PRESERVATION OF THE GOODS UNDER THE CISG

As a general rule, Section VI of Chapter 5 of the CISG requires that the party left in possession of, or, otherwise in control of the disposition of, the goods has the duty to protect and preserve the goods. This duty, which applies to any party to the transaction, “is an expression of the general obligation to cooperate, as it can be deduced from this provision [CISG Article 85] or that provision of the CISG as one of the Convention's underlying principles.”

Seller's duty to preserve the goods (Article 85)

The scope of the provision comprises two situations: first, where the buyer is in delay in taking the goods, and, second, where the buyer fails to pay the price when payment is to be made concurrently with delivery. In these cases, the seller is obligated to take measures to preserve the goods.

The standard to be applied is that the seller is required to take any reasonable step under the circumstances to preserve the goods, which will often be decided based on usage. Failure to fulfill this duty may give rise to stringent consequences, especially in those cases where the risk of loss has already passed to the buyer although the seller still has control over the disposition of the goods. In fact, a seller's failure to preserve the goods releases the buyer from liability arising from loss even though the risk has already passed to the buyer, “regardless of whether or not the property in the goods has passed” to the buyer.

INTRODUCTION

Article 48 is the middle of a trinity of articles that are arguably among the most significant provisions in the Convention. The other two provisions are Articles 47 and 49.

Article 48 is in many ways an unremarkable article. The basic premise of the provision is simple – a seller can remedy any of its obligations even after the time of delivery provided he does so without unreasonable delay or inconvenience to the buyer. The philosophy of this article fits neatly within the broader intentions of the CISG to keep contracts “on-foot.”

Article 7.1.4 of the UNIDROIT Principles (UNIDROIT) is grounded in the same philosophy. As Bertram Keller notes in his editorial remarks to CISG Article 37, the civil law tradition has been generally less familiar with the notion of a right to cure, and its inclusion in UNIDROIT does indeed “encourage the world wide acceptance of a general right to cure.”

However, there are some critical differences in the approach and effect of CISG Article 48 and UNIDROIT Article 7.1.4. This chapter focuses principally on the literal and structural differences between CISG Article 48 and UNIDROIT Article 7.1.4.

LITERAL AND STRUCTURAL DIFFERENCES

As mentioned in the introduction, CISG Article 48 is a simply worded article. There are very few form requirements with which a seller must comply before exercising the right provided to the seller by this article.

INTRODUCTION

The main goal of this chapter is to establish whether the Principles of European Contract Law (PECL) may be of assistance in construing the meaning of Article 78 of the United Convention on Contracts for the International Sale of Goods (CISG). I believe that the method for calculating interest rate as determined by the PECL may not be used under the CISG.

CISG ARTICLE 78

Background

It is well known that Article 78 is “more conspicuous for the questions it fails to answer than the questions it answers.” Because it was impossible to reach an agreement among the delegations at the Vienna Convention, the present version of Article 78 does not fix any rate of interest. It should be noted, however, that although considered as a “headless corpse,” Article 78 introduces a far-reaching principle of a general entitlement to interest, which is still rather important because it makes clear that a fixed interest rate (however, one not set by the Convention) must be applied to sums paid with delay (normativity feature) and that the entitlement to interest is not limited by grounds for release as provided for by CISG Article 79 (absoluteness feature).

Operation of CISG Article 78

Failure to pay the price or any other sum that is in arrears is the condition to be satisfied under Article 78. Failure refers to a failure to comply with the obligation to pay the price by a specific time, whether the time is set by contract or by the CISG (Article 58).

GENERAL: PLACE OF PERFORMANCE

a. The place where a party must perform a contractual obligation is important in a variety of contexts. In the Convention, of particular relevance are Articles 31 and 57, which, respectively, specify the place where goods are to be delivered and the place where payment is to be made. In particular, CISG Art. 31

Under CISG Art. 57(1),

INTRODUCTION

This chapter addresses the powerful effects of CISG Article 17, perhaps the shortest Article of the CISG, and puts its utility into perspective. This utility is informed by other CISG Articles and UNIDROIT Principles, as described and referenced here.

CISG Article 17 provides the following: “[a]n offer, even if irrevocable, is terminated when a rejection reaches the offeror.” Accordingly, it is seemingly misplaced in its setting within Articles that benefit the offeror in the formation of the contract. Those Articles, CISG Articles 15 through 18, provide grounds upon which the offeror, after having dispatched his offer, may be freed from the binding effects of his offer and therefore reallocate the resources committed. Before the offer has reached the offeree, the offeror may withdraw the offer (CISG Article 15(2)). CISG Articles 16 and 18 contemplate actions that can be taken after the offer has reached the offeree: the offeror may revoke the offer unless it is irrevocable (CISG Article 16). The offeror is also freed from his offer upon the expiration of the time for its acceptance (CISG Article 18(2)).

CISG Article 17, however, foresees as a cause of termination of the offer an initiative emanating from the offeree (i.e., the rejection of the offer) and as such is an obvious offeree benefit. Further, even though irrevocable, the offeree may still reject the offer, an option not allowed the offeror regarding an irrevocable offer (CISG Article 16). Herein lies much of CISG Article 17's power.

INTRODUCTION

It is true that both the UNIDROIT Principles and the Convention are instruments that can be used to assist in the interpretation of contracts if they address the same issues. Indeed the Preamble to the Principles states that they may be used to interpret or supplement international uniform law instruments. The ICC Court of Arbitration in Paris took advantage of this possibility in a case where no express choice of law clause was included in the contract. It referred to both Article 76 CISG and Article 7.4.6 of the UNIDROIT Principles as being relevant to assist in their deliberations. Arguably the tribunal was guided by the Official Comments on the UNIDROIT Principles, which included a direct reference to CISG Article 76:

However, it must also be remembered that the CISG is part of municipal law; that is, courts are obliged to use it when applicable. At best, the UNIDROIT Principles can be used by courts to assist where the provisions of the CISG are not clear. Furthermore, such assistance can only be considered if CISG Articles 7 or 8 have not produced a solution. It can be argued that if there is a gap in the CISG, then the UNIDROIT Principles should be consulted if possible to fill it before recourse to domestic law is taken.

INTRODUCTION

Article 49 CISG regulates a buyer's right of avoidance in case of breach of contract by the seller. Although paragraph (1) lays down the conditions under which the buyer is entitled to declare the contract avoided, paragraph (2) provides for situations where he loses the remedy of avoidance. Because the consequences of this remedy are harsh for the seller, the remedy is limited to two situations. Subparagraph (1)(a) gives the buyer the right to avoid the contract where the seller's breach amounts to a fundamental breach of the contract in terms of Article 25 CISG. Subparagraph (1)(b) deals with late delivery and cases where the seller does not deliver the goods at all. Even if late delivery or non-delivery does not per se qualify for fundamental breach but only if timely delivery is of the essence of the contract, the buyer can declare the contract avoided where the seller fails to deliver the goods within an additional period (Nachfrist) set by the buyer in accordance with Article 47(1) CISG. The avoidance regime under the UNIDROIT Principles also distinguishes between termination based on fundamental non-performance (Article 7.3.1 of the UNIDROIT Principles, the UNIDROIT Principles counterpart to fundamental breach) and a termination in case of late delivery due to non-compliance with a Nachfrist (Article 7.1.5 of the UNIDROIT Principles). In this chapter, only the second of the two grounds for avoidance/termination under both instruments is analyzed.

A consideration of the sources of law in a legal order must deal with a variety of different, although related, matters. Historical roots and derivations need explanation. The system's formal allocation of authority over the creation and adaptation of legal rules and principles deserves attention, as do the manner in which legal rules are presented and the processes of analysis through which they are applied. Finally, those structural features somewhat particular to the legal system that may affect significantly its general style and operational modes should be discussed.

HISTORICAL ROOTS

Historically speaking, American private law's source is the English common law. The reception on the North American continent of the common law is considered in Chapter 2, The American common law. A few words can be said here respecting certain structural features of the common law thus received that have particular importance for American law's general style and modes of operation.

The common law makes extensive use of juries in the administration of civil as well as criminal justice. The jury, which always deliberates separately from the judge, is basically responsible for deciding disputed issues of fact. Widespread use of juries carries with it a number of consequences, some of which are mentioned later in this chapter or considered in greater detail in Chapters 6 and 8. These include concentration of the trial at first instance into a single episode, the development of a sophisticated and complex body of exclusionary rules of evidence, and giving community feelings and views greater weight in the administration of justice than is the case where professionals alone bear responsibility.

INTRODUCTION

Article 55 of the Convention provides a mechanism for the determination of the price in an international sales contract that has been validly concluded; however, it does not state a price or expressly or implicitly make provision for determining the price. In other words, CISG Art. 55 deals with the uneasy question concerning open-price contracts, and it becomes a controversial provision in light of CISG Article 14(1), which provides that determination of price is one of the criteria for an offer. The two provisions seemingly contradict each other.

Counterpart provisions regulating the same issues, but in a more detailed manner, are also found in the UNIDROIT Principles of International Commercial Contracts (the Principles) Articles 5.7, “Price Determination,” and 2.2, “Definition of Offer”.

This chapter examines whether and the extent to which the provisions of the Principles may be used to aid the interpretation of Art. 55 of the Convention.

Relationship between CISG Arts. 14(1) and 55

CISG Art. 14 generally deals with the criteria for an offer, and Art. 14(1) expressly provides that for an offer to be sufficiently definite, the price must be expressly or implicitly fixed or a provision must be made to determine the price.

INTRODUCTION

Article 64 CISG deals with a seller's right of avoidance in case of breach of contract by the buyer. It is the counterpart provision to the buyer's right to avoid the contract under Article 49 CISG. Although paragraph (1) lays down the conditions under which the seller is entitled to declare the contract avoided, paragraph (2) provides for situations where he loses the right to the remedy of avoidance. The avoidance remedy is limited to two situations. Subparagraph (1)(a) gives the seller the right to avoid the contract where the buyer's breach amounts to a fundamental breach of the contract in terms of Article 25 CISG. Subparagraph (1)(b) deals with non-payment or not taking delivery of the goods. Non-payment or not taking delivery does not per se qualify for a fundamental breach but only if timely payment or timely taking of delivery is of the essence of the contract. However, the seller can declare the contract avoided, where the buyer fails to pay and/or take delivery of the goods within an additional period (Nachfrist) set by the seller in accordance with Article 63(1) CISG. The avoidance regime under the UNIDROIT Principles similarly distinguishes between termination based on fundamental non-performance (Article 7.3.1 of the UNIDROIT Principles, the UNIDROIT Principles counterpart to fundamental breach) and a termination in case of late payment or late taking delivery due to non-compliance with a Nachfrist (Article 7.1.5 of the UNIDROIT Principles).

GENERAL INTERPRETATION AND APPLICATION IN THE CISG AND THE PECL: LIMITATION OF REMEDIES AVAILABLE

The content and function of Article 8:101(3) PECL are similar in substance and form to its counterpart provision contained in Article 80 CISG. Both provisions exemplify the prohibition against contradicting one's own behavior – “venire contra factum proprium” – thereby incorporating an expression of general principles of good faith and fairness. Both Articles, however, prevent entitlement to remedies if the reason for the non-performance was the result of the act(s) or omission(s) of the party seeking relief. However, Article 8:101(3) PECL provides valuable insight as to the terms, definitions, and applications therein via cross-reference to other PECL Articles, thereby providing a supplemental source for interpreting Article 80 CISG.

“ACTS” CONSTITUTING FAILURE OF PERFORMANCE

Under Article 8:101(3) PECL, a cross-reference to Article 1:301 PECL provides that the definition of “act” includes omission. Such acts would include failure to provide information to the other party or giving wrong or incomplete information. This understanding of the term is commonly held true in all European legal systems; however, in Germany, the statutory provision that has been drafted for acts is not automatically applicable to omissions. In contrast, the CISG explicitly provides for acts and omissions. Hence, both provisions provide that a party seeking relief cannot seek relief if the failure to perform was due to the first party's act or omission.

INTRODUCTION

Article 18(2) of the Convention provides that “[a]n acceptance of an offer becomes effective at the moment the indication of assent reaches the offeror […].” Article 22 of the Convention, however, allows the possibility that an offeree may withdraw an acceptance “if the withdrawal reaches the offeror before or at the same time as the acceptance would have become effective.” In other words, CISG Art. 22 provides a final time for withdrawal of an acceptance.

The UNIDROIT Principles, Article 2.10, provide a similar regime for the effective withdrawal of an acceptance.

PERMISSIBILITY OF WITHDRAWAL

In Part II of the Convention, entitled “Formation of the Contract,” Article 22 deals with the withdrawal of an acceptance by an offeree. As such, the Convention provides to an offeree the opportunity to permissibly withdraw an acceptance of an offer to conclude a contract.

CISG Art. 22 provides the rule on the timing for an effective withdrawal of an acceptance. This provision must be analyzed in the context of the basic rule of the Convention that an acceptance cannot be withdrawn after it has become effective. Further, it complements the rule in CISG Art. 23 that a contract is concluded “at the moment when an acceptance of an offer becomes effective.”

The UNIDROIT Principles in Chapter 2, entitled “Formation,” include Article 2.10, entitled “Withdrawal of an Acceptance,” which is a similar provision dealing with the timing for an effective withdrawal of an acceptance by an offeree.

INTRODUCTION

Article 80 CISG is located in Part III of the Convention in the section entitled “Exemptions.” It provides an excuse for a party's failure to perform when this failure is caused by an act or omission of the other party. This statement, although seemingly self-evident, is nonetheless an important part of the general principle of good faith. In addition to Article 7(1) CISG, its point of reference is not the interpretation of the Convention but the contractual relationship between the parties. Therefore, Article 80 CISG can be seen as an anchor within the Convention regarding the obligation between the parties to observe good faith in their relationship and forbidding contradictory behavior. However, despite the general character of Article 80 CISG, its scope and meaning have yet to be ascertained. The aim of this comparative editorial is to contribute to ascertaining that scope and mearning and to investigate whether and in which way the counterpart provisions of UNIDROIT Principles can be of help thereby.

AN ACT OR OMISSION OF THE PROMISEE CAUSING THE PROMISOR'S FAILURE TO PERFORM

Perception under Article 80 CISG

The first issue to be examined is whether the act or omission of the party causing the other party's failure to perform has to be of a certain quality and, if so, of what quality. Generally, any conduct of a party is sufficient to activate Article 80 CISG.

THE MIRROR IMAGE RULE AND MODIFIED ACCEPTANCE

An acceptance must coincide with each and every term of an offer in order to conclude a contract (see Articles 19(1) CISG and 2:208(1) PECL). This requirement is known as the “mirror image rule” because the acceptance must be the very reflection of the offer, as in a mirror. An exception is established for the possible introduction of new terms into the acceptance that do not substantially alter the offer. In that case, the acceptance will be valid; the contract will consist of both the terms of the offer and those included in the acceptance that do not substantially alter the offer, so long as the offeror without delay does not object to the new terms (Articles 19(2) CISG and 2:208(3)(b) PECL), or the offer does not expressly limit acceptance to the terms of the offer (Article 2:208(1) PECL), or the offeree does not make his acceptance conditional upon the offeror's assent to the additional or different terms and the assent reaches the offeree within a reasonable time (Article 2:208(3)(c) PECL).

On the other hand, if an element that is included in the acceptance adds new terms, modifies the terms of the offer, or introduces any other type of limitation to the offer that substantially alters it, the contract will not be considered concluded; the response to the offer will be regarded as a counter-offer – that is, if it meets all requirements under the CISG or the PECL to be considered an offer in and of itself (see Articles 14 CISG and 2:208(1) PECL).

THE TWO WESTERN LEGAL TRADITIONS

The law and legal system of what is now the United States of America form, especially so far as private law is concerned, a part of the common law. With its beginnings in England, the common law constitutes one of the two great legal traditions of the Western world, the other being the civil law, rooted in continental Europe.

These two traditions hold much in common. Both are products of western civilization and share its cultural and ethical heritage. However, important differences existed – and still exist, though to a lesser degree – between the two traditions. One difference respects the manner in which the authoritative starting points for legal reasoning are set out: In the civil law, these normally take the form of legislation; in the common law, especially in earlier periods, reliance is largely on judicial decisions.

A second difference relates to the influence of Roman law. In the case of the civil law, the Roman influence was various and profound; on the other hand, the common law was little influenced by Roman law.

A third difference relates to the style of legal analysis and thinking. Although various forces have today reduced the differences between the two traditions, the civil law still states legal propositions more abstractly and systematically than does the common law. Moreover, the civil law also generally places greater value than does the common law on coherence, structure, and high-level generalization.