Excerpt from John O. Honnold, Uniform Law for International Sales under the 1980 United Nations Convention, 3rd ed. (1999), pages 520-522. Reproduced with permission of the publisher, Kluwer Law International, The Hague.
§454 The present article applies only when the seller has the goods in its possession or control. For reasons summarized in the Introduction, the seller may have a duty to preserve the goods even though the buyer’s failure to take delivery is a breach of contract.
"If the buyer is in delay in taking delivery of the goods or, where payment of the price and delivery of the goods are to be made concurrently, if he fails to pay the price, and the seller is either in possession of the goods or otherwise able to control their disposition, the seller must take such steps as are reasonable in the circumstances to preserve them. He is entitled to retain them until he has been reimbursed his reasonable expenses by the buyer."
This article has its simplest (but not its most significant) application when the buyer should take delivery at the seller’s place of business but fails to come for the goods by the date specified in the contract. Under the rules on risk (Ch. IV, Art. 69, supra at §373) the risk of loss passes to the buyer on the date when "he commits a breach of contract by failing to take delivery." Suppose that, after risk has passed to the buyer, the seller leaves perishable goods out in the rain or discontinues necessary refrigeration. In such situations, Article 85 makes the seller responsible for loss to the goods that results from his failure to "take such steps as are reasonable in the circumstances to preserve them." Secretariat Comm., O.R. 62, Docy. Hist. 452 (Ex. 74A); Barrera Graf in B-B Commentary 616.
Another application of Article 85 may be illustrated as follows:
Example 85A. A sales contract called for Seller to send the goods to Buyer by carrier. The contract did not require Seller to deliver the goods to Buyer on credit, so Seller properly shipped the goods under a bill of lading that called for delivery to "Seller or order" (a "negotiable" or "order" bill of lading); Seller retained possession of this document through banks acting on Seller’s behalf and thereby controlled disposition [page 520] of the goods (Art. 58). When the goods reached their destination, Seller (acting through a correspondent bank) offered to deliver the document to Buyer in exchange for payment. Buyer failed to pay. (For purposes of this illustration it does not matter whether Buyer attempted to avoid the contract because of an erroneous view that the goods were seriously defective (Art. 25) or repudiated the contract without any reason). The goods remain in the possession of the carrier. High demurrage charges are accruing and there is danger that the goods will be stolen. Has Seller any duties with respect to the goods?
Seller would be correct in pointing out that risk of loss had passed to Buyer under the general rules of Chapter IV. In the absence of agreement, and under most trade terms (e.g., F.O.B., C & F, C.I.F.) risk passed to Buyer at the beginning of transit (Art. 67). And even if the contract provided that transit risks fall on Seller (e.g., "delivery ex ship Buyer’s city") risk passed to Buyer when the goods were placed at its disposal and it failed to take delivery (Art. 69).
Nevertheless, Article 85 may require action by Seller. Schlechtriem, 1986 Commentary 109. Since Buyer did not pay, Seller retains control over the negotiable bill of lading and thereby has control over the disposition of the goods. Hence, under Article 85 "the seller must take such steps as are reasonable in the circumstance to preserve" the goods. These steps might well involve depositing the goods in a warehouse (Art. 87) or reselling them (Art. 88).
These duties are of special importance under the Convention because of the broad scope of the seller’s right to recover the full price (Art. 62)—a remedy that has practical consequences that are very different from liability for damages. Under legal systems influenced by the common law and the (U.K.) Sale of Goods Act (1893), a seller who remains in possession of the goods seldom is entitled to force the goods on the buyer by recovering the full contract price (§346, supra). Of course, the seller may recover damages for breach of contract but this remedy calls for the seller to redispose of the goods. In the above legal setting, there is little need for rules specifically requiring the seller to protect the goods from damage since the seller cannot transfer this loss to the buyer. [page 521]
A seller’s obligation under Article 85 to preserve the goods does not end if the seller brings an action (Art. 62) to require the buyer to pay the price. The seller is not required to hand over the goods before the buyer pays (Art. 58(1)) and, for various reasons, will need to retain control of the goods. Bringing a legal action does not assure payment. The seller’s suit may fail—the buyer may interpose a defense based on seller’s breach; an action to require payment of the price may be rejected by the forum (Art. 28 and §§197, 348-349, supra). Moreover, at the end of the legal road the buyer may not be able to satisfy a judgment. There are other practical considerations of even greater weight. The seller usually will not wish to maintain control over the goods during the extended time that may be required to bring the case to trial and final judgment. Warehouse costs and deterioration of the goods may substantially reduce the seller’s security interest and make it prudent for the seller to redispose of the goods and claim damages for breach of contract. In any event, if substantial warehouse costs and deterioration occur the buyer may claim that the seller failed under Article 88(2), infra, to take "reasonable measures to sell" the goods—a specific provision that reinforces the general obligation under Article 77 (§§416-419, supra) to "mitigate the loss" resulting from breach.
See: Schlechtriem, Com. (1998) 666–669 (Eberstein).[page 522]
FOOTNOTES: Chapter on Article 85
1. This article is substantially the same as Art. 74 of the 1978 Draft. The addition of the "or where payment..." phrase in paragraph (1) was a clarifying amendment. See O.R. 398, Docy. Hist. 619. Cf. ULIS 91.
2. Atiyah 365–371 (the remedy is complicated by use of the "properly" concept): Benjamin §§1241–1257 Bridge, Sale 719–727. See (U.S.A.) UCC 2–709(1)(a): Seller may recover the price of goods the buyer has "accepted"; cf. 2–709(1)(b) (price recovery "if the seller is unable after reasonable effort" to resell the goods). Cf. Ont. Law Ref. Com., II Sales 415–418 (criticism of SGA rules on price recovery, with recommendation based on UCC 2–709).