Go to Database Directory || Go to Bibliography

Comparison between provisions of the CISG regarding time for payment (Art. 58) and the counterpart provisions of the PECL (Arts. 7:102 and 7:104)

John Felemegas [*]
February 2005

  1. Introduction
  2. Exchange of goods for price: the principle of simultaneous payment
    of the price and handing over of the goods (CISG Art. 58(1))
  3. Contracts involving carriage of goods (CISG Art. 58(2))
  4. The buyer's right to examine the goods in advance (CISG Art. 58(3))
  5. Conclusion

I. Introduction

CISG Article 58 is located in the Convention's Part III "Sale of Goods", Chapter III "Obligations of the Buyer", Section I "Payment of the Price"; the stated provision governs the time for the buyer's payment of the purchase price in relation to performance by the seller.[1]

In essence, CISG Art. 58 regulates the important matter of when must the buyer pay the price for the purchased goods. There are, however, several related questions concerning payment that are answered in Art. 58; e.g., is the seller obliged to hand over the goods before he is paid, how does a contract which calls for carriage of the goods affect the payment of the price against the handing over of the goods, and whether the seller may require the buyer to pay the purchase price before the latter has an opportunity to examine the goods.[2]

The counterpart provisions of the PECL dealing with similar matters are located in the Principles Chapter 7 "Performance", Articles 7:102 "Time of Performance", and 7:104 "Order of Performance".

II. Exchange of goods for price: the principle of simultaneous payment of the price and handing over of the goods (CISG Art. 58(1))

The general rule stated in CISG Art. 58(1), first sentence, is that, subject to a contrary arrangement agreed by the parties to the contract, the buyer is obliged to pay the price at the time the seller makes the goods available to the buyer, by placing either the goods or documents controlling their disposition at the buyer's disposal.[3]

Furthermore, it is stated in Art. 58(1), second sentence, that the seller "may make such payment a condition for handing over the goods." From this follows that if the buyer does not pay at that time, the seller may refuse to hand over the goods (or documents controlling their disposition[4]).

The converse of the general rule - i.e., that, unless otherwise agreed, the buyer is not obliged to pay the price until the seller places either the goods (or documents controlling their disposition) at the buyer's disposal - also follows as a logical corollary of the stated general rule.[5]

It must be noted, however, that, besides the effect of contrary contractual terms, international usages and practices established between the parties may also derogate from the principle of simultaneous performance in handing over the goods and paying the price.[6]

It must further be noted that the buyer is not obliged to pay the price until he has had an opportunity to examine the goods (see CISG Art. 58(3), discussed infra: IV. The buyer's right to examine the goods in advance).

The Convention's principle of simultaneous performance of the parties' obligations is also entrenched in the counterpart provisions of PECL Art. 7:102 [7] and Art. 7:104.[8]

Pursuant to PECL Art. 7:102,[9] a party (the buyer, in the context of CISG Art. 58) has to perform its obligations:

  1. if a time is fixed by or determinable from the contract, at that time
  2. if a period of time is fixed by or determinable from the contract, at any time within that period, unless the circumstances of the case indicate that the other party (the seller in the Convention) is to choose the time
  3. if no time of performance is agreed, within a reasonable time after the conclusion of the contract

First, the rule in PECL Art. 7:201(1) follows from the parties' freedom of contract. Thus, both under the Principles and the Convention (CISG Art. 6; Art. 33(a); Art 58(1), first sentence), the terms of the contract control the time of performance in the first instance and only when the contract is silent do the corresponding provisions of the counterpart instruments become applicable.

Secondly, the rule in PECL Art. 7:201(2) permits the possibility that, in an appropriate case, the creditor (the seller, in the context of CISG Art. 58) may choose the time for performance by the debtor (the buyer, in the context of CISG Art. 58).[10]

Pursuant to CISG Art. 58(1), second sentence, and Art. 58(2), the seller may refuse to hand over the goods or documents controlling their disposition to the buyer if the latter does not pay the price at that time.[11] In effect, the seller enjoys the right to retain the goods or documents controlling their disposition in these circumstances and, thus, the seller (the "other party" in the context of PECL Art. 7:201(2)) may require payment for the goods (i.e., performance by the debtor) upon dispatch of the goods (or documents controlling their disposition) to the carrier.

Last, the default rule in PECL Art. 7:201(3), when no time of performance has been agreed between the parties, is based on the application of the concept of reasonableness, which is also one of the general principles upon which the Convention is based.[12]

III. Contracts involving carriage of goods (CISG Art. 58(2))

The general rule stated in CISG Art. 58(1), which is based on the principle of simultaneous payment of the price and handing over of the goods, is also applicable to contracts involving carriage of goods -- such an arrangement is common in international sales.

Where a contract involves carriage of goods, CISG Art. 58(2) provides that a seller may dispatch the goods on terms whereby the goods will not be handed over to the buyer except against payment of the price. In effect, the seller may deliver the goods to the carrier in exchange for documents controlling the disposition of the goods[13] -- "usually a bill of lading providing that the goods will only be delivered in exchange for the surrender of the document".[14] It follows that, in the absence of contractual terms to that effect, the seller cannot act on the above assumption; accordingly, in the absence of particular terms, the buyer is not obliged make payment until the moment when the goods or documents controlling their disposition are handed over to him by the carrier.

Because of the importance of the particular questions, the contract will usually contain specific provisions on the mode[15] and place of payment. In the absence of an express provision in the contract between the parties, the relevant questions must be answered via an interpretation of the Convention's provisions.

Exchanging the goods for the price brings into operation also CISG Art. 57(1), which provides a rule regarding the place at which payment of the price is to be made.[16]

CISG Art. 57(1)(a) states the general rule that if the buyer is not obliged to pay the price at any other particular place (i.e., in the absence of specific contractual provisions on the mode and place of payment) he must pay the price at the seller's place of business.

Regarding cases in which payment is to be made against the handing over of the goods or of documents, CISG Art. 57(1)(b) provides that payment must be made at the place where the handing over takes place.[17]

IV. The buyer's right to examine the goods in advance (CISG Art. 58(3))

CISG Art. 58(3) provides that as a general rule the buyer is not obliged to pay the price unless he has had an opportunity to examine the goods.[18]

In implementing this rule, it is commented that it is the seller's obligation "to provide a means for the buyer's examination prior to payment and handing over".[19]

The buyer, however, loses the right to examine the goods prior to payment where the procedures for delivery or payment agreed upon by the parties are inconsistent[20] with the buyer having had such an opportunity.[21] It must be stressed, however, that, even in such cases, the buyer does not lose his right to examine the goods prior to payment where the contract provides that he must pay the price against the handing over of the documents after the arrival of the goods.[22] In other words, prior examination of the goods by the buyer may be excluded by a contractual stipulation to that effect or by modalities of delivery or payment which are incompatible with such examination (e.g., clauses involving payment against handing over of documents or payment against handing over of the delivery slip).[23]

V. Conclusion

The Convention's provisions regarding the time when the buyer must pay for the goods are based upon the principle of simultaneous performance of the parties' obligations. The same principle is also entrenched in the counterpart provisions of the PECL.

The primary rule in both sets of counterpart provisions follows from the parties' freedom of contract. Thus, both under the Principles and the Convention the terms of the contract concluded between the parties control the time of performance in the first instance and only when the contract is silent do the corresponding provisions of the counterpart instruments become applicable.

The default rule in the Principles, when no time of performance has been agreed between the parties, is based on the application of the concept of reasonableness, which is also one of the general principles upon which the Convention is based.


FOOTNOTES

* Doctorate in Law; Fellow, Pace Law School Institute of International Commercial Law; Lecturer, Faculty of Law, University of Technology, Sydney.

1. CISG Art. 33 and PECL Art. 7:102 set out rules for ascertaining the time for delivery by the seller, and require the seller to deliver on time. CISG Art. 52(1) CISG and PECL Art. 7:103 provide rules regarding early delivery by the seller.

For a comparative analysis of the two instruments, see Ying C., "Comparison between provisions of the CISG (Articles 33 and 52(1)) and the counterpart provisions of the PECL (Articles 7:102 and 7:103)", available online at <http://cisgw3.law.pace.edu/cisg/biblio/ying.html>. Ying concludes in his analysis that"

"(a) the counterpart provisions of the first match-up (time for delivery) are virtually identical in all material respects and both should have the same legal effect; and
"(b) regarding early delivery by the seller, (i) the Convention appears not to qualify the buyer's right to accept or reject the seller's early delivery, while the PECL does so, and (ii) The Convention is silent on the effect of early delivery by the seller on the time for payment by the buyer, while the PECL provides that a party's acceptance of early performance does not affect the time for the performance of its own obligations."

2. See Honnold J.O., Uniform Law for International Sales, Kluwer Law International, 3rd ed. (1999), at 363:

"Procedures for payment are of concern to the parties and usually are dealt with in the contract; Article 58 provides answers only when the contract is silent (Art. 6). [...] Article 58 is designed to minimize risks for both parties -- risk to the seller from the delivery before payment and risk to the buyer from payment for defective goods."

3. See the Text of the Secretariat Commentary on Art. 54 of the 1978 Draft [draft counterpart of CISG Art. 58], available online at <http://cisgw3.law.pace.edu/cisg/text/secomm/secomm-58.html>.

Comment 2. "[Article 58(1)] recognizes that, in the absence of an agreement, the seller is not required to extend credit to the buyer."

CISG Art. 58 is substantially the same as Art. 54 of the Draft Convention; therefore, the Secretariat Commentary on 1978 Draft Art. 54 should be relevant to the interpretation of CISG Art. 58. See corresponding match-up, available at <http://cisgw3.law.pace.edu/cisg/text/matchup/matchup-d-58.html>.

For case law confirming that pursuant to CISG Art. 58(1), in the absence of specific provisions within the contract establishing the time for the buyer's payment of the price, payment is due upon delivery, i.e., that payment was to be effected when the seller placed the goods at the buyer's disposal, see

   -     Switzerland 20 December 1994 Tribunal Cantonal [Appellate Court] Valais (Marmipedretti Graniti S.r.l. v. Nichini S.A. Pierres naturelles et artificielles), CLOUT abstract no. 197, case presentation including English translation available at <http://cisgw3.law.pace.edu/cases/941220s1.html>;
   -     Switzerland 30 June 1995 St. Gallen Gerichtskommission Oberrheintal, CLOUT abstract no. 262, case presentation available at <http://cisgw3.law.pace.edu/cases/950630s1.html>.

4. The expression "documents controlling [the] disposition [of the goods]" was not clarified at the Vienna Diplomatic Conference. There is still uncertainty among commentators regarding the precise meaning of the expression as well as the type of documents that satisfy that meaning for the purposes of CISG Art. 58. See Sevón L., "Obligations of the Buyer under the Vienna Convention on the International Sale of Goods", 106 Juridisk Tidskrift (Suomen Lainopillinen Yhdistys) 335 (1990), available online at <http://cisgw3.law.pace.edu/cisg/biblio/sevon.html>:

"The expression 'documents controlling their disposition' clearly covers the situation where the goods are to be delivered only against surrender of the documents. This would be the case with a bill of lading where the carrier may only deliver the goods to the person presenting the bill of lading. The expression would also seem to cover a warehouse receipt entitling the holder to claim the goods. It is uncertain whether the expression covers international way bills issued under the CMR and CIM Conventions governing carriage by road and rail respectively. Under these documents the carrier is required to deliver the goods to the consignee named in the document. The sender may appoint another consignee. However, he may do so only if he can produce the relevant copy of the way bill. Having acquired the way bill, the consignee/buyer is thus protected against dispositions by the sender/seller. As the handing over of the relevant copy of the way bill has the effect that the consignor can no longer alter the consignee to whom the goods are to be handed over, the holder of that copy controls the disposition of the goods in a manner which would seem sufficient for the purposes of Article 58(1)."

See also Schlechtriem P.,Uniform Sales Law -- The UN-Convention on Contracts for the International Sale of Goods, Manz, Vienna (1986), at 82, fn 327; also available online at <http://cisgw3.law.pace.edu/cisg/biblio/schlechtriem-art58.html>:

"The expression concerns chiefly negotiable documents of title and is therefore unsuitable for its function in Article 58. [...] It is not just a matter of delivery of the goods (and the documents controlling them), but rather of performance of the seller's principal obligations. Insurance policies, certificates of origin, etc. relate to the goods and, when in doubt, their delivery must be part of the seller's performance even when they are not always necessary for the further disposition of the goods. The fact that Article 58 is designed to regulate the time of payment and to give the seller the right to withhold the goods until they are paid for justifies the view that 'controlling' documents should be interpreted in the sense of Articles 30 and 34. Therefore, even if an insurance policy, for example, is not required for the disposition of the goods, nevertheless, the seller has not placed the goods at the buyer's disposal, according to Article 58(1) sentence 1, until he tenders the policy together with the goods. Moreover, under Article 58(2), the seller has the right to withhold the insurance policy until the buyer pays. For the application of Article 58(1) and (2) to the insurance policy, one need only imagine the case in which the purchased goods are destroyed after the contract has been concluded and the risk of loss has passed to the buyer. For unimportant documents that nevertheless relate to the goods, Article 58(1) and (2), interpreted in the light of Article 7(1), would permit Article 71(1) -- concerning the suspension of performance where one party has failed to perform 'a substantial part of his obligations' -- to be used as a yardstick: If unimportant documents are missing or withheld, the buyer must pay, but he can sue for damages or specific performance."

See also relevant case law on what constitute "documents controlling the disposition of the goods" within the meaning of CISG Art. 58(1):

   -     Switzerland 12 August 1997 Kantonsgericht [District Court] St. Gallen, CLOUT abstract no. 216, case presentation also available at <http://cisgw3.law.pace.edu/cases/970812s1.html>. In short, the court found that the handing over of documents controlling the disposition of the goods to the buyer caused the price to become due, as provided in CISG Art. 58(1). Note, however, that customs documents necessary to clear the importation of the goods into the buyer's country were held not to constitute "documents controlling the disposition of the goods". Furthermore, the court held that the procurement of customs documents is incumbent upon the seller, only if so provided in the contract between the parties;
   -     Germany 3 April 1996 Bundesgerichtshof [Federal Supreme Court], CLOUT abstract no. 171, case presentation including English translation available at <http://cisgw3.law.pace.edu/cases/960403g1.html>. In short, the court held that certificates of origin and quality do not constitute "documents controlling the disposition of the goods". Furthermore, the delivery of wrong certificates of origin and of quality did not amount to a fundamental breach of contract since the buyer could obtain correct documents from other sources. Accordingly, the court held that the buyer could not justifiably refuse payment under CISG Art. 58.

5. See Text of Secretariat Commentary, op. cit., Comment 3. See also Honnold, op. cit., at 364: "In short, goods are to be exchanged for the price."

6. See Switzerland 18 January 1996 Bundesgericht [Federal Supreme Court], CLOUT abstract no. 194, case presentation available at <http://cisgw3.law.pace.edu/cases/960118s1.html>. In short, the court held that in the absence of a contrary agreement between the parties, payment of the price was to be made at the seller's place of business (CISG Art. 57(1)(a)), and not at the place of delivery of the goods (CISG Art. 57(1)(b)). The latter rule applies only when payment is to be made against the handing over of the goods or documents. The court held that this happens only when the respective obligations of the buyer and the seller have to be simultaneously fulfilled (CISG Art. 58(1)) and not when, as in the case at hand, the buyer is entitled to pay part of the price after performance by the seller (delivery and installation). The court, thus, held that the parties had derogated from the principle of simultaneous performance.

7. See Lando O. & Beale H., eds., Principles of European Contract Law: Parts I and II, Kluwer Law International (2000) 332, Comments on PECL Art. 7:102. Comment B, also available online at <http://cisgw3.law.pace.edu/cisg/text/peclcomp58.html#7:102>: "B. Concurrent performance of the parties' obligations: It is the general rule that the two performances have to be rendered simultaneously, so that each party can withhold its performance until the other performs."

8. PECL Art. 7:104 [Order of Performance] reads:

"To the extent that the performances of the parties can be rendered simultaneously, the parties are bound to render them simultaneously unless the circumstances indicate otherwise."

See Lando & Beale, op. cit., at 335-336:

"Article 7:104 provides that in general performances should be rendered simultaneously. This is because, if one party is to perform first, it will necessarily have to extend credit (in one form or another) to the other party, thereby incurring a risk that the other will default when the time for its performance comes. This additional risk is avoided if the performances are made simultaneously. Thus it is the general rule in sales contracts that, unless otherwise agreed, delivery and payment are to be simultaneous."

9. PECL Art. 7:102 mirrors, in terms of structure as well as substance, another provision of the Convention (Art. 33), which deals with the time for performance of the seller's obligation to deliver the goods.

See Ying, op. cit.:

"Article 7:102 PECL is virtually identical to Article 33 CISG in all material respects, if one treats the CISG seller as the PECL party required to perform, and the CISG buyer as the PECL 'other party'. The same three situations in the CISG are dealt with in the PECL using the same terminology."

10. See Lando & Beale, op. cit., at 333:

"If the contract or the circumstances do not indicate that the receiving party is to choose the time of performance, it is for the party which has to make the performance to choose the time. [...] It may follow from the circumstances of the case that the period of the time fixed for the performance begins as soon as the contract is made and as soon as the creditor -- or in an appropriate case the debtor -- requires performance."

11. See Schlechtriem, op. cit., at 82:

"In principle, the seller may demand immediate payment upon delivery. Thus, as long as the contract does not obligate the seller to perform first, the seller can make payment a condition precedent to a transfer of the goods or documents controlling their disposition (Article 58(1) sentence 2 and 58(2))."

12. See Lando & Beale, op. cit., at 333:

"What is reasonable time is a question of fact depending upon the nature of the goods or services to be performed and the circumstances, see Article 1:302."

PECL Art. 1:302 provides the definition of "reasonableness" in the Principles:

"Under these Principles reasonableness is to be judged by what persons acting in good faith and in the same situation as the parties would consider to be reasonable. In particular, in assessing what is reasonable the nature and purpose of the contract, the circumstances of the case and the usages and practices of the trades or professions involved should be taken into account."

"Reasonableness" is also regarded as a general principle of the CISG. See Kritzer A.H., Overview Comments on Reasonableness, available online at <http://cisgw3.law.pace.edu/cisg/text/reason.html>.

13. See the Text of Secretariat Commentary, op. cit., Comment 4:

"[CISG Art. 58(2)] states a specific rule in implementation of [CISG Art. 58(1)]. [...] The goods may be so dispatched unless there is a clause in the contract providing otherwise, in particular by providing for credit."

See also Sevón, op. cit, at 336:

"Article 58(2) deals with the situation where the contract involves carriage of the goods. This expression covers cases where the seller is required or authorized to ship the goods. The contract does not involve carriage if the buyer takes delivery at the seller's place of business and is to make arrangements for the goods to be shipped. Where the contract involves carriage, the seller must dispatch the goods but he may do so on terms according to which the goods or documents controlling their disposition will not be handed over to the buyer except against payment of the price. The impact of the provision with reference to the time of payment seems to be that the seller may not, unless agreed upon in the contract, make dispatch dependant on previous receipt of payment. On the other hand, the provision states that an arrangement whereby the seller dispatches the goods but does so on terms enabling him to retain control over them until payment is made, does not amount to a breach of contract."

14. Honnold, op. cit., at 364, with further references therein to

   -     Incoterms (1990), in which C.I.F., C.P.T. & C.I.P. terms call for the seller to provide the "usual transport document" that may be a "negotiable bill of lading"; and
   -     (U.S.A.) U.C.C. 2-310(b), which provides that seller may ship the goods "under reservation".

15. In the Information Age, electronic processes are speeding the transmission of funds and documents; e.g., payment might be made by letter of credit issued and dispatched electronically. The Convention does not refer to the use of letters of credit.

16. The interplay between CISG Art. 57 and Art. 58 has practical consequences for documentary exchanges. Sevón has commented on that interplay:

"In conjunction with Article 58, Article 57 states that if there is a delay in the transfer of the amount to the place where payment is to be made, e.g. due to lack of the authorization of transfer by the appropriate authorities or to a mistake by the buyer's bank, having the effect that the amount is not available at the place of payment in time, there is a breach of contract on part of the buyer."

See also Honnold, op. cit., at 364-367, where the author informatively discusses the interplay between those two provisions of the Convention, before concluding at 367:

"In short, it is possible to satisfy the standards of Article 58 for a mutually safe exchange of the goods and the price in a manner that is consistent with the rule of Article 57(1)(a) on the place of payment."

For an illustration of step-by-step performance implementing the principle of concurrent exchange of the goods for the price, in the setting of a typical international contract of sale involving payment by letter of credit, see Honnold, op. cit., at 368-369.

17. See the Text of the Secretariat Commentary on Art. 53 of the 1978 Draft [draft counterpart of CISG Art. 57], available online at <http://cisgw3.law.pace.edu/cisg/text/secomm/secomm-57.html>.

The Commentary states that the rule in CISG Art. 57(1)(b)

"will be applied most often in the case of a contract stipulation for payment against documents. The documents may be handed over directly to the buyer, but they are often handed over to a bank which represents the buyer in the transaction. The 'handing over' may take place in either the buyer's or the seller's country or even in a third country."

CISG Art. 57 is virtually identical to Art. 53 of the Draft Convention; therefore, the Secretariat Commentary on 1978 Draft Art. 53 should be relevant to the interpretation of CISG Art. 57. See corresponding match-up, available at <http://cisgw3.law.pace.edu/cisg/text/matchup/matchup-d-57.html>.

18. See Enderlein F. & Maskow D., International Sales Law, Oceana (1992), p. 226; also available online at <http://cisgw3.law.pace.edu/cisg/biblio/enderlein-art58.html>:

"This right to examine the goods in substance is not identical to the obligation of examination under Article 38. Even when the buyer pays the price after having examined the goods for the first time, he does not lose the possibility to examine the goods more carefully under Article 38 and to possibly claim a lack of conformity."

19. Text of Secretariat Commentary, op. cit., Comment 5. See also Comment 6 of the Secretariat Commentary:

"Where the contract of sale involves carriage of the goods and the seller wishes to exercise his right under [CISG Art. 58(2)] to ship the goods on terms whereby neither the goods nor the documents will be handed over to the buyer prior to payment, the seller must preserve the buyer's right to examine the goods. Since the buyer normally examines the goods at the place of destination [CISG Art. 38(2)] the seller may be required to make special arrangements with the carrier to allow the buyer access to the goods at the destination prior to the time the goods or documents are handed over in order to allow for the buyer's examination."

20. See the Text of Secretariat Commentary, op. cit., Comment 7, which explains:

"[The] Convention does not set forth which procedures for delivery or payment are inconsistent with the buyer's right to examine the goods prior to payment. However, the most common example is the agreement that payment of the price is due against the handing over of the documents controlling the disposition of the goods whether or not the goods have arrived. The quotation of the price on CIF terms contains such an agreement."

See also Sevón, op. cit., at 336, where the author explains:

"Normally, goods which have arrived at their destination cannot be sold there to another buyer at a price corresponding to the contract price. Some buyers may use this fact as a means to force the seller to accept a reduction of the price by refraining from taking delivery of the goods on the alleged ground of non-conformity. The seller may protect himself against such claims by a provision in the contract specifying a procedure for delivery according to which the buyer may not inspect the goods until payment has been made."

21. See Enderlein & Maskow, op. cit., at 227:

"Where the terms of payment already preclude the possibility for examination, it is irrelevant to search the terms of delivery for such an opportunity. Hence, this is only of importance when the terms of payment offer such an opportunity."

22. See the Text of Secretariat Commentary, op. cit., Comment 8:

"Since payment is to take place after the arrival of the goods, the procedure for payment and delivery are consistent with the right of examination prior to payment. Similarly, the buyer does not lose his right to examine the goods prior to payment where the seller exercises his right under [CISG Art. 58(2)] to dispatch the goods on terms whereby the documents controlling the disposition of the goods will be handed over to the buyer only upon the payment of the price" [emphasis added].

See also Honnold, op. cit., at 368:

"Article 38 establishes a duty to inspect: '(1) The buyer must examine the goods ... within as short a period as is practicable ...' -- a preface to Article 39 whereby a buyer may lose the right to rely on lack of conformity of the goods by failure to notify the seller within 'a reasonable time'. In sharp contract, Article 58(3) gives the buyer a privilege to inspect before payment -- a privilege that the buyer may forego without violating any obligation to the seller."

23. See the UNCITRAL Digest of case law on the United Nations Convention on the International Sale of Goods, para 8, available online at <http://cisgw3.law.pace.edu/cisg/text/anno-art-58.html#art583>.


Pace Law School Institute of International Commercial Law - Last updated February 15, 2005
Go to Database Directory || Go to Bibliography
Comments/Contributions