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Excerpt from John O. Honnold, Uniform Law for International Sales under the 1980 United Nations Convention, 3rd ed. (1999), pages 413-417. Reproduced with permission of the publisher, Kluwer Law International, The Hague.

Article 69

General Residual Rules on Risk

Text of Article
A. Taking Over Goods at Seller's Place of Business
      (1) Policies Affecting Risk: Insurance
      (2) Domestic Law
B. Taking Over Other Than at Seller's Place of Business
      (1) Identification

§373 This article governs "cases not within Article 67 and 68". In view of this approach to defining the scope of Article 69 we need to recall that Article 67 governs contracts in which the seller hands the goods over to a "carrier" for transmission to the buyer and that Article 68 also governs contracts in which goods have been handed over to a "carrier". In sum, Article 69 applies to all contracts that do not involve carriage of goods by a "carrier".

Article 69 [1]

"(1) In cases not within articles 67 and 68, the risk passes to the buyer when he takes over the goods or, if he does not do so in due time, from the time when the goods are placed at his disposal and he commits a breach of contract by failing to take delivery.

(2) However, if the buyer is bound to take over the goods at a place other than a place of business of the seller," the risk passes when delivery is due and the buyer is aware of the fact that the goods are placed at his disposal at that place.

"(3) If the contract relates to goods not then identified, the goods are considered not to be placed at the disposal of the buyer until they are clearly identified to the contract."

Paragraph (1) of Article 69 applies when the contract calls for the buyer to come for the goods at the seller’s place of business, often called a sale "ex works". (This scope for paragraph (1) results from the fact that paragraph (2) carves out an exception from paragraph (1) for cases where "the buyer is bound to take over the goals at a place other than a place of business of the seller".)

Paragraph (2) of Article 69 governs all other transactions not within Articles 67, 68 or paragraph (1) of Article 69—in other words Article 69(2) applies when the contract does not call for transport by a "carrier" (Articles 67 and 68) and the buyer is not to take over the goods at the seller’s place of business. Happily, at long last we can now speak affirmatively of types of transactions that do fall, by default, into paragraph [page 413] (2) of Article 69: (1) Contracts that call for the seller to deliver the goods to the buyer in (e.g.) the seller’s trucks or by some other means of transport for which the seller is responsible, (e.g.) delivery to the buyer "ex ship". (2) Contracts that call for the buyer to take over the goods "at a place other than a place of business of the seller"—e.g., goods in storage at a public warehouse.

§374 A. Taking Over Goods at Seller’s Place of Business

As we have just seen, by a tortuous process of exclusion paragraph (1) applies only when the buyer is bound to take over the goods at seller’s place of business. The scope and effect of paragraph (1) can be shown by two examples:

Example 69A. A contract called for Seller to produce and pack goods and hold them at his place of business for Buyer by May 1; the contract stated that Buyer would take the goods away, by his own transport, at any time during the month of May. On May 1, Seller had the goods packed and ready for delivery. On May 10 the goods were destroyed by a fire in Seller’s warehouse.

Since the contract permitted the buyer to take the goods at any time during May, Buyer had not committed a "breach of contract by failing to take delivery." In such cases, under paragraph (1) risk passes to the buyer "when he takes over the goods." In Example 69A, Seller was still in possession of the goods at the time of the fire and bears the risk of loss.

Example 69B. The facts are the same as in Example 69A except that Buyer failed to take the goods during May, and the fire destroyed the goods on June 2.

Here Buyer bears the risk since his breach of contract in failing to take the goods during May left the goods with Seller at the time of the fire. There is no indication that Seller notified Buyer that the goods were ready for delivery. In this case a notice should not be necessary since the contract provided that Seller would have the goods ready by May 1 and Seller did so. Buyer had no reason to suppose that Seller had not complied with the contract.

Assume that the contract merely stated, "Buyer will remove the goods within thirty days after they are ready for delivery". On these facts the goods would not be at Buyer’s "disposal" until Seller notifies Buyer that the goods are ready; otherwise Buyer would need to make daily inquiries to discover where things stood. (The discussion of gap-filling under Article 7(2) suggested (§100 supra) that one of the Convention’s "general [page 414] principles" was a duty to communicate information needed by the other party. See also Art. 69(2); "aware of the fact...".)

§375 (1) Policies Affecting Risk; Insurance

Policies relevant to the allocation of risk were mentioned in the introduction to this chapter, supra at §358. The Convention responds to the view that the risk of casualty (in the absence of breach of contract or an applicable agreement) should be allocated to the party who is in the better position to care for the goods and to cover the risk by insurance. In Example 69A, the seller, pursuant to the agreement, had possession and control of the goods. If the seller asks the buyer to pay for goods that burned while they were held by the seller, the buyer is likely to claim that the loss was a result of the seller’s failure to exercise due care; settling or litigating such claims involve expense and uncertainty for both parties. Moreover, cost-efficient insurance rating calls for information as to the conditions of storage—e.g., whether the building is made of metal or wood and whether it is equipped with an automatic sprinkler. Consequently, it is customary to carry insurance for "building and contents"; the policy usually covers goods that await delivery following a contract of sale since the seller cannot be sure he will be paid, particularly if the goods are destroyed.[2]

§376 (2) Domestic Law

These policies on the allocation of risk are reflected in the (U.S.A.) Uniform Commercial Code. In non-shipment cases like Example 69A, when the seller is a merchant (as in that Example) risk passes to the buyer "on his receipt of the goods" (UCC 2–509(3)); the result is the same as that of the Convention. When the buyer is in breach, as in Example 69B, the UCC gives weight to both the breach and to the availability of insurance: "the seller may to the extent of the deficiency in his effective insurance coverage treat the risk of loss as resting on the buyer for a commercially reasonable period" (UCC 2–510(3)).

The Convention’s approach to the problem of risk is more direct and clear-cut than those domestic rules (like the U.K. SGA (1893)) that, unless [page 415] modified by case-law on international trade, invoke concepts such as "property" and "appropriation."[3]

§377 B. Taking Over Other Than at Seller’s Place of Business

Paragraph (2) states a separate rule on risk when "the buyer is bound to take over the goods at a place other than a place of business of the seller." No such provision appeared in ULIS; the Commission’s discussion of this provision was directed to the sale of goods held at a public warehouse and reflected the possibility that the buyer might leave the goods in the warehouse for a substantial period after the goods were made available.[4]

Under paragraph (1) risk passes to the buyer when he "takes over the goods." Under paragraph (2) risk passes at an earlier point—"when delivery is due and the buyer is aware of the fact that the goods are placed at his disposal" at the designated place.

Example 69C. A sales contract involved goods known by both parties to be held in a warehouse operated by a third person. When Seller deposited the goods in the warehouse Seller received a warehouse receipt stating that the goods would be released to Seller or to any person who held a delivery order executed by Seller. On May 1, at the time of the contract, Seller gave Buyer a delivery order directing the warehouseman to deliver the goods to Buyer. [5] On May 2 a fire in the warehouse destroyed the goods.

Under Article 69(2), risk passed to Buyer on May 1, since delivery was then due and the buyer knew that the goods were at his disposal.

Paragraph (2) also applies when the seller or a carrier makes the goods available to the buyer at the end of transit or at the buyer’s place of business. For example, in a quotation "Ex Ship Buyer’s port," risk passes when the goods are placed at the buyer’s disposal, even though the "free [page 416] time" for taking over the goods has not expired. Under paragraph (2), unlike paragraph (1), the goods are not at the seller’s place of business and the practical considerations involving insurance practices, mentioned above, do not apply fully; there is no reason for risk to remain on the seller. This result is consistent with commercial practice embodied in Incoterms (1990): Under a sale "Delivered Ex Ship" risk passes to the buyer when the goods are "placed at the disposal" of the buyer (A4, A5, B5). Similarly, under (U.S.A.) Uniform Commercial Code 2–509(1)(b), when the contract requires the seller "to deliver [the goods] at a particular destination" risk passes "when the goods are there duly so tendered as to enable the buyer to take delivery." See: Schlechtriem, Com. (1998) 512–516 (Hager).

§378 (1) Identification

Paragraph (3) requires that goods be "clearly identified to the contract" before risk can pass to the buyer. A similar provision in Article 67(3) was discussed at §371. The question of "identification" in sales of shares of an identified bulk (e.g., grain in a specified warehouse, oil in an identified tank) was discussed in connection with Article 67(2) at §371, supra. See also §56.3, supra (applicability of the Convention to such sales).[page 417]

FOOTNOTES: Chapter on Article 69

1. Art. 69 is the same as Art. 81 of the 1978 Draft. As to Art. 69(1) see ULIS 19(1), 97(1) and 98(1); as to Art. 69(3), see ULIS 98(2).

2. See Rep. S-G, V YB 90–93, Docy. Hist. 169–172; Roth, AJCL UNCITRAL Symposium 291, 299–300, Honnold. A Uniform Law for International Sales 107 U. Pa. L. Rev. 319 (1959) Honnold, Sales 167–169 (includes extracts from standard policies of insurance).

3. See Atiyah 246–251; Benjamin §394 et seg.; Ont. L. Ref. Com. I Sales 265–269.

4. UNCITRAL X, Annex I paras. 550–552, VIII YB 64 Docy. Hist. 357.

5. In the alternative, we may assume that Seller delivered to Buyer a negotiable ("order") warehouse receipt the possession of which controlled delivery of the goods. If the warehouse receipt is not negotiable or does not contain a statement like that mentioned in Example 69C, the question whether the goods have been placed at the buyer’s "disposal" (Art. 69(2)) may depend on (1) domestic law governing the warehouse’s obligation to deliver to a sub-purchaser or (2) an understanding between the seller and buyer that the seller would authorize delivery on buyer’s request.

Pace Law School Institute of International Commercial Law - Last updated February 25, 2005
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