International Commercial Law – the CISG Prof. Giorgio F. COLOMBO

Obligations of the Buyer/Passing of Risk/Anticipatory Breach Lesson n. 10

Obligations of the Buyer Art. 53 CISG The buyer must pay the price for the goods and take delivery of them as required by the contract and this Convention Art. 54 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

Obligations of the Buyer Art. 60 The buyer’s obligation to take delivery consists: (a) in doing all the acts which could reasonably be expected of him in order to enable the seller to make delivery; and (b) in taking over the goods

Example A German fashion retailer (Buyer) and an Italian clothing manufacturer (Seller) concluded a contract for the sale of fashion goods The contract had the specification: “Autumn goods, to be delivered July, August, September + -“

Example When a first delivery was attempted on 26 September, the Buyer refused to accept the goods and returned the invoice on 2 October claiming expiry of the delivery period The Seller brought legal action for the payment of the price

Passing of Risk Determining the exact moment when the risk of loss or damage to the goods passes from the seller to the buyer is of great importance in contracts for the international sale of goods Parties may (and should!) regulate the issue in their contract either by an express provision or by the use of a trade term such as, for example, an INCOTERM

Passing of Risk However, for the frequent case where the contract does not contain such a provision, the Convention sets forth a complete set of rules

Passing of Risk The two special situations contemplated by the Convention are when the contract of sale involves carriage of the goods; and when the goods are sold while in transit In the first case, the risk passes to the buyer when the goods are handed over to the first carrier In the second case, the risk passes to the buyer from the time of the conclusion of the contract (but…)

Passing of Risk In all other cases the risk passes to the buyer when he takes over the goods or from the time when the goods are placed at his disposal and he commits a breach of contract by failing to take delivery, whichever comes first In the frequent case when the contract relates to goods that are not then identified, they must be identified to the contract before they can be considered to be placed at the disposal of the buyer and the risk of their loss can be considered to have passed to him

Examples A Danish Seller agreed to sell and deliver a mobile grain dryer to a Buyer in Germany The dryer was to be delivered by truck to Wiesenburg, Germany, a few kilometres from the field where the buyer intended to use the machine Upon arrival of the truck, the driver (Seller's employee) requested the Buyer to help unload the dryer

Examples After the Buyer's personnel, using their own tractor and chain, had successfully lifted the dryer down from the truck and then driven a few meters, the chain holding the dryer broke, causing substantial damage to it The Buyer then refused to pay the price The Seller brought legal action against the Buyer

Anticipatory Breach Art. 71 CISG (1) A party may suspend the performance of his obligations if, after the conclusion of the contract, it becomes apparent that the other party will not perform a substantial part of his obligations as a result of: (a) a serious deficiency in his ability to perform or in his creditworthiness; or (b) his conduct in preparing to perform or in performing the contract.

Anticipatory Breach (2) If the seller has already dispatched the goods before the grounds described in the preceding paragraph become evident, he may prevent the handing over of the goods to the buyer even though the buyer holds a document which entitles him to obtain them. The present paragraph relates only to the rights in the goods as between the buyer and the seller

Anticipatory Breach (3) A party suspending performance, whether before or after dispatch of the goods, must immediately give notice of the suspension to the other party and must continue with performance if the other party provides adequate assurance of his performance

Anticipatory Breach Art. 72 CISG (1) If prior to the date for performance of the contract it is clear that one of the parties will commit a fundamental breach of contract, the other party may declare the contract avoided. (2) If time allows, the party intending to declare the contract avoided must give reasonable notice to the other party in order to permit him to provide adequate assurance of his performance. (3) The requirements of the preceding paragraph do not apply if the other party has declared that he will not perform his obligations.

Anticipatory Breach Art. 73 CISG (1) In the case of a contract for delivery of goods by instalments, if the failure of one party to perform any of his obligations in respect of any instalment constitutes a fundamental breach of contract with respect to that instalment, the other party may declare the contract avoided with respect to that instalment.

Anticipatory Breach (2) If one party’s failure to perform any of his obligations in respect of any instalment gives the other party good grounds to conclude that a fundamental breach of contract will occur with respect to future instalments, he may declare the contract avoided for the future, provided that he does so within a reasonable time

Anticipatory Breach (3) A buyer who declares the contract avoided in respect of any delivery may, at the same time, declare it avoided in respect of deliveries already made or of future deliveries if, by reason of their interdependence, those deliveries could not be used for the purpose contemplated by the parties at the time of the conclusion of the contract.

Anticipatory Breach The Convention contains special rules for the situation in which, prior to the date on which performance is due, it becomes apparent that one of the parties will not perform a substantial part of his obligations or will commit a fundamental breach of contract. A distinction is drawn between those cases in which the other party may suspend his own performance of the contract but the contract remains in existence awaiting future events and those cases in which he may declare the contract avoided