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Comparison with Principles of European Contract Law

Match-up of CISG Article 50 with PECL Article 9:401 [Right to Reduce Price]


CISG Article 50


If the goods do not conform with the contract and whether or not the price has already been paid, the buyer may reduce the price in the same proportion as the value that the goods actually delivered had at the time of the delivery bears to the value that conforming goods would have had at that time. However, if the seller remedies any failure to perform his obligations in accordance with article 37 or article 48 or if the buyer refuses to accept performance by the seller in accordance with those articles, the buyer may not reduce the price.



["As with the CISG, paragraph (1) of [PECL Article 9:401] adopts the proportionality measure for the price reduction, measured at the time of delivery. Likewise, paragraph (2) is intended to allow a party such as the buyer to recover the amount of the price reduction once it has been paid. Finally, paragraph (3) makes it clear that the claimant cannot demand both the price reduction plus damages for the reduction in value. While there is no express equivalent to paragraph (3) in Article 50 of the CISG, the two provisions would likely have the same effect. . . ." Peter A. Piliounis, The Remedies of Specific Performance, Price Reduction and Additional Time (Nachfrist) under the CISG: Are these worthwhile changes or additions to English Sales Law? (Cambridge 1999), text at n.143.]

PECL Article 9:401
(complete and revised version 1998)

(1) A party who accepts a tender of performance not conforming to the contract may reduce the price. This reduction shall be proportionate to the decrease in the value of the performance at the time this was tendered compared to the value which a conforming tender would had at that time.

(2) A party who is entitled to reduce the price under the preceding paragraph and who has already paid a sum exceeding the reduced price may recover the excess from the other party.

(3) A party who reduces the price cannot also recover damages for reduction in the value of the performance but remains entitled to damages for any further loss it has suffered so far as these are recoverable under Section 5 of this Chapter.


Comment and notes on PECL 9:401

Like the commentary to the UNIDROIT Principles and the U.S. Restatements, the comments to the PECL help explain the text. The PECL notes identify civil law and common law antecedents and related domestic provisions. With the permission of the Commission on European Contract Law, the comments and notes to PECL Article 9:401 are presented below. The source of this material is Ole Lando & Hugh Beale eds., Principles of European Contract Law: Parts I and II, Kluwer Law International (2000) 430-433.

COMMENT

A. The Principle of Price Reduction

This Article generalises the remedy provided by the action quanti minoris. In the conditions laid down in paragraph (1) the aggrieved party is entitled to a reduction in the contract price where the other party's performance is incomplete or otherwise fails to conform to the contract. The remedy is given whether the non-conformity relates to quantity, quality, time of delivery or otherwise. The remedy is designed both as an alternative to damages (see Illustration 2 below) and for cases where the non-performing party is excused from liability for damages (see comment B below). The Article applies only where the aggrieved party accepts the non-conforming tender. If it does not, its remedy is either to pursue a restitutionary claim under Article 9:307 or to claim damages under Section 5.

The amount of the price reduction is proportional to the reduction in the value of the promised performance. In some cases the value of the performance will be directly related to the proportion of the contract performed and the contract price may simply be reduced accordingly.[page 430]

Illustration 1: S contracts to sell 50 tonnes of coffee to B at a price of 2,400 a tonne. S tenders only 30 tonnes. B may accept the short tender and reduce the price under this Article from 120,000 to 72,000 (see Illustration 3). Alternatively B can reject the short tender, in which case it can either claim recovery of the price under Article 9:307 or claim damages under Section 5, but it cannot invoke the present Article.

In other cases the value of the performance may be reduced by a greater (or less) proportion.

Illustration 2: B agrees to build a house for O for 150,000. If the work had been properly executed the house would have been worth 100,000 when completed, but because of B's defective workmanship it is worth only 80,000. As an alternative to claiming damages of 20,000, O may withhold or recover one-fifth of the price, i.e. 30,000.

B. Price reduction available even where non-performance excused

The fact that a shortfall in performance is excused under Article 8:108 does not affect the aggrieved party's right to a price reduction under this Article, for under Article 8:101(2) the only remedies which are excluded in the case of an excused non-performance are specific performance and damages.

Illustration 3: S in Marseilles contracts to sell 20 hospital scanning machines to B in London. As the result of the introduction of a quota system governing the export of scanning machines S is only able to supply B with 15 machines. S's non-performance is excused under Article 8:108 but if B decides to accept the 15 machines it is entitled to a price reduction of 25 per cent.

C. Price reduction may be obtained before or after payment

The aggrieved party may obtain a price reduction under this Article either by withholding payment, if it has not already paid the price, or by recovering the amount of the price reduction if the price has already been paid.

D. Price reduction is alternative to damages for reduction in value

Where the aggrieved party reduces the price under this Article it cannot also claim damages for reduction in the value of the performance as tendered compared with the value of a conforming tender (see Illustration 1). The two remedies are incompatible so that there is no right to cumulate them under Article 8:102. However, other loss remains recoverable within the limits laid down by Section 5.

Illustration 4: The facts are as in Illustration 2. O cannot live in the house until the defects in it have been put right and he incurs a loss of 500 in renting an apartment to live in meanwhile. The 500 remains recoverable whichever of the above remedies he pursues.[page 431]


NOTES: PECL Art. 9:401: Right to Reduce Price

[Match-ups with Continental and Common Law domestic rules, doctrine and jurisprudence]

1. Civil law

(a) The actio quanti minoris

The right to reduce the price, as provided in Article 9:401 AUSTRIAN ABGB 932(1), is found in the civil law countries and in CISG art. 50. It is primarily applied when goods sold are defective, see DANISH Sale of Goods Act 42 and 43; FINNISH and SWEDISH Sale of Goods Acts 37, 38; FRENCH, BELGIAN and LUXEMBOURG CC art. 1644; GERMAN BGB 462; GREEK CC arts. 534, 535, 540; ITALIAN CC art. 1492(1); and PORTUGUESE CC arts. 911 and 913. However, in many countries the rule also applies to other contracts, see DANISH Lease Act 11 (2)15 and 16(2) and on construction contracts, Gomard, Obligationsret II 129; Finland, Sale of real property and service contracts, see Sisula-Tulokas 18-36; GERMAN BGB 515 (barter), 537 (lease) 634(1) and (4) (work, but not services) and 651d (travel); GREEK CC arts. 573 (barter) 576 (lease) and 688 and 689 (work); ITALIAN CC art. 1668 (construction contracts); and PORTUGUESE CC art. 1222 (work); and SPAIN CC art. 1486 (sales). In FRANCE, outside cases of defects, price reduction (réfaction) is limited to commercial cases, as a consequence of usages: Terré, No. 630, in fine; but there is a tendency to generalise it to other contracts: Civ.3, 15 December 1993, D.1994.462, note Storck (lease).

The DUTCH BW treats price reduction as partial termination which in principle is available in all contracts, see BW arts. 6: 265 and 6: 270.

In the civil law the actio quanti minoris applies also where the non-performance is excused.

(b) Calculation of the reduction

As in Article 9:401, CISG art. 50 provides that the buyer may reduce the price in the same proportion as the value that the goods actually delivered had at the time of delivery bears to the value that conforming goods would have had at that time, and the same rule applies in most civil law countries, see e.g., GERMAN BGB 472 (value at the time of contracting).

(c) Recovery of the excess paid

The rule stated in Article 9:401(2) under which a party who has paid the full price may recover the excess is probably accepted in all countries.

(d) Damages not excluded

It is in the nature of things that a party who reduces the price cannot also claim a sum equal to the reduction in value as damages. However, most laws allow the aggrieved party to recover damages for further loss. See e.g. AUSTRIAN ABGB 932(1) last sentence stating, that "in all cases, the transferor is liable for damages caused by his fault." See also CISG art. 45(2) and notes to Article 8:102, above. In GERMANY, however, damages and reduction of price exclude each other, see BGB 463, 480(2); Münchner Kommentar (-Westermann) 472 No. 3. This is also true in GREECE, but further loss may be recovered: Deliyannis & Kornlakis I 243-244.

2. Common law

The actio quanti minoris of the civil law is unknown in the COMMON LAW, but when the non-performance is not excused Common law reaches very similar results.

(a) Cases of breach

Where goods are defective the prima facie rule is that the buyer can recover as damages the difference between the value of the goods actually delivered and the value which the goods would have had if they had been in accordance with the contract, see Treitel, Remedies 100. Further,

(i) Where the performance is incomplete and the price can easily be apportioned, the buyer may treat the contract as apportionable and pay only for the units delivered (e.g. Dawood Ltd. V. Heath Ltd. [1961] 2 Lloyd's Rep. 512, Q.B.);

(ii) The UK Sale of Goods Act 1979 s.53(1) allows the buyer in case of defects to set up certain claims "in diminution or extinction of the price"; and

(iii) The aggrieved party may also -- and this applies to all contracts -- set off claims arising out of the same transaction against sums he would otherwise have to pay.

On (ii) and (iii) see Beale, Remedies 50-52 and Goode, Commercial Law 671. As in most civil law countries, further loss may be claimed as damages.

(b) Non-performance excused

In cases of frustration the position of English law differs from that of the civil law. The Law Reform (Frustrated Contracts) Act 1943 s. 1(3) will normally apply. As a measure, sometimes [page 432] described as essentially restitutionary (see Robert Goff J. in B.P. Exploration Co. (Libya) Ltd. v. Hunt (No. 2) [1979] 1 W.L.R. 783, though see also Lawton LJ in the C.A. [1981] 1 W.L.R. 232, the court may order the return of money paid and payment for benefits (other than money) received before the time of discharge of the obligation, subject to deductions for expenses incurred, see Treitel, Contracts 825-829.

In the unusual case where the contract is not frustrated but non-performance of part of the obligation is excused, whether the price may be reduced will probably depend on whether the performance can easily be apportioned, see (a)(i) above.

In SCOTLAND if a contract is frustrated the obligations of the parties under the contract cease but there may be an equitable adjustment of the rights of the parties under the principles of unjust enrichment (Cantiere San Rocco v. Clyde Shipbuilding and Engineering Co 1923 S.C. (H.L.) 105).

See generally on the common law Treitel, Remedies 100; Beale, Remedies 50-52. [page 433]


Pace Law School Institute of International Commercial Law - Last updated June 15, 2000
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