Schlechtriem-81

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Published by Manz, Vienna: 1986. Reproduced with their permission.

excerpt from

Uniform Sales Law - The UN-Convention on Contracts for the International Sale of Goods

Univ. Prof. Dr. Peter Schlechtriem [*]

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J. Effects of Avoidance (Articles 81-84)

The provisions from the 1978 Draft Convention concerning the effects of avoidance were adopted without change in Vienna as Articles 81-84. These provisions apply both to cases of avoidance and to cases where the buyer demands a substitute delivery and must therefore return the goods received. In both cases, the buyer must be able to return the goods received in "substantially the condition in which he received them" (Article 82(1)). The ability to return the goods is, therefore, a prerequisite for avoiding a contract or demanding substitute goods. If, because he cannot return the goods, the buyer is barred from avoiding the contract or demanding substitute goods, his other remedies under the contract or the Convention (damages, reduction of price) remain unaffected (Article 83).

Loss or damage to the goods does not in all cases eliminate the right to avoid the contract or to demand substitute goods. First, according to Article 82(1), insubstantial damage is irrelevant. Second, a buyer may avoid the contract or demand substitute goods if the damage is not due to the buyer's act or omission. Therefore, where defects have caused the damage or loss, the buyer's right to demand substitute goods or to avoid the contract is not affected. Additionally, the fact that a defect causes further deterioration of an item, thus leading to its (further) impairment or complete destruction is not attributable to the buyer's behavior as long as he could not have recognized and prevented it.[443] In any case, under Article 82(2)(a), the buyer is presumably responsible for the acts or omissions of his personnel.[444] On the other hand, in my opinion, the acts of third persons can only be attributed to the buyer if his act or -- especially -- his omission has made it possible for the third persons to affect the goods. These questions do not turn on whether the buyer was at fault. On the other hand, more than mere physical causation is probably required before the buyer's remedies are lost. Otherwise, destruction caused by an accident or force majeure could be attributed to the buyer -- e.g., his taking possession unless the goods would have been destroyed while under the seller's control as well. The words "due to", however, permit the restrictive interpretation that the buyer must not merely have provided the opportunity for third persons or force majeure to affect the goods but also have increased this chance by his act or omission.[445]

A further exception involves deterioration or consumption of the goods resulting from the mandatory examination of the goods by the buyer as required in [page 106] Article 38 (Article 82(2)(b)). Finally the buyer retains his right to avoid or demand substitute goods if he sold the goods in the normal course of business or has consumed or transformed the goods in the course of normal use before he discovered, or ought to have discovered, the lack of conformity (Article 82 (2)(c)).[446]

2. Obligations After Avoidance

An effective avoidance of the contract releases both parties from their obligations (Article 81(1) sentence 1) and obligates the parties to make restitution of whatever has been supplied or paid under the contract (Article 81(2) sentence 1). An avoidance only "redirects" the main obligations of the contract; it does not void the contract ab initio. Under Article 81, damage claims for breach, dispute-settlement mechanisms (arbitration clauses), liquidated damages and penalty clauses, etc., are not affected by an avoidance (Article 81 sentence 2).

Restitution is to be made concurrently (Article 81(2) sentence 2). However the rule of concurrent performance does not apply to restitution by the buyer who only demands substitute goods (instead of declaring an avoidance). The Conference rejected a Norwegian proposal which, contrary to trade practices, would have permitted the buyer to keep defective goods until the seller delivers substitute goods.[447] The question of whether the buyer's restitution obligations to the seller can prevail over claims of his other creditors are matters to be decided by domestic law.[448] Domestic law also governs the details of the transfer in restitution. Its special restrictions are not displaced by Article 81(2).

3. Restitution of the Benefits Received

Article 84 obligates the parties to return all benefits of possession (profits and advantages of use). If the seller is obligated to refund the price, he must also pay interest -- in an amount to be determined by domestic law -- from the date on which the price was paid.[449]

In contrast to the seller who is bound to pay interest on the refundable price, the buyer is only obligated to return benefits that he actually derived from using the goods. In addition, Article 84(2) restricts the duty to return benefits in subparagraphs (a) and (b) to those cases in which the buyer either must return part or all of the goods or the buyer derived benefits before the goods were destroyed, and (complete) restitution therefore has become impossible.[page 107]

4. Gaps

Like ULIS, the Convention does not completely regulate the effects of an avoidance or justified demand for substitute goods. One matter left open is the buyer's responsibility when the goods to be returned are destroyed after the effective date of a declaration of avoidance or demand for substitute goods.[450] There is also no provision concerning where restitution must be made.[451] Similarly, the Convention does not answer the question of whether the buyer who is bound to make restitution is liable for benefits he could have derived from the goods but did not. In my opinion, the gap-filling rules of Article 7(2) should be preferred to a hasty retreat to domestic law. Articles 82 and 84(2)(b) make it clear that the impossibility or inability to make restitution are matters governed by the Uniform Law for International Sales. If the item to be returned is substantially damaged or destroyed, the seller's remedies should correspond to those available to the buyer when the duty to deliver is not fulfilled.[452] Damage claims and the right to a reduction in price are of especial practical interest. If a refund is delayed, a damage claim for lost use of capital should be available in addition to or instead of interest payable under Article 84(1).[453] The place of performance for transactions following avoidance of the contract should be determined according to the provisions governing the performance of contract obligations.[454] On the other hand, the Convention contains no provisions that could serve as a basis for the duty to derive benefits from possession of the goods and that would support claims for the failure to do so. Article 84(2) shows that the Convention does address this subject. Thus, since there is no gap, recourse may not be made to domestic law. In my opinion, claims based on failure to derive benefits should therefore be denied. [page 108]

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FOOTNOTES

* The author of this book participated at the Conference as a member of the delegation from the Federal Republic of Germany. The views expressed here are personal to the author and do not necessarily represent the position of the F.R.G. or its delegation.

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443. Cf. Huber at 494 (on ULIS Article 79(2)(a)).

444. This is clearer in ULIS Article 79(2)(d).

445. The Convention decided for a right of avoidance despite loss or damage of the goods after the passing of risk. See Article 70. This basic decision would be significantly altered by a strict interpretation of Article 82(2)(a). See generally von Caemmerer, in Festschrift für Karl Larenz 692 et seq. (1973).

446. In contrast to ULIS Article 79, therefore, the seller carries the risk if the buyer, having transferred the item to a third person before discovering the defect, cannot get the item back from the transferee. See Huber at 493-94.

447. See A/Conf. 97/C.1/SR.28 at 11-12, primarily § 72 ( = O.R. 387 et seq.). The discussion confirms, however, the buyer's duty to return the goods, which can lead to a restriction of the right to a substitute delivery when it is impossible to return the goods as provided in Article 82. See Huber at 493.

448. Cf. Secretariat's Commentary at 176-77 § 10.

449. Cf. supra at VI.G. The Secretariat's Commentary assumed that the seller would be required to pay interest at the rate that is customary where his place of business is located, since that it where he made use of the purchase price. See Secretariat's Commentary at 180 § 2. This should be the result, even if (as an exception to the rule) domestic law, invoked subsidiarily, refers to the creditor's loss to determine the nature and extent of the claim stemming from avoidance. When there is a delay in the repayment for which the seller is responsible, the damage claim should, nevertheless, still be available from the time the duty to repay arises, and the obligee should be permitted to calculate his damages based on his own credit costs. Cf. infra at J.4; supra at VI.G.

450. As a rule, circumstances for which the buyer is responsible and which have caused the loss or deterioration of the goods before an avoidance has been declared preclude the remedies of avoidance or substitute delivery under Article 82. Thus, the buyer's responsibility and duty to return the goods can become relevant only in the case of insubstantial deterioration.