(2) Nevertheless, the risk does not pass to the buyer until the goods are clearly identified to the contract, whether by markings on the goods, by shipping documents, by notice given to the buyer or otherwise.
Legislative history || Case law || Scholarly writings || Links to related articles || Words and phrases || CISG (full-text)
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Bibliography citations on passage/passing of risk
Citations on incoterms
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Links to related articles
Attention to related articles and to the CISG in its entirety is important. This is an autonomous law, i.e., it is meant to be construed within its four corners. When considering aspects of the CISG, because this law relies heavily on general principles, one ought to look at related provisions and the CISG in its entirety.
Words, phrases and concepts
* De Vries believes that it "appears to refer to an agreement made between the seller and the buyer by any means and at any time whatsoever." Like paragraph 8 of the Secretariat Commentary on article 79 [draft counterpart of CISG article 67], de Vries states: "If a contract is made under a trade term requiring the seller to place the goods sold at the buyer's disposal at a named place - e.g. Ex Words, Ex Ship, Ex Quay - article 69 applies." But de Vries goes on to express the opinion that "if the seller agrees to (or simply acts upon) the buyer's instructions to allow a (named) carrier to take delivery on his behalf, then automatically article 67 [sentence two] applies instead, which provides for a different regime as regards the passing of risk." H. de Vries, "The Passing of Risk in International Sales under the Vienna Sales Convention 1980 as compared with Traditional Trade Terms, 17 European Transport Law 503-504 (1982).
Goodfriend states: "In its plain meaning, the second sentence of article 67(1) does apply ... if a destination contract happens to include an obligation by the seller to hand over the goods at the buyer's port. Since neither the buyer nor the buyer's place of business are generally at the port itself, this would not be an unreasonable obligation." However, he wishes to reject this reading of article 67(1) because it "is contrary to ordinary commercial understanding and practice." Douglas E. Goodfriend, "After the Damage is Done: Risk of Loss Under the United Nations Convention on Contracts for the International Sale of Goods", 22 Colum. J. Transnat'l L. 599 (1984).
Maurer states: "Under Incoterms [Ex Ship Buyer's Port] the seller's liability ends when the goods are off-loaded at the port and placed at the disposal of the buyer. Article 69(2) would produce the same result. [Article 69(2) states "... if the buyer is bound to take over the goods at a place other than a place of business of the seller, the risk passes when delivery is due and the buyer is aware of the fact that the goods are placed at his disposal at that place."] Arguably, however, a liberal reading of article 67(1) (second sentence) would make that provision applicable and cause the risk of loss to pass to the buyer at a later point. That result can be avoided by reading literally the language of article 67(1) that refers to the seller's obligation, not the carrier's obligation, to hand the goods over to a carrier. A parallel construction of article 69(2), however, would make that provision inapplicable where the buyer's carrier, not the buyer is to take over the goods. This ambiguity underscores the need to use Incoterms to obviate this practical construction problem ..." Virginia G. Maurer, "The United Nations Convention on Contracts for the International Sale of Goods", 15 Syr. J. Int'l L. & Com. 376-377 (1989).
* Honnold, Lookofsky and Enderlein & Maskow agree. John O. Honnold, "Uniform Law for International Sales under the 1980 United Nations Convention" [Honnold Text], 2d ed., Kluwer Law International (1991), p. 460; Joseph Lookofsky, "UN Convention on Contracts for the Int'l Sale of Goods", Int'l Encyclopaedia of Laws (Kluwer 1993), p. 114; Fritz Enderlein & Dietrich Maskow, "International Sales Law" [Enderlein & Maskow Commentary], Oceana (1992), p. 265). Schlechtriem states: "Although the question was not discussed in Vienna, only the independent carrier was considered a carrier for the purposes of article 67. Accordingly, if the seller transports the goods with his own personnel, even though he is not obligated to do so, he maintains the risk of loss ... The passing of risk in sales involving carriage may therefore depend on the legal structure of the seller's business: If the goods are transported by a division of the firm that is not legally independent of the seller's enterprise, then article 69 applies to the passage of risk. On the other hand, if the seller uses a legally independent (incorporated) entity that is a subsidiary of the seller's firm, article 67 applies [Similar situations can be found with regard to the state trading organizations of socialist countries.] As long as article 69(2) does not apply to the sale ... it is my opinion that, where the seller sends the goods using his own transportation organization, it is worth considering the Reichsgericht's solution under Section 447 of the German Civil Code ... which due to the difficulties in delimitation in such cases, let the risk pass to the buyer even when the seller's own personnel is employed ..." Peter Schlechtriem "Uniform Sales Law" [Schlechtriem Text], Manz: Vienna (1986), p. 88.
Incoterms (1990) Free Carrier (... named place) (FCA) defines "carrier" as "any person who, in a contract of carriage, undertakes to perform or to procure the performance of carriage by rail, road, sea, air, inland waterway or by a combination of such modes" (emphasis added). Honnold states "The emphasized language referring to a 'contract of carriage' ... excludes carriage in the seller's own facilities." Honnold Text, 2d ed., p. 461. Incoterms (1990) FCA further provides that "If the buyer instructs the seller to deliver the cargo to a person, e.g. a freight forwarded who is not a 'carrier', the seller is deemed to have fulfilled his obligation to deliver the goods when they are in the custody of that person." ICC Publication No. 460 (1990), pp. 24-25.
Ramberg comments on this subject as follows: "Who is a carrier? Since the carrier under FCA is named by the buyer, it is normally not necessary to decide whether the entity named can be regarded as a 'carrier' according to the law applicable to the contract of sale and the contract of carriage. The seller merely has to accept the buyer's nomination. Therefore, the buyer is not compelled to name someone who has the status of a carrier in a legal sense; he could also name 'another person (e.g. a freight forwarder)'. It has been deemed important specifically to mention freight forwarders, since in practice it may be difficult to decide whether the forwarder should be regarded as a 'carrier' (e.g. when he actually performs the carriage or assumes liability as a so-called contracting carrier) or merely as an agent without the status of a 'carrier' in the legal sense may arise whenever the seller chooses this person in accordance with [Section A3 of Incoterms FCA]. The seller must then 'contract for carriage on usual terms at the buyer's risk and expense" and, unless otherwise agreed, arrange a contract of carriage and not merely a contract of forwarding agency. A contract of carriage may be entered into with organizations which do not physically perform the carriage as long as they assume liability as carriers for the carriage ..." Jan Ramberg, "Guide to Incoterms (1990), ICC Publication No. 461/90, p. 54.
* Assume the seller is bound to place goods on board a ship at port X in the seller's country and he arranges for the goods to be transported to port X by an independent carrier and for this carrier to place them on board the ship. Nicholas sees two constructions of the phrase "hand over":
|-|| First construction. "If this placing on board by the first carrier on the instructions of the seller
is construed as constituting a handing over by the seller, the passing of risk is governed by the
second sentence [of article 67 with risk passing when the goods are placed on board the ship].
|-||Second construction. "If it is not so construed, the case falls presumably under the first sentence [with risk passing to the buyer when the goods are handed over to the first carrier], on the ground that, though the seller is bound to ensure that the goods are handed over at a particular place (port X), he is not bound to hand them over there himself. The second sentence will then cover only the case in which the seller, in the example just given, arranges for the goods to be moved to port X by his own transport. ...|
"Under the first construction there is a handing over by the seller when, under an agreement such as that envisaged here, control of the goods is transferred either by him or by a third party acting on his instructions. Under the second construction there is such a handing over only when it is made by the seller himself." Barry Nicholas, Bianca-Bonell Commentary, p. 491. Citing legislative history, Nicholas supports the first construction, although he recognizes that the second construction is simpler "since it does not require 'hand over' to mean 'hand over or cause to be handed over" (id. at 492). Goodfriend also grapples with this fact pattern. His conclusion is that the text is open to differing constructions. Douglas E. Goodfriend, "After the Damage is Done: Risk of Loss Under the United Nations Convention on Contracts for the International Sale of Goods", 22 Colum. J. Transnat'l L. 596-597 (1984)). Honnold's conclusion is that "the parties will be well advised ... to face and solve - in plain, clear, blunt, words - the question of risk during preliminary transport ... John O. Honnold, Parker School Text, pp. 8-10). See also earlier quoted comments by Maurer on liberal vs. literal construction of Article 67(1) in the context of post-ocean voyage transit. Maurer's conclusion is to recommend reliance on Incoterms.
- trade terms. Parties who look to the Convention for definitions of trade terms most frequently used in international trade - FOB, CIF, Ex Ship, etc. - will not find them there. The following commentary on ULIS is equally relevant to the CISG.
"[T]he Law contains no reference to the principal forms of maritime or land sales (f.o.b., c.i.f., etc.). The draftsmen of the Law considered that this was a matter which was not yet properly ready for unification by means of an international convention. To have made provision for the principal forms of sale would, in the first place, have meant doubling the volume of a Law which was already long. Moreover, the rules applicable to the principal forms of sale are still varied and doubtful. It may be said that it is precisely in a situation of this kind that unification is useful. It, however, appears that in this field a process of convergence and unification by persuasion, basically the task undertaken by the International Chamber of Commerce, may be more beneficial to commerce, through the gradual and progressive character of the convergence which it brings about, than an immediate unification by way of international convention. In short, the draftsmen of the Uniform Law felt that the rules governing the principal forms of sale were still changing, constantly adapting themselves to practical needs, and that it was not proper to halt a process probably beneficial to commerce. Of course, the Uniform Law can be revised. This revision will, however, require the operation of a rather clumsy procedure. In consequence, it seemed from every point of view that the International Chamber of Commerce would plan a more useful part in this field than a Commission or Conference for Unification and that it was better suited to this role." André Tunc, I Hague Conf. Records 363-364 (1964).
The U.S. Uniform Commercial Code has a limited, somewhat dated, collection of trade term definitions. The ICC's Incoterms, on the other hand, are specifically designed for international trade, cover more situations and in greater detail, and are kept current and are better understood by trading partners from all over the world.
- other omissions. De Vries states: "A noteworthy omission of the Convention is its failure to deal with the buyer's default in providing carriage instructions in due time. It is an often recurring problem in practice and may cause considerable headaches because usually the seller does not know the reasons for the buyer's default, so suspicions that it might be a veiled repudiation of the contract, are quick to arise. The Incoterms are referring fairly systematically to such types of indispensable information as the buyer, under the respective trade term, is bound to provide to the seller in order to enable him to accomplish his duties in view of the carriage. ... Of course, such defaults may carry the remedies listed in articles 62 to 64 inclusive, but the seller's express reliance on any of said remedies is apt to worsen the situation. Under the Incoterms it is usually possible to frame the stipulations as to carriage such as to entail passing of the risk unto the buyer in case of defaults as aforesaid; indeed this would seem a far more effective means to call the buyer to order." H. de Vries, "The Passing of Risk in International Trade Terms, 17 European Transport Law 527-528 (1982).
Nicholas and Schlechtriem seek to find solutions within the bounds of the Convention, but their solutions are less perfect than Incoterms'.
Nicholas states: "[Article 67] does not provide for cases in which the seller is unable to hand the goods over owing to a default of the buyer. If, for example, the seller is bound to ship the goods and the buyer is bound to name the vessel in which they shall be shipped, the contract seems, both as a matter of interpretations and as a matter of drafting history, to fall within this article ... The consequence is that if the buyer fails to name the ship and the seller cannot therefore dispatch the goods, the risk (including the risk of deterioration) remains on the seller, whose only recourse (since article 70 is inapplicable) will be to claim damages. (Domestic laws provide otherwise [see, for example, UCC 2-510]). If the case can be brought within article 69(2), the seller can shift the risk to the buyer by informing him that the goods are ready for shipment ... The only obstacle to applying paragraph (2) [of article 69] lies in the words "if the buyer is bound to take over the goods ...' In this case it can be said that the buyer is not bound to take over the goods himself but to name a carrier to take them over. It is submitted, however, that just as the words 'hand over' must mean 'take over or cause to be taken over'. The risk then passes when the delivery is due (in the sense that the buyer is in default in not naming a ship) and the buyer is aware that the goods are ready to be shipped ..." Barry Nicholas, Bianca-Bonell Commentary, pp. 495 and 506.
Schlechtriem states: "The solution can be found on the basis of article 7(2). A general principle can be derived from articles 67 and 69, namely that the seller no longer bears the risk once he has relinquished control over the goods in accordance with the contract or has been prevented from doing so by the buyer's acts or omissions which are not in accordance with the contract. The risk should therefore pass in this case not only when the buyer does not take delivery of the goods - the buyer's failure to take delivery would normally keep the risk from passing - but also when the buyer, in violation of the contract, fails to cooperate or fulfill the necessary delivery requirements." Peter Schlechtriem, "Uniform Sales Law", Manz: Vienna (1986), p. 91 n. 374; see also Fritz Enderlein & Dietrich Maskow, "International Sales Law", Oceana (1992), p. 268.