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GUIDE TO CISG ARTICLE 79

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 65 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 65 [draft counterpart of CISG article 79].

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 paragraph (3) of article 65 of the 1978 Draft and paragraph (3) of CISG article 79 reflect a change which can be significant under certain circumstances. The remainder of the paragraphs of these articles are substantively the same.


Text of Secretariat Commentary on article 65 of the 1978 Draft
[draft counterpart of CISG article 79]   [Impediments beyond a party's control]

PRIOR UNIFORM LAW

ULIS, article 74.

COMMENTARY

1. Article 65 [draft counterpart of CISG article 79] governs the extent to which a party is exempted from liability for a failure to perform any of his obligations because of an impediment beyond his control.

General Rule, Paragraphs (1) and (5)

2. Paragraph (1) sets out the conditions under which a party is not liable for a failure to perform any of his obligations. Paragraph (5) provides that exemption from liability under this article prevents the other party from exercising only his right to claim damages, but does not prevent him from exercising any other right he may have [see footnote 1].

3. Under articles 41(1)(b) and 57 (1)(b) [draft counterpart of CISG articles 45(1)(b) and 61(1)(b)] a party has a right to claim damages for any non-performance of the other party without the necessity of providing fault or a lack of good faith or the breach of an express promise on his part, as is required by some legal systems. However, under article 65 [draft counterpart of CISG article 79] the non-performing party is exempt from liability if he proves (1) that the failure to perform was due to an impediment beyond his control, (2) that he could not reasonably be expected to have taken the impediment into account at the time of the conclusion of the contract, (3) that he could not reasonably have been expected to have avoided the impediment or its consequences and (4) that he could not reasonably have been expected to have overcome the impediment or its consequences.

[An examination of these four elements illustrates the potential for different interpretations by parties from different legal cultures. Element (1) refers to the event, "an impediment beyond his control." Elements (2), (3), and (4) refer to what the party "could not reasonably be expected to have" done.

-  ELEMENT (1):"In respect of control, is it what is theoretically possible or what is commercially realistic? [I]f this formulation reflects the French rule that force majeure must be "unforeseeable, insurmountable and irresistible" ... [t]his requires that performance should be impossible, not merely onerous. ..." A.H. Hudson, "Exemptions and Impossibility under the Vienna Convention", Force Majeure and Frustration of Contract, McKendrick ed., Lloyds of London Press (1991), pp. 185-187.

-  ELEMENTS (2), (3), (4): Each of these elements is subject to the stated standard of reasonableness which could cause a party accustomed to the "commercial impracticability" of the U.S. Uniform Commercial Code to conclude that article 79 is in this respect similar to the UCC and not to more stringent civil law standards of force majeure.]

4. The impediment may have existed at the time of the conclusion of the contract. For example, goods which were unique and which were the subject of the contract may have already perished at the time of the conclusion of the contract. However, the seller would not be exempted from liability under this article if he reasonably could have been expected to take the destruction of the goods into account at the time of the conclusion of the contract. Therefore, in order to be exempt from liability, the seller must not have known of their prior destruction and must have been reasonable in not expecting their destruction.

[Paragraph 4 of this Secretariat Commentary should be cross-referenced with the Annotated Text of CISG Article 4 and citations there to commentaries on mistake and conflicts between the Convention and domestic laws which hold that mistake invalidates a contract. Assume the sale of goods transported on a ship that sank at the time of the conclusion of the contract. Schlechtriem interprets the above Secretariat Commentary as holding that, if it was reasonable not to have expected such an impediment to performance, article 79 applies -- even in the face of a domestic validity law which terms such contracts invalid on the grounds of mistake. Like Honnold, it is Schlechtriem's view that "domestic laws which accord legal recourse in situations where a party errs about the goods to be delivered ... would not apply under the Convention [in instances in which] these problems are specifically and conclusively regulated by the Convention ..." Peter Schlechtriem, "Uniform Sales Law", Manz: Vienna (1986), p. 33. Enderlein & Maskow are to the same effect. Fritz Enderlein & Dietrich Maskow, "International Sales Law", Oceana (1992), p. 323. See also Nicholas for a comparable resolution of a fact pattern addressed by article 68 (Sale of Goods During Transit). Barry Nicholas, Bianca-Bonell Commentary, Guiffrè: Milan (1987), pp. 500-501.]

[Tallon disagrees. It is his position that domestic validity laws on such matters override the Convention. Denis Tallon, Bianca-Bonell Commentary, pp. 577-578. Lee concurs with Tallon's assessment. He refers to the position taken in paragraph 4 of the Secretariat Commentary as one presented "without any explanation." Wanki W. Lee,"Exemptions of Liability Under the 1980 United Nations Convention", 8 Dickinson J. Int'l L. 386-387 (1990). There is, however, an explanation for the Secretariat's position. When referring to an earlier version of paragraph (1) of Article 79 which limited the impediment to one that occurred AFTER the conclusion of the contract, the Secretariat Commentary took the same position as Tallon and Lee, stating that "if at the time of the conclusion of the contract there was an existing impediment to performance, the national law applicable to the ... validity of the contract may provide either that no contract was concluded or that it was invalid by reason of the mistake ... of the parties. ..." UNCITRAL Yearbook VII, A/CN.9/SER.A/1976, p. 130. However, following the addition of the words "AT THE TIME OF THE CONCLUSION OF THE CONTRACT" (this was a 1977 addition to paragraph (1)), the Secretariat took a different position-as reflected in paragraph 4 of the above Commentary.]

5. It is this later element which is the most difficult for the non-performing party to prove. All potential impediments to the performance of a contract are foreseeable to one degree or another. Such impediments as wars, storms, fires, government embargoes and the closing of international waterways have all occurred in the past and can be expected to occur again in the future. Frequently, the parties to the contract have envisaged the possibility of the impediment which did occur. Sometimes they have explicitly stated whether the occurrence of the impending event would exonerate the non-performing party from the consequences of the non-performance. In other cases it is clear from the context of the contract that one party has obligated himself to perform an act even though certain impediments might arise. In either of these two classes of cases,article 5 [draft counterpart of CISG article 6] of this Convention assures the enforceability of such explicit or implicit contractual stipulations.

[Should a strike or other labor disturbance be regarded as an "impediment" under Article 79? Enderlein & Maskow state "Opinions may differ as to whether strikes are beyond the control of the party concerned, for their causes are often found in the enterprise. We believe that one should ... take a careful stand in the matter and not exclude strikes as impediments, except when they are internal confrontations at a factory and provided that the other conditions of impediments are fulfilled, too (c. also Tallon [Bianca-Bonell Commentary, p. 584]) Rudolph ... even believes that strikes could generally be considered as possible in the context of negotiations on pay and therefore would not constitute an impediment ... because they happen at specific intervals. This is true of strikes which can be foreseen at the time of the conclusion of the contract. Lockouts are, at least to a certain extent, not exterior to the activities of the debtor and can, therefore, not be considered as impediments. ..." Fritz Enderlein & Dietrich Maskow, "International Sales Law", Oceana (1992), p. 323.]

6. However, where neither the explicit nor the implicit terms of the contract show that the occurrence of the particular impediment was envisaged, it is necessary to determine whether the non-performing party could reasonably have been expected to take it into account at the time of the conclusion of the contract. In the final analysis this determination can only be made by a court or arbitral tribunal on a case-by-case basis.

7. Even if the non-performing party can prove that he could not reasonably have been expected to take the impediment into account at the time of the conclusion of the contract, he must also prove that he could neither have avoided the impediment nor overcome it nor avoided or overcome the consequences of the impediment. This rule reflects the policy that a party who is under an obligation to act must do all in his power to carry out his obligation and may not await events which might later justify his non-performance. This rule also indicates that a party may be required to perform by providing what is in all the circumstances of the transaction a commercially reasonable substitute for the performance which was required under the contract.

8. The effect of article 65 [draft counterpart of CISG article 79(1)] in conjunction with article 65(5) [draft counterpart of CISG article 79(5)] is to exempt the non-performing party only from liability for damages. All of the other remedies are available to the other party, i.e. demand for performance, reduction of the price or avoidance of the contract. However, if the party who is required to overcome an impediment does so by furnishing a substitute performance, the other party could avoid the contract and thereby reject the substitute performance only if that substitute performance was so deficient in comparison with the performance stipulated in the contract that it constituted a fundamental breach of contract.

[Article 79(5) states that nothing in article 79 prevents either party from exercising any right other than to claim damages under the Convention. "Article 74(3) of the ULIS, on the other hand, states that the relief provided by article 74 shall not exclude the avoidance of the contract under some other provision of the ULIS or deprive the other party of any right which he has under the ULIS to reduce the price, unless the circumstances which entitled the first party to relief were caused by the act of the other party or of some person for whose conduct he is responsible. This could mean that the party may not be sued for specific performance under the ULIS, but could be sued under the UN Sales Convention, except in cases in which national law prevents such a suit against the party." Muna Ndulo, "The Vienna Sales Convention 1980 and the Hague Uniform Laws on International Sale of Goods 1964: A Comparative Analysis", 38 Int'l & Comp. L. Q. 21-22 (1989).]

9. Even if the impediment is of such a nature as to render impossible any further performance, the other party retains the right to require that performance under article 42 or 58 [draft counterpart of CISG article 46 or 62]. It is a matter of domestic law not governed by this Convention as to whether the failure to perform exempts the non-performing party from paying a sum stipulated in the contract for liquidated damages or as a penalty for non performance or as to whether a court will order a party to perform in these circumstances and subject him to the sanctions provided in its procedural law for continued non-performance [see footnote 2].

Example 65A: The contract called for the delivery of unique goods. Prior to the time when the risk of loss would have passed pursuant to article 79 or 80 [draft counterpart of CISG article 67 or 68] the goods were destroyed by a fire which was caused by events beyond the control of Seller. In such a case Buyer would not have to pay for the goods for which the risk had not passed but Seller could be exempted from liability for any damage resulting from his failure to deliver the goods.

Example 65B: The contract called for the delivery of 500 machine tools. Prior to the passage of the risk of loss, the tools were destroyed in similar circumstances to Example 65A. In such a case Seller would not only have to bear the loss of the 500 tools but he would also be obligated to ship to Buyer an additional 500 tools. The difference between this example and Example 65A is that in Example 65A Seller cannot provide that which was contracted for whereas under Example 65B Seller can overcome the effect of the destruction of the tools by shipping replacement goods.

Example 65C: If the machine tools shipped in replacement of those destroyed in Example 65B could not arrive in time, Seller would be exempted from damages for late delivery.

Example 65D: The contract called for the goods to be packed in plastic containers. At the time the packing should have been accomplished, plastic containers were not available for reasons which Seller could not have avoided. However, if other commercially reasonable packing materials were available, Seller must overcome the impediment by using those materials rather than refuse to deliver the goods. If Seller used commercially reasonable substitute packing materials, he would not be liable for damages. In addition, Buyer could not avoid the contract because there would have been no fundamental breach of the contract but Buyer could reduce the price under article 46 [draft counterpart of CISG article 50] if the value of the goods had been diminished because of the non-performing packing materials.

Example 65E: The contract called for shipment on a particular vessel. The schedule for the vessel was revised because of events beyond the control of both Buyer and Seller and it did not call at the port indicated within the shipment period. In this circumstance the party responsible for arranging the carriage of the goods must attempt to overcome the impediment by providing an alternative vessel.

[Cf. Tallon who states that: "According to the commentary, the seller would not be liable for damages if he provided 'commercially reasonable substitute packing materials.' This solution is inspired by Section 2-614 of the United States Uniform Commercial Code. It is, however, excessive in view of the lack of precision in Article 79; furthermore, it conflicts with Article 36(1) of the Convention according to which the seller must deliver 'goods which are ... contained or packaged in the manner required by the contract.' This solution might, in addition, be dangerous as it would enable one party to modify unilaterally the terms of the contract, thus generating insecurity to the detriment of the weaker party. The same result could in any case be reached by a different and more convincing reasoning. If the seller is unable to perform the contract in accordance with the specification of the buyer and has recourse to a 'commercially reasonable substitute' -- very close to what the parties initially provided in their agreement -- the buyer would act in violation of the general principle of good faith by refusing the latter mode of performance. The seller could therefore claim damages. It would indeed be illogical to speak of non-performance and exemption in a case where the only question is whether the contract has been performed or not." Denis Tallon, Bianca-Bonell Commentary, Guiffrè: Milan (1987), p. 582.]

10. Although it is probably true that the insolvency of the buyer by itself is not an impediment which exempts the buyer from liability for non-payment of the price, the unanticipated imposition of exchange controls, or other regulations of a similar nature may make it impossible for him to fulfill his obligation to pay the price at the time and in the manner agreed. The buyer would, of course, be exempted from liability for damages for the non-payment (which as a practical matter would normally mean interest on the unpaid sum) only if he could not overcome the impediment by, for example, arranging for a commercially reasonable substitute form of payment [see footnote 3]. [Note, however, that buyer does not appear to be exempt from liability for interest under the new article 78.]

Non-Performance by a Third Person, Paragraph (2)

11. It often happens that the non-performance of a party is due to the non-performance of a third person. Paragraph (2) provides that where this is the case, "that party is exempt from liability only if he is exempt under paragraph (1) of this article [under the preceding paragraph] and if the person whom he has [so] engaged would be so exempt if the provisions of that paragraph were applied to him."

12. The third person must be someone who has been engaged to perform the whole or a part of the contract. It does not include suppliers of the goods or of raw materials to the seller.

["[The] legislative history indicates that narrow scope should be given to the phrase 'a third person whom [a party] has engaged to perform the contract.' In Tallon's words there must be an 'organic link' between the main contract and the subcontract. ... Paragraph (2) would apply ... when P [principal contractor] turns over to a third party (T) the performance of P's duty to manufacture goods to buyer's (B's) specifications. The paragraph would also seem to apply if P delegates to T P's duty to procure goods and deliver them to a buyer (B). In both cases P will be exempt from damages for failure to perform the contract only if T was prevented by an impediment that constitutes an excuse under Article 79(1). In short, if T is liable in damages to P, P should not be excused from liability to B ..." John O. Honnold, "Uniform Law for International Sales under the 1980 United Nations Convention" [Honnold Text], 2d ed. Kluwer Law International (1991), pp. 546-547.]

Temporary Impediment, Paragraph (3)

[Caveat: Paragraphs 13 and 14 of the Secretariat Commentary are based on a provision of the 1978 Draft that was changed, and should be evaluated accordingly. Paragraph (3) of the 1978 Draft read "The exemption provided by this article has effect only for the period during which the impediment exists". The word "only" was deleted from paragraph (3) of the Official Text.]

13. Paragraph (3) provides that an impediment which prevents a party from performing for only a temporary period of time exempts the non-performing party from liability for damages only for the period during which the impediment existed. Therefore, the date at which the exemption from damages terminates is the contract date for performance or the date on which the impediment was removed, whichever is later in time.

Example 65F: The goods were to be delivered on 1 February. On 1 January an impediment arose which precluded Seller from delivering the goods. The impediment was removed on 1 March. Seller delivered on 15 March. Seller is exempted from any damages which may have occurred because of the delay in delivery up to 1 March, the date on which the impediment was removed. However, since the impediment was removed after the contract date for delivery, the Seller is liable for any damages which occurred as a result of the delay in delivery between 1 March and 15 March.

14. Of course, if the delay in performance because of the temporary impediment amounted to a fundamental breach of the contract, the other party would have the right to declare the avoidance of the contract. However, if the contract was not avoided by the other party, the contract continues in existence [see footnote 4] and the removal of the impediment reinstates the obligations of both parties under the contract.

Example 65G: Because of a fire which destroyed Seller's plant, Seller was unable to deliver the goods under the contract at the time performance was due. He was exempted from damages under paragraph (1) until the plant was rebuilt. Seller's plant was rebuilt in two years. Although a two-year delay in delivery constituted a fundamental breach which would have justified Buyer in declaring the avoidance of the contract, he did not do so. When Seller's plant was rebuilt, Seller was obligated to deliver the goods to Buyer and, unless he decided to declare the contract avoided because of fundamental breach, Buyer was obligated to take delivery and to pay the contract price [see footnote 5] [see footnote 6].

[Honnold states: "Article 79(3) deals with an impediment for a limited time but makes no provision as to an impediment affecting part of the contract. ... Unlike some legal systems, article 79 does not speak of nullity of 'the contract' but instead provides that a party is not liable for failure to perform 'any' of its 'obligations' -- language that permits exemption to the extent that the impediment applies. Article 51(1) ... reflects a policy that is consistent with this result: '(1) If the seller delivers only a part of the goods ... articles 46-50 [provisions on remedies for breach] apply in respect of the part that is missing ...' There is no reason to suppose that this policy was rejected for Article 79." Honnold Text, 2d ed., p. 549.]

Duty to Notify, Paragraph (4)

15. The non-performing party who is exempted from damages by reason of the existence of an impediment to the performance of his obligation must notify the other party of the impediment and its effect on his ability to perform. If the notice is not received by the other party within a reasonable time after the party who fails to perform knew or ought to have known of the impediment, the non-performing party is liable for damages resulting from the failure of the notice to be received by the other party [see footnote 7]. It should be noted that the damages for which the non-performing party is liable are only those arising out of the failure of the other party to have received the notice and not those arising out of the non-performance.

16. The duty to notify extends not only to the situation in which a party cannot perform at all because of the unforeseen impediment, but also to the situation in which he intends to perform by furnishing a commercially reasonable substitute. Therefore, the seller in Example 65D and the party responsible for arranging the carriage of the goods in Example 65E must notify the other party of the ntended substitute performance. If he does not do so, he will be liable for any damages resulting from the failure to give notice. If he does give notice but the notice fails to arrive he will be also liable for damages resulting from the failure of the notice to have been received by the other party (OFFICIAL RECORDS, pp. 55-56).


FOOTNOTES

1. See para. 8, below.

2. Cf. article 26 [draft counterpart of CISG article 28] which provides that if, in accordance with the provisions of this Convention, one party is entitled to require performance of an obligation by the other party, a court is not bound to enter any judgment 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.

3. As to the unpaid seller's right to stop delivery of the goods, see articles 54(1) and 62(2) [draft counterpart of CISG articles 58(1) and 71(2)].

4. See para. 2 of the commentary on article 45 [draft counterpart of CISG article 49] and para. 2 of the commentary on article 60 [draft counterpart of CISG article 64].

5. Neither article 65 [draft counterpart of CISG article 79] nor any other provision of this Convention would release the seller from the obligation to deliver the goods on the grounds that there had been such a major change in the circumstances that the contract was no longer that originally agreed upon. The parties could, of course, include such a provision in their contract.

6. The seller would have no right to insist that the buyer take the goods if the delay constituted a fundamental breach of contract or if the delay caused the buyer unreasonable inconvenience or uncertainty of reimbursement by the seller of expenses advanced by the buyer even if the buyer had not declared the avoidance of the contract (article 44(1) [draft counterpart of CISG article 48(1)]).

7. The requirement that the notice be received by the other party places the risk of transmission on the sender of the notice and thus reserves the general rule contained in article 25 [draft counterpart of CISG article 27].

[Article 65(4) [draft counterpart of CISG article 79(4)] reserves (i.e., it does not preserve) the general rule contained in article 25 [draft counterpart of CISG article 27]. Article 65(1) [draft counterpart of CISG article 79(4)] is an exception to this rule where it is considered that a communication ought to be received to be effective.]


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