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Reproduced with permission from 8 Journal of Law and Commerce (1988) 53-108

excerpt from

Remedies Under the New International Sales Convention: The Perspective from Article 2 of the U.C.C.

Harry M. Flechtner [*]

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Despite the broad language of Articles 46(1) and 62 of CISG, an aggrieved party's right to demand actual performance of the other side's obligations is subject to several limitations. The most important derives from Article 28 of the Convention, which provides that "a court is not bound to enter a judgement for specific performance unless the court would do so under its own law in respect of similar contracts of sale not governed by this Convention." Where the forum's rules on specific performance in domestic sales contracts are more restricted than those in the Convention, Article 28 permits the forum to apply its restrictive domestic law to transactions governed by the Convention.[30] The law of the forum can be applied even if, absent the Convention, foreign law would govern the transaction under choice of law principles.[31] A U.S. court, therefore, could restrict specific performance in a transaction governed by the Convention to situations where it would be available under the forum's domestic sales law. In most cases, of course, this will be Article 2 of the U.C.C.[32]

Other indirect limitations on an aggrieved party's right to compel the breaching party to perform are imposed by the Convention's substantive requirements and by limitations in its scope. For example, Professor Honnold argues that the mitigation of damages principle in Article 77 and an aggrieved seller's obligation under Articles 85 and 88(2) to dispose of goods within its control if the goods are subject to rapid deterioration will sometimes prevent the aggrieved party from forcing the contemplated exchange to be completed.[33] Interposition of third party rights may also foreclose an aggrieved party's nonavoidance option. The Convention does not govern the rights of those not party to the contract of sale.[34] If creditors of the seller have acquired rights in the goods to be delivered or if the seller has entered into bankruptcy or similar proceedings, the question of the priority of the buyer's claim for performance will be governed by applicable non-Convention law. If such law does not give the buyer's claim for performance priority, the buyer's attempt to compel performance may be defeated.[35] Similarly, if buyer has begun bankruptcy or equivalent proceedings, an aggrieved seller's right to force the buyer to take the goods and pay the price will be subject to non-Convention law that may trump the Convention's provisions.

Even with these limitations, an aggrieved party's power under the Convention to compel the exchange of goods for price where the buyer has not accepted the goods produces results significantly different from those under Article 2. For instance, Article 2 limits an aggrieved buyer's right to obtain undelivered goods to certain narrow circumstances. The buyer is entitled to specific performance under U.C.C. section 2-716(1) only "where the goods are unique or in other proper circumstances." The buyer has a right to replevy unshipped goods under U.C.C. section 2-716(3) only if the goods are identified to the contract and cover is unavailable. Finally, the buyer can recover undelivered goods under U.C.C. section 2-502 only if it has paid a portion of the price and tendered the balance, the seller has become insolvent within 10 days after receiving the buyer's first payment, the goods have been identified to the contract and, where the buyer made the identification, the goods conform to the contract. An Article 2 seller's right to compel a breaching buyer to pay for goods that have not been accepted is also quite limited. Under U.C.C. section 2-709, the seller can recover the price of unaccepted goods only if they suffered casualty after risk of loss passed to the buyer or if the seller cannot resell at a reasonable price. The Convention, in contrast, permits aggrieved parties to exact actual performance by the breaching party unless the result would violate the mitigation principle, third party rights have intervened, or the matter is litigated in a forum where domestic sales law would not permit such relief.

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FOOTNOTES

* Assistant Professor, University of Pittsburgh School of Law . . . .

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30. The wording of Article 28 appears to permit but not mandate imposition of a forum’s restrictive specific performance rules.

31. Honnold, supra note 25, at 223-25. Thus a choice of forum clause in a contract governed by the Convention might operate as a choice of law with respect to the availability of specific performance.

32. To obtain an order requiring seller to deliver, therefore, a Convention buyer litigating in most American forae might have to prove that "the goods are unique" or there are "other proper circumstances" within the meaning of U.C.C. § 2-716(1). The buyer could also presumably obtain such an order if it would have a right of replevin under U.C.C. § 2-716(3) or if it could claim undelivered goods under U.C.C. § 2-502, although neither of these U.C.C. provisions is generally considered to give rights to "specific performance."

In most U.S. courts, a buyer’s right to substitute goods or repair under Article 46(2) and (3) of the Convention would also be subject to the restrictive specific performance rules of Article 2. An order requiring the seller to repair non-conforming goods is, under Article 2, a specific performance remedy available only where the requirements of U.C.C. § 2-716(1) are met. Colorado-Ute Elec. Ass’n v. Envirotech Corp., 524 F.Supp. 1152, 1159 (D. Colo. 1981). The characterization probably applies equally to an order requiring seller to deliver goods in substitution for non-conforming goods. Because relief under Article 46(2) or (3) of the Convention would constitute a "judgment for specific performance" in a jurisdiction that has adopted Article 2, courts in such jurisdictions presumably need not grant these remedies unless the Article 2 requirements for specific performance are met. Cf. Honnold, supra note 25, at 221-22 (including Article 46(2) and (3) among "the general rules [of the Convention] which Article 28 modifies").

It is less clear whether a U.S. court could restrict the seller’s right to the price under Article 62 of the Convention to situations where that remedy would be available under U.C.C. § 2-709(1) – i.e., where the goods were accepted or were destroyed after risk of loss passed to the buyer, or where seller cannot resell at a reasonable price. Professor Farnsworth suggests that a seller’s price remedy is not a matter of "specific performance" and thus may not be subject to the "forum approach" rule in Article 28. See Farnsworth, Damages and Specific Relief, 27 Am. J. Comp. L. 247, 249-50 (1979). Professor Honnold, however, asserts that Article 28 makes U.C.C. § 2-709 applicable where the seller sues in a U.S. court to recover the price. Honnold, supra note 25, at 227.

33. Honnold, supra note 25, at 222.

34. See Sales Convention, supra note 1, art. 4.

35. If the buyer has substantially completed its performance under the sales contract, the issue that would arise under U.S. bankruptcy law is whether the buyer’s right to a remedy entailing actual performance of the contract would give the buyer a "claim." The Bankruptcy Code defines "claim" to include a "right to an equitable remedy for breach of performance if such breach gives rise to a right to payment . . ." 11 U.S.C. § 101(4)(B) (1982). According to the legislative history, this definition means that a right to specific performance is a "claim" if but only if applicable law permits payment as an alternative means to satisfy the specific performance right. 124 Cong. Rec. 32, 393 (statement of Rep. Edwards). If the Convention’s specific performance right does not give rise to a "claim," the right would not be discharged by the seller’s bankruptcy proceedings. Id. This will not do the buyer much good if, e.g., the seller is a corporation liquidating under Chapter 7 of the Bankruptcy Code: during the course of the bankruptcy proceedings the buyer will be automatically stayed from enforcing its right, 11 U.S.C. § 362(a)(1), (2), (3) (Supp. IV 1986); unless the buyer’s right to specific performance is seen as a property right in the goods to be recognized and protected in bankruptcy, the buyer will end up with a nondischarged right to specific performance against an empty corporate shell. On the other hand, if the right to specific performance under the Convention is a "claim," the claim will be estimated, id., § 502(c)(2), and will presumably have the priority of an unsecured claim.

Under U.S. bankruptcy law an unavoided sales contract will be considered an "executory contract" if material performance remains due on both sides. Countryman, Executory Contract in Bankruptcy, Part I, 57 Minn. L. Rev. 439, 460 (1973). The bankruptcy trustee generally has the right to "reject" or, if defaults are cured, "assume" executory contracts. 11 U.S.C. § 365(a), (b)(1) (Supp. IV 1986). If a seller’s trustee rejects an executory sales contract governed by the Convention, the seller’s bankruptcy estate need not perform under the contract and the buyer will normally have a breach of contract claim that is deemed to arise before the bankruptcy petition. Id. § 365(g)(1). This claim would presumably be treated as unsecured.

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Pace Law School Institute of International Commercial Law - Last updated August 16, 1999
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