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Excerpt from Benjamin K. Leisinger, "Fundamental Breach Considering Non-Conformity of the Goods," Sellier European Law Publishers (2007). Reproduced with the permission of the publishers. To order the entire text of this book, go to <http://www.sellier.de/pages/en/buecher_s_elp/int_wirtschaftsrecht/533.fundamental_breach_considering>.

Fundamental Breach Considering Non-Conformity of the Goods

C. Special Circumstances: I. Commodities Trade

  1. Background information
    1. Definition
    2. Contracts under which commodities are traded
    3. Who trades commodities and the reasons for it
    4. Price fluctuations
  2. Applicability of the CISG
  3. Standard to be applied
    1. Non-conformity
    2. Fundamental breach
            aa.    Factors influencing the applicable standard
            bb.    The time element in particular
            cc.    Distinguishing with regard to the kind of non-conformity
                              a.    Quantity
                                      aa.    Quantity shortfall
                                      bb.    Quantity surplus
                              b.    Quality
                              c.    Packaging
  4. Means of Incorporating of stricter standard in the commodity trade
    1. Express agreement to specific usages or standards: Art. 6 CISG
    2. Usages agreed to or practices established in the commodity trade: Art. 9(1) CISG
            aa.    Commodity trade usages the parties can agree to
            bb.    Established practices
    3. Trade usages prevalent in the commodity trade
            aa.    Usage is widely known and regularly observed
                     in international trade of particular commodity
            bb.    The parties ought to have known of the usage
  5. Conclusions for commodity trade

[Note: The next chapter of this book addresses fundamental breach under the CISG in contexts of "Sales with Reference to Specific Trade Terms" with emphasis on CIF and CFR Incoterms 2000.]

Having shown the general principles underlying Arts 49(1)(a) and Art 25 CISG and how case law and legal theory have interpreted these provisions, this section discusses how those standards and principles can be applied to specific situations where the one or the other factor is of increased importance.

Some authors,[461] especially from England, find that the CISG is unsuitable for regulating international sales contracts for goods other than tractors, machinery or similar items. The main reason argued is that the CISG "has almost nothing to say about the detailed problems that one sees in reported cases [...]"[462], i.e. that it does not recognize specific regulations with regard to trading documents, special methods of payment that require certain strict standards to be applied, or other peculiarities, and "[t]here is enough uncertainty [...] about the process to explain the practice of excluding the CISG in international commodity contracts."[463]

However, the author will try to show that, on the contrary, the inherent flexibility of the CISG, especially because of Arts 6 and 9 CISG, makes it perfectly suitable to govern those kinds of sales, maybe even more suitable than existing national laws.

I. COMMODITIES TRADE

1. BACKGROUND INFORMATION

a. Definition

To begin with commodities, the author will first examine what the term "commodity" means, and how they are traded.

The term "commodity" includes a broad field of products ranging from oil to bulk chemicals to wheat, corn, soybeans, rice, cotton, lumber, gas, [page 115] propane, orange juice, RAM chips, copper, lead, gold, and even pork bellies. What all these goods have in common is that they are produced in very large quantities, by many different producers and that they are considered substitutable.[464] They are interchangeable.[465] The broadest definition of commodities is "anything that has a use value."[466]

The commodities traded today on the exchanges or cash/spot markets can be categorized into different groups: agricultural commodities,[467] metals, natural resources and financial instruments.[468] However, agricultural commodities, metals and natural resources are where any non-conformity is most likely to arise.

b. Contracts under Which Commodities are Traded

Commodities are usually traded on markets, most of them being international. They can be sold by using all different kinds of contracts, for example, so-called "spot contracts," "forward contracts," "futures contracts," or "EFP," to name a few.

A spot contract is a privately negotiated contract that calls for the immediate or soon delivery of the commodity.[469] Usually, these contracts are concluded on local spot markets. However, this does not necessarily mean that the parties do not originate from different countries.

In forward contracts and futures contracts, buyers and sellers agree on the sale of a certain quantity of goods of a certain quality against a certain price at a pre-agreed future point in time.[470] While forward contracts are [page 116] typically privately negotiated between seller and buyer, futures contracts are traded on organized exchanges by standardized contract terms which are standardized by the exchange and not by the parties. In futures trading, the seller's buyer and the buyer's seller is always the so-called "clearinghouse" of the exchange. The main difference, however, is that forward contracts almost always result in delivery, while only a small percentage, approximately 3 percent,[471] of traded futures contracts actually result in physical delivery. In most cases they are offset against one another, i.e. the trader who sold, i.e. "went short," buys and a trader who bought, i.e. "went long," sells futures contracts of the same goods in the equal amount, as the buyer and the seller of the same contract always is the clearinghouse.[472] Traders only buy or sell another futures contract and receive the profit or pay the loss and the contract is extinguished.

In practice, a so-called "exchange of futures for physicals (EFP)"[473] regularly takes place as well.[474] In this scenario, the buyer "goes long" on one of the exchanges. Thereby, it "locks-in" its price to pay for the desired commodities. Later, it finds a seller who sells similar products in approximately the same amount.[475] Seller and buyer agree on delivery of the goods against their individually agreed terms. Instead of making normal payment, the parties exchange their futures positions on the commodities futures market. As the seller has usually previously "gone short," usually two hedgers are involved. The benefit of such transactions is that the parties are not bound by the commodity exchange standard delivery procedures [page 117] but instead can individually agree on, for example, the place of delivery.[476] Another benefit is that the parties can choose their trading partner and are not automatically randomly matched, as it is usual in the delivery process of the exchanges.[477] By exchanging their respective futures contracts, the parties clear their respective positions on the futures market, and inform the exchange of this.

c. Who Trades Commodities, and the Reasons for it

There are several reasons why people buy and sell commodities on futures markets:[478]

So called "Hedgers," the parties who are actually interested in the commodities, try to "hedge out" any risk of rising prices.[479] These people or enterprises, for example farmers or grain companies, deal in the actual commodity.[480] Anyone who plans to buy commodities at a certain price in the future buys futures contracts up to the corresponding amount of goods; anyone who plans to sell commodities at a certain price in the future sells futures contracts up to the corresponding amount of goods.[481] In other words, hedging "involves establishing a position in the futures market equal to opposite a position in the cash market."[482] A producer of cornflakes, for example,[483] plans to buy 100,000 bushels of corn next March. It plans to pay a certain price. It buys 20 futures contracts, equaling 100,000 bushels, at the planned price per bushel at one of the exchanges. It thereby "locks-in" the price. Early in March, the producer has two options: it can keep the futures and take delivery at one of the delivery points indicated on the futures contract, or it can sell the futures contracts and buy the 100,000 bushels corn it needs at a local spot market, avoiding possibly higher transport costs. If it decides to take the second option, the profit or loss that it makes on the futures contracts market is more or less equivalent to the profit or loss that it faces on the local spot [page 118] market. If the price rose, it has to pay more on the local market, but at the same time can sell the future contracts for that higher price. The same goes the other way around: a farmer planning to sell its commodities at a certain price in a month in the future sells future contracts. It can then choose between delivering the harvested goods to specified delivery locations or it can buy equivalent futures contracts, offset the contracts, and sell its goods on the local market. Here again, the profit on the one market equals the loss on the other.[484]

"Speculators," on the other hand, seek to make a profit by predicting market moves and buying a commodity "on paper" for which they have no practical use. They trade only in the futures market.[485] Speculators usually resell the contracts immediately [486] or at least before the contract "expires" close to the end of the delivery month. As speculators also contribute to the change in supply and demand of futures contracts, they are, to a certain extent, one of the reasons for fluctuations. However, as speculators are likely to buy futures contract from hedgers, they actually guarantee that the market works;[487] they keep the commodities "liquid" [488] and also help avoiding wild fluctuations during the year.[489]

For speculators, the futures market is of special interest. With relatively small investment, they can trade large amounts of commodities. This is because futures contracts are sold on "margin money." Most of the contracts can be bought with a temporary investment of only 5% to 15% of the contract's value. The amount of the margin is set by the exchanges.[490] The purpose of this payment is to ensure that traders can meet their financial obligations; it is not a "down payment." However, if a speculating trader does not "close out" or "unwind" the contract before it expires, it has to take over the goods and to pay the full price. To avoid that risk, in general, speculators never trade futures contracts during the actual delivery [page 119] month.[491] They certainly never plan to hold the contract until expiration.[492]

d. Price Fluctuations

The commodity markets are subject to considerable day-to-day and even intra-day fluctuations as these markets quickly respond to changes in supply and demand.[493] Supply and demand, for their part, are also subject to external factors, such as hazards of nature, crises, etc.[494] That is why the change in prices is almost unpredictable -- or certainly less predictable, and more dramatic than the price developments of machinery.[495]

In a case decided by a U.S. District Court concerning the sale of "hard metal powders," such as Tantalum Carbide ("TaC") and Tantalum Niobium Carbide, one can see the dramatic changes with respect to the price of the commodity "TaC." In December 1999, the price of "TaC" was US $175.00 per kilogram. In December 2000, the price of "TaC" had risen as high as US $1,100.00 per kilogram.[496]

As a matter of fact, futures contracts were originally introduced to reduce the considerable price fluctuations on the market for agricultural commodities that occurred soon after the harvest in fall, when there was an oversupply of the goods, compared to the prices in spring, when there was a shortage. Futures provided an incentive for farmers to store some of their agricultural commodities and to sell them throughout the year. [page 120]

2. APPLICABILITY OF THE CISG

In both cases, whether buying a contract as a speculator or as a hedger, the contract is for the sale of goods and the CISG is thus -- theoretically applicable,[497] if the requirements of Art 1 CISG are met and if it has not been opted out of [498] in the contract. In practice, the problem of non-conforming goods will rarely arise when speculators are involved. However, all goods are ultimately bought by someone who actually takes physical delivery of them from the first seller, i.e. the producer.[499]

The fact that, in the futures trade, the goods do not yet exist, does not harm the applicability of the CISG, either. According to Art 3(1) CISG, contracts for the supply of goods to be manufactured or produced are to be considered sales unless the party who orders the goods undertakes to supply a substantial part of the materials necessary for such manufacture or production. Therefore, agricultural products still to be grown or harvested or other commodities still to be produced can be the subject of a CISG contract.[500]

Sales of commodities on exchanges are not sales by "auction," either, which are excluded by Art 2(b) CISG. John Honnold rightly states that they are just "rapid-fire communications of offers and acceptances."[501]

According to some authors,[502] the CISG would even be applicable to futures options, as they are contracts of sale that are subject to a condition, namely the holder of the option executing its right. [page 121]

However, it is important to keep in mind that commodities are not only traded with futures. Commodities are also traded by means of documents representing the goods -- so-called documents of title -- until the very last moment when delivery takes place at the agreed delivery point. In such cases of documentary trade of goods, it must be noted that the CISG is still applicable.[503] Art 2(d) CISG states that the CISG is not applicable to sales of negotiable instruments. However, it was clear from the beginning -- i.e. in ULIS -- that any reference to negotiable instruments was intended to exclude only such instruments that call for the payment of money, such as negotiable notes, bills of exchange or checks, and that any other interpretation would be inconsistent with the intent of the drafters.[504] The text of the Convention remained unchanged in order to "establish harmony with the Limitation Convention, but with the clear understanding that documentary sales of goods are governed by the Convention."[505]

It is necessary to mention here that commodities can even be sold without any documents at all. But what all the different types of trading commodities have in common are the considerable and relatively fast changes in price.

3. STANDARD TO BE APPLIED

Taking these peculiarities of the commodity trade, especially the price fluctuations, into account, a special standard needs to be applied in determining a fundamental breach. The need for certainty for both of the parties attains more significance in this context.[506]

a. Non-Conformity

First, it may be necessary -- or at least helpful -- to explain what is considered to be non-conformity of the goods in the commodity trade. [page 122]

As has been shown, the CISG applies to such sales if the prerequisites of Art 1 CISG are met. Hence, Art 35 CISG governs the prerequisites for establishing any non-conformity of the goods. The goods delivered are non-conforming if they are not of the quantity, quality and description required by the contract and if they are not contained or packaged in the manner required by the contract, Art 35(1) CISG. The possibility of being non-conforming under Art 35(2) CISG -- which applies if the parties failed or abstained from stipulating a description of the goods -- also exists under the same circumstances and requirements as were already described at the beginning of this thesis.[507]

Nevertheless, it might be helpful to show what the usual requirements are under contracts for the sale of commodities with respect to quantity, quality, description, or packaging.

When commodities are traded using futures contracts, such contracts are standardized. Under the "Rules and Regulations" of CBOT, for example, the standard quantity of a contract for wheat, corn, oats and soybeans is 5,000 bushels.[508] The quality of the commodities to be delivered to the delivery points is also standardized. No. 2 Yellow Corn, for example, must not contain more than 15% moisture.[509] The standardized Contract Specifications of TOCOM for Palladium, to give another example, call for delivery of Palladium of at least 99.95% purity.[510] In addition, the means of packaging are also standardized. The standard contract specifications for cocoa futures contracts of "EURONEXT LIFFE," for example, call for delivery of "bagged cocoa" if the parties contracted SDU [511] or LDU [512] and "loose cocoa" if the parties contracted for BDU [513].[514] The bags used for [page 123] this packing have to be "sound bags in external good order and meeting the criteria prescribed by the Board."[515]

Forward contracts, on the other hand, are not standardized. Here, the parties individually agree upon the amount and the quality of the respective commodities. The same is true if the parties agree on the "exchange of futures for physicals."

Consequently, no different standards are to be applied in determining the (non)-conformity of the goods when commodities are concerned. What is different, however, is the standard applied in determining the fundamentality of the breach.

b. Fundamental Breach

aa. Factors Influencing the Applicable Standard

In the trade of commodities, the right to avoid the contract plays an important role.[516] Here, there are several factors influencing whether the buyer is substantially deprived of its contractual expectations and, hence, its entitlement to avoid the contract. These factors must also be seen against the background of the reasons underlying Art 25 CISG, i.e. protection of the seller and the economy.

The first factor prevalent in the trade of commodities lowers the seller's need for protection. In the trade of commodities, there is a (very) liquid market where the seller can still sell the commodities to another buyer who has need for the goods in question. Therefore, the risk that the seller is left with its merchandise is rather small.

In a case before the U.S. Court of Appeals in 2003,[517] a U.S. seller and a Ecuadorian buyer agreed on the delivery of 140,000 barrels of unleaded gasoline. The gasoline's gum content was to be less than 3 mg per hundred milliliters as determined by a third party before shipment. After positive certification before shipment, the buyer again tested the gasoline after shipment and discovered that the gum content was higher. It then [page 124] refused to accept the goods. The seller in this case was able to immediately sell the goods to another party. Thus, there is no need to "protect" the seller in such a case.

The second factor addresses the principle of avoiding costly transportation in international trade, which underlies Art 25 CISG. Whilst goods like shoes or machines almost always need to be transported back to the seller, as the seller is unlikely to be able to make use of them at the buyer's place of business, commodities do not. On the contrary, they can be stored at the originally agreed or standardized point of delivery and resold to another buyer, or they can be forwarded to another place. When they are traded by means of documents representing the goods, they can even be resold while they are still in transit.

The third factor, price fluctuations, concerns a matter of risk allocation. The seller is the one who commits the breach of the contract and who is responsible for delivering non-conforming goods. From a policy point of view, it should thus bear the risk of falling [518] prices. Furthermore, arguments used in the so-called "economic analysis of law" would place this risk upon the seller; it is the one who can prevent the breach of contract, i.e. delivery of non-conforming goods, at lower costs than the buyer.[519]

Fourth, there is a practice in commodity trading of ensuring predictability by locking-in prices. A buyer who, for example, wanted to secure its profit margins by hedging on a futures exchange, lost this important tool as it -- simultaneously to the purchase of commodities on the spot/cash market -- has already sold its futures contract(s) on the exchange. Such a buyer must again have a high degree of certainty as to its right to avoid the contract and to calculate its damages in accordance with Arts 74 et seq. CISG, especially Arts 75 or 76 CISG.

Fifth, the high amount of damages that the buyer will be faced with if prices for the commodities rise must also translate into a high degree of certainty with regard to the destiny of the contract with the seller in breach. Only if the buyer knows that it can rightfully avoid the contract without potentially committing a fundamental breach himself, can it react as fast as possible and conduct a cover purchase without risking accusations [page 125] from the seller that it failed to mitigate damages in accordance with Art 77 CISG. Conversely, if the buyer knows that there is no fundamental breach and it is not entitled to avoid the contract, it will not contract for goods in replacement and, thus, will not incur unnecessary expenses that it cannot recover.

bb. The Time Element in Particular

As has been explained, there are considerable fluctuations in price in commodity trading. These price fluctuations lead to a special situation. In a situation of falling prices, the buyer has an interest in avoiding the contract and in purchasing cheaper goods. When the prices are rising, however, the seller has a vital interest in selling the goods to another buyer at a higher price.[520]

Taking these price fluctuations into account, one must come to the conclusion that timely delivery of conforming goods is always of the essence in the trade of commodities.[521]

Hence, when the delivered goods are not in conformity with the contract, it is of crucial importance whether the parties agreed on delivery on a certain date or within a certain time frame. In their contract, the parties can agree on delivery of the goods by a certain date. In a case decided by the U.S. District Court of New Jersey, for example, the parties agreed on delivery "between September 10-20, 2001."[522] The parties can also agree on delivery on a certain date. In the first situation, if the seller delivers goods that are not in conformity with the contract before the expiry of the time frame, the seller will usually still have the possibility of making a second tender of conforming goods, or of delivering missing goods, and still be in perfect compliance with the contract. In such situations, the time element is not yet very important. This result is also in conformity with Art 37 CISG. However, when the parties have agreed on delivery on a certain date and the seller physically delivers non-conforming goods on that date, there will be hardly any chance for the seller to cure this non-conformity and still meet the obligation to deliver conforming goods on the same date. Because of the unpredictable and considerable price fluctuations in [page 126] the commodity trade, in almost all cases, any delay will lead to an "unreasonable delay" within the meaning of Art 48(1) CISG.[523]

Such a breach usually constitutes a fundamental breach within the meaning of Art 25 CISG.

cc. Distinguishing with Regard to the Kind of Non-Conformity

The various factors explained above that influence the fundamentality standard, especially the liquidity of the commodity market and the consequent availability of substitute sellers and buyers, simultaneously lead to the result that one has to distinguish different kinds of non-conformities.

a. Quantity

As we have seen,[524] the question of whether there has been a fundamental breach or not must be answered by taking all circumstances of the case, including the possibility to cure the defect, into account.

We have also seen that under certain circumstances, the buyer can even be expected to cure the defect himself, if it can be done without unreasonable difficulty.[525]

In the trade of commodities, where there are an almost unlimited number of substitutable sellers selling exchangeable goods, the buyer, in general, can be expected to cure the defect himself if the non-conformity of the goods is due to the delivery of the wrong quantity.

aa. Quantity Shortfall

If the seller delivers a quantity less than the one contracted for, there can never be a fundamental breach of the contract. The reason for this is that in such a situation the buyer can always be expected to cure the defect [page 127] himself by purchasing the missing quantity, for example, on the spot/cash market, and to then claim damages.[526]

bb. Quantity Surplus

If the seller, however, delivers commodities exceeding the amount contracted for -- remember that such delivery also constitutes non-conformity under Art 35(1) CISG [527] the CISG, in Art 52(2), grants the buyer the right to simply reject the excess quantity. Such a right, however, is qualified by good faith, Art 7(1) CISG, and trade usages, Art 9 CISG.[528] Rejection does not necessarily have to be exercised by means of refusal to take physical delivery of the goods.[529] On the contrary, the buyer may actually be under an obligation to take the goods over and to store them in an appropriate manner.

Yet, there is a dispute among legal scholars as to whether the buyer can reject the entire delivery if the surplus cannot be reduced. Impossibility to reduce the excess quantity and to reject it could, for example, exist if the parties use documents for delivery. An example given by Markus Müller-Chen is the sale of 100 sacks of sugar "CIF" INCOTERMS 2000.[530] In his example, the seller tenders a negotiable bill of lading made out for 120 sacks. According to clause B8 INCOTERMS 2000, the buyer must only accept the transport documents if they are in conformity with the contract. The buyer's only option in this case is to reject the entire delivery. Whilst this works to the extent that the parties have agreed on delivery "CIF" with its clause A8, which requires that the seller provides the seller "without delay" with the usual transport document, and clause B8, there are cases where the parties only agreed on delivery by means of, for example, a negotiable bill of lading without mentioning the INCOTERMS. In such cases, some authors find that the buyer is only entitled to reject the entire delivery of the goods due to non-conformity if delivery of an excess quantity amounts to a fundamental breach under Art [page 128] 49(1)(a) CISG.[531] Others opine that the right to reject the entire delivery and the right to avoid the contract have to be distinguished.[532] They state that the buyer actually has the right to refuse to take delivery, but is not automatically entitled to avoid the contract.

Another situation where the buyer cannot reject the surplus separately is given where the goods are packaged in a manner which does not allow them to be separated without risking deterioration. An example is the sale of sterilized, vacuum-packed vegetables or fruit.

In the author's opinion, the right to refuse to take delivery of the whole delivery, i.e. to reject, indeed has to be distinguished from the right to avoid the contract. Art 52(2) CISG, namely, does not set forth the same -- strict -- requirements for rejection as Arts 49(1)(a) and 25 CISG do with regard to avoidance. However, this distinction loses its importance in the context of the commodity trade. As has been shown above, in these contracts, time is usually of the essence. Consequently, the seller's possibility to remedy the defect in the documents or to repack the goods normally does not exist in the commodity trade.[533] The logical consequence, therefore, is either that a fundamental breach is at hand and the buyer is entitled to reject the entire delivery and to avoid, or that such substantial deprivation does not exist and the buyer must take delivery and is not entitled to avoid the contract.

In the author's view, one has to distinguish between a reselling buyer of commodities and a processing buyer. As has been said, the market for commodities is very liquid and other sellers and buyers are readily available. As far as the expectation to cure the defect himself by reselling the exceeding amount is concerned, such cure can only reasonably be expected from a reselling buyer and not from a buyer who has bought the goods in order to process them. Such buyers are unlikely to have the required contacts to guarantee a fast resale of the commodities. This, in turn, once again imposes a high risk of incurring damages on both of the parties. Another factor that speaks against requiring a processing buyer to take delivery of the entire shipment is that such buyers would usually have to store the excess quantity -- maybe at external premises -- which, again, would lead to sometimes excessively high damages in the form of [page 129] storage costs [534] and/or could pose a high risk of deterioration, especially where so-called "soft commodities" are concerned. If, in the particular case, the buyer actually has a need for the goods -- and enough storage space to store them -- it could simply refrain from exercising its right to reject the goods under Art 52(2) CISG and would not avoid the contract. Such behavior by the buyer economically makes sense, as the prices for the commodities are as likely to rise as to fall.

In conclusion, the buyer is not generally entitled to avoid the contract if the non-conformity merely consists in delivery of the wrong quantity. Only a processing buyer who is confronted with an excess delivery and who cannot reject the exceeding amount separately from the conforming amount must be entitled to reject the whole delivery and to avoid the contract simultaneously.

An appropriate postscript in this context is Honnold's statement,[535] namely that parties who are acting in good faith can normally make an arrangement that would meet the needs of both.

b. Quality

When deciding whether a breach is fundamental or not, what is important is whether the goods can be used for the particular purpose intended by the buyer.[536] When the seller of commodities delivers goods of the wrong quality, for example, certain commodities with a lower grade than the goods contracted for, in the author's view, the question of whether the buyer purchased the goods for a particular purpose or not becomes even more important.

If the buyer indeed purchased the commodities for a particular purpose that was expressly or impliedly made known to the seller, what is decisive is whether the delivered goods can still be reasonably used for that purpose. If they cannot be used for this purpose, the buyer usually has to purchase additional goods in order to use them. In this situation, the buyer has lost its possibility to "lock in" any price by means of hedging and is [page 130] threatened with incurring an unpredictably high amount of damages, for example, due to rising prices or a delay in production.

Here, the question of whether the particular purpose was resale to a specific customer or the use of the commodities in production should be irrelevant. In both situations the buyer needs to purchase additional goods in order to still be able to fulfill this purpose.

If, however, the buyer has not purchased the commodities for any particular purpose, but merely for the general purpose of resale to another, as-yet unspecified buyer on the market, the buyer should not be entitled to avoid the contract as long as it can resell or otherwise use them within its normal course of business. In this context, there is no need to buy -- possibly more expensive -- goods in replacement and the prevalence of price fluctuations is less important. In such cases, the buyer is not substantially deprived of what it was entitled to expect under the contract as it can still conduct its normal business, i.e. resale of commodities, and possibly can still make -- albeit a lower -- profit. Here, other remedies under the CISG, such as price reduction and damages, are more appropriate and should prevail over the remedy of avoidance.

The same is true if the seller delivers the wrong goods, which in some domestic laws' terminology would be called an aliud. As long as the buyer, who has not bought the commodities for a particular purpose, can make reasonable use of the goods within its normal course of business and there is no need to buy goods in replacement, the buyer should not be entitled to avoid the contract. In the cobalt sulphate case decided in Germany, the buyer -- in the court's opinion -- would have been able to resell the aliud, cobalt sulphate "feed grade" instead of cobalt sulphate "technical grade" -- within its normal course of business as the specific buyer even had existing business contacts to a broker who dealt with cobalt sulphate "feed grade."[537]

Nonetheless, there are cases where the non-conformity of the goods, namely, delivery of goods that do not possess the agreed quality, can be cured by buying other goods and mixing them with the non-conforming goods. Where this is possible and -- taking the buyer's storage facilities and the demand on the market into account -- can be expected of the buyer, a fundamental breach should not be held to exist here, either. [page 131]

In a case decided by the Oberlandesgericht Innsbruck,[538] for example, the seller delivered tantalum powder with an oxygen content of more than 1,300 ug/g. In this case, the buyer himself stated that the goods with an oxygen content of 1,514 ug/g and 1,734 ug/g were "acceptable" as they could indeed be used within the buyer's normal course of business after being mixed with tantalum powder of better quality, i.e. with a lower oxygen content. However, the court found that the buyer rightfully avoided the contract -- despite the fact that the seller later, i.e. after avoidance, delivered tantalum powder with an oxygen content of 968 ug/g -- with regard to future deliveries, which also requires a fundamental breach, because the decreased demand for tantalum powder on the world market rendered it unreasonable to accept future non-conforming deliveries and to buy tantalum powder of a higher quality to mix with it and, thereby, to increase the whole amount the buyer had in stock. Hence, the non-conformity could no longer be reasonably cured by such means.

In conclusion, in the trade of commodities, where the seller delivers non-conforming goods, there is always a fundamental breach of contract entitling the buyer to avoid if, first, the buyer purchased the goods for a particular purpose known to the seller, and, second, the non-conformity cannot reasonably be cured by buying additional goods.

The Secretariat Commentary seems to hold a similar view. When discussing the delivery of goods of non-conforming quality in the context of reduction of the purchase price, it gives the examples of delivery of 10 tons of No. 3 corn instead of No. 1 corn. Here, it is noted that "except for example 46D [which concerns the delivery of non-conforming wall panels], all of the examples above have assumed a fungible commodity for which substituted goods are freely available thereby making if feasible for the buyer to avoid the contract, providing a ready market price as a means of measuring damages, and precluding any additional damages by way of lost profits or otherwise."[539]

c. Packaging

When the non-conformity of the goods consists of incorrect packaging of the goods, whether this influences the fitness for the intended use is also of primary importance. [page 132]

Where the buyer purchases the goods for resale and the non-conforming packaging leads to the consequence that the goods cannot be immediately resold -- as in string transactions -- within the buyer's normal course of business, the buyer is entitled to avoid the contract. Here, because of the circumstances prevalent in the commodity trade, any delay caused by packaging or repackaging the goods would lead to an unreasonable delay and expose the buyer to unreasonable risk.

Where the buyer purchases the commodities for processing, cure by means of (re)packaging -- which may be necessary to store the goods should, in general, be possible. Processing buyers, in general, have to unpack the goods that are to be used immediately in any case and, hence, there is no delay at all. Higher costs resulting from the (re)packaging -- or from any delay otherwise caused -- can be claimed as damages in such cases. Avoidance of the contract would expose both the seller and the buyer to an unnecessarily high risk of incurring loss. If the processing buyer, however, needed specific packaging to allow him to process the goods, for example because of specific machines used in the manufacturing process, what is of utmost importance is whether any delay caused by an attempt to cure would render it impossible to use the goods for the particular purpose made known to the seller at the time of conclusion of the contract. If there is no particular purpose or the goods can be used for it, the buyer is not entitled to avoid.

4. MEANS OF INCORPORATION OF STRICTER STANDARD IN THE COMMODITY TRADE

To enable the buyer to rightfully exercise its right to avoid the contract in these situations, it is of utmost importance that the strict standard with respect to the goods' conformity has been incorporated into the contract. Only if, under the specific contract, time is made of the essence and the buyer is therefore entitled to have conforming goods at the agreed point in time, will the prerequisites of Art 25 CISG be met.

There are several different means of incorporating this standard in the contract. Either the parties stipulate such strictness in their contract [a.], or the tools provided by the CISG lead to a similar result. Namely, the CISG automatically incorporates practices established between the parties and usages to which the parties agreed [b.], as well as trade usages prevalent in the specific field of business [c.] into the contract. [page 133]

a. Express Agreement to Specific Usages or Standards. Art 6 CISG

To begin with express agreements, this means of incorporating certain standards in the parties' contract is probably the best solution.

As has been shown above, the CISG recognizes the principle of party autonomy.[540] Hence, the opportunity to agree on their own standard for determining the fundamentality of any breach exists for CISG contracts.[541]

Express agreement has several benefits. One is that the buyer's expectation under the contract is made clear and, thereby, a clear threshold for substantial deprivation of that expectation is set. Another benefit is that the parties maximize legal certainty in case of a non-conforming delivery. Such certainty as to the fate of the contract, in turn, minimizes the risk of damages occurring, for example, through price fluctuations occurring during any delay caused by uncertainty and the need to seek clarification. A third benefit is that such means of incorporation also provide for perfect means of furnishing evidence in later disputes.

However, there are also some disadvantages that have to be taken into account. Stipulating a strict standard with respect to the conformity of the goods prolongs the process of negotiations. As has already been mentioned, longer negotiations result in higher transaction costs. Rational or at least economically-minded-parties will only expressly address certain issues in their contract if the actual cost of negotiating explicit terms does not exceed the cost of filling a gap in the contract.[542] As filling the gap in respect of the threshold for fundamentality of the breach takes place either while the buyer diligently looks at its possible remedies and weighs them against the risk of making a wrong assessment, or by a court or tribunal when deciding whether the remedy of avoidance was necessary, such gap-filling is usually quite expensive. In an environment of considerable price fluctuations, losing time while assessing whether a [page 134] contract can be avoided certainly represents a high cost factor. Furthermore, court decisions -- which are more likely to be necessary in cases of unclear wordings -- always lead to relatively high costs, for example, due to attorney fees. Consequently, the parties always have to take the possible benefits and disadvantages in their specific situation into account and then decide whether to expressly draft certain terms or not. In the context of commodity trade, however, the potential benefits of stipulating a certain standard are very likely to outweigh the disadvantages.

b. Usages Agreed to or Practices Established in the Commodity Trade. Art 9(1) CISG

If the parties have actually decided to stipulate certain standards for fundamentality of the breach in the event of delivery of non-conforming goods, they do not have to do so each and every time. They can use standardized contracts -- as is actually the case in most contracts for the sale of commodities. In addition, the CISG provides for the possibility to rely on usages to which the parties agreed or to take practices established between the parties into account.

aa. Commodity Trade Usages the Parties can Agree to

To begin with usages to which the parties can -- and to which they typically do -- agree. This possibility, set forth in Art 9(1) CISG, has a merely declaratory function.[543] This freedom to make certain usages applicable to the contract is guaranteed by Art 6 CISG. Additionally, an interpretation of the contract pursuant to Art 8 CISG usually leads to the same result.

An agreement under Art 9(1) CISG does not have to be made by express terms. Implied agreement is sufficient as well.[544]

The parties can agree to all different kinds of "usages." They neither have to be applied in their own trade branch or country, nor do they really have to be usages within the strict meaning of the word at all.[545] Although it might not be advisable to do so, the parties can also agree on [page 135] standardized terms that are typically used for completely different types of contracts.[546]

In the commodity trade in particular, there are various different "usages" applied at the different commodities exchanges.

One example are the usages of the "Borse fur landwirtschaftliche Produkte"[547] in Vienna.[548] In the exchange's "Usancen," the quality requirements of the goods are regulated in detail. According to 81 of Part B of these regulations, for example, grain cannot have a moisture content exceeding 14.5%.[549] These regulations also set out special requirements for avoidance of the contract. 34 states that the buyer is entitled to reject the goods if the seller delivers an aliud, goods originating from another origin, another age-group, or goods of such quality that they cannot be used for the particular purpose intended by the buyer which can be discerned from the contract, the person of the buyer, or from the circumstances. In addition, the buyer can reject them if they are bad, foul or otherwise in a condition that their delivery must be seen as against the principle of good faith in the flow of trade. If the buyer rightfully rejects the goods in accordance with this article, the seller is under an obligation and has the right to deliver goods in replacement, 35. If the seller fails to deliver goods in replacement, the buyer is entitled to avoid the contract pursuant to 19(1)(a) of the rules after the fruitless lapse of an additional period of time. Such additional period of time -- which depending on the period for performance of the contract lasts between 2 and 5 business-days -- is superfluous if, for example, the parties agreed on sale "loco," 18(9)(a).

If the parties have agreed to such a usage, the standard and threshold for avoiding the contract has to be respected. The parties are well-advised to double-check whether the requirements stipulated therein suit their business relationship before actually agreeing on them. Despite the costs that these considerations produce, in an international setting, the parties are [page 136] more likely to bear them as the fixed costs of litigating any dispute will regularly exceed them manifold.[550]

bb. Established Practices

If the parties repeatedly stipulated a strict standard for conformity of the goods and the buyer's entitlement to avoid the contract in case of non-conformity in their contract, or they repeatedly agreed to usages setting forth such strict standard, this behavior constitutes an established practice within the meaning of Art 9(1) CISG. Moreover, repetitive behavior can also amount to an "established practice."[551]

In a case decided by the Handelsgericht Zürich,[552] the seller had taken back the non-conforming goods -- mattresses -- twice and delivered goods in replacement. It did so without mentioning that it did it voluntarily as an act of goodwill, which it only alleged afterwards. The court stated that by doing this, the parties had established a practice within the meaning of Art 9(1) CISG to which the seller was bound and, hence, it was under an obligation to replace the mattresses in the case in dispute.

c. Trade Usages Prevalent in the Commodity Trade

In the trade of commodities, there are many different trade usages. Through Art 9(2) CISG, such usages are incorporated in the contract, unless otherwise agreed, if two prerequisites are met. First, the parties at least ought to have known of this usage. Second, it must be widely known and regularly observed by parties to contracts of the type involved the international trade of the particular trade sector concerned. What is not required, however, is that this trade usage is "reasonable" or in line with the principles of the CISG.[553] [page 137]

The great benefit of trade usages that apply through Art 9(2) CISG is that the parties save a lot of time and other resources.[554] Another benefit is that this article addresses a grievance existing in practice, namely that the complexity of commercial negotiations leads to the fact that merchants often fail to expressly make their contracts subject to trade usages, and will probably continue to fail to do so in the future.[555]

aa. Usage is Widely Known and Regularly Observed in International Trade of Particular Commodity

The first requirement for a usage to be applied pursuant to Art 9(2) CISG is that it is "widely known to, and regularly observed by, parties to contracts of the type involved in the particular trade concerned." The purpose of this objective requirement is to ensure that usages that only apply in the domestic trade are not extended to transactions with foreign traders.[556] If this were to occur, the article's aim of reducing transaction costs in contract negotiations would not be achieved. Rather, legal uncertainty would prevail and would very likely produce additional costs in later dispute settlement. This restriction, however, does not mean that local or domestic usages are not covered by Art 9(2) CISG at all. If these local or domestic usages are also applied in the trade with foreign traders, i.e. in international sales, they do meet the requirements of Art 9(2) CISG and, hence, are applicable to the contract between the parties.[557] This, for example, is the case for all usages applied at commodity exchanges whose traders are frequently foreigners.[558] In fact, such usages of commodity exchanges represent the majority of international trade usages.[559]

Usages under Art 9(2) CISG do not have to have been applied for a long period of time, either.[560] It is sufficient if they are regularly -- an expression that has to be defined for each branch individually -- applied to the kinds of contracts in question at the time of the conclusion of the contract between the parties. "Regular application," however, can come about relatively quickly in business sectors where contracts are concluded and goods are resold in a minute cycle. Any other interpretation would [page 138] restrict the business' possibility to rapidly adjust to technological developments and to guarantee efficient business operation.

These usages cannot be precisely identified. They are subject to changes in the behavior of traders doing their business and, thus, evolve. The exact content of a specific usage applicable to a contract could only be outlined by an expert in that field of business. What can be said, however, is that trade usages in the field of commodity trade nowadays place specific weight on the time element.[561]

bb. The Parties Ought to Have Known of the Usage

This requirement set forth in Art 9(2) CISG is less important than the one just discussed.[562] If the usage meets the objective requirement, the fact that the parties ought to have known of the usage is assumed.[563]

5. CONCLUSION FOR COMMODITY TRADE

We have seen that the international commodity trade features some peculiarities that claim to be taken into consideration if one does not want to encourage the practice of opting out of the CISG.

These peculiarities include sometimes considerable price fluctuations, the practice of hedging, and, maybe most importantly, the weight assigned to timely delivery of conforming goods.

If the parties have expressly agreed on a strict standard to be applied with respect to the non-conformity of the goods and the buyer's right to avoid the contract due to this, there naturally is a fundamental breach of contract if this strict standard is not met. If the parties have agreed on a [page 139] specific usage or established a special practice between them, the threshold for avoidance set forth therein is the relevant benchmark.

If, however, the parties have neither agreed on the applicable standard nor established a special practice, the international usages widely known to and regularly observed by parties to contracts for the sale of the respective commodities apply. Here, we have seen that these usages, which in the event of dispute have to be carefully established for each commodity individually, generally lead to the conclusion that the threshold for a breach of contract to be fundamental is different with regard to different kinds of non-conformities.

If the seller delivers an excess quantity and the buyer cannot separately reject the exceeding amount, a reselling buyer is expected to cure the non-conformity by reselling the exceeding amount, while a processing buyer is entitled to avoid the whole contract and to buy goods in replacement.

If the seller delivers a quantity less than that contractually agreed, the buyer is never entitled to avoid the contract, but can instead be expected to purchase the missing amount from another seller on the market and to claim damages.

In situations where the seller delivers a lower quality than was contractually agreed, the question of whether the buyer bought commodities for a particular purpose that was made known to the seller at the conclusion of the contract is of fundamental importance. If the buyer cannot use the goods for that particular purpose, it is entitled to avoid the contract and to purchase goods in replacement. This result, however, is subject to the possibility of the buyer to cure the non-conformity himself, in particular by purchasing additional goods and by mixing them with the non-conforming goods. If the buyer did not purchase the goods for a particular purpose, what is decisive is whether the buyer can make other reasonable use of the goods within its normal course of business.

As far as the non-conformity of the goods because of non-conforming packaging is concerned, a reselling buyer of commodities is entitled to avoid the contract if the goods cannot be immediately resold. However, as a rule, a processing buyer is not entitled to avoid the contract, but is restricted to claiming damages if the non-conformity can be cured without causing unreasonable expense, difficulty or inconvenience, and if the goods can still be used for the particular purpose for which they had been purchased or, if there is no such purpose, within the buyer's normal course of business. [page 140]


FOOTNOTES

461. Cf. TREITEL, Benjamin's Sale of Goods, at 18-004; BRIDGE, International Sale, at 1.03.

462. See BRIDGE, International Sale, at 1.03.

463. See BRIDGE, International Sale, at 2.49.

464. The goods, however, are categorized in different standard groups.

465. See ROGERS, p. 67.

466. See ROWLING, p. 7.

467. Those kinds of commodities that are grown rather than mined are also called "soft commodities."

468. See BLANK/CARTER/SCHMIESING, p. 1.

469. Cf. COMMODITY FUTURES TRADING COMMISSION (CFTC), The Economic Purpose of Futures Markets, online at: <http://www.cftc.gov/opa/brochures/opaeconpurp.htm> (last accessed 22 September 2006). Also see NYBOT, Understanding, p. 8; GORTON/ROUWENHORST, p. 3.

470. The definition of the Australian Stock Exchange (ASX): "Futures are contracts to buy or sell a particular asset (or cash equivalent) on a specified future date." See <http://www.asx.com.au/investor/futures/about/defined.htm> (last accessed 22 September 2006). See also COMMODITY FUTURES TRADING COMMISSION (CFTC), The Economic Purpose of Futures Markets, online at: <http://www.cftc.gov/opa/brochures/opaeconpurp.htm> (last accessed 22 September 2006).

471. See ROGERS, p. 73.

472. See COMMODITY FUTURES TRADING COMMISSION (CFTC), The Economic Purpose of Futures Markets, online at: <http://www.cftc.gov/opa/brochures/opaeconpurp.htm> (last accessed 22 September 2006).

473. Other expressions used are "against actuals" or "versus cash."

474. For a case where delivery of 25,000 metric tons of naphtha was against "exchange of futures for physicals" (EFP) against the October NYMEX less a discount and CISG was applicable, see U.S. District Court for New Jersey, 4 Apri1 2006, CISG-online 1216.

475. The products of the seller do not necessarily have to meet all the contractual specifications of the futures contract. According to Rule 444.04(b) Rules and Regulations of CBOT, for example, "The Related Position (cash, swap, or OTC derivative) must involve the commodity underlying the futures contract, or must be a derivative, by-product or related product of such commodity that has a reasonable degree of price correlation to the commodity underlying the futures contract." See also Rule 6.21 of NYMEX Rulebook; Rule 4.4 of Euronext.liffe Trading Procedures.

476. See NYMEX, A Guide to Metals Hedging, p. 19.

477. Id.

478. Again, in the trade of commodities futures, buying is called "going long" and selling is called "going short," cf. BLANK/CARTER/SCHMIESING, p. 23; ROGERS, p. 74.

479. Cf. NYBOT, Understanding, p. 9.

480. See BLANK/CARTER/SCHMIESING, p. 23.

481. Cf. BRIDGE, International Sale, at 1.72.

482. NYBOT, Understanding, p. 9.

483. For another example involving a candy manufacturer, see NYBOT, Understanding, p. 14.

484. Just to mention it, there can be differences between the prices at the spot markets and the prices at the futures markets, called "basis." In addition to that, some fees, e.g. exchange transaction fees, have to be paid when trading futures. For details see BLANK/CARTER/SCHMIESING, p. 81 et seq.

485. Cf. BLANK/CARTER/SCHMIESING, p. 182.

486. "The average period of time any position is held [, i.e. "long" or "short,"] by futures or option market scalpers is often only minutes or seconds." See BLANK/CARTER/SCHMIESING, p. 32.

487. Cf. BLANK/CARTER/SCHMIESING, p. 182; BRIDGE, International Sale, at 1.58.

488. Cf. ROGERS, p. 72; BRIDGE, International Sale, at 1.55.

489. See MULLIS, Termination for Breach of Contracts in C.I.F. Contracts, at "Commodity Sales and the Commercial Need for Certainty."

490. See BLANK/CARTER/SCHMIESING, p. 34.

491. See ROGERS, p. 74.

492. See GORTON/ROUWENHORST, p. 4.

493. See NYBOT, Understanding, p. 10. For a chart showing historical volatility see <http://www.cbot.com/cbot/pub/page/0,3181,1237,00.html> (last accessed 22 September 2006). For a case mentioning the considerable price fluctuations with regard to tantalum powder between end of the year 2000 and March 2001 in which the buyer wanted to avoid, see OLG Innsbruck (Austria), 1 February 2005, CISG-online 1130.

494. See BRIDGE, International Sale, at 1.58.

495. Cf. MULLIS, Termination for Breach of Contract in C.I.F. Contracts.

496. See U.S. District Court (N.D. of Alabama), 27 April 2005, CISG-online 1178, aff'd by U.S. Court of Appeals (11th Cir.), 12 September 2006, CISG-online 1273.

497. "This subparagraph [Art 2(d) CISG] does not exclude documentary sales of goods from the scope of this Convention even though, in some legal systems, such sales may be characterized as sales of commercial paper." See Secretariat Commentary, Art 2 (now Art 2 CISG) para 8.

498. In the trade of commodities this, however, regularly still is the case. Cf. Rule 24.02 Exchange Contract No. 401, Contract Terms -- Issue Date: 11 October 2001, Delivery Month: December 2001 onwards, online at <www.euronext.com/file/view/0,4245,1626_53424_199620425,00.pdf> (last accessed 22 September 2006); 44 of the "Bestimmungen für den Geschäftsverkehr an der Börse für landwirtschaftliche Produkte in Wien (Usancen)" -- Teil A, online at <www.boersewien.at/opencms/export/sites/boersewien/Boerse_Download_Gallery/usancen.pdf> (last accessed 22 September 2006).

499. See BRIDGE, International Sale, at 1.59.

500. Cf. ENDERLEIN/MASKOW/STROHBACH/Maskow, Art 3 para 2, explicitly making reference to commodities.

501. See HONNOLD, Uniform Law, para 51 at footnote 3.

502. Cf. SCHLECHTRIEM/SCHWENZER/Ferrari, Art 1 para 21; SCHUMACHER, IHR 2005, p. 149.

503. See FERRARI, J.L. & Com. 1995, p. 79; REITHMANN/MARTINY/Martiny, para 721.

504. See the discussion concerning the comments by Austria in this regard in the Report of the Secretary-General on pending questions with respect to the revised text of a uniform law on the international sale of goods, A/CN.9/100, Annex II, paras 23-25, in HONNOLD, Documentary History, p. 21.5.

505. See Doc. A(11), para 27, in HONNOLD, Documentary History, p. 242.

506. See BRIDGE, p. 160.

507. See supra at A. II.

508. See Rule 1004.00 of the Rules and Regulations of CBOT.

509. See Rule 1036.00 of the Rules and Regulations of CBOT.

510. See Contract Specifications (Palladium), online at <www.tocom.or.jp/guide/youkou/palladium/index.html> (last accessed 22 September 2006).

511. Standard Delivery Unit (SDU) -- bagged cocoa with a nominal net weight of 10 tonnes.

512. Large Delivery Unit (LDU) -- bagged cocoa with a nominal net weight of 100 tonnes.

513. Bulk Delivery Unit (BDU) -- loose cocoa with a nominal net weight of 1000 tonnes.

514. For more information, see online at <www.euronext.com> (last accessed 22 September 2006) and choose "Products&Price," "Commodities" and there the Contract you are interested in.

515. See Rule 5.01 Exchange Contract No. 401, Contract Terms -- Issue Date: 11 October 2001, Delivery Month: December 2001 onwards, online at <www.euronext.com/file/view/0,4245,1626_53424_199620425,00.pdf> (last accessed 22 September 2006).

516. See V. CAEMMERER, FS Coing, p. 50.

517. See U.S. Court of Appeals (5th Cir.), 11 June 2003, CISG-online 730.

518. As has been said before, in the setting of rising prices, the buyer hardly is interested in avoiding the contract. For the different interests involved, see SCHLECHTRIEM, Pace Int'l L. Rev. 2006, at I.

519. For such arguments see the so-called "Normative Coase Theorem," as described in COOTER/ULEN, p. 96 et seq. An ideal contract, and remedy, allocates the risk upon the most efficient risk-bearer, id., p. 215.

520 For this opposing interests of the seller and the buyer, see SCHLECHTRIEM, Pace Int'l L. Rev. 2006, at I.

521. See MULLIS, Avoidance for Breach, p. 329.

522. See U.S. District Court for New Jersey, 4 April 2006, CISG-online 1216.

523. Cf. CISG-AC Opinion no 5, para 4.17.

524. Supra B. II. 2. d.

525. Supra B. II. 2. d. ee.

526. Cf. CONRAD, p. 50, stating that a reselling buyer of wheat can be expected to buy the missing amount, in his example 50%, on the market.

527. Cf. SCHLECHTRIEM/SCHWENZER/Muller-Chen, Commentary, Art 52 para 6.

528. See ENDERLEIN/MASKOW/STROHBACH/Enderlein, Art 52 para 3; HONNOLD, Uniform Law, para 320; HERBER/CZERWENKA, Art 53 para 3; MÜNCHENER KOMMENTAR/Huber, Art 52 para 21.

529. See SCHLECHTRIEM/SCHWENZER/Müller-Chen, Commentary, Art 52 para 7.

530. See SCHLECHTRIEM/SCHWENZER/Müller-Chen, Commentary, Art 52 para 8.

531. Cf. BIANCA/BONELL/Will, Art 52 para 2.2.1.; HERBER/CZERWENKA, Art 52 para 7. See also Secretariat Commentary, Art 48 (now 52 CISG) para 9.

532. Cf. MÜNCHENER KOMMENTAR/Huber, Art 52 para 20; SCHLECHTRIEM/ SCHWENZER/Müller-Chen, Art 52 para 8.

533. See CISG-AC Opinion no 5, para 4.17.

534. For an example in case-law where the storage costs amounted to US $1,700 and the transport costs only have been US $1,750, see CIETAC, 6 June 1991, CISG-online 845.

535. See HONNOLD, Uniform Law, para 320.

536. Cf. CISG-AC Opinion no 5, para 4.3.; KOCH, The Concept of Fundamental Breach of Contract, p. 266; SOERGEL/Lüderitz/Budzikiewicz, Art 25 para 2.

537. See OLG Hamburg (Germany), 14 December 1994, CISG-online 216, aff'd by Bundesgerichtshof (Germany), 3 April 1996, C1SG-online 135.

538. See OLG Innsbruck (Austria), 1 February 2005, CISG-online 1130, affirming the decision by Landesgericht Innsbruck (Austria), 9 July 2004, CISG-online 1129.

539. See Secretariat Commentary, Art 46 (now Art 50 CISG) para 12.

540. Cf. KEARNEY, Am. J. Int'l L. 1987, p. 728.

541. Cf. LICHTSTEINER, p. 27; FREIBURG, p. 52; PAIVA, at 2.1.3; FERRARI, IHR 2005, p. 5; EL-SAGHIR, at "Comparison of PECL Article 8:103 with CISG Article 25;" KANDUT/POSCH, p. 64; LIU, The Concept of Fundamental Breach, at 2.2(c); HONSELL/Karollus, Art 25 para 22; LUBBE, RabelsZ 2004, p. 461; SINGH, at 2.2 b); SCHLECHTRIEM, internationales UN-Kaufrecht, para 117; SCHWENZER, VUWLR 2005, p. 801; GRAFFI, Int'l Bus. L.J. 2003, p. 339; BAMBERGER/ROTH/Saenger, Art 25 para 5; KOCH, The Concept of Fundamental Breach of Contract, p. 214.

542. Cf. COOTER/ULEN, p. 212.

543. Cf. SCHLECHTRIEM/SCHWENZER/Schmidt-Kessel, Commentary, Art 9 para 1; BONELL, JBI 1985, p. 387.

544. Cf. Secretariat Commentary, Art 8 (now Art 9 CISG) para 2.

545. See BONELL, JBI 1985, p. 387; KAROLLUS, p. 51.

546. Cf. BONELL, JBI 1985, p. 387.

547. See online at <www.boersewien.at> (last accessed 22 September 2006).

548. For a case where the parties agreed on these rules, see Schiedsgericht der Boerse für landwirtschaftliche Produkte in Wien (Austria), 10 December 1997, CISG-online 351.

549. For the "Usancen" of this commodities exchange, see online at <www.boersewien.at/opencms/export/sites/boersewien/Boerse_Download_Gallery/usancen.pdf> and <www.boersewien.at/opencms/export/sites/boersewien/Boerse_Download_Gallery/usancen_teil_b.pdf> (last accessed 22 September 2006).

550. See KATZ, Chi. J. Int'l L. 2004, p. 189.

551. Cf. Oberster Gerichtshof (Austria), 31 August 2005, CISG-online 1093; AG Duisburg (Germany), 13 April 2000, CISG-online 659; Zivilgericht Basel-Stadt (Switzerland), 3 December 1997, CISG-online 346. See also SCHLECHTRIEM/SCHWENZER/Schmidt-Kessel, Commentary, Art 9 para 8.

552. See Handelsgericht Zürich (Switzerland), 24 October 2003, CISG-online 857.

553. This is in contrast to the requirements set forth in Art 1.8(2) UNIDROIT Principles. See CARVALHAL SICA, NJCL 2006, p. 19; BIANCA/BONELL/Bonell, Art 9 para 1.3.1.; BAINBRIDGE, p. 650, 651.

554. See WALKER, J.L. & Com. 2005, p. 265.

555. See BAINBRIDGE, p. 623.

556. See BIANCA/BONELL/Bonell, Art 9 para 2.2.2.

557. Cf. KAROLLUS, p. 52; SCHLECHTRIEM/SCHWENZER/Schmidt-Kessel, Commentary, Art 9 para 18.

558. See BIANCA/BONELL/Bonell, Art 9 para 2.2.3.

559. See BONELL, JBL 1985, p. 389.

560. See PILTZ, INCOTERMS, at II.

561. Cf. CISG-AC Opinion no 5, para 4.17.

562. See SCHLECHTRIEM/SCHWENZER/Schmidt-Kessel, Commentary, Art 9 para 19, stating that "[t]he requirement is therefore of only minimal practical importance [...]."

563. "The determining factor whether a particular usage is to be considered as having been impliedly made applicable to a given contract will often be whether it was 'widely known to, and regularly observed by, parties to contracts of the type involved in the particular trade concerned'. In such a case it may be held that the parties 'ought to have known' of the usage" (emphasis added). See Secretariat Commentary, Art 8 (now Art 9 CISG) para 4.


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