Cite as Maskow, in Bianca-Bonell Commentary on the International Sales Law, Giuffrè: Milan (1987) 420-430. 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
(1) If the buyer is not bound to pay the price at any other specific time, he must pay it when the seller places either the goods or documents controlling their disposition at the buyer's disposal in accordance with the contract and this Convention. The seller may make such payment a condition for handing over the goods or documents.
(2) If the contract involves carriage of the goods, the seller may dispatch the goods on terms whereby the goods, or documents controlling their disposition, will not be handed over to the buyer except against payment of the price.
(3) The buyer is not bound to pay the price until he has had an opportunity to examine the goods, unless the procedures for delivery or payment agreed upon by the parties are inconsistent with his having such an opportunity.
1. History of the provision
1.1. - This provision embodies the main ideas of Articles 71 and 72 of ULIS, but some important substantive and drafting changes have been made.
Article 71 of ULIS contained a rather general provision on concurrent delivery of the goods and payment of the price (see HUBER, UNCITRAL-Entwurf, 513). This provision also determined the time for payment insofar as it was not specifically regulated by Article 72. Article 58 (1) of the Convention covers the main cases in more concrete terms.
Another important modification under Article 58 is that the seller is no longer entitled to «postpone dispatch of the goods until he receives payment», an alternative allowed under Article 72(1) of ULIS. On the buyer's side, his right to examine the goods has been generally reaffirmed for greater clarity.
1.2. - During the Vienna Conference no substantial discussion of this article took place. Only one amendment was submitted [page 420] (see Official Records, I, 122-123). Its first part was directed at adapting the introductory words to the corresponding words of the preceding article. It was adopted (see Official Records, II, 369-370). According to the second part of the proposal, the seller would be allowed «to defer handing over the goods or documents until payment has been made». This was intended to clarify the adoption of the exceptio non adimpleti contractus, but the majority felt this was not the exact thrust of this provision.
2. Meaning and purpose of the provision
2.1. - The basic idea of Article 58 is to establish delivery and payment as concurrent conditions: one party obtains the performance of the other only in exchange for his own performance. Therefore, if the seller delays in performing his obligation to deliver, the buyer is not only entitled to his remedies, but the date for payment also changes. This may lead to further consequences detrimental to the seller such as the expiration of securities.
The introductory sentence of Article 58(1) makes it clear that the provision applies only insofar as nothing else can be derived from the contract, that is to say, that no other express or implied stipulations of the parties exist. Since this already follows from Article 6, this sentence might be understood as directing the parties to make such an agreement.
2.2. - Delivery and payment cannot be concurrent conditions where an unsecured credit is granted. The same is true when advance payments or the procurement of a security before delivery are agreed upon. If the parties in these cases have not stipulated the date for payment or for the procurement of the security, it must be derived from the functions of the security, at least as impliedly agreed upon by the parties. When for example a letter of credit is to be opened this has to be done so timely that it can be used by the seller within the agreed period of delivery. In other words, the information about the opening of the letter of credit must reach the seller at the beginning of the delivery period at the latest. This means, in the procurement of a security the buyer is as a rule obliged to perform without awaiting concurrent [page 421] performance by the seller. Where a security does not fulfil such a function (e.g., the acceptance of bills of exchange or the handing over of promissory notes), absent a stipulation to the contrary, the latest these means have to be made available to the seller is at the time payment would have to be made, if a cash sale were transacted.
2.3. - Article 58 envisages two principal fact patterns coresponding to the fact patterns of Article 31 on the obligation to deliver. In the first, the goods (or documents) are placed at the buyer's, disposal (Article 31(b),(c)), and in the second the contract involves carriage of the goods (Article 31(a)), which may be varied by the parties (see introductory sentence of Article 31).
2.4. - In the first case the locations at which the goods have to be placed at the buyer's disposal may be the places indicated in Article 31(b)(c) (see INCOTERMS, EX WORKS, A.2), or a place through which the goods pass during trasportation (see e.g., INCOTERMS, F.A.S., A.2; EX SHIP A.2; EX QUAI, A.2) or even the place of destination, which might also be the buyer's place of business (see INCOTERMS, DELIVERED DUTY PAID, A.2). In these cases the Convention determines that payment is to be made when the seller places either the goods or the documents at the buyer's disposal, and the seller may make payment a condition for handing over the goods or documents. The buyer has to pay cash at that date or, if the seller so accepts, hand over a cheque (see commentary on Article 57, supra, § 2.3.).
Normally the goods or the documents are not placed at the buyer's disposal unexpectedly, but he gets a notice that they are ready for collection or that they will arrive at a certain date. With this, notice he can prepare himself for payment. If the goods or documents are unexpectedly placed at the buyer's disposal, based on the principle of good faith (Article 7(1)) he must be given a reasonable time for payment (as well as for collection -- see commentary on Article 53, supra, § 3.1.). What is a reasonable time would depend on the circumstances, including the amount payable (see also commentary on Article 59, infra, § 2.5.). However he may not take delivery before payment.
The form of interlinking delivery and payment provided for by Article 58(1) is very strong since it is connected with the [page 422] disposition of the goods. When the goods must be collected from a place other than the buyer's place of business, cash payment is rather risky for him, as it is for the seller if the place is also not his place of business. Furthermore, the transport of cash across State borders and its direct collection by the seller may contravene currency regulations. Moreover, transportation generally is not effected by the parties themselves but by independent carriers. Even if it is possible to have them collect the money, this is rarely done in practice. This occurs most frequently with a forwarding agent collecting the price against the handing over of the goods (see also commentary on Article 57, supra, § 2.7.).
Similarly, when forms of payment are chosen under which the buyer may get the goods or documents without having paid, the date of payment, in the absence of contractual stipulations to the contrary, is determined by the rules under examination.
2.5. - When carriage of the goods is involved, delivery and taking delivery occur at different places. This changes the situation in the following respects. The seller initiates the transportation process and pays to varying extents the associated costs. The extent depends on the terms of delivery agreed upon (e.g., C.&F., C.I.F.). The most important aspect of Article 58(2) is that it implies that the seller must undertake these activities and is not entitled to ask for payment beforehand. Secondly, the initiation of carriage is the first step in the seller's losing control over the goods. However, control is normally not fully lost at the start of the transportation process, since the seller remains able to give instructions to the carrier as long as the seller still has the transportation documents or the goods are not yet legally handed over to the buyer. Article 58(2) entitles the seller to make either the handing over of the documents or, where the buyer does not need the documents in order to get control of the goods (e.g., in case of railway transportation), the handing over of the goods dependent on payment. The date for payment in this case is, as in Article 58(1), the date at which the goods or the documents are handed over to the buyer. That means that when delivery and taking delivery are made at different places and consequently on different dates, the later date is the date at which payment is due. [page 423]
2.6. - Payment may be refused under the same circumstances as refusing to take delivery (see commentary on Article 53, supra, § 3.2.). This presupposes that the buyer is informed of the facts enabling him to refuse payment. This in turn might depend on his possibility to examine the goods. If the buyer refuses to make payment without valid reasons, the date for payment remains unchanged, and the refusal amounts to a breach of contract.
2.7. - Where partial deliveries are agreed upon, the obligation to pay relates to the part delivered and must be fulfilled if partial deliveries are offered. This also applies to successive deliveries.
Where successive deliveries are agreed upon, every delivery has to be treated as a separate one. The non-conformity of prior deliveries generally may not be used as a justification for refusing to pay for further deliveries. Similarly, the seller may not generally withhold delivery because a former delivery has not yet been paid (see HUBER, in DÖLLE, Einheitliches Kaufrecht, 404 et seq.). But the independence of each successive delivery does not require viewing it in isolation. In practice the buyer's taking delivery frequently will be made dependent on his making payment or granting securities for it. It would contravene commercial practice to hold the seller obliged to make a new delivery when the former one has not yet been taken over for lack of payment or securities for it, since the risks of the seller would increase considerably. On the other hand the lack of conformity of prior deliveries might give rise to refusing taking up the documents for later deliveries, since the same problems may be expected. By and large these cases are covered by Article 71 et seq.
2.8. - Article 58(3) grants the buyer the right to examine the goods unless it has been otherwise agreed upon. If the seller decides pursuant to paragraph (1) or (2) to transfer the goods to the buyer under conditions denying the buyer disposal of the goods before the buyer pays or gives security for payment, the seller may not do so in a way which denies the buyer his right to examine the goods. If the seller precludes the buyer from inspecting, he would not have delivered according to the contract, and the buyer would be entitled to refuse paying the price. If the seller fails to allow inspection, the buyer may resort to his ordinary [page 424] remedies for breach of contract (see Articles 45 et seq.). On the other hand the buyer's right to examine the goods does not include a right to take possession of the goods.
The right of the buyer to examine the goods according to Article 58(3) is not necessarily identical with his obligation to examine the goods pursuant to Article 38. Where payment a short time after receipt of the goods is agreed upon, the time may be too short for a careful examination as agreed or in accordance with commercial usage. In particular this might be the case under Article 38(3) where the goods are redirected in transit or redispatched by the buyer. Nevertheless, the buyer would be entitled to a brief examination of the goods before payment. But where he does not do so or does not discover a lack of conformity, through brief examination, the buyer does not lose his right to rely on the lack of conformity as long as he eventually satisfies the requirements of Article 38. The buyer may not insist on carrying out a careful examination when it would be inconsistent with the agreed procedures for delivery or payment, even if they allow a short examination. He is then limited to that kind of examination. This follows by analogy from Article 58(3)'s exception to the general rule therein laid down.
The buyer must have the opportunity to examine the goods in the normal course of business, when and where such examination usually takes place, and particularly at the place at which the goods are placed at his disposal or where he takes them over. Article 58(3) does not create a right to examine the goods at the place at which they are produced or manufactured, but such a right may be created by contract.
2.9. - The buyer's right not to pay the price until he has had an opportunity to examine the goods is substantially limited by the exception that it is not granted when the agreed procedures for delivery or payment are inconsistent with the buyer's having an opportunity to examine the goods. As regards the agreed procedures for payment, payment clearly may not be made dependent on examination if advance payment or payment via letter of credit (see Uniform Customs and Practice for Documentary Credits, Publication no. 400 of the International Chamber of Commerce, C.) is agreed upon. The same is also true for the clause «cash against documents» (see Uniform Rules for Collections, [page 425] Publication no. 322 of the International Chamber of Commerce, 11 et seq.). This applies mutatis mutandis where under the aforementioned conditions security for payment has to be granted or becomes effective. These conditions of payment are rather frequently used in international trade.
The most frequent procedure of payment which is consistent with a prior examination by the buyer is «cash against invoice» (after receipt of the goods) in its various modifications. Even here, however, examination could be inconsistent with the agreed procedure for delivery. This would be the case when the invoice has to be paid before the buyer is in a position to examine the goods, for example when the goods have been redispatched without the buyer's having an opportunity to examine them, but the invoice has to be paid before the goods arrive at their final destination.
2.10. - Article 58(3) does not state the legal consequence of the buyer's discovery that the goods do not conform to the contract. Its initial assumption would seem to be that such a discovery would allow the buyer not to pay the price. Nevertheless, some variations of the clauses «cash against invoice» are interpreted not to allow withholding of payment. The clause «net cash immediately after receipt of invoice or goods respectively,» has been interpreted in this manner (see a decision of the arbitral tribunal of the Warenverein der Hamburger Börse e V. in STRAATMANN-ULMER, Handelsrechtliche Schiedsgerichtspraxis, Sommlung von Schiedsprüchen unter Einschluss von Urteilen und Texten zur Schiedsgerichtsbarkeit, Köln, (Verlag Schmidt KG), 1975, J 5g, Nr. 4). The reported decision referred to a corresponding usage, but it is not clear whether the case was dealing with an international transaction. In general it seems doubtful whether an usage in the sense of Article 9(2) exists in this context.
Another issue arises as to how the buyer is to behave in relation to the non-conforming goods. Two possibilities exist. He may take delivery and rely on his remedies for breach and withhold payment wholly or in part. The buyer will take delivery when he can use the non-conforming goods or when the non-conformity is of minor importance. His refusal to pay must then be proportionate to the deviation of the seller from his contractual obligations, taking into consideration the extent to which the [page 426] buyer can use the goods. If the seller intends to reduce the price according to Article 50, he may do so by refusing payment to that extent. The other possibility available to the buyer is to reject the goods, a right to which he seems to be entitled under certain conditions (see commentary on Article 53, supra, § 3.2}
3. Problems concerning the provision
3.1. - Article 58 speaks of documents controlling disposition of the goods while Articles 30 and 34 deal with documents relating to the goods. The former expression obviously is narrower than the latter one. Strictly speaking, documents controlling disposition of the goods are only documents of title, as a bill of lading, a warehouse receipt, or a FIATA combined Transport bill of lading, that is, documents according to which the goods described therein are deliverable only to a lawful holder. In addition, two other types of documents giving evidence of delivery exist (see RICHTER, Transportdokumente und Warenpapiere im Aussenhandel, Kammer für Aussenhandel der Deutschen Demokratischen Republik, Berlin, 1979, 14 et seq.): documents confirming that the goods have been taken over by the transporter or depositor (quai receipt, mate's receipt), and documents additionally certifying the conclusion of a transport (or warehousing) contract (sender's copy of the way-bill for railway, road, or air transport). These documents are most important for the buyer, since they give evidence that the goods have been handed over to a neutral person, a step toward the buyer's possession of the goods. Still, the transport document in itself may not suffice for this purpose or may not even be necessary for taking over the goods (e.g., sender's copy of the railway way-bill).
In general, as one of these documents has to be handed over to the buyer, this document should be looked upon as the document controlling disposition of the goods. Insurance documents (certificates, policies) are not determined to control disposition of the goods. In international trade invoices are requisite for clearance of the goods by customs authorities. To that extent they are also a requisite for the buyer's getting control of the goods, provided the seller is not obliged to pay the customs duties (see, e.g., INCOTERMS, DELIVERED DUTY PAID, A.2.6.). The [page 427] same is true for certificates of origin or special forms of invoices required in some States. In contrast, quality or analysis certificates may be required for the use of the goods, but in no case are they necessary for controlling disposition of them. Therefore, depending on the contractual stipulations, they are documents relating to the goods, but not documents controlling their disposition.
Which documents have to be submitted and whether they are documents controlling disposition of the goods or merely documents relating, to the goods must be determined from the contract and especially from any rules to which it (may) refer, such as INCOTERMS, the Uniform Customs and Practice for Documentary Credits, and the Uniform Rules for Collections interpreted in the light of the Convention.
Under the approach here advanced, «documents controlling disposition of the goods» should not be interpreted narrowly or in the strictly legal sense of any particular national law. Rather consideration should be given to which documents are required in practice by the buyer and therefore are to be handed over by the seller. This approach would result in a broad overlapping of the two categories of documents controlling disposition of the goods and documents relating to the goods, but not in their total fusion.
3.2. - The particular importance of the distinction between these two kinds of documents should not be overestimated. Where the documents are not conforming with the contract, the buyer may react in the same way as if the goods themselves did not conform. Although this is not expressly stated in the Convention, it can be derived by the same reasoning as in respect of the goods from Articles 30, 34, and 58. It also follows from general principles of law and from usages, as stated in Uniform Customs and Practices for Documentary Credits and Uniform Rules for Collections. The buyer is in a much better position regarding the documents than he is with respect to the goods, since he is entitled to examine the documents, either himself or more frequently through the banks or other institutions engaged by him. In this respect the kind of document is not relevant. When the documents are offered at a wrong place or date the buyer in general is entitled to behave as he would in the same situation in respect of [page 428] the goods (see commentary on Article 53, supra, § 3.2.). If the documents indicate a breach of contract in relation to the goods, this is to be treated as a breach of the obligation to deliver the goods and not of the obligation to hand over the documents.
3.3. - While Article 58(1)(2) makes it clear that the buyer does not have to pay when the seller does not fulfil his obligations in respect of the goods or the documents, they do not indicate whether the buyer may refuse payment where the seller fails to fulfil other obligations. In general this question has to be answered in the context of Articles 71 and 80. For cases not covered by these articles it seems at present to be impossible to develop a general rule. Obviously such a right does not exist, where its exercise would be inconsistent with the contractual stipulations, in particular those concerning the procedures for delivery and payment. However, a right to refuse payment must be recognized at least in two cases. Refusal of payment should be allowed where the seller, contrary to his contractual promise, has failed to provide a security related to the quality of the goods delivered during a certain period after delivery (guarantee period), but only up to the amount of the security. Such a security could be a contract guarantee (performance bond). Furthermore, the buyer should be entitled to refuse payment to the extent of his right to claim damages because of breach of contract by the seller (e.g., delay).
Since the most important cases are covered by the Convention and the rules to which it refers, it might be superfluous to revert to national law, but it must be mentioned that the exceptio non adimpleti contractus is part of many national laws.
3.4. - Since delivery and payment are made concurrent conditions, the question may arise as to how a deadlock can be avoided, when neither party is prepared to do the first step. However, this is not a major problem for international trade. In international trade practice the activities to be performed by the parties before the direct change of hands takes place are, as a rule, well-defined (e.g., submission of documents and information on the readiness of the goods for collection, opening of a letter of credit, collection of the goods, taking over the documents). The actual exchange is often executed by a third party (bank, forwarding [page 429] agent). Generally it is clear which activity's non-performance prevents the performance of the whole. The party to whom this activity is owed may demand its execution, but he must be prepared to execute his concurrent activities. [page 430]