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Article 88. Sale of Goods

TEXT OF ARTICLE 88

(1) A party who is bound to preserve the goods in accordance with article 85 or 86 may sell them by any appropriate means if there has been an unreasonable delay by the other party in taking possession of the goods or in taking them back or in paying the price or the cost of preservation, provided that reasonable notice of the intention to sell has been given to the other party.

(2) If the goods are subject to rapid deterioration or their preservation would involve unreasonable expense, a party who is bound to preserve the goods in accordance with article 85 or 86 must take reasonable measures to sell them. To the extent possible he must give notice to the other party of his intention to sell.

(3) A party selling the goods has the right to retain out of the proceeds of sale an amount equal to the reasonable expenses of preserving the goods and of selling them. He must account to the other party for the balance.


OUTLINE OF ISSUES

Reproduced with permission of UNCITRAL

88A Party obliged to preserve goods may sell them (art. 88(1))

88A1 When other party unreasonably delays:

88A11 Taking possession, paying price on cost of preservation

88A2 Appropriateness of method of sale

88A3 Reasonable notice of intention

88B Duty to sell (art. 88(2))

88B1 When goods are subject to rapid deterioration, or

88B2 Preservation involves unreasonable expense

88B3 Reasonable measures for sale and

88B4 If possible, notice of intention to sell

88C Right to retain reasonable expenses from proceeds of sale (art. 88(3))

88D Other problems


DESCRIPTORS

Resale of goods


CASE ANNOTATIONS: UNCITRAL DIGEST CASES PLUS ADDED CASES

UNCITRAL has identified relevant cases in Digests containing case annotations for each article of the CISG. UNCITRAL reports eight cases in its Digest of Article 88 case law. The citations to these cases (each preceded by an asterisk) along with other Article 88 cases are listed below in chronological sequence, commencing with the most recent. Cases are coded to the UNCITRAL Thesaurus.

English texts and full-text English translations of cases are provided as indicated. In most instances researchers can also access UNCITRAL abstracts and link to Unilex abstracts and full-text original-language case texts sourced from Internet websites and other data on the cases.
 

Slovak Republic 28 October 2008 Supreme Court (Wafers case) [translation available]

United States 19 May 2008 U.S. District Court [California] (The Rice Corporation v. Grain Board of Iraq) 88A1
 

Germany 5 December 2006 Landgericht [District Court] Köln (Plastic faceplates for mobile telephones case) 88A3 [translation available]

China September 2006 CIETAC Arbitration Award [CISG 2006/08] (Air purifier case) [translation available]

Netherlands 21 March 2006 Gerechtshof [Appellate Court] Arnhem (Toys case)
 

Slovenia 14 December 2005 Higher Court [Appellate Court] Lujubljana (Door and door jamb case) 88B3 [translation available]

China 7 April 2005 CIETAC Arbitration Award [CISG/2005/01] (Cotton gin motes case) 88A [translation available]
 

Germany 28 August 2003 Landgericht [District Court] Düsseldorf [translation available]

Belgium 12 May 2003 Hof van Beroep [Appellate Court] Gent 88A3

Spain 22 January 2003 Audiencia Provincial [Appellate Court] Navarra 88A3
 

China 18 December 2002 CIETAC Arbitration Award [CISG 2002/14] (Sausage casing case) 88A ; 88B ; 88C [translation available]

Russia 10 December 2002 Arbitration Award No. 211/2001 [translation available]

China 4 November 2002 CIETAC Arbitration Award [CISG 2002/08] (Beech log case) 88A2 [translation available]

Austria 16 September 2002 Oberlandesgericht [Appellate Court] Graz (Garments case)

Netherlands 12 April 2002 Hoge Raad [Supreme Court]
 

Serbia 25 May 2001 Foreign Trade Court of Arbitration, Yugoslav Chamber of Commerce (Berries case) 88A1 [translation available]
 

Russia 10 February 2000 Arbitration Award No. 340/1999 88B [translation available]
 

China 17 December 1999 Rizho Intermediate People's Court 88A ; 88B [translation available]

* Germany 26 November 1999 Oberlandesgericht [Appellate Court] Hamburg 88C [translation available]

* Germany 28 October 1999 Oberlandesgericht [Appellate Court] Braunschweig 88A [translation available]

China 20 July 1999 Supreme Court of the PRC (Zheng Hong Li Ltd. Hong Kong v. Jill Bert Ltd. Swiss) [translation available]

ICC March 1999 International Court of Arbitration, Case 9978
 

* Germany 29 December 1998 Hamburg Arbitration award [translation available]

Russia 17 November 1998 Arbitration award 164/1996 88A1 [translation available]

Denmark 4 November 1998 Randers Byret [County Court] (Christmas tree case) [translation available]

China 22 June 1998 Shanghai Second Intermediate People's Court [District Court] (China Yitou Group Company. v. Germany Gerhard Freyso LTD GmbH & Co.) 88A ; 88C [translation available]
 

China 8 September 1997 CIETAC Arbitration Award [CISG/1997/27] (BOPP film case) 88B [translation available]
 

China 26 October 1996 CIETAC Arbitration Award [CISG/1996/49] (Cotton bath towel case) 88A ; 88B [translation available]

China 8 March 1996 CIETAC Arbitration Award [CISG/1996/12] (Old boxboard corrugated cartons case) 88B3 [translation available]
 

Switzerland 30 November 1995 Kantonsgericht [District Court] Zug

* Russia 25 April 1995 Arbitration award 142/1994 88A [translation available]

China 10 March 1995 CIETAC Arbitration Award [CISG/1995/03] (Polyethylene film case) 88C [translation available]
 

China December 1994 Fujian Higher People's Court [Appellate Court] [translation available]

China 29 September 1994 CIETAC Arbitration Award [CISG/1994/12] (Umbrella case) 88C [translation available]

* Switzerland 17 May 1994 Tribunal Cantonal [Appellate Court] Vaud 88A [translation available]

China 7 March 1994 Guadong Higher People's Court (Zhanjiang Textiles v. Xian Da Fashion)

* ICC 1994 International Court of Arbitration, Case 7531 88A [English text]
 

China 9 January 1993 CIETAC Arbitration Award [CISG/1993/03] (Linseed cake case) 88A [translation available]
 

ICC 1992 International Court of Arbitration, Case 7197
 

* China 6 June 1991 [date claim filed] Shenzhen CIETAC Arbitration award 88A ; 88B2 [translation available]
 

* Iran/U.S. Claims Tribunal 28 July 1989 (Watkins-Johnson v. Islamic Republic of Iran) 88A1 ; 88A3 ; 88C


CASE DIGEST AND ANALYSIS
-   UNCITRAL's case law digest; and
-   An analysis of CISG jurisprudence

The UNCITRAL Digest of case law on the United
Nations Convention on the International Sale of Goods
[*]

A/CN.9/SER.C/DIGEST/CISG/88 [8 June 2004]
Reproduced with the permission of UNCITRAL

[Text of Article 88
Digest of Article 88 case law
-    Article 88(1): a preserving party's option to sell the goods to a third party
-    Article 88(2): a preserving party's obligation to take reasonable measures
      to sell the goods to a third party
-    Article 88(3): disposition of the proceeds of sale]
ARTICLE 88

     (1) A party who is bound to preserve the goods in accordance with article 85 or 86 may sell them by any appropriate means if there has been an unreasonable delay by the other party in taking possession of the goods or in taking them back or in paying the price or the cost of preservation, provided that reasonable notice of the intention to sell has been given to the other party.  

     (2) If the goods are subject to rapid deterioration or their preservation would involve unreasonable expense, a party who is bound to preserve the goods in accordance with article 85 or 86 must take reasonable measures to sell them. To the extent possible he must give notice to the other party of his intention to sell.

     (3)  A party selling the goods has the right to retain out of the proceeds of sale an amount equal to the reasonable expenses of preserving the goods and of selling them. He must account to the other party for the balance. 

DIGEST OF ARTICLE 88 CASE LAW

1. Under article 88 a party who is required by either article 85 or article 86 to preserve the goods for the other side may be entitled or even required to sell the goods to a third party.

Article 88(1): a preserving party's option to sell the goods to a third party

2. In several decisions, a party who was under an obligation to preserve goods was found under article 88(1) to have the right to sell them to a third party. Where a buyer refused to take delivery of trucks that it had contracted to purchase, triggering the seller's obligation to preserve the goods under article 85, the seller was held to have the right to resell them at the market price when the buyer continued to refuse delivery.[1] And where a buyer rightfully avoided a contract for the sale of scaffold fittings after the goods had been delivered, thus imposing on the buyer an obligation under article 86 to preserve them for the seller, and the seller thereafter refused to take the goods back, the buyer was found to have the right to sell the goods.[2] In another decision, a buyer had rightfully avoided a contract for the sale of jeans after discovering that the delivered goods had various non-conformities; because the buyer had made the jeans available for return to the seller on September 22, 1993 but the seller had not taken them back, the court approved the buyer's sale of the goods, which occurred between April, 1995 and November, 1996.[3] The court also approved the buyer's actions in disposing of a portion of the jeans that were infected with fungus, and reselling the remainder through "special sales" of second-quality goods, noting that the seller had been notified that the buyer would initiate the sale in order to recoup its costs unless the seller suggested another solution.[4] In another decision, which was reached under applicable domestic law but which the tribunal justified by reference to article 88 of the Convention, an arbitral tribunal also approved a preserving party's decision to dispose of some goods while reselling the remainder: the seller had withheld delivery of equipment because the buyer refused to make payment, and the tribunal asserted that the seller's "right to sell undelivered equipment in mitigation of its damages is consistent with recognized international law of commercial contracts. The conditions of article 88 of the Convention are all satisfied in this case: there was unreasonable delay by the buyer in paying the price and the seller gave reasonable notice of its intention to sell".[5] Specifically, the tribunal found that the seller proved it had made reasonable efforts in reselling the goods by showing that it had sought buyers all over the world and by offering a reasonable explanation for why the goods did not fetch as much as the original contract price; the seller also demonstrated that it had used its best efforts to resell the goods by showing that the part of the equipment the seller decided to scrap could not be resold; with respect to notice, the seller had informed the buyer of its intention to resell, and although it had not notified the buyer of its intention to scrap some equipment, the buyer had never responded to the sales notices, and it was clear that the buyer was not genuinely interested in receiving delivery of the goods and had not been prejudiced.[6]

3. Other decisions have suggested limits to the authorization to resell given by article 88(1). Thus where a seller had withheld delivery of one component of machinery because the buyer had paid only part of the price,[7] and the buyer sought interim relief in the form of an order preventing the seller from selling the component to any third party, the court recognized that article 88(1) would authorize the seller to sell the goods if the buyer had unreasonably delayed paying the price, but the court nevertheless issued the order against resale, on the grounds that it was not bound by article 88 in an action for interim relief.[8] And an arbitral tribunal has found that a seller was only authorized to resell undelivered goods under article 88(1) (and thus to recover the expenses of preserving and reselling the goods) if the buyer had breached its obligation to pay the sale price or take delivery; in the case at hand it was the seller who fundamentally breached and the buyer that rightfully avoided the contract; thus the tribunal concluded that the seller was not entitled to proceed under article 88(1).[9]

Article 88(2): a preserving party's obligation to take reasonable measures to sell the goods to a third party

4. The article 88(2) obligation to take reasonable measures to resell goods, which is imposed on a party required to preserve goods under article 85 or 86 if they are subject to rapid deterioration or their preservation would involve unreasonable expense, was deemed violated where an aggrieved buyer deposited goods that it had received under an avoided contract (and was attempting to return to the seller) in a warehouse, where they remained for almost three years accumulating storage charges: an arbitral tribunal concluded that the buyer had failed to meet its article 88(2) resale obligation, which was triggered when the storage fees (eventually totaling almost the contract price for the goods) reached unreasonable levels; as a result of the buyer's violation of article 88(2), the tribunal denied the greater part of the buyer's claim against the seller for the expenses of preservation.[10] On the other hand, several decisions have involved circumstances that were deemed not to trigger an obligation under article 88(2) to attempt to resell goods. Thus in issuing an interim order forbidding an aggrieved seller from reselling a key component of industrial machinery that the seller had retained because the buyer failed to pay the full contract price, a court noted that article 88(2) would not require the seller to sell the component because it was not subject to rapid deterioration.[11] And an aggrieved seller that rightfully withheld delivery of venison when the buyer refused to make payment was found not to be obligated to sell the goods under article 88(2) "because the meat in question could be preserved through freezing, because the cost of such preservation did not exceed 10% of the value of the meat, and because the decrease in prices in venison to be expected after the Christmas holidays does not constitute a deterioration" in the meaning of article 88 of the Convention.[12]

Article 88(3): disposition of the proceeds of sale

5. Several decisions have dealt with the rules in article 88(3) that govern how proceeds of a sale conducted under the authority of article 88 are to be allocated between the parties. According to article 88(3), a party that has sold goods pursuant to article 88 has the right to retain from the sale proceeds "an amount equal to the reasonable expenses of preserving the goods and selling them", but must "account to the other party for the balance". In one case an arbitral tribunal, applying domestic law but also supporting its decision by reference to article 88(3), found that an aggrieved seller who had justifiably resold the goods to a third party could deduct from sale proceeds the expenses it incurred in carrying out the sale, with the balance to be credited against the buyer's liability under the contract: the tribunal found that the seller had adequately documented and proved such costs, and the buyer had not substantiated its objections to the documentation.[13] Similarly, a buyer who rightfully avoided the contract and justifiably sold the goods after the seller refused to take them back was found to have submitted exhibits that adequately documented the total profit the buyer gained from the sale, and the seller had not made specific objection to the documentation; the buyer, however, was denied the right to deduct certain other expenses (agent costs and carriage costs) because the buyer failed to prove it was entitled to such deductions.[14] In the same decision, furthermore, the court found that the breaching seller's claim under article 88(3) for the balance of the sale proceeds was subject to set-off by the buyer's claim for damages under articles 45 and 74: although article 88(3) expressly mentions only a selling party's right to deduct reasonable costs of preserving and selling the goods from the sale proceeds, the court suggested that the Convention contained a general principle within the meaning of article 7(2) that permitted reciprocal claims arising under the Convention (here, the buyer's claims for damages and the seller's claim for the balance of the sale proceeds) to be offset; the court refused, however, to declare whether the buyer's right in this case to set off its damage claim against its liability for the balance of sale proceeds was derived directly from the Convention, or was based on applicable domestic law that led to the same result.[15]


FOOTNOTES

* The present text was prepared using the full text of the decisions cited in the Case Law on UNCITRAL Texts (CLOUT) abstracts and other citations listed in the footnotes. The abstracts are intended to serve only as summaries of the underlying decisions and may not reflect all the points made in the digest. Readers are advised to consult the full texts of the listed court and arbitral decisions rather than relying solely on the CLOUT abstracts.

[Citations to cisgw3 case presentations have been substituted [in brackets] for the case citations provided in the UNCITRAL Digest. This substitution has been made to facilitate online access to CLOUT abstracts, original texts of court and arbitral decisions, and full text English translations of these texts (available in most but not all cases). For citations UNCITRAL had used, go to <http://www.uncitral.org/english/clout/digest_cisg_e.htm>.]

1. [RUSSIA Arbitration Award case No. 200/1994 of 25 April 1995; available online at <http://cisgw3.law.pace.edu/cases/950425r1.html>].

2. CLOUT case No. 304 [ICC Court of Arbitration, case No. 7531 of 1994, available online at <http://cisgw3.law.pace.edu/cases/947531i1.html>] (see full text of the decision).

3. CLOUT case No. 348 [GERMANY Oberlandesgericht [Appellate Court] Hamburg 26 November 1999, available online at <http://cisgw3.law.pace.edu/cases/991126g1.html>] (see full text of the decision).

4. Id (see full text of the decision).

5. [IRAN-U.S. CLAIMS TRIBUNAL Watkins - Johnson v. Islamic Republic of Iran 28 July 1989, available online at <http://cisgw3.law.pace.edu/cases/890728i2.html>].

6. Id.

7. Despite the buyer's partial payment, the seller had not avoided the contract and thus was presumably obliged to preserve the goods pursuant to article 85.

8. CLOUT case No. 96 and No. 200 [SWITZERLAND Tribunal [Appellate Court] Vaud 17 May 1994, available online at <http://cisgw3.law.pace.edu/cases/940517s1.html>] (both abstracts dealing with the same case).

9. CLOUT case No. 293 [GERMANY Hamburg Arbitration award of 29 December 1998 available online at <http://cisgw3.law.pace.edu/cases/981229g1.html>] (see full text of the decision).

10. [CHINA CIETAC Arbitration Award of 6 June 1991; available online at <http://cisgw3.law.pace.edu/cases/910606c1.html>]. The tribunal also noted that resale by the buyer pursuant to article 88(2) would have avoided or reduced the deterioration in the condition of the goods (chemicals) that occurred during the lengthy storage period.

11. CLOUT case No. 96 and No. 200 [SWITZERLAND Tribunal [Appellate Court] Vaud 17 May 1994, available online at <http://cisgw3.law.pace.edu/cases/940517s1.html>] (both abstracts dealing with the same case) (see full text of the decision).

12. CLOUT case No. 361 [GERMANY Oberlandesgericht [Appellate Court] Braunschweig 28 October 1999, available online at <http://cisgw3.law.pace.edu/cases/991028g1.html>] (see full text of the decision).

13. [IRAN-U.S. CLAIMS TRIBUNAL Watkins - Johnson v. Islamic Republic of Iran 28 July 1989, available online at <http://cisgw3.law.pace.edu/cases/890728i2.html>].

14. CLOUT case No. 348 [GERMANY Oberlandesgericht [Appellate Court] Hamburg 26 November 1999, available online at <http://cisgw3.law.pace.edu/cases/991126g1.html>] (see full text of the decision).

15. Id. (see full text of the decision).


ANALYSIS OF CISG CASE LAW

Reprinted by special permission of Northwestern University School of Law. 34 Northwestern Journal of International Law and Business (Winter 2004) 299-440.[*]

excerpt from

The Interpretive Turn in International Sales Law:
An Analysis of Fifteen Years of CISG Jurisprudence

Larry A. DiMatteo, Lucien Dhooge, Stephanie Greene,
Virginia Maurer and Marisa Pagnattaro

[...]

5. Preservation of Goods: Articles 87 and 88

This section addresses the requirement for the preservation of goods dictated under Articles 87 and 88. The general rule is that a party who is [page 427] bound to take steps to preserve the goods may deposit them in a warehouse of a third person at the expense of the other party provided that the expense incurred is not unreasonable.[811] Articles 87 and 88 provide for the preservation of goods when there is some instance of delay.[812] Failure to appropriately store or to sell goods can affect the amount of damages a party will be awarded.[813] For example, a buyer was held not liable for the full amount of goods after the seller, who was storing the goods, gave some of the goods to charity and the remainder were spoiled.[814] In general, the requirement in Article 87 that a party who is under an obligation to preserve the goods by depositing them in the warehouse of a third party is intended to be interpreted broadly to mean any appropriate place for the storage of the type of goods in question.[815]

A party who is bound to preserve the goods in accordance with Article 85 or 86 may sell them by "any appropriate means" if there is an unreasonable delay in the other party re-taking possession of the goods, or in paying the price, as long as reasonable notice of the intention to sell is given to the other party.[816] If, however, the goods are subject to rapid deterioration or their preservation would involve unreasonable expense, a party who is bound to preserve them must take reasonable measures to sell them.[817] The party selling the goods has the right to retain from the proceeds of sale an amount equal to the reasonable expenses incurred to preserve and sell the goods.[818]

Under Article 88, the sale of goods may be by "any appropriate means" if there has been an unreasonable delay by the other party in taking possession.[819] Unfortunately, the CISG does not specify what constitutes "appropriate means." Appropriate means can vary depending on the [page 428] conditions in the country. As a result, reference should be made to the means required for sales in similar circumstances under the law of the country where the sale occurs.[820] The resale of goods is especially important when the goods are subject to rapid deterioration.[821] Moreover, the concept of loss is not limited to the physical deterioration of the goods.[822] It also includes situations in which the goods threaten to decline rapidly in value due to market changes. [823]

[...]


FOOTNOTES

* For a subsequent text on this subject by these authors, see Larry A. DiMatteo, Lucien Dhooge, Stephanie Greene, Virginia Maurer & Marisa Pagnattaro, "International Sales Law: A Critical Analysis of CISG Jurisprudence", Cambridge University Press (2005) 241 p.

[...]

811. CISG, supra note 4, at art. 87.

812. Id. at arts. 87 and 88. See generally ICC Arbitration 7531, supra note 647 (the tribunal, without elaboration, allowed such damage costs, expenses, and losses related to the buyer's reasonable expenses for the preservation of goods).

813. See, e.g., Schiedsgericht Hamburger Freundschaftliche Arbitage [Arbitral Tribunal], Dec. 29, 1998 (F.R.G.), CLOUT Case No. 293, available at <http://cisgw3.law.pace.edu/cases/981229g1.html> [English translation by Todd Fox, translation edited by Dr. Loukas Mistelis] (seller failed to meet the prerequisites for damages by not fulfilling its obligations under Article 87 to store the goods and/or engaging in a self-help sale).

814. ICA Arbitral Tribunal, Feb. 10, 2000 (Russ.), available at <http://cisgw3.law.pace.edu/cases/000210r1.html> [English translation by Mykhaylo Danylko].

815. Secretariat Commentary to Art. 87, available at <http://cisgw3.law.pace.edu/cisg/text/secomm/secomm-87.html>.

816. CISG, supra note 4, at art. 88(1).

817. Id. at art. 88(2). To the extent possible, he is also required to give notice to the other party of his intention to sell.

818. Id. at art. 88(3).

819. Id. at art. 88(1). See [Canton Appellate Court] [TR-C], 01 93 1308, May 17, 1994 (Switz.), available at <http://cisgw3.law.pace.edu/cases/940517s1.html> [English translation by Annabel Teiling] (seller sought to sell a base of a product immediately in accordance with Article 88(1)).

820. Secretariat Commentary to Art. 88, Right to Reimbursement, para. 93 [sic], available at <http://cisgw3.law.pace.edu/cisg/text/secomm/secomm-88.html> (party selling the goods has the right to retain an amount equal to the reasonable expenses of preserving the goods and of selling them, but he must account to the other party for the remainder of the balance). See, e.g., OLG Hamburg 1 U 31/99, Nov. 26, 1999, supra note 710.

821. See, e.g., China International Economic and Trade Arbitration Commission [CIETAC] Shenzhen Commission, Jun. 6, 1991 (China), available at <http://cisgw3.law.pace.edu/cases/910606c1.html> [English translation by Wei Huo, translation edited by Li Huini] (deterioration of chemicals).

822. Secretariat Commentary to Art. 88, Right to Reimbursement, P 2.

823. Id.

[...]

Go to complete text of Analysis of Fifteen Years of CISG Jurisprudence


ANNOTATED COMPARATIVES

Preservation of the Goods: Comparison of Articles 85-88 CISG and
counterpart provisions of the Principles of European Contract Law

Francesco G. Mazzotta [1]

May 2004

1. Preservation of the goods under the CISG
     -  Seller's duty to preserve the goods (Art. 85)
     -  Buyer's duty to preserve the goods (Art. 86)
     -  Provisions common to both parties: Deposit in Warehouse
        (Art. 87) and Sale of Goods (Art. 88)
2. Preservation of the goods under PECL (Arts. 7:110 - 7:112)
     -  Situations where PECL Article 7:110 may be helpful in construing
        the meaning of the counterpart provisions of the CISG
3. Conclusion

1. Preservation of the goods under the CISG

As a general rule, Section VI of Chapter V of the CISG requires that the party left in possession of, or otherwise in control of the disposition of the goods has the duty to protect and preserve the goods. This duty, which applies to any party to the transaction, "is an expression of the general obligation to cooperate, as it can be deduced from this provision [CISG Article 85] or that provision of the CISG as one of the Convention's underlying principles." [2]

     -  Seller's duty to preserve the goods (Article 85)[3]

The scope of the provision comprises two situations: first, where the buyer is in delay in taking the goods [4] and, second, where the buyer fails to pay the price when payment is to be made concurrently with delivery.[5] In these cases, the seller is obligated to take measures to preserve the goods.

The standard to be applied is that the seller is required to take any reasonable step under the circumstances to preserve the goods, which will often be decided based on usage.[6] Failure to fulfill this duty may give rise to stringent consequences especially in those cases where the risk of loss has already passed to the buyer although the seller still has control over the disposition of the goods.[7] In fact, a seller's failure to preserve the goods releases the buyer from liability arising from loss even though the risk has already passed to the buyer,[8] "regardless of whether or not the property in the goods has passed"[9] to the buyer. This is the "substance" of the obligation to preserve the goods.[10] If, however, the risk of loss has not passed to the buyer, even though found liable for preservation costs, the seller is not entitled to damages to the good for prolonged storage.[11]

Moreover, it must be noted that "reasonable circumstances and reasonable expenses are common law notions which provide standards according to which a judge or arbitrator can evaluate the necessary steps and expenses."[12]

The CISG does not state the length of the obligation to preserve the goods. However, "[i]t follows from Article 88(1) that the seller is quite entitled to limit the period of preservation and that upon certain conditions [Article 88], he may at any time proceed to sell the goods, provided that he has previously informed the buyer of that intention."[13] The seller may also be freed from the obligation to preserve the goods when he avoids the contract under Article 64.[14] In addition, it must be noted that the seller's obligation to preserve the goods does not end if the seller brings an action to require the buyer to pay the price.[15]

The seller is responsible for the costs arising from reasonable measures to be taken to preserve the goods;[16] however, the seller can sell the goods and retain from the proceeds an amount equal to the reasonable expenses incurred in preserving the goods and seller also has the right to retain the goods until those expenses are paid.[17] However, according to many authors,[18] "the buyer will have to be allowed a right to satisfy the right of retention by providing reasonable security."[19]

The Article 85-88 provisions on the preservation of the goods may be easily overcome by means of interim relief procedural tools, which are governed by domestic law.[20]

Courts often regard damages arising from preserving the goods pursuant to Article 85 as damages recoverable under CISG Article 74.[21]

     -  Buyer's duty to preserve the goods (Article 86)[22]

The buyer, similar to the seller, is bound to preserve the goods when (i) after receiving them, (ii) he intends to exercise the right to reject them. If both requirements are met, the buyer must take such reasonable[23] measures as the case may be. The buyer is, however, entitled to retain the goods until the seller reimburses the buyer for the reasonable expenses incurred in preserving the goods.[24] Failure to take reasonable measures regarding the goods may result in denial of a claim for warehouse expenses (Article 86(1)).[25]

The rejection may be exercised from the time the right to reject[26] arises until it expires.[27] While the period to decide whether to reject the goods is running, the buyer still has a duty to preserve the goods,[28] which continues until the duty has been discharged pursuant to Articles 87 and 88.[29]

If the goods have been dispatched to the buyer and placed at his disposal without having physical possession of them, the buyer, in order to be able to reject the goods, must take them into custody on behalf of the seller as long as it can be done without the payment of the price and without unreasonable inconveniences or unreasonable expenses (Article 86(2)). Of course, this rule does not apply if the seller or a person authorized by the seller to take charge of the goods is present at the place of destination of the goods.

Articles 85 and 86 establish the duty to preserve the goods. As already mentioned, a party may discharge his duty by (i) depositing the goods in a warehouse and/or (ii) selling the goods.

     -  Deposit in Warehouse (Article 87)

The deposit of the goods in a warehouse[30] (of a third person, if necessary) will be at the expense of the other party. However, unless otherwise provided, the party who deposits the goods is primarily liable to the warehouse although he may seek reimbursement from the other party to the sale contract.[31] To be recoverable, depositing expenses must be reasonable.[32] It should be noted that unreasonable expenses only affect the depositing party's right to obtain full reimbursement. The right of reimbursement exists only in regards to those expenses that are proportionate.[33] Moreover, "[t]he incurring of unreasonable expense does not lead to the risk of storage in a warehouse being transferred to the other party."[34]

Two issues may give rise to some uncertainty as they are not regulated by the CISG: (i) the relationship between the parties to the storage contract and the parties to the sale of goods contract, which, as it has been suggested, should be "governed by the domestic law applicable in each particular case"[35] and (ii) the legal consequences to the sale contract of the deposit of the goods in a warehouse: whether the deposit in a third person's warehouse is to be qualified as a substitute for the original obligation. It should not be deemed to constitute an exemption from the original obligation [36] unless the property involved is money.

     -  Sale of the Goods (Article 88)

Article 88(1) allows the party who is bound to preserve the goods to sell them if the other party fails to take action in a reasonable time (also known as self-help sale). It is an option (not an obligation).[37] There are only two requirements the selling party must comply with to exercise such an option: (i) unreasonable delay by the other party in taking the property,[38] and (ii) reasonable notice to the other party of the intention to sell the goods.[39] This notice does not need to be in a specific form: it needs only to be appropriate under the circumstances.

Article 88(2) requires the party who is bound to preserve the goods to sell them when the "goods are perishable or their preservation would involve unreasonable expenses" (also known as emergency sale). In this case, selling the goods is a duty. Failure to sell the goods in an emergency situation may give rise to a right to the other party to seek damages.[40]

Two issues arise in connection with Article 88(1) and 88(2) not dealt with by the CISG: (i) legal consequences of failure to give notice and, (ii) whether the other party may object. As to the first, however, it has been suggested that "a party who performs a self-help sale, without giving notice of his intention to do so, breaches an ancillary contractual obligation and will be under an obligation to compensate the other party for any resultant damage."[41] On the other hand, in an emergency sale situation, a claim for lack of notice may be difficult to bring it successfully. As to the second issue, some authors believe that the sale can be made regardless of any objection made by the other party,[42] although the other party may bring an action for breach of an obligation to proceed based on reasonableness standard.

     -  Article 88(3)

Whether it has been a self-help or emergency sale, the party may retain from the proceeds of the sale the reasonable expenses incurred in preserving and selling the goods and require the other party to pay the balance. There is no reference in the CISG regarding (i) how any objections in connection with the reasonable expenses standard may be raised, (ii) whether the party who sold the goods may retain damages from the proceeds, as some authors have suggested and (iii) how the balance should be returned to the other party. However, based on the general principles behind the rules on the preservation of goods, as well as the other principles on which the CISG is based, it may be possible to assume that: (i) Claims regarding the proper application of the reasonableness standard may be brought as damages for breach of a secondary obligation; (ii) As the provision clearly states that the party may retain the costs to preserve the goods and the costs to sell the same, there should not be any doubt that the balance must be accounted for by the other party.[43] This does not mean, however, that the party may not bring an action for damages setting off his claim from the proceeds;[44] and (iii) the balance should be paid at the other's party place of business. If the party still refuses to take the money back, it may be useful to resort to a solution similar to PECL Article 7:111 (depositing the money to the order of the other party in accordance with the law where the payment is due).

2. Preservation of the goods under PECL (Articles 7:110- 7:112)[45]

PECL Article 7:110 considers mainly three cases: (i) buyer refuses to take deliver of goods; (ii) the buyer rejects the goods and seller refuses to take them back; and (iii) the contract has been terminated and the goods must be returned to the other party who refuses to take them back. Article 7:110 may be helpful, as the issue is not dealt with by the CISG.

The substance of PECL Article 7:110 [46] is, therefore, very similar to CISG Articles 85-88. Thus, what it has been said about the CISG also applies under the PECL with the following distinctions. First, the main difference between the two sets of rules concerns the structure: PECL Article 7:110 comprises both the seller's and buyer's duty to preserve the goods in only one provision, whereas the CISG considers both parties' duties separately. The other difference concerns the wording: PECL outlines more simply than the CISG regarding how the party left in possession of the goods may discharge its duty.

     -  Situations where PECL Article 7:110 may be helpful in construing the meaning of the counterpart provisions of the CISG

(1) Preservation of money. PECL specifically deals with the case where the property to be protected and preserved is money (Article 7:111), a case not specifically dealt with by the CISG and, therefore, it may be of help when applying the CISG in such instances. Specifically, the provision applies where the debtor attempts to perform a primary (e.g. payment of the goods) or secondary (e.g., repayment of money received or payment of damages under Chapter 9 Section 5) duty to pay.[47]

Pursuant to Article 7:111, the debtor discharges its duty to pay by "depositing the money to the order to the first party [creditor] in accordance with the law of the place where payment is due,"[48] after giving the creditor a reasonable notice. By dong so, the debtor may also prevent claims by the creditor concerning interest on the sum to be held on behalf of the creditor.

(2) Avoidance and preservation of goods. Reading Articles 81 and 86 CISG, with the guidance of PECL, one should draw the conclusion that, where the contract has been avoided, the buyer must arrange the restitution of them to the seller as the former cannot keep those goods nor can he destroy or let them being destroyed. While the party is in possession of goods to be taken by the other party, the very same party must also arrange a way to preserve them pursuant to Articles 87-88.[49]

As to the seller, if (i) the seller still has possession of, or control of, the goods, and (ii) the contract has been avoided, the seller cannot claim expenses for preserving the goods from the buyer.

The PECL, contrary to CISG, does clearly deal with the case just mentioned, which makes Article 7:110 useful when dealing with restitution and preservation of the goods when the contract has been avoided.

3. Conclusions

PECL's language is very similar to CISG. However, one feature makes PECL Articles 7:110 and 7:111 very useful when dealing with preservation of money, and preservation of goods as result of the avoidance of the contract, as these situations are not directly dealt with by the CISG.

As a general rule, for all of the other general legal issues herein mentioned not directly solved by the CISG, it may be appropriate to first resort to the general principles of the CISG, unless the matter is clearly outside the scope of the CISG (e.g., storage agreement). The otherwise applicable domestic law, however, should control all of the more technical and detailed questions of substantive and, of course, procedural law.


FOOTNOTES

1. The author is an Associate of the Institute of International Commercial Law of the Pace University School of Law (New York).

2. See Fritz Enderlein & Dietrich Maskow, INTERNATIONAL SALES LAW, UNITED NATIONS CONVENTION ON CONTRACTS FOR THE INTERNATIONAL SALE OF GOODS - CONVENTION ON THE LIMITATION PERIOD IN THE INTERNATIONAL SALE OF GOODS, Oceana Publications 351 (1992). Available at <http://cisgw3.law.pace.edu/cisg/biblio/enderlein.html>.

3. For literature specifically relevant to the provisions of Article 85, see <http://cisgw3.law.pace.edu/cisg/text/mono85.html>. See also Harry Flechtner, in THE DRAFT UNCITRAL DIGEST AND BEYOND: CASES, ANALYSIS AND UNRESOLVED ISSUES IN THE U.N. SALES CONVENTION, 861 (Franco Ferrari, Harry Flechtner, Ronald A. Brand eds. 2004) [hereinafter UNCITRAL Digest].

4. See Hans E. Eberstein, Annotations 1-18 on Article 85, in COMMENTARY ON THE UN CONVENTION ON THE INTERNATIONAL SALE OF GOODS (CISG) 663, 667 (Peter Schlechtriem, ed. 1998) [hereinafter Annotations 85]; Herbert Bernstein & Joseph Lookofky, UNDERSTANDING THE CISG IN EUROPE 103 (2003) [hereinafter CISG in Europe]; Flechtner, UNCITRAL DIGEST, supra note 3. But see ICC Arbitration Case No. 7197 of 1992 available at <http://cisgw3.law.pace.edu/cases/927197i1.html> [the preservation costs were awarded as result of failure of opening a letter of credit].

5. This language is also explained in a colloquy at the 1980 Vienna Diplomatic Conference available at <http://cisgw3.law.pace.edu/cisg/text/link85.html>. Official Records of United Nations Conference on Contracts for the International Sale of Goods, Vienna, March 10 - April 11, 1980, A/CONF. 97/19 (hereinafter Official Records). See also Jorge Barrera Graf, in COMMENTARY ON THE INTERNATIONAL SALES LAW 614, 613-619 (Massimo C. Bianca and M. Joachim Bonell eds., 1987); Eberstein, Annotations 85, supra note 4, at 667; Bernstein & Lookofky, CISG in Europe, supra note 4 at 103; Flechtner, UNCITRAL DIGEST, supra note 4. See also Hamburg Arbitration proceeding, Germany, December 29, 1998, available at <http://cisgw3.law.pace.edu/cases/981229g1.html>.

6. Eberstein, Annotations 85, supra note 4, at 664 and 668.

7. See Peter Schlechtriem, UNIFORM SALES LAW - THE UN CONVENTION ON CONTRACTS FOR THE INTERNATIONAL SALE OF GOODS, Manz: Vienna 108 (1986). Available at <http://cisgw3.law.pace.edu/cisg/biblio/schlechtriem.html>.

8. See the Secretariat Commentary on Article 74 of the 1978 Draft [draft counterpart of CISG article 85] reprinted in Official Records, supra note 5, at 62, available at <http://cisgw3.law.pace.edu/cisg/text/secomm/secomm-85.html>; see Schlechtriem, supra note 7; John O. Honnold, UNIFORM LAW FOR INTERNATIONAL SALES UNDER THE 1980 UNITED NATIONS CONVENTION, 3d ed., 519 (1999); Harry M. Flechtner, Remedies Under the New International Sales Convention: The Perspective from Article 2 of the U.C.C., 8 JL&C 53, 104 (1988) [available at < http://cisgw3.law.pace.edu/cisg/biblio/flecht.html>] [hereinafter "Remedies"]; and Jelena Vilus, Provisions Common to the Obligations of the Seller and the Buyer, in INTERNATIONAL SALES OF GOODS: DUBROVNIK LECTURES, Oceana Publications 259, 237-264 (Petar Sarcevic & Paul Volken eds., 1986) [available at < http://cisgw3.law.pace.edu/cisg/biblio/vilus.html>].

9. Eberstein, Annotations 85, supra note 4, at 665.

10. See Enderlein & Maskow, supra note 2, at 352.

11. ICC Arbitration case, No. 7197 of 1992, available at <http://cisgw3.law.pace.edu/cases/927197i1.html>.

12. See Vilus, supra note 8; see also Enderlein & Maskow, supra note 2, at 352, "[w]hat is to be considered as steps that are reasonable in the circumstances will have to be determined using the measure which the CISG applies to flesh out such vague descriptions. It amounts to taking such steps that they would be taken by a reasonable person in the same circumstances;" Carlo Scognamiglio, NUOVE LEGGI CIVILI COMMENTATE 326, 325-342 (Massimo C. Bianca ed., 1989). For the definition of reasonableness under the CISG and PECL and references to reasonableness in continental and common law domestic rules, doctrine and case law, visit <http://cisgw3.law.pace.edu/cisg/text/reason.html#overv>. As to case law, see Oberlandesgericht Braunschweig, Germany, October 28, 1999, available at <http://cisgw3.law.pace.edu/cases/991028g1.html>; Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry, April 25, 1995, case 142/1994, available at <http://cisgw3.law.pace.edu/cases/950425r2.html>.

13. Eberstein, Annotations 85, supra note 4, at 668.

14. Eberstein, Annotations 85, supra note 4, at 669. If a contract has been avoided, the seller may not claim reimbursement of expenses incurred in preserving the goods: Hamburg Arbitration proceeding, Germany, December 29, 1998, available at <http://cisgw3.law.pace.edu/cases/981229g1.html>.

15. Honnold, supra note 8, at 520.

16. Eberstein, Annotations 85, supra note 4, at 669.

17. See Oberlandesgericht Braunschweig, Germany, October 28, 1999, available at <http://cisgw3.law.pace.edu/cases/991028g1.html>; Tribunal Cantonal Vaud, Switzerland, 17 May 1994, available at <http://cisgw3.law.pace.edu/cases/940517s1.html>.

18. Eberstein, Annotations 85, supra note 4, at 669; Enderlein & Maskow, supra note 2, at 353.

19. Eberstein, Annotations 85, supra note 4, at 669.

20. See Tribunal Cantonal Vaud, Switzerland, May 17, 1994, available at <http://cisgw3.law.pace.edu/cases/940517s1.html> where the court states: "[t]he Vienna Convention ... rules only on substantive issues. Therefore it does not exclude that a different solution may be given in the frame of provisional measures."

21. See, e.g., Oberlandesgericht Braunschweig, Germany, October 28, 1999, available at <http://cisgw3.law.pace.edu/cases/991028g1.html>, where the court also stated "[w]hen applying the CISG, the duty to pay damages is based on Article 74, in part also on Article 85"; Delchi v. Rotorex, Federal Appellate Court 2nd Circuit, USA, December 6, 1995, available at <http://cisgw3.law.pace.edu/cases/951206u1.html> Federal District Court, New York, USA, September 9, 1994, available at <http://cisgw3.law.pace.edu/cases/940909u1.html>; ICC Arbitration case, No. 7531 of 1994, available at <http://cisgw3.law.pace.edu/cases/947531i1.html>; ICC Arbitration Case No. 7197 of 1992 available at <http://cisgw3.law.pace.edu/cases/927197i1.html>.

22. For selected texts specifically relevant to the provisions of Article 86, visit <http://cisgw3.law.pace.edu/cisg/text/mono86.html>. See also Bernstein & Lookofsky, CISG in Europe, supra note 4; Flechtner, UNCITRAL DIGEST, supra note 3, at 864.

23. See supra note 12.

24. See Cour de Cassation, France, January 4, 1995, case 92-16.993, available at <http://cisgw3.law.pace.edu/cases/950104f1.html>; ICC Arbitration Case No. 7531 of 1994 available at <http://cisgw3.law.pace.edu/cases/947531i1.html>.

25. China International Economic and Trade Arbitration Commission [CIETAC] - Shenzhen Commission, (June 6, 1991, arbitration proceeding 164/1996, available at <http://cisgw3.law.pace.edu/cases/910606c1.html>): the court stated that warehouse expenses, which almost amounted the price of the contract, were unreasonable. The court also noted that the extend deposit caused the goods to decompose.

26. See, e.g., Articles 46(1), 46(2), 49(1)(a), 49(1)(b) and maybe a right to reject exist under Articles 52 and 71. See Hans E. Eberstein, Annotations 1-26 on Article 86, in COMMENTARY ON THE UN CONVENTION ON THE INTERNATIONAL SALE OF GOODS (CISG) 671 (Peter Schlechtriem, ed., 1998) [hereinafter Annotations 86].

27. It can be exercised even at a later time after receiving the goods - e.g., non-conforming goods must be rejected within a reasonable time after the buyer discovers or should have discovered the defects.

28. See Honnold, supra note 8, at 524; See also Eberstein, Annotations 86, supra note 26, at 671; Fritz Enderlein, Dietrich Maskow and Heinz Strohbach, INTERNATIONALES KAUFRECHT, Article 86, note 3.2 (1991).

29. It has been suggested that the buyer has no duty to take the goods in possession when he rejected them at earlier stage (see Secretariat Commentary on Article 75 of the 1978 Draft [draft counterpart of CISG article 86] reprinted in Official Records, supra note 5, at 62, available at <http://cisgw3.law.pace.edu/cisg/text/secomm/secomm-86.html>; Rolf Herber and Beate Czerwenka, INTERNATIONALES KAUFRECHT, Article 86, paragraph 6 (1991). However, the provisions do not support such view as once the goods are the buyer's disposal whether he rejects them or only intends to reject them, he is still bound to preserve the goods pursuant to Articles 87 and 88. See also Eberstein, Annotations 86, supra note 26, at 675; Enderlein/Maskow/Strohbach, supra note 28, at Art. 8, note 7.

30. The term "warehouse" means "any place appropriate for the storage of goods of the type in question." Secretariat Commentary on Article 76 of the 1978 Draft [draft counterpart of CISG article 87], reprinted in Official Records, supra note 5, available at <http://cisgw3.law.pace.edu/cisg/text/secomm/secomm-87.html>.

31. Honnold, supra note 8, at 525. As to case law, see ICC Arbitration Case No. 7531 of 1994, available at <http://cisgw3.law.pace.edu/cases/947531i1.html>; cf. Tribunal Cantonal Vaud, Switzerland, May 17, 1994, available at <http://cisgw3.law.pace.edu/cases/940517s1.html> [in the context of interim relief].

32. Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry, April 25, 1995, case 142/1994, available at <http://cisgw3.law.pace.edu/cases/950425r2.html>.

33. Id.

34. See Hans E. Eberstein, Annotations 1-12 on Article 87, in COMMENTARY ON THE UN CONVENTION ON THE INTERNATIONAL SALE OF GOODS (CISG) 677 (Peter Schlechtriem, ed., 1998) [hereinafter Annotations 87] [footnote omitted].

35. Id. at 678. See also Enderlein & Maskow, supra note 2, at 357.

36. See Herber/Czerwenka, supra note 29, at Art. 87, paragraph 5; Eberstein, Annotations 87, supra note 34, at 678. But see Enderlein/Maskow/Strohbach, see supra note 28, at Art. 87, note 1.2.

37. See Honnold, supra note 8, at 526.

38. See Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry, April 25, 1995, case 142/1994, available at <http://cisgw3.law.pace.edu/cases/950425r2.html>; ICC Arbitration Case No. 7531 of 1994, available at <http://cisgw3.law.pace.edu/cases/947531i1.html>.

39. Oberlandesgericht Braunschweig, Germany, October 28, 1999, available at <http://cisgw3.law.pace.edu/cases/991028g1.html>.

40. See Hans E. Eberstein, Annotations 1-32 on Article 88, in COMMENTARY ON THE UN CONVENTION ON THE INTERNATIONAL SALE OF GOODS (CISG) 683 (Peter Schlechtriem, ed., 1998) [hereinafter Annotations 88].

41. Id. at 682 [footnote omitted]; Scognamiglio, supra note 12, at 340.

42. Id.

43. See Ebersten, Annotations 88, supra note 40, at 684; Flechtner, Remedies, supra note 8, at 80; but see Scognamiglio, supra note 12, at 341; (as to ULIS) H.J. Mertens and E. Rehbinder, INTERNATIONALES KAUFRECHT, Articles 94 and 95, note 8 (1975).

44. See Secretariat Commentary on Article 77 of the 1978 [draft counterpart of CISG Article 88], reprinted in Official Records, supra note 5, at 63, available at <http://cisgw3.law.pace.edu/cisg/text/secomm/secomm-88.html>. See also Flechtner, Remedies, supra note 8, at 81; Ebersten, Annotations 88, supra note 40, at 684 citing also Herber/Czerwenka, supra note 29, Art. 88, paragraph 8; Enderlein/Maskow/Strohbach, supra note 28, Art. 88, note 9.

45. For the full text of the Principles of European Contract Law, visit <http://cisgw3.law.pace.edu/cisg/text/textef.html>.

46. For the text of PECL Article 7:110, visit <http://cisgw3.law.pace.edu/cisg/text/textef.html#a7110>.

47. See Comment and Notes on Article 7:111 in PRINCIPLES OF EUROPEAN CONTRACT LAW: PARTS I AND II 352-357 (Ole Lando & Hugh Beale eds., 2000) available at <http://cisgw3.law.pace.edu/cisg/text/peclcomp85.html>.

48. See Oberster Gerichtsof, Austria, June 29, 1999, available at <http://cisgw3.law.pace.edu/cases/990629a3.html>, where the court dealing with the issues of determining the place of restitution as result of the avoidance of the sale contract (CISG Article 81), found that "[t]he CISG does not contain any provisions pertaining to the place of performance for restitution. Nevertheless, the gaps arising from the absence of relevant agreements within the framework of Art 7(2) CISG can be bridged without recourse to national provisions (Leser, op. cit., Art. 81 Annotation 17; Weber, op. cit., Art. 81 Annotation 21). The place of performance for the obligations concerning restitution should mirror the place of performance for the primary contractual obligations (Posch, in Schwimann, 2d ed., CISG Art. 81, Annotation 9)." I expect, however, that other courts may refer this issue to the law otherwise applicable to the contract.

49. ICC Arbitration Case No. 7531 of 1994, available at <http://cisgw3.law.pace.edu/cases/947531i1.html>.


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