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GUIDE TO CISG ARTICLE 67

Secretariat Commentary (closest counterpart to an Official Commentary)


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 79 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 79 [draft counterpart of CISG article 67].

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 there are several differences between paragraph (1) of article 79 of the 1978 Draft and paragraph (1) of CISG article 67 which may be characterized as essentially matters of drafting. Paragraph (2) of the Official Text contains a new element.


Text of Secretariat Commentary on article 79 of the 1978 Draft
[draft counterpart of CISG article 67]   [Passing of risk when the sale involves carriage]

PRIOR UNIFORM LAW

ULIS, articles 19(2), 19(3) and 97(1).

COMMENTARY

1. Article 79 [draft counterpart of CISG article 67] governs the passage of the risk of loss where the contract involves the carriage of the goods and the parties have not, by the use of trade terms or otherwise, provided for a different rule in respect of the risk of loss [see footnote 1].

2. The contract of sale involves carriage of the goods if the seller is required to ship the goods or is authorized to ship the goods and in fact does so. It does not involve carriage of the goods if the buyer takes delivery of the goods at the seller's place of business, even though they may need to be shipped by public carrier from that place, or if the buyer makes arrangements for the goods to be shipped.

3. Contracts of sale which involve the carriage of goods fall into three categories for the purpose of determining the point of time at which the risk passes from the seller to the buyer.

First Category

4. If the contract of sale provides for carriage of the goods from the seller's place of business, or such other place at which the goods may be located at the time of shipment, but does not require the seller to hand them over to the buyer or to the carrier at any place other than the place at which the carriage begins, "the risk passes to the buyer when the goods are handed over to the first carrier for transmission to the buyer [in accordance with the contract of sale]".

5. In many, perhaps in most, of the cases of the first category there will only be one carrier involved. For example, the contract provides that the seller is to arrange for carriage of the goods by truck from his place of business to that of the buyer. In some cases there will be two or more carriers. For example, the contract provides that the seller is to arrange for carriage by rail to a port at which point the goods are to go by ship. In still other cases the contract may provide that the seller is to arrange for the carriage but it is up to his judgement as to the modes of transport to be used.

["The first sentence of Article 67(1) closes with the phrase, 'for transmission to the buyer IN ACCORDANCE WITH THE CONTRACT OF SALE.' Suppose that the goods or the arrangements for shipment deviate from the contract in some minor respect: Does this make risk of loss remain on the seller? The answer is controlled by Article 70 ... which provides that the rules on risk in articles 67, 68 and 69 yield to the remedies given 'the buyer on account of fundamental breach' - in short, the rules on risk are not overturned by minor deviations that do not satisfy the standards of Article 25. The phrase in Article 67(1) 'for transmission to the buyer in accordance with the contract of sale' consequently imposes the condition that the contract authorized the seller to ship .... The buyer, of course, may recover for the loss that results from the seller's deviation from the contract: Arts. 45(1) and 74; see also Art. 66 ..." John O. Honnold, "Uniform Law for International Sales under the 1980 United Nations Convention" [Honnold Text], 2d ed., Kluwer Law International (1991), p. 463.]

Second Category

6. In many contracts of sale which involve carriage of the goods, the seller is required to hand the goods over to a carrier at a place other than the seller's place of business. For example, an inland seller who contracts to sell on CIF terms is required to hand over the goods to an ocean carrier at a port. By necessity the seller will have to arrange this by his own personnel and vehicles, but normally he will use an independent carrier.

7. In cases of the second category where the contract requires the seller to hand the goods over to a carrier at a place other than either the point of original shipment or the final destination of the goods, the risk passes when the goods are handed over to the carrier at that place. Therefore, where the goods are to be handed over to an ocean carrier at a port, risk passes when the goods are handed over to the ocean carrier and not when they are handed over to "the first carrier', i.e. the road or rail carrier, for carriage to the port.

[Cf. De Vries who questions the accuracy of paragraph 7 of the Secretariat Commentary. He states "C.I.F. terms, as a rule, do not include agreement on the port of shipment....[U]nder C.I.F. conditions... the seller undertakes to arrange for carriage to a named port; at which point the [sea] voyage begins is irrelevant .... A Seller may engage a carrier, e.g. to pick up a cargo at some inland point of dispatch, to forward it subsequently by any means of transport at his option to some shipping port and then to have it shipped to the destination agreed upon.... [T]he [inland] carrier ... would seem to come within the terms 'the first carrier for transmission to the buyer' [Article 67(1), first sentence] whereas the shipping company acts as second carrier in succession. In consequence thereof, the risk[ would] pass at the said inland point of dispatch .... " H. De Vries,"The Passing of Risk in International sales under the Vienna Sales Convention 1980 as compared with Traditional Trade Terms". European Transport Law 504-505 (1982). See also Farnsworth who states that the wording of Article 67(1) "might suggest that under a 'C.I.F. Buyer's City' contract risk would not pass until the goods are handed over at Buyer's City, contrary to the ... universal understanding that in C.I.F. contracts transit risks fall on the buyer. ... The fact that the price paid by the parties to put the transit risk on the buyer, a rationale used to reach that result at common law and that seems equally appropriate under article 6. ... The Convention's lack of specific C.I.F. rules ... nevertheless makes it imperative for contracting parties to provide such rules themselves, whether by incorporation of the International Chamber of Commerce's Incoterms or otherwise." E. Allan Farnsworth, "Review of Standard Forms", 21 Cornell Int'l L.J. 445 (1988).]

Third Category

8. Where the contract provides that the seller is to hand the goods over to the buyer at a particular destination, e.g. by use of an Ex Ship term, a term which calls for delivery at the port of destination named in the contract, the risk of loss does not pass under article 79 [draft counterpart of CISG article 67] but passes under article 81(1) [draft counterpart of CISG article 69(1)] after the goods have arrived at the named port of destination. The exact time at which risk passes depends upon factors discussed in the commentary to article 81 [draft counterpart of CISG article 69].

Retention of Documents by the Seller

9. It is a normal practice for an unpaid seller to retain the shipping documents as a form of security until such time as payment is made. In some legal systems "title" or "property" in the goods does not pass to the buyer until the documents are handed over to him. This can raise the question as to whether the risk of loss has passed.

10. The third sentence of article 79(1) [draft counterpart of CISG article 67(1)] makes it clear that the fact that the seller is authorized to retain documents controlling the disposition of the goods, or the fact that he acts in accordance with that authority, does not affect the passage of the risk, even though under the applicable national law it may affect the passage of "title" or "property" [see footnote 2].

[Paragraph (1) concludes with the following rule: "The fact that the seller is authorized to retain documents controlling disposition of the goods does not affect the passage of the risk." Lookofsky states that "since a trade term (Incoterm, etc.) will almost always be included in a documentary sales contract ... [this rule] will not control the risk issue in such transactions at all. ..." 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. 114. Honnold states: "This rule is useful to avoid unintended upset of the basic rule on risk and is consistent with commercial practice. In arranging for a documentary transfer the parties are concerned with payment of the price rather than damage in transit. Moreover, the contract may call for payment in exchange for documents at a time when the goods are on the way - on a truck or railcar, or on a ship in mid-ocean. In many situations (e.g., water seepage, shifting of cargo) it would be impossible to determine when the damage occurred; a rule that makes risk pass when the documents are handed over is difficult to apply. ..." Honnold Text, 2d ed., pp. 463-464.]

Identification of the Goods, Paragraph (2)

11. It is not infrequent that goods are shipped for the purpose of fulfilling a sales contract but the shipment is such that it would not be possible to tell from the markings on the packages, if any, or from the documents accompanying the shipment or in any other manner that the goods are intended to fill that particular contract. This situation can arise if the seller ships the goods to a party other than the buyer, such as an agent of the seller, who is to arrange for delivery to the buyer. Similarly, goods to fulfill more than one contract may be shipped in bulk. For example, a seller might ship 10,000 tons of wheat to fulfill his obligations to deliver 5,000 tons to each of two separate buyers.

12. In any of these cases in which the goods are not identified to the contract [clearly identified to the contract, whether by markings on the goods, by shipping documents, by notices given to the buyer or otherwise], article 79(2) [draft counterpart of CISG article 67(2)] provides that the risk does not pass as provided in article 79(1) [draft counterpart of CISG article 67(2)]. Instead, it passes at the moment the seller sends the buyer a notice of the consignment which specifies the goods (OFFICIAL RECORDS, p. 64).

[Honnold advises "The identification requirement is designed to prevent a seller from claiming falsely, after goods have suffered casualty, that these were the goods purchased by the buyer. Any identification that would forestall this abuse should be sufficient ..." Honnold Text, 2d ed., p. 464. However, in the case of a bulk sale (e.g., one-half to A; one-half to B), Honnold states "the buyers should not be held to have agreed to loss sharing ... unless this result is clearly indicated by the contract." Id. at 466. Cf. Lookofsky who states: "[If] the whole cargo is destroyed, it is hard to see why [A and B] should not impliedly be held to [each] bear half the total risk ..." 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. 115, n. 2).]


FOOTNOTES

1. Article 82 [draft counterpart of CISG article 70] affects the application of article 79 [draft counterpart of CISG article 67] if there has been a fundamental breach of contract.

2. Article 4(b) provides that this Convention is not concerned with "the effect which the contract may have on the property in the goods sold."

[The rules for passing of risk in Article 67 are based on the "control" theory and do not turn on who has title at time of loss.]


Pace Law School Institute of International Commercial Law - Last updated August 30, 2006
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