CHAPTER IV OBLIGATIONS OF BUYER UNDER CONVENTION ON INTERNATIONAL SALE OF GOODS (CISG)

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1 CHAPTER IV OBLIGATIONS OF BUYER UNDER CONVENTION ON INTERNATIONAL SALE OF GOODS (CISG) 4.1. Summary of Buyer's Obligations Buyer's primary obligations are to pay the purchase price and accept delivery of the goods (Arts CISG). Buyer must make payments in legal form and in the relevant currency. Whenever doubt arises, payment is to be made in the legal currency in use at the seat of buyer's business. The purchase price of the goods can usually be determined by the agreements of the parties or relevant circumstances at the time the contract was concluded. Arts.55 and 56 CISG contain specific regulations on determining the proper price. Art. 57 CISG regulates the place at which payment is to be made. When payment is made against the handing over the goods or documents, payment is to be made at the place at which the goods or documents are transferred to buyer, Art. 57(1) (b) CISG. Buyer must make payments at the proper time. Determinative is the timely receipt of payment at the place of payment. Unless other circumstances for the due date of payment are obvious, payment must be made as soon as the goods or the documents relating to the goods have been made available to buyer (Art. 58 CISG). In addition to payment obligations, the buyer must take delivery of the goods delivered by seller (Art. 60 CISG). Taking delivery is the counterpart of seller's obligation to deliver and applies also to accepting delivery of relevant documents. Art. 54 CISG requires that the buyer take all steps and comply with required formalities under the contract or any applicable laws and regulations to enable payment to be made. Otherwise the buyer is in breach of contract so that the seller may seek such remedies as provided in Arts CISG. 191

2 4.2. Payment of the price Problems arising in relation to the price. The problems arising in relation to the price are at least those of "what?", "where?" and "when? Under Arts.53 and 54 of the CISG, one of the buyer's main obligations is to pay the price for the goods. Normally the parties agree on the price as well as on the time and place for payment. It follows from the non-mandatory character of the CISG that the parties may derogate from the CISG on these points. On the other hand, the CISG does not deal with the validity, in other respects, of the agreed provisions on the price under national law. They may be in conflict, e.g., with rules on the regulation of prices or on foreign exchange. Nor does the CISG provide an answer to the question what effect such rules of law would have if invoked in a court outside the country where the provisions have been enacted. The fact that one of the parties has concluded a contract containing provisions on the price which are in conflict, e.g. with that party's national law on foreign exchange does not necessarily preclude a court in another country from deciding in accordance with the provisions of the contract Calculation of the price. The CISG contains two provisions on the calculation of the price when this issue has not been settled in the contract Net weight. Art. 56 provides that if the price is fixed according to the weight of the goods, in case of doubt it is to be determined by the net weight. This is only the standard to determine the price if the price is to be determined by the weight of the goods, but the contract does not specify the standard to determine the weight. The provision in Art. 56 does not purport to answer the question of whether the buyer is entitled to keep the packaging. Normally, this standard would be determined by the parties' performance in the contract, as well as trade usage or practices established between the parties. Thus, this article applies when there is no applicable course of performance, practices established between the parties, or trade usage See CISG Art. 9 (the applicability of trade usage and course of dealing). 192

3 Open price Art. 55 of CISG deals with the question of how the price is to be calculated if the contract has been validly concluded but does not directly or indirectly fix or make provision for determining the price. Art. 55 is subject to the intention of the parties, and therefore Art. 55 does not provide for the establishment of a price if it has already been determined 611 or made determinable by the parties. 612 Art. 55 is also inapplicable if the parties have made the contract subject to a subsequent agreement on the price. 613 This provision was a problem throughout the preparation of the CISG. Art. 57 of ULIS envisaged the same situation but the term of reference was the price "generally charged by the seller." 614 Differences of opinion persisted until the issue was settled in Committee I of the CISG. 615 The difficulties were due to the fact that under the law of some States, a contract of sale must necessarily set forth the price or provide a mechanism for determining the price. This seems to be the case under Austrian, Belgian, Dutch, French and Soviet Law. For these countries and others having a similar rule, the CISG represents a philosophy different than that on which their national law is based. Art. 55 must be read together with Art. 14. There is a debate on the relationship between Art. 14 and Art. 55. Art. 14(1) provides that: A proposal for concluding a contract addressed to one or more specific persons constitute an offer if it is sufficiently definite and indicates the intention of the offeror to be bound in case of acceptance. A proposal is sufficiently definite if it indicates the goods and expressly or implicitly fixes or makes provisions for determining the quantity and the price. 611 CLOUT Case No. 151 Court of Appeal of Grenoble, France, 26 Apr Court of Arbitration of the International Chamber of Commerce, Award No. 8324, 1995, published in JOURNAL DU DROIT INTERNATIONAL 1019 (1996); CLOUT Case No. 106 Supreme Court, Austria, 10 Nov CLOUT Case No. 139 Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry, 3 Mar The UNCITRAL Draft Convention took an intermediate position (Art. 51). Cf. ULIS Art. 57; Dölle United Nations Conference on Contracts for the International Sale of Goods. Official Records, pp The Art. was adopted in the plenary after a vote, Official Records, p

4 This provision has been read by some as requiring an express or implicit price term in the offer, and therefore the absence of a price term would cause the offer to fail for indefiniteness. This would suggest that there is at least an apparent contradiction between these two texts. Art. 14, of course, fails to take into consideration that there are two sentences in Art. 14. The first sentence states that an offer needs definiteness, but does not require a price term. The second sentence simply sets out a safe harbor which provides that if there is a price term and the goods are specified, then the offer will not fail for indefiniteness. Moreover, this argument does not take into consideration the circumstances under which an agreement is formed by performance and the terms, such as price, which must be determined at a later time. It has been noted that Art. 14's notion of "implicitly" fixing the price term can be read broadly to include external factors not stated in the offer. This could include setting a price based open "objective parameters agreed to by the parties previously or tacitly." 616 The question then arises whether there is a conflict between Arts.14 and 55 or whether the latter provision lacks meaning. This question is interesting from a theoretical point of view. It might, however, also be interesting to ascertain its practical importance. Art. 55 provides a default rule that allows a court or arbitral panel to imply a price without the guidance of the contract. It states that when a contract does not expressly or implicitly make provision for determining the price then a price may be implied by looking "to the price generally charged at the time of the conclusion of the contract for such goods sold under comparable circumstances in the trade concerned." under Art. 14, a proposal for concluding a contract must fix or make provisions for determining the quantity and the price while Art. 55 only applies to a concluded a valid contract. The relation between the two Articles would not seem to pose any problems when the parties have agreed, explicitly or implicitly, that the price may be fixed by a third party. Whether it would also be sufficient to provide that the buyer shall pay the price generally charged for such goods at the time of delivery seems to be uncertain, at least in some legal systems. Recent French case law seems 616 J.O. Alban, (2007) "Criteria for an offer," An International Approach to the Interpretation of the United Nations Convention on Contracts for the International Sale of Goods (1980) as Uniform Sales Law (ed. J. Felemgas), Cambridge University Press, New York 2007,

5 to indicate that a reference to the price usually charged for similar goods at the same place might not be sufficient even if explicitly made. 617 This dilemma is produced because Art. 14 does not reference Art. 55 as a means of fixing a price. On the surface, Art. 14 states that an offer must fix the price expressly or implicitly while Art. 55 only applies to a concluded contract. 618 The main reason for opposition to the proposals requiring that the contract must set forth the price or a method for determining the price was that this requirement might lead to strange results in situations where a buyer has an urgent need for goods, e.g., spare parts for a computer, and orders them by phone, no reference being made by either party to the price. The majority view is that if the offer implicitly fixes or provides a mechanism to fix the price, then Art. 55 is not available if the price becomes indeterminable. If the parties do not implicitly or expressly fix a price or expressly agree to an open price, then the Art. 14 analysis, as noted above, would recognize the proposal as a non-offer and therefore, no contract is formed. A rule under which no contract is considered to have been validly concluded unless it provides at least for a method of determining the price, would then cover not only a situation where the buyer immediately after ordering the goods informs the seller that he actually does not need them, but also situations where the seller ships the goods and the buyer takes delivery of and uses the goods. The result would not seem to be totally unacceptable in the first case. On the other hand, one may consider the possibility that the seller has started production and incurred costs in an effort to assist the buyer. The result would seem quite unacceptable in cases where the goods have been used up by the buyer, who then informs the seller that no contract was ever concluded and that he therefore need not pay for the goods. 617 Denis Tallon, "The Buyer's Obligations under the Convention on Contracts for the International Sale of Goods," in N.M. Galston and H. Smit, eds., International Sales: The United Nations Convention on Contracts for the International Sale of Goods (New York 1984), pp Dr. Larry A. DiMatteo (2011) Reproduced with permission of the University of Belgrade, Belgrade Law Review, no. 3,

6 Other issues The CISG does not contain detailed provisions on what is considered to be included in the price and what costs the seller may charge separately. Some conclusions can, however, be drawn from different provisions. Under Art. 35(2)(d) the goods do not conform with the contract unless they are contained or packaged in the manner usual for such goods. It follows from this provision that packaging is part of the seller's obligation and that the cost for packaging must be calculated in setting the price. Again, an agreement, usage, or practice established between the parties may lead to a different result. One may also assume that the costs for transportation and other measures to bring the goods to the place of delivery must be taken into account when calculating the price and may not be charged separately Place of payment Art. 57 designates the place for payment when the parties fail to do so in the contract. Under this Article, if the buyer is not bound to pay the price at any other particular place, he must pay it to the seller at the seller's place of business. If payment is to be made against the handing over of the goods or of document, the buyer must pay the price at the place where the handing over takes place. Under this Article, the buyer has to bear the costs and risk for the transfer of an amount corresponding to the price to the seller's place of business at the time of conclusion of the contract. If the contract does not designate a place of payment, normally payment would be at the seller's place of business as determined under Art However, if payment is to be made against the handing over of the goods or the documents, payment is to be made at the place where the goods or documents are to be received. The uncertainty inherent in this provision is unlikely to cause problems in practice as the place of payment is often stated in the contract. In addition, payment is usually made only after the seller has received an invoice. The invoice may indicate which place of business the seller considers to be relevant, and such a statement may 619 CISG Art. 10 provides: For the purposes of this Convention:(a) if a party has more than one place of business, the place of business is that which has the closest relationship to the contract and its performance, having regard to the circumstances known to or contemplated by the parties at any time before or at the conclusion of the contract; (b) If a party does not have a place of business, reference is to be made to his habitual residence. 196

7 be interpreted as acceptance of payment being made at that place. On the other hand, the buyer is not bound by such an indication. It may well be that the seller, for his own convenience, wishes payment to be made at a particular place. The buyer may, in spite of such a reference, pay the price at the seller's place of business which has the closest relationship with the contract. Read together with Art. 58, Art. 57 states that if there is a delay in the transfer of the amount, e.g., due to lack of the authorization of transfer by the appropriate authorities or to a mistake by the buyer's bank, thus having the effect that the amount is not available at the place of payment in time, there is a breach of contract on the part of the buyer. As was noted above, the provision also has a bearing on the distribution of costs between the parties. As the obligation to pay at the seller's place of business arises from the agreement and, as a result, is part of the party obligations at the time of contract formation, paragraph (2) sets out the seller's obligation to pay incidental expenses that are caused by a change in the seller's place of business after the conclusion of the contract but before payment. The provision only deals with the distribution of costs. The fact that there is a change in the seller's relevant place of business does not seem to alter the buyer's obligation to pay the price at the right moment at the new place of business. If this is the case, the question arises, but remains unanswered in the CISG, whether a delay in payment caused by late information by the seller of the new place of payment is to be considered a breach of contract by the buyer and whether that would also be the case if the buyer can offer payment at the original place of business in time. It would seem that the answer may be negative in both cases in view of the provision in Art. 79(1). Art. 57(1) (b) deals with the place of payment when payment is to be made against the handing over of the goods or of documents. If the contract provides that payment is to be made against a bill of lading or on CAD or COD terms, the provision settles the problem of errors or delay in transmission of the payment. If the documents are to be presented at the seller's place of business, there is a delay in payment if payment is not made when the documents are presented in accordance with the contract. If there is a delay in the transmission of the amount which the buyer has paid upon presentation of the documents at his place of business, this is no longer any concern of the buyer. 197

8 The provision on place of payment seems to have caused problems in some jurisdictions because under national law a party may be entitled to bring suit at the place where payment is to be made. 620 However, this result does not follow from the CISG. During the CISG an attempt was made to clarify that the CISG did not settle the question of jurisdiction and that it was thought inappropriate to solve this problem in the CISG. If the result is deemed inappropriate, it can be altered by amending national law Time for payment. Art sets the time for payment absent a contrary agreement on this term by the parties. 622 The basic rule is that the goods should be exchanged for payment of the price. The seller is not obliged to extend credit to the buyer and the buyer is not required to pay until he receives the goods or documents controlling their disposition Documents controlling disposition. The expression "documents controlling their disposition" clearly covers the situation where the goods are to be delivered only against surrender of the documents. This would be the case with a bill of lading where, at least under the applicable legal rules, the carrier may only deliver the goods to the person presenting the bill of lading Ulrich Huber, "Der UNCITRAL-Entwurf eines Übereinkommens über internationale Warenkaufverträge," 43 Rabels Z (1979) pp ; J. Honnold, Uniform Law for International Sales under the 1980 United Nations Convention (Boston 1982), p CISG Art. 58 provides: (1) If the buyer is not bound to pay the price at any other specific time, he must pay it when the seller places either the goods or documents controlling their disposition at the buyer's disposal in accordance with the contract and this Convention. The seller may make such payment a condition for handing over the goods or documents. (2) If the contract involves carriage of the goods, the seller may dispatch the goods on terms whereby the goods, or documents controlling their disposition, will not be handed over to the buyer except against payment of the price. (3) The buyer is not bound to pay the price until he has had an opportunity to examine the goods, unless the procedures for delivery or payment agreed upon by the parties are inconsistent with his having such an opportunity. 622 CISG Art. 58. See generally Lief Sevón, (1990) Obligations of the Buyer under the Vienna Convention on the International Sale of Goods, Suomalainen Lakimiesten Yhdistys: -- Tidskrift Utgiven Av Juridiska Foreningen I Finland (1990), available at Report of the Secretary General: Issues presented by chapters IV to VI of the Uniform Law on the International Sale of Goods, at para , UNCITRAL V Yearbook,

9 However, this does not correspond to current reality. Since the goods often arrive at the port of destination prior to arrival of the bill of lading, they are often handed over to the consignee although he cannot present the bill of lading. The expression would also seem to cover a warehouse receipt entitling the holder to claim the goods. It is uncertain whether the expression covers international way bills issued under the CMR and CIM Conventions governing carriage by road and rail respectively. Under these documents the carrier is required to deliver the goods to the consignee named in the document. The sender may appoint another consignee, but he may do so only if he can produce the relevant copy of the way bill. Having acquired the way bill, the consignee/buyer is thus protected against dispositions by the seller/sender. 624 It is to this extent that the holder of the way bill controls the disposition of the goods, which would seem sufficient for the purposes of Art. 58(1). Art. 58(2) deals with the situation where the contract involves the carriage of goods. The general rule stated in CISG Art. 58(1), which is based on the principle of simultaneous payment of the price and handing over of the goods, is also applicable to contracts involving carriage of goods such an arrangement is common in international sales. This expression covers cases where the seller is required or authorized to ship the goods. The contract does not involve carriage if the buyer takes delivery at the seller's place of business or if the buyer makes arrangements for the goods to be shipped. 625 Where the contract involves carriage, a seller may dispatch the goods on terms according to which the goods will not be handed over to the buyer except against payment of the price. In effect, the seller may deliver the goods to the carrier in exchange for documents controlling the disposition of the goods 626 "usually a bill of lading providing that the goods will only be delivered in exchange for the surrender of 624 Selvig, Fra kjopsrettens og transportrettens grenseland The Functions of Transport Documents in Sales (Oslo 1975), p Commentary of the Draft Convention on Contracts for the International Sale of Goods, prepared by the Secretariat, Official Records p See the Text of Secretariat Commentary, op. cit., Comment 4: "CISG Art. 58(2) states a specific rule in implementation of CISG Art. 58(1).... The goods may be so dispatched unless there is a clause in the contract providing otherwise, in particular by providing for credit." 199

10 the document". 627 The impact of the provision with reference to the time of payment seems to be that the seller may not, unless agreed upon in the contract, require payment before dispatching the goods. On the other hand, the provision states that an arrangement whereby the seller dispatches the goods but does so on terms enabling him to retain control over them until payment is made, does not amount to a breach of contract. An alternative approach would be to confine Art. 58 narrowly to traditional negotiable bills of lading, so that no other kind of transport document could trigger the buyer's obligation to pay the price under Art. 58 (1). If any of the other kinds of transport document were to be used, the buyer's obligation to pay would be triggered only by the seller placing the goods at the buyer's disposition, there being no "documents controlling the disposition" of the goods. These two alternative interpretations will be considered in Section 4; the former is preferred. Section 3 considers other kinds of documents, such as warehouse receipts, ship's delivery orders and the other documents that a buyer typically asks to see as applicant under a letter of credit Exchange of goods for price. Under Art. 58(1) and (2) subject to a contrary arrangement agreed by the parties to the contract, the buyer is obliged to pay the price at the time the seller makes the goods available to the buyer, by placing either the goods or documents controlling their disposition at the buyer's disposal. 629 The converse of the general rule - i.e., that, unless otherwise agreed, the buyer is not obliged to pay the price until the seller places either the goods (or documents controlling their disposition) at the buyer's disposal - also follows as a logical corollary of the stated general rule. 630 It must further be noted that the buyer is not obliged to pay the price until he has had an opportunity to examine the goods 631 (see CISG Art. 58(3)), unless the 627 Honnold,op, cit, p Martin Davies, LLM (Harvard) (2011) Documents That Satisfy the Requirements of CISG Art. 58, Reproduced with permission of the University of Belgrade, Belgrade Law Review, no. 3, See the Text of the Secretariat Commentary on Art. 54 of the 1978 Draft draft counterpart of CISG Art. 58, available online at < 630 See Text of Secretariat Commentary, op. cit., Comment 3. See also Honnold J.O., Uniform Law for International Sales, Kluwer Law International, 3rd ed. (1999), at 364 "In short, goods are to be exchanged for the price." 631 See Enderlein F. & Maskow D., International Sales Law, Oceana (1992), p

11 procedures for delivery or payment agreed upon are inconsistent with his having such an opportunity. In implementing this rule, it is commented that it is the seller's obligation "to provide a means for the buyer's examination prior to payment and handing over". 632 This Article was invoked by the tribunal in one case to support the buyer's claim for getting the documents for the goods and an opportunity to examine the goods before he paid the price. 633 The reason for the exception at the end of the provision is that buyers sometimes put pressure on the seller by refraining from taking delivery of the goods on the alleged ground of non-conformity. When the goods have arrived at the port of destination, the seller has incurred costs of transportation. Normally the goods cannot be sold to another buyer at the port of destination at a price corresponding to the contract price. If that would be possible, the buyer would be likely to take delivery of the goods. The seller may protect himself against such claims for reduction of the price by having a provision included in the contract specifying a procedure for delivery according to which the buyer may not inspect the goods until payment has been made. If the provision is included for this reason, there would seem to be no ground for objecting to a demand by the buyer to inspect the goods before they are dispatched even if the procedures for delivery or payment would be inconsistent with an inspection at the place of destination. If the goods are to be shipped, absent a contrary agreement between the parties, the seller may provide for a documentary exchange for goods, and in that case, payment is due upon proper tender of the documents to the buyer. 634 The documents, however, must provide the buyer the right to receive the goods, and therefore the decisions have properly noted that documents, such as certificates of origin and 632 Text of Secretariat Commentary, op. cit., Comment 5. See also Comment 6 of the Secretariat Commentary. 633 E.g., CIETAC(China International Economic & Trade Arbitration Commission) Award of 30 March 1994 CISG/1994/04 (Boletus edulis case). available at: CISG Art. 58(2); CLOUT Case No. 216, Kantonsgericht St. Gallen, Switzerland, 12 Aug This provision simply acknowledges the widespread commercial practice of using documents of title as the basis to provide for a cash sale if the goods are to be shipped. 201

12 quality 635 and customs documents, 636 which do not provide the buyer with the right to take possession of the goods, do not trigger the buyer's obligation to pay for the goods under Art. 59. In addition, the decisions have sensibly read into Art. 58 that the time for payment also triggers the time interest begins to run under Art. 78 if payment is not timely Payment without request. Art. 59 of CISG provides that: the buyer must pay the price on the date fixed by or determinable from the contract or the CISG without the need for any request or compliance with any formality on the part of the seller. This Article may be another source of contention in providing that payment is due without any request or compliance with any formality on the part of the seller. This solution was already in ULIS in a slightly different form. And it is embodied in the old Latin tag: "Dies interpellat pro homine," which was enacted in some legal systems. The provision is not designed to deal with the question whether the buyer is required to pay before he has received an invoice. In cases where the buyer does not know the price until he receives an invoice, he cannot pay the price earlier. In other cases commercial usages will call for the sending of an invoice, which could be considered as a necessary preliminary to payment. 638 And when the contract makes payment due when the seller places the goods at the buyer's disposal, the seller has to notify the buyer of this fact, a notice which may be considered as a request for payment. 639 Finally, we must remember that Art. 59 may be varied by agreement. Such an agreement could be useful in many situations and may be found in many standard contracts. 635 CLOUT Case No. 171 Bundesgerichtshof, Germany, 3 Apr CLOUT case No. 216 Kantonsgericht St. Gallen, Switzerland, 12 Aug CLOUT Case No.123 Bundesgerichtshof, Germany, 8 Mar. 1995; CLOUT Case No. 1 Oberlandesgericht Frankfurt a.m, Germany, 13 June Honnold, op. cit, no Ibid. 202

13 Extension of the obligation Price generally charged The CISG answers few questions relating to the amount that the buyer is obligated to pay. In the absence of an express or implicit price term, the parties are presumed to have agreed to the price generally charged at the time of the conclusion of the contract for goods sold under comparable circumstances in the trade concerned. The provision does not refer to the prices charged by the seller. It was felt important to eliminate the possibility of the seller charging excessive prices. 640 The rule adopted achieves this result. It has the flexibility needed in cases where the quality of the seller's goods is higher than that of other sellers in that it refers to the price generally charged for "such goods." However, the provision does not lead to an appropriate result in cases where the prices charged by the seller are lower than those generally charged. In order to deal with such cases, one would have to construct an implicit reference to the price charged by the seller Other issues. The CISG does not deal with questions such as the currency in which payment shall be made. National law would thus apply on this point. At the CISG a proposal was made to provide for situations where payment in the currency stipulated by the contract is not possible. According to the proposed rule, the seller would be entitled to require equivalent payment in the currency of the buyer's place of business. However, it was thought that these problems were much too complex to be dealt with in this way. The proposal was therefore rejected. 641 Nor does the CISG deal with the question of whether the seller is obliged to accept partial payment. A proposal making it clear that this is not the case was rejected on the grounds that this problem was not practical. 642 Traditionally, the buyer's obligation to pay the price consisted of handing over the seller an amount of money corresponding to the price. Today, this is an unusual 640 Report of the first committee, Official Records pp , and Summary Records, Official Records, pp Report of the first committee, Official Records, p. 120, and Summary Records, Official Records, pp Official Records, p

14 method of payment. More often the buyer arranges for the seller to receive payment in the form of a claim against the bank to which the buyer transfers the amount or where he has an account, or which otherwise has agreed to pay the seller an amount corresponding to the price. The CISG does not deal with the manner in which payment is to be made. Whether the buyer may pay the amount to the seller's bank or has to transfer the amount to the seller's place of business is left to national law. The issue may arise in cases where there is a banking strike at the seller's place of business. The CISG extends the obligation to pay the price beyond the traditional handing over of money. According to Art. 54 of CISG, the buyer's obligation to pay the price includes taking such steps and complying with such formalities as may be required under the contract or any laws and regulations to enable payment to be made. As pointed out above, this provision specifies that the buyer s obligation to pay the contract price extends beyond the abstraction of owing the money. As pointed out above, this provision indicates that the buyer must bear the costs for measures necessary to enable him to pay the price. In addition, the seller may consider the buyer s failure to follow such formalities as either an anticipatory breach 643 or as a breach of contract. 644 The obligation also includes whatever steps and costs that are necessary to ensure that the payment is actually made. 645 Several cases have addressed the question implicit in Art. 54 as to which currency payment is to be used. The cases have generally come to the proper conclusion that the currency of payment, absent a specific agreement otherwise, should be made in the currency where the seller has his business or the place where the payment is to be made CISG arts (remedies for anticipatory breach). 644 See CISG arts (damages for breach of contract). 645 CLOUT Case No. 142 Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry, Russian Federation, 17 Oct Of course, most decisions involving this Art. are concerning payment, usually the currency required. See, e.g., CLOUT Case No. 281 Oberlandesgericht Koblenz, Germany, 17 Sept (currency determined by the seller s place of business); CLOUT Case No. 52 Municipal Court Budapest, Hungary, 24 Mar See CLOUT Case No. 80 Kammergericht Berlin, Germany, 24 Jan (currency of payment should, in the case of doubt, be that of the place of payment); CLOUT Case No. 281, Oberlandesgericht Koblenz, Germany, 17 Sept. 1993] (currency of the place where the seller has his place of business is the currency in which the price should be paid); CLOUT Case No. 52. Municipal 204

15 Application for a license to transfer money abroad is, no doubt, a formality that may be required under the relevant national law. Nevertheless, the fact that such an application has not been filed by the date normally necessary in order to obtain such a license in time can hardly be treated as more than an anticipatory breach of contract. There is always the possibility that the authorities may surprise everyone by a speedy handling of the application so that payment may be made in time Taking delivery Requirement to take delivery The seller may require the buyer to take delivery of the goods as long as he has not resorted to a remedy which is inconsistent with this requirement. Again, what is covered by the reference to an inconsistent remedy is avoidance. The ground for declaring the contract avoided is irrelevant: It is the remedy, not the reason for resorting to it that is inconsistent with a requirement for taking delivery. If the buyer has neither paid the price nor taken delivery, the remedy may be used together with, or separately from, a requirement for payment. Situations can be envisaged where the seller is more anxious to receive payment than to force the buyer to take delivery of the goods. He may therefore present these requirements simultaneously or separately. In cases where the buyer has paid the price but fails to take delivery, the seller may require him to take delivery. The use of the remedy is limited by Art. 28 on specific performance. When dealing with buyers from countries where the legal system limits the resort to specific performance, a seller should have a closer look into that system in order to find a suitable remedy before requiring the buyer to take delivery of the goods Obligation to take delivery. Under Arts.53 and 60 of the CISG, the buyer shall take all reasonable acts which could reasonably be expected of him in order to enable the seller to make delivery and for the buyer to take delivery of the goods. In addition to paying the price, the buyer must take delivery of the goods. Court Budapest, Hungary, 24 Mar (court compelled the buyer to pay the seller in the seller s currency without giving a reason). 205

16 Art. 60 corresponds with the seller's obligation to deliver under Art Absent a contrary agreement, the buyer's obligation to take delivery does not occur until the seller has met the requirements to deliver the goods. 648 The extent of the obligation to take delivery is not defined in great detail. It clearly covers obligations relating to the transmission of the goods from the seller to the buyer. It is less clear whether this obligation also covers the duty to provide information relevant to the production of the goods. This issue, which is partially covered by Art. 65, is relevant with respect to the remedies available to the seller in cases of breach of obligation. It may be assumed that the obligation to enable the seller to make delivery covers these situations too. 649 As can be seen from the situation just discussed, the extent of the obligation to do all the acts which could reasonably be expected of the buyer in order to enable the seller to make delivery depends heavily on the contract. If the buyer is obliged to provide information during the production or to participate otherwise in it, e.g., by delivering components for the ultimate product, Art. 60(a) might be applicable and expands the remedies available to the seller. This would, however, be modified to the extent another result would follow from Art. 65. If the contract of sale involves carriage of the goods and the buyer participates in the arrangements for the carriage, the extent of the buyer's obligation depends on the type of arrangements. The obligation covers the duty to enter into a contract of carriage. The duty to take over the goods relates to the physical possession of them. Since references in the CISG to the buyer also cover persons acting on his behalf, it would seem that the obligation referred to in Art. 60(b) also covers cases where the carrier refuses to accept the goods for carriage, e.g., because of their dangerous nature, if the buyer should have informed the carrier of the nature of the goods in advance. This obligation also covers the late arrival of a carrier engaged by the buyer at the place where the buyer is to take over the goods. Lastly, it covers the obligation of the buyer himself to take over the goods after carriage arranged by the seller as well as in cases where the contract calls for the seller to make delivery of the goods 647 CISG Art CISG Art Ulrich Huber, "Der UNCITRAL-Entwurf eines Übereinkommens über internationale arenkaufverträge," 43 Rabels Z (1979) p

17 by placing them at the buyer's disposal at the seller's place of business or at another particular place. The time when the goods are to change hands is also important for the passing of risk. In the rather elaborate system of CISG, the principle is that the risk passes to the buyer "when he takes over the goods" or, if he is late, from the time when the goods are placed at his disposal (Art. 69(1)) or, under different conditions already mentioned (Art. 69(2)), when delivery is due and the buyer is aware of the fact that the goods are placed at his disposal. Under Art. 86(2), the buyer must take delivery "on behalf of the seller, if goods dispatched to him have been placed at his disposal at their destination and the buyer exercises the right to reject them." He has then the obligation to take all reasonable measures to preserve the goods, which is an application of the duty under Art. 77 to mitigate. The same obligation exists when he has received the goods and he intends to exercise his right of rejection (Art. 86(1)) Other obligations of the buyer The CISG requires buyers to examine goods, and provide adequate and timely notice, with respect to any defects in the seller's performance and preserve the goods in the event the buyer elects to reject the seller's tender. These obligations are set forth in Arts.38, 39, 44 and 86. The initial obligation of all buyers is the duty of examination. The failure to comply with the provisions of Art. 38 deprives the buyer of the right to rely upon the defense of non-conformity of the goods in a future dispute with the seller. The buyer also loses this defense in the event its notice does not specify the nature of the lack of conformity within a reasonable time. The buyer's ability to reject non-conforming goods is accompanied by a corresponding duty to preserve such goods for the benefit of the seller Examination of the goods The issue of examining the goods and giving notice is one of the most important issues of the CISG. The duty to examine the goods is governed by Art. 38 of the CISG, in Chapter II Obligations of the Seller. However, it is important to stress that this provision defines the buyer s duty to inspect the goods and, therefore, in fact is not the obligation of the seller. In the practical application of the CISG, it should be noted that the duty to examine the goods and the duty to notify the seller of non- 207

18 conformity of the goods are established in the seller s favor, while being an additional burden on the buyer. In the international law of sales it is, therefore, of essential importance not to impose overly harsh requirements on the buyer because the risk of non-conformity of the goods would thereby be shifted to the buyer. 650 When goods are delivered, Art. 38(1) imposes an obligation on the buyer to "examine the goods, or cause them to be examined, within as short a period as is practicable in the circumstances." The buyer has the duty to examine the goods for every lack of conformity within the meaning of Art. 35 of the CISG. When the sale of goods contract is concluded on the basis of a sample or model, the buyer has to begin with the examination of the sample or model itself and to notify the seller of possible defects. Afterwards, the buyer is nevertheless required to examine the main delivery even though the sample or model was free of defects. The Art. 38 concerning the examination process of the goods is a crucial point in terms of claiming for remedies upon defective goods. This Article is in a strict connection with the following one as it requires the buyer to give notice to the seller specifying the nature of the lack of conformity within a reasonable time after he has discovered it. The strict connection between Art. 38 and Art. 39 means that the buyer has a burden rather than a duty to examine the goods in a short time. The failure to comply with this burden is not a breach of contract but as a result of such a conduct the buyer may lose his rights under the Art. 45. Art. 38 provides: (1) the buyer must examine the goods, or cause them to be examined, within as short a period as is practicable in the circumstances. (2) if the contract involves carriage of the goods, examination may be deferred until after the goods have arrived at their destination. (3) if the goods are redirected in transit or redispatched by the buyer without a reasonable opportunity for examination by him and at the time of the conclusion of the contract the seller knew or ought to have known of the possibility of such redirection or re-dispatch, examination may be deferred until after the goods have arrived at the new destination. 650 Dr. Sandra Fišer-Šobot, (2011) Duty to Examine the Goods in International Law of Sales, Annals FLB Belgrade Law Review, Year LIX, 2011, No. 3,

19 Legal Nature and Purpose of the Duty to Examine Despite the fact that the Article beginning by stating that "the buyer must, this does not constitute a legal obligation, but is, by its legal nature, a duty; the duty represents "an obligation to oneself" and not to the other party in a contract. Thus, the examination of the goods is an additional burden on the buyer it only means that the burden of examination is the buyer's responsibility. Therefore, Failure to comply with this burden does not constitute a breach of a contract and, accordingly, the seller can neither require the examination nor can non-performance of the examination represent a ground for claim for damages. 651 Art. 38 seeks to clarify, in a speedy fashion, whether the seller has properly implemented the contract. 652 The Secretariat's commentary specified the purpose of the buyer's notice of nonconformity, which is the result of examination; it is to protect the seller's right to remedy the lack of conformity, and to conduct his own examination of the goods, in order to preserve his right in any dispute with the buyer over the alleged nonconformity. 653 On the other hand, the seller may also want to know whether the buyer is satisfied with the goods or will press claims. 654 The reason for examination was also linked, in a Netherlands court decision, to the principle of good faith, as the objective notion of Art. 7(1) requires the buyer to examine the goods and discovered effects before selling them to foreign customers. As the purpose of examining the goods and giving notice to the seller is mainly to protect the seller's rights, the balance between parties should be considered as well. It can be argued that it is difficult to adhere to the requirement of examination in all of cases, because in some cases the purpose of this Article will not apply. Therefore, it would create imbalance between the parties to implement this harsh sanction, as described by some commentators, 655 without considering the actual and real consequence of this for both parties, whereas one of the purposes of the establishment of the CISG is to seek balance among traders from different countries. In addition, it can be argued that using good faith to protect the seller's right of requiring 651 Sandra Fišer-Šobot, (2011) op, cit, p Enderlein F, in Sarcevic/Volkcn, (1986) op. cit. p Lookofsky J, (2008), op. cit, p.8 7; SchwenzerI, in Schlechtriem/Schwenzer (2005), op. cit., pp Enderlein F, in Sarcevic/Volken (1986), op. cit., p See: Lookofsky J (2008), op. cit., p

20 examination and notice may apply to protect the right of the buyer who fails to examine goods and give proper notice. 656 In other words, the buyer's fault in failing to examine the goods contrasts with the seller's fault in sending defective goods Examination by the Buyer or a Third Party The goods need not be examined personally by the buyer or his own staff. The buyer may also order third persons, for instance, specialized and impartial control organizations, to examine the goods. The purpose of the examination is to decide whether the goods conform with the contract or not. In any case, it has to be carried out with due care. Pursuant to Art. 38(1) of the CISG, the buyer must examine the goods, or cause them to be examined, within as short a period as is practicable in the circumstances. Contracts of international sale usually contain detailed rules regulating subjects effecting the examination of the goods. Sometimes this issue can be determined by usages or previous practice established between parties. It is conceivable for parties to agree to examine the goods together. However, that will not often be the case because of the distant character of international sales. By stating that the buyer must either examine the goods or "cause them to be examined", Art. 38(1) implies that the buyer need not personally carry out the examination. 657 In other words, the examination can be carried out by the buyer, his employees, as well as third persons acting in accordance with the buyer's instructions. These persons should be treated as the buyer's assistants and the buyer is liable for their work, i.e. the buyer will have to bear the consequences of inadequate examination. According to the agreement the buyer can be obligated to entrust the examination with the third independent party. It is possible for the examination to be carried out by impartial controlling organizations, as well as by official bodies. The examination of the goods by controlling organization is very common in international trade practice. In contracts of sale, however, parties must explicitly provide for this. Even though appointing an impartial controlling organization raises costs of transaction, the parties usually opt for this due to the distant character of 656 Flechtner H, (2008) 26 B. U.L L.J, op. cit., p Digest of Art. 38 case law, 2008 UNCITRAL Digest of case law on the United Nations Convention on the International Sale of Goods, < 210

21 international sales. Quite often, the examination by third person is a necessity because parties are neither proficient nor have the equipment required for specialized operations. Finally, after the examination, the controlling organization issues a certificate of quality that informs the buyer of the condition of the goods before arrival at their destination. It is important to distinguish two situations that can directly influence the liability of the parties. In other words, a distinction should be made between cases where the parties agree on third impartial persons or where the seller insists on the appointment of the controlling organization and where the buyer chooses the person carrying out the examination. In the first case, the buyer is not liable for the third person's work and does not have to bear the consequences of inadequate examination and the duty to examine the goods is fulfilled by giving necessary instructions. In the second case, the third person acts as the buyer's assistant and the buyer is liable for his work. 658 It is commonly accepted that the buyer is not responsible for the consequences of an improper examination effected by official bodies. Finally, there is a possibility for the duty to examine to be shifted to the customer in cases of the sale of goods in transit Timely examination The provision in terms of the buyer s obligation to examine the goods within as short a period as practicable in the circumstances defines a very flexible rule. Regarding the beginning of period, Para. (1) of Art. 38 does not specify a time at which the period begins. It can be suggested that the start of a short period of examination should take place upon delivery, when the buyer has physical possession of the goods." 660 It avoids fixing a precise amount of time. A unique fixed period cannot indeed be proper in relation to all contracts of sale. It is, instead, clearly related to what is proper for all the circumstances. This framework-formula objectively gives 658 Sandra Fišer-Šobot, (2011) Duty to Examine the Goods in International Law of Sales, Belgrade Law Review, Year LIX (2011) no. 3 p. 659 CISG-online 570, Germany, OLG Koblenz, 18 November 1999; CISG-online 918, Germany, OLG Duselldorf, 23 January SchwenzerI, in Schlechtriem/Schwenzer (2005), op. cit., p