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Reproduced with permission from 15 Journal of Law and Commerce 139-152 (1995)

A U.S. Court's Interpretation of Damage Provisions under the U.N. Convention on Contracts for the International Sale of Goods: A Preliminary Step towards an International Jurisprudence of CISG or a Missed Opportunity?

Joanne M. Darkey

I. Introduction

II. CISG: Framwork for Interpretation

III. The Delchi Opinion

A. Factual setting - The international sales contract
B. The court's conclusions
     1. Foreseeability and certainty of loss
     2. Lost profits
     3. Pre-judgment interest
     4. Conversion to dollars

V. Conclusion

I. Introduction

On January 1, 1988, the United Nations Convention on Contracts for the International Sale of Goods (hereinafter "Convention" or "CISG") went into effect with thirteen ratifying states including the United States.[1] Subsequently, practitioners and commentators the world over have pondered the repercussions of a uniform law of international sales. Judicial opinions were eagerly anticipated in order to clarify the Convention's application, and to ensure certainty and predictability of interpretation, thereby assuaging concerns of both the corporate and legal communities. The convention has now been ratified by forty-seven countries, and case law is rapidly expanding.

The second U.S. court application of CISG occurred in 1994 in the Northern District of New York and is the subject of this comment. The court in Delchi Carrier, SpA v. Rotorex Corp. interpreted the damage provisions of CISG, namely articles 74-78, and discovered gaps that it filled in a variety of ways.[2] The nonchalance of the court's determination that CISG was the applicable law is striking. Furthermore, the opinion is more noteworthy for the dearth of analysis and the methodology utilized to support the conclusions than for the actual reasoning employed.

While an overly broad interpretation of CISG is not desirable, CISG needs to be examined as an integrated whole rather than through piece-meal interpretation of the articles analyzed in isolation from other relevant provisions. As one of the first U.S. courts to interpret CISG, the Delchi court should have conducted a careful and detailed analysis of all the relevant provisions applied to the facts. Such a [page 139] thorough application would have been invaluable to the development of case law. By focusing only on the remedy provisions, the court missed a rare opportunity to contribute to the world-wide jurisprudence on CISG.

Before delving into the court's interpretation and rationale, this note will highlight the provisions of the Convention that address interpretation and analyze the methodology of interpretation envisioned by the drafters of CISG. The facts of Delchi and the court's interpretation will then be set forth with a detailed analysis of the court's decision. There are two components to the analysis: form and substance. Was the court's methodology correct (was proper deference afforded to the international character of the convention), and did the court apply the Convention correctly? The answers to these questions shed light on how future U.S. courts will interpret CISG. In addition, Delchi creates precedent for the application of the damage provisions of the Convention.

II. CISG: Framework for Interpretation

The text of CISG was written by legal practitioners who sought to weave an integrated legal system on international sales transactions from the threads of a multitude of legal systems with rich histories and varying philosophies underpinning contract law and economic theory.[3] However, a treaty is only as good as its implementation and interpretation. Since a goal of the Convention is the unification of the law pertaining to international sales, predictability and certainty of interpretation is desirable. Unfortunately, there is no single judicial body charged with applying the Convention. Rather, domestic fora, whether they be national courts or arbitration panels, will interpret the provisions.

With this in mind, the drafters crafted Article 7 to serve as a guide for the uniform interpretation of the convention. Article 7(1) asserts that the international character and need for uniformity in application should be taken into account in conjunction with the observance of good faith in international trade when interpreting the Convention.[4] Paragraph 2 states that gaps in the treaty should be filled first in conformity with the general principles of the Convention, and as a last [page 140] resort, questions should be settled in conformity with the applicable rules of private international law.[5]

Since there is little enunciation of the "general principles" of the treaty other than uniform application, courts may tend to fill perceived gaps in CISG with domestic law. However, a judge should only undertake a conflict of laws analysis after failing to ascertain general principles of CISG that would resolve the issue and fill any perceived gaps in the Convention.

A domestic law resolution of an issue would not promote the creation of a uniform, coherent trade law, however, as decisions based on domestic law are less likely to be adopted by foreign courts.[6] Instead of reverting to domestic rules, courts are urged by Honnold to fill gaps through an analogical application of the Code: a civil law approach.[7] As noted by Lookofsky, one "can hardly expect a totally uniform application, but in the hands of the internationally minded judge or arbitrator, the CISG can serve as a starting point, a good common ground."[8]

Since the CISG is a code,[9] it is a logical assumption that a civil law approach to interpretation is favored.[10] However, the differences between methodologies of interpretation in common law and civil law systems may be more acute in theory than in practice, since the same functions are being performed by both the civil and common law judges.[11] Honnold warns of the "natural tendency to read the international text through the lens of domestic law."[12] Indeed, it will take a conscious effort on the part of the judge to overcome his legal training [page 141] and bias towards a particular legal tradition and to become internationally minded.

In order to honor the Convention's international character, the legislative history of its drafting should be examined to extrapolate general principles for interpretation. Article 7's language may indeed create a bias towards civil law so that common law judges might be expected to seek support from scholarly treatises, to reason by analogy, to emphasize conceptual analysis and to employ other interpretative techniques.[13]

This is not to imply that the drafters intended one system to prevail over any other. In fact, courts were awarded greater flexibility of interpretation, and in practice, a blending or mixing of techniques may result. Moreover, it is inevitable that precedent will be utilized by common law courts in some form or another, thereby affording the courts the high degree of flexibility enjoyed by a hybrid or mixed jurisdiction.[14] Furthermore, uniform application may be enhanced through regard for the case law of other States.[15]

Recognizing the importance of foreign decisions to the uniform interpretation of CISG, the Journal of Law and Commerce has translated cases and provided commentaries as European courts and arbitration have begun interpreting various provisions of the Convention.[16] Thus far, the cases are few so that interpretation of certain provisions is limited. Nevertheless, foreign decisions are readily available to courts and should be consulted. As will be discussed below, foreign courts have addressed the calculation of interest which was at issue in Delchi.[page 142]

III. The Delchi Opinion

A. Factual Setting -- The International Sales Contract

In Delchi Carrier, SpA v. Rotorex Corp., the U.S. District court for the Northern District of New York summarily applied CISG. Delchi, an Italian corporation with its principal place of business in Italy, sued Rotorex Corporation, a New York corporation with its principal place of business in Maryland, for damages arising from Rotorex Corporation's breach of a contract to supply Delchi with compressors, with which Delchi would produce air conditioners. Delchi sought consequential damages from the breach and lost profits from the reduced sales of air conditioners.[17] Ultimately, the court in a bench trial awarded Delchi approximately $1,248,000.

Whether it was international or not, the style and format of the opinion are more congruous with civil law opinions than with common law memoranda, since the analysis is concise and conclusory. More questions are raised than answered in the court's recitation of the facts and conclusions of law. Apparently, the compressors sent to Delchi were nonconforming. There appears to be no dispute over whether Delchi had the right to cancel the contract or whether Rotorex was afforded the opportunity to cure. The meaning of "fundamental breach" under CISG was not analyzed in Delchi, and it has yet to be addressed by a U.S. court.

Before the time for delivery had expired and after having received the first shipment of compressors, Delchi discovered the defect, rejected the compressors and canceled the contract. At the time Delchi canceled the contract, the second shipment was already on its way to Italy.[18] Rather than employing the language of CISG, such as "avoidance of the contract," the court utilizes the language familiar to those versed in the Uniform Commercial Code ("U.C.C."). Funds were expended in attempts by Delchi to remedy the defect in the compressors, but to no avail. Through letters of credit, Delchi paid for two shipments that were subsequently held in storage. Previously ordered Sanyo compressors were then shipped by air in order to maintain production, yet Delchi still could not fill all of its orders.[page 143]

Oddly, in its recitation of the facts, the court made legal judgments[19] such as declaring that Delchi received fewer compressors than "reasonably expected."[20] In the fact section, the court also drew conclusions as to the causation between the breach and loss, stating that "not all of the unfilled orders to the Swiss affiliate are attributable to Rotorex's breach,"[21] and that "[a]s a result of Rotorex's breach of contract, Delchi was unable to fill orders for 100 units . . . ."[22]

B. The Court's Conclusions

Once the court finally addressed the conclusions of law, CISG was identified as the applicable law under Article 1(1)(a). Rather than citing the language of the article and applying it to the facts of the case, the court cited two cases: Filanto, SpA v. Chilewich Int'l Corp.,[23] the first U.S. judicial interpretation of CISG; and Orbisphere Corp. v. United States, an international trade court case that discusses in a footnote that CISG is the applicable law to some international sales contracts between the U.S. and foreign parties.[24]

The court awarded consequential damages for the following: expenses incurred as a result of Delchi's attempt to remedy the nonconformity of the goods due to the foreseeability of the result of Rotorex's breach; expenses for expedited shipment of the Sanyo compressors since Delchi was required by Article 77 to mitigate its loss; handling and storage expenses of the rejected compressors as a reasonable expense; and lost profit as a foreseeable and direct result of the breach.[25] Fixed costs of production were disallowed since they were accounted for in lost profits; pre-judgment interest was awarded, and the judgment was converted into dollars.[26][page 144]

1. Foreseeability and Certainty of Loss

The court awarded damages without discussing the CISG provisions dealing with breach and cure. The absence of any discussion of the conduct required by an injured party before it may recover damages is a critical flaw in the court's analysis. Remedy provisions of CISG cannot be completely understood without taking basic concepts into consideration such as fundamental breach, reasonable notice of defect and time to cure.[27] The buyer's rights and subsequent recovery of damages are affected by the seller's right to cure.[28] Arguably, CISG gives the seller a broader right to cure depending on the court's definition of "fundamental breach."

Article 74 of CISG provides the general rule for a calculation of damages for losses suffered by the buyer or seller as a result of a breach and seeks to place the injured party in the position he or she would have been had the other party properly performed the contract.[29] Similar to the U.C.C., the consequences of the breach need only be contemplated by the breaching party.[30] The foreseeability standard is less stringent under CISG, which increases the liability of the breaching party.[31]

In support of its proposition that Article 74 of CISG seeks to compensate the injured party for both expectation damages and reliance expenditures, the court cited to an American legal scholar as its sole authority.[32] This approach is similar to the analysis employed by German courts in previous interpretations of articles of CISG[33] and to the civil law tradition in general.[34] Indeed, U.S. courts often cite to law [page 145] review articles in support of their decisions, yet rarely do courts afford law review articles as much weight as the Delchi court did.

As discussed above, a critical question is to what extent will the court interpret the foreseeability requirement for recovery of damages. Again, the court did not cite the pertinent language of Article 74. Instead, it merely declared that the damages sustained by Delchi in its attempt to remedy the nonconformity of the compressors were a foreseeable result of Rotorex's breach.[35] In contrast, the court refused to allow recovery for the cost of production line employees' down time which occurred because there were not conforming compressors to be installed. Making no mention of foreseeability, the court denied recovery on the basis that the costs were fixed and as such, they were accounted for in recovery of lost profits.[36]

Despite the lack of analysis on foreseeability and certainty of damage, Delchi received most of its claimed consequential damages, thereby supporting the assertion that there is a trend of liberal recovery of consequential damages in U.S. courts.[37] Further, as noted by commentators, CISG increases the breaching party's liability beyond what the party is exposed to under the U.C.C.[38] Therefore, given the predisposition of U.S. courts to liberal recovery of damages and the less stringent foreseeability requirement of CISG, an aggrieved party bringing suit on a CISG claim in a U.S. court should be well satisfied.

Even the standards for proving damages were relaxed by the Delchi court. Without citing authority, the court awarded a "reasonable expense" for storage of the nonconforming goods when Delchi was unable to establish the exact expenditure.[39] This language echoes that of article 86(1) of CISG, which the court may have analogized to in order to reach its conclusion.[40] It is unclear, however, since the court does not refer to Article 86.

In awarding the cost of the expedited shipment of substitute compressors, the Delchi court recognized that Article 77 bars recovery for damages that could have been mitigated. However, the court refused to [page 146] classify the purchase of substitute compressors as cover, thereby precluding the recovery of direct damages under Article 75. Paradoxically, it was determined that the shipment of other compressors at an earlier date than was originally planned was an attempt to mitigate damages. However, the court found that they did not replace the nonconforming compressors since they had been previously ordered. Again, the court did not cite to the language of the article which would have supported its conclusion.[41]

2. Lost Profits

A large portion of the award in Delchi consisted of damages for lost profits arising from Delchi's lost sales of air conditioners. Honnold, the chief U.S. commentator on the CISG, and Sutton were cited as the only authorities to support the assertion that CISG permits recovery of diminished volume of sales.[42] Honnold discusses the availability for recovery of lost volume of sales only in situations where Articles 75 and 76 provide no redress. In Delchi, Articles 75 and 76 were not applicable since there was no market differential or cover. Article 74 explicitly allows for recovery of lost profit, thus rendering the question of recovery of lost volume of sales under the other remedy provisions a moot point.

Virtually, in its next breath, the court expressed "conformity with common law," citing to the Restatement (Second) of Contracts, Corbin and New York law as support for the standard for recovery of lost profit under CISG.[43] It was proper for the court to apply domestic state law for a procedural standard of proof since no such standard is articulated in CISG and state law is applicable to federal diversity cases.[44] However, the court made no attempt to explain its conflict of law analysis.[page 147]

3. Pre-Judgment Interest

Article 78 of CISG authorizes recovery of interest on the payment price or any sum in arrears.[45] Under CISG, it is not clear whether a party is entitled to recover interest on an unliquidated amount, which was the case in Delchi. Given the international controversial nature of interest,[46] the final language of Article 78 entitling a party to interest on "any . . . sum . . . in arrears" was a compromise among the states. Honnold discusses two situations that fall within the scope of Article 78: when a buyer delays paying the seller, and when a seller delays refunding the purchase price for defective goods.[47] Neither of these two scenarios were presented in Delchi.

Honnold also discusses the question of liquidated sums and observes that some jurisdictions do not recognize interest accruing until the amount in arrears is made certain.[48] The U.C.C. makes no mention of the ability to recover interest on incidental damages.[49] A U.S. federal court has commented on the wide availability of pre-judgment interest as follows: "[u]nless there is a statutory provision to the contrary, the court has broad discretion in deciding whether to award prejudgment interest."[50]

Thus, the Delchi court followed the domestic tradition of discretionary awards of pre-judgment interest of unliquidated sums.[51] However, it is far from clear that the drafters of CISG intended that interest on consequential loss, including lost profits, be awarded and calculated at the rate of the debtor's country.[52]

Even if recovery of pre-judgment interest was warranted, there still remains a question of what rate should be utilized. Noting that Article 78 does not specify an applicable interest rate, the court, "in its [page 148] discretion," awarded interest at the rate established by U.S. federal law for the award of post-judgment interest.[53] The court made no reference to Article 7, which provides a uniform application for gap-filling. Nor did it examine the legislative history of the Convention or refer to scholarly opinion. Ironically, the court, which was so receptive to scholarly authority on the issue of lost profits, does not follow Sutton's recommendations for interpretations of the gap in Article 78, which were made in the same journal article that the court cited to earlier in its opinion.[54]

During the drafting of CISG, there was much debate over Article 78, making it one of the most controversial articles.[55] A rule on interest was omitted in earlier drafts of the CISG. Thus, there is no commentary to allow insight on its development as is provided for in other articles.[56] However, a 1976 draft included a provision for interest awards to the seller.[57] Article 58 of this draft provided for interest at the rate of the country of the seller's principal place of business.[58]

Since Article 78 of CISG extends interest recovery to the buyer as well as to the seller, it can be analogized from previous drafts that the appropriate interest rate would be the interest rate of the country where the injured party has its place of business, since this is the cost of credit.[59] While a court is not bound to the rationale employed in previous drafts of the convention, it would be wise to examine these drafts in order to determine intent.[60]

In addition, foreign courts have addressed the interest issue, albeit in fact scenarios where the buyer was the breaching party due to nonpayment. Applying a conflict of law analysis, German courts have held that the law of the aggrieved party's country should be applied when [page 149] determining the interest rate.[61] The International Court of Arbitration applied the law of the place of payment to determine the interest rate owed on an unpaid balance to the seller.[62]

Determining the method of calculation of interest by a domestic conflicts of law analysis[63] should be the last resort of a court. Pursuant to Article 7(2)(ii), domestic law should only be applied once general principles of the Convention cannot be ascertained. In conformity with the general principles of the Convention, specifically those from Article 74, which strives to award recovery of suffered losses, and Article 75 which calculates compensation by the cost of the substitute transaction, interest should be calculated by the cost of credit faced by the injured party.[64]

By applying the U.S. federal rate, which is the rate of the country of the breaching party, the Delchi court did not promote the uniformity that is the goal of the Convention.[65] Furthermore, the court was incorrect to apply a federal statute rather than a state statute to determine the rate of interest.[66]

4. Conversion to Dollars

The court, citing New York precedent, converted the damages into dollars at the exchange rate effective at the date of the breach.[67] There is no provision in CISG which addresses the proper date for currency conversion. A court may engage in gap-filling, according to the procedures of Article 7(2), only when a matter is governed by the Convention. Obviously, the court did not consider the determination of a date [page 150] for exchange rate conversion as being governed by the Convention since no gap-filling analysis took place.[68] If the matter were governed by CISG and a gap existed, the court would be required to look to the general principles of the convention and finally to rules of private international law.[69] Therefore, in this case, the outcome may have indeed been the same.

As a federal court sitting in diversity, the court correctly applied New York law when it determined the date for conversion following the "breach-day rule."[70] In the future, the CISG may provide more flexibility to a court seeking to protect the expectation interest of an aggrieved party if the conversion at the rate of the date of breach does not provide adequate protection.[71] By declaring that CISG governs the matter of conversion through analogy to other provisions, and by discovering that the general principles of CISG include the protection of an injured party's expectation interest, a creative court may not be required to apply a rigid state law to this issue. Thus, the date of conversion is one area in which CISG may afford a court more flexibility and discretion.

IV. Conclusion

Commentators have cautioned courts against issuing unnecessarily broad interpretations of the CISG in order to avoid the establishment of erroneous precedent.[72] The Delchi court appears to have taken their advice to the extreme. The discussion and application of CISG was cursory. Special care and thoroughness were not taken, and thus, the opinion does not provide the much anticipated insight into a U.S. court's rationale and interpretation of CISG. While the court is to be commended for its dual civil/common law approach to interpretation, it fell back on the familiar in times of doubt and did not engage in the [page 151] requisite statutory analysis, thereby missing an opportunity to contribute to the international jurisprudence of CISG.[page 152]


FOOTNOTES

1. United Nations Conference on Contracts for the International Sale of Goods, Final Act (Apr. 10, 1980), U.N. Doc. A/Conf. 97/18, reprinted in S. Treaty Doc. No. 98-9, 98th Cong., 1st Sess., and 19 I.L.M. 668 (1980) [hereinafter CISG or Convention].

2. Delchi Carrier, SpA v. Rotorex Corp., No 88-CV-1078, 1994 WL 495787 (N.D.N.Y. Sept. 9, 1994).

3. The history and development of CISG has been well documented by eminent scholars and is beyond the scope of this article. See John Honnold, Uniform Law for International Sales (2d ed. 1991); International Sale of Goods: Dubrovnik Lectures (Petar Sarcevic & Paul Volken eds., 1986); 8 J.L. & Com. 1-244 (1988) (Symposium issue).

4. CISG, supra note 1, at art.7.

5. This hierarchy of interpretation was a compromise between states who desired complete uniformity and those who desired application to be determined completely by domestic law. See Amy H. Kastely, Unification & Community: A Rhetorical Analysis of The U.N. Sales Convention, 8 Nw. J. Int'l L. & Bus. 574, 606 (1988).

6. John Honnold, The Sales Convention in Action -- Uniform International Words: Uniform Application?, 8 J.L. & Com. 207, 211 (1988).

7. Id.

8. Joseph M. Lookofsky, Consequential Damages in Comparative Context 294 (1989).

9. It is not a set of decisional rules like the U.C.C., but rather it is in the form of a code utilized by continental and socialist systems. Arthur Rosett, Critical Reflections on the United Nations Convention on Contracts for the International Sale of Goods, 45 Ohio St. L.J. 265, 297 (1984).

10. Rosett, supra note 9, at 297. See Albert Tate, Jr., The Role of the Judge in Mixed Jurisdictions: The Louisiana Experience, in The Role of Judicial Decisions and Doctrine 23, 34 (Joseph Dainow ed., 1974) (stating that the enactment of a Code shows a clear legislative intent to adopt the civil tradition in interpretation).

11. See Tate, supra note 10, at 34.

12. Honnold, supra note 6, at 208.

13. Rosett, supra note 9, at 297-98.

14. Tate, supra note 10, at 37.

15. Honnold, supra note 6, at 207. See V. Susanne Cook, The Need for Interpretation of the 1980 United Nations Convention on Contracts for the International Sale of Goods, 50 U. Pitt. L. Rev. 197, 226 (1988) (stating that considerable weight should be granted to foreign decisions on point when interpreting CISG).

16. See Oberlandesgericht, Frankfurt am Main, Sept. 17, 1991-SU 164/90 (Germany), translated in 12 J.L. & Com. 261 (1993); Volker Behr, Commentary to Journal of Law & Commerce Case I: Oberlandesgericht Frankfurt am Main, 12 J.L. & Com. 271 (1993); Landgericht, Baden-Baden, Aug. 14, 1991-40 113/90 (Germany), translated in 12 J.L. & Com. 277 (1993); Metropolitan Court Budapest Marko U. 27 1363 BP. P.O.B. 16. Docket No. 3.G.50.289/1991/32 (Budapest), translated in 13 J.L. & Com. 49 (1993); James J. Callaghan, Recent Developments: CISG: U.N. Convention on Contracts for the International Sale of Goods: Examining the Gap-filling role of CISG in Two French Decisions, 14 J.L. & Com. 183 (1995).

17. From the facts in the opinion, Delchi made no claims for direct damages.

18. Delchi, 1994 WL 495787, at *2.

19. While courts have great discretion to award damages due to the vague and uncertain rules of both civil and common law, questions of law or of secondary facts as they are named in the U.K. are reviewable on appeal since they are not pure questions of fact. G.H. Treitel, Remedies for Breach of Contract 176 (1988).

20. Delchi, 1994 WL 495787, at *4.

21. Id.

22. Id. at *5.

23. Filanto, SpA v. Chilewich Int'l Corp., 789 F. Supp 1229 (S.D.N.Y. 1992), appeal dismissed, 984 F.2d 58 (2d Cir. 1993).

24. Orbisphere Corp. v. United States, 13 C.I.T. 866, 726 F. Supp. 1344, 1355 n.7 (Ct. Int'l Trade 1989). The court fails to note that according to article 95 and the reservation by the U.S., CISG does not apply to transactions between U.S. parties and foreign parties whose principal place of business is not in a contracting party's state.

25. Delchi, 1994 WL 495787, at *5 and *6.

26. Id. at *6.

27. Jelena Vilius, Provisions Common to the Obligations of the Seller and the Buyer, in International Sale of Goods: Dubrovnik Lectures 239-40 (Petar Sarcevic & Paul Volken eds., 1986). Article 25 of CISG defines fundamental breach and article 37 delineates the seller's right to cure nonconformity. See CISG, supra note 1.

28. Eric C. Schneider, The Seller's Right to Cure Under the UCC and UNCISG, 7 Ariz. J. Int'l & Comp. L. 69, 102 (1989).

29. Arthur G. Murphey, Jr., Consequential Damages in Contracts for the International Sale of Goods and the Legacy of Hadley, 23 Geo. Wash. J. Int'l. L. & Econ. 415, 420 (1989).

30. U.C.C. § 2-715(2)(a) (1987).

31. Article 74 provides both an objective and subjective test for foreseeability, and the consequence of the breach need only be possible. CISG, supra note 1; Murphey, supra note 29, at 439-40.

32. Delchi, 1994 WL 495787, at *7 (citing Honnold, supra note 3, at 415; Jeffrey Sutton, Measuring Damages Under the United Nations Convention on the International Sale of Goods 50 Ohio St. L.J. 737 (1989)).

33. German courts cite to German Scholarsí commentaries on the Convention. See Oberlandesgericht, Frankfurt am Main, Sept. 17, 1991-SU 164/90 (Germany), translated in 12 J.L. & Com. 261, 263 (1993).

34. Civil law systems unashamedly support propositions with scholarly treatises.

35. Delchi, 1994 WL 495787, at *6.

36. Id. at *8.

37. Murphey, supra note 29, at 422-24.

38. Id. at 439-40. See Franco Ferrari, Comparative Ruminations on the Foreseeability of Damages in Contract Law, 50 Ohio St. L.J. 737 (1989).

39. Delchi, 1994 WL 495787, at *5.

40. Article 86(1) states, "[i]f the buyer has received the goods and intends to exercise any right under the contract or this Convention to reject them, he must take such steps to preserve them as are reasonable in the circumstances. He is entitled to retain them until he has been reimbursed his REASONABLE EXPENSES by the seller." (Emphasis added). CISG, supra note 1.

41. Article 75 states, "If the contract is avoided and if, in a reasonable manner and within a reasonable time AFTER avoidance, the buyer has bought goods in replacement or the seller has resold the goods, the party claiming damages may recover the difference between the contract price and the price in the substitute transaction as well as any further damages recoverable under article 74." (Emphasis added). CISG, supra note 1.

42. Delchi, 1994 WL 495787, at *7 (citing Honnold, supra note 3, at 416).

43. Delchi, 1994 WL 495787, at *7.

44. See Lookofsky, supra note 8, at 283 n.158.

45. CISG, supra note 1, at art. 78.

46. Some states prohibit or limit the rate of interest due to religious or public policy rationales.

47. Honnold, supra note 3, at 424-25.

48. Id. at 425.

49. George H. Cain, The Vienna Convention: Posing a New International Law of Sales, 57 Conn. Bar. J. 327, 336 (1983).

50. Ambromovage v. United Mine Workers, 726 F.2d 972, 982 (3d Cir. 1984).

51. See In re Vic Bernacchi & Sons, Inc., 170 B.R. 647, 657 (Bkrtcy. N.D. Ind. 1994) (citing Board of County Comm'rs of Jackson v. United States, 308 U.S. 343, 352 (1939)).

52. This is especially true in view of the reluctance of Muslim nations to include interest as a recoverable damage award at all. It is even unclear under U.S. law whether interest on consequential damages should be awarded. Honnold remarks that an interpretation of the Restatement (Second) of Contract provision for allowance of interest in cases "as justice provides" could support such an award. Honnold, supra note 3, at 422 n.7 (citing Restatement (Second) of Contracts § 354, ∂ 2, cmt. d).

53. Even though 28 U.S.C. § 1961 does not set a standard for determining the rate of prejudgment interest, courts have used it for such a purpose. Bernacchi, 170 B.R. at 657. See In re Oil Spill by the Amoco Cadiz, 954 F.2d 1279, 1330 (7th Cir. 1992).

54. Sutton advocates the use of prior drafts as a source for determining the calculation of interest. Sutton, supra note 32, at 749.

55. See Honnold, supra note 3, at 422; Sutton, supra note 32, at 749.

56. See Sutton, supra note 32, at 749 (citing Comments by Governments and International Organizations on the Draft Convention on the International Sale of Goods [1977] VIII Y.B. Int'l L. Comm'n 109, U.N. Doc. A/CN.9/125).

57. Id. (citing Draft Convention on the International Sale of Goods, art. 58 [1976] VII Y.B. Intíl L. Commín 89, 94, U.N. Doc. A/CN.9/116, annex. I).

58. Sutton, supra note 32, at 749.

59. Id. at 750.

60. Furthermore, the proposal that the rate of interest be determined by applicable domestic law of the forum was rejected at a diplomatic conference. Graham Corney, Obligations and Remedies Under the 1980 Vienna Sales Convention, 23 Queensland L. Soc. J. 37, 56 (1993).

61. Landgericht Stuttgart; 3KfH O 97/89 31 Aug. 1989, abstract in 14 J.L. & Com. 225 (1995); Landgericht Hamburg; 5 O 543/88 9 Sept. 1990, abstract in 14 J.L. & Com. 228 (1995); Amstgericht Oldenberg in Holstein; 5 C 73/89 24 Apr. 1990 14 J.L. & Com. 227 (1995).

62. International Court of Arbitration (ICA) Matter No. 7153 in 1992, translated in 14 J.L. & Com. 217 (1995). The law is unsettled on this issue, however, as arbitrators have adopted the rate of the country of the creditor or that of the state of the agreed currency. See Callaghan, supra note 16, at 198.

63. See Rosett, supra note 9, at 270-71 (stating drafters explicitly did not want a judge to refer to domestic law.). Cf. J.D. Feltham, The U.N. Convention on Contracts for the International Sale of Goods, 1981 J. Bus. L. 346, 359 (The interest rate is "presumably a matter for appropriate national law.").

64. Honnold, supra note 3, at 423-24.

65. CISG, supra note 1, at art. 7(1).

66. In diversity cases federal courts look to state law for rules of computing prejudgment interest. Oil Spill, 954 F.2d at 1333.

67. Delchi, 1994 WL 495787 at *8 (citing Middle East Banking v. State Street Bank Intíl, 821 F.2d 897, 902-03 (2d Cir. 1987)). The parties did not dispute that the exchange rate on the date of breach was proper. Id.

68. Rate of conversion may indeed be beyond the scope of CISG since none of the commentaries, including those of John Honnold, make mention of the issue.

69. CISG, supra note 1, at art. 7.

70. There is no Federal Rule of Civil Procedure addressing the issue of judgments on foreign money claims. For a discussion of the development of the New York "breach-day rule" and alternative approaches, see Ronald A. Brand, Exchange Loss Damages and the Uniform Foreign-Money Claims Act: The Emperor Hasnít All His Clothes, 23 L. & Políy Intíl Bus. 1, 7 (1992).

71. Depending on the relative strength of the dollar to the aggrieved partyís home currency, the date of breach may not satisfy his expectation interest. Id. at 7-8.

72. Ronald Brand & Harry Flechtner, Arbitration and Contract Formation in International Trade: First Interpretations of the U.N. Sales Convention, 12 J.L. & Com. 239, 260 (1993).


Pace Law School Institute of International Commercial Law - Last updated February 28, 2001
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