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Petar Sarcevic & Paul Volken eds., International Sale of Goods: Dubrovnik Lectures, Oceana (1986) Ch. 7, 239-264. Reproduced with permission of Oceana Publications.

Provisions Common to the Obligations of the Seller and the Buyer

Jelena Vilus
Professor of Law, Novi Sad/Belgrade

Introductory remarks
I.    Anticipatory breach and installment contracts
      1.  Suspension of performance

a) Preventing the handing over of the goods to the buyer
      2.  Anticipatory breach involving fundamental breach of contract
      3.  Installment contracts
II.   Damages
      1.  Calculation of damages: influence of common law notions
      2.  Damages involving avoidance of contract
      3.  Duty to cooperate in case of breach
III. Interest
IV. Exemptions
      1.  General rule on exemptions
      2.  Other grounds for exemptions
      3.  Temporary impediment
      4.  Duty to send notice
      5.  Self-made failure
V.   Effects of avoidance
      1.  General rule
      2.  Special rules on effects of avoidance
VI. Preservation of the goods

INTRODUCTORY REMARKS

The provisions common to the obligations of the seller and of the buyer are found in Articles 71-88 of the Vienna Convention, which means that 17 articles are devoted to these obligations. This number shows that it was considered to be in the interest of the parties to regulate their common obligations rather thoroughly.

In connection with these obligations the following questions will be analyzed:

-     Anticipatory breach and installment contracts;
-     Damages;
-     Interest;
-     Exemptions;
-     Effects of avoidance of contract; and
-     Preservation of the goods.

Before analyzing the above questions, we should point out that these obligations cannot be completely understood without taking into account certain standard notions of the Convention such as: [page 240]

-     Fundamental breach of contract (Art. 25);
-     Reasonability in regard to persons (Art. 25), time (Articles 73,75,79), notice (Articles 72, 88), circumstances (Art. 86);
-     Specific performance (Art. [28]); and
-     Duty to cooperate (Art. 77).

Many of these standard notions are more familiar to the lawyer of the common law system than to the civil law lawyer; nevertheless, they are basically the same and fairly well known to businessmen in the international sale of goods.

I. ANTICIPATORY BREACH AND INSTALLMENT CONTRACTS

In regard to anticipatory breach of contract, the basic question is whether the party that doubts the performance of the other party has the right to suspend or avoid the contract prior to the date for performance. In other words, if the situation and the circumstances change during the performance of the contract and one of the parties is of the opinion that the other will not be able to fulfill his obligations, the question arises whether this party should wait until the other party becomes insolvent, for instance, or whether in such a case he himself should decide to suspend performance of his obligations and demand additional guarantees. On the other hand, what would happen if his evaluation of the other party's ability to perform is groundless and the other party subsequently suffers financial loss as a result of the anticipatory breach? These dilemmas will have to be solved by arbitrators or judges deciding disputes involving international contracts of sale and were the same problems which were discussed at the Vienna Conference during preparation and adoption of the relevant provisions. [page 241]

It should be mentioned that there is a similar institution in the domestic law of civil law countries known as non adimplety contractus (precontractual non-performance).

1. Suspension of Performance

As provided by Art. 71, one of the contracting parties may suspend his obligations if, after the conclusion of the contract, it becomes evident that the other party will "not perform a substantial part of his obligations." However, it is not sufficient that this is foreseeable on the basis of a subjective evaluation of one of the parties and may also be the ground for an abuse. Instead, the Vienna Convention insists on two additional conditions: a serious deficiency in his ability to perform or in his creditworthiness; or his conduct in preparing to perform or in performing the contract.

Here it is perhaps of interest to mention that the Uniform Law on the International Sale of Goods (ULIS) refers in Art. 73 to a difficult "economic situation of the other party," which was considered too narrow as a condition for suspension of performance. Of course, it could be questioned whether the ULIS provision was, in fact, broader than that of the Vienna Convention.

It should be emphasized that it indeed may prove difficult to determine what is to be regarded as "a serious deficiency" in performance ability and what kind of conduct "in preparing or in the performing of a contract" will be sufficient as a ground for the other party to suspend his obligations.[1] In order to protect the other party, the text emphasizes that suspension of obligations is possible only if there are adequate grounds to conclude that the other party [page 242] will not perform a substantial part of his obligation. It should be pointed out that if anticipatory breach is performed without a good reason, then that party will be in breach of contract.

Needless to say, in many cases application of the provisions of this article may prove to be difficult and may even lead to abuse since the provisions give rather broad power. A decision to suspend performance may entirely depend on one party's subjective evaluation of the other's ability to perform.

However, risks of this kind cannot be fully avoided in international trade. Nonetheless, it is not surprising that many delegates at the Vienna Conference were in favor of deleting this article.

a) Preventing the handing over of the goods to the buyer

In case the seller has already dispatched the goods before the grounds for suspension become evident, he, nevertheless, "may prevent the handing over of the goods to the buyer even though the buyer holds a document which entitles him to obtain them," for instance, a Bill of Lading.

The most common situation referred to in Art. 71 is the case when the goods are in transit. In such circumstances there is a common law institution called stoppage in transitu [2] which the seller can use when the buyer has delivered the documents to a third person. This is clear from the formulation of Art. 71 which emphasizes that "the present paragraph relates only to the rights in the goods as between the buyer and the seller." The view is held that in such cases the seller cannot claim the goods from a third party [page 243] on the basis of the Convention, but he might do so under the applicable national law.[3]

b) Sending notice

The party who suspends his performance under Art. 71 is obliged to send notice immediately "to the other party and must continue with performance if the other party provides adequate assurance of his performance." This rule applies irrespective whether the suspension occurs before or after the goods have been dispatched. It has been noted that this provision is under the influence of bank guarantees - a practice that was used as widely before the Vienna Convention and therefore was not provided for in the Hague Uniform Law. The question, however, remains open as to whether or not a bank guarantees for reimbursement of payments under the contract will be considered an "adequate assurance."

Suspension of the performance of the first party may last: a) until the other party performs his part of the obligations; b) until the first party gets "adequate assurance;" c) until the other party announces that he intends to avoid the contract; or d) until the expiration of the limitation period.

In case the party suspending performance suffers losses as a result of his not having received adequate assurance, he has the right to claim compensation regardless whether or not the contract is avoided.

2. Anticipatory breach involving fundamental breach of contract

Art. 72 of the Vienna Convention provides for [page 244] special rules in cases where there is a fundamental breach of contract.

Although Art. 72 is a logical continuation of the preceding article, its consequences are quite different. Whereas under Art. 71 the contract continues to exist while only its performance has been suspended, the provisions of Art. 72 permit avoidance of the contract "if prior to the date for performance it is clear that one of the parties will commit a fundamental breach of contract." It should, however, be pointed out that suspension of the contract under Art. 71 may lead to avoidance of the contract as well.

The party intending to declare the contract avoided must be absolutely sure that there is indeed a fundamental breach of contract.

Since this provision is also found in ULIS,[4] it is relevant to cite A. Tunc who holds that such a provision is fully justified since it would not be

"right that one party remains bound by the contract when the other has, for instance, deliberately declared that he will not carry out one of his fundamental obligations or when he conducts himself in such a way that it is clear that he will commit a fundamental breach of contract."[5]

There are, however, other views according to which such a right may be dangerous since, even if there is a breach, this does not necessarily mean that the contract will not be fulfilled. It is not always easy to provide clear proof of a fundamental breach of contract except in exceptional cases, for instance, bankruptcy of the debtor. In other words, there is the possibility that abuse may arise, especially in cases where the creditor has the opportunity to conclude a [page 245] contract with other partners under better conditions.[6]

Similar fears were expressed at the Vienna Conference by many delegates of developing countries who insisted especially on the condition that the party intending to declare the contract avoided must inform the other party of his intention so as "to permit him to provide adequate assurance of his performance." The industrially developed countries were against this, pointing out that two things had been mixed up, i.e., suspension of performance and the right to avoid the contract.

In order to satisfy both demands, a compromise was reached. Accordingly, para. 2 of Art. 72 provides that "if time allows" (compromise to the developed countries), "the party intending to declare the contract avoided must give reasonable notice to the other party in order to permit him to provide adequate assurance of his performance" (compromise to the developing countries).[7] An exception to this rule is provided for in para. 3 of Art. 72 in cases where it is absolutely clear or obvious that the other party "will not perform his obligations."

3. Installment contracts

Art. 73 represents, in principle, application of the rule of Art. 72 in the special case of installment contracts. The basic problem concerns whether installment contracts should be considered as one contract, i.e., in their totality, whereby a difficulty of performance in regard to one installment would affect the contract as a whole, thus avoiding the whole contract, or whether they should be regarded as a series of separate contracts. Since abuses are possible in [page 246] cases involving installment contracts, the rights and duties of the parties should be analyzed very carefully.

II. DAMAGES

In connection with damages, the Vienna Convention first specifies the damages for breach of contract (Art. 74), then deals with the questions of purchase or resale of goods when the contract is avoided (Articles 75 and 76), and finally reminds the party who relies on a breach of contract to "take such measures as are reasonable in the circumstances to mitigate the loss" and states the consequence for parties failing to do so (Art. 77).

1. Calculation of damages: influence of common law notions

The rule of Art. 74 provides that

"damages for breach of contract by one party consist of a sum equal to the loss, including loss of profit, suffered by the other party as a consequence of the breach."

However, the same article contains the exception to this rule, according to which

"such damages may not exceed the loss which the party in breach foresaw or ought to have foreseen at the time of the conclusion of the contract, in the light of the facts and matters of which he then knew or ought to have known, as a possible consequence of the breach of contract."

This notion of calculating damages has been taken from the common law system; the same idea [page 247] was also incorporated into the Hague Uniform Law (Art. 82). In the common law system, the sum of the damages is not limited in cases involving tort liability. However, in the field of contract liability the basic question concerns how remote the loss is from the cause of the damage. This is the so-called remoteness of damages which is based on the well-known British case of Hadley v. Baxendale (1854). It, in fact, means that the party liable for loss will be liable only for the loss which he "foresaw or ought to have foreseen" at the time of the conclusion of the contract. In his commentary of ULIS, Tunc points out that such a concept is found in many legal systems. Furthermore, he states:

"If one of the parties considers, at the time of the negotiations preliminary to the contract, that breach on the part of the other party would cause him exceptionally heavy loss, he may always make this known to the other party."[8]

Calculating damages in the way provided by Art. 74 may be regarded as just. Namely, limiting the damages to the foreseeable loss purports, inter alia, to protect the debtor from unjustifiable claims on the part of the creditor. The purpose of this article is to place the party suffering the loss in the same economic position he would have been in had the contract been performed. The special rules concerning loss of profit were necessary because in certain legal systems loss (perte) does not include loss of profit (gain manqé).

It may be observed that the criterion according to which it is judged whether or not the party is liable is both subjective ("foresaw") and objective ("ought to have foreseen"). In spite of the fact that the Vienna Convention [page 248] has introduced a fairly good rule on the calculation of damages, this is nevertheless a delicate question. In view of the fact that the relevant circumstances vary from case to case, arbitrators and judges will have problems determining an amount of damages that is just in certain cases.

2. Damages involving avoidance of contract

The rule adopted in most legal systems, and the Vienna Convention as well, is that, in addition to avoidance, the party aggrieved by the breach may always claim damages to compensate for the loss caused by avoidance.

Art. 75 of the Vienna Convention follows:

"If the contract is avoided and if, in a reasonable manner and within a reasonable time after avoidance, the buyer has bought goods in replacement or the seller has resold the goods, the party claiming damages may recover the difference between the contract price and the price in the substitute transaction as well as any further damages recoverable under article 74."

According to Tunc, this rule "could not be otherwise."[9] The condition provided for in Art 75 is that the replacement purchase or the resale must be made "in a reasonable manner and within reasonable time" after avoidance. Here the term "reasonable manner" is to be interpreted as the duty of the buyer to buy the goods at the lowest possible price and of the seller to sell them at the highest possible price. The "reasonable time" starts to run at the time when the aggrieve party avoided the contract. [page 249]

The relevant provisions of Art. 76 should be taken into account when calculating differences in price,[10] and the relevant provisions of Art. 74 when calculating additional compensation.[11]

There are occasions when the buyer or seller does not make a replacement purchase or resale, respectively, but instead, due to a breach of contract, prefers to avoid the contract. In such cases the question arises as to how compensation should be calculated. This situation is known in all legal systems; in the civil law countries the so-called abstract damages are calculated, as opposed to concrete damages which occur when a purchase in replacement or resale took place and are thus easier to calculate.

If there was no purchase in replacement or resale under Art. 75, Art. 76 provides that the party claiming damages may ...

"recover the difference between the price fixed by the contract and the current price at the time of avoidance as well as any further damages recoverable under article 74."

In the same article "current price" is defined as ...

"the price prevailing at the place where delivery of the goods should have been made or, if there is no current price at that place, the price at such other place as serves as a reasonable substitute, making the allowance for differences in the cost of transporting the goods."

There are several points which should be mentioned in connection with Art. 76. First, the time of avoidance of contract may in practice be difficult to ascertain and could therefore lead to abuse. For instance, the party who plans to [page 250] avoid the contract may speculate by waiting to avoid the contract at a time which, financially speaking, is more favorable for him.

In order to keep possible abuses to a minimum, Art. 76 provides that in cases where the party claiming damages has avoided the contract "after taking the goods," the "current price of such taking over shall be applied instead of the current price at the time of avoidance."

In regard to the place where the current price is to be determined, Art. 76 refers to: a) "the place where delivery of the goods should have been made," or alternatively b) "if there is no current price at that place," then "such other place as serves as a reasonable substitute." It should also be mentioned that Art. 76 reminds the contracting parties that "the allowance for differences in the cost of transporting the goods" should be added.

3. Duty to cooperate in case of breach

Art. 77 of the Vienna Convention contains the rule according to which

"a party who relies on a breach of contract must take such measures as are reasonable in the circumstances to mitigate the loss, including the loss of profit, resulting from the breach."

According to Tunc, this rule, which is the same as that in Art. 88 of ULIS, is found in numerous codes of European countries and is often propounded by the courts of common law countries. Thus Tunc concludes, "Its reasonableness is evident."[13] Furthermore, the same article provides that if the party who is obliged to take the necessary measures to mitigate the loss fails to do so, then "the party in breach may claim a [page 251] reduction in damages in the amount by which the loss should have been mitigated." It is obvious that this is a very serious obligation on the part of the "creditor," the party who relies on breach, i.e., the innocent party, since the sanction consists of a "reduction of damages."

Indeed, the creditor should attempt to undertake everything possible in order to diminish the loss or at least to prevent its increase, and thus this rule may be regarded as just and fair.

III. INTEREST

The provisions on interest were the subject of great controversy and differences of opinion both in ULIS and at the Vienna Convention. On the one hand, there were those who wanted to delete these provisions altogether, whereas, on the other hand, others favored detailed provisions regulating the legal consequences in cases where the buyer fails to fulfill his major obligation, i.e., to pay the price.

Art. 78 reads as follows:

"If a party fails to pay the price or any other sum that is in arrears, the other party is entitled to interest on it without prejudice to any claim for damages recoverable under article 74."

This article differs to a great extent from the provision in ULIS on interest.[14]

At the Vienna Conference, the developing countries were very concerned about the article governing calculation of the interest rate. An increase of the interest rate by 1%, as was suggested by some countries, was considered by the developing countries to be extremely high, although it was suggested, for instance, by the International Chamber of Commerce, that the interest [page 252] rate should be increased by 2%. Furthermore, it was proposed that the interest rate should be similar or identical to the prevailing rate at the main financial center of the debtor or the capital of the debtor's country. However, it was argued that in certain countries, the main financial center and the capital are not the same place, for instance, in the USA, in Switzerland and other countries. Moreover, the Muslim countries argued that provisions on interest would be contrary to Islamic law which forbids arrangements on interest. Consequently, it was difficult to agree on a solution that would satisfy the majority.

While the provisions of Art. 78 do not mean much to many, on the other hand, others consider them to be useful since they enable the creditor to claim not only interest but also compensation under Art. 74, which is not possible in some countries.

The question of interest is important in view of Art. 84(1) which provides that "if the seller is bound to return the price, he must also pay the interest on it from the date on which the price was paid." This is the universally accepted practice, in the Muslim countries as well, and therefore it is indeed difficult to understand why the efforts to regulate this question met with such opposition.

IV. EXEMPTIONS

The question of exemptions which is regulated by Art. 79 of the Vienna Convention is extremely important -- both from a practical and a theoretical point of view. In certain cases, one of the parties may be confronted by such a change in circumstances that he is either unable to continue [page 253] his obligations or, if he does, they will become an extremely heavy burden to him. All countries have special rules governing such situations, and therefore it was only natural to incorporate provisions on exemption into the Vienna Convention, as was also the case in ULIS. However, in this field, as in many others, the notions of common law and civil law differ. As a result, the international drafters wanted to create a new concept by amalgamating different ideas, which, of course, has its positive and negative aspects.

According to the provisions of Art. 79 of the Convention, a party is released from liability[15] when his failure to perform is due to an impediment beyond his control if: a) he could not reasonably be expected to have taken the impediment into account; b) the impediment could not have been avoided; and c) the party was not able to overcome it.

1. General rule on exemptions

It should be pointed out that at the very outset many problems arose in connection with the drafting of the rule on exemptions. Whereas ULIS (Art. 74) refers to circumstances, the Vienna Convention speaks of an impediment. Tunc maintains that the sole purpose of such provisions is to "provide an answer to the question whether [the] party" that has failed to perform his obligation "should or should not be liable for damages."[16]

During the debate it was pointed out in the working group at the annual sessions of the Commission and at the Vienna Conference that the main problem arose from the fact that the article attempts to combine the concepts of vis major [page 254] (force majeure, act of God) and frustration (imprévision).

Both ULIS and the Vienna Convention took "the middle road" by connecting the subjective and objective circumstances, which did, and probably will lead to controversy and differences of opinion. Many thought that this combination was very unfortunate since it causes confusion by trying to combine different things. Vis major should exempt the party from paying damages, whereas frustration releases him entirely from his obligations.

It was probably due to these different viewpoints that the drafting group and the Vienna Conference adopted the provision contained in para. 5 of Art. 79 according to which nothing in this article prevents either party from exercising any right other than to claim damages under this Convention.

2. Other grounds for exemptions

Situations in which the party's failure to perform any of his obligations is due to the failure by a third person whom he had engaged to perform the whole or part of the contract are governed by Art. 79 of the Vienna Convention. In such cases, the party may be exempted from liability under the conditions set forth in para. 2 of Art. 79.

3. Temporary impediment

According to para. 3 of Art. 79, the exemption has effect only "for the period during which the impediment exists." Therefore, the exemption from liability ceases to exist either on the date for [page 255] performance or the date on which the impediment was removed.

In case the impediment amounts to a fundamental breach of contract, the innocent party has the right to avoid the contract.

4. Duty to send notice

The party exempted from liability to pay damages under Art. 79 "must give notice to the other party of the impediment and its effect on his ability to perform." The risk is borne by the sender in case the "notice is not received by the other party within a reasonable time after the party who fails to perform knew or ought to have known of the impediment."[17]This party will be liable for damages resulting "from such non-receipt."

5. Self-made failure

The provision of Art. 80 of the Vienna Convention reads as follows:

"A party may not rely on a failure of the other party to perform, to the extent that such failure was caused by the first party's act or omission."

It was suggested that this provision should be included with those dealing with good faith, in which case its sphere of application would have been broader. Nevertheless, the view prevailed that it is more closely related to exemptions and duty to cooperate in cases of impediments.

V. EFFECTS OF AVOIDANCE

The Vienna Convention contains four articles on the effects of avoidance. The general rule is [page 256] found in Art. 81, while Articles 82, 83, and 84 specify the concrete duties of the seller and buyer in cases of avoidance of contract.

1. General rule

According to Art. 81, "avoidance of the contract releases both parties from their obligations under it, subject to any damages which may be due." This means that "the seller need not deliver the goods and the buyer need not take delivery and pay for them."[18] The main consequence is that both parties are free in the sense that they are released from the duties and obligations assumed under the contract, except the obligation to pay damages.

In some legal systems, avoidance of the contract eliminates all rights and obligations under the contract. In view of this, Art. 81 expressly states:

"Avoidance does not affect any provision of the contract for the settlement of disputes or any other provisions of the contract governing the rights and obligations of the parties consequent upon the avoidance of the contract."

The purpose of these provisions is to prevent complete termination of the contract, including those provisions dealing, e.g., with penalty clauses (liquidated damages), applicable law, arbitration and similar provisions, all of which will help the party relying on the avoidance take recourse to remedies provided by the Convention and the applicable law. On the other hand, the Vienna Convention does not say that these provisions are valid;[19] it merely provides the rule according to which avoidance of the contract "does not effect such provisions." [page 257]

It should be pointed out that there is no similar provision in ULIS.[20]This was considered "unfortunate" since in the absence of such a provision, it might appear that a choice of law clause, a choice of forum clause, an arbitration clause or a liquidated damages clause would be ineffective once the contract is avoided.[21]

If one of the parties has performed the contract, entirely or in part, this party "may claim restitution from the other party of whatever the first party has supplied or paid under the contract." In some cases restitution will not be possible, for instance, restitution of the received goods. This, however, could not occur with respect to the seller's duty to refund the received price. In such exceptional cases the provisions of Art. 82 of the Convention shall apply.

2. Special rules on effects of avoidance

Para. 1 of Art. 82 provides that the buyer loses his right to declare the contract avoided if he is unable to return the goods in substantially the same condition in which he received them. This rule simply recognizes the effect of natural causes on the condition of the delivered goods. On the other hand, the goods to be returned do not have to be the same goods that were received; rather they must be "substantially in same the condition in which" the goods were received.[22]

The rule in para. 1 of Art. 82 shall not apply in the following cases: a) if the impossibility of the buyer to return the goods "substantially in the condition in which he received them ... is not due to his act or omission;" b) if the goods have perished or deteriorated, in whole or in part, ''as a result of the examination provided [page 258] for in article 38;" and c) if the goods, or part of them, have been sold in the normal course of business or have been consumed, or transformed by the buyer in the course of normal use "before he discovered or ought to have discovered the lack of conformity."

The Commentary prepared by UNCITRAL points out that the right of either party to require restitution may be thwarted by other rules which fall outside the scope of the international sale of goods. In this context it is stressed:

"If either party is in bankruptcy or other insolvency procedures, it is possible that the claim of restitution will not be recognized as creating a right in the property or as giving a priority in the distribution of the assets. Exchange control laws or other restrictions on the transfer of goods or funds may prevent the transfer of goods or money to the demanding party in a foreign country."[23]

According to the Commentary, these and other similar legal rules may reduce the value of the claim of restitution, but they do not affect the validity of the rights between the parties.

If the buyer loses his right to avoid the contract or to request replacement of the goods, he nevertheless, "retains all other remedies under the contract and this Convention." As provided by Art. 83 of the Convention, this means that the buyer has retained the right to damages (Art. 45), to repair of the goods (Art. 46), or to reduction of price (Art. 50).

A rule that is known in many legal systems and has also been accepted by the Vienna Convention obliges the party who must return the goods or refund the price to also account for any benefit [page 259] which he has received by virtue of having had possession of the money or the goods. Under Art. 84, if the seller is obliged to refund the price, "he must also pay interest on it from the date on which the price was paid."[24] This obligation is rather "simple" and almost automatic, regardless of the fact that the Vienna Convention, as was pointed out earlier, does not provide for a rule to determine the amount of interest.

On the other hand, when the buyer benefited from the goods, he is obliged by para. 2 of Art. 84 to "account to the seller for all benefits which he has derived from the goods or part of them." This obligation on the part of the buyer would apply in the following cases: a) if he must make restitution of the goods or part of them, and b) if it is impossible for him to make restitution of all or part of the goods or to make restitution of all or part of the goods substantially in the condition in which he received them, "but he has nevertheless declared the contract avoided or required the seller to deliver substitute goods."

VI. PRESERVATION OF THE GOODS

Preservation of the goods is regulated in Articles 85-88 of Section VI which contains rules guaranteeing the rights of the buyer. Irrespective of which party bears the risk for loss or damage, the basic rule obliges the person who has possession or control of the goods to "take such steps as are reasonable in the circumstances to preserve them." Accordingly, Art. 85 of the Convention obliges the seller to take such steps ''as are reasonable in the circumstances" to preserve the goods. In such a case, the risk will normally have passed to the buyer; thus, the [page 260] significance of this rule is that it releases the buyer from liability for loss resulting from the seller's failure to preserve the goods.[25] The seller, however, is entitled "to retain [the goods] until he has been reimbursed his reasonable expenses by the buyer."

In connection with the provisions of Art. 85, it should be pointed out that reasonable circumstances and reasonable expenses are common law notions which provide standards according to which a judge or arbitrator can evaluate the necessary steps and expenses.

Art. 86 deals with the problem of preserving the goods in the opposite case, i.e., when the goods have been received by the buyer and he intends to reject them. In such a case, he has the same obligations as the seller under Art. 85.

If the goods have been dispatched to the buyer but the buyer, intending to reject them, has not taken possession of them, para. 2 of Art. 86 provides:

"... he must take possession of them on behalf of the seller provided that this may be done without payment of the price and without unreasonable inconvenience or unreasonable expense."

Here, as in the preceding article, we have the common law notions of "inconvenience" and expenses which are considered to be "unreasonable." Since this rule is taken from ULIS, we refer to Tunc who points out that in the given circumstances it must be assumed that the buyer will "ordinarily be better placed than the seller to take care" of the goods.[26] The buyer is released from this obligation "if the seller or a person authorized to take charge of the goods on his behalf is present at the destination."

The rule of Art. 87 of the Convention, which [page 261] can be found in many national laws and in ULIS Art. 93) as well, reads as follows:

"A party who is bound to take steps to preserve the goods may deposit them in a warehouse of a third person at the expense of the other party provided that the expense incurred is not unreasonable."

If the goods are subject to rapid deterioration or the party who is bound to preserve them in accordance with Art. 85 or 86 would incur unreasonable expense in doing so, this party is entitled to sell them. The same rule applies "if there has been an unreasonable delay by the other party in taking possession of the goods or in taking them back or in paying the price or cost of preservation." In all of these circumstances, "a reasonable notice" of the intention to sell must be given to the other party. After selling the goods, the party exercising this right under the Convention may retain out of the proceeds of sale "an amount equal to the reasonable expenses of preserving the goods and of selling them." In this case, he is bound to account to the other party for the balance. In connection with para. 3 of Art. 88, it is pointed out in the Commentary that if the party selling the goods has other claims arising out of the contract or its breach, under the applicable national law he may have the right to defer the transmission of the balance until the settlement of those claims.[27]


FOOTNOTES

1. In the Commentary to the Draft Convention Prepared by UNCITRAL, it is mentioned that this may be the case when the buyer fell behind in his payments to the seller in respect of other contracts. (A)CONF.97(5), p. 159.

2. According to the American Uniform Commercial Code ( 2-705), "the seller may stop delivery of goods in the possession of a carrier or other bailee when he discovers the buyer to be insolvent ..."

3. T.C. Hartley, The Uniform Law on the International Sale of Goods... and the Draft Convention on Contracts for the International Sale of Goods prepared by UNCITRAL, vol. II (London 1979) p. 7/3.

4. Only para.1 of Art. 72 of the Vienna Convention has been taken from ULIS (Art. 76), which provides:

"Where prior to the date fixed for performance of the contract it is clear that one of the parties will commit a fundamental breach of contract, the other party shall have the right to declare the contract avoided."

5. A. Tunc, Commentary of the Hague Convention (The Hague 1966) p. 88.

6. Ph. Kahn, Etude comparée des Conventions de la Haye et Projet de Convention preparé par CNUDCI (Bruxelles 1979) p. 69.

7. The notion "reasonable notice" is not clear and may be interpreted in various ways. In the French version of the same article we find the term dans les conditions raisonable, which sounds better although similar doubts may arise as well.

8. A. Tunc, supra n. 5, at p. 92.

9. Ibid. p. 94.

10. At the Vienna Conference, it was disputed whether the "contract price" and the "price fixed by the contract" are the same. Many were of the opinion that the contract price is provided objectively and precisely by the contract, which is not necessarily the case with the price fixed by the contract.

11. The additional expenses may include, e.g., the cost for transportation or for delay in delivery of the goods bought in replacement by the buyer.

12. It should be pointed out that Art. 76 speaks of the price fixed by the contract, whereas Art. 75 refers to the contract price.

13. A. Tunc, supra, n. 5, at p. 96.

14. Art. 83 of ULIS reads as follows:

"Where the breach of contract consists of delay in the payment of the price, the seller shall in any event be entitled to interest on such sum as is in arrear at a rate equal to the official discount rate in the country where he has his place of business or, if he has no place of business, his habitual residence, plus 1%."

15. B. Nicholas, "Force Majeure and Frustration," Am.J.Comp.L. (1979) p. 232. The author explains that the English term "exemption" could be explained by force majeure, cause éstrangère, "impossibility," "frustration," Wegfall der Geschäftsqrundlaqe.

16. The main problem was whether to provide a detailed rule, in which case the text might be difficult to understand, or to have a short rule, in which case there would be room for application of the national law, which, however, was also not regarded as a satisfactory solution.

17. This rule is the exception to the rule found in Art. 27 of the Convention.

18. Commentary, supra n. 1, p. 175.

19. In Art. 4, the Convention expressly provides that it does not deal with "the validity of the contract or of any of its provisions or of any usage."

20. The only effect of the avoidance according to para.1 of Art. 78 of ULIS amounts to release of both parties "from their obligations thereunder, subject to any damages which may be due."

21. In some legal systems, after avoidance of the contract all these clauses terminate with the rest of the contract. Therefore, the provision in the Vienna Convention provides a mechanism to avoid such results.

22. In the French text of the Convention the term sensiblement identique (almost identical) is used as the equivalent of "substantially." Although there is no definition of the term "substantially," it is held that it should be interpreted as a condition which the seller is not supposed to refuse to take.

23. Commentary, supra n. 1, at pp. 176-177.

24. Art. 78 provides:

"If the party fails to pay the price or any other sum that is in arrears, the other party is entitled to interest on it, without prejudice to any claim for damages recoverable under article 74."

25. T.C. Hartley, supra n. 3, at p. 7/21.

26. A. Tunc, Commentary, supra n. 5, at p. 98.

27. Commentary, supra n. 1, at p. 197.


Pace Law School Institute of International Commercial Law - Last updated September 12, 2002
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