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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 70 [Effect of fundamental breach on passage of risk]

[TEXT OF THE UNIFORM LAW]

If the seller has committed a fundamental [2] breach of contract, articles 67, 68 and 69 do not impair the remedies available to the buyer on account of the breach [1].

[WORDS AND PHRASES, CONCEPTS

1. articles 67, 68 and 69 do not impair the remedies available to the buyer on account of the breach
2. if the seller has committed a fundamental breach of contract ]

[COMMENTARY]

[1] [ articles 67, 68 and 69 do not impair the remedies available to the buyer on account of the breach]

This article essentially states that the buyer is not deprived of rights because of a fundamental breach of contract where the risk has passed. This relates basically to the avoidance of the contract and the delivery of substitute goods because it is a general prerequisite for the exercise of these rights under Article 82, paragraph 1, that the buyer can restitute the goods in essence in the same condition in which he had received them. Paragraph 2, however, provides for considerable restrictions of this principle of which the one under subpara. (a) is of particular interest here. According to it, the restitution of the goods cannot be made a condition when it is impossible for reasons which are not related to the activities of the buyer. But these are exactly the coincidences as they are covered by the bearing of the risk, so that actually the objective of Article 70 is attained to a large extent already in Article 82, paragraph 2, subpara. (a) (see also Sevon/Lausanne, 198 and 220; Neumayer/Lausanne, 219). Anyway, it does not appear very useful to search for a meaning in Article 70 which would go beyond the eventually required closing of gaps which are left by Article 80, paragraph 2, subpara. (a).

Hence, where non-conforming goods are delivered and the non-conformity constitutes a fundamental deficiency, the buyer can require the avoidance of the contract or delivery of substitute goods. This is true even where the goods accidentally perish or are damaged after the risk has passed, and also where those events have nothing to do with the deficiency. A batch of 200 electric motors is delivered for instance. During a test it is discovered that 100 of them are defective. Before a complaint can be lodged, all motors are destroyed in a fire. When it is assumed that the individual deficiency of each motor was fundamental and that the batch as a whole had a fundamental deficiency because of the high degree of faultive motors, the buyer will have two options (c. also Nicholas/BB, 510): He can either require a delivery of substitute goods in regard to the defective motors (Article 46, paragraph 1) and has to keep the rest, i.e. the destruction is at his risk, or he can avoid the entire contract (Article 49, [page 279] paragraph 1, subpara. (a)) and will be freed from the obligation to pay the price and/or can demand restitution of it (Article 81).

We do not believe that Article 70 should be interpreted in such a way as though it would defer the passing of the risk, like in the case of a hidden defect, as long as the rights in regard to avoidance of contract or delivery of substitute goods are excluded or fall under the statute of limitations because the time limits have expired (Hager/Freiburg, 406 -- such an interpretation seems to go better with Article 97, paragraph 2 ULIS). Even the view held by Nicholas (BB, 510) according to which the risk is retrospectively passed back by the remedy of avoidance does, in our opinion, not fully meet the wording of the provision. Rather, the risk bearing is not influenced at all by the rule (so believes also Honnold, 388). But the buyer is freed from his obligation to restitution where the contract is avoided or substitute goods are delivered insofar as such restitution is made impossible because of an event for which he already bears the risk. This may amount to the same in some cases and, in particular, to the rare instance where the goods are not insured. In the typical cases where the goods are insured there will, in our view, be a great difference when the insurance covers only such assets for which the insurant bears the risk. It will not happen regularly that the seller insures the goods already delivered, considering that, in connection with a fundamental breach of contract, the risk might be on him. On the other hand, it is normal that a factory insures its assets. When goods counting among those assets are lost or damaged, there will be an insurance claim which replaces the goods. The buyer is not obligated to insure the goods. But if he is insured, the insurance company shall not be in a position to rid itself of its obligations pretending that the insurant did not bear the risk.

When the buyer, in the event of a non-conformity, has decided in favour of a claim, he cannot pass on to another if the seller does not offer an additional reason for it. Hence, when he has demanded repair, he cannot change his mind during the time for repair and require the avoidance of the contract because the goods have perished in the meantime (Hager/Freiburg, 406).

Even if the delay constitutes a fundamental breach of contract, the contract can still be avoided pursuant to Article 49, paragraph 1, subpara. (a), after the goods have been delivered. (Should it be avoided before the delivery takes place, the risk will because of the regular connection between delivery and the passage of the risk in most cases not have passed yet, so that the problem discussed here will not exist.) The destruction or damage of the goods after the risk [page 280] passing does not deprive the buyer of the right to avoid the contract. When the seller delivers only after the expiration of a Nachfrist set by the buyer, the buyer will also have the right to avoid the contract (Article 49, paragraph 1, subpara. (b)) without a fundamental breach of contract having to have been committed. It is, at least, a question of interpretation whether one wants to consider such breach as being existent in this case. But this does, in our view, not cause such problems as Nicholas (BB, 511) supposes. For Article 82, paragraph 1, subpara. (a), which does not make such a distinction, provides for the same rule as Article 70.

The option given by Article 70 and Article 82, paragraph 1, subpara. (a), to avoid the contract or to require delivery of substitute goods, even where the goods after the passing of the risk perish or are damaged by accident, will considerably increase the buyer's temptation to make use of a factual or supposed right to avoidance. This can be counteracted in setting reasonable periods for the assertion of these rights under Article 49, paragraph 2 (Honnold, 388 fol; Nicholas/BB, 511). To put it in other words, when the buyer after the occurrence of an accidental event, suddenly gets the idea that a fundamental breach of contract had been in existence even before that event, it will have to be very carefully examined whether he would have had to assert his relevant claims already before the occurrence of that event.

[2] [if the seller has committed a fundamental breach of contract ]

If another breach of contract is committed, the rights of the buyer are generally not affected because of the passing of the risk. Claims for damages (Article 45, paragraph 1, subpara. (b), are retained and can at best be modified by this other breach of contract. In the event of a non-conformity the right to repair (Article 46, paragraph 3) lapses with the perishing of the goods, whereas it remains in existence in the case of their damaging insofar as it is not changed in its substance by the damage. This solution also has to be applied, as we believe, where the buyer has chosen repair in the event of a fundamental breach of contract. But one could probably assume in the latter case that the damage which occurred because of the risk, has to be removed at least to the extent to which this is necessary in order to remove also the original non-conformity. In this surely rare constellation, Article 70 would indeed take on a meaning of its own. Claims for reduction of the price (Article 50) will also continue to exist because they are aimed at re-establishing the disturbed equivalence. [page 281]

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