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GUIDE TO CISG ARTICLE 81

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 66 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 66 [draft counterpart of CISG article 81].

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 66 of the 1978 Draft and CISG article 81 are substantively identical.


Text of Secretariat Commentary on article 66 of the 1978 Draft
[draft counterpart of CISG article 81]   [Effect of avoidance; release from obligations; contract provisions for settlement of disputes; restitution]

PRIOR UNIFORM LAW

ULIS, article 78.

COMMENTARY

1. Article 66 [draft counterpart of CISG article 81] sets forth the consequences which follow from a declaration of avoidance. Article 67 to 69 [draft counterpart of CISG articles 82 to 84] give detailed rules for implementing certain aspects of article 66 [draft counterpart of CISG article 81].

Effect of Avoidance, Paragraph (1)

2. The primary effect of the avoidance of the contract by one party is that both parties are released from their obligations to carry out the contract. The seller need not deliver the goods and the buyer need not take delivery or pay for them.

3. Partial avoidance of the contract under article 47 or 64 [draft counterpart of CISG article 51 or 73] releases both parties from their obligations as to the part of the contract which has been avoided and gives rise to restitution under paragraph (2) as to that part.

4. In some legal systems avoidance of the contract eliminates all rights and obligations which arose out of the contract. In such a view once a contract has been avoided, there can be no claim for damages for its breach and contract clauses relating to the settlement of disputes, including provisions for arbitration, choice of law, choice of forum, and clauses excluding liability or specifying "penalties" or "liquidated damages" for breach, terminate with the rest of the contract.

[As stated by the United States District Court for the Southern District of New York, "contracts and the arbitration clauses included therein are considered to be 'severable,' a rule that the Sale of Goods Convention ... adopts with respect to avoidance of contracts generally. Sale of Goods Convention Article 81(1)." (Filanto S.p.A. v. Chilewich Int'l Corp., 789 F. Supp. 1229, 1239 (1992), appeal dismissed 984 F. 2d 58 (2d Cir. 1993).]

5. Paragraph (1) provides a mechanism to avoid this result by specifying that the avoidance of the contract is "subject to any damages which may be due" and that it "does not affect any provisions [provision] of the contract governing the respective rights [the rights] and obligations of the parties consequent upon the avoidance of the contract". It should be noted that article 66(1) [draft counterpart of CISG article 81(1)] would not make valid an arbitration clause, a penalty clause, or other provision in respect of the settlement of disputes if such a clause was not otherwise valid under the applicable national law. Article 66(1) [draft counterpart of CISG article 81(1)] states only that such a provision is not terminated by the avoidance of the contract.

6. The enumeration in paragraph (1) of two particular obligations arising out of the existence of the contract which are not terminated by the avoidance of the contract is not exhaustive. Some continuing obligations are set forth in other provisions of this Convention. For example, article 75(1) [draft counterpart of CISG article 86(1)] provides that "if the goods have been received by the buyer, and if he intends to reject them, he must take such steps as are reasonable in the circumstances to preserve them" ["If the buyer has received the goods and intends to reject them, he must take such steps to preserve them as are reasonable in the circumstances"] and article 66(2) [draft counterpart of CISG article 81(2)] permits either party to require of the other party the return of whatever he has supplied or paid under the contract. Other continuing obligations may be found in the contract itself [see footnote 1] or may arise out of the necessities of justice.

[Enderlein & Maskow state: "The surviving conditions can be multifaceted ... They relate to general questions of cooperation between the parties, like agreement of general business terms whose individual elements again have to be examined according to that criterion, agreements on the form of declarations, a general obligation to cooperate, obligations to maintain secrecy, a reservation of title up to restitution, limitation of claims, and the applicable law ... Another group of conditions refers to the modalities of performance, i.e. commercial terms, risk bearing, packaging, procurement of licenses, which can play a role where the return of the goods or of the price is concerned. Of particular practical relevance are those agreements which deal with liability, such as penalties, liquidated damages and damage clauses, including possibilities of exemption and restrictions, the amount of interest, etc." Fritz Enderlein & Dietrich Maskow, "International Sales Law" [Enderlein & Maskow Commentary] Oceana (1992), p. 343.]

Restitution, Paragraph (2)

7. It will often be the case that at the time the contract is avoided, one or both of the parties will have performed all or part of his obligations. Sometimes the parties can agree on a formula for adjusting the price to the deliveries already made. However, it may also occur that one or both parties desires the return of that which he has already supplied or paid under the contract.

8. Paragraph (2) authorizes either party to the contract who has performed in whole or in part to claim the return of whatever he has supplied or paid under the contract. Subject to article 67(2) [draft counterpart of CISG article 82(2)], the party who makes demand for restitution must also make restitution of that which he has received from the other party. "If both parties are required to make restitution, they must do so concurrently," unless the parties agree otherwise.

["However, the rule of concurrent performance does not apply to restitution by the buyer who only demands substitute goods (instead of declaring an avoidance). The Conference rejected a ... proposal which, contrary to trade practices, would have permitted the buyer to keep defective goods until the seller delivers substitute goods. ... The discussion confirms, however, the buyer's duty to return the goods, which can lead to a restriction of the right to a substitute delivery when it is impossible to return the goods as provided in Article 82. ..." Peter Schlechtriem, "Uniform Sales Law", Manz: Vienna (1986), p. 107.]

[Enderlein & Maskow state that the requirement of concurrent restitution "will be difficult to implement ... Since in international trade concurrence does not mean a direct change from one hand into the other, there can be several forms in which this requirement is to be fulfilled. Article 58 can provide an orientation for it. We believe, however, that in choosing the forms of concurrence, it has to play a role whether a party is liable for a breach of contract. The concrete form to be applied would then have to be chosen to the disadvantage of that party. When the contract is avoided because the seller has delivered grossly non-conforming goods, the buyer may demand that a letter of credit be opened up as a condition for the restitution. Where the avoidance, however, is caused by the buyer who stops paying instalments, the seller will at best be willing to repay the refundable part of the price on the condition of cash against documents, and require the granting of an opportunity to examine the goods to be restituted. This means that arrangements will in any event have to be made between the parties. When they do not succeed, the competent deciding organ should proceed according the principles mentioned above." Enderlein & Maskow Commentary, pp. 344-345.]

9. Paragraph (2) differs from the rule in some countries that only the party who is authorized to avoid the contract can make demand for restitution. Instead, it incorporates the idea that, as regards restitution, the avoidance of the contract undermines the basis on which either party can retain that which he has received from the other party.

[Enderlein & Maskow state that the "decisive operative articles (81 and 84) are balanced and do not place a greater burden on the party who has committed the breach. A possibly required redistribution of costs will be achieved only through damages insofar as there are no grounds for exemption." Enderlein & Maskow Commentary, p. 340.]

10. It should be noted that the right of either party to require restitution as recognized by article 66 [draft counterpart of CISG article 81] may be thwarted by other rules which fall outside the scope of the international sale of goods. If either party is in bankruptcy or other insolvency procedures, it is possible that the claim of restitution will not be recognized as creating a right in the property or as giving a priority in the distribution of the assets. Exchange control laws or other restrictions on the transfer of goods or funds may prevent the transfer of the goods or money to the demanding party in a foreign country. These and other similar legal rules may reduce the value of the claim of restitution. However, they do not affect the validity of the rights between the parties.

11. The person who has breached the contract giving rise to the avoidance of the contract is liable not only for his own expenses in carrying out the restitution of the goods or money, but also the expenses of the other party. Such expenses would constitute damages for which the party in breach is liable. However, the obligation under article 73 [draft counterpart of CISG article 77] of the party who relies on the breach of the contract to "take such measures as are reasonable in the circumstances to mitigate the loss" may limit the expenses of restitution which can be recovered by means of damages if physical return of the goods is required rather than, for example, resale of the goods in a local market where such resale would adequately protect the seller at a lower net cost [see footnote 2] (OFFICIAL RECORDS, p. 57).


FOOTNOTES

1. Article 5 [draft counterpart of CISG article 6].

2. Cf. Article 77 [draft counterpart of CISG article 88] on the authority of one party who holds good for the account of the other party to sell the goods for the account of the other party.


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