U.C.C. § 2-719(2) -- the "failure of essential purpose"
limitation on the enforceability of limited remedies in a sales contract -- offers
a prime example of the uncertainty concerning the scope of the validity
exclusion in CISG. President Murray and I have both argued that the doctrine
might not be a matter of contractual validity because it is triggered by
events occurring after a sales contract is formed. MURRAY,
supra note 12, § 151(B) n.21; Flechtner, Remedies Under
the Sales Convention, supra at 80. Professor Hartnell
disagrees. Hartnell, supra note 40, at 84.
 Because Beijing Metals was attempting to
enforce ABC's promise to pay, ABC's contention would take the form of a
"mutuality of obligation" argument. In other words, ABC would argue that it
gave Beijing Metals no consideration by promising to do what it was already
legally obligated to do. Thus even if Beijing Metals had promised in the
payment agreement to refrain from enforcing its rights under the original sales
contracts, that promise was unenforceable because Beijing Metal received no
consideration for it. The agreement thus arguably lacked "mutuality of
obligation" ("both parties must be bound or neither is bound," as it is
traditionally articulated) because Beijing Metals was not bound by its promise.
See Hay v. Fortier, 102 A. 294 (Me. 1917). But see
RESTATEMENT (SECOND) OF CONTRACTS § 75 cmt. d &
illus. 4, § 79(c) & cmt. f (rejecting mutuality of obligation doctrine);
MURRAY, supra note 12, § 65 (recommending that mutuality of
obligation doctrine be "disavowed").
 HONNOLD, supra note 12, §
201; MURRAY, supra note 12, § 152(C), at 887.
 Hartnell, supra note 40, at 50-53,
and text accompanying note 214 at 52 (indicating that Article 29(l) of CISG
"expressly" deals with the validity of modification contracts). But see
Kastely, supra note 42, at 645-46.
 See BIANCA & BONELL, supra
note 43; KRITZER, supra note 12, at 81; Hartnell, supra note
40, at 3 & passim. Because validity questions are not "matters
governed by this Convention," they are not subject to the requirement in
Article 7(2) that a tribunal first attempt to settle them "in conformity with
the general principles on which [CISG] is based" before consulting domestic
 See Hartnell, supra note
40, at 45 ("the validity exception directs [an adjudicator] to characterize an
issue as one of validity only if a domestic law would render the contract void,
voidable, or unenforceable") & 51 ("[t]he term 'validity' is a functional
term that refers to an effect -- i.e., void, voidable, and perhaps also
unenforceable. . . .").
 See, e.g., Wisconsin Knife Works
v. National Metal Crafters, 781 F.2d 1280, 1285-86 (7th Cir. 1985) (asserting
that the traditional pre-existing duty rule was an attempt to protect parties
to a contract from "exploitive or opportunistic attempts at modifications");
Melvin Aron Eisenberg, Donative Promises, 47 U. CHI. L. REV. 1, 5 (1979)
(noting that a reason for refusing to enforce promises unsupported by
consideration is that such promises are likely to be made without sufficient
 See Hartnell, supra note
40, at 64 (suggesting that validity doctrines include those that apply when a
party's "apparent consent" is not "real consent") and 80-84 (noting that it is
the "prevailing view" that "validity" encompasses unconscionability concepts
and other doctrines designed "to guard the party having a weak bargaining
position from disadvantage").
 E.g., id. at 57 (referring to
"validity issues such as capacity, form, consideration, vices of
consent, and illegality" (emphasis added)); RESTATEMENT OF CONFLICT OF
LAWS § 332 (1934) (mentioning "the mutual assent or consideration, if any,
required to make a promise binding" under the heading "Law Governing Validity
of Contract"); RESTATEMENT (SECOND) OF CONFLICT OF LAWS § 200
cmt. b (1971) (listing "the general need for consideration, what constitutes
consideration and the situations, if any, where a contract is binding without
consideration" as within the scope of section entitled "Validity of Contract in
Respects Other Than Capacity and Formalities"). There is even evidence that
consideration requirements are considered matters of "validity" in
international usage. According to Hartnell, supra note 40, at 63-64, a
report prepared for UNIDROIT by the Max-Planck-Institut für ausländisches und
internationales Privatrecht entitled DIE MATERIELLE GÜLTIGKEIT VON
KAUFVERTRÄGEN (Hamburg 1968) includes coverage of "the requirement of
consideration (or its civil law analogues)" under the topic of "substantive
validity" of sales contracts.
 See Kastely, supra note 42
("the drafting history of article 4 suggests that the UNCITRAL representatives
considered issues of validity to include only issues such as fraud, duress,
unconscionability, and incapacity"). In addition, consideration requirements
were apparently not considered a "validity" topic by the drafters of the
UNIDROIT Draft Law for the Unification of Certain Rules Relating to the
Validity of Contracts of International Sale of Goods, UNIDROIT U.D.P. 1972,
ETUDES: XVI/B, Doc. 22, reprinted 1973 Revue de Droit
Uniforme/Uniform Law Review 59-69 (1973). At any rate, the
topic of consideration is not covered in the UNIDROIT Draft Law nor is it
mentioned by the drafters in their comments on validity topics that were
omitted from the draft. Max-Planck-Institut für ausländisches und
internationales Privatrecht, Report, 1973 Revue de Droit Uniforme/Uniform
Law Review 71, 75-77 (1973).
 Under the civil law, legally
effective contractual obligations require "causa" or "cause" -- a concept
with some similarities to (and many differences from) common law consideration.
E.g., CODE CIVIL [C. Civ.] art. 1131 (Fr.). See the definition of
"cause" in the glossary to the FRENCH CIVIL CODE 411 (John H. Crabb trans.,
1977) ("causa, an element essential to the enforcibility [sic] of a
contract consisting of an adequately serious 'cause' or reason for a person to
have obligated himself contractually; parallel in function to 'consideration'
in Anglo-American contracts, and often similar in factual bases, it is without
the formal concept of reciprocal exchange of benefit and detriment.").
 See BIANCA & BONELL,
supra note 43, "Introduction" para. 2.2 at 9 (a major purpose of
CISG is "to assure a uniform regime for the international sales contracts")
& art. 7 para. 2.2.2 at 74 ("the Convention's ultimate aim . . . is to achieve
world-wide uniformity in the law of international sale contracts"); Peter
Schlechtriem, Unification of the Law for the International Sale of Goods,
in XIITH INTERNATIONAL CONGRESS OF COMPARATIVE LAW (GERMAN NATIONAL
REPORT) 121, 141 (1987) (the "principal and preponderant purpose" of the
Convention is "to reach unification"); Hartnell, supra note 40, at 6-7
(the "preeminent goal" of CISG is "predictability" or "achieving a uniform
 See Schlechtriem, supra
note 58, at 128 (a doctrine should be deemed a matter of validity outside
the scope of CISG only if it has gained universal acceptance or is a feature of
most legal systems).
 See also CISG Art. 53 ("The buyer
must pay the price for the goods . . . as required by the contract and this
Convention) as well as Arts. 54-59 (all of which discuss a buyer's
obligation to pay "the price"). Cf, HONNOLD, supra note 12, § 56.1
(arguing that CISG covers barter transactions as well as those for a monetary
 Hartnell, supra note 40, at 7-8.
 No. 91 CIV. 8484 (LBS), 1994 WL 121680
(S.D.N.Y. Apr. 6, 1994).
 The court assumed (without discussion)
that the Convention applied to the sales transaction between Braun and Nikex.
The assumption was probably correct. The seller was presumably located in the
United States (although the court never specified Braun's location) and the
buyer operated out of Hungary. Because CISG was in force with respect to both
Hungary and the U.S. when the sale occurred in 1990, and because there is no
evidence that the parties agreed to displace CISG with other law, the
Convention would apply under Article 1(1)(a). See CISG Art. 6.
 Article 50 continues: "However, if the
seller remedies any failure to perform his obligations in accordance with
article 37 or article 48 or if the buyer refuses to accept performance by the
seller in accordance with those articles, the buyer may not reduce the
 1994 WL 121680 at *5.
 Eric E. Bergsten & Anthony J. Miller, The Remedy of
Reduction of Price, 27 AM. J. COMP. L. 255, 258, 265-67. Bergsten and
Miller were not working with the final text of CISG, but were analyzing an
 1994 WL 121680 at *4.
 Article 35(l) itself does not explicitly
state that delivery of an insufficient quantity of goods creates a
"non-conformity." In contrast, Article 35(2) expressly declares that goods do
not conform to the contract unless they meet quality specifications.
Article 37, furthermore, seems to draw a distinction between a "deficiency in
the quantity of the goods" and "non-conforming goods."
 See, e.g., BIANCA & BONELL,
supra note 43, art. 50 para. 1.1-3.4 (fails to mention the
availability of price reduction where the seller delivers the wrong quantity of
goods); HONNOLD, supra note 12, § 313.1 (fails to mention insufficient
quantity as among the "types of non-performance" for which Article 50 arguably
might provide a remedy).
 Professor Honnold declares that Article
50 has its "principal significance" in situations where the seller can claim
exemption from damages under Article 79. HONNOLD, supra note 12,
§ 312, at 393.
 BIANCA & BONELL, supra note
43, art. 50 para. 1.2 at 368; HONNOLD, supra note 12, § 313 at 395;
KRITZER, supra note 12, at 375; Bergsten & Miller, supra
note 63, at 256-58, 272; Winship, supra note 12, at 49; Sara G.
Zwart, The New International Law of Sales: A Marriage
Between Socialist, Third World, Common, and Civil Law Principles,
13 N.C. J. INT'L L. & COM. REG. 109, 120-21 (1988).
 BIANCA & BONELL, supra
note 43, art. 50 para. 2.1.2; HONNOLD, supra note 12, § 312;
KRITZER, supra note 12, at 375-78; Bergsten &
Miller, supra note 66, at 259-63 (n.b., the discussion in the Bergsten
& Miller article is based on an earlier draft of the Convention, and their
analysis would change under the version of Article 50 finally adopted).
 BIANCA & BONELL, supra
note 43, art. 50 para. 1.2 at 368-69 & para. 2.1.3 at 372; HONNOLD, supra
note 12, § 311; Andrew Babiak, Comment, Defining "Fundamental Breach"
Under the United Nations Convention on Contracts for the International
Sale of Goods, 6 TEMP. INT'L & COMP. L.J 113, 131; Bergsten &
Miller, supra note 66, at 256, 271-72.
 BIANCA & BONELL, supra
note 43, art. 50 para. 1.2 at 368-69; HONNOLD, supra note12, § 313 at
396; Bergsten & Miller, supra note 66, at 255-56, 267-72.
 At the request of the UNCITRAL working
group drafting the Convention, the U.N. Secretariat prepared a report dealing,
inter alia, with the reduction in price remedy. The report criticized the
remedy for producing results inconsistent with "acceptable principles for
measuring damages" -- specifically for violating the principle that, "to the
extent practicable, the injured party should be placed in the same position as
would have resulted from performance of the contract." REPORT OF THE
SECRETARY-GENERAL: OBLIGATIONS OF THE SELLER IN AN INTERNATIONAL SALE OF GOODS;
CONSOLIDATION OF WORK DONE BY THE WORKING GROUP OF THE INTERNATIONAL SALE OF
GOODS AND SUGGESTED SOLUTIONS FOR UNRESOLVED PROBLEMS, IV UNCITRAL Y.B. 36 at
para. 150, U.N. Doc. A/CN.9/WG.2/WP.16 (1973), reprinted in JOHN O.
HONNOLD, DOCUMENT INTERNATIONAL SALES 112, 134 (1989). See also
Bergsten & Miller, supra note 66, at 274 ("to allow the buyer to
reduce the price where he has made a bad bargain would put him in a better
position than he would be in if the seller were to perform the contract, a
situation which cannot be justified by the usual explanation of the function of
damages" (emphasis added)). Flechtner, supra note 47, at 59 n.28
("Article 50 offers aggrieved buyers an alternative to damages which, in
certain situations, yields results at odds with expectation-based remedies")
and 102-03 (the Article 50 remedy "will in some circumstances violate
 See MURRAY, supra note 12,
§ 117(A) for discussion of the three interests protected by common law contract
 See Commentary on the Draft Convention
on Contracts for the International Sale of Goods, Prepared by
the Secretariat, art. 70, para. 7, U.N. Doc. A/CONF.97.5 (1979) [hereinafter
Secretariat Commentary], reprinted in JOHN 0. HONNOLD,
DOCUMENTARY HISTORY OF THE UNIFORM LAW FOR INTERNATIONAL SALES
404, 449 (1989); BIANCA & BONELL, supra note 43, art. 74 para.
3.12-3.16; Flechtner, supra note 47, at 107 and authority cited n.262.
Article 74 of the Convention does not specify when or where values are
to be measured for purposes of determining damages, but there is authority
for measuring value at the time and place of delivery. BIANCA & BONELL,
supra note 43, art. 74 para. 3.16; Flechtner, supra note 47, at 107
 There is nothing in CISG equivalent to §
2-717 of the U.C.C., which permits a buyer to set off its damages before paying
the contract price. Professor Honnold, nevertheless, suggests that a buyer
with a damage claim may have a right of "set-off and counterclaim" as a matter
of "procedural systems" and "payment and settlement practices" that are outside
the scope of the Convention. HONNOLD, supra note 12, § 313.2.
CISG's drafting history, furthermore, contains suggestions that parties to a
sale governed by the Convention retain setoff rights they enjoy under
otherwise-applicable domestic law. Cf. Secretariat Commentary, supra
note 77, art. 77, para. 9, reprinted in HONNOLD, supra note
77, at 453 (1989)(stating that party who has "claims arising out of the contract or
its breach" and who resells goods under the CISG provision that became Article
88(3) retains whatever rights it had "under the applicable national law" to
"defer the transmission of the balance [from the resale] until the settlement
of those claims").
 The fact that Buyer would end up paying
$20/barrel for oil worth only $15/barrel suggests that it may look for an
alternative remedy. Buyer can refuse the tendered oil and "avoid the contract"
if the non-conformity (the excessive sulphur content of the oil) constitutes a
"fundamental breach." See CISG Arts. 49(1)(a) and 25. By relieving Buyer of
its obligation to pay the price (see CISG Art. 81), avoidance would put Buyer
in a better financial position than if Buyer kept the oil, no matter what
remedy it chose in the latter case -- i.e., whether it claimed damages under
Article 74 or reduced the price under Article 50. The point of the textual
discussion, however, is not to identify Buyer's best remedy, but to demonstrate
that the remedy of price reduction under Article 50 departs from
expectation-based remedies. For a more complete discussion of the remedies
available to someone in Buyer's position see Flechtner, supra note 47,
at 54 ff.
 In other words, if Seller had shipped
conforming 1% oil Buyer would have paid the contract price of $25/barrel for
oil worth $20/barrel, losing $5/barrel. By paying $20/barrel for 2% oil worth
only $15, buyer similarly loses $5/barrel -- its "expectation" is "protected."
 Formulas for calculating the price
reduction are given in BIANCA & BONELL, supra note 43, art. 50 para.
2.1.2, and KRITZER, supra note 12, at 377. Note that the Article 50
calculation is based on the value of goods "at the time of the delivery." In
earlier drafts of the Convention price reduction was based on values "at the
time of the conclusion of contract." The change was made to avoid requiring
proof of the value of goods as of a time when the goods might not exist.
BIANCA & BONELL, supra note 43, art. 50 para. 1.3.2; HONNOLD, supra
note 12, § 313 at 396. The discussion of price reduction in Bergsten
& Miller, supra note 66, at 258-63, is based on the earlier version
of the price reduction provision under which value was measured at the time the
contract was formed; in other respects the analysis and examples in that
article are consistent with the methodology used in the text.
 "[W]hen, between the date of the contract
and the date of delivery, there has been a decline in the value the goods would
have had when delivered if the goods had conformed to the contract . . . the
Article 50 formula can enable the buyer to obtain a larger recovery than the
Article 74 formula." KRITZER, supra note 12, at 377.
 On the facts of the example there are no
apparent reliance damages or restitutionary amounts for Buyer to recover from
Seller. Of course one might require Buyer to pay for the goods it has received
at a restitutionary rate -- i.e., the reasonable value of the 2% sulphur oil,
which is $15/barrel. This amount does not correspond to the $18.75/barrel
price produced by Article 50. Under the U.C.C., furthermore, Seller would not
be limited to a restitutionary recovery against Buyer: Because Buyer has
accepted the non-conforming oil, it must pay for the goods "at the contract
rate," U.C.C. § 2-607(l), with an offset for damages, U.C.C. §§ 2-714 and
2-717. The result would correspond to the CISG Article 74 damages described in
the text. At any rate, it is clear on the facts of the example in the text
that the amount of the price reduction under CISG Article 50 does not
conform to common law restitutionary principles.
 Thus if on May 1 the market value
of 1% sulphur oil was $35/barrel and 2% sulphur oil was worth $30/barrel, Buyer
could claim $5/barrel damages under Article 74 (the difference between the
value of conforming 1% sulphur oil and the 2% sulphur oil actually delivered).
Subtracting these damages from the $25 contract price, Buyer ends up paying
$20/barrel. The reduced price under Article 50 on these facts, in contrast, is
approximately $21.43/barrel (30/35, or
6/7, times $25/barrel).
 "The proportion between the purchase
price and the objective value of the goods is maintained." BIANCA & BONELL,
supra note 43, art. 50 para. 2.1.1 at 370. Bergsten & Miller,
supra note 66, at 262 & 274, use the phrase "balance of the
 See Bergsten & Miller, supra note 66, at 274 ("The
justification for a reduction of price for defect in quality is a reformation
of the original contract which retains the relative balance of the bargain made
by the parties.").
 CISG Art. 45(2) provides that "[t]he
buyer is not deprived of any right he may have to claim damages by exercising
his right to other remedies." See also HONNOLD, supra note 12,
§ 312 at 395; KRITZER, supra note 12, at 377-78; Bergsten & Miller,
supra note 66, at 259; Flechtner, supra note 47, at 106.
 The situation also raises questions
concerning damage remedies: could the buyer keep the goods and claim
difference-in-value damages under Article 74 despite the seller's notice?
 So many, in fact, that one commentary
states: "Price reduction as a remedy in international sales law meets with the
greatest difficulties." BIANCA & BONELL, supra note 43, art. 50 para.
1.2 at 368.
 Id. para. 3.3; FRITZ ENDERLEIN &
DIETRICH MASKOW, 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 art. 50 para. 4 (1992).
 BIANCA & BONELL, supra note
43, art. 50 para. 3.4; HONNOLD, supra note 12, § 313.1.
 HONNOLD, supra note 12,
§ 312 at
394-95; Bergsten & Miller, supra note 66, at 264.Other questions include what notice, if any,
a buyer who wishes to reduce the price must give the seller (compare
BIANCA & BONELL, supra note 43, art. 50 para. 2.1.3 (implying that
reduction in price requires notice that takes effect upon dispatch) and
HONNOLD, supra note 12, § 312 at 394 (assuming that a buyer will
give notice of price-reduction) with Bergsten & Miller, supra
note 66, at 263 (stating that "no [notice] requirement is placed on the
declaration of reduction of price")); the time limits for invoking Article 50
(see BIANCA & BONELL, supra note 43, art. 50 para. 2.1.3); how the
reduction is to be calculated if the price is payable other than in money
(id., art. 50 para. 3.1); and the consequences of the "unilateral" nature
of remedy (id., art. 50 para. 2.1.3; HONNOLD, supra note 12, §
313.2; Bergsten & Miller, supra note 66, at 263).
 See, e.g., JOHN HONNOLD, The
Sales Convention in Action -- Uniform International Words: Uniform
Application?, 8 J.L. & COM. 207 (1988).
 See also the discussion of
Filanto, S.p.A. v. Chilewich International Corp., 789 F. Supp. 1229 (S.D.N.Y.
1992), appeal dismissed, 984 F.2d 58 (2d Cir. 1993), in Brand &
Flechtner, supra note 16, at 242-52.
School Institute of
International Commercial Law
- Last updated March 20, 2008
Go to Database Directory ||
Go to CISG Table of Contents