Excerpt from John O. Honnold, Uniform Law for International Sales under the 1980 United Nations Convention, 3rd ed. (1999), pages 515-518. Reproduced with permission of the publisher, Kluwer Law International, The Hague.
§ 450 Under Article 81(2), supra at §444, a party who has performed by supplying goods or paying under a contract that is later avoided, may recover whatever it "has supplied or paid." Article 84 supplements this provision by requiring compensation for the delay in recovering the price paid or the goods supplied under a contract that is avoided.
"(1) If the seller is bound to refund the price, he must also pay interest on it, from the date on which the price was paid.
"(2) The buyer must account to the seller for all benefits which he has derived from the goods or part of them:
(a) if he must make restitution of the goods or part of them; or
(b) if it is impossible for him to make restitution of all or part of the goods or to make restitution of all or part of the goods substantially in the condition in which he received them, but he has nevertheless declared the contract avoided or required the seller to deliver substitute goods."
§ 451 A. Introduction
Under Article 78, supra at §420, a party is entitled to interest when the other party "fails to pay the price or any other sum that is in arrears." In that setting, interest is designed to compensate one party for the other’s breach of contract—the "failure" to pay a "sum in arrears." Consequently, in considering the rate of interest attention was directed to the loss suffered by the person who should have received the payment. See Art. 78, supra at §421.
§451.1 (B) Scope of Article 84
Article 84, the final provision in Section V. Effects of Avoidance, states obligations that are ancillary to the obligations of each party (Art. 81(2)) [page 515] to return whatever it has received. Paragraph (1) of Article 84 provides that when the seller is bound to refund a buyer’s price payment, seller must also pay interest; paragraph (2) provides that the buyer not only must return goods received from the seller but also "must account to the seller for all benefits he has derived from the goods...".
In spite of the relatively narrow scope of Article 84 it embraces a surprisingly wide variety of situations. Obligations under each of these two paragraphs can arise when there has been a fundamental breach by either party (Art. 81(1), supra), and under each paragraph either party (or both parties) may be obliged to make restitution. It will not be feasible to address all of these permutations but it seems advisable to examine the operation of Article 84 in a few specific cases.
Example 84A. Pursuant to the contract Buyer paid for the goods shortly prior to delivery but Seller failed to deliver. Buyer declared the contract avoided and sued to recover the price plus (Art. 84(1)) "interest on it from the date on which the price was paid." How should the tribunal compute the interest owed to the buyer?
As we have seen (Art. 78, §421, supra), neither UNCITRAL nor the Diplomatic Conference found it feasible to specify the rate of interest; the above discussion of Article 78 suggested that the solution should be derived by analogy to the Convention’s rules on compensation for breach of contract (Arts. 74, 75 and 76). But cf. Tallon in B-B Commentary §2.1, p. 612.
A seller’s obligation to refund the price usually (as in Example 84A) results from its breach of contract—i.e., when the buyer avoids the contract because seller fails to deliver or (more frequently) when the seller delivers goods that are seriously defective. In these cases it seems appropriate to base interest on the loss suffered by the aggrieved buyer rather than on a restitutionary approach to prevent unjust enrichment by the seller. The approach based on damage for breach of contract, developed by analogy to the Convention’s rules on damage measurement in Articles [page 516] 74, 75 and 76, was discussed under Article 78 (§421, supra) and need not be repeated here. Recovery based on the restitution of benefits received does seem appropriate for claims against a party who is not in breach of contract. This approach will be illustrated infra at §452 in Example 84C.
We now turn from Article 84(1) ("interest on" the price) to Article 84(2) on "benefits derived" from goods. To facilitate comparison the following illustration is similar to Example 84A, except that the party in breach is the buyer rather than the seller.
Example 84B. Seller delivered goods to Buyer under a contract that called for payment 30 days after delivery. Buyer failed to pay and Seller declared the contract avoided. Seller brought an action to reclaim the goods (Art. 81(2) and also demanded (Art. 84(2)) that Buyer "account to the seller for all benefits which he has derived from the goods...".
Seller will be fortunate if it can reclaim the goods before Buyer resells or consumes them or (in view of Buyer’s failure to pay Seller) before Buyer’s creditors seize the goods. See the discussion of Article 81(2) at §444, supra. Our concern now is application of Seller’s claim under Article 84(2) for the "benefits" Buyer "has derived from the goods".
This claim may be helpful to Seller if Buyer has resold the goods at a higher price. However, when (as in this case) the buyer has failed to pay, sellers still face the serious hazards from third-party claims that have just been mentioned.
Decision: GER. OLG. Oldensburg, 11 U 64/94, 1 February 1995. B purchased furniture from S. After delivery and resale, B avoided the contract [page 517] on the ground that the furniture proved to be unsatisfactory to B’s customers. Pursuant to CISG 84(2)(b), B was not required to account to S for benefits received since there was no evidence that B would receive benefits from B’s customers. UNILEX D. 1995-1-2.
See: Schlechtriem, Com. (1998) 656–662 (Leser).
Example 84A and Example 84B illustrated the relatively simple situation when only one party performs and that party avoids the contract because of non-performance by the other party. Our final example faces a more complex situation: Both parties have performed at least in part; avoidance in this setting presents a new feature—recovery by a party, who is in breach of contract, from the aggrieved party.
Example 84C. On June 1 Buyer paid one-half of the price for a machine which Seller, in accordance with the contract, delivered on July 1. The balance of the price was due thirty days after delivery but Buyer failed to pay. Seller promptly avoided the contract for fundamental breach and obtained a court order impounding the machine for delivery to Seller. Buyer, invoking Article 81, noted that on avoidance both parties must make concurrent restitution of whatever they have received; consequently, Seller must refund the payment Buyer made on June 1. In addition, Buyer noted that under Article 84(1) Buyer was entitled to interest "from the date on which the price was paid".
How should the interest on Buyer’s payment be measured? In Example 84A (§451.2, supra) a buyer claimed interest on a payment from a seller who had committed a fundamental breach by failing to deliver the goods. In that setting it was suggested that interest should be allowed, by analogy to Articles 74, 75 and 76, on the basis of the loss to the aggrieved party. That approach would not be appropriate here since interest is claimed by the party in breach. In this case a restitutionary approach seems more appropriate; recovery should be based on the benefit Seller received from the use of the money. (Of course, Buyer’s claim may be reduced or cancelled by Seller’s right to recover damages resulting from Buyer’s breach.)[page 518]
FOOTNOTES: Chapter on Article 84
1. This article is the same as Art. 69 of the 1978 Draft Convention and is substantially the same as ULIS 81.
2. Buyer under Article 74 could also claim damages resulting from the failure to receive the goods when promised (e.g., interruption of production) and at the agreed price (e.g., the effect of a rise in the market price).
3. The reference in Article 81(2) to "restitution of what a party has supplied or paid" seems to refer to the payment or the goods that must be returned rather than to interest. The term "restitution" is not used in Article 84(1) in providing for the recovery of interest; on the other hand, Article 84(2) calls for a restitutionary approach in requiring a buyer "to account" for "benefits" derived from the goods. In this latter setting there seems to be no practicable alternative to restitution. See §451.3, infra.
4. In view of the hazards confronting an attempt to recover the goods, the seller should demand, as alternative relief, that Buyer pay the price (Art. 62).
5. Presumably, the buyer could deduct the cost of redisposition; a similar adjustment would be appropriate when the goods have been processed.
6. When the buyer has resold the goods to a customer who has not yet paid for them the seller will find it useful to ascertain whether applicable domestic law defers the claims of creditors to the seller’s right to recover the goods (cf. (U.S.A) UCC 2–402(1)) and also whether a right to recover goods extends to specific proceeds like the customer’s unpaid debt for the goods. See also Friedmann, Restitution of Profits Gained by Party in Breach of Contract, 104 L. Q. Rev. 383 (1988).