Article 50. Reduction of Price

• Text of Article 50
• Outline of issues
• Descriptors
• Coded case annotations
  -  Guide to case codes
• Case digest and analysis
     -  UNCITRAL's case law digest; and
     -  An analysis of CISG jurisprudence
• Annotated comparative

TEXT OF ARTICLE 50

If the goods do not conform with the contract and whether or not the price has already been paid, the buyer may reduce the price in the same proportion as the value that the goods actually delivered had at the time of the delivery bears to the value that conforming goods would have had at that time. However, if the seller remedies any failure to perform his obligations in accordance with article 37 or article 48 or if the buyer refuses to accept performance by the seller in accordance with those articles, the buyer may not reduce the price.

OUTLINE OF ISSUES

Reproduced with permission of UNCITRAL

50A Buyer's right to reduce price for non-conforming goods (see art. 35)

50B This right available whether or not the price has been paid

DESCRIPTORS

Reduction of price, remedy of

CASE ANNOTATIONS: UNCITRAL DIGEST CASES PLUS ADDED CASES

Netherlands 5 November 2008 Rechtsbank [District Court] Arnhem (Baufix Holz- und Bauetechnik GmbH v. Eurovite Nederland)

Australia 24 October 2008 Federal Court [South Australia District] (Hannaford v Australian Farmlink Pty Ltd) 50A

Germany 31 March 2008 Oberlandesgericht [Appellate Court] Stuttgart (Automobile case) [translation available]

Netherlands 27 February 2008 Rechtbank [District Court] Zutphen (Frutas Caminito Sociedad Cooperativa Valenciana v. Groente-En Fruithandel Heemskerk BV) [abstract available]

Germany 25 January 2008 Oberlandesgericht [Appellate Court] Hamburg (Café inventory case) [translation available]
 

Netherlands 10 November 2007 Gerechtshof [Appellate Court] Amsterdam ([...] B.V. v. Produce Agencies Limited, Nieuw Zeeland)

Switzerland 30 August 2007 Kantonsgericht [District Court] Zug (GMS modular case) 50A [translation available]

Spain 16 May 2007 Supreme Court (Water apparatus case)

Austria 3 May 2007 Handelsgericht [Commercial Court] Vienna (Poppy seed case) [translation available]

Switzerland 27 April 2007 Tribunal cantonal [Appellate Court] Valais (Oven case) [translation available]
 

Germany 14 December 2006 Oberlandesgericht [Appellate Court] Koblenz (Bottles case) 50A [translation available]

Germany 12 December 2006 Landgericht [District Court] Coburg (Plants case) [translation available]

Germany 23 October 2006 Landgericht [District Court] Bamberg (Plants case) 50A ; 50B [translation available]

Germany 14 August 2006 Oberlandesgericht [Appellate Court] Köln (Potatoes case) 50A [translation available]

Czech Republic 29 March 2006 Supreme Court (Carpet case) [translation available]

Germany 8 February 2006 Oberlandesgericht [Appellate Court] Karlsruhe (Hungarian wheat case) [translation available]

China February 2006 CIETAC Arbitration Award [CISG 2006/16] (Fluorite case) [translation available]

Austria 23 January 2006 Oberlandesgericht [Appellate Court] Linz (Auto case) [translation available]

Slovak Republic 12 January 2006 Regional Court Trnava (Pumpkins case) [translation available]
 

Austria 8 November 2005 Oberster Gerichtshof [Supreme Court] [translation available]

Austria 23 May 2005 Oberster Gerichtshof [Supreme Court] 50A [translation available]

Russia 27 April 2005 Arbitration Award 5/2004 50A [translation available]

Russia 23 March 2005 Arbitration Award 126/2004 50C1 [translation available]

Germany 2 March 2005 Bundesgerichtshof [Federal Supreme Court] 50A [translation available]
 

Russia 23 December 2004 Arbitration Award 97/2004 50A [translation available]

Ukraine 19 October 2004 Arbitration Award (Iron and steel castings case) [translation available]

Switzerland 21 September 2004 Amtsgericht [District Court] Luzern-Land 50A [translation available]

Germany 6 September 2004 Landgericht [District Court] Hamburg [translation available]

Switzerland 7 July 2004 Bundesgericht [Supreme Court] (Cable drum case) [translation available]

United States 29 March 2004 Federal Bankruptcy Court [Oregon] (In re: Siskiyou Evergreen, Inc. Debtor)

Germany 29 January 2004 Oberlandesgericht [Appellate Court] Frankfurt 50A [translation available]

Switzerland 13 January 2004 Bundesgericht [Supreme Court]
 

Spain 5 November 2003 Audiencia Provincial [Appellate Court] Vizcaya

Spain 7 June 2003 Audiencia Provincial [Appellate Court] Valencia [translation available]

Germany 25 March 2003 Landgericht [District Court] Köln 50A [translation available]

Germany 18 March 2003 Landgericht [District Court] Giessen

China 19 January 2003 CIETAC Arbitration Award [CISG 2003/07] (Ferrochrome case) 50A [translation available]

Australia 17 January 2003 Supreme Court of Western Australia (Ginza Pte Ltd v Vista Corporation Pty Ltd) 50A
 

China 18 December 2002 CIETAC Arbitration Award [CISG 2002/14] (Sausage casing case) [translation available]

Switzerland 15 November 2002 Cour de Justice [Appellate Court] Genève

China 11 November 2002 CIETAC Arbitration Award [CISG 2002/26] (Platform case) 50A [translation available]

Switzerland 11 November 2002 Cour de Justice [Appellate Court] Genève (Iron concretes and steel bars case) [translation available]

Switzerland 5 November 2002 Handelsgericht [Commercial Court] des Kantons Aargau [translation available]

Netherlands 15 October 2002 Netherlands Arbitration Institute Case No. 2319 [English text]

Germany 14 October 2002 Oberlandesgericht [Appellate Court] Köln [translation available]

Germany 22 August 2002 Oberlandesgericht [Appellate Court] Schleswig 50A [translation available]

Switzerland 29 July 2002 Obergericht [Appellate Court] Luzern [translation available]

Germany 4 June 2002 Landgericht [District Court] Stuttgart 50A [translation available]

Russia 20 May 2002 Arbitration Court [Appellate Court] for Volgo-Vyatsky Region (Case No. A31-275/12) [translation available]

Switzerland 12 May 2002 Obergericht [Appellate Court] Luzern

Austria 17 April 2002 Oberster Gerichtshof [Supreme Court] [7 Ob 54/02m] [translation available]

Germany 27 February 2002 Landgericht [District Court] München 50A [translation available]

Switzerland 25 February 2002 Kantonsgericht [District Court] Schaffhausen [translation available]

Belgium 18 January 2002 Rechtbank van Koophandel [District Court for Commercial Matters] Mechelen 5A
 

Spain 12 September 2001 Audiencia Provincial [Appellate Court] Barcelona [translation available]

Germany 29 May 2001 Landgericht [District Court] Darmstadt [translation available]

Germany 12 March 2001 Oberlandesgericht [Appellate Court] Stuttgart [translation available]
 

Germany 12 October 2000 Landgericht [District Court] Stendal [translation available]

Germany 13 September 2000 Landgericht [District Court] Memmingen (Plastic filter plate case) [translation available]

* Germany 9 May 2000 Landgericht [District Court] Darmstadt 50A [translation available]

Germany 28 April 2000 Oberlandesgericht [Appellate Court] Oldenburg [translation available]

Spain 27 March 2000 Audiencia Provincial [Appellate Court] Navarra

Austria 21 March 2000 Oberster Gerichtshof [Supreme Court] [translation available]

Russia 24 January 2000 Arbitration award 54/1999 50A [translation available]
 

Denmark 10 November 1999 Veste Landsret [Western High Court] 50A [translation available]

Russia 23 September 1999 Cassational Board of Supreme Court of Russian Federation (Case KAC 99-253) [translation available]

China 10 August 1999 CIETAC Arbitration Award [CISG 1999/35] (Raincoat case) 50A [translation available]

ICC August 1999 International Court of Arbitration, Case 9083 [translation available]

ICC August 1999 International Court of Arbitration, Case 9887 [English text]

Russia 8 July 1999 Arbitration award 318/1997 50A [translation available]

ICC July 1999 International Court of Arbitration, Case 9448 [English text]

Switzerland 11 June 1999 Handelsgericht [Commercial Court] Aargau 50A [translation available]

China 21 May 1999 CIETAC Arbitration Award [CISG/1999/26] (Excavator case) 50A [translation available]

China 30 March 1999 CIETAC Arbitration Award [CISG/1999/17] (Electric heater case) 50A [translation available]

* Germany 24 March 1999 Landgericht [District Court] Flensburg 50A [translation available]

Switzerland 10 February 1999 Handelsgericht [Commercial Court] Zürich [translation available]
 

Russia 3 December 1998 Supreme Court of Russian Federation [translation available]

Belgium 4 November 1998 Hof van beroep [Appellate Court] Antwerpen 50A [translation available]

Denmark 4 November 1998 Randers Byret [County Court] (Christmas tree case) 50A [translation available]

* Switzerland 28 October 1998 Bundesgericht [Federal Supreme Court] (Meat case) 50A [translation available]

Austria 15 October 1998 Oberster Gerichtshof [Supreme Court] [translation available]

China 25 September 1998 CIETAC Arbitration Award [CISG 1998/12] (Health supplement case) 50A [translation available]

Switzerland 21 September 1998 Handelsgericht [Commercial Court] Zürich

Switzerland 16 September 1998 Bezirksgericht [District Court] Unterrheintal

China 30 July 1998 CIETAC Arbitration Award [CISG/1998/04] (Cold rolled steel plates case) 50A [translation available]

United States 29 June 1998 Federal Appellate Court [11^th Circuit] (MCC-Marble Ceramic Center v. Ceramica Nuova D'Agostino)

Russia 25 June 1998 Arbitration award 478/1996 [translation available]

Germany 26 May 1998 Oberlandesgericht [Appellate Court] Thüringer, Jena [translation available]

Germany 31 March 1998 Oberlandesgericht [Appellate Court] Zweibrücken (Vine wax case) [translation available]

France 18 March 1998 Cour d'appel [Appellate Court] Paris [translation available]

Austria 11 March 1998 Oberlandesgericht [Appellate Court] Graz (Timber case) [translation available]

Germany 11 March 1998 Oberlandesgericht [Appellate Court] München [translation available]

ICC March 1998 International Court of Arbitration, Case 9117 [English text]
 

Finland 12 November 1997 Hovioikeus / hovrätt [Appellate Court] Turku 50A [translation available]

* Germany 5 November 1997 Oberlandesgericht [Appellate Court] Hamm [translation available]

* Germany 9 July 1997 Oberlandesgericht [Appellate Court] München [7 U 2070/97] [translation available]

Germany 24 April 1997 Oberlandesgericht [Appellate Court] Düsseldorf [translation available]

* Germany 31 January 1997 Oberlandesgericht [Appellate Court] Koblenz 50C2 [translation available]

Finland 17 January 1997 Tampere Court of First Instance 50A [translation available]

ICC 1997 International Court of Arbitration, Case 8855

ICC 1997 International Court of Arbitration, Case 8782 [English text]
 

Netherlands 21 November 1996 Arrondissementsrechtbank [District Court] Rotterdam

China 18 September 1996 CIETAC Arbitration Award [CISG/1996/43] (Agricultural products case) 50A [translation available]

Germany 4 September 1996 Hamburg Arbitration award [translation available (excerpt)]

China 8 August 1996 CIETAC Arbitration Award [CISG/1996/36] (Diaper machine case) 50A [translation available]

China 31 July 1996 CIETAC Arbitration Award [CISG/1996/34] (Sport shoes case) 50A [translation available]

Germany 25 June 1996 Landgericht [District Court] Paderborn [translation available]

Germany 17 June 1996 Landgericht [District Court] Hamburg [translation available]

ICC June 1996 International Court of Arbitration, Case 8247 [English text]

Bulgaria 24 April 1996 Bulgaria Chamber of Commerce, Arbitration 56/1995 [translation available]

Germany 3 April 1996 Bundesgerichtshof [Federal Supreme Court] [translation available]

* Germany 5 March 1996 Landgericht [District Court] Düsseldorf 50A

Russia 10 February 1996 Arbitration proceeding 328/1994 50A [translation available]
 

Hungary 5 December 1995 Budapest Arbitration award Vb 94131 50A [translation available]

* Austria 9 November 1995 Oberlandesgericht [Appellate Court] Graz 50A [translation available]

Egypt 3 October 1995 Arbitration award (Cairo Chamber of Commerce & Industry) [translation available]

Germany 27 July 1995 Oberlandesgericht [Appellate Court] Rostock [translation available]

Switzerland 30 June 1995 Gerichtskommission [Judicial Commission] Oberrheintal (Sliding doors case) [translation available]

Austria 28 June 1995 Landesgericht [District Court] Graz

Germany 22 June 1995 Landgericht [District Court] Kassel [translation available]

China 22 March 1995 CIETAC Arbitration Award [CISG/1995/05] (Down jacket and winter coat case) 50A [translation available]

Germany 15 February 1995 Landgericht [District Court] Oldenburg
 

Germany 14 June 1994 Amtsgericht [Lower Court] Nordhorn 50A [translation available]

* United States 6 April 1994 Federal District Court [Southern Dist. NY] (Braun v. Alitalia) 50A

* Germany 2 March 1994 Oberlandesgericht [Appellate Court] München 50A [translation available]

Germany 10 February 1994 Oberlandesgericht [Appellate Court] Düsseldorf [6 U 32/93] [translation available]

Germany 10 February 1994 Oberlandesgericht [Appellate Court] Düsseldorf [6 U 119/93] [translation available]

* ICC 1994 International Court of Arbitration, Case 7331 [English text]

ICC 1994 International Court of Arbitration, Case 7565 [English text]
 

Germany 14 April 1993 Amtsgericht [Lower Court] Cloppenburg 50C2

* Germany 8 January 1993 Oberlandesgericht [Appellate Court] Düsseldorf [translation available]
 

* Switzerland 27 April 1992 Pretore della giurisdizione [District Court] Locarno 50A [translation available]
 

Netherlands 19 December 1991 Arrondissementsrechtbank [District Court] Roermond

Germany 18 January 1991 Landgericht [District Court]Bielefeld
 

United States 22 May 1990 Federal District Court [Southern Dist. NY] (Interag Ltd v. Stafford Phase) 50B1

Germany 3 April 1990 Landgericht [District Court] Aachen 50B1 [translation available]
 

Iran/U.S. Claims Tribunal 16 June 1988 (Islamic Republic of Iran v. U.S.)

CASE DIGEST AND ANALYSIS
-   UNCITRAL's case law digest; and
-   An analysis of CISG jurisprudence

DIGEST OF ARTICLE 50 CASE LAW

Meaning and purpose of the provision

1. The article allows for a price reduction when the seller delivered goods which do not conform with the contract. The buyer then may reduce the price in proportion to the reduced value of the goods. The remedy is, however not available if the seller has cured any defect of the goods either under article 37 or under article 48 or if the buyer has refused the seller the opportunity to such cure.

Prerequisites of price reduction

2. Article 50 requires that it is established that the sold goods do not conform with the contract.[1] Non-conformity is to be understood in the sense of article 35, i.e., defects as to quantity,[2] quality, description (aliud) and packaging. Also defects of documents relating to the goods can be treated as a case of non-conformity.[3] The remedy of price reduction is, however, not available if the breach of contract is based upon late delivery [4] or the violation of any other obligation of the seller.

3. Price reduction applies irrespective whether the non-conformity constitutes a fundamental or a simple breach of contract, whether or not the seller acted negligently or whether the seller was exempted from liability under article 79. The remedy does also not depend on the fact whether the buyer has already paid.[5]

4. Price reduction presupposes, however, that the buyer has given notice of the lack of conformity of the goods in accordance with article 39 (or 43).[6] Without due notice the buyer is not allowed to rely on the lack of conformity and loses all remedies.[7] Article 44 establishes an exception where the buyer can reasonably excuse its failure to give notice of defect.[8]

5. It has been observed that article 50 further requires that the buyer express its intention to reduce the price.[9]

6. Article 50, second sentence, states the more or less self-evident rule that the remedy of price reduction is no longer available when the seller has remedied any defects either under article 37 (cure in case of early delivery) or under article 48 (cure after date for delivery). The same result applies if the buyer refuses to accept performance when the seller has offered cure in accordance with articles 37 or 48.[10]

7. As provided for in article 45(2), the buyer can combine several remedies under articles 46-52; consequently, the buyer can also combine price reduction with a damages claim. However, where damages are claimed in combination with price reduction, damages can only be awarded for any loss other than the reduced value of the goods because this loss is already reflected by the price reduction.[11]

Calculation of price reduction

8. The amount of price reduction has to be calculated in a proportionate way. The contract price has to be reduced in proportion of the value of the delivered goods to the value conforming goods would have. The relevant date for the comparison of values is the date of actual delivery at the place of delivery.[12]

Place of performance

9. The place of performance of the remedy of price reduction is located where the place of performance for the delivery of the goods lies.[13]

FOOTNOTES

* The present text was prepared using the full text of the decisions cited in the Case Law on UNCITRAL Texts (CLOUT) abstracts and other citations listed in the footnotes. The abstracts are intended to serve only as summaries of the underlying decisions and may not reflect all the points made in the digest. Readers are advised to consult the full texts of the listed court and arbitral decisions rather than relying solely on the CLOUT abstracts.

[Citations to cisgw3 case presentations have been substituted [in brackets] for the case citations provided in the UNCITRAL Digest. This substitution has been made to facilitate online access to CLOUT abstracts, original texts of court and arbitral decisions, and full text English translations of these texts (available in most but not all cases). For citations UNCITRAL had used, go to <http://www.uncitral.org/english/clout/digest_cisg_e.htm>.]

1. [UNITED STATES Braun v. Alitalia Federal District Court [New York] 6 April 1994, available online at <http://cisgw3.law.pace.edu/cases/940406u1.html>]; CLOUT case No. 377 [Germany Landgericht [District Court] Flensburg 24 March 1999, available online at <http://cisgw3.law.pace.edu/cases/990324g2.html>] (see full text of the decision).

2. Including the weight of the goods, see [UNITED STATES Braun v. Alitalia Federal District Court [New York] 6 April 1994, available online at <http://cisgw3.law.pace.edu/cases/940406u1.html>].

3. Article 48 to which article 50 refers covers also the cure of documents, see Digest, article 48.

4. [Germany Landgericht [District Court] Düsseldorf 5 March 1996, available online at <http://cisgw3.law.pace.edu/cases/960305g1.html>].

5. See Official Records of the United Nations Conference on Contracts for the International Sale of Goods, Vienna, 10 March-11 April 1980 (United Nations publication, Sales No. E.81.IV.3), 42, para. 5.

6. CLOUT case No. 56 [SWITZERLAND Pretore [District Court] Canton of Ticino, Locarno Campagna 27 April 1992, available online at <http://cisgw3.law.pace.edu/cases/920427s1.html>].

7. CLOUT case No. 48 [Germany Oberlandesgericht [Appellate Court] Düsseldorf 8 January 1993, available online at <http://cisgw3.law.pace.edu/cases/930108g1.html>]; CLOUT case No. 273 [Germany Oberlandesgericht [Appellate Court] München 9 July 1997, available online at <http://cisgw3.law.pace.edu/cases/970709g1.html>]; CLOUT case No. 303 [ICC Court of Arbitration, case No. 7331 of 1994, available online at <http://cisgw3.law.pace.edu/cases/947331i1.html>]; CLOUT case No. 343 [Germany Landgericht [District Court] Darmstadt 9 May 2000, available online at <http://cisgw3.law.pace.edu/cases/000509g1.html>] (see full text of the decision).

8. In this respect, see, e.g., CLOUT case No. 303 [ICC Court of Arbitration, case No. 7331 of 1994, available online at <http://cisgw3.law.pace.edu/cases/947331i1.html>]; CLOUT case No. 273 [Germany Oberlandesgericht [Appellate Court] München 9 July 1997, available online at <http://cisgw3.law.pace.edu/cases/970709g1.html>].

9. CLOUT case No. 83 [Germany Oberlandesgericht [Appellate Court] München 2 March 1994, available online at <http://cisgw3.law.pace.edu/cases/940302g1.html>].

10. CLOUT case No. 282 [Germany Oberlandesgericht [Appellate Court] Koblenz 31 January 1997, available online at <http://cisgw3.law.pace.edu/cases/970131g1.html>].

11. CLOUT case No. 248 [SWITZERLAND Bundesgericht [Supreme Court] 28 October 1998, available online at <http://cisgw3.law.pace.edu/cases/981028s1.html>] (see full text of the decision).

12. CLOUT case No. 56 [SWITZERLAND Pretore [District Court] Canton of Ticino, Locarno Campagna 27 April 1992, available online at <http://cisgw3.law.pace.edu/cases/920427s1.html>]; CLOUT case No. 175 [AUSTRIA Oberlandesgericht [Appellate Court] Graz 9 November 1995, available online at <http://cisgw3.law.pace.edu/cases/951109a3.html>] (see full text of the decision).

13. CLOUT case No. 295 [Germany Oberlandesgericht [Appellate Court] Hamm 5 November 1997, available online at <http://cisgw3.law.pace.edu/cases/971105g1.html>].

Reprinted by special permission of Northwestern University School of Law. 34 Northwestern Journal of International Law and Business (Winter 2004) 299-440.[*]

[...]

4. Right to a Price Reduction

Under Article 50, the buyer can reduce the price of goods [661] that do not conform to the contract, even if the price has already been paid.[662] To reduce the price, the buyer must simply disclose the reduction, which does not preclude a claim for damages sustained due to the non-conformity. The reduction must be proportionate to the value at the time of delivery that the non-conforming goods bore to the value of the conforming goods. The CISG does not indicate the place where the value of the goods will be assessed, but better thinking suggests it would be the place "where the seller has to perform."[663]

The major issue under CISG Article 50 is the proper measure of price reduction.[664] Article 50 refers to "value" rather than to contract price. At least one arbitral tribunal, citing scholarly authority, has identified the [page 407] buyer's place of business or the place where the goods will be directed as the market in which value is to be ascertained.[665] Beyond that, ascertaining a ratio of the value of the non-conforming goods relative to the value of conforming goods is an evidentiary matter.[666]

[...]

FOOTNOTES

* For a subsequent text on this subject by these authors, see Larry A. DiMatteo, Lucien Dhooge, Stephanie Greene, Virginia Maurer & Marisa Pagnattaro, "International Sales Law: A Critical Analysis of CISG Jurisprudence", Cambridge University Press (2005) 241 p.

[...]

661. See Piche, supra note 637, at 548, 558-65 (tracing the principle of price reduction to the actio quanti minoris of Roman law through the Justinian Compilations, and explaining the justifications for the price reduction remedy).

662. There is some controversy among commentators with respect to whether a non-conformity of quantity, as opposed to quality, justifies a price reduction. Piche, supra note 637, at 551.

663. Enderlein & Maskow, supra note 20, at 196; Piche, supra note 637, at 555. The buyer may not reduce the price if the seller has remedied his failure to perform in accordance with Article 37 or Article 48 or if the buyer refuses to accept performance by the seller in accordance with those Articles. CISG, supra note 4, at art. 50.

664. Budapest Arbitration proceeding VB/94131, Dec. 5, 1995, supra note 627; LG Aachen 41 0 198/89, Apr. 3, 1990, supra note 346; Karajaoikeus Tampere [District Court] [KO] Jan. 17, 1997 (Fin.), available at <http://cisgw3.law.pace.edu/cases/970117f5.html> [English translation by Jarno Vanto]; Overlandesgericht [OLG] Graz [Provincial Court of Appeal], 6 R 194/95, Nov. 9, 1995, supra note 567; Canton of Ticino: Pretore della giurisdizione di Locarno Campagna, CLOUT Case No. 56, Apr. 27, 1992, (Switz.), available at [<http://cisgw3.law.pace.edu/cases/920427s1.html>] [English translation by Alex Turina].

665. Budapest Arbitration proceeding VB/94131 Arbitration Court of the Chamber of Commerce and Industry of Budapest, Dec. 5, 1995, supra note 627.

666. See, e.g., LG Aachen 41 0 198/89, Apr. 3, 1989, supra note 346. See also Tampere Court of First Instance, Jan. 17, 1997, supra note 567 (the court held, however, that the right of price reduction for non-conforming goods is "independent of whether the buyer has sold the goods further and at what price or whether the buyer has been subject to complaints or demands for compensation"); Canton of Ticino: Pretore della giurisdizione di Locarno Campagna, Apr. 27, 1992, supra note 664 (rejecting a seller's plea that the price reduction should equal the cost of repairing the non-conforming goods, in favor of the Article 50 measure of reduction based on proportionality of value).

[...]

Go to complete text of Analysis of Fifteen Years of CISG Jurisprudence

a. Article 50 of the Convention is a part of the remedial scheme of7 the CISG. This provision is reflective of the general CISG approach of trying to balance the rights of the buyer and the seller, in the sense that it gives the buyer the right to reduce the price, but the seller may remedy the non-conformity and subsequently obtain the original price agreed on in the contract. PECL article 9:401 gives the buyer the same right of reducing the price, even though the Principles do not apply the term "buyer" but instead a "party who accepts the tender of performance". It must be noted that the Principles apply not only to contracts for the sale of goods but also to other types of contracts.[1] In the CISG's realm, the buyer has at his disposal,[2] in addition to price reduction, the remedies of specific performance (CISG art. 46), request for remedying of the non-conforming performance (CISG art. 48), avoidance of the contract in cases of fundamental breach of contract (CISG art. 49(1)) and damages (CISG arts. 45(1), 74-77).

b. The objective of CISG art. 50 is to give the buyer an opportunity to keep the received goods which, even though not entirely conforming to what had been agreed on in the contract, he may still make use of but may take the non-conformity into account when paying the purchase price. This means that price reduction is a remedy that is available to the buyer only if the goods are not in conformity with what the parties had agreed on in the contract and not, for example, in cases where the price of the contracted goods has gone down in the world market after the conclusion of the contract and the buyer feels trapped in a bad contract. This is the case also with PECL article 9:401.

c. Both CISG article 50 and PECL article 9:401 set as a prerequisite for their application that the goods do not conform with the contract.[3] Article 35(1) of the Convention states that the goods conform with the contract if they are of the quantity, quality and description required by the contract. The goods also need to be contained or packaged in the manner required by the contract. Additionally, CISG article 35(2) states that the goods do not conform with the contract unless they: a) are fit for the purposes for which goods of the same description would ordinarily be used; b) are fit for any particular purpose expressly or impliedly made known to the seller at the time of the conclusion of the contract, except where the circumstances show that the buyer did not rely, or that it was unreasonable for him to rely, on the seller's skill and judgment; c) possess the qualities of goods which the seller has held out to the buyer as a sample or model; d) are contained or packaged in the manner usual for such goods or, where there is no such manner, in a manner adequate to preserve and protect the goods.

d. The Official Comment [4] on PECL article 9:401 brings forth that the remedy of price reduction is available to the aggrieved party where the other party's performance is incomplete or otherwise fails to conform to the contract and whether the non-conformity relates to quantity, quality, time of delivery or otherwise. In connection with this, CISG articles 41 and 42 state that the seller has an obligation to deliver the goods free from any third party right or claim or a third party right or claim based on industrial property or other intellectual property. Opinions have been raised that price reduction could be used as a remedy also in relation to third party claims. Unless the third party claim would amount to a fundamental breach of contract, e.g. the consignment is owned entirely by a third party, this would seem plausible in the light of the comment to PECL article 9:401.[5]

e. The buyer bears the burden of proof with regard to the nature and extent of the non-conformity of the goods.[6]

f. In addition to the non-conformity of the goods, a pre-requisite for the buyer's right to reduce the price is that the buyer give notice to the seller and specify the nature of the lack of non-conformity within a reasonable time after he has discovered it or ought to have discovered it, as defined in CISG article 39, unless the seller knew or could not have been unaware of the lack of conformity (CISG art. 40).[7]

g. PECL article 9:401(3) states that "a party who reduces the price cannot also recover damages for reduction in the value of the performance but remains entitled to damages for any further loss it has suffered so far as these are recoverable under Section 5 of this Chapter."

On the other hand, CISG article 50 does not explicitly state that when the buyer reduces the price he may not recover damages for reduction in the value of the performance. However, it is stated in CISG article 45(2) that the buyer is not deprived of any right he may have to claim damages by exercising his right to other remedies. It is reasonable to presume that the reduction in value may not be claimed both as price reduction and as damages and that in this sense the effect of CISG article 50 and PECL article 9:401 is similar, even though both PECL and the CISG give the buyer the right to claim any further losses as damages.[8] [9] [10]

The comment on PECL article 9:401 states that the two remedies are incompatible, so there is no right to cumulate them. As is clear, the two remedies are incompatible only to the extent that they overlap.[11] Furthermore, both CISG article 50 and PECL article 9:401 give the buyer an opportunity to demand price reduction even if damages are not or cannot be claimed, for instance, when CISG article 79 is applicable.[12]

h. Price-reduction as a remedy for contractual breach can in many cases be regarded as a pre-procedural remedy in the sense that buyer presumably often demands a reduction in price from the seller in case retaining the goods delivered serves his interests, even though they do not conform entirely with what the parties had agreed on in the contract. If the requested price reduction is not met with acceptance on the seller's side, the dispute in all likelihood will be dealt with in court. It has been argued that when price-reduction is claimed in court it often assumes the nature of a defense rather than a claim. This is so when the seller claims the purchase price for delivered goods and the buyer brings forth a claim for price reduction on the basis of non-conforming goods.[13] Even though in practice price-reduction has assumed a character of a defense rather than a claim, it must be emphasized that it is still a unilateral right of the buyer.

i. Both PECL article 9:401 and CISG article 50 apply the same manner in which the reduction in price is calculated. The price reduction is proportionate to the reduction in value due to the non-conforming performance.[14] In this relation the contract price is the value without defect and the reduced price is the value with the defect. The defining moment for determining the price is the time of delivery of the goods.[15] [16] This means that if the price of the goods has fallen when the buyer demands price reduction he may still calculate the price reduction based on the original, higher, price which results in price reduction being beneficial to him. Then again, if the price of the goods has risen after the non-conforming goods were delivered, the buyer may only demand the price to be reduced in proportion to the contracted lower price. In these situations it may be more beneficial for the buyer to claim damages as an alternative to price reduction.

j. It has been acknowledged that the remedy of price reduction is traditionally a civil law remedy which has its origins in the Roman law remedy of actio quanti minoris.[17] [18] Actio quanti minoris has been brought forward in the comment on PECL article 9:401.[19] The original meaning of the actio was that the buyer could bring an action against the seller to reduce the price when there was a hidden or latent defect in the goods.[20] Both CISG article 50 and PECL article 9:401, sharing similar rationale and modus operandi, are somewhat qualified expressions of actio quanti minoris. [21]

k. The terminology employed by both CISG article 50 and PECL article 9:401 appears similar and would presumably produce largely similar results in resolving a contractual dispute. PECL art. 9:401 lays out many of the criteria for the application of the remedy of price reduction that in the CISG have to be drawn from many intertwined articles of the Convention. The utility of the PECL to interpret CISG article 50 is more extensive in civil law jurisdictions where the concept underlying PECL article 9:401, i.e., actio quanti minoris, as a conceptual tool for understanding price reduction has more weight. Common law systems do recognize the remedy of price reduction but it assumes a narrower scope than it does in civil law systems. PECL article 9:401, however, is of use even for a common lawyer wanting to understand the remedy of price reduction in a CISG-related dispute.

FOOTNOTES

* Jarno J. Vanto is a Ph.D. candidate at the University of Turku and an LL.M. candidate at New York University School of Law.

1. Wilhelmsson, Thomas, Ole Landon kyydissä kohti Eurooppalaista Sopimusoikeutta, available online at <http://www.cbs.dk/departments/law/staff/ol/commission_on_ecl/literature/wilhelmsson/ole-landon-kyydissa-korjattu.rtf>.

2. Handelsgericht des Kantons Aargau, 5 November 2002, available online at <http://www.cisg-online.ch/cisg/urteile/715.htm>.

3. Germany 12 October 2000, District Court Stendal, available online at <http://cisgw3.law.pace.edu/cases/001012g1.html>.

4. Like the commentary to the UNIDROIT Principles and the U.S. Restatements, the comments to the PECL help explain the text. The PECL notes identify civil law and common law antecedents and related domestic provisions. With the permission of the Commission on European Contract Law, the comments and notes to PECL Article 9:401 are available online at <http://cisgw3.law.pace.edu/cisg/text/comparison50.html>. The source of that material is Ole Lando & Hugh Beale eds., Principles of European Contract Law: Parts I and II, Kluwer Law International (2000) 430-433.

5. Third party claims are problematic in the sense of price reduction since it is with difficulty that one is able to calculate the price reduction in these instances. See e.g., Schlechtriem P. Uniform Law -- The UN Convention on Contracts for the International Sale of Goods d) Reduction of the Price (Article 50): "The general similarity of the prejudice caused by these defects with that caused by other defects justifies the availability of price reduction in these cases as well. But the formula for calculating the decrease in value due to such defects surely would have required thorough deliberations for which no time remained at the Conference", available at <http://www.cisg.law.pace.edu/cisg/biblio/schlechtriem-50.html>.

However, the structure of Section II, namely the "Conformity of the goods AND third party claims" points to another direction. The Section title presents these as separate items of the section. Article 50 talks about the conformity of the goods. If one were to adhere to the structuring of Section II in the way that its wording seems to hint, one would possibly not apply price reduction to third party claims. However, article 44 specifically states that price reduction is applicable to third party claims and gives leverage to the argument that third party claims are subject to price reduction despite the difficulties in calculation.

6. See the relevant case law:

See also, Ferrari F., in Review of the Convention on Contracts for the International Sale of Goods, 2000-2001, Kluwer Law International, at p. 6: "... the following three general principles (1) any party which wants to derive beneficial legal consequences from a legal provision has to prove the existence of the factual prerequisites of that provision (2) any party claiming an exception has to prove the existence of the factual prerequisites of that exception; and (3) those facts are exclusively in a party's sphere of responsibility and which therefore are, at least theoretically, better known to that party have to be proven by that party, since it is that party who exercises the control over that sphere."

7. Netherlands 19 December 1991, District Court, Roermond, Fallini Stefano v. Foodik, case presentation available online at <http://cisgw3.law.pace.edu/cases/911219n1.html>, where it was held that, in order for the seller not to be able to rely on CISG articles 38 and 39, the buyer had to prove its allegation that the seller knew or could not have been unaware of the lack of conformity of the goods. The court observed that, if the buyer were able to meet that burden of proof, it would be entitled to a reduction of the purchase price pursuant to article 50 CISG.

8. Kritzer, A.H. in International Contract Manual, Guide to Practical Applications of the United Nations Convention on contracts for the International Sale of Goods, Kluwer Law 1994, p. 441: "Article 45 (2) makes it clear that the buyer can claim damages in addition to declaring the reduction of the price in those cases where reducing the price does not give as much monetary relief as would an action for damages. A buyer might wish to combine the two remedies in a case if there was some possibility that damages could not be recovered, either because there was a question as to whether the seller was exempted from damages (but not from a reduction of price under Article 79) or because there was a question as to whether the damages had been foreseeable under article 74. A declaration of reduction of the price would give the buyer some immediate relief while the rest of the claim for damages was subject to negotiation or litigation OFFICIAL RECORDS: p. 43, para. 13".

9. See UNCITRAL YEARBOOK VIII A/CN. (/SER.S/1977, p.42, para. 231). See also Honnold J., Documentary History of the UN CISG, p.355: "Even in cases where the buyer had declared the price reduced, he might have suffered additional damages, for instance because of delay. It was considered that the remedy scheme of the Convention should not preclude the buyer from obtaining such damages from the seller".

10. Will, Michael R. In Bianca/Bonell Commentary, at p.373: ""It is up to the buyer to decide which is more advantageous for him: price reduction, or damages or price reduction and damages".

11. "Der Schadensersatzanspruch konkurriert mit anderen Rechtsbehelfen, insbesondere auch der Minderung des Kaufpreises. Der Gläubiger kann allerdings keinen Schadensersatz verlangen, so weit er einen anderen Rechtsbehelf erfolgreich ausgeübt und dadurch erreicht hat, dass der Schaden ganz oder teilweise beseitigt wird (von Caemmerer/Schlechtriem, Kommentar zum einheitlichen UN-Kaufrecht, 2. Aufl., Rn. 5 zu Art. 74" (Damages claim exists in concurrence with other remedies including price reduction. The claimant may not claim damages if he has pursued another remedy which already covers the extent of the loss suffered...) in Oberlandsgericht Schleswig 8 August 2002 11 U 40/01, available online at <http://cisgw3.law.pace.edu/cases/020822g2.html>.

12. On differences between price reduction and damages, see Eric E. Bergsten & Anthony J. Miller, The Remedy of Reduction of Price, 27 American Journal of Comparative Law (1979) 255-277, also available online at <http://www.cisg.law.pace.edu/cisg/biblio/bergsten.html>.

13. Sondahl E., Understanding the Remedy of Price Reduction - A Means to Fostering a more Uniform Application of the United Nations Convention on Contracts for the International Sale of Goods, available online at <http://www.cisg.law.pace.edu/cisg/biblio/sondahl.html>.

14. Lookofsky, J, Understanding the CISG in Europe, 2nd ed., Kluwer Law International, p.135.

15. Landgericht Aachen, 3 April 1990, 41 0 198/89, available online at <http://cisg-online.ch/cisg/urteile/12.htm>.

16. Switzerland 27 April 1992 District Court Locarno Campagna, available online at <http://cisgw3.law.pace.edu/cases/920427s1.html>. In that case, an Italian seller of furniture claimed the purchase price which the Swiss buyer refused to pay alleging lack of conformity of the goods. It was held that as the buyer had resold some of the defective furniture without notifying the seller in time about the resale, the buyer had lost its right to rely on non-conformity of the goods. With regard to other goods, the buyer was granted a reduction of price, since he had promptly notified the seller about the defects and the seller had refused to remedy the defects. The court rejected an offer made by the seller during the proceedings to pay the repair cost, holding that article 50 CISG was not intended to provide for restitution of the repair cost but a reduction of the purchase price in the same proportion as the value that the goods actually delivered had at the time of delivery bore to the value that conforming goods would have had at that time.

17. Piliounis, Peter A., The Remedies of Specific Performance, Price Reduction and Additional Time (Nachfrist) under the CISG: Are these worthwhile changes or additions to English Sales Law, Pace International Law Review (Spring 2000) 1-46, also available online at <http://cisgw3.law.pace.edu/cisg/biblio/piliounis.html>; Zimmerman, R., The Law of Obligations: Roman Foundations of the Civilian Tradition, Oxford, Clarendon Press, 1996, p.318.

18. Ole Lando & Hugh Beale eds., Principles of European Contract Law: Parts I and II, Kluwer Law International (2000) 430-433.

19. The Official Comments and Notes on PECL article 9:401, are available online at <http://cisgw3.law.pace.edu/cisg/text/comparison50.html>.

20. See Lando & Beale, op. cit.

21. On actio quanti minoris in civil law systems and on common law understanding of price reduction, see the Official Comment on PECL Article 9:410 containing notes on the match-up between Continental and Common Law rules, available online at <http://cisgw3.law.pace.edu/cisg/text/comparison50.html>.