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Reproduced with the permission of Oceana Publications

excerpt from

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

Commentary by
Prof. Dr. jur. Dr. sc. oec. Fritz Enderlein
Prof. Dr. jur. Dr. sc. oec. Dietrich Maskow

Oceana Publications, 1992

Article 50 [Reduction of the price]

[TEXT OF THE UNIFORM LAW]

If the goods do not conform [1] with the contract and whether or not the price has already been paid [3], the buyer may reduce [2] the price in the same proportion [4] as the value that the goods actually delivered had at the time of the delivery [5] 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 [6] the price.

[WORDS AND PHRASES, CONCEPTS

1. if the goods do not conform with the contract
2. simple declaration by buyer suffices for price reduction
3. whether or not the price has already been paid
4. buyer may reduce the price in the same proportion as
5. time of delivery decisive
6. buyer has no right to price reduction if seller cures ]

[COMMENTARY]

[1] [if the goods do not conform with the contract]

Pursuant to Article 35, the goods do not conform with the contract if they are not of the quantity, quality and description required by the contract, and if they are not contained or packaged in the manner required by the contract. It was discussed at the diplomatic conference whether price reduction under Article 50 should also be applied to cases where goods are not free from rights or claims by third parties. A relevant motion by Norway was withdrawn after discussion in favour and against, and the problem was left to the courts to decide (O.R., 360 fol). Thus the dogmatic gap between non-conformity of goods, and third party rights or claims was not closed completely, and the right to reduction of the price was practically restricted to non-conformity (Schlechtriem, 56).

It would indeed be justifiable to grant a right to price reduction in the case of third party rights or claims (Schlechtriem, 70). It cannot be overlooked that Article 44 expressly refers to Article 50: A buyer who failed to give notice of the existence of third party rights or claims, but has a reasonable excuse, may nevertheless claim a price reduction. It is hardly understandable that a buyer should have the [page 195] right to a reduction of the price only if he fails to give notice, but not if he gives notice in time (c. also Will/BB, 376). Another interpretation would, according to Welser (Doralt, 123), presuppose the existence of schizophrenic legislators and would, therefore, have to be rejected. In contrast to this view, Schlechtriem (63) obviously believes that the reference made in Article 44 to Article 50 only relates to the case described under Article 39, paragraph 1, but not to Article 43, para. 1.

[2] [simple declaration by buyer suffices for price reduction]

The price is reduced by a simple declaration of the buyer. There is no need for the seller's agreement (unlike in the case of Austria, see Welser/Doralt, 117). 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 (v. Hoffmann/Freiburg, 301).

[damages as well as price reduction can be claimed]

Irrespective of the right to reduction the buyer also has the right to claim compensation for damages he may have sustained. He thus can decide whether he wants to claim a reduction of the price and/or damages. While he can unilaterally declare a reduction and, provided he has not paid yet, force the seller to file suit if he does not agree, the buyer himself must, if need be, sue for compensation of damages.

Unlike in the case of a claim for damages, in regard to reduction there can be no exemption from liability (c. Article 79, note 5) because the reduction, irrespective of the seller's responsibility, serves to re-establish equivalence between performance and counter-performance.

Legal experts in common law countries have a special relationship to reduction because it is unknown in Common Law. Farnsworth (Lausanne, 105) said regarding reduction, that he did not know it and also did not like it. Also in UNCITRAL discussions the problem of reduction was quite often not understood (see the self-critical remarks by Honnold, 327). A claim concerning price reduction, actio quanti minoris, will under Common Law be treated as any other claim for damages (Honnold, 326).

If the seller is responsible for the non-conforming goods, the buyer has, according to Honnold (325), the choice between price reduction and a claim for damage. When prices are rising, a claim for damages is more favourable than a price reduction; in the case of falling prices price reduction is more favourable than a claim for damages. The buyer will, however, prefer in such cases to avoid the contract and to look for new purchases (Honnold, 324, giving examples). [page 196] Honnold (ibid) holds that a reduction of the price rarely plays a role, namely only if the buyer keeps the defective goods and the seller can keep himself free from claims for damages under Article 79.

The declaration by the buyer is governed by Article 27, i.e. it is directly effective, even if it does not reach the seller. It follows there from that the buyer, having declared a reduction, no longer has the right to performance by the seller (Article 46).

The CISG provides no time limit for the buyer to exercise his right to reduction of the price; provided that notice under Article 39 (and 43) is given in time this right is subject to the general limitation rules only.

[3] [whether or not the price has already been paid]

If the buyer has not paid the price, he may immediately reduce the amount to be paid. If he has paid already, he has a right to be reimbursed in the amount of the reduction.

[4] [buyer may reduce the price in the same proportion as ]

The reduction is a proportional reduction of the price of goods: the proportion of conforming goods to the goods actually delivered. In calculating that proportional reduction, the value of the conforming goods is not just treated as equal to the price under the contract, the latter may well be below or above the former. If the conforming goods had a value of 100, the actually delivered goods only 80, the price would be reduced by 20 per cent.

According to the Secretariat's commentary (O.R., 42 fol) there might even be cases where there can be no price reduction in spite of the non-conformity of goods. (See also the commentary by Will/BB, 370.) A reduction, therefore, is not merely a facilitated claim for damages as it may sound from Bergsten/Miller. (Critical remarks by v. Hoffmann/Freiburg, 300.)

The CISG leaves open where the value of the conforming and/or non-conforming goods will be assessed (c. O. R., 358 fol). 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 (so Schlechtriem, 70). Will (BB, 375) suggests a three-step solution: the place of destination, then the place of delivery, and finally the place of business of either the buyer or the seller, depending on where a market price can best be assessed. v. Hoffmann (Freiburg, 301) also would like to take into account the current value in the buyer's country. [page 197]

[5] [time of delivery decisive]

What is decisive is the time of delivery and not the time of the conclusion of the contract (as is laid down in Article 46 ULIS and also in 472(1) German BGB). Consequently, the buyer may lose "the advantages of a profitable purchase if, between the conclusion of the contract and the date of delivery, the price of the delivered but non-conforming goods increases more than the price of the conforming goods" (Schlechtriem, 70).

The choice in regard to the time of delivery can, as Welser (Doralt, 123) believes, lead to strange distortions in the case of the delivery of an aliud. In the event of an aliud, the buyer, in our view, will in most cases prefer substitute goods and only refer to a price reduction when it is more profitable for him. Whether or not a seller in such a case will be content with a reduction that is detrimental to him, or will have to be content in the case of a legal dispute, will inter alia depend on whether the aliud was delivered intentionally or by accident.

Concerning the reasons for the change in comparison to ULIS see Will/BB, 370 fol. In general, the current value at the time of delivery is easier to establish, whereas the current value at the conclusion of the contract (except for stock market goods) always tends to be somewhat hypothetical (Honnold, 327; agreeing v. Hoffmann/Freiburg, 301).

Posch (Doralt, 151) obviously attaches no importance to the date. He believes that a profitable contract will always remain a profitable contract whereas an unprofitable contract will remain unprofitable. Believing so, he ignores the possibility of differing price developments.

[6] [buyer has no right to price reduction if seller cures]

The buyer has no right to reduction if the seller cures the defective goods. Insofar as this is done according to Article 37, before the time of delivery, this should be quite natural. And also if the seller remedies a defect under Article 48, there will be no need for a price reduction because equivalence will be re-established. 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. The reason for this rule lies, as Honnold (327) believes, in the obligation to mitigate losses. It is of no importance here why the buyer refuses the cure, e.g. because of unreasonable inconvenience (c. Article 48, note 6). In this case, the buyer might retain the right to claim damages taking account of the probable mitigation of losses under Article 77. [page 198]

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Pace Law School Institute of International Commercial Law - Last updated August 14, 2002
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