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GUIDE TO ARTICLES 85, 86, 87 & 88

Comparison with Principles of European Contract Law (PECL)


Match-up of CISG Articles 85, 86, 87 and 88 with PECL Articles 7:110 through 7:112
CISG Article 85

If the buyer is in delay in taking delivery of the goods or, where payment of the price and delivery of the goods are to be made concurrently, if he fails to pay the price, and the seller is either in possession of the goods or otherwise able to control their disposition, the seller must take such steps as are reasonable in the circumstances to preserve them. He is entitled to retain them until he has been reimbursed his reasonable expenses by the buyer.

CISG Article 86

(1) If the buyer has received the goods and intends to exercise any right under the contract or this Convention to reject them, he must take such steps to preserve them as are reasonable in the circumstances. He is entitled to retain them until he has been reimbursed his reasonable expenses by the seller.

(2) If goods dispatched to the buyer have been placed at his disposal at their destination and he exercises the right to reject them, he must take possession of them on behalf of the seller, provided that this can be done without payment of the price and without unreasonable inconvenience or unreasonable expense. This provision does not apply if the seller or a person authorized to take charge of the goods on his behalf is present at the destination. If the buyer takes possession of the goods under this paragraph, his rights and obligations are governed by the preceding paragraph.

CISG Article 87

A party who is 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.

CISG 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 intent to sell.

PECL Article 7:110 [Property Not Accepted]
(complete and revised version 1998)

(1) A party which is left in possession of tangible property other than money because of the other party's failure to accept or retake the property must take reasonable steps to protect and preserve the property.

(2) The party left in possession may discharge its duty to deliver or return:

(a) by depositing the property on reasonable terms with a third person to be held to the order of the other party, and notifying the other party of this; or

(b) by selling the property on reasonable terms after notice to the other party, and paying the net proceeds to that party.

(3) Where, however, the property is liable to rapid deterioration or its preservation is unreasonably expensive, the party must take reasonable steps to dispose of it. It may discharge its duty to deliver or return by paying the net proceeds to the other party.

(4) The party left in possession is entitled to be reimbursed or to retain out of the proceeds of sale any expenses reasonably incurred.


PECL Article 7:111 [Money Not Accepted]

Where a party fails to accept money properly tendered by the other party, that party may after notice to the first party discharge its obligation to pay by depositing the money to the order of the first party in accordance with the law of the place where payment is due.


PECL Article 7:112 [Costs of Performance]

Each party shall bear the costs of performance of its obligations.

(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.


Definitions

For the PECL definition of "reasonableness", go to PECL art. 1:302 and the comment and notes that accompany this provision.


Editorial remarks
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.

[See also commentary by the author on this subject in: John Felemegas ed., An International Approach to the Interpretation of the United Nations Convention on Contracts for the International Sale of Goods (1980) as Uniform Sales Law, Cambridge University Press (2006) 518-524.]


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>.


Comment and notes on PECL 7:110, 7:111, 7:112

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, these comments and notes 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) 352-357.


COMMENT AND NOTES: PECL Article 7:110: Property Not Accepted

(1) A party which is left in possession of tangible property other than money because of the other party's failure to accept or retake the property must take reasonable steps to protect and preserve the property.

(2) The party left in possession may discharge its duty to deliver or return: (a) by depositing the property on reasonable terms with a third person to be held to the order of the other party, and notifying the other party of this; or (b) by selling the property on reasonable terms after notice to the other party, and paying the net proceeds to that party.

(3) Where, however, the property is liable to rapid deterioration or its preservation is unreasonably expensive, the party must take reasonable steps to dispose of it. It may discharge its duty to deliver or return by paying the net proceeds to the other party.

(4) The party left in possession is entitled to be reimbursed or to retain out of the proceeds of sale any expenses reasonably incurred.

Comment

A. Scope of the rule

This article deals with a specific form of prevention of performance, namely the creditor's failure to take delivery or to retake tangible property, other than money, tendered by the debtor. The effect of failure to accept a tender of money is covered by Article 7:111.

The scope of the provision is fixed in paragraph (1) and comprises three different situations. In the first a party which is by a contract obliged to deliver tangible property (e.g. under a contract of sale) has made a tender conforming to the contract but the other party refuses to take delivery. In the second situation the party to whom delivery was to be made has received the property but has lawfully rejected it, and the other party fails to retake it.

The third situation occurs where a contract has been lawfully terminated. According to Article 9:308 a party which had received property has then to return it to the other party. If the other party refuses to accept it, Article 7:110 applies.

For the application of Article 7:110 it is irrelevant whether or not the refusal to accept property is a non-performance (cf. Article 1:301(4)).

B. Protection and preservation of the property

Where this provision applies, the party which is unwillingly left in possession of property is not on that account entitled to abandon the goods or wantonly to leave them exposed to loss, damage or theft. It must take reasonable steps for their protection, e.g. by taking them back into its own custody or depositing them in a store or warehouse (paragraph (2)).

C. Perishables and goods expensive to preserve

In the case of perishables, the duty to protect encompasses sale of the perishables where they are in danger of deteriorating. The same applies if the expenses of preserving [page 352] the goods are unreasonably high, i.e. disproportionate to the value of the goods; this covers also the case where the goods take much space which is urgently needed by the debtor. In both cases the party must take reasonable steps for disposition, depending on the value of the goods on the one hand and the trouble and expense of finding a favourable opportunity for sale on the other hand (paragraph (3)).

D. Legal consequences

Article 7:110(1) imposes a duty to protect and preserve the goods. However, the party which is left in possession of them is not relieved from its duty to deliver or return them.

If the party left in possession wishes to discharge its duty to deliver (or to return) it must make the property or its substitute available to the other party. The steps it can take to achieve this purpose are prescribed in paragraph (2) for property in general and in paragraph (3) sentence 2 for perishables and equivalent goods.

E. Discharge of party left in possession

In paragraph (2) two ways are set out by which the party which was left in possession of property (the debtor) may discharge its duty to deliver or to return the property.

(a) The debtor may deposit the property on reasonable terms with a third party to be held to the order of the creditor. The debtor can recover under paragraph (4) all storage charges reasonably incurred. In most cases, the deposit is likely to be a prelude to the debtor's exercise of its power of sale under sub-paragraph (b), for the debtor will itself be responsible to the depositary for the latter's charges and may find it impossible to recover these from the creditor.

(b) Alternatively, the debtor may sell or otherwise dispose of the object on reasonable terms. The interests of the creditor are protected by requiring that the debtor normally act only after reasonable notice; in the case of perishables this notice may be very short or no notice may be needed at all. The debtor must then account to the obligee for the net proceeds of the disposal. The obligor may be entitled under the applicable law to set off a claim against the creditor's entitlement to the net proceeds (e.g. for damages for breach of contract).

If the debtor had already sold the goods according to paragraph (2) sent. 1, it may discharge its duty by paying the net proceeds (see paragraph (4)) of the sale to the creditor.

F. Other remedies unaffected

If by not taking delivery the obligee fails to perform a contractual duty, the debtor is entitled to exercise any of the remedies available for non-performance, including damages and termination of the contract. If the creditor initially refuses to receive the goods but later is willing to take them, but meanwhile the debtor has incurred expenses in preserving them, the debtor may withhold the goods until the creditor is willing to reimburse the debtor. This right of withholding follows from the idea underlying Article 9:201.[page 353]

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

In combining in one rule several factual situations where a party has not accepted property, Article 7:110 uses a new and original approach.

1. Duty of preservation

Some European laws expressly provide that if the buyer without justification fails to take delivery of the goods, the seller must take reasonable care of them (U.K. Sale of Goods Act 1979, s. 20(3); DANISH Sale of Goods Act 33; FINNISH and SWEDISH Sale of Goods Acts, 72-78; see also CISG art. 85). In other European laws, there is no special duty of protection which would exceed what is required by good faith and fair dealing (for PORTUGAL Soares & Ramos 243 and 245). By contrast, for the case of mora creditoris it is expressly provided that the obligor is responsible only for deliberate or reckless acts or omissions (GERMAN BGB 300(1); GREEK CC art. 355; PORTUGUESE CC art. 814(1); this is acknowledged by AUSTRIAN courts also as a result of the general rule laid down in ABGB 1419); compare BELGIAN Court of Appeals Antwerpen 29 Oct. 1980, R.W. 1981-82, 1563, and see Pothier no. 55. See also NETHERLANDS BW art. 6:90 which includes both non-performance and mora creditoris. In SPANISH law there is a duty of preservation as a result of CC arts. 1167 ff., 1185, 1452(3), 1505, 1589 and 1590.

The other factual situation covered by Article [7:110(3)], i.e. that of the party left in possession of non-conforming goods, is in the NETHERLANDS governed by a general rule in BW art. 7:29, in FINLAND and SWEDEN by Sale of Goods Act 73; and in CISG by art. 86. In GERMANY and AUSTRIA a corresponding rule applies to commercial transactions and where delivery is made from one place to another (HGB 379 - Distanzkauf; see Heymann (-Emmerich) 379 HGB nos. 3 and 4). In non-commercial cases, good faith and fair dealing may require the party not to let the goods perish, but he may send them back (Schlegelberger (-Hefermehl) 379 HGB no. 1).

Some countries have specific provisions placing the cost of preserving goods on a party who has failed to accept them (e.g. a buyer who has failed to accept delivery, UK Sale of Goods Act 1979 s. 37, CISG art. 85 sent. 2; a seller who has failed to take back goods properly rejected by the buyer, CISG art. 86(1) sent. 2; or generally, DANISH Sale of Goods Act 36, FINNISH and SWEDISH Sale of Goods Act 75). Other laws deal with the issue in the context of mora creditoris, and therefore impose the costs on the obligee (GERMAN BGB 304; GREEK CC art. 358 and AP 115/1970, NoB 18 (1970) 811, 812; PORTUGUESE CC art. 816).

2. Depositing goods

A party left with goods after a failure to take them by the other (mora creditoris) is expressly given a right of deposit by CISG art. 87 as well as in FRANCE, BELGIUM and LUXEMBOURG (CC arts. 1264 and 1961(3): judicial permission is required; M.E.Storme, Invloed no. 451); AUSTRIA (ABGB 1525); NETHERLANDS (BW art. 6:66); FINNISH and AND SWEDISH Sale of Goods Act 74; and in ITALY (CC art. 1210 - see also arts. 1514-1515, 1686 and 1690), but rigid procedural rules must be complied with (cf. Italian CC art. 1212). The situation is similar SPAIN (CC art. 1176, Commercial Code art. 332 and Civil Procedure Code art. 2.127); and in PORTUGAL, where deposit discharges the obligation (see CC arts. 841 ff.) but a court procedure is necessary (CC Proc. art. 1024 ff., see Varela II 184, Cordeiro II 217). In GERMANY, discharge by deposit is provided for in BGB 378 only for money and valuables.

In FRANCE, the party left in possession has an effective alternative to the complicated method of depositing: he may ask for a court injunction against the obligee to take away or accept the goods, combined with an astreinte (judicial penalty) in case of disobedience (Malaurie and Aynès, Obligations no. 1019).

By contrast, in GERMANY deposit in a case of mora creditoris between merchants does not discharge the obligor under HGB 373(1) Heymann (-Emmerich) 373, 374 HGB no. 9, Schlegelberger (-Hefermehl), 373 no. 16). Nor is there a direct equivalent to Article 2.113(2)(a) in ENGLAND. If a buyer refuses to take the goods and the property has not yet passed, the seller's only remedy will be to terminate the contract and claim damages from the buyer (see e.g. Stein, Forbes & Co. Ltd. v. County Tailoring Co. Ltd. (1916) 86 L.J.K.B. 448 (K.B.)).

3. Resale

Resale as a means of self-help in Article 2.113(2)(b) is known in AUSTRIA and GERMANY in HGB 373(2)-(5) in cases of mora creditoris between merchants; similarly PORTUGUESE Comm. C. art. 474; FINNISH and SWEDISH Sale of Goods Acts, 76. Except in the Scandinavian laws, however, generally only sale by auction is permitted. Only when the goods have a market price is a sale through officially licensed brokers or auctioneers for the current price admitted. Place and time of such sale are not expressly regulated, but are subject to the seller's diligent determination (Heymann (-Emmerich) 373, 374 HGB nos. 21 and 22). In DENMARK (Sale of Goods Act 34), [page 354] FINLAND and SWEDEN (Sale of Goods Act 76(3)), AUSTRIA and GERMANY (HGB 373(2)) prior notice of the sale must be given; it must be so timely and sufficiently clear as to give the buyer the opportunity to take proper steps to protect his interests (ROHG 11.1.1876, ROHGE 19, 293 (293 f.); Heymann (-Emmerich) 373, 374 HGB no. 12). The notice is dispensed with for emergency sales and when it is not reasonably feasible ( 373 (2) sent. 3 and 4). According to 373(3) resale which is justified as self-help takes place for the account of the defaulting buyer; the latter remains liable for that part of the purchase price which is not covered by the proceeds of the resale.

Also GREEK law allows the obligor, during the creditor's default and after notice to the latter, to dispose of the object at public auction and to pay the proceeds to a public entity ("Deposits and Loans Fund") for the creditor's account; notice may be dispensed with if the object is liable to perish or if notice is particularly difficult (CC art. 428). An auction can be dispensed with by leave of the judge, if the object has a market price or small value (art. 429). On sale by auction or "in a similar reasonable way", see also DANISH Sale of Goods Act 34. In ITALY, resale on merely "reasonable terms" is allowed only in the special case of deposit of goods in a public warehouse (CC art. 1789). Under SPANISH law, resale is permitted after termination of the contract (CC art. 1258, Commercial Code art. 57; see Vicent Chuliá II 108).

BELGIAN law has different provisions for different contracts: sales, see CC art. 1657; carriage, see Transport Contract Act art. 8; on contracts for custody, cleaning, repair, etc of goods, see Act of 21 Feb. 1983.

In ENGLAND, by contrast, resale according to Sale of Goods Act 1979, s. 48 has the effect of terminating the original contract. The resale is on the seller's own account and the buyer is liable in damages for the seller's net loss (R.V. Ward Ltd. v. Bignall [1967] 1 Q.B. 534 (C.A.). SCOTTISH law is the same.

4. Rapid deterioration

In sales, the party's duty to effect a resale in case of rapid deterioration or unreasonably expensive preservation (Article 7:110(3)) is recognised in AUSTRIA and GERMANY (HGB 379(2)), DENMARK (Sale of Goods Act 35), FINLAND and SWEDEN (Sale of Goods Act 76(2)) and in the NETHERLANDS (BW arts. 6:66 and 7:30). BELGIAN case law reaches the same result: Court of Appeals Brussels 3 July 1931, Jur. P. Anvers 418; see ME. Storme, Invloed No. 393; Demogue VI, nos. 26 and 45; In ITALY, CC art. 1211 on mora creditoris is similar, but it requires judicial approval and merely authorizes the debtor to resell but does not oblige him to do so (Cattaneo 217). CISG art. 88 also allows resale as a form of self-help; similarly SPANISH law, Vicent Chuliá II 108.[page 355]

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COMMENT AND NOTES: PECL Article 7:111: Money Not Accepted

Where a party fails to accept money properly tendered by the other party, that party may after notice to the first party discharge its obligation to pay by depositing the money to the order of the first party in accordance with the law of the place where payment is due.

Comment

A. Explanation

This provision authorises the debtor, after notice, to discharge its obligation to pay by depositing the money in any manner authorised by the law of the contractual place for payment, e.g. by paying it into court. The deposit must be to the order of the creditor so that it obtains the right to dispose of the money deposited (cf. Article 7:110 paragraph (2) sub-paragraph (a)). The notice to the creditor must be reasonable (cf. Article 1:201) both with respect to the method of transmission and with respect to the time given to the first party to reply.[page 355]

B. Scope of application

This provision applies to two different situations. First, it applies where a debtor attempts to perform a primary duty to pay under a contract, e.g. to pay the price for goods, services or work; in this case the rejected tender must have conformed to the contract. Secondly, it applies to secondary obligations to pay, e.g. after termination of the contract to repay money received (Article 9:307) or to pay damages according to Chapter 9 section 5.

For the application of Article 7:111 it is irrelevant whether or not the refusal to accept money is a non-performance (cf. Article 1:301 sub-paragraph (d)).

C. Payment by a third person

According to Article 7:106 an obligation which does not require personal performance can be performed by a third person. The payment of money will not usually require personal performance. Consequently, the term "tendered by the other party" must be read broadly so as to encompass a third person which makes payment in conformity with Article 7:106.

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

1. Depositing money

European continental laws generally have detailed rules on deposit of money for cases of mora creditoris (DENMARK: Law on Depositing 1932 1; FINLAND: Act on Depositing, 1931; FRANCE BELGIUM and LUXEMBOURG: CC arts. 1257-1264; GERMANY: BGB 372 ff.; GREECE: CC art. 427; ITALY: CC art. 1206 ff., PORTUGAL: CC art. 841(1)(b); SPAIN: CC art. 1176). In SWEDEN, depositing is permitted only in certain cases, particularly when the debtor has difficulty in discovering whom he should pay: Rodhe, Obligationsrätt 130. In contrast, ENGLAND and SCOTLAND have no equivalent rule. In IRELAND payment may be made into court, Clark 403.

Deposit is to be made either with a court (AUSTRIA: ABGB 1425; GERMANY: Regulation on Deposits, 1(2); SPAIN: CC art. 1178) or with a special Deposits and Loans Fund (BELGIUM: Royal Decree of 18 March 1935, though there is some flexibility in judical practice; FRANCE: Law of 28 July 1875, D. 15 Dec. 1875; GREECE: CC art. 430 and Presidential Decree of 30 December 1926/ 3 January 1927) or the enforcement authority or a financial institution (DENMARK: Law on Depositing 6; FINLAND and SWEDEN, Laws on Depositing, 1) or a person whose business it is to take custody of sums of money (NETHERLANDS: BW art. 6:67, 6:68).

A deposit often has the effect of discharging the monetary obligation (for BELGIUM, FRANCE, the NORDIC countries and PORTUGAL see above, para. 1; the same applies in GERMANY, provided the depositor waives the right of reclaiming the money, see BGB 378), and in ITALY and SPAIN when the deposit is accepted by the creditor or approved by the court, Italian CC art. 1210(2), Spanish CC art. 1180.

In DENMARK and GERMANY if the depositor does not waive his right to reclaim the money, and generally in SPAIN, deposit does not discharge the obligation. In Germany, the debtor has merely the right to refer the creditor to the deposited asset; the debtor no longer bears the risk and need no longer pay interest or compensation for fruits reaped (German BGB 379).

2. Notice to creditor

A prior notice to the creditor is, in contrast to Article 7:111, not required in GREECE (Capodistrias in ErmAK II/2 art. 427 no. 11 (1954)) and GERMANY, where a subsequent notice given without undue delay suffices (BGB 374(2) sent. 1; see also FINNISH Act on Depositing, 2(2)); a notice may sometimes even be dispensed with (Greek CC art. 430; BGB 374(2) sent. 2). In Germany, Greece and DENMARK, if notice is omitted, the deposit is nevertheless valid (Palandt (-Heinrichs) 374 no. 1), but it may give rise to a claim for damages (Germany: BGB 374(2) sent. 1; Greece: AP 161/1977, NoB 25 (1977) 1156, 1157; Danish Law on Depositing, 1(3)). Other countries require a judicial or other procedure (FRANCE: CC art. 1258(7); ITALY: CC art. 1212; PORTUGAL: CC Proc. arts. 1024 ff.; SPAIN: CC art. 1178, Royal Decree 34/1988, Code of Civil Procedure art. 2127 (third parties who are interested must be given prior notice, CC art. 1177)).[page 356]

3. Costs of deposit

The costs of deposit are imposed upon the creditor who failed to accept the money (FRANCE: CC art. 1260; GERMAN BGB 381, ITALIAN CC art. 1215; SPANISH CC art. 1179).[page 357]

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COMMENT AND NOTES: PECL Article 7:112: Costs of Performance

Each party shall bear the costs of performance of its obligations.

Comment

The performance of commercial obligations usually entails costs. Transportation, money transfers, government licences, risk insurance, etc. will all have to be paid for. This provision lays down that such costs are to be borne by the performing party.

Illustration: A orders a book from Publishers B, located in another country, after B has stated a price for the book knowing that A resides in another country. The Publishers may not invoice A extra for the costs of mailing the book to him, unless this was agreed. Likewise, A has to bear the costs of paying for the book through an international money order or other means of payment.

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

This provision is in line with the law in most jurisdictions in Europe. See for instance FRENCH and BELGIAN CCs art. 1248, DUTCH BW art. 6:47, GERMAN BGB 364 and ITALIAN CC art. 1198. The rule is considered self-evident under AUSTRIAN law. The same applies to English law: there is no explicit statement of a general rule but the principle is illustrated by Sale of Goods Act 1979, s. 29(6), under which the seller must bear the expenses of putting goods into a deliverable state: see Chitty 41-195. The rule also applies in PORTUGAL (Telles, p. 287), although the present Civil Code has dropped the express provision to this point contained in art. 746 of the old Code of 1867. Unidroit art. 6.1.11 is to the same effect as Article 7:112.[page 357]

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