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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 58 [Time of payment; payment as condition for handing over; examination before payment] [1]

[TEXT OF THE UNIFORM LAW]

(1) If the buyer is not bound to pay the price at any other specific time [2], he must pay it when the seller places either the goods [3] or documents controlling their disposition [4] at the buyer's disposal in accordance with the contract and this Convention [5]. The seller may make such payment a condition for handing over the goods or documents [6].

(2) If the contract involves carriage of the goods, the seller may dispatch the goods on terms whereby the goods, or documents controlling their disposition [4], will not be handed over to the buyer except against payment of the price [7].

(3) The buyer is not bound to pay the price until he has had an opportunity [8] to examine the goods [9], unless the procedures for delivery [11] or payment [10] agreed upon by the parties are inconsistent with his having such an opportunity.

[WORDS AND PHRASES, CONCEPTS

1. delivery and payment contemporaneous: consequences
2. if the buyer is not bound to pay the price at any other specific time …
3. … he must pay it when the seller places either the goods …
4. … or documents controlling their disposition …
5. …in accordance with the contract and this Convention
6. when handing over is at the place of business of the seller
7. if the contract involves carriage of the goods, the seller may dispatch the goods on terms whereby the goods, or documents controlling their disposition, will not be handed over to the buyer except against payment of the price
8. buyer's opportunity to examine the goods
9. buyer's right to examine the goods
10. procedures for payment: buyer is not bound to pay the price without opportunity to examine the goods unless the procedures for payment are inconsistent with this
11. procedures for delivery: similarly,buyer is not bound to pay the price without opportunity to examine the goods, unless the procedures for delivery are inconsistent with this ]

[COMMENTARY]

[1] [delivery and payment contemporaneous: consequences]

      [1.1] The main idea of Article 58 is the rule that the delivery and the payment have to be made contemporaneously. In the process, the buyer should, if possible, have the opportunity to examine the goods in order to guarantee the contemporaneous performance to the largest extent possible. Not only does the buyer have the rights provided for such cases, but time of delivery is also postponed where the seller falls behind with his delivery or where he in any other way does not deliver in conformity with the contract (note 3.3.). In the opposite case, the seller, depending on the commercial terms, either need not deliver the goods or at least need not hand them over as long as no payment is made. This article in a specific way also expresses the objection of the non-fulfilled contract (Art. 80) without, however, allowing a waiting game to be played in the performance of the contract (O.R., 369 fol, 377). The principle of contemporaneous performance is a more direct reflection of the immediate change in the possession of the goods than Article 80, and unlike the latter, does not require prior non-performance. But since we assume under Article 80 a non-performance caused by legal reasons (note 6 of that article), unlike Schlechtriem (75), we do not have to face the problems concerning a right of the seller to retain the goods when the buyer does not fulfil obligations other than payment contemporaneously. … We believe that this right can be easily deduced from Article 80 and thus arrive, on the basis of the CISG, at the same conclusion as he does using a complicated construction.

For the rule to be made operative, a trigger is needed. This is the obligation to deliver and, in the context of time, the setting of a date for it (note 4).

      [1.2] Also advance payments are generally not permitted. It does not seem to be excluded that the rule on delivery before the time for delivery is applied by analogy.

When the buyer wants to pay in advance to avoid losses which are looming because of an expected decline in currency, the seller can reject this. In accordance with the principle of good faith (Art. 7), he has to do so immediately. If not, the payment is considered as accepted, and the seller cannot later ascertain claims for damages. Even more so since he is basically in a position to use the received payment in such a way as to avoid losses. He can, however, ascertain [page 222] claims when he accepts the payment making a relevant reservation (O.R., 370). The buyer, however, need not accept that reservation and can demand reimbursement when the reservation is made.

      [1.3] The payment of the price in regard to time (just as to place, Art. 57) includes that the full price is offered in the currency that was agreed. If this is not the case, the seller has the right to retain the goods to the extent that this would not violate the principle of good faith because of the smallness of the deviation to be calculated according to objective commercial criteria. After all, it is up to the seller to decide to what degree he would want to ascertain his right to retain the goods in the event of non-orderly payment. If he does not ascertain this right, this alone is not tantamount to a renunciation of possible claims because of a breach of contract on the part of the buyer.

[2] [if the buyer is not bound to pay the price at any other specific time …]

      [2.1] Compare Article 57, note 3.1.

      [2.2] The time of payment can be determined in the contract by naming a calendar date for payment or its determination can be provided for in the contract, for instance, by tying the payment to the emergence of certain circumstances.

      [2.3] It must be derived from the functions of a security for credit the time such a security has to be procured. If nothing else can be derived, a letter of credit will have to be issued early enough as to allow its use from the beginning of the period for delivery at the place of payment. Where the procurement of a security is bound, however, to the delivery, it will have to be procured at the time of payment in accordance with this article (e.g. acceptance of bills of exchange, handing over of promissory notes).

[3] [… he must pay it when the seller places either the goods …]

Compare Article 57, note 7. The time of payment is the moment where the relevant steps mentioned there are being taken.

[4] [… or documents controlling their disposition …]

Compare Article 57, note 8.

[5] [… in accordance with the contract and this Convention]

      [5.1] Insofar as reference is made to the rules under the Convention, they relate, above all, to cases of Article 31, subparas. (b) and (c). But also the case of Article 31, subpara. (a), according to which the contract requires transport of the goods, can be made out in such a way that the goods are made available to the buyer at a certain point of the transport route or at the place of destination or at his place of business (Art. 57, note 7). Often it is commercially not practicable to pay the amount required at the time and the place where the goods or documents are made available. Therefore, terms of [page 223] payment are agreed which do not interlink the time and place of payment and the place of the making available of the goods or documents (Article 57, paragraph 1, subpara. (b) calls it the handing over), but the documents controlling disposition of the goods reach the buyer differently from the goods. The handing over of the documents is made dependent on the payment, as paragraph 1, sentence 2, and paragraph 2 provide for. Payment is then made at the time when the documents have been handed over at the place of payment.

      [5.2] Where the buyer is not informed in advance and/or gets otherwise knowledge of the fact that the conditions for payments will soon be ripe (notification of readiness for dispatch, notice of dispatch, etc.) he must, in accordance with the principle of good faith and/or established practices or usages (Articles 7, 9), be granted a reasonable, generally a short, period for payment (so already Huber, 515, on the draft). Payment cannot be demanded from him before he knew or had to be aware of the existence of the conditions causing payment, even when this leads to his missing the time for payment. The solution given by Lüderitz (Freiburg, 190) to assume that a breach of contract was committed in this case from whose consequences in terms of damages the buyer can be exempted under Article 79, paragraph 1 does not seem convincing to us. Normal commercial behaviour should not be incriminated in connection with belated justification. If one would wish to follow such way, it should rather be done pursuant to Article 80 (note 1.1.). But this, too, would mean making a detour.

      [5.3] Payment can be refused under the same conditions as acceptance (Art. 60, note 2).

[6] [when handing over is at place of business of the seller]

When the handing over is done at the place of business of the seller, he can -- for lack of other agreements -- make it dependent on the payment, which could for instance be made by handing over a cheque. Payment in cash is not customary here. If proof of payment is submitted in this case, the buyer has already performed in advance.

Also in the context of paragraph 1, a handing over can be effected on the way or at the place of destination (place of business of the buyer), to which the explanations given in note 7 would apply.

[7] [if the contract involves carriage of the goods, the seller may dispatch the goods on terms whereby the goods, or documents controlling their disposition, will not be handed over to the buyer except against payment of the price]

      [7.1] The rule indicates that in the case of an existing obligation of dispatch, the seller may not require payment before dispatch of the goods (Sevón/Dubrovnik, 216). [page 224]

      [7.2] Like in the case described in note 6, in this event the seller must not, by way of unilaterally making the handing over of the goods or the documents dependent on the payment, restrict the right of the buyer to examine the goods under paragraph 3. For a contemporaneous performance, while the right to examination is retained and in a place other than that mentioned, under Article 3l, subparas. (b) and (c), there are, however, hardly any standardized commercial techniques because the various forms of collections preclude the examination right. After all, it is not customary, even where the legal stipulations for the relevant category of transportation allow it, to instruct the carrier to collect the price. Besides, this would hardly be compatible with the examination right, either. Insofar as the goods are not directly handed over between the parties to the sales contract, the engaged neutral intermediaries would have to be individually authorized to allow examination, where they are ready and willing to proceed accordingly.

[8] [buyer's opportunity to examine the goods]

The possibility of examination has to be included in the orderly course of the transaction, and the buyer cannot require that the seller takes special steps causing additional costs, e.g. giving a demonstration of machines in operation at the manufacturer's plant. The buyer has to do the examination at his own cost. The seller only has to provide the opportunity allowing him access to the goods. He may be obliged to do so before the dispatch (Honnold, 347 fol), which does not mean, however, that the seller would have to grant, by virtue of law, the buyer and/or impartial controlling organizations engaged by the latter access to his manufacturing facilities. The examination would thus possibly have to take place outside the latter. Such an interpretation of the right to examination speaks in favour of the version given in the Secretariat's Commentary. According to that version, the seller would have the obligation to make specific arrangements with the carrier in order to grant the buyer the possibility of examination when he, the seller, wants to ascertain his right under paragraph 2. If nothing is agreed to the contrary -- which is what is assumed here payment will have to be made generally at the place of business of the seller (Art. 57, paragraph 1, subpara., (a)). Where the seller deviates from this principle to his own disadvantage making use of the possibility given in Article 58, paragraph 2 (so that the contemporaneous principle of performance can be applied), he should not be burdened as a consequence with further risks.

[9] [buyer's right to examine the goods]

      [9.1] The right of the buyer to examination is the general rule which is applied, in particular when the seller, without a relevant agreement on his own, makes the handing over dependent on the payment under paragraph 1, sentence 2, or paragraph 2. In that event, he must not prescribe a term of payment which would exclude the examination [page 225] right (note 8). The buyer is not obliged to pay as long as he is granted the right to examine the goods. Hence, he is not entitled to refuse acceptance if the latter is possible without payment.

      [9.2] This right to examine the goods in substance is not identical to the obligation of examination under Article 38. Even when the buyer pays the price after having examined the goods for the first time, he does not lose the possibility to examine the goods more carefully under Article 38 and to possibly claim a lack of conformity.

[10] [procedures for payment: buyer is not bound to pay the price without opportunity to examine the goods, unless the procedures for payment are inconsistent with this]

The terms of payment which are incompatible with an examination by the buyer include advance payment "cash against documents" (Uniform Rules for Collections, Art. 11 and 12), and "payment according to letter of credit" (Uniform Customs and Practices for Documentary Credits, Article 16, subpara. (a)). The procurement of securities for payment is done mostly also under conditions which preclude advance examination. And where they create an abstract payment obligation, later established lacks do not any more influence the payment procedure, so that the possibility for the buyer to examine the goods insofar, but not in regard to Article 38, is irrelevant (e.g. "documents against acceptance" -- a differing view is seemingly held by Honnold, 349 -- banker's indemnities). Terms of payment which offer the buyer an opportunity to examine the goods include, therefore, individually shaped collections instructions, "cash after receipt of the goods (and the invoice)" as well as the granting of open payment objectives.

It is doubtful in the case of some terms of payment whether they are compatible with the possibility for the buyer to examine the goods. Where the payment has been made dependent on the issuing or receipt of the invoice, it is generally assumed that the invoice is not dispatched before the goods. Otherwise, it might arrive at the buyer's and the payment may become due even before the goods arrive and can be examined. The buyer, in our view, has in this case, and for lack of opposite clues, the right to stop payment until he has had an opportunity to examine the goods. He has that right at least when in the normal course of events the goods would have arrived before the expiry of the period for payment. Like Sevón (Dubrovnik, 217), we have doubts in regard to the view expressed in the Secretariat's Commentary (O.R., 47) that a term of payment according to which the price is to be paid against documents after arrival of the goods is not contrary to the examination right of the buyer. We rather believe that this term of payment should in general express that the documents need only be presented upon arrival of the goods, but have to be honoured then without inspection. [page 226]

[11] [procedures for delivery: buyer is not bound to pay the price without opportunity to examine the goods, unless the procedures for delivery are inconsistent with this]

Where the terms of payment already preclude the possibility for examination, it is irrelevant to search the terms of delivery for such an opportunity. Hence, this is only of importance when the terms of payment offer such an opportunity. We hold that the possibility to examine the goods cannot be awaited, for instance, in the following case: The payment is to be made 30 days after the issuance of the invoice, but the goods are to be delivered directly to an inland construction site in a faraway third country where they will arrive only three months after dispatch.

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