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Reproduced with permission of the author; see also 7 Vindobona Journal of International Commercial Law and Arbitration (2003) 233-254

The Effect of Fundamental Breach on Passage of Risk in the International Sale of Goods under the United Nations Convention on Contracts for the International Sale of Goods: Comparative analysis with the Contract Law of the People's Republic of China

© Wu Dong
Peking University School of Law
12 April 2003

Abstract
I.      Introduction
II.     Overview of passage of risk and fundamental breach
         1. Summary of provisions of the CISG on passage of risk
         2. Summary of provisions on fundamental breach under CISG
         3. Studying the two issues together
III.    Analysis of effect of fundamental breach on passage of risk
         1. Seller in fundamental breach
         2. Buyer in fundamental breach
IV.    Fundamental breach and passage of risk: comparison with Chinese law
         1. Seller's breach
         2. Buyer's breach
V.     Conclusions
Bibliography

ABSTRACT

The effect of fundamental breach on passage of risk is one of the most important issues in the field of international sale of goods. Under the United Nations Convention on Contracts for the International Sale of Goods, the passage of risk is subject to the remedy that the aggrieved party chooses. From the comparative analysis with the Contract Law of the People's Republic of China, the Convention is found to be simple to understand and systematic, nevertheless, there is to some extent a lack of feasibility. In the field of practice, the attention paid to this problem is necessary to protect both parties' legal rights and benefits and to promote the progress of commerce and the development of law.

I. INTRODUCTION

Passage of risk is an important issue for both theoretic study and practice. As the English scholar Clive M. Schmitthoff wrote, since Justinian passage of risk has raised problems and controversy in the sale of goods.[1] It is also an important point ruled on by many domestic laws and international conventions.

The study of the passage of risk focuses on two main aspects: the time of the passage of risk and the effect of breach on the passage of risk.[2] This paper discusses the latter.

The United Nations Convention on Contracts for the International Sale of Goods (hereinafter referred to as the "CISG") is one of the most fruitful conventions in the field of the international trade law. It has 62 contracting parties as of 1 April 2003.[3] Since the CISG went into effect on 1 January 1988, the attention it received has been increasing. Passage of risk is one of the most important problems of the CISG; therefore the Convention sets a separate chapter for it.[4] As China is a contracting party,[5] the study of the CISG is naturally significant to China.[6]

This article discusses the effect of fundamental breach on passage of risk on the basis of commentaries on the articles of CISG together with the historical documents, the 1978 draft UNCITRAL text and the commentaries of the UNCITRAL Secretariat and subsequent researchers. Also presented is a comparison of CISG attention to this subject with Chinese law, especially the Contract Law of the People's Republic of China.

II. OVERVIEW OF PASSAGE OF RISK AND FUNDAMENTAL BREACH

1. Summary of provisions of the CISG on passage of risk

There is no definition of "risk" in the CISG. But to the common view of scholars inside and outside China, "risk" refers to the risk of accidental injury to the goods as a legal concept.[7] It covers theft, seizure, destruction, damage and deterioration.

By "accidental" injury is meant that to both parties of a contract the injury is unforeseeable, unavoidable and insurmountable. Neither party is of deliberate intent or at fault, the loss happened with both the seller and the buyer innocent.[8]

Which party bears the risk of loss becomes an important legal issue. Domestic laws differ, mostly because their technical arrangements are different.[9] As a uniform law accepted widely, CISG made prudent provisions on the passage of risk on the basis of the main legal systems and representative legal institutions.

Under the CISG, risk passes on delivery of the goods.[10] Article 66 CISG stipulates the effect of the passage of the risk.[11] Consistent with the rule in effect in most countries, if the goods are injured or lost after the risk passed, the buyer is not relieved of the obligation to pay unless the loss or damage is due to an act or omission of the seller,[12] and the buyer cannot require the seller to pay damages for the loss or damage of the goods.

2. Summary of provisions on fundamental breach under CISG

Fundamental breach is an original concept devised during the drafting of the CISG. It differs from all other similar concepts in contemporary domestic laws.[13]

Article 25 CISG states that a breach is fundamental when it results in "such detriment to the other party as substantially to deprive him of what he is entitled to expect under the contract".[14] This is subject to a limitation, i.e., unless "the party in breach did not foresee and a reasonable person of the same kind in the same circumstances would not have foreseen such a result".[15] "Detriment", "Substantial deprivation" and "Foreseeability" are key points.

Article 25 provides general directions but leaves much work for researchers, judges and arbitrators. Though the draftsmen sought to improve objectivity in determining "fundamental breach", the elements -- e.g., "substantially", "what he is entitled to expect under the contract", " a reasonable person", "in the same circumstances" -- can be applied in individual cases according to the discretion of judges.[16]

Whether a breach is fundamental is not requisite to the issues discussed in this paper, but the discussion is based on the precondition that a fundamental breach has occurred.

3. Studying the two issues together

Herein, passage of risk is designed for the problem of loss due to accidental injury, while fundamental breach is designed for the problem of contract liability. They are quite separate.

In every sale of goods there will be a passage of risk; whereas fundamental breach can only be found in some sales, for mostly a contract terminates in due performance.

In cases involving fundamental breach, there is still passage of risk. But that does not mean there is need to study them together unless the risk happens at such a time that it is affected by the fundamental breach, which will be discussed infra in detail.[17]

When one party is in breach, the different remedies taken by the other party lead to different legal results and thus affect the passed risk. This will be a key focus of this article.

III. ANALYSIS OF THE EFFECT OF FUNDAMENTAL BREACH ON PASSAGE OF RISK

1. The seller in fundamental breach

The remedies chosen by the buyer result in different legal effects. Under the CISG, the remedies available to the buyer when the seller is in fundamental breach of contract are:

The buyer may declare the contract avoided or require delivery of substitute goods only if the seller is in fundamental breach;[20] the other remedies can be used in all the circumstances.

a. Non-conformity

Article 35 CISG provides that the goods delivered by the seller must conform with the contract in quality, description, packaging, and so on.[21]

If the seller delivers non-conforming goods so that seller is in fundamental breach, pursuant to article 36, the seller is liable for any lack of conformity which exists at the time when the risk passes to the buyer or which is due to a breach of the seller's obligations.[22] Thus article 36 CISG indicates that liability for non-conformity will not change with the passing of risk.

         (1) Non-conformity in quality or description

A frequent instance is that the non-conforming goods were damaged during transport.

Illustration 1: An American seller and a Chinese buyer entered into a contract for 10,000 bags of No. 1 quality soybeans. (Assume that the seller was not liable for the risk during transport.) When the buyer received the goods in China and checked them, buyer found that 5,000 bags of soybeans were of poor quality. (Assume this was a fundamental breach.) Moreover, 2,000 bags of conforming soybeans and 2,000 bags of conforming soybean were injured substantially during transport.

Pursuant to article 67, the risk passed to the buyer when the seller handed the goods over to the carrier. Since the buyer found the seller in fundamental breach after checking, article 67 does not "impair the remedies available to the buyer on account of the breach",[23] according to article 70.

When the goods are non-conforming in quality or description, the remedies available to the buyer on account of the fundamental breach are: to declare the contract avoided, to require delivery of substitute goods, to require repair, to reduce the price, and to require damages.

One choice is to declare the contract avoided (article 49). A reasonable buyer would naturally observe articles 39 and 49. These two provisions require the buyer to exercise his/her rights within "a reasonable time" after the buyer has discovered the lack of conformity or ought to have discovered it.[24] In practice, it would not be very long.[25]

Pursuant to article 81(1) CISG, the result of declaring the contract avoided is to release both parties from their obligations under it. According to article 81(2), "a party who has performed the contract either wholly or in part may claim restitution from the other party of whatever the first party has supplied or paid under the contract".[26] This is similar to "restitution in integrum" ("in integrum restitutio") of the Chinese Contract Law,[27] i.e., both parties go back to the original state before they concluded the contract. It can be found that the result of declaring the contract avoided is retroactive.

Thus does the risk that had already passed to the buyer also return to the seller? From the viewpoint of the present writer, the answer is Yes.[28] Since the result of declaring the contract avoided is retroactive, if the risk is still on the buyer, then this would impair the remedy that the buyer chooses and violate article 70.

If the buyer had to bear the risk of loss (e.g., the 4,000 injured bags of soybeans in Illustration 1) after buyer declared the contract avoided, the buyer cannot return to the situation before contracting; moreover, in the case of Illustration 1 where only half of the 4,000 bags of goods were conforming, it would be absurd for the buyer to have to bear all the risk.

Nevertheless, a barrier is established by article 82 CISG. Article 82(1) states that "the buyer loses the right to declare the contract avoided or to require the seller to deliver substitute goods if it is impossible for him to make restitution of the goods substantially in the condition in which he received them".[29] The impact would not be particularly great in the event that loss or injury happened before the buyer received the goods, but would be important if it happened after the buyer received them (as discussed hereinafter). Moreover, the phraseology "receive" may be of some doubt too, because the time when the buyer received the goods de jure and de facto may be different.

In article 82(2), the legislators set three exceptions. The buyer should be able to avoid the contract or require substitute goods even though the buyer cannot make restitution of the goods substantially in the condition in which the buyer received them (a) if the impossibility of doing so is not due to buyer's own act or omission,[30] (b) if the goods or part of them have perished or deteriorated as a result of the examination provided for in article 38,[31] or (c) if part of the goods have been sold in the normal course of business or have been consumed or transformed by the buyer in the course of normal use before the buyer discovered or ought to have discovered the lack of conformity.[32]

The Secretariat Commentary on article 82 of the 1978 Draft [became CISG article 70] and on article 67 of the 1978 Draft [became CISG article 82] indicates that CISG article 70 should be regarded as "a fourth exception" of article 82(1) CISG.[33] Article 70 indicates that where due to the risk, the buyer could not make restitution of the goods substantially in the condition in which buyer received them, the buyer could still declare the contract avoided or require the seller to deliver substitute goods, if the seller had committed a fundamental breach.

Where the loss or injury to the goods is due to the risk, the impossibility of making restitution caused by this is naturally not due to the buyer's or seller's "act or omission".[34] Then can it be regarded that the article 70 "fourth exception" is covered by article 82(2)(a)? The present writer does not agree. The relation between article 70 and article 82(2)(a) is somewhat subtle; article 82(2)(a) should be reviewed combined with article 86 -- this will be discussed in detail.

Another question is: If the risk is thrown back to the seller retroactively, from the time when the buyer declared the contract avoided to the time when the buyer gave the goods back, the possession of the goods and the risk of the goods are resting on each party separately, what then are the buyer's duties?

CISG section VI "Preservation of the goods" settles this problem from the viewpoint of the present writer.

Article 86(1) CISG provides "if the buyer has received[35] 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".[36] As in Illustration 1, if the buyer declares the contract avoided and rejects the goods, the buyer must preserve the goods.

This interpretation is self-evident in combination with the aforesaid articles. If the risk still rests on the buyer, a reasonable buyer would preserve the goods to return them to the seller even there were no article 86. Since the risk is thrown back to the seller after the buyer validly declared the contract avoided, the CISG requires the buyer to preserve the goods because the buyer still controls the possession of the goods. The present writer believes that the phrase "act or omission" in article 82(2)(a) is so provided in allusion to the responsibility to preserve the goods in article 86. If the buyer preserves the goods as required in article 86, the buyer could claim exception to article 82(1) pursuant to either article 82(2)(a) or article 70; but if the buyer does not and it is impossible to make restitution, the buyer would lose the right to declare the contract avoided or to require the seller to deliver substitute goods according to article 82(1).

Another illustration could help make the solution to the problem clearer:

Illustration 2: The facts are the same as in Illustration 1, except that the goods were not injured by accident when the buyer received the goods. The buyer found 5,000 bags of soybeans were non-conforming and declared the contract avoided in a reasonable time. He preserved the goods reasonably in his warehouse, but before he could return the goods they were ruined by an accidental fire.

In this illustration, since the buyer has perform his/her duty under article 86, the risk of fire was borne by the seller; so even though buyer could not make restitution of the goods, buyer's remedies were not lost.

But the phraseology employed in article 86(1) is "intend to exercise" which would be obscure to some extent.[37] The risk returning to the seller as an effect of declaring the contract avoided by the buyer happens only if the buyer notifies the seller according to CISG article 26.[38] There seems to be an interregnum. For example, in Illustration 2, if the fact is the buyer received the non-conforming goods and "intending to exercise" buyer's right to declare the contract avoided on July 1, the buyer preserved the goods that night and decided to notify the seller in the next morning (assuming it was still in reasonable time). The buyer did as required in article 86(1); but if the goods were injured by fire that night, could the buyer still exercise his/her right?

The buyer did as required in article 86(1), but the risk still rested on buyer because the notice had not been given. Thus, when the buyer exercised the right to declare the contract avoided on July 2, could the seller demur by article 82(1)? The buyer may invoke article 70 or 82(2)(a) all the same.

The buyer asserts the seller has committed a fundamental breach of contract and whether or not the risk has passed, articles 67, 68 and 69 do not impair the remedies available to the buyer.[39] The impossibility of making restitution of the goods is also not due to buyer's act or omission.[40] So as aforesaid, the buyer still has the right to declare the contract avoided, which causes the risk to return to the seller retroactively.

From such analysis, the time between to "intending to exercise" and making the notice is questionable. From the viewpoint of the present writer, CISG article 86 imposes on the buyer an obligation to protect the interests of the seller. The buyer is aware that the risk would return to the seller retroactively if the buyer makes the notice to declare the contract avoided in a reasonable time. Without the obligation under article 86, if the buyer does not care for the goods and the loss or injury happens, the seller cannot get protected by article 82(1), since the risk cannot be accounted to the act or omission of the buyer. In such a hypothetic circumstance, the interest of the seller is in a dangerous state. But by imposing an obligation on the buyer, article 86 achieves a balance. If the buyer violates article 86(1), the seller can demur by article 82 when the buyer exercises his/her right to declare the contract avoided. Then the buyer cannot invoke article 70, because the obstacle is from article 82 while article 67, 68 and 69 do not impair buyer's remedies anyway. This result is also a ramification of article 7(1) which requires good faith in international trade.[41] So it is significant to the seller that article 86 requires the buyer to preserve the goods from the point of time when the buyer "intends to exercise" the buyer's right.

If the goods are non-conforming so that the seller is in fundamental breach, the buyer can also choose a second remedy - the buyer can require delivery of substitute goods (article 46(2)).

The remedies of requiring substitute delivery and declaring the contract avoided are similar in effect -- both would cause the risk to revert retroactively. Meantime article 39, 82 and 86 are also applicable, so there is no need to discuss them once again here.

In a substitute delivery, a special problem is whether the extent of the lack of conformity would affect the extent of the risk reverting to the seller and the extent of the substitute goods. Some researchers hold that the risk of loss or injury to the conforming goods is better to be borne by the seller.[42]

In Illustration 1, half of the total 10,000 bags of soybeans are non-conforming with 2,000 bags injured by the risk, but 2,000 bags of conforming goods were also ruined by the risk. If only part of the goods are non-conforming, the situation would be disputed.

According to CISG article 51(1), articles 46 to 50 apply in respect of the part which does not conform.[43] Simultaneously, article 51(2) states that "the buyer may declare the contract avoided in its entirety only if the failure to make delivery completely or in conformity with the contract amounts to a fundamental breach of the contract".[44]

This provision is somewhat conflicting prima facie because, except in this article, CISG employs "to declare the contract avoided" without the definitive phrase "in its entirety" or "partly". Hence perhaps one could hold that since articles 46 to 50 apply in respect of the defective part, to avoid conflict the right of the buyer to "declare the contract avoided" under article 49 has to be interpreted to refer to not the whole contract but to the corresponding part of the contract. From the viewpoint of the present writer, this interpretation is still confusing. Article 51(1) states that articles 46 to 50 apply in respect of the defective part of the goods, not the part of the contract. The present writer holds that they are not the same.[45] If the buyer rejects the defective part, the result of which is similar to altering part of the contract (e.g., in quantity), it is not felicitous to say the buyer has declared part of the contract avoided. In addition, in accordance with article 25, a fundamental breach of contract is a kind of state, which cannot be distinguished as wholly or partly. From the provision of articles 49(1)(a) and 51(1), in the case of that, the buyer has an option to declare the contract avoided in its entirety or to take remedies just in respect of the defective part of the goods.

Article 49 CISG provides that the buyer may declare the contract avoided only in several rigorous situations. Article 51(2) is a counterpart of article 49 to some extent. If part of the goods are non-conforming and this does not amount to a fundamental breach, the buyer cannot declare the contract avoided nor require a substitute delivery; on the contrary, if it amounts to a fundamental breach, the effect of article 51(2) is to emphasize that article 49(1)(b) cannot be applied in such condition by the phraseology "only if".[46] Of course, article 51 in connection with article 73 is of great use in the case of an "installment contract".[47] Since CISG treats the remedies of declaring the contract avoided and requiring substitute delivery equally, this essay interprets article 51 as also applicable to the remedy of requiring substitute delivery.

The present writer believes that in Illustration 1, if the buyer only requires substitute delivery, all the risks revert to the seller in principle - of course, for convenience the seller need not to take back 3,000 uninjured conforming bags of goods. The seller may deliver another 7,000 bags of substitute goods. If only the risk that happens to the non-conforming goods reverts to the seller and the buyer has to bear the risk of the conforming part, a reasonable buyer would choose the remedy to declare the contract avoided pursuant to articles 49 and 51(2). This result is not good for the reduction of costs and the promotion of international trade. Moreover, it would weaken the systemic coherence of CISG; so it is undesirable.

A third remedy the buyer can choose is to require repair, which is similarly subject to the precondition in article 39.[48] This remedy has a special precondition provided in article 46(3), which precludes the buyer from exercising this right when it is unreasonable having regard to all the circumstances.[49]

The present writer holds that the risk of loss or injury to the goods rests on the buyer when buyer requires repair because the buyer takes and accepts the delivery. Requiring repair should be read in connection with articles 47[50] and 48.

If the non-conforming part of the goods (e.g., the essential hardware of a machine) is injured by the risk, this part of risk and injury should be borne by the seller when the buyer requires repair. According to article 48, the seller remedies at his own expense "without unreasonable delay and without causing the buyer unreasonable inconvenience or uncertainty of reimbursement by the seller of expense advanced by the buyer".[51] If the risk is borne by the buyer when the seller cures the defective goods, the buyer may choose to declare the contract avoided.

The provisions of article 47 and article 49(2)(b)(ii) provide are inspired by the "Nachfrist" provision in the old German Civil Code, article 326.[52] When the buyer exercises his/her right to declare the contract avoided under these two articles, the risk reverts to the seller retroactively as aforesaid.

But if the risk happens during the "additional period of time"[53] in articles 47 and 48, will the buyer lose the right to declare the contract avoided? The buyer has required repair so that the risk rests on the buyer, but before the seller performs the repair in the additional period of time the injury happens. The present writer believes that the buyer has to bear the risk because the buyer has chosen the remedy to require repair. If until the risk happens, the buyer still has a chance to alter his/her choice, it would be unfair to the seller and conflict with the rule of good faith. In practice, to avoid loss the buyer may obtain insurance for the goods at the buyer's own expense.

When the seller in fundamental breach, a fourth remedy of the buyer is to reduce the price (article 50). Because the precondition is to accept the goods, the risk of loss does not revert to the seller.

A fifth remedy is to claim damages (articles 45(1)(b) and 74-77). Damages may be a supplementary remedy when the contract is avoided according to article 81(1).[54] In that case, the risk reverts for the substantial remedy is to declare the contract avoided. The sum of damages should be decided pursuant to articles 74 to 77. The extent of damages is normally in respect of the seller's breaches outside the lack of conformity, because the buyer has no actual damage resulting from the goods initial non-conformity when the goods have been destroyed by the risk.[55] If the remedy of claiming damages is employed as a supplementary remedy, the risk is subject to the main remedy the buyer chooses.

Damages also may be used solely with the buyer retaining the goods. In that case, the buyer bears the risk.

         (2) Non-conformity in quantity

Shortage

According to article 35(1), the goods must be delivered in the quantity required by the contract. When the seller has committed a fundamental breach of contract for the lack in quantity, the remedies the buyer claims affect the risk similarly as that in quality or description as aforesaid.

Besides that, the buyer can require performance by the seller; the buyer can require the seller to deliver the rest of the goods to perform his obligations.[56] In that case, the risk rests on the buyer because the buyer has accepted the goods ultimately.

Excess Delivery

If the seller delivers a quantity of goods greater than that provided for in the contract and commits a fundamental breach, the buyer may take delivery or refuse to take delivery of the excess quantity.[57] If the buyer takes the goods, the risk rests on the buyer. If buyer refuses to take the delivery of the excess part, the present writer believes that article 86 to 88 should apply.[58] The phraseology "goods" provided in article 86 should contain the said excess quantity in article 52(2). Though the buyer may "refuse to take delivery" of them, in the situation of article 86, the buyer has to reject them after the buyer has received them. The phrases "to take delivery" and "to receive" are somewhat different. Especially when the seller or his agents are not present at the destination and cannot take charge of the goods, the buyer has to receive the goods, take possession on behalf of the seller and preserve them though he wants to reject them.[59] So it is better to require the buyer to preserve the excess quantity with the risk and expense borne by the seller.

b. Delay

Illustration 3: The seller and the buyer stipulate that the goods would arrive by 7 July and that the risk will pass when the goods are consigned to the carrier. But the seller delays to consign the goods and they do not arrive to the buyer until 15 July. Before the buyer rejects them on 16 July, the goods are destroyed in an accidental fire.

In this illustration, provided that the seller has committed a fundamental breach and the buyer acts in a reasonable time, the buyer can declare the contract avoided with the effect of throwing the risk back no matter when it happens. In the case of declaring the contract avoided, it is coincident with the Civil Law system, which provides that the risk rests on the seller from the time the seller is in delay of performance. Under the CISG, if the buyer takes a remedy consistent with accepting the goods (e.g., to reduce price), in accordance with article 70, the buyer's remedies are not impaired but the buyer has to bear the corresponding risk. But the buyer may get restitution from the seller via damages.

Illustration 4: The seller and the buyer stipulate the goods would arrive by 7 July and the risk will pass when the goods are consigned to the carrier. On 8 July, the buyer inquires why the goods have not yet arrived, and the seller explains that he/she is in delay and promises they would arrive on 12 July. The buyer accepts. But the goods arrive on 15 July. Before the buyer rejects them on 16 July, the goods are destroyed in an accidental fire.

In this illustration, in accordance with article 47(1) the buyer fixed an additional period of time of reasonable length for performance by the seller, which is five days (from 8 July to 12 July). The goods do not arrive on 12 July, so the buyer may declare the contract avoided.[60] Even when they arrive on 15 July, the buyer can also do that.[61] If the prior delay in Illustration 4 is not a fundamental breach, article 70 seems to be inapplicable. But actually when the contract is declared avoided, the risk still reverts to the seller retroactively. In this illustration, the present writer holds that it is retroactive to the initial time when the risk passes, not 12 July nor 15 July. Thus it can be concluded that the risk passes to the buyer prima facie, when the seller is in breach, whether it reverts or not is not connected with the extent of the seller's breach, but the remedies the buyer elects. Of course under CISG, some remedies which can affect the risk substantially (e.g., the remedies to declare the contract avoided and to require substitute delivery) can only be employed when the seller is in fundamental breach.[62]

Some researchers say that the phraseology "fundamental" in article 70 was an oversight during drafting,[63] and the advice to delete it was even adopted by the UNCITRAL draftsmen.[64] This is another evidence of the issue of this essay.

c. Early Delivery

Pursuant to article 52(1), if the seller delivers the goods before the date fixed, the buyer may take delivery or refuse to take delivery.[65] If the buyer takes delivery, the risk passes to the buyer; if the buyer does not, the risk remains with the seller.

P. M. Roth mentions a special situation[66] often referred to as a "destination sale" provided for in CISG article 69(2), which states that "if the buyer is bound to take over the goods at a place other than a place of business of the seller, the risk passes when delivery is due and the buyer is aware of the fact that the goods are placed at his disposal at that place."[67] If the delivery is early and "the buyer is aware of the fact that the goods are placed at his disposal at that place", can it be deduced from article 69(2) that the risk has not passed?[68] The present writer regards article 69(1) not only in respect of the delivery at the place of business of the seller, but also as somewhat a general clause.[69] So if the delivery is early and the buyer is aware of it, the buyer should notify the seller if the buyer does not choose to take the goods; otherwise the risk passes to the buyer.

d. Other forms of fundamental breach of the seller

There are situations in which a seller can commit a fundamental breach of contract for other violations, e.g., of article 34, 35(2)(d), 41, or 42 and so on. The effect of such fundamental breaches on passing of risk is also subject to the remedies the buyer chooses as discussed above.

2. The buyer in fundamental breach

The buyer's breach is apt to be less complicated than the seller's breach, so in respect of the effect of the buyer's fundamental breach on the passage of the risk the CISG has no general clause like article 70.

The primary obligations of the buyer are to pay the price for the goods and to take delivery.[70] The latter is closely connected with the risk. The buyer may be in breach of contract for delay in taking delivery.

Under articles 67 and 68, the risk passes to the buyer before buyer received the goods factually.[71] But when article 67 is in combination with the case in which the buyer takes charge of carriage, the delay of the buyer to appoint a ship could cause delay on the part of the seller in handing the goods over to the carrier. According to article 80, a party may not rely on a failure of the party to perform to the extent that such failure was caused by his/her own act or omission.[72] Thus the seller would not be in breach of contract for a failure caused by the buyer, but does the seller still bear the risk?[73] Though the goods are still in possession of the seller after the date fixed, the buyer is at fault. Article 85 is applicable, but it does not assign the risk.

In the Civil Law system, the principle of assigning the risks is connected with fault. It stipulates that the rule of passing of risk applies when there is no breach, and if there is a breach the risk is borne by the party at fault. But under CISG it cannot be found from the articles rigorously.[74]

To avoid loss, the present writer advises the seller to provide in the contract that the risk passes to the buyer in the foresaid case. Of course, according to articles 7 and 9, municipal law and usages can also be applicable in some cases.[75]

The CISG distinguishes between contracts in which the buyer is required to take over the goods on the seller's premises in article 69(1) and those where buyer is to take over the goods elsewhere in article 69(2). Thus as P. M. Roth states, if the contract allows a period for delivery, risk will pass at the end of that period if the goods are delivered at the seller's place of business, but at the start of it if they are not.[76] Article 69(2) implies a requirement of notification of the seller to make the buyer aware of the delivery.

Article 69(3) provides a restriction that the goods are not considered as placed at the disposal of the buyer until clearly identified to the contract if the contract relates to goods not then identified. Article 69 does not require notification explicitly, but some goods such as oil stored in tanks are so difficult to identify that notification is of great importance to make the goods at the disposal of the buyer.

IV. FUNDAMENTAL BREACH AND PASSAGE OF RISK: COMPARISON WITH CHINESE LAW

Contracts for sales are mainly governed by the Contract Law of the People's Republic of China (hereinafter referred to as "the Contract Law"). As the CISG was adopted in China, it applies to contracts for the international sale of goods too. Under article 7(2) CISG, in some cases the Contract Law would be applied as a municipal law by virtue of the private international law.[77]

A uniform civil code is on the schedule of the Chinese legislators to change the status quo of the civil law system of China, which has the General Principles of the Civil Law of the People's Republic of China [78]as a high-level resource with a cluster of laws, codes, statutes and regulations, etc. under it. The Contract Law, which came into force as of 1 October 1999, invalidated simultaneously the old three contract laws: the Economic Contract Law, the Law on Economic Contracts Involving Foreign Interests and the Law on Technology Contracts. Before the uniform civil code is adopted and comes into force, the Contract Law is the most important legal basis in respect of the contracts for sales. During the drafting process of the Contract Law, CISG was one of the legislative resources and inspirations -- some clauses are even transplanted from CISG mutatis mutandis.

With regard to the issue this essay discusses, Chapter 9 of the Contract Law is the main resource.

Firstly, according to article 142 of the Contract Law, risk passes at the time of delivery explicitly,[79] which is the same as CISG.

1. The seller's breach

When the seller's performance fails to conform with the contract, pursuant to article 149 of the Contract Law,[80] the fact that buyer bears the risk does not affect the buyer's right to have the seller assume liability for breach of contract. This article is similar to article 70 CISG, but it does not require that the seller be in fundamental breach. The phraseology of CISG is "not impair", the counterpart of which in the Contract Law is "not be affected" with some subtle difference. Some commentors regard the latter as "not eliminate or decrease".[81] Another difference is that article 149 of the Contract Law expressly states the precondition that "the buyer bears the risk", while article 70 CISG does not stipulate who bears the risk ultimately.

Article 149 of the Contract Law also distinguishes between the risk and liabilities for breach of contract. As to the most common form of the seller's breach - non-conformity in quality - article 148 of the Contract Law provides separately that:

"Where it is not able to realize the purpose of a contract because the quality of the object has not satisfied the quality requirements, the buyer may refuse to accept the object or may rescind the contract. Where the buyer refuses to accept the object or rescinds the contract, the seller shall bear the risk of damage to or missing of the object."

It is explicit that the risk is borne by the seller where the buyer refuses to accept the object or rescinds the contract,[82] which is the same as the situation analyzed under CISG hereinbefore.

"It is not able to realize the purpose of a contract" in the foresaid article 148 is also stipulated in article 94(4) of the Contract Law. It provides that a party may rescind the contract when "one party to the contract delays in performing the debt obligations or commits other acts in breach of the contract so that the purpose of the contract is not able to be realized".[83] This is almost the same as fundamental breach and the right to declare the contract avoided under the CISG, though in different expression. Article 148 is much more explicit that the risk reverts to the seller when the buyer refuses to accept the goods or rescinds the contract.

Though there is no special article in the Contact Law like article 86 of CISG that requires the buyer to preserve the goods under some particular circumstances, it can be interpreted that the buyer should do this from article 6 (the principle of good faith),[84] article 60 para, 2 ("Nebenpflicht"),[85] article 119 para. 1.[86] So from the time when the buyer receives the goods to the time when the buyer rescinds the contract, the buyer is also bound to preserve the goods by proper measures.[87]

Though the Contact Law treats non-conformity in quality separately, in accordance with article 149 the total result is the same as CISG from the viewpoint of the present writer.

Article 147 applies to the case of the seller's breach for failure to deliver the documents and materials relating to the object according to the terms of the contract. It states that the failure may not affect the passing of the risk.[88] Compared with it, article 67(1) CISG stipulates "the fact that the seller is authorized to retain documents controlling the disposition of the goods does not affect the passage of the risk",[89] but the CISG does not say whether passage of risk is affected if the seller is in breach for failure to deliver such documents.

If the seller commits a fundamental breach under CISG, article 70 is applicable. But if not, the passage of risk is not affected from the viewpoint of the present writer because it is a principle that the risk passes at the time of the delivery of the goods.

Under the Contract Law, if the purpose of the contract is not able to be realized due to the failure to deliver documents, the buyer may rescind the contract according to article 94 with the effect to throw the risk back to the seller. But if the purpose of the contract is not affected, article 147 would apply.

2. The buyer's breach

The Contract Law stipulates a general principle in article 143 that the buyer bears the risk as of the agreed date of delivery if the object cannot be delivered due to causes of the buyer.[90] This is much more explicit than CISG.

Article 146 in connection with article 141 is a counterpart of article 69 CISG. It provides that the buyer bears the risk as of the date of buyer's breach of failure to take delivery of the goods as required in the contract.[91] But it does not completely preclude the curious situation that may happen under article 69(2) CISG as discussed hereinbefore, because if the seller's performance is in advance, the buyer would not violate the contract for the buyer's failure to take delivery. Article 71 of the Contract Law permits the buyer to refuse an early delivery except that it does not damage the buyer's interests.[92] Moreover, the additional expenses caused by advance performance shall be borne by the seller. If the buyer has reasonable reasons to refuse an early delivery, a notification to the seller may be necessary after the buyer is aware of the delivery. Then the risk does not pass to the buyer. If the buyer keeps silent or does not give evidence that an early delivery would damage buyer's interests, judges or arbitrators might make a judgment against the buyer.

What is rather surprising is that the foresaid articles of the Contract Law do not stipulate that the goods should be clearly identified when the risk passes to the buyer if the buyer is in breach for buyer's delay to take delivery. It is not prescribed in the General Provisions of the Contract Law either. Compared with CISG, it is really a loophole of the Contract Law. The present writer suggests that the seller and the buyer should better address this problem clearly in their contracts. Simultaneously, identification of the goods should be considered by judges or arbitrators.

In addition, under the Contract Law the seller may deposit the goods if the seller cannot perform the obligation of delivery according to article 101.[93] The risk and expense are borne by the buyer after the goods are deposited pursuant to article 103.[94] In comparison with articles 87 and 88 CISG, to deposit the goods is another choice of the seller under the Contract Law.

V. CONCLUSIONS

1. The passage of risk is in respect of which party bears the accidental loss of the goods, while the system of breach of contract is in respect of the liabilities under contracts. The former is always connected with property, possession and control, but the latter is connected with the obligations under contracts. To study the two together is indispensable because the remedies a party takes would affect the risk after the other party has committed a breach of contract.

2.The extent of the effect of the breach on the passage of the risk is not directly connected with the extent of the breach, but the remedies the injured party elects. Thus the phraseology "fundamental" in article 70 CISG is somewhat of little significance.

3. This essay discusses which party bears the risk of damage to or loss of the goods when a party commits a breach, especially a fundamental breach. The risk of price and the effect of the risk on the liabilities of performance are not in the sphere of the discussion of this essay.

When the seller is in breach, according to the different remedies the buyer takes:

         a. The risk reverts to the seller retroactively, if the buyer refuses to take over the goods or rejects the goods; meanwhile, the buyer must preserve the goods before the seller takes charge of them.

         b. The risk is borne by the buyer if the buyer accepts the goods ultimately, for example, the buyer reduces the price, requires repair or claims damages.

         c. The risk is thrown back to the seller retroactively provided that the buyer may still declare the contract avoided after an additional period time for the seller to cure.

When the buyer is in breach for delay to take delivery, in principle, the risk passes to the buyer as of the time the buyer is in breach.

4. In comparison with the Contract Law of the People's Republic of China, CISG is briefer and more systematic while the Contract Law is more explicit.


BIBLIOGRAPHY

Chinese

Books

Feng Datong, International Trade Law, 2nd ed, Beijing: Beijing University Press, 1995.8.

Guo Yu, The Law on the International Sale of Goods, Beijing: People's Court Press, 1999.1.

English

Books

Albert H. Kritzer, Guide to Practical Applications of the United Nations Convention on Contracts for the International Sale of Goods, Deventer·Boston: Kluwer Law and Taxation Publishers, 1988.

C. M. Bianca & M. J. Bonell (ed), Commentary on the International Sales Law the 1980 Vienna Sales Convention, Giuffrè·Milan, 1987.

John O. Honnold, Uniform Law for International Sales under the 1980 United Nations Convention (3rd ed), Kluwer Law International, 1999.

Essays

Clive M. Schmitthoff, " The Risk of Loss in Transit in International Sales (1965)", Chia-Jui Cheng (ed), Clive M. Schmitthoff's Select Essays on International Trade Law, Netherlands/London: Martinus Nijhoff Publishers/Graham & Trotman Ltd., 1988, pp. 277-305.

Mo. J. S., "The Code of Contract Law of the People's Republic of China and the Vienna Sales Convention", American University International Law Review, Washington D. C.: Washington College of Law, American University, 1999, 15:209, pp. 234-235.

P. M. Roth, "The Passing of Risk", 27 American Journal of Comparative Law, 1979, pp. 291-310, also available at <http://cisgw3.law.pace.edu/biblio/roth.html.

Sylvain Bollée, "The Theory of Risks in the Vienna Sale of Goods Convention 1980", December 1999, downloaded from Pace Review of the Convention on Contracts for the International Sale of Goods (1999-2000) 245-290, also available at <http://cisgw3.law.pace.edu/biblio/bollee.html.


FOOTNOTES

1. Clive M. Schmitthoff, " The Risk of Loss in Transit in International Sales (1965)", Chia-Jui Cheng (ed), Clive M. Schmitthoff's Select Essays on International Trade Law, Netherlands/London: Martinus Nijhoff Publishers/Graham & Trotman Ltd. (1988) 277-305.

2. Guo Yu, The Law on the International Sale of Goods, Beijing: People's Court Press (1999.1) 27.

3. See the report of United Nations Committee of International Trade Law (UNCITRAL) on its official website: <http://www.uncitral.org>.

4. CISG, Part III "Sale of Goods", Chapter IV: "Passing of Risk" (articles 66-70).

5. China signed on the Convention on 30 September 1981, and deposited its instrument of ratification on 11 December 1986. The Convention came into force as of 1 January 1988 and was adopted in China.

6. The law was adopted on March 15, 1999 and went into effect as of October 1, 1999.

7. For example, P. M. Roth, "The Passing of Risk", 27 American Journal of Comparative Law (1979) 291-310, also available at <http://cisgw3.law.pace.edu/cisg/biblio/roth.html>. Though that essay is based on the 1978 Draft, the articles it discussed were not amended when they were adopted later.

The definition of risk is a controversial problem for scholars and differs in different countries. In the Civil Law system, it is often comprehended to be price risk (Preisgefahr), while much wider in the Common Law system. Cf. Wang Yi, "On the assumption of the risk of damage to or missing of the object in the sales contracts", Beijing: Journal of University of Science and Technology Beijing (Social Science Edition) (1999.4) 62-67.

Schmitthoff said that "it is believed that the true character of the legal concept of risk is not revealed if risk is solely treated as meaning price risk". When one party is in breach of contract, it would be confusing if risk denotes only "price risk". He wrote furthermore that in respect of the attribution of the risk, price risk or compensatory payment is irrelevant. Op. cit. supra note 1 at 279-280. The definition of risk in CISG is in harmony with his point of view. Cf. Barry Nicholas, in: C. M. Bianca & M. J. Bonell (ed), Commentary on the International Sales Law the 1980 Vienna Sales Convention, Giuffrè·Milan (1987) 484-485, para. 2.1. This definition is also adopted by the Contract Law of the People's Republic of China, Cf. Gu Angran, The Talk on the Contract Law of the People's Republic of China, Beijing; Law Press (1999.3) 60.

8. E.g. some researchers hold that the risk refers to "the incidence of the loss resulting from any casualty to the goods which is not due to an act or omission of the other party". Cf. Barry Nicholas, in: Bianca & Bonell (ed), op. cit. supra note 7 at 484-485, para. 2.1.

9. John Honnold enumerated several considerations when allocating the risk of loss between seller and buyer:

"Which party is in a better position to evaluate the loss and press a claim against the insurer and to salvage or dispose of damaged goods? Who can insure the good at the least cost? Who is more likely to carry insurance under standard commercial practice? What rule on risk will minimize litigation over negligence in the care and custody of the goods?" Cf. John O. Honnold, Uniform Law for International Sales under the 1980 United Nations Convention (3rd ed), Kluwer Law International (1999) 393.

10. Cf. Feng Datong, International Trade Law, 2nd ed, Beijing: Beijing University Press (1995.8) 84.

11. CISG. Article 66.

12. Most researchers hold the opinion that an act or omission of the seller contains a breach of contract and non-breach of contract (the latter is mostly torts, which is out of the sphere of application of CISG). Cf. Barry Nicholas, in: Bianca & Bonell (ed), op. cit. supra note 7 at 485, para. 2.2; John O. Honnold, op. cit. supra note 9 at 396-397; and the Secretariat Commentary on article 78 of the 1978 Draft (later adopted as article 66 CISG), Secretariat Commentary, "United Nations Conference on Convention for the International Sale of Goods, Vienna 1980, Official Records", United Nations, New York, 1981, A/CONF.97/19 at14-66. Quoted from: John O. Honnold (ed), Documentary History of the Uniform Law for the International Sales, Deventer, Neth., Cambridge, Mass.: Kluwer (1989). Hereinafter when citing the Secretariat Commentary, the commentaries are also quoted from the foresaid book edited by John O. Honnold.

The present writer is of the view that article 70 applies when "acts or omissions" of the seller constitute a fundamental breach of contract. Because the loss caused by acts or omissions of the seller is out of the sphere of the risk of loss, the buyer may be discharged from the obligation to pay the price in respect of the part due to an act or omission of the seller, even though the buyer bears the risk. Article 66 refers to not only the loss caused by the risk itself, but also other losses.

13. The "fundamental breach" in CISG "has nothing to do with the English doctrine of fundamental breach". The latter was used to "determine whether disclaimer clauses survived a particular breach of contract", and was abandoned in 1980. Hence it is said that the phrase "fundamental breach" in CISG has "no familiar parentage in other jurisdictions". In sum, "fundamental breach is not fraught with history. It is a fresh legal concept, born from compromise." See Michael R. Will, in: Bianca & Bonell (ed), op. cit. supra note 7 at 209-210.

14. CISG, Article 25.

15. Ibid.

16. "The determination whether the injury is substantial must be made in the light of the circumstances of each case, e.g., the monetary value of the contract, the monetary harm caused by the breach, or the extent to which the breach interferes with other activities of the injured party." See the Secretariat Commentary on article 23 of the 1978 draft [antecedent to article 25 CISG], paragraph 3 (downloaded from: <http://cisgw3.law.pace.edu/cisg/text/secomm/secomm-25.html>, dated November 17, 2002.

17. Part III of this essay.

18. CISG employs the phrase "to declare the contract avoided". But in Chinese law, its counterpart is "to rescind the contract". The Contract Law of the People's Republic of China distinguishes contracts that are null and void, contracts that are revoked and contracts that are rescinded. The Chinese edition of CISG is of official effect, so the phrase "to declare the contract avoided" is used under CISG, while the phrase "to rescind the contract" is used under the Contract Law. In respect of the issue discussed in this essay, they have the same connotation.

19. Article 52(1) CISG permits the buyer to "refuse to take delivery" when the seller delivers the goods early; article 52(2) permits the buyer to "refuse to take delivery of the excess quantity" if the seller delivers an excess quantity. These two measures can also be regarded as remedies available to the buyer if the seller commits the foresaid two kinds of breach of contract.

Moreover, article 86 CISG mentions "rejection", which is regarded as a step when the buyer exercises the right to declare the contract avoided or require substitute delivery in this essay. It cannot be seen as an independent remedy.

20. See CISG articles 46(2) and 49.

21. CISG, Article 35(1).

22. CISG, Article 36.

23. CISG, Article 70.

24. CISG, Articles 39 and 49.

25. To determinate the "reasonable time" some considerations are often mentioned: the time when the buyer discovers the non-conformity, the time for impartial test or check, the feasible communication measures, and so on, e.g., John O. Honnold, op. cit. supra note 9 at 280.

26. CISG, Article 81(2).

Thus article 81(1) does not release the parties all the obligations, but only the original main contractual obligations. The avoidance of the contract changes the contractual relationship into a restitutional [winding-up] relationship. Cf. Case "Germany 11 October 1995 Landgericht [District Court] Düsseldorf", <http://cisgw3.law.pace.edu/cases/951011g1.html>, accessed 9 April 2003.

27. See, the Contract Law of the People's Republic of China, article 97.

28. Besides article 81, article 82 can be interpreted as another evidence that the risk is throw back to the seller. Cf. Case "Austria 29 June 1999 Oberster Gerichtshof, accessed 6 April 2003. The court held:

"According to Art. 82(2)(a) and (b) CISG, the seller bears the risk during the undoing of the contract for any deterioration and/or loss of the goods, so far as this is not due to acts or omissions of the buyer. Thus, the seller alone bears the risk of chance accidents and force majeure. This one-sided or predominant burdening of the seller with the risks of restitution can only be explained by the [seller] having caused these risks with his breach of contract."

29. CISG, Article 82(1).

30. CISG, Article 82(2)(a).

31. CISG, Article 82(2)(b).

32. CISG, Article 82(2)(c).

33. See the Secretariat Commentary on article 67 of the 1978 Draft (later adopted as article 82 CISG).

34. CISG, Article 82(2)(a).

35. The phrase "receive" in this clause is different from the phrase "take delivery" (e.g., in article 53 CISG). The present writer inclines to the viewpoint that the former is a state de facto, but the latter is a state de jure. The fact that the buyer receives the goods does not mean buyer has accepted them.

36. CISG, Article 86(1), sentence 1.

37. Some writers hold that, by the phrase "intend to", the CISG "requires that the buyer manifest his intention at the moment of receipt of the goods". See Jorge Barrera Graf, in: Bianca & Bonell (ed), op. cit. supra note 7 at 622, para. 2.3.

But Honnold states that "article 86(1) probably requires reasonable steps to preserve goods while they are in the buyer's possession during the period leading up to a decision to reject". If the buyer does not do that, article 82(1) may preclude buyer's rights to declare the contract avoided or require substitute delivery. See John O. Honnold, op. cit. supra note 9 at 525.

38. CISG Article 26 requires notification to make the declaration of avoidance of a contract to be effective.

39. CISG, Article 70.

40. CISG, Article 82(2)(a).

41. CISG, Article 7(1).

42. Sylvain Bollée, "The Theory of Risks in the Vienna Sale of Goods Convention 1980", Pace Review of the Convention on Contracts for the International Sale of Goods (1999-2000) 245-290, available at <http://cisgw3.law.pace.edu/cisg/biblio/bollee.html>, Sec. 68.

43. CISG, Article 51(1).

44. CISG, Article 51(1).

45. See Michael R. Will, in: Bianca & Bonell (ed), op. cit. supra note 7 at 378, para. 2.1.2. He also distinguishes between the entire contract and the defective part.

46. See Michael R. Will, in: Bianca & Bonell (ed), op. cit. supra note 7 at 378, para. 2.2; John O. Honnold, op. cit. supra note 9 at 345; and the Secretariat Commentary on article 47 of the 1978 Draft (later adopted as article 51 CISG).

47. CISG, Article 73.

48. CISG, Article 39. It requires the buyer to notify the seller about the lack of conformity within a reasonable time.

49. CISG, Article 46(3).

50. Some researchers hold that the noticed-avoidance procedure under article 47(1) applies only to non-delivery in connection with article 49(1)(b). Thus the procedure will not be abused by the buyer. Cf. John O. Honnold, op. cit. supra note 9 at 313-314. The Secretariat Commentary on article 43(1) of the 1978 Draft (draft counterpart of CISG article 47(1)), paragraph 6, confirms this opinion.

However, the present writer deems this explanation does not completely preclude the buyer from employing a similar notice when the seller is in other forms of breach. When the buyer requires the seller to repair, he can also fix an additional final period for the seller to perform his obligations. Article 49(2)(b)(ii) is clear evidence to this point. But this is different from the notice mentioned in Article 49(1)(b), which indeed does not require a "fundamental breach". (This is discussed later in the text of this paper.) The buyer's right to declare the contract avoided under Article 49(2)(b)(ii) is subject to Article 49(1)(a), i.e., its basis is still fundamental breach, but not the notice itself. Honnold himself discusses this. Cf. John O. Honnold, op. cit. supra note 9 at 331, footnote 6. See also Michael R. Will, in: Bianca & Bonell (ed), op. cit. supra note 7 at 346, para. 2.2.1.

51. CISG, Article 48(1).

52. Article 326 of the German Civil Code was recently amended and entered into force on 1 January 2002. Now Nachfrist is provided in article 308 paragraph 2. It states

"eine Bestimmung, durch die sich der Verwender für die von ihm zu bewirkende Leistung abweichend von Rechtsvorschriften eine unangemessen lange oder nicht hinreichend bestimmte Nachfrist vorbehält". ["a provision by which the user, in derogation from legislative provisions, reserves the right to an unreasonably long or inadequately specified additional period within which to perform".] Downloaded from <http://www.iuscomp.org/gla/statutes/BGB.htm#b2s2>, 20 September 2002.

In respect of the original Article 326 of the German Civil Code, see: Albert H. Kritzer, Guide to Practical Applications of the United Nations Convention on Contracts for the International Sale of Goods, Deventer·Boston: Kluwer Law and Taxation Publishers, 1988, p. 23.

53. CISG, Articles 47(1) and 48(2).

54. CISG, Article 81(1), sentence 1.

55. See Sylvain Bollée, op. cit. supra note 42 at Sec.74.

56. CISG, Article 46(1).

57. CISG, Article 52(2).

58. In Fauba France FDIS GC Electronique v. Fujitsu Mikroelectronik GmbH, which was the first decision of France's Court of Cassation applying CISG, the High Court held that Article 86 was without effect since "[Buyer] never alleged having assumed such expenses for those goods which did not correspond to its purchase orders." Available at < http://cisgw3.law.pace.edu/cases/950104f1.html> accessed 6 April 2003. In this case the delivery was excess, cf. <http://www.unilex.info/case.cfm?pid=1&do=case&id=106&step=Abstract> accessed 9 April 2003.

But Claude Witz in his commentary on this case criticized the decision and held that the right legal basis should only be article 52(2) in the case of excess delivery. Whether the buyer had to pay for the excess goods at the contract price should be judged according to whether he "examine[d] the goods within as short a period as is possible (Art. 38(1)) and g[a]ve notice of the lack of conformity within a reasonable time period (Art. 39(1))".16 Journal of Law and Commerce (1997) at 345-356, available at <http://cisgw3.law.pace.edu/cisg/biblio/1witz.html>.

The present writer agrees with Claude Witz in respect of whether the buyer has to pay for the excess goods. But as for the excess goods themselves after the buyer rejects them, the present writer thinks that article 86 to 88 should apply.

59. CISG, Article 86(2).

60. CISG, Article 49(1)(b).

61. CISG, Article 49(2)(a).

62. CISG, Articles 46(2), 49(1)(a).

63. Cf. P. M. Roth, op. cit. supra note 7, and Sylvain Bollée, op. cit. supra note 42 at Sec. 75.

64. UNCITRAL, Report on Tenth Session (1977) Annex I (A/32/17) 149 para. 555 [the present art. 82 was then numbered 68]; this view seems confirmed by the summary record: UNCITRAL, Tenth Session, Committee of the Whole I, Summary Record of the 29th Meeting, 10th June 1977 (A/CN.9(X)/C.1/SR.29) paras. 20-28. But cf. Text of the Draft Convention on the International Sale of Goods, UNCITRAL, Report on Tenth Session (1977) (A/32/17) 26; Text of The Draft Convention on Contracts for the International Sale of Goods, UNCITRAL, Report on Eleventh Session (1978) (A/33/17) 30. Quoted from P. M. Roth, op. cit. supra note 7 at footnote 73.

65. CISG, Article 52(1).

66. Cf. P. M. Roth, op. cit. supra note 7.

67. CISG Article 69(2).

68. See, Case "Germany 23 June 1998 Oberlandesgericht [Appellate Court] Hamm", <http://cisgw3.law.pace.edu/cases/980623g1.html>, accessed 9 April 2003. The facts are very similar to what P. M. Roth writes. In this case, the buyer was bound to take over the goods at a place other than the seller's place of business-a Hungarian warehouse. The buyer was aware that the goods had been placed in the warehouse at its disposal with the storage invoices sent to him by the seller. The delivery would be due at the buyer's demand, but the buyer had not made that when the dispute arose. The court held that the risk still rested on the seller because the conditions for the passing of risk pursuant to article 69(2) CISG had not been fulfilled.

69. Article 69(1) is interpreted to refer to delivery at the place of business of the seller according to the Secretariat Commentary and most researchers. But the present writer believes that in the said exceptional situation in the text, it is better to understand article 69(1) wider. If not, there would be a loophole as P. M. Roth wrote.

70. CISG, Article 53.

71. CISG, Articles 67 and 68.

72. CISG, Article 80.

73. P. M. Roth also said it is a curious aspect of the risk on the buyer's breach in CISG. See P. M. Roth, op. cit. supra note 7.

74. Some researchers regard article 66 as the said rule in the text, e.g. Lawrence S. Clark, Peter D. Kinder, Carolyn Hotchkiss, Law and Business The Regulatory Environment (3rd ed), McGraw-Hill.Inc. (1991) 651; Wang Chuanli (ed), International Trade Law, Beijing: Law Press (1998.3) 63. But from the article itself and the drafting process the present writer does not think so.

75. CISG, Articles 7 and 9.

76. Cf. P. M. Roth, op. cit. supra note 6.

77. CISG, Article 7(2).

78. The law was adopted on April 12, 1986 and entered into force as of January 1, 1987.

79. The Contract Law, Article 142: "The risk of damage to or missing of an object shall be borne by the seller before the delivery of the object and by the buyer after the delivery, except as otherwise stipulated by law or agreed upon by the parties."

The English translations of all of the articles of the Contract Law in this paper are quoted from the Legislative Affairs Office of the State Council of the People's Republic of China (ed): Contract Law of the People's Republic of China (in Chinese and English), Beijing: China Legal Systems Publishing House (1999.3).

80. The Contract Law, Article 149: "In case that the buyer bears the risk of damage to or missing of the object, the buyer's right may not be affected to claim the assumption by the seller of the liabilities for breach of contract because of the seller's performance failing to conform with the terms of the contract."

81. See Dong Zhandong (ed), The New Contract Law of the People's Republic of China - Complete Collection, (Vol. 1), Beijing: China Economy Press (1999.3) 51.

82. A Chinese scholar, Wang Liming, wrote: "When the seller is in fundamental breach of contract because the object is non-conforming, only if the buyer refuses to accept it or rescinds the contract, the risk does not pass to the buyer. If the buyer has accepted the object and claims the assumption by the seller of the liability for breach of contract, when the object is injured or missing during his/her possession, the buyer still bears the risk." See Wang Liming, "A Comparative Study in Chinese and German Purchase Contract", Beijing: Journal of Comparative Law (2000.1) 21-37.

83. The Contract Law, Article 94(4).

84. The Contract Law, Article 6: The parties must in accordance with the principle of good faith, no matter in exercising rights or in performing obligations."

85. The Contract Law, Article 60 para. 2: The parties shall abide by the principle of good faith and perform the obligations of notice, assistance and maintaining confidentiality, etc. based on the character and purpose of the contract or the transaction practices."

86. The Contract Law, Article 119 para. 1: "After one party violates a contract, the other party shall take proper measures to prevent from the enlargement of losses; if the other party fails to take proper measures so that the losses are enlarged, it may not claim any compensation as to the enlarged losses."

87. Mo. J. S. criticized article 148 of the Contract Law. He writes: "A more logical rule would hold the buyer liable for the risk until the contract is terminated and the buyer claims compensation against the seller if he or she has suffered any loss. Such a rule would impose an obligation upon the buyer to take care of the goods in a reasonable manner." He suggested amending it. See, Mo. J. S., "The Code of Contract Law of the People's Republic of China and the Vienna Sales Convention", American University International Law Review, Washington D. C.: Washington College of Law, American University (1999) 15:209 at 234-235.

According to the text, the present writer thinks his worries are not necessary, for the Contract Law is a systemic integer.

88. The Contract Law, Article 147: "The buyer's failure in delivering the documents and materials relating to the object according to the terms of the contract may not affect the risk transfer of the damage to or missing of the object."

89. CISG, Article 67(1).

90. The Contract Law, Article 143: "Where the object cannot be delivered according to the agreed time limit due to causes of the buyer, the buyer shall bear the risk of damage to or missing of the object as of the agreed date of delivery."

91. The Contract Law, Article 146: "Where the seller has put an object at the place of delivery according to the provisions of Sub-paragraph (2), Paragraph 1, Article 141 of this Law, while the buyer fails to take delivery of the object by violating the terms of the contract, the risk of damage to or missing of the object shall be borne by the buyer as of the date of breach."

92. The Contract Law, Article 71, para. 1: "The obligee may reject an advance performance of the contract by the obligor, except that the advance performance does not damage the interests of the obligee."

93. The Contract Law, Article 101: "The obligor may deposit the object if the debt obligations are difficult to be performed under any of the following circumstances: …"

94. The Contract Law, Article 103: "The risk of damage to and missing of the object after being deposited shall be borne by the obligee. During the period of depositing, the fruits generated by the object shall belong to the obligee. The deposit expenses shall be borne by the obligee.


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