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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 57 [Place of payment] [1]

[TEXT OF THE UNIFORM LAW]

(1) If the buyer is not bound to pay the price [2] at any other particular place [3], he must pay it to the seller [4]:
(a) at the seller's [6] place of business [5]; or
(b) if the payment is to be made [9] against the handing over of the goods [7] or of documents [8], at the place where the handing over takes place.

(2) The seller must bear any increase in the expenses incidental to payment [10] which is caused by a change in his place of business [11] subsequent to the conclusion of the contract.

[WORDS AND PHRASES, CONCEPTS

1. place of payment: considerations
     -   correlation with rule governing time of payment
     -   essential consequences for the buyer
     -   banks as third parties within the meaning of article 79(2)
     -   payment guarantees
     -   impact of place of payment on jurisdiction
2. rule on place of payment of price is applicable to other payments such as damages
3. place of payment rule applies if the buyer is not bound to pay the price at any other particular place …
4. buyer must pay [the price] to the seller…
5. … at the seller's place of business
6. other place of business considerations
7. where payment is to be made against the handing over of the goods
8. where payment is to be made against the handing over … of documents
9. cross-reference: article 58(1)
10. seller must bear any increase in expense incidental to payment …
11. … caused by a change in [seller's] place of business subsequent to the conclusion of the contract ]

[COMMENTARY]

[1] [place of payment: considerations]

      [1.1] [correlation with rule governing time of payment] There is a close connection between the rule governing the place of payment and that governing the time of payment (Article 58) because the place of payment under the Convention is dependent on the modalities of delivery to the same extent as is the time of payment, and because the time of payment can only be kept when the payment is made at the place of payment. Where the place of delivery and of payment are identical, the time of payment in several cases is dependent on when the required circumstances arose at that place. These connections are blurred by the different formulations and systematizations in Articles 57 and 58. Anyway, the comments on the provisions on the place of payment to a large part apply mutatis mutandis to the provision on the time of payment.

      [1.2] [essential consequences for the buyer] The determination of the place of payment, as it is made in this article, entails generally four essential consequences for the buyer. First, he must initiate the payment so early that it arrives on the settlement date (Article 58) at the place of payment. He thus bears the risk of a delay insofar as he is not exempted from liability under Articles 79 and 80. Second, he must take all measures and go through all the formalities at a commercial level and vis-à-vis the authorities so that the payment can be made at the place of payment, i.e. exceptionally also the fulfilment of formalities in the seller's country (Article 54). Third, he must bear the cost of the payment procedure up to this place. Fourth, he also bears the risks up to this place, i.e. when the initiated payment procedure is not successful [page 214] because of the bankruptcy of a bank engaged it has to be repeated.

      [banks as third parties within the meaning of article 79(2)] The institutions such as banks, which the buyer uses to fulfil his payment obligations, are third parties in the meaning of Article 79, paragraph 2 (note 7 to that article). This means, and it can be inferred from this Article in its reverse conclusion, that the buyer is responsible for them, as far as he cannot be exempted. Such liability stops with the receipt of the payment by the seller and/or the first institution used by him, i.e. in particular the bank named by him for the transfer. Huber (512) expressed himself similarly on the draft but differs from the view explained here only in that he doubts whether the buyer is also liable for the engaged intermediaries. We do not share this doubt for when there is a party of the contract who can exert an influence, it is the buyer, e.g. in instructing his bank to avoid certain ways of transfer, etc. The situation is different, however, when specific wishes of the seller have to be taken into consideration.

      [1.3] [payment guarantees] Agreed payment guarantees for lack of deviating agreements, as they occur regularly, in regard to the place of payment, and also the time of payment, have to be in line with the provisions of the Convention. When and where these guarantees have to be given is, however, not regulated by the Convention.

      [1.4] [impact of place of payment on jurisdiction] In some instances, the problem was raised that the determination of the place of payment in Article 57, in the case of payment obligations, also affects the jurisdiction at the place of performance where it is provided by law. At the diplomatic conference, the FRG even submitted a proposal which aimed at preventing this, but was rejected (O.R., 122). Huber (513) and Honnold (343) rightly pointed out that this is no problem of the CISG. Unlike Huber we believe that clarification in this matter is incumbent on the respective procedural law and not on the CISG.

[2] [rule on place of payment of price is applicable to other payments such as damages]

The rule only mentions the "price", but is to be applied, as we believe, also to other payments under the contract, like the payment of damages, liquidated damages, interests and reimbursement of expenses. Since there is not regularly a direct dependence between performance and counter-performance, and in particular no contemporaneous performance, this refers above all to subpara. (a) with the "seller" having to be read as the "obligee" and the "buyer" as "obligor". [page 215]

[3] place of payment rule applies if the buyer is not bound to pay the price at any other particular place …]

      [3.1] The fact that this rule can be changed is stressed here once again irrespective of the general determination in Article 6, which can be regarded as an orientation of the parties towards an agreement of the place of payment. The parties, in general, attach great attention to the terms of payment which include the place of payment. Where an express agreement of the place of payment is lacking, an implicit agreement may be inferred from the way in which the payment is made. This may be done considering non-governmental codifications for specific categories of payment (Uniform Customs and Practices for Documentary Credits -- Article 9 fol; Uniform Rules for Collections -- Articles 11 and 12) which become binding through the agreements between the parties, business conditions of the banks engaged or directly as an established practice.

      [3.2] In view of the bank transfer widely used in international trade in which the payment does not go directly to the seller but to his bank, it can be assumed that relatively feeble indications in this direction are sufficient for the buyer to pay into the seller's bank account. The buyer, in our view, is entitled to pay to the bank named by the seller (also Sevón/Dubrovnik, 213). Where the seller has named several banks in connection with the contract in question, or with other transactions with the buyer, the buyer may choose between them, but will likely have to choose one from among the banks in the seller's country. A relevant decision could also be taken by the seller, which would be binding as payments must not be made to another bank.

[4] [buyer must pay [the price] to the seller …]

The term payment generally includes acceptance of bills of exchange where such acceptance was agreed in the contract. It occurs, above all, in the cases covered by subpara. (b), but does not lead to the final fulfilment of the obligation to pay.

[5] [… at the seller's place of business]

      [5.1] The principle on which the CISG is based, characterizes the obligation of payment as an obligation to be performed at the creditor's place of business in order to ensure that the seller can indeed dispose of the proceeds of the transaction without having to confront the foreign exchange rules of other countries (Secretariat's Commentary, O.R., 46; Honnold, 342).

      [5.2] Concerning the determination of the place of business compare Article 10. The place of business of the seller may change in the process of contract performance. As can be inferred from paragraph 2, it is decisive here what has been the place of business at the time of payment. However, payment at another place presupposes that the buyer is informed accordingly, namely before he has to initiate the acts and formalities of an orderly transaction in order to fulfil his payment obligation in time. We believe that the receipt of the information [page 216] by the buyer is decisive because without it he would not be in a position to meet his obligation in the modified form, i.e. Article 27 cannot be applied. If the seller gives late notice, the buyer will [be] entitled to make the payment at the original place of business of the seller (Article 80). This may factually be impossible, but is of relevance insofar as the payment obligation will have to be regarded as fulfilled if the price was available at the original place of business. The buyer, of course, retains the obligation to take all measures he can to ensure that the price reaches the hands of the seller in the end. The buyer is also obliged to change his arrangements when he receives the information at a time that would allow him to do so. The seller, because of Article 80, does not have any right to claim delay in payment in such cases (Sevón/Dubrovnik, 213 fol, however, relates to Article 79, paragraph 1, which in our view is less relevant here). As to the increase in the expenses, compare note 11.

[6] [other place of business considerations]

Subpara. (a) applies where no contemporaneous performance as under subpara. (b) was agreed; but also in the latter case, the place of payment can be the place of business of the seller. Subpara. (a), therefore, is of practical relevance in the event of advance payments and payments which are made after the goods are received, including the granting of unsecured credits (terms of payment as in "cash after receipt of the goods", "cash against open invoice" or "cash … days (weeks, etc.) after receipt of the goods").

Payment in these cases is made either in cash, which is very rare, or by handing over a cheque, respectively at the place of business of the seller. In the latter case, it is assumed that the seller for lack of an agreement to the contrary, is entitled to reject a cheque if he does so immediately after having been offered one, unless the cheque is of such a quality that such conduct would constitute a violation of the principle of good faith such as a banker's cheque. Where the cheque is accepted, it must be considered as a discharge by performance. The payment is regarded as made at the date of the handing over of the cheque, provided that it is honoured at its presentation. If this is not so, the payment is considered as not made (compare Caemmerer/Dölle, 363). Because of relevant agreements, a provisional payment can be made in a similar way by handing over a cheque, by way of handing out a promissory note, or of acceptance of a bill of exchange. When they are not sight bills, which can be used similarly to cheques, the bills contain generally a period for payment so that the payment in the context of the payment of interests cannot be referred to the date of the handing over or of the acceptance, and the interests have to be taken into consideration. [page 217]

Payment at the place of business of the seller is required, but not necessarily inside that place itself. This obligation could be fulfilled also when the payment is made into the bank account of the seller at his place of business. From this situation follows the general question whether payment by way of bank transfer comes under the introductory part of paragraph 1 and whether such an obligation can be supposed as in existence under alleviated prerequisites (note 4), or whether it is a form of payment at the place of business of the seller. We are of the view that both variants are possible. Payment by bank transfer has to be considered as one of the legal options under the CISG, at least when it is customary and/or other options do not exist. The latter is the case, for instance, when international cash remittance is not one of the services offered by postal services, like in a number of countries, and the handing over of the money personally or by courier is excluded because of the modalities of the transaction, and when the sending of a cheque is not customary. In that event, the seller must be regarded as having the obligation to maintain an account at his place of business and to inform the buyer of the number of that account. Otherwise, the buyer must have the right to pay into another account of the seller in the country of his place of business and/or he may invoke Article 80 if this not possible.

Hence, the buyer can, with some restrictions applying, choose between payment in cash and transfer and, where the seller agrees, the handing over of a cheque because he is the one to meet the obligation and thus able to fully exhaust the leeway granted by the legal provision.

[7] [where payment is to be made against the handing over of the goods]

If the payment is bound only to the handing over of the goods, the place of payment under the CISG is the place where the goods are handed over to the first carrier, the place where the goods are made available or the place of business of the seller (Article 31). As regards the first variant, we assume that the handing over referred to here also includes the handing over to the first carrier for transmission to the buyer. In that event, it does not matter whether or not the goods are handed over directly to the buyer for in the case of a non-documented sale, the seller in handing over the goods to the first carrier, who takes over the goods for the buyer, in general largely renounces his right to dispose of the goods. Where the contemporaneous principle is to be realized, which the CISG aims at, payment must be made at this place and at this time. [page 218]

From the customarily agreed trade terms in the interpretation of the Incoterms the following could, for example, result: The term "Free Carrier" is used for the handing over to the first carrier, but very often the goods are handed over at a place which they pass through in transit, e.g. terms FOB, CIF, etc. Payment at such places of handing over is very frequently impracticable so that these terms are linked with terms of payment which do not bind the place of payment to the place of the handing over of the goods, but rather to the handing over of the documents. And/or the possibility of Article 58, paragraph 2 is made use of. Insofar we can agree with Lüderitz (Freiburg, 189 fol) as regards the actual course. It is a condition, however, for the procedure discussed here that the payment is made against the handing over of the goods. This cannot simply be re-interpreted as a payment under subpara. (a) as Lüderitz does.

The term "ex works" is agreed for cases in which the goods are made available pursuant to Article 31, subparas. (b) and (c); the term "named place of destination in the country of import (duty paid)" is agreed for those in which the goods or documents are handed over at the place of destination which often is the place of business of the buyer. Both cases, as to their practical realization, cause less problems than the one discussed first, even though it is not a very widely followed practice that the collector pays for the goods. It happens frequently that the carrier of confidence is the one to collect or request, under an advice-note, the presentation of a proof of payment.

[8] [where payment is to be made against the handing over … of documents]

      [8.1] The documents mentioned here are obviously the same as under Article 58, i.e. the documents which entitle to dispose of the goods. Articles 30 and 34, however, refer to documents which relate to the goods. An extended version of the term "documents" is used there which may include certificates relating to quality and analysis, operating manuals, technical descriptions and drawings. Schlechtriem (74) wants to interpret the documents referred to in Article 58 in the meaning of Articles 30 and 34 because the right of the seller to refuse performance is at stake. We, too, are in favour of a functional interpretation and not of a limitation of the relevant documents to mere documents of title without wanting to consider the two groups of documents as identical. Reference is made here in the first place to shipping documents, like bills of lading, warehouse certificates, combined transport documents, international forwarding notes, etc., i.e. the so-called documents of title. Depending on the basis for delivery agreed, the documents can also be such which only certify the taking over of the goods (quay receipt, mate's receipt, forwarding agent's receipt) and/or such which prove the conclusion of a freight or storage contract which serve to substantiate an obligation to deliver (sender copies of the waybill in transportation by way of [page 219] railroad, motor traffic, airship and inland navigation). The requirements for those documents are determined according to the rules applicable to the respective category of performance (regarding details see Richter, 12 fol). The category of transportation documents which will have to be presented can usually be inferred from the Incoterms referred to.

Where the buyer has to pay customs duties to obtain the goods, the seller has to provide the necessary documents, such as invoices (if agreed having account of specific form requirements -- consular invoices) and certificates of origin. Depending on what is agreed in the contract other documents are added, like insurance documents, certificates of quality, etc. The Uniform Customs and Practices for Documentary Credits contain the requirements which most of these documents will have to meet.

      [8.2] Payment is to be made only against the handing over of the documents if the seller has determined it pursuant to Article 58 (subject to the right of the buyer to examine them, see Article 58, notes 8 and 9) or if the terms of payment "cash against documents" or "payment according to letter of credit" have been agreed.

      [8.3] Where the documents are to be handed over is made dependent in the Convention on the agreement between the parties (Article 34). But regularly established practices and/or rules referred to by the parties in one form or another intervene here. The places determined according to the handing over of the documents are different in the case of specific terms of payment. In the event of the term "cash against documents", the documents have to be submitted as a rule at the buyer's (Article 8, Uniform Rules for Collections). Payment is hence to be made there with the consequences described in note 1.2. However, the buyer has to be considered as obligated to satisfy all formalities which are necessary to allow transfer of the payment to the seller's country. But he is obliged only insofar as that one depends on him and, in particular, only to the extent to which he is legally entitled and actually in a position to do so (accordingly Article 54, note 4).

Where a letter of credit is agreed, all banks engaged act on behalf of the buyer, hence the issuing bank and also other banks engaged by it, including the bank in the seller's country which notifies the seller of the opening of the letter of credit, its place of business is also the place of payment, which again entails the consequences described under note 1.2. This is also in line with the Uniform Customs and Practices for Documentary Credits according to which the bank sending the notification is under certain circumstances entitled to make the payment pursuant to the conditions prescribed (Article 2, [page 220] (ii); Article 11, subpara. (d). Where a payment made under a reservation is reclaimed later, because the bank where the letter of credit is issued does not pay, the payment is considered as not having been made.

[9] [cross-reference: article 58(1)]

For lack of deviating agreements this is even the rule under the CISG (Article 58, paragraph 1, sentence 2 and paragraph 2), leaving out of consideration cases where credits are granted. The terms of payment agreed insofar are "cash against documents" (including forwarding agent's collection) and "payment according to letter of credit".

[10] [seller must bear any increase in the expenses incidental to payment …]

      [10.1] We believe that the buyer has the right to deduct the increase in the expenses from the amount to be paid if this is possible from a technical and financial point of view.

      [10.2] Of greater relevance should be the other consequences which are unfavourable to the buyer and which can be related to modifications of the place of business, such as earlier initiation of the payment procedure, increase in the risk, and more burdensome formalities. They can be financially compensated only partially without problems, e.g. loss of interests if the payment procedure has to be initiated earlier. The buyer, in our view, generally has the right here to rely on Article 80 (see also note 5).

[11] [… caused by a change in [seller's] place of business subsequent to the conclusion of the contract]

This rule is invoked only when the seller's place of business is also the place of payment. [page 221]

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Pace Law School Institute of International Commercial Law - Last updated September 25, 2002
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