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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 66 [Loss after risk has passed]

[TEXT OF THE UNIFORM LAW]

Loss of or damage to the goods after the risk has passed [2] to the buyer does not discharge him from his obligation to pay the price [1], unless the loss or damage is due to an act or omission of the seller [3].

[WORDS AND PHRASES, CONCEPTS

1. loss of or damage to the goods after the risk has passed to the buyer does not discharge him from his obligation to pay the price
2. loss or damage to the goods after the risk has passed
3. unless the loss or damage is due to an act or omission of the seller ]

[COMMENTARY]

[1] [loss of or damage to the goods after the risk has passed to the buyer does not discharge him from his obligation to pay the price ]

     [1.1] From this formulation follows that the risk refers in the first place to the risk of having to pay (Huber, 453 fol; Schlechtriem, 78; Bucher/Lausanne, 207). Hager (Freiburg) has pointed out that the distinction between the risk to pay and the risk to perform is not made in many countries and that, where it is made, it is relevant only in the event where the buyer has to take the goods at the seller's place. In general, under the CISG the risk to pay and the risk to perform pass at the same time. This is also the attitude of the Incoterms in regard to this problem. The difference becomes obvious again when the fact that the risk has passed is later again put into doubt (note 3). We are referring here to different aspects which we want to examine separately.

     [1.2] The risk of having to pay informs of which conditions have to be fulfilled by the seller for the obligation to pay the price not to end and/or be reduced when the goods are destroyed or damaged. The totality of these conditions fulfilled characterizes the passing to the risk, of having to pay the price. From the view of the seller it can be deduced from the passing of the risk until the existence of which condition he will have to fear that his right to obtain the price might be lost, in other words, to what extent he is responsible for the intactness of the goods. This aspect of bearing the risk corresponds with the seller's liability under Article 36, paragraph 1, of the CISG for a lack of conformity which exists at the time when the risk is passed. Apart from that, the bearing of the risk has no influence on the emergence or settlement date of the obligation to pay the price.

     [1.3] It follows from the rule on the risk of having to perform whether the seller is obligated to deliver again, to deliver missing parts, to repair, etc. The seller might not only lose his right to obtain the price because the risk materializes, but he might also have to deliver once again, which of course would revive his right to obtain the price. As was said before, the risk of having to perform passes with the risk [page 259] of having to pay the price; at least it passes with it at the latest and is not revived when the price risk comes back to the seller. Once the risk has passed, the seller does not have to deliver again. But what happens before? The seller has to tender the goods in a way prescribed in Articles 67 to 69. If he does not do that because the risk has materialized before it has passed and the orderly initiated process of tendering has failed because of this, the question whether the seller has to deliver once again or has to repair the goods, etc. is answered according to the general rules. Since the cases which are of interest here are cases where the goods are destroyed or damaged (note 2) accidentally, the impediments under Article 79 will regularly be in existence. But this basically only frees the seller from damages because of non-observance of the time for delivery (Article 79, note 5). Only the buyer has the right to use the possibility of avoidance, which would free the seller from his obligation to perform. The seller, however, will be interested in obtaining a rapid decision in the matter, which he can bring about in the following way: He informs the buyer under Article 79, paragraph 4, of how long the impediment will exist in regard to the performance of his obligations, or when he will be able to deliver new goods. Provided that the information is formulated accordingly, this would amount to a notice of delivery after the date for delivery under Article 48, paragraph 3, which is assumed to contain an invitation to inform of performance under paragraph 2. This entails the consequences envisaged there, in particular exclusion of the right to avoid the contract before the indicated time for performance if there is no rejection within a reasonable time (in detail Article 48, notes 10 fol).

As regards accidental damage to the goods before the risk has passed, we assume that the goods were manufactured as planned and the problems emerged between the completion of manufacture and the passing of the risk. This case, too, is not specifically described in the Convention as being a reason for exemption, but can in its typical manifestations very well be subsumed under the impediments of Article 79, paragraph 1. Proceeding on this subsumption, the seller can repair the goods before the risk is passed, which leads us back to the procedure described in connection with the destruction of the goods.

A case which occurs rather often in practice is that the risk is passed without a repair having been made, e.g. because none of the parties knows that there is a damage. The same is true of theft of part of the goods. In that event, the same rights of the buyer are to a large extent applied as in the case of delivery of non-conform[ing] goods. It is only the claims for damage which are excluded. There should be no great practical difference between whether the buyer refuses to pay part of the price because of an accidental damage or whether [page 260] he relies on reduction of the price pursuant to Article 50. Where the destruction or damage of the goods before the passing of the risk is caused by an act or omission of the buyer, e.g. by sub-supplying unfit motor oil, the motors to be delivered are destroyed during the test run, or the computers to be delivered are damaged because of the use of inappropriate packaging material, the buyer cannot rely on such non-conformity under Article 80.

     [1.4] It is understandable that the buyer cannot demand that goods are delivered or damaged goods are repaired twice, when the risk had already passed when the loss or damage occurred. However, where spare parts or parts of larger units are lost which can be delivered solely by the seller or which only he can repair, and where he can reasonably be expected to do so, grounds may be given for an obligation to accept a relevant contract against payment by following the principle of good faith (Article 7, paragraph 1).

[2] [loss or damage after the risk has passed ]

Following the traditional understanding, reference is made here to accidental destruction and/or accidental damage. These include such effects which are not caused by either of the parties and or by parties for which the former are responsible, but are the result of events that cannot be influenced by human beings and/or of the conduct of uninvolved third parties or possibly also of the carriers. There is no doubt that they cover the effects of impediments, accidents, loss including theft, the mixing up during transport, delivery, etc. (c. Neumayer/Dölle, 605 fol). Where the buyer is responsible, he will bear the damage anyway (see also note 1.4.). As for the seller, see note 3. It is irrelevant after the risk has passed what has caused the loss or damage. We also believe that the buyer bears the risk of intervention by a State (obtaining a similar result, even though doubting, Neumayer, 957 fol). Hager (Freiburg, 409 fol) tries to substantiate his deviating view invoking the obligation to procure authorizations. This is, as we believe, a different problem which is frequently bound to the delivery and/or performance and thus the decisive place which often, as has already been mentioned above, is the same as the place where the risk is passed. When natural decrease or shrinkage (leakage, seeping away, etc.) which is not caused by inappropriate packaging and similar things, is not taken into consideration during the making of the contract, it will in our view come also under the bearing of risk, i.e. the decisive weight is the weight at the time when the risk passes.

[3] [ unless the loss or damage is due to an act or omission of the seller]

Obviously, the risk shall not pass and/or fall back to the seller when there is such an exception. This is an unfortunate rule. There were considerable difficulties of interpretation in the case of the similarly worded Article 96 ULIS (Neumayer/Dölle, 606 fol). Even the draft CISG was sometimes interpreted daringly (Huber, 565 fol). Neumayer (966) [page 261] had made the very good proposal to delete the reservation. But there was no substantial discussion at the diplomatic conference (O.R., 401 fol), and no proposals were submitted (O.R., 126).

The reservation, when interpreted narrowly, covers problems which are already solved in different places and, when interpreted broadly, leads to undesirable or even foolish results. The commentators have to make a choice between the two. There are those who want to have the reservation valid only when the conduct of the seller amounted to a breach of an obligation (Huber, 457; also Honnold, 370) and/or a breach of contract (in this direction Schlechtriem, 78 fol). The cases to be subsumed hereunder are already covered sufficiently by Article 36, paragraph 2. Others (like the Secretariat's Commentary, O.R., 63 fol) and Nicholas/BB, 485) rightly point out that such qualification is not contained in the text. Sevón (Lausanne, 196 fol) interprets that only possible regulations should be pointed to which give reason for the seller to be liable. Apart from that, the text does not even provide for this. We are, generally speaking, back to the first solution.

Since the restriction cannot simply be ignored we are, in view of the existing dilemma, in favour of a restrictive interpretation. We assume here that the act or omission of the seller has to be in breach of contract or at least in breach of obligation. A difference which in our belief exists in comparison with Article 36, paragraph 2 (which could also justify a different wording) is that the seller cannot exempt himself pursuant to Article 79. The commented on half-sentence has thus the effect that the buyer in certain cases of performance in breach of contract, is granted further rights in regard to retaining the price apart from the rights provided for in such cases which actually are sufficient because of the not passing even the falling back of the risk. The conduct of the seller, which insofar is relevant, must have a close connection, in our view, with the motives because of which the regulation on the passing of the risk was established. Furthermore, there must be a direct relation to the contract and its performance in time and substance.

Instances which are possible in this context include, above all, a lack of conformity of the goods which starts to have an effect only after the risk has passed and possibly leads to the total destruction of the goods, damage to a part of the goods which is actually not affected by the lack of conformity, unfit packaging, e.g. omission of packaging for transport at sea. The acts of the seller must not necessarily be breaches of contract, although this will be the typical case. Anyway, the mentioned, but rather abstractly formulated rule should in general not be extended to torts because they require the [page 262] examination of different conditions. It is, therefore, not advisable to grant the buyer for such reasons the option not to pay the price.

This refers, as we believe, also to the example mentioned and much cited (Sevón/Lausanne, 196 fol; Hager /Freiburg, 403 fol; Nicholas/BB, 485) in the Secretariat's Commentary (O.R., 163 fol). In a FOB contract the seller damages the goods when he removes his containers. Since this probably is no breach of contract but rather a tort and the buyer can, therefore, not invoke the rights he would have because of a breach of contract, the latter should at least be permitted to reduce the price to the extent to which this is allowed under the applicable law of tort. This example is proof that the rule does not meet its objective, for the fact alone that the seller damages the goods is no justification for presuming his responsibility for it, e.g. the buyer may have placed the goods in violation of regulations. Proceeding on the legal and political principle underlying the rule (Introductory remarks 4 [see Section 4 of Introductory Remarks to Chapter IV, Passing of Risk, supra]) the buyer would have to bear the risk for he will be the one to have the goods normally insured. There was no reason for the seller to do so. When the insurance company indemnifies the buyer, the taking back the price wholly or in part would presuppose that he hands over the proceeds from it insofar to the seller. But this situation is not provided for in the Convention. Besides, we do not understand why the buyer should be in a particularly favourable position when the seller causes the damage, for the latter in this regard finds himself in a situation which is hardly different from that of any third party. Where the damaging of the goods by the seller was a tort and the buyer, therefore, has claims against the seller, the general possibilities of setting off against the price requirement are applicable under the decisive law, and the buyer is thus satisfied.

A very narrow interpretation could be used to counteract the fact that because of the lack of a time limit for the relevant conduct of the seller, such acts will be taken into account which happen a very long time after the risk has passed or whose effect is felt only that late, and that the system of claims from breach of contract is thereby fundamentally modified. This exceptional rule cannot, in general, be played off against the system of claims in the event of lack of conformity of the goods.

Furthermore, lawful conduct of the seller, which in interaction with accidents leads to loss or damage of the goods, should not be regarded as a reason for the falling back of the risk (rightly pointed out by Huber, 457; agreeing Schlechtriem, 79). This refers, for instance, to the case that the risk is passed in such a way that the buyer commits a breach of contract by not taking delivery of the goods under Article 69, paragraph 1, and the seller now takes appropriate [page 263] measures under Article 85 to preserve the goods, which, however, accidentally lead to the destruction of the latter. The same applies where the seller exercises his lawful right to stop the goods in transit. Even more obvious is the non-applicability of this rule in its abstract form when the seller has chosen a carrier for that part of transportation for which the buyer bears the risk and when the goods perish in the keeping of the carrier. If this were not so, the scheme of risk bearing of the Convention would be completely distorted. The problems that may result between the seller and the buyer from the possible engagement of inappropriate carriers should also not be solved invoking the provisions on risk bearing.

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