Cite as Maskow, in Bianca-Bonell Commentary on the International Sales Law, Giuffrè: Milan (1987) 394-400. Reproduced with permission of Dott. A Giuffrè Editore, S.p.A.
1. History of the provision
2. Meaning and purpose of the provision
3. Problems concerning the provision
The buyer's obligation to pay the price includes taking such steps and complying with such formalities as may be required under the contract or any laws and regulations to enable payment to be made.
1. History of the provision
1.1. - The present article is a modified version of Article 69 of ULIS which appeared there under the heading «other obligations of the buyer». In the course of efforts to consolidate the rules on the substantive obligations of the buyer the «other obligations» became part of the obligation to pay the price (see Yearbook, VI (1975), 103). This solution seems to be preferable since in practice it is very difficult or even impossible to make a clear distinction between the payment, the manner in which it is effected, and the preparations required.
As to the preparations required of the buyer, Article 69 of ULIS expressly mentioned the acceptance of a bill of exchange, the opening of a documentary credit and the giving of a banker's guarantee. Although these examples all referred to steps of a strictly commercial nature, the provision was generally understood to include also governmental formalities, when necessary. The omission of examples in Article 54 of the present Convention makes it now even clearer that both these categories are covered.
1.2. - At the Vienna Conference a proposal was submitted according to which the seller should be allowed «if payment in [page 394] the contractual currency is not possible ... to require equivalent payment in the legal currency of the place of the buyer's place of business». This was rejected by a clear majority (see Official Records, I, 120). During the discussion it was said that this problem was too complex to be solved by the Convention and fell beyond its scope. It may be added that adoption of this proposal might have encouraged the introduction of currency regulations detrimental to international trade. For instance, payment according to international contracts could be prohibited in the currency agreed, since this could be justified by the proposal's implication that payment in the national currency of the buyer's country is possible, though this might be of little interest for the seller.
2. Meaning and purpose of the provision
2.1. - Article 54 specifies the obligation of the buyer to pay the price, while Article 57 provides for the place of payment and Article 58 for the time (including preconditions) of payment.
2.2. - The steps of a strictly commercial nature to be taken by the buyer to fulfil his obligation to pay may be subdivided into three groups.
2.2.1. - When nothing has been agreed upon in the contract the buyer has to pay according to Articles 57 to 59. The individual acts to be performed by the buyer in order to effect payment may be a transfer of the funds, a handing over of cash or of a cheque.
2.2.2. - International sales contracts frequently prescribe that the buyer has to act in advance, that is before the seller starts the process of delivery. Such acts may be either advance payments (usually only partial payments) or the procurement of securities for payment as letters of credit, suretyships, guarantees, indemnities, and pledges. In the latter case the buyer has to perform all acts necessary to procure the securities, including for instance making corresponding contracts with third parties (banks), and handing over the pledged property. The date for the performance of such acts has to be agreed upon; otherwise Article [page 395] 58 applies, taking into consideration the function of these securities. If the place for procurement of these securities has not been stipulated, Article 57 would come into play.
2.2.3. - When payment is to be made on a credit basis, contracts sometimes specify that at the time and place at which payment is usually to be made, certain securities are to be handed over. In such cases the obligation of the buyer might be to accept bills of exchange or to hand over promissory notes.
2.3. - As far as the steps of a strictly commercial nature are concerned the provision should not be interpreted in such a way that only certain preparatory measures are to be taken, without any obligation in respect of their success; The view that the provision does not require the buyer to undertake to obtain the issuance of a letter of credit (see Secretariat's Commentary, Official Records, I, 45) must be rejected. While a buyer cannot always assume that he will receive all governmental permissions necessary for payment, he can with respect to acts of a strictly commercial nature. For example, banks have established well-defined procedures for the issuance of letters of credit. These are available to a buyer who obliges himself to grant security for payment by letter of credit. The requirements for getting a governmental permission are not always clear. The buyer may put himself in a position to fulfil the banks requirements, as by making a certain deposit or providing other securities, so that the bank agreed upon in the contract will issue the letter of credit. He may not necessarily be able to put himself in the same position vis-a-vis governmental authorities (e.g., permits are refused since no foreign currency is available, limits are exhausted, etc.). Another difference between getting a security from a third party and permission from governmental authorities is that in the former case alternative sources exist, but in the latter usually only the organs of one State are competent.
These differences in the predictability of the requirements, the possibility to conform with them and the existence of alternative sources justify a different treatment with respect to the outcome of acts of a strictly commercial nature on the one hand and those regarding governmental intervention on the other. In other words, responsibility for the success of the actions [page 396] is justifiable in the former case, while responsibility should be restricted to the doing of the necessary acts in the latter. Even when the buyer should be held responsible for obtaining governmental permissions he could eventually rely on the exemption in Article 79, if in spite of his doing all dependent on him to comply with the formalities, he did not succeed (in this sense also TALLON, in GALSTON and SMIT, International Sales, 6-7).
2.4. - The situation of the buyer in making contracts with third parties to secure payment for the benefit of the seller is analogous to that of the seller who is bound to arrange carriage for the goods and who has to make contract with carriers. It even seems possible to apply Article 32(2) by analogy to such obligations of the buyer, to the extent that the contract between seller and buyer does not go into detail.
2.5. - In requiring the buyer to comply «with the formalities as may be required under any laws and regulations», Article 54 mainly refers to possible governmental regulations concerning payment. These regulations, typically of a mandatory character, are issued by States in order to pursue various political and economic aims. The Convention does not supply the criteria for determining which State's (or States') regulations are to be observed. Its approach is a pragmatic one. Like other international conventions and private codifications (such as INCOTERMS), it makes compliance with such regulations to the buyer's duty and this can influence the performance by the buyer.
2.6. - The governmental formalities mentioned in Article 54 may involve obtaining permission to transfer a certain amount of currency. The permission may be merely formalistic (e.g., for statistical purpose) or it may be part of an inquiry into whether the legal requirements for payment have been fulfilled. When the permission has to be granted by a ministry of finance or by a State bank, confirmation that the planned import of the goods is permitted sometimes must be sought from a governmental authority, such as the ministry of industries or for foreign trade.
The formalities to be complied with may be as simple as depositing a copy of the contract with the bank to make payment [page 397] in foreign currency, or as burdensome as depositing the whole contract price in the national currency before the first instalment of a credit sale can be paid.
2.7. - Under Article 54 it is the buyer who has to comply with the formalities (e.g., submit proposals and documents required, establish a cash deposit). He has to do so in accordance with the rules of the country from which payment is to be made. Typically this will be the country where the buyer has his place of business. Yet the whole contract may be related to a branch of the buyer's business in a different country, or under the contract payment may have to be made in a country other than that of delivery. The buyer, following the wording of Article 54, is obliged to comply with the formalities of a foreign (i.e., the seller's) country when that is the place of payment. Normally this does not cause problems since the formalities for receiving payment are significantly less elaborate than those for making payment. Still, there may be formalities for the receipts of payment which cannot be observed by the buyer. Since the Convention cannot be interpreted in such a way as to impose upon a party obligations impossible to fulfil, these formalities should be imposed upon the only party in a position to fulfil them -- the seller. This gains practical importance in international economic operations which prescribe special ways of payment or special accounts not generally known. In these cases the seller should be deemed obliged to indicate such peculiarities to the buyer and to comply with certain formalities connected therewith. For example, occasionally the industrial enterprises of a country are allowed to sell to a certain extent abroad, but they are not in a position to receive payment; they have to assign the claim to another enterprise entitled to receive payment from abroad. This has to be done by the seller.
2.8. - The place for complying with the formalities is determined by the regulations to be observed. The date for such acts may also be prescribed (e.g., a contract may be required to be deposited with the bank a certain period after its making). When it is not, Article 54 should be interpreted to call for compliance with the steps and formalities by such a date as will allow, under normal conditions, for payment to be made at the due date. [page 398] Where periods for decision are indicated in the regulations, they are to be taken into account; the same holds true where such periods can be derived from experience.
2.9. - In summary the buyer's obligation to pay the price includes measures for guaranteeing the payment, measures required by the special modes of payment agreed in the contract, and acts to obtain governmental permissions. It follows that a breach in any of these obligations amounts to a breach of the obligation to pay and entitles the seller to make use of his remedies (see Articles 61 et seq.). Moreover, the seller would be entitled to suspend performance and to withhold fulfillment of his obligations coming due after such steps relating to payment were to have been done. This follows from Articles 58, 71 and 80 of the Convention. The seller might even be entitled to avoid the contract (Article 72). Since the buyer's acts in compliance with governmental formalities usually do not entail performance directly to the seller, but rather to the respective authorities, the seller is often not in a position to be on notice of whether they are performed. Therefore, a breach of contract in this respect may become apparent only when payment is to be made. At that time the seller is entitled to resort to his remedies. Thus, the breach of the obligation to comply with formalities has the effect of impeding the buyer from relying on the delaying effect of such formalities as exemption. Where the seller is in a position to check directly whether the buyer has fulfilled his obligations in respect of these formalities and discovers that he has not, the seller may resort to his remedies as mentioned above.
3. Problems concerning the provision
3.1. - The Convention does not indicate the currency of payment. However the Convention (see Articles 6, 53) makes it clear that the price shall be paid as provided for in the contract. This holds true even when a national law (applicable according to Article 7(2) or otherwise) allows payment in a different currency, e.g., of the country of the place of payment (see § 1.2., supra). Where a certain currency for payment is agreed upon, this currency is the currency of the contract and all other payments to be [page 399] made according to the contract (e.g., payments of damages, interest), except as otherwise agreed, are to be made in that same currency. If in exceptional cases no currency is agreed upon, the currency of the contract may be derived from international agreements between the States of the parties prescribing a certain currency for commercial operations between their nationals. Otherwise the currency may be determined by Article 9. It may be customary in the trade of certain commodities that they are paid in United States dollars or it may be usual in the trade between two or more given countries to pay in a certain currency. Where no result is reached by all these means, resort is to be taken to the law applicable by virtue of the rules of private international law (Article 7(2)), taking into consideration the currency regulations of the countries concerned. [page 400]