Chapter 3: International business transactions: obligations

Chapter learning objectives

Upon completion of this chapter you will be able to:

• explain and be able to apply the rules relating to the obligations of the seller under the United Nations Convention on Contracts for the International Sale of Goods 1980 (UNCCISG): (i) delivery of the goods and handing over documents, (ii) conformity of the goods and third party claims, (iii) remedies for breach of contract for the seller
• explain and be able to apply the rules relating to the obligations of the buyer under UNCCISG: (i) payment of the price, (ii) taking delivery, (iii) remedies for breach of contract by the buyer
• explain and be able to apply the rules relating to the provisions common to both the seller and the buyer under UNCCISG: (i) anticipatory breach and instalment contracts, (ii) damages, (iii) interest, (iv) exemptions, (v) effects of avoidance, (vi) preservation of the goods.

1 Obligations of the seller: delivery

The seller must deliver the goods, hand over any documents relating tothem and transfer the property in the goods, as required by the contractand UNCCISG.

Delivery

There are two issues relating to delivery:

• place
• time.

Delivery: basic points

If the contract specifies the place that the goods should bedelivered to and when, then the seller must ensure that he delivers thegoods at that place and time. If the contract does not specify, thefollowing rules apply:

(1)If the contract involvescarriage of the goods, the seller must hand over the goods to the firstcarrier for transmission to the buyer (Article 31(a)).

(2)If the contract does not involvecarriage and does relate to specific goods, or unidentified goods to bedrawn from a specific stock, or relates to goods to be manufactured orproduced, and at the time they made the contract the parties knew wherethe goods would be or would be produced, the seller must place the goodsat the buyer’s disposal at that place (Article 31(b)).

(3)In other cases, the seller mustplace the goods at the buyer’s disposal at the place where the sellerhad his place of business when the contract was made (Article 31(c)).

Unidentified goods drawn from a specific stock are usually goods whichcannot easily be identified from the overall batch of goods.

Illustration 1 – Obligations of the seller: delivery

Say, for example, that Karl wants to buy some coal from Leanne.Leanne owns stocks of coal at two storehouses. Storehouse A contains 200tonnes of coal. Storehouse B contains 100 tonnes of coal. If Karlwanted to buy 100 tonnes of coal, he could buy the stock held atStorehouse B. This would therefore be specific goods, as he knows thatevery lump of coal in that Storehouse will be sold to him. If he werebuying coal from Storehouse A, he would be buying unidentified goodsfrom a specific stock. He would know that 100 of the 200 tonnes inStorehouse A will be sold to him, but he does not know exactly whichlumps of coal he is going to purchase.

Test your understanding 1

Look back to the rules on delivery set out above andidentify which ICC Incoterm will equate to each transaction given in theexample above.

Test your understanding 2

Give an example of goods which may be identified from a specific stock other than coal.

Delivery involving carriage: additional points

If the contract involves carriage, the seller must:

• clearly identify the goods to the contract when handing the goods over to the carrier (by shipping documents, or by marking the goods) (Article 32(1))
• make relevant contracts for the carriage of the goods to the relevant place by appropriate transportation and according to the usual terms applying to that transportation (Article 32(2))
• provide insurance for the goods if the contract so provides (Article 32(3)) by implication.
• if the contract does not provide for insurance, the seller must provide the buyer with all relevant information in sufficient time to enable the buyer to insure the goods while they are in transit (Article 32(3)).

Illustration 2 – Obligations of the seller: delivery

Mohammed and Nigel have a contract for the sale of internationalgoods. Mohammed is delivering the goods to Nigel by sea. The goods arein three metal containers, on which Mohammed has painted Nigel's name,business address, telephone details and unique contract number. Thisfulfils Mohammed's obligations to identify the goods to the contractwhen they are handed over to the shipper.

Test your understanding 3

State what ICC Incoterm will equate to the transaction in the example above.

Delivery: time

If the contract specifies the date on which the seller must deliverthe goods, the seller must deliver the goods on that date (Article33(a)) If the contract does not so specify:

• but specifies a period within which the goods must be delivered, the seller must deliver the goods within that period (Article 33(b)).
• In other cases, the seller must deliver the goods within a reasonable time after the contract has been formed (Article 3(c)).

Illustration 3 – Obligations of the seller: delivery

Olumgbenga and Patience have a contract for Patience to buy 10tonnes of fresh fish. In this case, while no period for delivery isspecified, reasonable time will be a matter of days, otherwise the fishwill deteriorate and go off.

Test your understanding 4

Identify factors which might affect the 'reasonable time' for delivery of goods.

Handing over of documents (Article 34)

The following points relate to the hand over of documents:

• If the seller is required to hand over documents relating to the goods, he must hand them over at the time and place and in the form required by the contract.
• If the seller has handed over documents before the time required by the contract, he may correct any lack of conformity in those documents up to the time that he was required to hand them over by the contract (provided this does not put the buyer to unreasonable inconvenience or expense). The buyer retains the right to claim damages for this inconformity. (Issues relating to damages will be outlined later.)

2 Obligations of the seller: conformity

The seller must deliver goods which are of the quantity, quality anddescription required by the contract and which are contained or packagedin the manner required by the contract.

Conformity (Article 35)

Unless the parties have made different agreements in theircontract, UNCCISG states that goods do not conform with the contractunless they:

• are fit for the purposes for which goods of the same description would ordinarily be used
• are fit for any particular purpose expressly or implied 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 judgement
• possess the qualities of goods which the seller has held out to the buyer as a sample or model
• contained and 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.

The seller is not liable for goods not meeting this description if at the time of the contract:

• The buyer knew that the goods did not conform.
• The buyer could not have been unaware that the goods did not conform.

These rules on conformity are all found in Article 35 UNCCISG,which the examiner might well refer to by name in the examination. It isan important article, which was examined regularly in the old syllabus.

The seller is liable for lack of conformity when:

• it exists at the time that risk passes to the buyer (even if it only becomes apparent afterwards)
• it occurs after the time when risk passes to the buyer if it is due to a breach of the seller's obligations (including, e.g. a breach of any guarantee that the goods will remain fit for their purpose for a period of time).

During the course of this and the following chapters you will seevarious references to CLOUT cases. CLOUT stands for 'Case law onUNCITRAL texts'. Currently over 2/3 of the world's trade is governed byCISG and every year new States ratify the Convention. There aresubstantial differences in legal systems and customs in those countriesand accordingly full uniformity in such context is impossible.Nevertheless, Art.7 (1) of the Convention specifies that States wheninterpreting the Convention must have regard to its internationalcharacter and to the need to promote uniformity in its application andthe observance of good faith in international trade. Art 7 (2) requiresall questions concerning matters governed by this Convention which arenot expressly settled in it to be settled in conformity with the generalprinciples on which it is based or, in the absence of such principles,in conformity with the law applicable by virtue of the rules of privateinternational law.

To further this objective the UNCITRAL Secretariat has devised asystem called CLOUT for collecting and disseminating information oncourt decisions and arbitral awards which relate to the application andinterpretation of the United Nations Convention on Contracts for theInternational Sale of Goods and other Conventions devised by theCommission.

The purpose of the system is to promote international awareness ofthe relevant legal texts and to facilitate uniform interpretation andapplication of those texts. The reporting of the decision and awardswill enable judges, legal practitioners and in-house lawyer to refer tothem in order to determine the possible application and interpretationof the Convention and determine their contractual relationshipsaccordingly. The system aims at court decision and arbitral awards whichrefers to specific provision of the Convention as well as at thosewhich deal with the relevant issues indirectly (without any directreference to any specific provisions).

The CLOUT system currently collects cases relating to the following Conventions:

• United Nations Convention on Carriage of Goods By Sea (Hamburg, 1978)
• United Nations Convention on Contract for International Sale of Goods (1980)
• UNCITRAL Model law for International Commercial Arbitration (1985)
• United Nations Conventions on International Bills of Exchange and International Promissory Notes (New York, 1988)
• UNCITRAL Model law on International Credit Transfers (1992)
• United Nations Convention on Independent Guarantees and Stand-by letters of credits (New York, 1995)
• UNCITRAL Model law on Electronic Commerce (1996)
• UNCITRAL Model law on Cross-Borders Insolvency (1997)

Illustration 4 – Obligations of the seller: conformity

The principles of conformity were tested in CLOUT Case No. 84, inwhich a Swiss company sold New Zealand mussels to a German company. TheGerman Federal Health Office found the mussels to be 'generally notsafe' because they contained a cadmium level in excess of the Germanstatutory limit. However, the court held that the statutory limitexpressed an optimum situation of food limits and was not a bindingmaximum limit. The court also found that the cadmium level in themussels was in line with the regulations of the exporting country. Themussels were still fit for eating, and as such there was no lack ofconformity.

In other words, the Swiss company were not required to be expertsin German food law. They sold the German company mussels that were fitto eat in Switzerland and in New Zealand. The German company should havemade the Swiss company aware of their special requirements.

Had Swiss law had the same requirements in relation to cadmiumcontent of mussels, then the court probably would have found in favourof the German company. This is because if Swiss law required the cadmiumcontent to be lower, then the Swiss company would have sold the Germancompany mussels that according to their own law were not fit for thepurpose – which they should have been aware of.

Test your understanding 5

Adam, from Germany, is buying mussels from Bernard, from France,Catriona, from the UK and Del from Denmark, to be delivered to his placeof business. Adam knows that French and UK law is the same as Germanyregarding cadmium content of mussels. Adam makes no reference to cadmiumcontent in any of his contracts. Mussels are always delivered chilled.

Bernard's mussels contain a level of cadmium higher than permitted by German law.

Catriona's mussels are not delivered in a refrigerated vehicle.

Del's mussels contain a level of cadmium higher than permitted by German law.

(1)Adam is likely to succeed in a claim for non-conformity against Bernard.

(2)Explain your answer to 1.

(3)Adam is likely to succeed in a claim for non-conformity against Catriona.

(4)Explain your answer to 3.

(5)Adam is likely to succeed in a claim for non-conformity against Del.

(6)Explain your answer to 5.

Test your understanding 6

Ellis requires a large number of electronic parts which he is goingto use for a special purpose. As he needs so many, he is going to twodifferent suppliers. His customary supplier is Fred. Ellis knows thatFred makes parts to the standard which he requires so he does not makeFred aware of the special purpose to which the parts will be put. Theother supplier that Ellis is going to use is Gretchen. Ellis has neverused a part supplied by Gretchen before but is aware that she has a goodreputation. Gretchen has provided Ellis with a sample that he hastested and ensures works in his special product. Deciding to go ahead onthe basis of the sample, Ellis does not tell Gretchen about the specialpurpose for the parts either.

Both Fred and Gretchen supply the parts. When Ellis uses them inhis special product, the parts from both suppliers fail. There were anumber of Fred's parts left over after the production of the specialproduct, so Ellis used them in normal production, where they workedperfectly.

(1)Explain whether Ellis is likely to succeed in a claim against Fred for lack of conformity.

(2)Explain whether Ellis is likely to succeed in a claim against Gretchen for lack of conformity.

Early delivery

If the seller delivers goods earlier than required by the contract:

• the buyer may take the delivery or refuse to take the delivery (Article 52(1)).
• the seller may deliver any missing part or repair any lack of conformity up to the date when the goods were supposed to be delivered, so long as this does not cause the buyer unreasonable inconvenience or expense. The buyer retains any right to claim damages under the convention (Article 37).

Inspection by the buyer (Article 38)

The buyer must inspect the goods (or get someone else to):

• within as short a period as is practicable
• if the contract includes carriage, when the goods have arrived at their destination
• if the goods are to be redirected/immediately dispatched on by the buyer, and the seller is aware of that fact, when the goods arrive at the new destination.

Illustration 5 – Obligations of the seller: conformity

Heidi is buying some goods from Ibrahim. Ibrahim is shipping thegoods to a specified port and is aware that Heidi is shipping themimmediately to Jonah, to whom she is selling the goods. When the goodsarrive with Jonah, he inspects them and discovers them not to conform tothe contract terms between himself and Heidi. The requirements as toquality are the same in the contract between Heidi and Ibrahim as theyare in the contract between Jonah and Heidi.

In this situation, Heidi has a claim for the lack of conformityagainst Ibrahim, provided she gives him appropriate notice of the lackof conformity of the goods as set out below.

Test your understanding 7

Kamran has contracts with a number of other parties. First, he isbuying goods from Leroy, which he will ship immediately to Mary.Secondly he is buying some goods from Natasha which he will keep in hisstores for a little while before selling them on to Ophelia. Thirdly, heis buying some goods from Ping, which he will be selling on to Quentin.

Leroy is shipping the goods to Kamran. Natasha is shipping thegoods to Kamran. Kamran will be collecting the goods for Quentin fromPing's warehouse.

When must the goods be inspected in each case and by whom?

Loss of right to rely on lack of conformity (Article 39)

The buyer loses the right to rely on a lack of conformity of thegoods if he does not give notice to the seller of the nature of the lackof conformity:

• within reasonable time of the buyer discovering the lack of conformity
• within reasonable time of the time when the buyer ought to have discovered the lack of conformity
• within two years from the date on which the goods were handed over to the buyer, unless this length of time is inconsistent with the terms of the contract or any guarantees under the contract.

The above provisions do not protect the seller if the lack of conformity relates to:

• facts which the seller knew
• facts which the seller could not have been unaware of, and
• the seller did not disclose these facts to the buyer.

Third party claims (Article 41)

The seller must deliver goods that are free from any right or claimof a third party, including rights or claims based on industrial orother intellectual property (provided the claim is based on these underthe law of the state where the goods will be resold or used if it wascontemplated by the parties at the time of the contract that the goodswould be sold/used in that state, or under the law of the state wherethe buyer has his place of business):

• unless the buyer agreed to take the goods subject to that right or claim
• unless the buyer knew or could not have been unaware of the right or claim of intellectual property
• unless the right or claim (in respect of industrial or intellectual property) results from the seller's compliance with technical drawings, designs, formulae or other such specifications furnished by the buyer.

The right to rely on these provisions is lost when:

• Buyer does not give notice to the seller specifying the nature of the right or claim of the third party within a reasonable time after he has become aware or ought to have become aware of the right or claim. (However, he retains the right to claim damages (except for loss of profit) if he has a reasonable excuse for his failure to give the required notice.
• Seller knew of the right or claim of the third party and the nature of it.

Illustration 6 – Obligations of the seller: conformity

Ritu has agreed contracts with two parties, Shahid and Tabitha.Under the terms of the first contract, Ritu is purchasing 100 't'-shirtsfrom Shahid, which are printed with a slogan, using the Coke registereddevice. Under the terms of the contract with Tabitha, Ritu is buying100 special child-friendly cups. Tabitha intends to supply Ritu with thecups she had left over from a production for a well-knownchild-friendly cup retailer, Tommi Tipu, which are made to theirpatented design.

Once the contracts have been completed, Ritu discovers that bothsets of goods are subject to a third party claim. She is seeking advicewhether she can claim against either Shahid or Tabitha.

In the case of Shahid, it is likely that he will be able to claimthat Ritu knew, or ought to have done, that the design used the Cokeregistered device (which is internationally well-known) and therefore heis not liable for the third party claim from Coke against her.

In the case of Tabitha, Ritu could not necessarily have beenexpected to recognise that the cups she was buying were subject topatents from Tommi Tipu. However, Tabitha was fully aware of this andtherefore Ritu is likely to have a successful claim against Tabitha.

Test your understanding 8

In the following scenarios, identify whether the buyer or seller will be responsible for any third party claim.

(1)Umar is buying goods from Victoria. They are both aware that a third party claim could arise in respect of the goods.

(2)William is buying goods from Xavier. Xavier is aware that a third party claim could arise in respect of the goods.

(3)Yvonne is buying goods fromZara. The goods contain an internationally-recognisable slogan, which issubject to trade marks registered in the countries both businessesoperate in.

3 Remedies for breach of contract by the seller

Breach of contract is when the seller fails to perform any of his obligations under the contract or UNCCISG.

Fundamental breach of contract is when a party is substantiallydeprived of what they are entitled to expect under the contract and theresult of the breach must be foreseeable (Article 25). Both conditionsmust be satisfied before the breach can be classified as fundamental,e.g. when the seller provides no goods, or goods that do not conform tothe point where they are worthless.

Illustration 7 – Remedies for breach of contract by the seller

The obligations of the seller under UNCCISG are set out at thestart of this chapter. So, e.g. if in a contract including carriage, theseller fails to deliver the goods to the first carrier, he has breachedthe contract. If the seller does not provide goods that are fit for thepurpose for which they were bought, he has breached the contract.

In addition, the seller may breach the contract if he fails to keepto terms which were specifically agreed in the contract between the twoparties, e.g. that goods would be packaged in a certain way, ordelivered on a particular date.

If the seller breaches the contract, the buyer is entitled to:

• claim damages (we shall look at the details relating to damages later) (Article 74-77)
• require specific performance of the contract by the seller (Article 46)
• declare the contract avoided (Article 49 (this requires notice (Article 26))
• reduce the price (Article 50)
• give additional period for performance (Articles 47 – 48).

The remedy claimed will depend on the nature of the seller's breach. Ifthe buyer exercises his right to remedies other than damages, this doesnot deprive him of the right to claim damages also. Once the buyer hasresorted to a remedy for breach of contract, a court or arbitraltribunal has no right to grant the seller a period of grace.

Performance

The buyer may demand that the seller performs his obligations under the contract. The rules are:

• The buyer cannot require performance by the seller if the buyer has already resorted to a remedy which is inconsistent with this requirement (Article 46(1)).
• If the goods do not conform with the contract, the buyer may request substitute goods (but only if the lack of conformity constitutes a fundamental breach of contract and the buyer has inspected the goods in reasonable time and given the seller notice of the lack of conformity) (Article 46(2)).
• If the goods do not conform with the contract, the buyer may request that the seller repairs them (if this request is reasonable, the buyer has inspected the goods within reasonable time and given the seller notice of the lack of conformity) (Article 46(3)).
• The buyer may fix a reasonable additional time period for the seller to perform his obligations (Article 47(1)).
• During that additional period, the buyer may not resort to other remedies unless the seller informs the buyer of his intention not to perform (Article 47(2)).
• The seller may remedy any failure to perform his obligations, even after the date of delivery, unless this puts the buyer to unreasonable expense or delay (Article 48(1)).
• If the seller asks the buyer if he may put right his failure to perform and the buyer does not reply, the seller may perform his obligations in the time period set out in his request and the buyer may not resort to other remedies in that period (Article 48(2)).
• Such a notice of the seller's intention is deemed to include a request that the buyer make known his decision (Article 48(3)).
• Such notices are only valid if they are received by the buyer (Article 48(3)).
• If only part of the goods conform or have been delivered, the above rules apply to the non-conforming or undelivered part.

Specific performance – is a remedy which may be available forbreach of contract provided certain conditions are met. The remedy ofspecific performance requires a party to a contract to perform apositive obligation. In UK jurisdiction, specific performance is anequitable remedy which is granted at the discretion of the court andnormally only if the contract is specifically enforceable.

The contract will be specifically enforceable if it is for:

• the sale of land or other real property
• the sale of shares in private limited company and
• the sale of any other unique property.

In UK specific performance will only be available if the normal remedy of damages is considered to be inadequate.

Under the CISG Convention the availability of specific performanceis significantly broader that it is the case under the common lawtradition. Significantly, for the award of specific performance, thereis no pre-requisite that damages must be considered inadequate. Theseller is not required to show that he is unable to re-sell the good orfor the buyer to show that he is unable to purchase the goods elsewhere.However, the speed and practicality of international commercialtransactions makes it unlikely that party would wish for specificperformance unless it was their last resort. In addition to thepractical realities the CISG itself provides an important concession inArt.28. This article provides that a court is not bound to enter ajudgment for specific performance, even if one party is entitled to itunder the convention, unless the court would do so under its own law inrespect of similar contracts of sale which are not governed by theConvention.

Avoidance

The buyer may declare the contract avoided, and therefore beabsolved of obligations arising under the contract (e.g. to pay thecontract price). The contract may be avoided only if:

• the seller commits fundamental breach of contract (Article 49(1) a)
• the seller has not delivered the goods and also fails to deliver the goods during the additional time set for performance by the buyer (Article 49(1)b)
• due to late delivery if the buyer declares the contract avoided within a reasonable time after he is aware the goods have been delivered (Article 48(2)a)
• regardless of delivery if the buyer declares it avoided within reasonable time after he knew of the breach (or ought to have done) (Article 48(2)b(i))or after additional time periods for performance have expired (Article 48(2)b(ii))
• if only part of the goods conform or have been delivered, the above rules apply to the non-conforming or undelivered part.

Reduction of the price (Article 50)

The buyer may reduce the price due under the contract (whether itis paid or unpaid at the time) in the same proportion as the value thatthe goods actually delivered had at the time of delivery bears to thevalue that conforming goods would have done at the time:

• if the goods do not conform to the contract
• unless the seller remedies his failure to perform his obligations
• unless the buyer refuses to accept performance by the seller (as set out above).

Early delivery or extra delivery (Article 51)

If the seller delivers the goods early:

• the buyer may take delivery or refuse to take delivery until the appropriate date.

If the seller delivers too many goods:

• the buyer may take delivery of the excess or refuse to accept the excess.
• if the buyer accepts the excess, he must pay for it at the contract rate.

Illustration 8 – Remedies for breach of contract by the seller

These principles were tested in CLOUT Case No. 165, in which anAustrian company sold a leather seating arrangement to a German company.The German company sold the seating arrangement to a third partyclient, who discovered that the goods did not conform to the contract.The German company requested that the Austrian company repair the goodsso that they would conform. The Austrian company repaired the goods, butthe German company found them still not to conform to the contract, anddeclared the contract avoided. The Austrian company claimed that theirgeneral terms and conditions stated that the lack of conformity had tobe declared to them within five days.

The court found that the lack of conformity after repair was afundamental breach of contract and that the German company were entitledto declare the contract avoided. It also found that the terms andconditions requiring notification within five days did not apply afterthe company had already been asked to repair a lack of conformity, andthat the German company had declared the contract avoided withinreasonable time (five weeks).

Illustration 9 – Remedies for breach of contract by the seller

The above case is in contrast to CLOUT Case No. 248. In this case aGerman seller sold frozen meat to a Swiss buyer, to be delivered toEgypt and Jordan. The buyer claimed a lack of conformity of the goodsand refused to pay the contract price (declared the contract avoided).

The court held that the difference in quality between the contractspecification and actuality was not significant enough to merit thebuyer declaring the contract avoided (even though specialists discoveredthe loss in value of the goods to be 25%). The court held that a buyershould only be able to declare a contract avoided in exceptionalcircumstances as it is the buyer's most serious remedy. All thecircumstances in the case should be taken into account. In this case,the buyer had alternative solutions available to him, e.g. demanding a25% reduction in the contract price.

Test your understanding 9

Alastair and Balvinder had a contract in which Alastair was todeliver fresh flowers to Balvinder. The contract specifies that thegoods must be delivered on a particular day when they are required for aspecific contract. When the flowers arrived, they were extremely wiltedand past their best and Balvinder wishes to seek a remedy fromAlastair.

Balvinder's best remedy is:

Ato declare the contract avoided

Bto request that Alastair repair the goods

Cto reduce the price

Dthere is no appropriate remedy

Test your understanding 10

Explain the buyer's remedy of specific performance.

Test your understanding 11

Seller has delivered the goods required under the contract toBuyer. Buyer has inspected the goods and given notice to the Seller thatthe goods do not conform to the contract and that the value of thegoods has been reduced by 40%. Buyer needs to sell the goods immediatelyto his client, who has indicated that he will accept the goodsregardless of the deficiency in the quality.

Buyer could seek which of the following remedies?

AAvoidance

BRepair of the goods by the seller in a set period of time

CDamages

DReduction in the price of the contract

Test your understanding 12

Coral has delivered 25 machines to Daniel. The terms of thecontract between them state that she should deliver 20 machines. Danielmay

AAccept the extra machines free.

BAccept the extra machines but pay for them at the contract price.

CReject the extra machines and declare the contract avoided.

DReject the extra machines and ask that Coral reduces the overall contract price.

4 Obligations of the buyer: payment

The buyer is obliged to pay the price agreed in the contract and totake relevant steps and comply with necessary formalities to do so,without prompting from the seller.

Fixing the price

The price will be as set by the contract, unless the contract doesnot fix a specific price for the goods, when the following rules apply:

• the parties are deemed to have impliedly made reference to the price generally charged when the contract was formed for goods sold in comparable circumstances (Article 55)
• if the price is to be determined by weight, the relevant weight is the net weight (Article 56).

Illustration 10 – Obligations of the buyer: payment

These principles were set out in CLOUT Case No. 106, in which anAustrian buyer ordered 249 chinchilla pelts of 'middle or betterquality' at a price between 35 and 65DM each. The Austrian buyer soldthe pelts immediately to a buyer who rejected a number of the pelts asbeing lower quality than the contract between them stated. The Austrianbuyer listed the pelts that were lower quality and refused to pay theGerman seller the purchase price in respect of them. However the courtfound that the Austrian buyer should pay the price, given that thequality was as stated in the contract, and that the price, which, beingunspecific, was deemed to have been set with reference to the prevailingmarket price.

Illustration 11 – Obligations of the buyer: payment

In contrast, in Case No. 139, the court found that the rulesdeeming that where price was unspecified, prevailing market rate wouldapply did not apply in this case because it was clear from the contractbetween the parties that specific agreement about price was required.

Test your understanding 13

Edith and Frazier have a contract for Edith to purchase a quantityof rolled metal. Rolled metal costs $450 per tonne. Frazier delivers themetal to Edith's premises, where it is weighed. The total weight is 23tonnes, the net weight, 22.45 tonnes.

Calculate the contract price.

Place

The place where the price is to be paid will be as set by thecontract, unless the contract does not fix a specific place, when thefollowing rules apply:

• The price shall be paid at the seller's place of business (if the seller changes his place of business after the contract has been formed, he must bear extra incidental costs to the buyer of paying him there) (Article 57(1)(a)).
• The price shall be paid where the goods or associated documents are handed over to the buyer or the buyer's agent (Article 57(1)(b)).

Illustration 12 – Obligations of the buyer: payment

In CLOUT Case No. 25, a Spanish buyer collected goods from a Frenchseller a number of times over a period. The Spanish buyer alleged thatthe goods were defective and did not pay. The court determined that theprice should have been paid at the French seller's premises where thebuyer bought the goods (and therefore presumably inspected them toensure the quality was suitable).

Test your understanding 14

Gary and Helga have a contract for Gary to collect goods fromHelga's business premises in Almanistan. Since the contract was formed,Helga has moved her operations to Boumania. It is still possible, butmore difficult, for Gary to collect the goods. As he will have to set upspecial bank arrangements to pay Helga in the new country, it will costhim $20 more to pay the contract price of $59,487.

As a result:

IHelga must deliver the goods to her previous premises in Almanistan.

II Gary must collect the goods from Boumania.

IIIGary must pay Helga $59,487.

IVHelga must pay the extra cost of $20.

Which of the statements is correct?

AI.

BI., III., IV.

CII., III., IV.

DII., III.

Test your understanding 15

Ingrid and Jasper have a contract for Ingrid to deliver goods toJasper. She will place the goods with the first carrier at Newtown Port,and they will be collected by Jasper's business associate at OldtownPort.

Where must the price be paid?

Time

When the price is to be paid will be as set out in the contract,unless the contract does not specify, in which case the following rulesapply:

• The price shall be paid when the seller places the goods or documents at the buyer's disposal. The seller may make payment a condition of handing over the goods (Article 58(1)).
• In a contract involving carriage, the seller may make a condition that the goods are not handed over to the buyer before payment is made (Article 58(2)).
• The buyer is entitled to examine the goods before he makes payment (Article 58(3)).

Test your understanding 16

Kabogo and Lisette have a contract for Lisette to buy goods fromKabogo. Lisette is to collect the goods from Kabogo's place of business.The contract states that Lisette will not be handed the goods until theprice has been paid.

When must the price be paid?

AWhen Kabogo tells Lisette that the goods are ready.

BWhen Lisette arrives at Kabogo’s premises.

CWhen Lisette has inspected the goods for quality.

DWhen Lisette has removed the goods from Kabogo’s premises.

5 Obligations of the buyer: taking delivery

The buyer must carry out all the acts that would reasonably be expectedof him (i) in order to enable the seller to make delivery and (ii) intaking the goods (Article 60).

Illustration 13 – Obligations of the buyer: taking delivery

Michael has contracted with Nanette to buy 200,000 jars of honey.Nanette has agreed to transport the honey to the port of Danhaig, whereMichael will collect them and pay the price on collection. On the daythat Michael is due to collect and pay for the goods, there is atransport strike and Michael is unable to get a suitable vehicle to thedocks to collect the honey. However, an associate of his has a warehousein the docks which the associate has put at his disposal. It isreasonable to expect Michael to take advantage of this offer so that thegoods may be collected and Nanette can be paid the price.

Test your understanding 17

Odette is due to deliver goods to Padraig at his place of businesson 29 June. On the 26 June, Padraig's workforce declared a strike andthe premises are not operational, but Odette's journey will take fourdays and she has already left.

Should Padraig engage casual staff to ensure the premises are open to Odette and the goods can be unloaded from her vehicle?

6 Remedies for breach of contract by the buyer

If the buyer breaches the contract, the seller is entitled to:

• claim damages (we shall look at the details relating to damages later) (Article 74-77)
• require specific performance of the contract by the buyer (Article 62)
• declare the contract avoided (Article 64 requires notice to be given)
• produce goods to the seller's own specification (Article 65(1))
• give additional time for performance of the contractual obligation (Article 63).

The remedy claimed will depend on the nature of the buyer's breach.If the seller exercises his right to remedies other than damages, thisdoes not deprive him of the right to claim damages also. Once the sellerhas resorted to a remedy for breach of contract, a court or arbitraltribunal has no right to grant the buyer a period of grace.

Performance

The seller may demand that the buyer performs his obligations (paythe price/accept delivery/other obligations) under the contract. Therules are:

• The seller may fix an additional time period of reasonable length to enable the buyer to perform (Article 63(1)).
• Unless the buyer notifies the seller he is not going to perform in that time, the seller may then not resort to any other remedy for breach of contract during the additional period (Article 63(1)).
• The seller may not exercise the right to claim specific performance if he has already resorted to a remedy inconsistent with specific performance (Article 62).

Avoidance

The seller may declare the contract avoided (and therefore absolve himself of any commitments under that contract) only:

• if the buyer commits fundamental breach of contract (Article 64(1)(a))
• if the buyer does not perform his obligations during the additional time period fixed by the seller for performance (or notifies the seller that he will not do so) (Article 64(1)(b))
• unless the buyer has paid the price, although the seller may declare the contract avoided in respect of late performance before he becomes aware of the performance (Article 64(2)(a))
• for any fundamental breach other than late performance (the buyer having paid the price), so long as it is within reasonable time of the seller knowing about the breach or after the additional time period for performance has expired (Article 64(2)(b)).

Produce goods to own specification (Article 65)

If the buyer is required to specify details relating to the goodsunder the contract and fails to do so by the date agreed or within areasonable time after a request from the seller:

• the seller may make the specification of the goods (in accordance with the buyer's needs as far as they are known)
• the seller must inform the buyer of the details of the specification
• the seller must fix a reasonable time for the buyer to make a different specification if he chooses
• if the buyer fails to make a different specification after receiving such a communication then the specification of the seller is binding.

Illustration 14 – Remedies for breach of contract by the buyer

In CLOUT Case No. 83, a Swedish seller of coke delivered to acompany in the former Yugoslavia sued the German buyer for payment ofthe price. The buyer counter-claimed that the coke was of an inferiorquality, but the court held that this was no justification for the buyerdeclaring the contract avoided (which in effect he was doing by notfulfilling his obligations and refusing to pay the price), particularlyas the buyer had not done this until four months after payment was due(which would mean that the notice of rejection of goods was not withinreasonable time), presumably as a result of the seller suing for theprice. The buyer should have claimed a reduction in the price for theinferior quality of the coke, but had failed to do that withinreasonable time, and was therefore required to pay the full contractprice to the seller.

End of offer

There are many examples of cases where a claim by the seller hasresulted in a counter-claim about quality by the buyer. Rememberhowever, that a claim in respect of lack of conformity has to be made inreasonable time. As can be seen in the case above, a seller isprotected by the courts from spurious quality claims made once paymentis demanded. A genuine claim about quality must be made withinreasonable time from discovery, and given that buyers are required toinspect the goods, most problems with conformity should be discoveredshortly after the buyer receives the goods.

Illustration 15 – Remedies for breach of contract by the buyer

In CLOUT Case No. 47, a German seller of electronic ear devicesdemanded damages from an Italian buyer, who had failed to take deliveryof the devices, even after the seller had set an additional time periodfor delivery to take place. Applying Article 31, the court found thatthe buyer should have collected the goods from where the seller hadmanufactured them and that damages were appropriate.

Quinn and Rachel have a contract under which Rachel is to produce10 machines for Quinn's factory. Quinn provided some detail of what wasrequired at the time the contract was formed but Rachel wants to startwork on the machines, and despite repeated requests by her for Quinn toprovide a specification for the machines, he has not replied. Rachel istherefore entitled to create her own specification for the machines,according to the details that she already has. However, she will have togive Quinn the opportunity to produce a different specification if heis not in agreement with hers.

Test your understanding 18

Stewart is contracted to sell Titus 300 sheets of metal. The metalwas ready for collection on 1 November, but by 10 November, Titus hasnot collected the metal or paid the price. Stewart wrote to Titus andtold him that if the goods had not been collected or the price not paidby 30 November, he would consider the contract at an end.

It is the 27 November and Stewart has not heard fromTitus. Ursula has just visited Stewart's premises and seen the sheets ofmetal and has offered to buy them from Stewart. Is Stewart entitled toaccept her offer?

Test your understanding 19

Waqar and Xavier have a contract for Waqar to collect goods fromXavier's premises on 1 July. Waqar does not collect the goods on 1 Julybut the price for the goods is transferred to Xavier's bank account on 1July. Xavier needs the goods to be removed from his premises, as theyare in the way of operations.

Xavier may:

IDeclare the contract avoided.

II Inform Waqar that the goods should be collected in a week.

IIIInform Waqar that the goods should be collected in a week or they will be sold to someone else.

Which of the above statements are correct?

AStatement I.

BStatement II.

CStatement III.

DStatements II. and III.

Test your understanding 20

Set out the rules relating to the seller declaring the contract avoided.

Test your understanding 21

Yolande and Zani have a contract for Yolande to make 20 machinesfor Zani. The contract refers to the need for Zani to provide aspecification for the machines, but it is now past the date when Yolandeindicated that she would be producing the machines and she needs therelevant specification.

Which of the following steps may Yolande take before she can make the machines?

ARequest details of the specification from Zani.

BProduce the specification herself.

CEither of the above.

DNeither of the above.

7 Common provisions: anticipatory breach and instalment contracts

Anticipatory breach

Anticipatory breach is where a party to the contract informs the otherparty (expressly or impliedly) that he does not intend to perform hisobligations under the contract or it appears after concluding thecontract that a party will be unable to perform a substantial part ofhis obligation (Articles 71 and 72).

Illustration 16 – Common provisions: anticipatory breach

Elijah and Frederica have agreed a contract between them. A monthbefore Frederica is due to commence work, Elijah becomes bankrupt. It isclear that he will be unable to perform his obligations under thecontract (that is, pay for any work Frederica carries out under thecontract). Elijah is in anticipatory breach of contract.

UNCCISG states that one party to the contract may suspend theperformance of their obligations under a contract if, once the partieshave agreed the contract, it is clear that the other party will not beable to perform due to:

• a serious deficiency in his ability to perform or his creditworthiness (Article 71(1)(a))
• his conduct in preparing to perform/performing the contract (Article 71(1)(b)).

If a party suspends performance he:

• must give notice to the other party and must continue with performance if the other party gives satisfactory assurance that he will be able to perform (Article 71(3))
• may prevent the buyer taking over possession of the goods if he has dispatched them, regardless of what documents the buyer possesses, entitling him to the goods (Article 71(2)).

(Unless the party in breach has declared that he will not performhis obligations) if the party in anticipatory breach is committing afundamental breach of contract:

• the injured party may declare the contract avoided (Article 72(1)).
• if time allows, the injured party must give reasonable notice to the party in breach that the contract is avoided (Article 72(2)).

Test your understanding 22

Define anticipatory breach.

Test your understanding 23

John and Keira have agreed the terms of their contract. Keira isdue to start work on the contract on 30 June. On 31 May, Keira informsJohn that she will not be able to commence work on the contract.

(1)Keira has committed:

(2)John is entitled to:

(3)John must give Keira reasonable notice if he declares the contract avoided.

Instalment contracts

An 'instalment contract' is where the contract contains a number ofseparate parts, e.g. a contract to deliver goods in separate chunksover a long period of time.

In an instalment contract:

• If one party fails to perform any of his obligations in respect of any instalment and this is a fundamental breach of contract with respect to that instalment, the other party may declare the contract avoided with respect to that instalment (Article 73(1)).
• If one party fails to perform any of his obligations in respect of any instalment and this causes the other party reasonable grounds for a belief that a fundamental breach of contract will occur in respect of future instalments, he may declare the contract avoided (within reasonable time) (Article 73(2)).
• If the buyer declares the contract avoided in respect of one delivery, he may declare it avoided in respect of past and/or future deliveries if those deliveries are interdependent and could not be used for the purpose both parties were aware of at the outset of the contract (Article 73(3)).

Illustration 17 – Common provisions: anticipatory breach

Consider the following situations:

Graham is in contract with Helen to deliver fruit and vegetables toher every week for six months. In month three, week one, the fruit andvegetables have deteriorated and are not fit to sell. Helen does not payfor that instalment, and in month three, week two, the goods are fitfor the purpose again and the instalment contract continues.

Indira is in contract with Jaitinder to deliver raw materials toher factory on a monthly basis over the period of a year. The goods aredelivered late three months in a row, causing major problems toproduction, and Indira does not give satisfactory assurance that thegoods will be delivered on time in the future. Indira declares theremainder of the contract avoided.

Kieran is in contract with Lysander to deliver the components for acrane over the course of production. Lysander has given Kieran aschedule of production. Each part is critical to the overall productionof the crane, and the production process is time-sensitive.

The crane is 75% complete when Kieran delivers some metal partswhich do not meet Lysander's quality control standards and which cannotbe used in production. Lysander informs Kieran that the entire contractis avoided as soon as tests have been completed on the faulty metalparts.

Test your understanding 24

Define instalment contracts.

8 Common provisions: damages

Damages for breach of contract by one party consist of a sum equalto the loss, including loss of profit, suffered by the other party as aconsequence of the breach.

Under (Article 74) damages may not exceed:

• the loss foreseen by the parties as a result of possible breach of contract at the outset of the contract
• the loss which ought to have been foreseen at the outset of the contract.

Under (Article 75) if the contract is avoided and:

• if the buyer has in a reasonable manner and within a reasonable time bought replacement goods.
• or, if the seller has resold the goods in a reasonable manner and within a reasonable time

then

• the party claiming damages may recover the difference between the contract price and the price in the substitute transaction
• the party claiming damages may also recover additional damages subject to what was reasonable foreseeable at the time of the contract
• if a purchase or resale has not taken place and there is a current price for the goods in the place where the goods should have been delivered, the party claiming damages may recover the difference between the contract price and the current price in the country of delivery at the time of avoidance. If, however, the party claiming the damages has avoided the contract after taking over the goods, the current price at the time of such taking over shall be applied instead of the current price at the time of avoidance (Article 76(1))
• if a purchase or resale has not taken place, there is a current price for the goods, and the contract was avoided after one party had taken over the goods, the current price at the time of taking over will be relevant instead of the price at the time of avoidance (Article 76(2))
• if there is no current price for the goods at the place where the goods should have been delivered, then a reasonable substitute price should be used, taking account of the cost of delivery to the place where the goods should have been (Article 76(2)).

Illustration 18 – Common provisions: damages

Paradorn and Queenie are in contract. Paradorn has delivered fabricdesigned to Queenie's specification to Queenie. Queenie has inspectedthe fabric and notified Paradorn that it does not conform to the designand that she will therefore not pay the purchase price. Because thefabric does not conform to the design, Queenie cannot use the materialfor her client, and incurs a penalty cost that is set out in thecontract between Queenie and her client. Queenie also has to engageRodrigo to produce new fabric quickly, which costs her a premium.Unfortunately, there is an unexpected shortage of the silk threadrequired to make the fabric, and this causes the cost of the newmaterial to rise even further.

Queenie is seeking damages from Paradorn. She may include thepenalty cost in the cost of damages, provided she made Paradorn aware atthe time of their concluding the contract that she was subject to such apenalty if she defaults. She may also include the cost of obtainingsubstitute goods from Rodrigo, as it would have been foreseeable at thetime of the contract that if Paradorn failed to provide suitable goodsthen she would have to pay a premium to obtain substitute goods quickly.However, given that the shortage in silk thread is unexpected, shecannot claim for the more expensive thread, as this additional costwould not have been foreseeable at the time she and Paradorn enteredinto contract.

Illustration 19 – Common provisions: damages

Sajeeda and Thomas are in contract with one another. Sajeeda, whoseplace of business is A, is required to deliver 20 sheets of aluminiumto Thomas, whose place of business is B, on 30 June. She delivers thegoods and Thomas refuses to accept them. Sajeeda was unable to sell thealuminium to any other parties. The contract price was $5,000. On 30June, the price of aluminium sheets in A is $240 per sheet and in B is$275. Sajeeda is therefore entitled to damages of $500 (the price ofsheets in B multiplied by 20, minus the contract price).

Test your understanding 25

Define damages.

Test your understanding 26

Damages may not exceed the loss which was foreseen (or ought to have been) at the time of the contract.

True

False

Test your understanding 27

Nils and Olly have a contractual relationship. Nils ismanufacturing a boiler to be delivered and installed in Olly's factory.Nils was late in delivering the boiler and as a result, Olly lost normalprofits for a week, an extra large profit on a special job that hadbeen planned since before the contract with Nills was agreed and theopportunity to do a rush contract for a new customer which arose afterthe contract with Nills had been agreed.

In claiming damages, Olly will be able to include:

Ithe lost normal profits

II the lost extra large profit on the special job

IIIthe lost profit on the contract for the new customer.

Which of the statements are correct?

AI.

BI. and II.

CII. and III.

DI., II. and III.

Mitigation

A party who relies on breach of contract (and therefore the right toclaim damages) must take reasonable measures to limit the loss he incurs(including loss of profit) that arise from the breach (Article 77).

Illustration 20 – Common provisions: damages

Seller produces goods for buyer, who declares in advance of sellerdelivering the goods that he does not want to accept the goods and willnot pay for them. Buyer is in anticipatory breach, and seller isentitled to claim damages. However, seller must mitigate his loss, e.g.by selling the goods to someone else, even if at a lower price than hewould have obtained from buyer. If seller does not mitigate his loss,then buyer will have the right to reduce the damages he has to pay bythe amount that seller could have obtained by selling the goods to athird party.

Test your understanding 28

Lolita and Mikhail have a contract. Lolita has manufactured thegoods due under the contract, but before she delivers them, Mikhailannounces his intention not to accept the goods or pay for them.

ILolita may claim damages, but she must try and sell the goods to a third party to mitigate her loss.

II Lolita is entitled to claim the cost of delivering the goods to Mikhail as part of her damages.

IIILolita is entitled to claim the cost of delivering the goods to the third party as part of her damages.

Which of the above statements is true?

AI.

BI. and II.

CI. and III.

DNone of the statements

9 Common provisions: interest (Article 78)

If a party fails to pay:

• the price
• any other sum in arrears
• the other party is entitled to interest on the outstanding balance
• interest will be determined at an appropriate rate, depending on the applicable law.

Illustration 21 – Common provisions: interest (Article 78)

In CLOUT Case No. 220, where there was a dispute between an Italiancompany and a Swiss company. The court determined that the Swisscompany should pay interest on the purchase price and that the interestrate would be determined according to Italian law. However, it furtherconcluded that the interest period would be determined according toSwiss law, which states that interest is payable after a reminder hasbeen given by the seller.

Test your understanding 29

Under UNCCISG, a party owing any amounts to anotherparty may be required by a court to pay interest on that sum, the amountof interest being calculated by the court applying what they deem to beapplicable law.

True

False

Test your understanding 30

Umberto and Vanessa have a contract. Vanessa was due to pay thecontract price on 30 June. Umberto sent a copy invoice to Vanessa on 7August. When Vanessa continued to fail to pay, Umberto referred thematter to arbitration on 31 August. On 9 November, the arbitral tribunalstated that Vanessa should pay the price and pay interest. Theapplicable law states that interest is due from date the relevant partywas reminded about the payment.

Interest will be due from:

A30 June

B7 August

C31 August

D9 November

10 Common provisions: exemption

A party is not liable to pay damages for a failure to perform his obligations if he proves:

• Failure was beyond his control (or beyond the control of a third party he engaged to perform the whole or part of the contract) and he could not reasonably have taken the impediment into account at the time the contract was agreed or to have avoided or overcome its consequences (Article 79(1)).

This article only has effect while the impediment exists (Article 79(3)). The party subject to the impediment:

• must notify the other party within reasonable time (Article 79(4))
• may be liable to damages if the other party does not receive the notification within reasonable time
• may be liable to a different remedy requested by the other party, e.g. reduction of the price if the goods were defective (Article 79(5)).

Illustration 22 – Common provisions: exemption

UNCCISG does not define 'impediment' further, but from the generaldescription of an impediment given, it is reasonable it would includethings often set out more clearly in domestic laws, such as 'forcemajeure' or 'Act of God'.

Illustration 23 – Common provisions: exemption

The principles were tested in CLOUT Case No. 140, in which a Germancompany had contracted to buy chemicals from a Russian company. TheRussian company failed to deliver the chemicals in accordance with thecontract, and the German company contacted the Russian companyrepeatedly to insist on performance of the contract, and extending thetime-period of the contract to enable the Russian company to do so.Finally the German company purchased the chemicals from a differentsource and claimed damages from the Russian company, being thedifference between the contract price and the price of chemicals fromthe third party.

The Russian company claimed that it had suffered an impedimentbecause an emergency production stoppage at the factory had made itimpossible to produce the goods.

The court decided that damages should be paid as the Russiancompany could not prove the facts relating to the impediment and wereunable to establish that it could not be expected to take such emergencystoppages into account at the outset of the contract. Also, the Russiancompany could have purchased the required chemicals from a differentsource in order to fulfil its contractual obligations.

In addition they decided that the measure of damages (contractprice less the price of chemicals from a third party) was reasonable asthe Russian company could not establish that the buyer could have boughtthe replacement chemicals more cheaply.

Test your understanding 31

Anil and Brigit have a contract with one another. Anil iscontracted to produce plastic parts and supply them to Brigit. The daybefore the goods are delivered, lightening strikes Anil's premises,which are badly burnt and the plastic parts are significantly damaged.

Which of the following remedies Brigit can claim?

IDamages

II Performance within a specified time period

IIIAvoidance of the contract

AI.

BI. and II.

CI. or III.

DII. or III.

11 Common provisions: effects of avoidance

The remedy of avoidance has been discussed above.

Avoidance:

• releases both parties from their obligations under the contract, subject to damages due (Article 81(1))
• does not affect any provision in the contract relating to settlement of disputes (Article 81(1))
• does not affect any provision in the contract setting out provisions in the event of avoidance (Article 81(1)).

If the contract is partly completed when is it declared avoided

• a party may claim restitution of whatever has been supplied/paid under the contract (Article 81(2))
• if both parties owe restitution it must be carried out at the same time (Article 81(2)).

Illustration 24 – Common provisions: effects of avoidance

An instalments contract between Carlotta and David is declaredavoided when David has made one delivery out of 12. Carlotta paid a 50%deposit prior to the deliveries commencing. As the contract has beenavoided, Carlotta is entitled to be repaid her 50% deposit and David mayhave his single delivery returned. They should arrange to perform boththese returns on the same day.

The right to declare the contract avoided or for the buyer to demand substitute goods is lost if:

• It is impossible for the goods to be returned in substantially the same condition in which they were received (Article 82(1)).

Unless:

• the impossibility is not the fault of the party in possession of the goods (Article 82(2)(a))
• the goods have deteriorated as a result of the buyer's inspection which he is required to make (Article 82(2)(b))
• the goods have been sold or used in the normal course of business before the lack of conformity was discovered (Article 82(2)(c)).

Additional points:

• The buyer may pursue all the other remedies set out in UNCCISG or the contract (Article 83).
• If the seller has to refund the price, he must pay interest on it (Article 84(1)).
• If the buyer has benefited from possessing the goods before the contract is avoided and he cannot restore the goods, he must account to the seller for those benefits (Article 84(2)).

Illustration 25 – Common provisions: effects of avoidance

Elspeth was delivered some goods by Fidel under a contract by whichFidel is to deliver three further consignments. Due to Elspeth'sfailure to meet the contract term of payment of the whole contract priceon receipt of the first delivery or within the additional time periodset by Fidel, Fidel has now declared the contract avoided. Elspethcannot return the goods to Fidel because she sold them immediately toGurinder for a profit of 5%, so she must not only pay the percentage ofthe purchase price applicable to that delivery, but also account toFidel for the 5% profit she made on the goods.

12 Common provisions: preservation of the goods

Under Article 85 the seller must take appropriate, reasonable steps to preserve the goods:

• if the buyer is in delay in accepting the goods
• where payment of the price and delivery of the goods are to be at the same time and the seller is in control of the goods
• where the seller is retaining the goods until the buyer in breach has reimbursed the buyer's reasonable expenses for preserving them.

Under Article 86 the buyer must take appropriate, reasonable steps to preserve the goods:

• if the buyer has received the goods and intends to reject them in accordance with UNCCISG provisions
• if the buyer has rejected the goods in accordance with UNCCISG and intends to retain them until the seller has reimbursed the buyer's reasonable expenses
• if the goods have been placed at the buyer's disposal and the buyer exercises the right to reject them (in which case he must take possession of them so long as this does not cause unreasonable inconvenience and expense).

According to Article 87 a party who is required to preserve the goods may:

• deposit the goods in a warehouse of a third party at the expense of the other party assuming the cost is not unreasonable
• sell the goods to a third party if there has been unreasonable delay by the other party to take possession of the goods or pay the price or cost of preservation if reasonable notice of the sale is given to the other party (unless the goods are subject to deterioration in which case notice is only required if possible)
• retain reasonable expenses for preserving the goods out of the sale proceeds, although he must account for the balance to the other party.

Illustration 26 – Common provisions: preservation of the goods

Harvey has a contract to deliver 20 boxes of frozen meat toNewport, where Imogen will collect them. Imogen inspects the goods atNewport and rejects them because they do not conform to the contractspecification. Harvey cannot collect the goods from Newport for twodays. Imogen therefore arranges for the goods to be kept in frozen in astorage at Newport on Harvey's behalf.

Test your understanding 32

In the above scenario Imogen is entitled to reimbursement from Harvey for the costs of the frozen storage.

True

False

Chapter summary

Test your understanding answers

Test your understanding 1

Test your understanding 2

A mill might have a stock of 50 tonnes of flour. 20 tonnes of theflour from that mill would constitute identified goods from a specificstock provided they are clearly marked or separated from the othergoods.

Test your understanding 3

The relevant Incoterm would be either CFR (cost and freight) or CPT(carriage paid to) depending on when the risk transfers. (The passingof risk will be outlined later in this chapter.)

Test your understanding 4

• Whether the goods are perishable or not.
• The method of transport used for the goods.
• The time such goods usually take in production.
• The customary availability of raw materials.

Test your understanding 5

(1)True

(2)German and French law have thesame requirement as regards cadmium content in mussels. ThereforeBernard has sold Adam mussels that are unfit to eat in France andGermany. Bernard should have met the requirement of his own country,therefore Adam will have a case against him.

(3)True

(4)Mussels are always deliveredchilled, therefore it is a requirement that they are delivered inrefrigerated vehicles. Catriona has neither delivered the musselspackaged in the customary way, nor in a way that will preserve thegoods.

(5)Not enough information

(6)It is unclear whether Del shouldhave met the requirement of German law without being told as this willdepend on the law in Denmark. If Danish law has the same requirement or ahigher one, then Adam will have a case against Del.

Test your understanding 6

(1)Ellis did not make Fred aware ofthe special purpose for the parts and there is no reason that Fredcould have known about it. Therefore Fred’s parts will only be judgedon whether they were fit for the usual purpose of such parts. As theparts worked perfectly in normal production, they are fit for thatpurposes, and Ellis would not succeed in a claim against Fred.

(2)Ellis did not make Gretchenaware of the special purpose for the parts. However, Gretchen suppliedEllis with a sample, which he tested and which did work when being usedfor the special purpose. Gretchen’s subsequent parts, which did notwork, cannot therefore have matched up to the quality of the sample sheprovided Ellis with. Therefore the parts she produced do not meet theconformity criteria and Ellis would be likely to succeed in a claimagainst Gretchen.

Test your understanding 7

(1)Goods from Leroy

(2)Goods from Natasha

(3)Goods from Ping

Test your understanding 8

(1)Umar

(2)Xavier

(3)Yvonne

Test your understanding 9

Test your understanding 10

The buyer may request that the seller performs his obligationsunder a contract. So, e.g. if the contract is for Seller to deliver twocupboards to Buyer, and he does not deliver them, the Buyer may requestthat he does so, and specify an additional time period within whichperformance should take place.

Alternatively, if Seller's breach of contract is a lack ofconformity of the goods, Buyer may request that the seller repairs thegoods, or delivers substitute goods, and set an additional time periodwithin which Seller may do so.

Buyer may not resort to any other remedy during the extra time period he has set for performance.

Seller may also volunteer performance to remedy a breach ofcontract, unless this puts the buyer to unreasonable delay or expense.

Test your understanding 11

Test your understanding 12

Test your understanding 13

The contract price is $10,102.50 (22.45 × 450 = 10,102.50).

Test your understanding 14

Test your understanding 15

Oldtown Port.

Test your understanding 16

Test your understanding 17

Yes, because Padraig is required to take reasonable steps to ensure that delivery can take place.

Test your understanding 18

Test your understanding 19

Test your understanding 20

The seller may declare the contract avoided:

• if the buyer commits fundamental breach of contract
• if the buyer does not perform his obligations during the additional time period fixed by the seller for performance (or notifies the seller that he will not do so).

The seller may not declare the contract avoided if the buyer has paid the price, unless

• the buyer has performed his obligations under the contract late and the seller was unaware of that performance
• it is for any breach other than late performance, so long as it is within reasonable time of the seller knowing about the breach or after the additional time period for performance has expired.

Test your understanding 21

Test your understanding 22

Anticipatory breach is where a party to the contract informs theother party (expressly or impliedly) that he does not intend to performhis obligations under the contract or it appears after the conclusion ofthe contract that a party is unable to perform a substantial part ofhis obligation.

Test your understanding 23

(1)Keira has committed anticipatory breach of contract.

(2)John is entitled to any of theremedies listed. However, depending on the circumstances of Keira’sbreach, demanding performance and giving additional time for suchperformance may be pointless.

(3)False. John does not need to give notice as Keira has declared her own anticipatory breach.

Test your understanding 24

An 'instalment contract' is where the contract contains a number ofseparate parts, e.g. a contract to deliver goods in separate chunksover a long period of time.

Test your understanding 25

Damages for breach of contract by one party consist of a sum equalto the loss, including loss of profit, suffered by the other party as aconsequence of the breach.

Test your understanding 26

True

Test your understanding 27

Test your understanding 28

Test your understanding 29

True

Test your understanding 30

B

Test your understanding 31

Test your understanding 32

True.

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