Guide to the use of this commentary
The Secretariat Commentary is on the 1978 Draft of the CISG, not the Official Text, which re-numbered most of the articles of the 1978 Draft. The Secretariat Commentary on article 78 of the 1978 Draft is quoted below with the article references contained in this commentary conformed to the numerical sequence of the Official Text, e.g., article 78 [draft counterpart of CISG article 66].
To the extent it is relevant to the Official Text,
the Secretariat Commentary on the 1978 Draft is
perhaps the most authoritative source one can cite.
It is the closest counterpart to an Official
Commentary on the CISG. A match-up of this article
of the 1978 Draft with the version adopted for the
Official Text is necessary to document the relevancy
of the Secretariat Commentary on this article. See
the match-up for this article for a validation of
citations to this Secretariat Commentary. This match-up indicates that article 78
of the 1978 Draft and CISG article 66 are substantively
Text of Secretariat Commentary on article 78 of the 1978 Draft
[draft counterpart of CISG article 66] [Loss after risk has passed]
PRIOR UNIFORM LAW
ULIS, article 96.
1. Article 78 [draft counterpart of CISG article 66] introduces the provisions in the Convention that regulate the passing of the risk of loss.
2. The question whether the buyer or the seller must bear the risk of loss is one of the most important problems to be solved by the law of sales. Although most types of loss will be covered by a policy of insurance, the rules allocating the risk of loss to the seller or to the buyer determine which party has the burden of pressing a claim against the insurer, the burden of waiting for a settlement with its attendant strain on current assets, and the responsibility for salvaging damaged goods. Where insurance coverage is absent or inadequate, the allocation of the risk has an even sharper impact.
["Article 66 ... deals narrowly and solely with the effect of `loss of ... the goods' after risk has passed to the buyer, and provides that when this occurs the buyer must pay the price. At first glance the result may seem harsh but the result responds to pragmatic considerations. It is feasible and customary for transit loss to be covered by insurance. Moreover, loss or damage is usually discovered at the end of carriage; the buyer usually is in a better position than the seller to assess the damage, make a claim against the insurer and salvage the usable goods [Similar principles apply to claims against the carrier ...]. A second and equally compelling answer calls for examination of the Convention' s provision on exemption (or excuse) in Article 79 ... In brief, Article 79 provides exemption only when performance is prevented by an 'impediment beyond [the party's] control'; no impediment prevents payment of the price. A more substantive answer is that exemption does not apply when a party could 'have avoided or overcome [the impediment] or its consequences'; it is possible (and customary) for a party bearing transit risk to 'overcome' the 'consequences' by insurance." John O. Honnold, "Uniform Law for International Sales under the 1980 United Nations Convention" [Honnold Text], 2d ed., Kluwer Law International (1991) p. 452.]
3. Frequently, of course, the risk of loss will be determined by the contract. In particular, such trade terms as FOB, CIF, and C and F may specify the moment when the risk of loss passes from the seller to the buyer [see footnote 1]. Where the contract sets forth rules for the determination of the risk of loss by the use of trade terms or otherwise, those rules will prevail over the rules set forth in this Convention [see footnote 2].
4. Article 78 [draft counterpart of CISG article 66] states the main consequence of the passing of the risk. Once the risk has passed to the buyer, the buyer is obligated to pay for the goods notwithstanding their subsequent loss or damage. This is the converse of the rule stated in article 34(1) [draft counterpart of CISG article 36(1)] that "the seller is liable . . . for any lack of conformity which exists at the time when the risk passes to the buyer".
[Once risk of loss of or damage to the goods has passed to the buyer, the practical consequences of the first part of Article 66 are said to be that "the buyer (a) must perform his obligations under the contract even though the object sold is lost or damaged and (b) has no rights against the seller arising out of any non-performance by the seller which is due to such loss or damage. More particularly he (a) must pay the price and must take delivery, to the extent, if at all, that it is tendered (see Articles 54 to 60), and (b) cannot assert the remedies set out in Article 45 in so far as they arise out of the casualty in question. ..."(Nicholas, in Bianca-Bonell Commentary, Giuffrè:Milan (1987), pp. 484-485); "If the buyer neglects to notify the seller of non-conformities (including a delivery of entirely different goods) or defects in title, such as encumbering industrial property rights, the buyer remains obligated to pay the purchase price, even if the goods are lost and the contract would have been avoidable had timely notice of the lack of conformity been given." Peter Schlechtriem, "Uniform Sales Law", Manz: Vienna (1986), p. 87.]
5. Nevertheless, even though the risk has passed to the buyer prior to the time that the goods are lost or damaged the buyer is discharged from his obligation to pay the price to the extent that the loss or damage was due to an act or omission of the seller.
[Lookofsky states: "Th[e] Article 66 rule [that if the loss or damage suffered is due to an act or omission of the seller, the buyer need not pay even if the `risk' has passed in the technical sense] stands in apparent contrast with the rule applicable in documentary sales (whereby the buyer must first pay against documents and then bring an action against the seller), but Article 66 is not concerned with documentary sales. ..." Joseph Lookofsky, "The 1980 United Nations Convention on Contracts for the International Sale of Goods", International Encyclopaedia of Laws, Blanpain, gen. ed. (Kluwer 1993), p. 112, n. 2.]
The Article 66 phrase "act or omission" also appears in Articles 80 and 82(2)(a). There can be cases in which the act or omission is a tort under domestic law. Under Article 66, 80 or 82(2)(a), what standard determines whether such an act or omission is wrongful? Honnold would base the standard on provisions of the Convention rather than domestic tort law. Honnold Text, 2d ed., pp. 566-577.]
6. The loss or damage to the goods may be caused by an act or omission of the seller which does not amount to a breach of the seller's obligations under the contract. For example, if the contract was on FOB terms, the risk would normally pass when the goods passed the ship's rail [see footnote 3]. If the seller damaged the goods at the port of discharge when he was recovering his containers, the damage to the goods may be considered not to be a breach of contract but,instead, to constitute a tort. If the loss or damage to the goods constitutes a tort rather than a breach of the contract, none of the buyer's remedies under articles 41 to 47 [draft counterpart of CISG articles 45 to 51] would apply [see footnote 4]. Nevertheless, article 78 [draft counterpart of CISG article 66] provides that the buyer would not be obligated to pay the price as stated in the contract but would have the right to deduct the damages as they would be calculated under the applicable law of tort (OFFICIAL RECORDS, pp. 63-64).
[Honnold reports: "UNCITRAL in 1977 rejected a proposal to amend Article 66 (then draft article 64) to limit the 'act or omission' to a breach of contract (VIII YB 63, para. 53). ... This decision not to restrict the scope of Article 66 seems wise since the seller, by a wrongful seizure of the goods or abuse of legal process, might cause damage to the goods under circumstances that might not constitute a breach of contract. [See also, reference to 'act or omission' in Article 82(2)(a).]" Honnold Text, 2d ed., p. 454. See, however, Enderlein & Maskow who state: "We assume ... that the act or omission of the seller has to be in breach of contract or at least in breach of obligation.... [The] rather abstractly formulated rule [in the last clause of Article 66] should in general not be extended to torts because they require the examination of different conditions." Fritz Enderlein & Dietrich Maskow, "International Sales Law", Oceana (1992) pp. 262-263. They recommend that such matters be handled as provided in the applicable domestic law.]
1. E.g., Incoterms, FOB, A.4 and B.2; CIF, A.6 and B.3; C & F, A.5 and B.3 provide that the seller bears the risk until the goods pass the ship's rail from which time the risk is borne by the buyer. [The references are to incoterms (1976); the provisions of FOB, CIF and CFR in Incoterms (1990) are similar.] The use of such terms in a contract without specific reference to Incoterms or to some other similar definition and without a specific provision in the contract as to the moment when risk passes may nevertheless be sufficient to indicate that moment if the court or arbitral tribunal finds the existence of a usage. See para. 6 of the commentary to article 8 [draft counterpart of CISG article 9].
2. Article 5 [draft counterpart of CISG article 6].
3. See footnote 1 above.
4. Article 41(1) [draft counterpart of CISG article 45(1)] makes these remedies applicable only if the seller "fails to perform any of his obligations under the contract and [or] this Convention".