph (1) of article 39 and paragraph (1) of article 43, the buyer may reduce the price in accordance with article 50 or claim damages, except for loss of profit, if he has a reasonable excuse for his failure to give the required notice."

85. See Will, supra. n. 3; pp. 375-376.

86. See John O. Honnold, supra. n. 46; p. 341.

87. See Jarno Vanto, supra. n. 11.

88. Digest 2, supra. n. 75.

89. See UNILEX Abstract of the Judgment by Oberlandesgericht [Provincial Court of Appeal] Düsseldorf, Germany 24 April 1997; No.: 6 U 87/96; available at: <http://www.unilex.info/case.cfm?pid=1&do=case&id=292&step=Abstract>.

90. See John O. Honnold, supra. n. 46; p. 342.

91. See Jarno Vanto, supra. n. 11.

92. See Judgment by Landgericht [District Court] Flensburg, Germany 24 March 1999; No. 2 O 291/98. English translation by Ruth M. Janal; available at: <http://www.cisg.law.pace.edu/cases/990324g2.html>.

93. Digest 4, supra. n. 75.

94. CISG Art. 39 reads: "(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. (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."

95. See Judgment by Landgericht [District Court] Stendal, Germany 12 October 2000; No. 22 S 234/94. Translation by Ruth M. Janal; translation edited by Camilla Baasch Andersen; available at: <http://www.cisg.law.pace.edu/cases/001012g1.html>.

96. Digest 4, supra. n. 75.

97. See Judgment of ICC Arbitration Case No. 8247 of June 1996. Available online at <http://www.unilex.info/case.cfm?pid=1&do=case&id=458&step=FullText>.

98. Supra. n. 95.

99. See UNCITRAL Digest of case law on the United Nations Convention on the International Sale of Goods (8 June 2004), A/CN.9/SER.C/DIGEST/CISG/40: Digest 5; available at: <http://www.uncitral.org/english/clout/digest_cisg_e.htm>.

100. See Judgment by Landgericht [District Court] Landshut, Germany 5 April 1995; No. 54 O 644/94. English translation by Dr. Peter Feuerstein, translation edited by Ruth M. Janal; available at: <http://www.cisg.law.pace.edu/cases/950405g1.html>.

101. See UNCITRAL Digest of case law on the United Nations Convention on the International Sale of Goods (8 June 2004), A/CN.9/SER.C/DIGEST/CISG/43: Digest 1; available at: <http://www.uncitral.org/english/clout/digest_cisg_e.htm>.

102. Digest 2; ibid.

103. Digest 4, supra. n. 75.

104. Supra. n. 95.

105. See Judgment by Oberlandesgericht [Provincial Court of Appeal] Koblenz, Germany 11 September 1998; No. 2 U 580/96. English translation by Todd J. Fox, translation edited by Ruth M. Janal; available at: <http://www.cisg.law.pace.edu/cases/980911g1.html>.

106. See Fritz Enderlein & Dietrich Maskow, supra. n. 72; p. 173.

107. In details, CISG Art. 36 reads: "(1) The seller is liable in accordance with the contract and this Convention for any lack of conformity which exists at the time when the risk passes to the buyer, even though the lack of conformity becomes apparent only after that time. (2) The seller is also liable for any lack of conformity which occurs after the time indicated in the preceding paragraph and which is due to a breach of any of his obligations, including a breach of any guarantee that for a period of time the goods will remain fit for their ordinary purpose or for some particular purpose, or will retain specified qualities or characteristics."

108. See Judgment by Handelsgericht [Commercial Court] Zürich, Switzerland 10 February 1999; No. HG 970238.1. English translation by Ruth M. Janal; available at: <http://www.cisg.law.pace.edu/cases/990210s1.html>.

109. Digest 6, supra. n. 75.

110. See Fritz Enderlein & Dietrich Maskow, supra. n. 72; p. 198.

111. See UNILEX Abstract of the Judgment by Oberlandesgericht [Provincial Court of Appeal] Koblenz, Germany 31 January 1997; No. 2 U 31/96; available at: <http://www.unilex.info/case.cfm?pid=1&do=case&id=223&step=Abstract>.

112. See Judgment by Turku Court of Appeal, Finland 12 November 1997; No. S 97/324. English translation by Jarno Vanto; available at: <http://www.cisg.law.pace.edu/cases/971112f5.html>.

113. See Arnau Muriá Tuñón, supra. n. 2.

114. See Fritz Enderlein & Dietrich Maskow, supra. n. 72; p. 198.

115. Supra. n. 108.

116. See Will, supra. n. 3; p. 369.

117. See UNILEX Abstract of the Judgment by Handelsgericht [Commercial Court] Zürich, Switzerland 10 February 1999; No. HG 970238.1; available at: <http://www.unilex.info/case.cfm?pid=1&do=case&id=484&step=Abstract>.

118. See Arnau Muriá Tuñón, supra. n. 2.

119. See Peter A. Piliounis, supra. n. 5.

120. Digest 5, supra. n. 75.

121. See Judgment by Oberlandesgericht [Provincial Court of Appeal] München, Germany 2 March 1994; No. 7 U 4419/93. English translation by Ruth M. Janal; available at: <http://www.cisg.law.pace.edu/cases/940302g1.html>.

122. See UNILEX Abstract of the Judgment by Handelsgericht [Commercial Court] Aargau, Switzerland 11 June 1999; No. OR.98.00010; available at: <http://www.unilex.info/case.cfm?pid=1&do=case&id=485&step=Abstract>.

123. See Fritz Enderlein & Dietrich Maskow, supra. n. 72; p. 196.

124. Supra. n. 112.

125. Supra. n. 108.

126. See John O. Honnold, supra. n. 46; p. 335.

127. See Harry M. Flechtner in "More U.S. Decisions on the U.N. Sales Convention: Scope, Parol Evidence, 'Validity', and Reduction of Price Under Article 50": 14 Journal of Law and Commerce (1995); pp. 153-176; available at: <http://www.cisg.law.pace.edu/cisg/biblio/flechtner.html>.

128. See Will, supra. n. 3; pp. 371-372.

129. See Arnau Muriá Tuñón, supra. n. 2.

130. See Will, supra. n. 3; p. 374.

131. See Jarno Vanto, supra. n. 11. (In this respect, see also that presented above in the text at n. 56.)

132. See Arnau Muriá Tuñón, supra. n. 2.

133. See Will, supra. n. 3; p. 374.

134. See Jarno Vanto, supra. n. 11.

135. See Judgment by Pretore della giurisdizione [District Court] di Locarno Campagna (Canton of Ticino), Switzerland 27 April 1992; No. 6252. English translation by Alex Turina; available at: <http://www.cisg.law.pace.edu/cases/920427s1.html>.

136. Comment A, supra. n. 18.

137. See Judgment by Pretore della giurisdizione [District Court] di Locarno Campagna (Canton of Ticino), Switzerland 27 April 1992; No. 6252. English translation by Alex Turina; available at: <http://www.cisg.law.pace.edu/cases/920427s1.html>.

138. See Arnau Muriá Tuñón, supra. n. 2.

139. See Jarno Vanto, supra. n. 11.

140. In details, CISG Art. 33 reads: "The seller must deliver the goods: (a) if a date is fixed by or determinable from the contract, on that date; (b) if a period of time is fixed by or determinable from the contract, at any time within that period unless circumstances indicate that the buyer is to choose a date; or (c) in any other case, within a reasonable time after the conclusion of the contract."

141. See Arnau Muriá Tuñón, supra. n. 2.

142. See Will, supra. n. 3; p. 369.

143. See Fritz Enderlein in "Rights and Obligations of the Seller under the UN Convention on Contracts for the International Sale of Goods": Petar Sarcevic & Paul Volken eds., International Sale of Goods: Dubrovnik Lectures, Oceana (1996), p. 198; available at: <http://www.cisg.law.pace.edu/cisg/biblio/enderlein1.html>.

144. See Judgment by Oberlandesgericht [Provincial Court of Appeal] Graz, Austria 9 November 1995; No. 6 R 194/95. English translation by Ruth M. Janal, translation edited by Todd Fox; available at: <http://www.cisg.law.pace.edu/cases/951109a3.html>.

145. See Arnau Muriá Tuñón, supra. n. 2.

146. See Fritz Enderlein, supra. n. 143.

147. See Will, supra. n. 3; p. 374.

148. See Arnau Muriá Tuñón, supra. n. 2.

149. See Fritz Enderlein & Dietrich Maskow, supra. n. 72; p. 197.

150. See Will, supra. n. 3; p. 375.

151. Supra. n. 144.

152. See Judgment by Arbitration Court of the Chamber of Commerce and Industry of Budapest, Hungary 5 December 1995; Case No. Vb 94131. English translation by Marko Maljevac, translation edited by Dr Loukas Mistelis; available at: <http://cisgw3.law.pace.edu/cases/951205h1.html>.

153. See Fritz Enderlein & Dietrich Maskow, supra. n. 71; p. 197.

154. Supra. n. 143.

155. Digest 8, supra. n. 75.

156. See Peter A. Piliounis, supra. n. 5.


Pace Law School Institute of International Commercial Law - Last updated April 6, 2005
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