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Problems of Unification of International Sales Law, Working papers submitted to the Colloquium of the International Association of Legal Science, Potsdam, August 1979, Oceana Publications (1980) 104-129. Reproduced with permission of Oceana.
[Context of this commentary is the 1978 Draft of the CISG, not the final text of the CISG.]
II. The UNCITRAL Draft Convention and the preceding Hague Convention
III. Duties of the seller
IV. Remedies for breach of contract by the seller
2. Claim for performance
3. Claim for delivery of substitute goods
4. Right to fix an additional period for performance
5. Declaration of avoidance
6. Declaration of reducing the price
7. Right to refuse delivery
8. Right to suspend performance of obligations
9. Right to claim damages
The description of the duties of the seller and the rights attributed to the buyer in case of non-fulfillment by the seller are of particular importance within the framework of every set of rules on sales contracts. This seems to be the reason for which the only report at the present colloquium dealing with the substantive part of the UNCITRAL-Draft Convention (i.e., Part III on Sales of Goods) is devoted to these rules. Duties and remedies form a unit. I would believe, therefore, that discussion of the buyer's remedies is hardly useful without a view on the set of obligations.
The obligations of the seller constitute the legal core of the Draft Convention and starting point for the test of its economical effectiveness.
Of course, obligations and rights of both parties to the sales contract must be in balance. From an economic viewpoint they are equivalent -- or should be at least. But the seller's duties are much more complex in relation to those of the buyer. They influence largely the special type of sales contract which, according to its particularities, often requires special legal treatment. Seller's obligations produce what especially in international private law is called the "characteristics" of the sales contract, at the same time within that term fixing sub-types of contracts. To mention only some elements within the variety of different shapes of sales contracts:
|-||The contract may as well relate to a single specific piece such as a machine built for a particular purpose -- or even an unreplacable one like a piece of art -- as to unascertained goods of a generic nature. [page 104] The latter ones may be technical products as e.g. automobiles or they could be bulk materials and there again raw materials, agricultural or chemical products.|
|-||The installation of a total industrial plant can form subject of the sales contract.|
|-||The goods may be bought by the seller himself or produced by him, resold by the buyer or used by him for industrial or private purpose.|
|-||They may be constructed out of material or according to the instructions of the buyer or of a third party.|
|-||And -- lastly but not exhaustively to mention -- delivery may essentially include transportation and require special documentation for the purpose of immediate economic disposition.|
Because of their complexity and variety the seller's obligations (and correspondingly the buyer's remedies in case of non-compliance) present the basic legal problems for legislation and application of sales law. The rules must, on one hand, correspond to the needs of all kinds of different sales, but should, on the other hand, not give rise to uncertainty in practice by their flexibility. They have to take into account the numerous possibilities of breach by the seller, the kinds of eventual damages sustained by the buyer or even by third persons and the different interests of both parties how to remedy the failure or to indemnify the damage. All these requirements present difficult problems already in municipal legislation. They are even more important for an international instrument. Here they have to be solved according to different legal concepts and ideas and to various economic systems and particular business interests. And the international rules should, in spite of the greater difficulties in elaboration, be even clearer and more concise than national law must be because they have to ensure to the farest possible extent legal uniformity all over the world, being applied by businessmen and lawyers of different legal and economic, cultural and educational background.
I do not think it is necessary to say much about economic need of international unification of sales law. World trade obviously must have common rules which in its basic concept are to be understood and can be applied in the various parts of the world under different legal systems. [page 105] They can, of course, not contain specific rules for all possible implications. But they have to give general rules appropriate to be adapted to different kinds of sales, which are clear in its bearing so that the parties of a specific contract may easily decide which additional provisions the purpose of their particular trade requires. National law is unable to serve international trade sufficiently for two main reasons: Because of the mistrust of a party to the contract as to being exposed to a foreign law he can neither understand nor rely on its impartiality. And for the uncertainty as to which national law may be applied on his contract by means of the doubtful and ununified respective rules of international private law.
These are the requirements for the substantial rules of a sales convention justifying the real expectation of world-wide acceptance. Let us try to find out whether the present draft in its main concepts is probable to meet them.
Doing this task, we should as far as possible avoid to make our estimation dependent on to what extent the draft is modelled according to one legal system or another. It should, in the light of the said needs, make use of all appropriate patterns or of new ideas as well. It must be interpreted out of itself, not in connection with a national or regional legal concept. And it should therefore be able to be looked at by all countries as a result of their common endeavour to create something new and appropriate to modern world trade, so that parties can entrust their case to it without surrendering to unknown foreign law.
II. THE UNCITRAL DRAFT CONVENTION AND THE PRECEDING HAGUE CONVENTION
The Draft Convention before us is not the first attempt to unify the law of international sales of goods. [page 106]
In 1964 a Diplomatic Conference in the Hague adopted -- together with a Convention on Formation of Sales Contracts -- the International Convention Relating to a Uniform Law on the International Sale of Goods, for which I may use the abbreviation "ULIS". This Uniform Law was prepared during a long period of time. Work started between the two world wars under the auspices of UNIDROIT, which at that time had within the framework of the League of Nations the function which now (with improved terms of reference) is entrusted to UNCITRAL in the UN. After some smaller conferences the work was finished in 1964. As you all know, the result was not as expected. The number of States which ratified the Convention or adhered to it, remained small. Some western European countries, Israel and Gambia are the present eight members. The reasons are obvious. The Hague Convention was neither prepared nor negotiated on a real world-wide basis. Only twenty-eight States participated to the conference, and not more than five of them were from other regions than Europe, three of them socialist countries. Some developing countries had sent observers. With regard to this situation it was not likely that ULIS could serve as instrument of world-wide unification. In addition, in spite of its high degree of legal quality, ULIS is drafted in a very complicated scientific way which should and will be improved.
Therefore, the 1964 Hague Convention was for UNCITRAL, after its foundation in consequence of its task to promote world-wide rules on commercial law and in particular to further wider acceptance of existing conventions one of the first items to tackle with the view to make it acceptable for all countries of the world. UNCITRAL has the privilege of being composed really world-wide, representing legal and economic systems and interests of all parts of the world.
The revision of ULIS was prepared very carefully by a Working Group and the draft proposed by it was discussed and adopted by the Commission itself in 1977 and 1978. The result was not only that the Draft before us which will serve now for negotiation at the Diplomatic Conference next year is in principle approved already by thirty-six States (more than those present at the Hague Conference of 1964) and under the viewpoints of various legal systems and economic interests. [page 107] The UNCITRAL Draft Convention moreover presents considerable improvements in legislative respect compared with the Hague Convention. It has taken the main ideas as to the structure or rights and obligations from ULIS. But it has simplified them and made the whole set of rules shorter and more concise. This does, of course, not mean that there were no more points subject to criticism which deserve or even need further consideration. But in broad lines, the Draft constitutes an instrument which to a large extent does seem to correspond to the abovementioned needs of trade: It is clear in its structure, easy to understand from the starting points of different legal systems. On the other hand, the price to pay for such simplicity is the use of some general terms like "appropriate", "reasonable" and "usages" -- terms which will have to be filled with more certainty by later application but seem to be unavoidable because of the various types of contracts being covered by the convention.
The concentration of rules mentioned goes for the whole of the Draft Convention, especially Part III on Sales. It is, however, in particular evident with regard to the system of remedies available to the buyer in case of breach of contract by the seller. May I, before entering into details of that part of the draft now, mention briefly some important features divergent between the ULIS and the UNCITRAL-Draft Convention (in the following text: "Draft").
Perhaps more important than some differences in substance is the way of presentation which has changed. Within the chapter "Obligations of the Seller" the Draft, after giving the general rule (article 28) tries to separate clearly the "Delivery of the goods and handing over of documents", the "Conformity of the goods and third party claims" and the "Remedies for breach of contract by the seller" in three different sections. The advantage of this structure in relation to ULIS is a clear and net division between the obligations of the seller, on one hand, and the remedies of the buyer in case of non-fulfillment of these obligations, on the other. [page 108] Both elements form an economic entity which is shown by the common heading of the whole chapter (which, from the point of view of drafting, therefore seems to be too narrow).
Under this concept the remedies are to be seen exclusively from section III of chapter II, with some references only to general definitions in chapter I and to some rules in chapter IV (as regards anticipatory breach, exemptions, effects of avoidance and damages). This structure is different from that of ULIS which gives the remedies in connection with the relevant obligations, e.g., as to non-performance as regards time and place (articles 24 to 32 ULIS), as to non-conformity (articles 41 to 49 ULIS) and as to other obligations (article 55 ULIS).
In substance, the set of remedies under both instruments is basically identical, containing as well the right of the buyer to claim performance (if national law allows) or damages as to declare the contract avoided or the price reduced. To mention in advance some major differences: The rights of the buyer to claim substitution of defective goods and the right to declare avoidance in case of non-conformity have been restricted, the concept of "ipso-facto-avoidance" was deleted and the definition of the term "fundamental breach" changed. The details will be mentioned later.
After these few remarks I would like to report on the provisions of the Draft Convention, at the same time giving remarks as to divergencies to ULIS as well as to possible shortcomings as I personally see them. This order of presentation -- that is to bring together the report on the Draft and the respective critical remarks -- seems to be preferable to a separation.
Before reporting on the remedies for the buyer, however, it is necessary, to mention the seller's obligations as defined by the Convention, because they form the basis of every right attributed to the buyer. [page 109]
III. DUTIES OF THE SELLER
1. Main duty of the seller is that to deliver the goods (article 28). The Draft as to the term "delivery" does not follow the concept of ULIS very often criticized according to which delivery consists of handing over goods in conformity with the contract. Delivery under the Draft means handing over of the goods irrespective of their conformity; the lack of conformity does not affect the delivery but gives under certain conditions rise to claims of the buyer. A difference to ULIS which certainly is more of a theoretical than of a practical nature and produces its effects in the first place in the context of passing of risks. But it has the advantage of being more in line with the use of that term in commercial life.
Where the goods are to be handed over to the buyer is stated in article 29: In principle, delivery has to take place where the seller had his place of business at the time of conclusion of the contract (para c). Three exceptions from this rule are provided: Does the sale involve carriage of the goods, these are to be handed over to the first carrier (para a). If the sale relates to specific goods or to unidentified goods to be drawn from a specific stock or to be manufactured and if the place where these goods are is known to the parties, the goods are to be placed at the buyer's disposal at that place (para b). Main exception (and the only one expressly mentioned in addition to those already contained in ULIS, whereas in substance acknowledged there too): Other stipulation, express or tacit, by the parties. In particular usages (applicable according to article 8) may require different places of delivery. In the first line Incoterms often fix certain places of delivery, e.g., such as "FOB (harbour)" or "CIF" involve a change of the above-mentioned rule on the place of delivery in case of carriage of goods by sea.
When the goods are to be delivered is stated in article 31: Unless the date is fixed by or determinable from the contract (para a) the seller must deliver the goods within a reasonable time (para c). [page 110] Is a period of time fixed by or determinable from the contract, the seller may -- unless the contrary is indicated by the circumstances -- choose the date within this period (para b).
The rules as to place and time of delivery correspond largely to ULIS.
2. The seller is bound to transfer the property in goods. (article 28). The Draft, however, does not state how this transfer is being performed. Like ULIS, it does not relate to the effects which the contract may have on the property of the goods sold (article 4 para b). If under applicable national law the property passes ipso jure by conclusion of the sales contract, the Draft Convention does not preclude such effect. If, as usual, national law requires particular measures for transfer of property, the draft convention obliges the seller to do everything to be done by him to perform the said transfer. The property transmitted to the buyer has to be free from a right of a third person (article 39, with certain exceptions for intellectual property, article 40).
3. Apart from the duties to transfer possession of and property in the goods the seller is bound to fulfill additional obligations. The Draft mentions expressly the duties to hand over documents (article 28) and to comply with particular requirements if the contract of sale involves carriage of the goods (article 30).
The obligations regarding documents are (tacitly) as to their quality and (expressly, article 32) as to their handing over left to the specific contract including usages (article 8 para 2), which latter in most cases might be the Incoterms. [page 111]
If the contract of sale involves carriage, the seller is bound to arrange for carriage of the goods by concluding the necessary contracts for transportation as appropriate in the circumstances and according to the usual terms; here again Incoterms very often may fill the blank. If the seller is not obliged to provide for cargo insurance, he must provide the buyer with the information necessary to effect such insurance by himself. These rules are of a more general type than the respective one of ULIS.
4. As already mentioned a particular section is devoted to the description of the requirements as to conformity of the goods and freedom from third-party rights. This section does (like the previous one on delivery) not deal with remedies but it contains certain requirements for action by the buyer to preserve his remedies, e.g., examination and notice. And, in addition, it is mentioned there when the buyer is obliged to accept the curing of a defect by the seller.
The description of conformity laid down in article 33 has been subject to long debates in UNCITRAL, which related merely exclusively to para (1)(b). The provision states, basically, that the goods must correspond in quantity, quality and description to the contract. It fixes some requirements for the test of conformity in case of absence of special agreement by the parties. Some of them were generally accepted, such as fitness for the purposes for which goods of the same description ordinarily would be used, quality according to samples and models and usual packing of the goods. But the rule linking the required qualities to the particular purpose for which the buyer wants to employ them was subject of different opinions. Article 33(1)(b) states that the goods must be "fit for any particular purpose expressly or impliedly made known to the seller at the time of the conclusion of the contract, except where the circumstances show that the buyer did not rely, or that it was unreasonable for him to rely, on the seller's skill and judgement." [page 112]
It seemed to many delegations that the requirement of mere knowledge of the seller as to the intended use of the goods could end up in overburdening him. Indeed, it seems to be misleading and hardly to justify to fix a sort of presumption for the expertise of the seller in respect of every possible use of the sold products. The corresponding rule of ULIS (article 33(1)(e)) according to which the goods have to possess the qualities for the particular purpose contemplated by the contract shows better that the parties must have greed -- at least impliedly -- on that particular use. It would, in my mind, be preferable to come back on that clearer and narrower rule which could avoid litigation as to the knowledge and expertise of both contracting parties. And it does seem to me more justified to demand of the buyer to indicate his intention of some particular use rather than to expect the seller to expressly exclude the fitness of the goods for all possible employments he could imagine.
The buyer is bound to examine the goods within a period as short as practicable. In case of carriage examination may be deferred until arrival at destination. If the goods are re-dispatched without reasonable opportunity of examination the latter may be deferred even to the new destination, if the seller knew or ought to have known the possibility of re-dispatch. This rule, contained already in ULIS, seems to go too far against the seller. Instead of the mere possibility of re-dispatch which exists in nearly all cases at least a certain likelihood should be required.
The time of examination fixed by these rules of article 36 is the starting point of the "reasonable time" mentioned in article 37 for notice by the buyer to the seller specifying the lack of conformity. ("promptly" in ULIS). Is that notice not given accordingly, in any event two years after handing over at latest unless there has been given special guarantee by the seller, the buyer may no longer rely on the lack of conformity. [page 113] Provided, the seller did not know of it or could not have been unaware. The period of two years (which corresponds to ULIS) is rather long in practice; it seems nevertheless acceptable because it comes into play only if the buyer ought not even to have discovered the failure.
The section on conformity contains as article 35 a rule which seems to be narrowly connected with article 44 and therefore shall be mentioned there in detail: If the seller has performed delivery earlier than required by the contract he may cure any lack of conformity provided this does not cause unreasonable inconvenience or expense to the buyer. The mention of expense in this context could perhaps be misleading because it seems to be necessary that every expense caused by such measures is to be born by the seller.
Finally, the section in articles 39 and 40 gives some rules as to third-parties rights. In principle, the goods have to be free from such rights or claims. There are, however, some particular rules for industrial or intellectual property. Freedom of right of third parties bases on industrial or intellectual property has to be granted by the seller only in the buyer's country or in a country of re-sale. And even to this local extent the buyer may not rely on the seller's obligation if he knew of this right or could not have been unaware of it or if the third party's right follows from technical instructions which have been furnished by the buyer to the seller.
IV. REMEDIES FOR BREACH OF CONTRACT BY THE SELLER
On the basis of the above-mentioned obligations of the seller the system of remedies granted to the buyer by the draft can now be considered. [page 114]
Article 41 gives a survey of the whole set of remedies at disposal to the buyer under the convention. The buyer may:
- require performance (article 42 para 1)
- require delivery of substitute goods (article 42 para 2)
- fix an additional period for performance (article 43)
- declare the contract avoided (article 45)
- declare the price to be reduced (article 46)
- refuse to take delivery (article 48)
- suspend the performance of his obligations (article 62)
The relationship between both groups of remedies -- those to overcome the lack of performance or at least to adapt the contract to the delivery actually performed and those aiming at indemnification of damages -- is not set out explicitly in detail. It is, however, stated (article 41 para 2) that exercising any remedy does not exclude claim for damages. This principle does, of course, not mean that they are entirely independent of each other. If the buyer has obtained wholly or partially cure of a failure or reduction of the price his damage is influenced thereby. But he may (and insofar there is cumulation of remedies) have sustained a further-reaching damage, e.g., because of delay.
One more remark is to be made in this context: The Convention is meant not to exclude claims of tort under applicable law. [page 115] This seems to have been the interpretation by UNCITRAL which rejected a proposal to exclude expressly other remedies under national law except in cases of fraud. I personally wonder whether this interpretation was correct. In spite of the fact that the Draft does not repeat the rules of articles 2 and 17 of ULIS, it would not correspond at the demand of promoting international uniformity (article 6) if in addition to the remedies (already numerous) under the Convention other rights based on national law could be added. Such an interpretation therefore should be avoided. At least, however, the situation should be clarified expressly.
2. Claim for performance
Under the civil law concept, the claim for performance of the contract is to be considered as the most important remedy. To obtain the delivery as promised by the seller normally constitutes the main interest of the buyer.
Therefore it seems appropriate that the Draft does not follow ULIS in restricting this remedy by mentioning a divergent usage of cover purchase. The obligation of the buyer in exceptional cases to provide himself with unascertained goods not delivered in time by means of purchase in replacement may certainly follow also under the Draft from its article 8 (usage), or article 59 (general obligation to mitigate damage), but since it reflects an element of speculation it does not seem appropriate to acknowledge it as an express basic rule.
The buyer's action for performance is, however, subject to two major exceptions: On one hand, the draft does not compel the Contracting States to provide for legal action or acknowledgement of judgments to that aim at all (article 26). In common law countries actions for performance are not admitted in most cases. In spite of a certain tendency to widen the faculties of claiming specific performance under British and US law, the claim for damages may therefore constitute the least practicable remedy for the buyer, having regard to the uncertainty of procedural law applicable. [page 116] The second exception to the right to claim performance is that mentioned in article 42 itself: Demand of performance is excluded "if the buyer has resorted to a remedy which is inconsistent with such requirement." It may be doubtful which remedies are incompatible with the claim for performance. Certainly the buyer may no longer ask for specific performance after he has declared avoided the contract or reduced the price. But is it the same in case of claiming damages? In my mind claims for damages calculated on the assumption of non-delivery exclude the claim for performance, unless they are brought in expressly as an alternative demand (provided national procedural law does permit such petition). Otherwise claims for delivery are compatible only with claims for damages if the latter ones are based on damages additional to non-delivery, e.g., those because of delay.
There is a question of some practical importance as to the interpretation of article 42 para 1: Does this provision include the right to claim cure of lack of conformity? The Draft does not mention this situation expressly, whereas it refers to the right of the seller to cure a failure in performing his obligation in some detail (articles 44, 35). ULIS does fix expressly the right of the buyer to demand remedy of defects in case of goods to be produced or manufactured provided the seller is in a position to cure (article 42(1)(a) of ULIS). In UNCITRAL there has been a long debate on whether it was necessary and wise to provide for such a rule. Many delegations believed it was contained in article 42 of the draft. This opinion can be based on the wording of para 1 which refers in general to "performance by the seller of his obligations", such obligations including that to deliver goods in conformity with the contract under article 33. [page 117] Certain doubts could only be justified by the fact that a right to demand cure attributed to the buyer must necessarily be limited to such cases where the seller is able to do so. And it should be made clear whether he must cure if there is technical feasibility but the remedy causes to him unreasonable inconvenience. A specific provision on these lines was proposed by the working group of UNCITRAL, but it was not retained by the Commission. It was exactly the limitation mentioned above which found some objection: The seller should be bound to deliver goods in conformity with the contract without any pre- condition after delivery of non-conforming goods as well as before. For this reason a similar limitation referring to practicability went out also of the present para 2 of article 42 which deals with the particular right to demand substitute goods (see below No. 3).
The result of this history is a provision which in spite of the desirable aim to be as short as possible leaves in my mind too much uncertainty. It seems to be meant in the way that claim for performance contains the faculty for the buyer to demand still after delivery performance in the manner required by the contract be it with regard to the quality of the goods or to the place of delivery or to other obligations such as issue of appropriate documents. There is one exception of this right expressly mentioned in para 2: delivery of substitute goods can be required only if the lack of conformity constitutes a fundamental breach of the contract. The whole set of possible claims by the buyer is described in an uncomplete manner.
Neither the (unmentioned) right to ask for cure nor the (mentioned) right to ask for supply of substitute goods is expressly depending on the economic faculty or even practical possibility, as it was stated under article 42 of ULIS. An exception which must however be drawn from the nature of these right and the principle "ultra posse nemo obligatur". How else would it be possible to enforce any right? [page 118] The question which is left and which should be clarified for the sake of clarity and international uniformity is that as to what degree of "impossibility" should be sufficient to free the seller of this obligation to cure (if it is to be acknowledged under article 42 para 1 and under national law at all): inconvenience (as proposed by the Working Group) or impracticability?
It may seem that the preceding reflection exaggerates the economic importance of the question. That is certainly under the common law concept of non-execution of particular performance. Because the right to demand cure of substitution is to be seen under the same pre-condition as the right to claim delivery: that of article 26. In these jurisdictions any claim for specific performance of course has no practical importance -- a regrettable lack of unification. It is important nevertheless to be clear on the interpretation of article 42 for application under those legislations which accept the claim for delivery. And finally as a basis of appreciation of other remedies, especially that of avoidance, which are narrowly connected with the existence of a right for specific performance.
3. Claim for delivery of substitute goods
Few more words must still be devoted to para 2 of article 42: The buyer's right to demand substitution is limited there to cases where the non-conformity constitutes a fundamental breach of the contract. I doubt whether this restriction is appropriate. Of course, there need to be limits. ULIS provides for two of them: It must be a sale relating to unascertained goods and purchase in replacement must not be required by usages. The first one under our Draft follows from the principle of possibility mentioned already (above No. 2): where specific goods are sold, substitution normally is impossible. The second one was already referred to in connection with the general claim for delivery: it may follow from provisions as to application of usages here too. But I wonder whether, in addition thereto, the restriction to fundamental breach is justified. [page 119] There does not seem to be a significant difference in this respect between a claim for delivery of substitute goods on one hand and that for cure of lack by repair on the other, the latter one not being restricted in the same manner (if it follows from article 42 para 1 at all, see above No. 2).
Moreover, there are serious objections because of the general concept of "fundamental breach" as defined in article 23 of the draft which is less clear than under ULIS. This latter point shall be dealt with in connection with article 45 where it has greater importance (see below No. 5).
4. Right to fix an additional period for performance
Article 43 para 1 stating that "the buyer may fix an-additional period of time of reasonable length for performance by the seller of his obligations" may give at first glance the impression of a particular right of the buyer. The language, however, is misleading. The provision does not deal in essence with a right of the buyer but with a faculty. It is connected with another remedy: If the delay in delivery does not in itself amount to fundamental breach of the contract, the right of the buyer to declare the contract avoided according to article 45 depends on the previous fixing of the period mentioned in article 43. In itself the provision does not present an independent remedy. To the contrary: It lays a burden upon the buyer insofar as he, if he allows the additional period, has to abstain from relying on other remedies during that time. He may, however, claim for damages because of delay. And after expiry of the additional period he has again all remedies at his disposal (article 43 para 2).
Another period of additional time for performance may be granted by article 44 with similar effects but on request of the seller. [page 120] This article allows the seller to "even after the date for delivery, remedy at his own expense any failure to perform his obligations, if he can do so without such delay as will amount to a fundamental breach of contract and without causing the buyer unreasonable inconvenience or uncertainty of reimbursement by the seller of expenses advanced by the buyer." If the seller gives notice of his intention to cure --whereby he has to bear the risk of transmission of that notice according to para 4 of article 44 -- and the buyer does not comply, the seller may benefit of an additional delay similar to that of article 43 in his effects. The provision does not state what happens if the buyer does not consent with the procedure. It follows from the opening words of para 1 that he must not accept the offer to cure if he is entitled to declare avoidance of the contract and does so. But if the buyer is not entitled to avoid the contract because there is no fundamental breach in my mind he does not have the choice between acceptance of the offer and execution of other remedies except of claim for damages, e.g., reducing the price. Because otherwise the whole provision and in particular the exceptions set out in the second sentences of paras 1 and 2 did not make sense: The parties are always free to agree on an additional period for cure.
5. Declaration of avoidance
According to article 45(1)(a), the buyer may declare the contract avoided if the failure by the seller to perform the contract amounts to fundamental breach. The definition of fundamental breach is contained in article 23. It does not seen satisfactory.
The term "fundamental breach" is subject to a more concrete and workable definition in article 10 of ULIS. There it is stated that a breach is considered to be fundamental if the party in breach knew or ought to have known that a reasonable person in the position of the other party would not have entered into the contract had he foreseen the breach. [page 121] It is the interest which the other party has in correct performance (as to quality, time or otherwise) which there forms a criterion applicable with better chance for international uniformity than the definition of article 23 of the present draft. Under the Draft it depends exclusively on whether or not the breach causes substantial detriment to the other party: a rather vague formula open for different interpretation. It should be made clearer that it is the interest of the other party (in our present context the buyer) according to the particular circumstances of a given contract of sales which has to deliver the criterion of fundamental breach on one side and that on the other side the appreciation of these conditions has to be made -- in an objective manner -- from the viewpoint of the parties to the contract at the time of its conclusion. This means that the formula of ULIS is preferable and should be taken into the new convention as well.
A clearer definition of the term "fundamental breach" would certainly serve for preventing an interpretation of this situation which could go much too far and which could be caused especially by article 45 para 1. Therefore the notice of "fundamental breach" is of eminent practical importance because of its key-role for the right of avoidance. As was said earlier the buyer has the right to declare the contract avoided "if the failure by the seller to perform any of his obligations ... amounts to a fundamental breach". Without these conditions avoidance can be declared only in circumstances mentioned in para 91)(b) of article 45: Delivery must not have been performed at all and an additional period fixed in accordance with article 43 must have elapsed. Whereas the first rule (subparagraph (a)) relates to every kind of breach provided it is fundamental the second one (subparagraph (b)) does not include cases where delivery has taken place but did not conform with the contract. This follows as well from the wording as from the discussion in UNCITRAL. [page 122]
It has the following consequences:
In case of non-conformity which does not amount to fundamental breach the buyer has no faculty even after fixing an additional period according to article 43 (which would be possible under that provision but useless) to dissolve the contract and by that way to get rid of the defective goods. He is limited to other remedies. Since he is unable to claim delivery of substitute goods in these cases either (article 42 para 2) and claim for repair will be possible only in few situations (because of feasibility and enforcement) he in practice will be left with the remedies of reducing the price and/or claiming damages. This might not always correspond to his needs. If the buyer, e.g., has resold the goods and wants to comply with his obligations as seller he has to try as well to purchase goods in replacement (and to claim the price as damage) as to sell the defective goods (and deduct the reduced price obtained from the damage claim). A procedure which causes some concern to him, whereas he is the victim of a breach of contract.
Under these circumstances there might be some danger that the term "fundamental breach" under subparagraph (a) would be interpreted by courts extensively in order to meet the interests of the buyer -- an interpretation which might be harmful in other contexts of the Convention. (By the way: I do not think that the idea reflected in UNCITRAL by some delegates that the possibility to cure the defect should influence its character as "fundamental" is correct -- otherwise the right of avoidance mentioned in article 44 exactly under these conditions would never exist.)
To clarify the situation and to better meet the interests of the buyer, it seems to me to be necessary to follow the ULIS concept (article 44 para 2 ULIS) and allow avoidance of the contract by the buyer in all cases of non-performance by the seller provided he has fixed the additional period according to article 43 -- that is to say to extend article 45(1)(b) to all obligations of the seller. [page 123]
In this context some remarks must be made as to one further case of avoidance contained in another chapter: Articles 63 and 64 create some means of avoidance where after conclusion of the contract but before performance it becomes obvious that the seller will commit a fundamental breach or where in case of delivery of goods by instalments failure in respect to one instalment gives reason to conclude that there will be fundamental breach as to future instalments. In the latter situation the buyer has the choice of declaring the avoidance only with respect to the instalment subject to the actual breach.
Declaration of avoidance must be given within reasonable time according to the details set out in article 45 para 2. As mentioned already above there are no more cases in the draft of "ipso-facto-avoidance" as in ULIS -- a progress from the view-point as well of certainty as from the interest of the buyer. The buyer should not lose his right to claim performance on the mere ground of an abstract appreciation of his interests without a distinct declaration, perhaps without being aware of that constituent change in the legal situation.
A limit of the right of avoidance follows from a chapter of the Draft dealing with the effects of avoidance (articles 66 et seq.): The buyer loses his right to declare the contract avoided if he is unable to return the goods substantially in the condition in which he received them (article 67 para 1). This principle is the consequence of the concept of article 66 that the buyer in order to get back the money already paid or to be freed from the obligation to pay the price has to restitute the goods received concurrently. The principle has, of course, some exceptions contained (in accordance with article 79 ULIS) in article 67: The impossibility of making restitution does not hamper the right to declare avoidance if it is not due to an act or omission of the buyer or has been caused in connection with examination or by consumption or resale in the normal course of use or business, before the lack of conformity turned out. [page 124] In these conditions, however, the buyer has to account all benefits he has drawn from the goods. That means that he has to restitute instead of the goods the amount saved by using them or the revenue of a resale. The term "account" applied in article 69 para 2 clarifies that the buyer has not necessarily to payout such amounts but that the seller returning the price is entitled to set off the amounts of benefit to the buyer. All these provisions correspond in substance to those of ULIS and seem appropriate.
6. Declaration of reducing the price
The provision as to reduction of the price is one of the most efficient remedies of the buyer. If he is able to give this declaration before payment of the price and if he is in principle willing to keep the defective goods he can thereby unliterally adapt the contract to the delivery actually performed. Of course, there may be later an argument about the amount of reduction which sometimes need an expertise.
Article 46 of the Draft corresponds to article 46 of ULIS in substance. The wording, however, has been improved considerably. Nevertheless, I do believe it could and should be improved further. But this is a matter of drafting, the principle always seemed to have been clearer than the legal expression of it.
Reduction has to be made in the same relation as that of the goods in a quality and quantity as they should have had according to the contract to that they actually had as delivered. The present text states this in the inverse order, which is not more than a drafting error. But it should be amended insofar as the comparison should be made at the time of delivery, not (as foreseen in the draft) at conclusion of the contract. [page 125] Of course, one of the values is necessarily a hypothetical one, that of the conforming goods which actually have never been delivered. But under the concept of conclusion both values are possible. This could be simplified.
A new added second sentence clarifies that cure of the failure "by the seller or non-acceptance of an offer to cure by the buyer in spite of his obligation to accept under article 44 does exclude reduction. There could be little doubt on that consequence because the buyer -- after delivery -- has got or could have got what he had to require.
7. Right to refuse delivery
Article 48 clarifies for the particular case of delivery prior to the time agreed that the buyer must not accept that delivery. Obligation to accept may however follow from the general duty of both parties to keep damages and loss of the other one as low as possible (article 73). If, e.g., refuse causes particular high cost of transportation the buyer may be bound to take delivery and to provide for storage; he may then of course claim as damage the cost for storage.
Delivery of wrong quantities is sufficiently provided for in article 47 and article 48 para 2.
8. Right to suspend performance of obligations
Article 62 para 1 provides for the right of the buyer to suspend performance of obligations if, after conclusion of the contract, a serious deterioration of the financial ability of the seller or his conduct in preparing the performance give ground to conclude that he will not perform a substantial part of his obligations. This right is of particular importance in all cases where the buyer, otherwise than according to the rule of article 54, has to pay the price before receiving delivery. The right can be waived by the offer of security by the seller. [page 126]
As to the right to declare avoidance in similar situations see above No. 5.
9. Right to claim damages
The concept of claims for damages laid down in articles 70 to 73 corresponds to that of ULIS in broad terms. In principle any loss, including loss of profit, has to be born by the party in breach. Articles 71 and 72 contain rules on how to calculate the damage, especially in case of cover purchase. They need no further comment.
The draft does not contain a specific rule on interests. They form part of the general rules on damages.
Article 73 follows the civil law concept of contributory negligence of the party suffering the loss: The indemnification due to him is to be reduced according to the part of damage he should have avoided. This concept is not without saying applicable to causation of the damaging event; insofar the draft leaves the problem open. Under civil law there is distribution according to negligence, under common law sometimes complete exemption of the buyer's rights. The latter solution does hardly comply with the interest of the buyer.
The most important rule in this context is that of exemption contained in article 65. It corresponds largely to article 74 of ULIS. There are, however, some changes.
At first, the connection between the expectation of a party as to the taking into account of an impediment and the concrete contract is less explicit than in ULIS. It seems to be anyway only a drafting point, because I cannot image any other criterion for the estimation of duties of a party than the contract. To the extent the contract doesn't give any hint, we have to go back on general principles also under ULIS. [page 127]
The second change is that of the word "circumstances" in ULIS to "impediment" in the draft. One has discussed whether the latter one could cover failures occurring before conclusion of the contract (and not known to the parties). That seems to be possible, so that there would not be a substantial difference.
At last there is now in the draft express provision as to the liability for persons engaged to perform the contract. It does in substance correspond to the interpretation of article 74 of ULIS.
Doubtful because of wording and position of the rule seems to be whether article 65 applies exclusively to claims for damages or whether it excludes claims for performance as well. ULIS was clearer in this respect, but I have little doubt that claims for performance are also excluded in the circumstances given by article 65. Otherwise there would be a difference as to the economic balance between those countries admitting claims for delivery and those not doing so which could not be justified.
The rules on damage therefore in total are very similar to ULIS. They meet the same objections as these: For some kinds of contracts the liability for consequential damages may be too strong. Whether the rule of article 65 always will bring courts to reasonable limitation of it may be doubtful. But it offers the possibility of appropriate interpretation. In addition, the parties to a sales contract on goods which are in particular able to cause large indirect losses -- such as, e.g., machinery for a power plant -- must agree in the special case how to distribute the various risks. This distribution may then have at the same time bearing on the price.
The provisions of the Draft Convention dealing with remedies of the buyer because of breach of contract by the seller in general correspond to the concept of ULIS and to practical needs. [page 128]
They are drafted in a much clearer way than ULIS.
The changes in substance should be discussed further in two points mainly: As to the definition of "fundamental breach" (which should be more narrowly connected with the specific contract like in ULIS) and as to enlarging the possibility of the buyer to declare the contract avoided in case of delivery of goods not in conformity with the contract (even when the lack of conformity does not amount to a fundamental breach, after having fixed an additional period for cure).
The omission of the concept of "ipso-fact-avoidance" is considered as an advantage.
As consequence the Draft could serve as basis for international uniform application. Because of its simplicity and of a structure and wording which is not particularly linked to one legal system, it could reach similar results in all States. Perhaps it should be stated more clearly than in article 6 -- which, however, is a standard clause in UNCITRAL-conventions -- by additional rules like in ULIS that the Convention shall be interpreted without subsidiary application of national law wherever possible.
There is no particular report at this coloquium as to the problems of unification of sales law from the standpoint of western industrialized civil law countries. I hope, however, coming from a country of that type, that my remarks did reflect their needs too. As I said at the beginning: Not in particular. Because I believe that it is not important which legal concepts the draft follows. It is necessary, however, that it can serve the interests of sellers and buyers in all countries. And I feel it could do so. [page 129]