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GUIDE TO CISG ARTICLE 71

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 62 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 62 [draft counterpart of CISG article 71].

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 paragraphs (2) and (3) of article 62 of the 1978 Draft and CISG article 71 are substantially the same. However, paragraph (1) was significantly modified. Only the Secretariat Commentary on paragraphs (2) and (3) is presented below.


Text of Secretariat Commentary on article 62 of the 1978 Draft
[draft counterpart of CISG article 71]   [Suspension of performance]

PRIOR UNIFORM LAW

ULIS, article 73.

COMMENTARY

[Paragraphs 1 through 9 of this Secretariat Commentary, which deal with paragraph (1) of article 62 of the 1978 Draft, are not quoted.]

[Paragraphs (1) and (3) of Article 71 grant rights to buyers as well as sellers. Paragraph (2) (Stoppage in Transit) grants right only to the seller. The legislative history of Article 71 indicates that a proposal was made to have paragraph (2) also grant rights to the buyer by modifying it as follows: "If a party has already dispatched the goods or sent the money (including having had issued a letter of credit) for the goods before the grounds mentioned in paragraph (1) become evident, he may prevent the handing over of the goods or the payment of the money even though the other party holds a document that entitles him to delivery of the goods or payment of the money, as the case may be. This paragraph relates only to rights in the goods or in the money as between the buyer and the seller." However, this proposal was rejected (UNCITRAL Yearbook VIII, A/CN. 9/SER A/1977, p. 54, paras. 412-415]

Stoppage in Transit, Paragraph (2)

10. Paragraph (2) continues the policy of paragraph (1) in favour of a seller who has already shipped the goods . . . [If the deficiency in the buyer's creditworthiness is such as to make it apparent] that the buyer will not pay for the goods, the seller has the right as against the buyer to order the carrier not to hand over the goods to the buyer even though the buyer holds a document which entitles him to obtain them, e.g., an ocean bill of lading, and even if the goods were originally sold on terms granting the buyer credit after receipt of the goods.

11. The seller loses his right to order the carrier not to hand over the goods if the buyer has transferred the document to a third party who has taken it for value and in good faith.

12. Since this Convention governs the rights in the goods only between the buyer and the seller [see footnote 2], the question whether the carrier must or is permitted to follow the instructions of the seller where the buyer has a document which entitles him to obtain them is governed by the appropriate law of the form of transport in question [see footnote 3].

[Bennett states "Paragraph (2) is expressly limited in its operation to 'the rights in the goods as between the buyer and the seller.' The carrier is accordingly not bound to comply with a direction of the seller not to hand over the goods to the buyer, and indeed where the buyer holds a document which entitles him to obtain the goods, the carrier may be precluded from withholding them from him by his obligations under municipal and international law. In such circumstances the effective operation of the paragraph could therefore be quite limited." Trevor H. Bennett, Bianca-Bonell Commentary, Guiffrè: Milan (1987), pp. 520-521. Honnold, however, states: "The fact that article 71(2)'s rules on stoppage relate only to rights 'as between the buyer and the seller' does not make this provision as feeble as might be supposed. ... True, the Convention does not state that when article 71(2) applies the carrier must deliver the goods to the seller; the carrier needs protection lest some third party in good faith might have purchased the goods (or documents representing them) and thereby acquired rights to the goods that are protected by applicable domestic law. On the other hand, article 71(2) states that the seller may stop delivery 'even though the buyer holds a document that entitles him to obtain them;' under this language the seller may stop delivery even though the buyer holds a negotiable bill of lading or other document controlling delivery. ... In this case, to protect the carrier, the seller by an appropriate proceeding should require the buyer to deliver the documents to the seller or to the carrier. See arts. 62, 71(2). Even a third party who holds documents that control delivery may not have rights under domestic law that would cut off the seller's right to the goods. The essential point is that domestic law can be expected to honor the seller's rights against the buyer established by article 71(2) and give the seller as much protection against third persons as domestic law accords to other persons in the seller's position. The carrier, of course, can have no objection to delivering the goods to the person who is entitled to them if the procedures suggested above protect the carrier against third party claims. (In any case the carrier is normally entitled to receive any unpaid freight before delivering the goods.)." John O. Honnold, "Uniform Law for International Sales under the 1980 United Nations Convention" [Honnold Text], 2d ed., Kluwer Law International (1991), pp. 490-491).]

Notice and Adequate Assurances of Performance, Paragraph (3)

13. Paragraph (3) provides that the party suspending performance pursuant to paragraph (1) or stopping the goods in transit pursuant to paragraph (2) must immediately notify the other party of that fact.

The other party can reinstate the first party's obligation to continue performance by giving the first party adequate assurance that he will perform. For such an assurance to be "adequate", it must be such as will give reasonable security to the first party either that the other party will perform in fact, or that the first party will be compensated for all his losses from going forward with his own performance.

Example 62E: The contract of sale provided that Buyer would pay for the goods 30 days after their arrival at Buyer's place of business. After the conclusion of the contract Seller received information . . . . [on the Buyer's creditworthiness which permitted Seller to suspend his performance pursuant to paragraph (1)]. After he suspended performance and so notified Buyer, Buyer offered either (1) a new payment term so that he would pay against documents, or (2) a letter of credit issued by a reputable bank, or (3) a guarantee by a reputable bank or other such party that it would pay if Buyer did not, or (4) a security interest in sufficient goods owned by Buyer to assure Seller of reimbursement. Since any one of these four alternatives would probably give Seller adequate assurances of being paid [see footnote 4], Seller would be required to continue performance.

Example 62F: The contract of sale called for the delivery of precision parts for Buyer to use in assembling a high technology machine. Seller's failure to deliver goods of the requisite quality on the delivery date would cause great financial loss to Buyer. Although Buyer could have the parts manufactured by other firms, it would take a minimum of six months from the time a contract was signed for any other firm to be able to deliver substitute parts. The contract provided that Buyer was to make periodic advance payments of the purchase price during the period of time Seller was manufacturing the goods. When Buyer received information . . . [which made it apparent that] Seller would not be able to deliver on time, Buyer notified Seller that he was suspending any performance due the Seller. Seller gave Buyer written assurances that he would deliver goods of the contract quality on time and offered a bank guarantee for financial reimbursement of all payments made under the contract if he failed to meet his obligations. In this case Seller has not given adequate assurance of performance. Seller's statements that he would perform, unless accompanied by sufficient explanations of the information which . . . [made it apparent] that Seller would not deliver on time, were only a reiteration of his contractual obligation. The offer of a bank guarantee of reimbursement of payments under the contract was not an adequate assurance to a Buyer who needs the goods at the contract date in order to meet his own needs.

[Honnold states: "Threats of non-performance may develop under a wide variety of circumstances; the range of remedial steps can only be suggested. For example, where a buyer has suspended payment of his current obligations, adequate assurance of performance may, in some circumstances, be provided by proof that the buyer has re-established current payments; in other circumstances 'adequate assurance' may call for the issuance by a bank of an irrevocable letter of credit. Threats to continued performance by the seller resulting from a strike or the loss of a source of necessary materials may be removed by proof that the strike has been settled or that a new source of materials has been obtained. Developing an adequate solution to such problems calls for good faith consultation between the parties. ..." Honnold Text, 2d ed., p. 492.]

14. The first party's obligation to perform remains suspended until either (1) the other party performs his obligations, (2) adequate assurances are given, (3) the first party declares the contract avoided, or (4) the period of limitation applicable to the contract has expired [see footnote 5].

15. Prior to the date on which the other party was required to perform, the first party could declare the contract avoided only if the criteria of article 63 [draft counterpart of CISG article 72] were met. After the date on which the other party was required to perform, the first party could declare the contract avoided only if the criteria of article 45 or 60 [draft counterpart of CISG article 49 or 64] were met. Avoidance of one or more instalments of a contract for delivery of goods by instalments is governed by article 64 [draft counterpart of CISG article 73].

16. If the party suspending performance suffers damages because the other party did not provide adequate assurances as required by this article, he may recover any damages he may have suffered, whether or not he declares the contract avoided [see footnote 6]. For example, if the buyer in Example 62F declared the contract avoided and purchased substitute goods elsewhere at a higher price, he can recover the difference between his repurchase price and the cover price [see footnote 7]. (OFFICIAL RECORDS, pp. 52-53).


FOOTNOTES

2. Article 62(2) [draft counterpart of CISG article 71(2)] expressly states that it relates only to the rights in goods as between the buyer and the seller. This reflects the general principles expressed in article 4.

3. The rules governing the carrier's obligation to follow the consignor's orders to withhold delivery from the consignee differ between modes of transportation and between various international conventions and national laws.

4. The offer of a security interest would be an adequate assurance only if the national law in question allowed such interests and provided a procedure on default which was adequate to assure the creditor prompt reimbursement of his claim.

5. Under the Convention on the Limitation Period in the International Sale of Goods, art. 8, that period would be four years. That Convention does not prescribe as to whether the rights under the contract are terminated or whether it is the right of a party to commence an action to enforce such a right which is terminated.

6. Article 66(1) [draft counterpart of CISG article 81(1)] preserves the right of a party who declares the contract avoided to claim any damages which may occur from the breach of contract.

7. Article 71 [draft counterpart of CISG article 75]. If the buyer did not declare the contract avoided, the measure of damages would be calculated according to article 70 [draft counterpart of CISG article 74].


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