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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 68 [Passage of risk when goods sold in transit]

[TEXT OF THE UNIFORM LAW]

The risk in respect of goods sold in transit passes to the buyer [1] from the time of the conclusion of the contract [2]. However, if the circumstances so indicate [3], the risk is assumed by the buyer from the time the goods were handed over to the carrier who issued the documents [4] embodying the contract of carriage. Nevertheless, if at the time of the conclusion of the contract of sale the seller knew or ought to have known [6] that the goods had been lost or damaged and did not disclose this to the buyer, the loss or damage is at the risk of the seller [5].

[WORDS AND PHRASES, CONCEPTS

1. The risk in respect of goods sold in transit passes to the buyer from the time of the conclusion of the contract. However, if the circumstances so indicate
2. from the time of the conclusion of the contract
3. However, if the circumstances so indicate
4. the risk is assumed by the buyer from the time the goods were handed over to the carrier who issued the documents
5. sentence 3 refers only to sentence 2, not sentence 1
6. if the seller knew or ought to have known ]

[COMMENTARY]

[1] [The risk in respect of goods sold in transit passes to the buyer from the time of the conclusion of the contract. However, if the circumstances so indicate ]

     [1.1] This solution was not part of the draft CISG and was adopted at the diplomatic conference only after extensive discussion in the First Committee (O.R., 403 fol) and in the Plenary (O.R., 213 fol), in particular at the insistence of Pakistan which was supported by other developing countries. It does prevent a retroactive passing of the risk, but has to be considered as inappropriate from the point of view of trade requirements because it is in general difficult to establish, when a loss occurred or damage was caused to goods in transit. This difficulty becomes irrelevant when the passing of the risk takes place with the handing over to the carrier. Furthermore, in that event it is the buyer, hence the party who receives the goods and can initiate the necessary measures against the carrier or insurer, who bears the risk. Goods in transit are often such goods as raw materials and other bulk goods which indeed count among export commodities of the developing countries. It is, however, often the basic rule adopted in this article which causes difficulties, in particular, to the exporter of such goods. It is not quite understandable why this should clearly be in the interest of the developing countries as it appeared to be the case at the diplomatic conference. In publications it was Neumayer (Dölle, 646 fol) who advocated a solution as it has now been adopted, and Bucher (Lausanne, 216) obviously agrees. Hager (Freiburg, 411) has expressed some reservations, and Sevón (Lausanne, 202) seems to have doubts, too. [page 270]

     [1.2] The practical effect of the rule reviewed here critically is reduced by the fact that the burden of proof in regard to the goods having been affected by a risk already at the time of the conclusion of the contract, according to the customary proof rules, as they apply also to performance in breach of contract, lies with the buyer. It is, therefore, the latter who is affected by the uncertainties involved.

     [1.3] It remains irrelevant which means of transportation has been chosen for the goods in transit. In practice it is mostly floating goods that are traded.

[2] [ from the time of the conclusion of the contract]

Compare Article 23. ["A contract is concluded at the moment when an acceptance of an offer becomes effective in accordance with the provisions of this Convention."]

[3] [However, if the circumstances so indicate ]

The general solution contained in Article 99 ULIS and in Article 80 of the CISG draft here has formally become an exception which applies only when additional conditions are met. There is unanimity, as it was articulated already at the diplomatic conference, in that a transport insurance (already Schlechtriem, 82; Neumayer/Dölle, 651, had even tried to interpret Article 99, paragraph 1 ULIS in this sense) is regarded as such a condition. Since as a rule there is an insurance, this should be the main case in commercial practice, whereby the largest part of the problem is removed from the overall rule. Even farther reaching agreements between the parties will generally amount to a customary trade term, like in particular the CIF clause, which then will make this CISG provision irrelevant anyway.

[4] [ the risk is assumed by the buyer from the time the goods were handed over to the carrier who issued the documents ]

When the goods are transported by several successive carriers, it is very important to determine which is to be the decisive handing over for the passing of the risk. The CISG obviously assumes that the sale of goods in transit is done on the basis of the transport documents. Decisive is the handing over to the carrier who has made out the respective documents. These need not be the so-called documents of title, even though their making out, as it is characteristic especially in transportation by sea, very much facilitates such transactions. Documents having less far reaching effects are sufficient (c. Article 57, note 8.1.).

[5] [The risk in respect of goods sold in transit passes to the buyer from the time of the conclusion of the contract. However, if the circumstances so indicate, the risk is assumed by the buyer from the time the goods were handed over to the carrier who issued the documents embodying the contract of carriage. Nevertheless, if at the time of the conclusion of the contract of sale the seller knew or ought to have known that the goods had been lost or damaged and did not disclose this to the buyer, the loss or damage is at the risk of the seller.]

     [5.1] Sentence 3 refers only to sentence 2 for, in the case of sentence 1, it is the seller who anyway bears the risk until the time of the conclusion of the contract, and sentence 3 does not provide for a farther-reaching risk bearing either (Nicholas/BB, 500). [page 271]

     [5.2] The provision was in a similar form already contained in Article 99, paragraph 2 ULIS, and apparently was never subjected to serious doubt. The seller who knows of the lack of conformity must not be allowed to shift the risk to others invoking the rules that govern the passing of the risk.

It has to be taken into account, however, that unlike in Article 99, paragraph 2 ULIS, the passing of the risk is not generally deferred until the time of the conclusion of the contract, but only to the extent to which the occurrence of the risk has led to losses or damage of which the seller knew or ought to have known. Insofar he has not earned the price and remains obligated to deliver. Other risks occurring until the moment when the contract is concluded are not covered in our view.

Example : It is assumed that the seller has sold a shipload of grain CIF Leningrad although he knew that sea water had penetrated the ship through the loading hatch so that the grain behind the hatch, which only made up five per cent of the entire load, had become unusable. Shortly before the contract is signed, the ship sinks -- of which the parties learned only after the signing -- and which the seller could not know in advance. We believe that the seller in this case only bears the risk for the first five percent, the risk in regard to the rest has passed to the buyer. If the seller has revealed himself to the buyer in respect of the loss of the first five per cent and the latter buys nevertheless, the risk passes already at the time of the handing over of the goods to the decisive carrier.

     [5.3] To the extent to which the seller bears the risk, he is entitled to claims under the transport insurance and, where he is the victim, also to possible claims against the carrier. When the buyer has already received the documents required for asserting these claims, he must be considered as obliged to put them at the seller's disposal. This presupposes that his rights under the non-passing of the risk are retained, e.g. repayment of the price or, where the buyer will keep the goods which are only damaged and wants to claim a reduction of the price, agreement on it (of a different view on ULIS Neumayer/Dölle, 653). But we believe that the buyer must, through analogous application of Article 86 fol, always take such steps for the seller which cannot be postponed in order to secure his rights, if this follows from the circumstances or when the seller is not in a position to do so and the buyer can reasonably be expected to do it. [page 272]

     [5.4] The rule also covers those cases where the goods at the time of the conclusion of the contract have already completely been destroyed so that the contract was aimed at an impossible performance. Such a contract is void under the law of many countries. Hence, a question of validity is touched here which the Convention under Article 4, subpara. (a) has expressly excluded from its scope of validity. The question has now to be asked of whether one should consider the rule as irrelevant to the extent to which the contract in question is void under the applicable national law, or whether, conversely, it should be used to deduce from it an exception to the self-limitation of the CISG. We believe that the latter is accurate (Article 4, sentence 2, first half-sentence; of a different view regarding ULIS Neumayer/Dölle, 652 fol).

From the legal policy point of view, a satisfying solution can be obtained when one stays within the framework of the Convention. The seller is bound to the contract. He will not be able to rely on the grounds which led to the loss or damage of the goods as impediments, since he could have taken account of them at the time when the contract was concluded (Article 79, paragraph 1). He will thus have to face all the consequences of a breach of contract insofar as he cannot ensure performance otherwise.

[6] [if the seller knew or ought to have known ]

In our view the "ought to have known" should not be overly stretched as does Neumayer (Dölle, 652 fol) in commenting on the very similar formulations of ULIS when he wants the seller to retain the risk when the worsening or the total destruction of the goods is only the consequence of a dangerous situation which was emerging even before the contract was concluded and of which the seller knew. The wording, at least of the CISG, requires in our view that the seller ought to have known of the effect on the goods that has taken place and that it is not sufficient that he can assume it at best because of any dangerous situations in which the goods find themselves, e.g. the ship passes through a region where there are acts of war. At the most, a damage is included which is connected with the original damage of which the seller knew or ought to have been aware, as Nicholas (BB, 499) sees it. [page 273]

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