Lesson 2 - CISG

Monday, 2 October 2023

Seller's Obligations / Buyer's Remedies

Dr. Pascal Hachem

Bär & Karrer AG Zurich

Lesson 2 – CISG – Seller's Obligations

Part 3 – Sale of Goods

Chapter 2

Obligation to deliver and transfer property (Art 30 CISG)

Section 1 – Delivery of the Goods and Handing over of Documents (Arts 30 – 34 CISG)
Section 2 – Conformity of the goods and third party claims (Arts 35 – 44 CISG)

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Lesson 2 – CISG – Seller's Obligations
Delivery / Handing over of Documents

Obligation to deliver and transfer property: Art 30 CISG:

The seller must deliver the goods, hand over any documents relating to them and
transfer the property in the goods, as required by the contract and this Convention.

Delivery
▪ Legal concept, not factual concept (↔ "hand(ing) over")
▪ "As required by the contract" → Parties define delivery, usually ICC Incoterms®,
otherwise Arts 31 – 33 CISG

Transfer of property
▪ Art 30 CISG establishes obligation, not actual transfer → Art 4 sentence 2(b) CISG
▪ Strong divergences at domestic level → Legal uncertainty unavoidable
▪ Problems in context of software contracts → Delimitation from licensing agreements

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Lesson 2 – CISG – Seller's Obligations
Conformity of the Goods

Part 3 – Sale of Goods

Section 2 – Conformity of the Goods […] (Arts 35 – 40, 44 CISG)

Notion of conformity (Art 35 CISG)

Time for conformity (Art 36 CISG)
Right of seller to cure in case of early delivery (Art 37 CISG)
Examination of goods by buyer (Art 38 CISG)
Notice of defect by buyer (Art 39 CISG)
Seller not entitled to rely on failure to give notice (Art 40 CISG)
Excuse by buyer for failure to notify (Art 44 CISG)

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Lesson 2 – CISG – Seller's Obligations
Conformity of the Goods

Notion of conformity: Art 35 CISG:

The seller must deliver goods which are of the quantity, quality and description, required
by the contract and which are contained or packaged in a manner required by the
contract.
Except where the parties have agreed otherwise, the goods do not conform with the
contract unless they:
(a) are fit for the purpose for which goods of the same description would ordinarily
be used;
(b) are fit for any particular purpose expressly or impliedly made known to the seller
at the time of the conclusion of the contract, except where the circumstances
show that the buyer did not rely, or that it was unreasonable for him to rely, on
the seller's skill and judgement;
(c) possess the qualities of goods which the seller has held out to the buyer as a
sample or model;
(d) are contained or packaged in the manner usual for such goods or, where there is
no such manner, in a manner adequate to preserve and protect the goods;
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Lesson 2 – CISG – Seller's Obligations
Conformity of the Goods

The seller is not liable under subparagraphs (a) to (d) of the preceding paragraph for any
lack of conformity of the goods if at the time of the conclusion of the contract the
buyer knew or could not have been unaware of such lack of conformity.

Structure of Art 35 CISG

▪ Subjective test in Art 35(1) CISG
▪ Mixed subjective-objective test in Art 35(2)(b) and (c) CISG
➢ "Particular purpose" in (b) depends on individual buyer
➢ "Sample or model" in (c) close to party agreement

▪ Objective tests in Art 35(2)(a) and (d) CISG

➢ "Ordinary use" depending on objective expectations
➢ "Usual" or "adequate" packaging depending on objective circumstances

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Lesson 2 – CISG – Seller's Obligations
Conformity of the Goods

Starting point: Art 35(1) CISG:

The seller must deliver goods which are of the quantity, quality and description, required
by the contract and which are contained or packaged in a manner required by the
contract.
Principles
▪ Intentions of parties of primary importance → Interpretation under Arts 8, 9 CISG
➢ Subjective test of conformity

▪ Definition of quality, quantity and packaging in contract

➢ Includes features of goods
− Examples: Size, color, number, production rates etc

➢ Includes manufacturing process

− Examples: Observance of certain ecological or ethical standards or good manufacturing practices

➢ Includes conformity with public law requirements in foreign countries

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Lesson 2 – CISG – Seller's Obligations
Conformity of the Goods

Subjective-objective Test: Art 35(2)(b) CISG:

Except where the parties have agreed otherwise, the goods do not conform with the
contract unless they:
(b) are fit for any particular purpose expressly or impliedly made known to the seller
at the time of the conclusion of the contract, except where the circumstances
show that the buyer did not rely, or that it was unreasonable for him to rely, on
the seller's skill and judgement;
Principles
▪ "Except where" → Only applicable, if parties have not made provision in the contract
➢ Subsidiary to Art 35(1) CISG

▪ Contains subjective element → particular purpose

➢ Art 35(2)(b) CISG takes priority over objective test under Art 35(2)(a) CISG as far as
contradicting

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Lesson 2 – CISG – Seller's Obligations
Conformity of the Goods

Requirement 1: Particular purpose

▪ Particular use of the goods contemplated by the buyer
▪ Examples: Use of goods under special climatic conditions, resale of the goods in
specific markets with emphasis on fair trade and/or humane and/or environmentally
friendly production environments
Requirement 2: Particular purpose expressly or impliedly made known to seller
▪ Less than contractual agreement → Otherwise Art 35(1) CISG
▪ Examples: Description of climate (weather repots / charts etc) attached to the
contract, buyer informs seller of where to use the goods, seller is aware that buyer is
active in special markets
Requirement 3: Buyer relied on skill and judgement of the seller
▪ Buyer must have trusted that seller is able to manufacture / chose / deliver goods that
are fit for the particular purpose

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Lesson 2 – CISG – Seller's Obligations
Conformity of the Goods

Requirement 4: Reliance of buyer is reasonable

▪ Buyer cannot always trust that seller will be able to deliver goods fit for particular
purpose
▪ Examples: Buyer has superior expertise, buyer chooses goods, identity of the seller
makes reliance unreasonable

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Lesson 2 – CISG – Seller's Obligations
Conformity of the Goods

Objective test: Art 35(2)(a) CISG:

Except where the parties have agreed otherwise, the goods do not conform with the
contract unless they:
(a) are fit for the purpose for which goods of the same description would ordinarily
be used;
Principles
▪ "Except where" → Only applicable, if parties have not made provision in the contract
➢ Subsidiary to Art 35(1) CISG
➢ Subsidiary to Art 35(2)(b), (c) CISG as far as contradicting
➢ "Except where" → Should be read as "As far as the parties have not agreed"

▪ Ordinary use of goods has three main components

➢ Nature of the goods
➢ Fit for resale
➢ Fitness for ordinary use for adequate time

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Lesson 2 – CISG – Seller's Obligations
Conformity of the Goods

Nature of goods
▪ Examples: Foodstuffs must be edible, textiles must not shrink during first laundry,
ceramic baking dishes must be heat resistant, cars must be drivable
▪ Market expectation is relevant standard → Seller cannot use its own product portfolio
to define "ordinary use"
➢ Market Expectation difficult to define → Price segment? Quality segment? Domestic?
International? Size of seller / manufacturer?

Fitness for resale

▪ Increase of regulations for goods to be able to be resold on markets
➢ Health and safety, labelling etc
➢ Problems arise in case of differing public law standards in different countries

Fitness for ordinary use for adequate time

▪ Foodstuffs must not perish immediately after conclusion of the contract; durable
goods must be usable for an appropriate number of times

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Lesson 2 – CISG – Seller's Obligations
Conformity of the Goods

Suspicion of non-conformity
▪ Can affect resale of the goods → Media reports might destroy consumer confidence
➢ Example: Wine said to be altered with anti-freeze as sweetening agent (for example 15th Vis
Moot); alleged child labor etc
− My view: Generally no non-conformity
❖ Irrational / organized hypes in (social) media must not affect seller's position → Buyer has ordered the
goods and must bear economic risk of possibility to resell
❖ Situation different, where reason for suspicion originates in seller's sphere of risk → Example: Actual
breaches of duties of hygiene create suspicion about goods produced in same location; actual cases of
child labor create suspicion about goods of same manufacturer

▪ No case of suspicion but actual non-conformity, where authorities prohibit resale

because of production of goods in a certain location during a certain period of
suspicion
➢ BGH, 2 May 2005, CISG-online 999: Pork produced in Belgium during problems with dioxins;
authorities in other countries prohibited resale of pork produced in the relevant area during
the problematic period
➢ In these cases, suspicion of non-conformity (foodstuff not edible) is merely basis for
authorities to prohibit resale, actual non-conformity results from prohibition to resell

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Lesson 2 – CISG – Seller's Obligations
Conformity of the Goods

Practical Exercise

BGH (German Supreme Court), 8 March 1995, CISG-online 144

Seller S is located in Switzerland. Buyer B is located in Germany. The contract is for the
delivery of mussels from New Zealand. The contract stipulated that delivery was to be
made to the buyer's warehouse in Germany. Immediately after delivery of the goods,
German authorities prohibit resale of the mussels on the German market. An expert
examination had revealed that the level of Cadmium in the mussels was twice as high
as allowed under German public law. By analogy to the rules on contaminated meat,
the authorities classify the mussels as not being fit for sale in Germany.

S demands payment of the purchase price. B refuses to pay. It remains unclear, whether
the goods could have been sold in Switzerland.

Does S have a claim for the purchase price?

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Lesson 2 – CISG – Seller's Obligations
Conformity of the Goods

Decision
▪ What happened: Goods were delivered in accordance with the contract but taken
from the market by the German authorities because of a violation of public law
requirements regarding the features of the goods
▪ Contract: The contract made no mentioning of any public law standards to be
observed and contained no provision regarding the levels of Cadmium
▪ Starting point re conformity of the goods
➢ Contractual agreement → Art 35(1) CISG → No breach
➢ Potential breaches
− Goods not fit for particular purpose (resale in Germany) → Art 35(2)(b) CISG
− Goods not fit for ordinary use (resale on market) → Art 35(2)(a) CISG

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Lesson 2 – CISG – Seller's Obligations
Conformity of the Goods

▪ Problem: Which public law requirements are relevant, if the contract makes no
provision?
▪ Approach taken by the BGH
➢ General rule: Case to be resolved under Art 35(2)(a) CISG → In cases where contract does
not state which public law standards to be observed, seller cannot be expected to be aware
of the public law standards in country of buyer
➢ Exceptions
− Standards are identical in countries of seller and buyer respectively
− Buyer has drawn attention of seller to public law requirements
− Seller is aware of public law standards in country of buyer, for example because of previous dealings

➢ Reactions
− Other courts have followed (e.g. OGH, 28 February 2023, CISG-online 6292)
− Majority of German speaking scholars agree

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Lesson 2 – CISG – Seller's Obligations
Conformity of the Goods

▪ Opposing view (esp. Schlechtriem, Schwenzer, Schroeter)

➢ Case to be resolved under Art 35(2)(b) CISG → Particular Purpose
➢ If buyer communicates to seller the country where the goods are to be resold, then resale on
the market communicated is particular purpose of the contract (Art 3(2)(b) 1st part CISG) →
Seller must deliver goods in conformity with public law standards in that state
➢ However, breach only, if buyer did reasonably rely on skill and judgment of seller to deliver
such goods (Art 35(2)(b) 2nd part CISG) → Seller must be in a position to be able to inquire
foreign public law standards; difference between large and small sellers

▪ My view: Second view is correct; reliance on ability of seller to access and evaluate
only reasonable in a very limited number of scenarios; exceptions developed by BGH
to its general rule can be used here
➢ Previous dealings, presence in country of use of the goods

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Lesson 2 – CISG – Seller's Obligations
Conformity of the Goods

Notice of defect by buyer: Art 39 CISG:

The buyer loses the right to rely on a lack of conformity of the goods if he does not give
notice to the seller specifying the nature of the lack of conformity within a reasonable
time after he has discovered it or ought to have discovered it.
In any event, the buyer loses the right to rely on a lack of conformity of the goods if he
does not give the seller notice thereof at the latest within a period of two years from
the date on which the goods were actually handed over to the buyer, unless this time-
limit is inconsistent with a contractual period of guarantee.

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Lesson 2 – CISG – Seller's Obligations
Conformity of the Goods

Principles
▪ Buyer must give notice about defects found by examination
▪ Consequence of failure → Loss of all remedies
Requirement 1: Specificity of notice
▪ Notice of defect must be so specific so as to allow seller to assess the situation,
arrange / prepare for cure, preserve evidence
➢ "Not functioning", "Bad quality", other general statements of discontent insufficient
− "Pick this crap up or I'll throw it into the fire" (CISG-online 2968)
− "Same rubbish delivered again" → Sufficient? → Case under domestic German law, sufficient
specificity denied by court

▪ Notice of defect must be complete → Mentioning some defects is not sufficient

➢ Example: BGer, 13 November 2003, CISG-online 840: Buyer had complained to seller that
machine was not functioning and had sent a document listing several defects; Court denied
buyer to rely on defects not listed → Very strict approach

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Lesson 2 – CISG – Seller's Obligations
Conformity of the Goods

Requirement 2: Notice to seller

▪ Seller must be notified by buyer
➢ Written form not required, but strongly recommended → phone calls hard to prove
➢ Knowledge otherwise acquired by seller (media reports etc) do not exempt buyer from notice
→ Seller may be precluded from relying on buyer's failure to notify → Art 40 CISG

▪ Transmission of notice is at risk of seller → Art 27 CISG

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Lesson 2 – CISG – Seller's Obligations
Conformity of the Goods

Requirement 3: Notice within time

▪ Art 39(1) CISG → Reasonable period of time
➢ Beginning of period → When defect was discovered or ought to have been discovered
− Proper examination therefore necessary
− Period starts for every defect anew

➢ Length of period → Depending on goods and defects

− Perishable goods → Depending on how quickly goods deteriorate, between a few hours and a few
days
− Durable goods → Highly disputed → 1 month now overall development

▪ Art. 39(2) CISG → Two years from handing over of the goods to the buyer
➢ Cut-off period → No limitation period! → CISG does not contain statute of limitations
− Problem: Domestic limitation periods frequently shorter than two years

Waiver / Exclusion
▪ Admissible (Art. 6 CISG)
➢ Exclusion of domestic notice requirement is also exclusion of Art. 39 CISG (OGH, 23 May
2023, CISG-online 6373)
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Lesson 2 – CISG – Seller's Obligations
Conformity of the Goods

Impact of seller's bad faith: Art 40 CISG:

The seller is not entitled to rely on the provisions of articles 38 and 39 if the lack of
conformity relates to facts of which he knew or could not have been unaware and
which he did not disclose to the buyer.
Principles
▪ Self-understood → If seller knows or could not have been unaware of defect, not
worthy of protection at the expense of buyer
▪ Rule found in all domestic legal systems
Requirement: Seller knew or could not have been unaware
▪ Majority view → Gross negligence required; Opposing view → Obviousness of defect
decisive
▪ Information from third parties sufficient
➢ Examples: Other buyers have already complained, media reports, product recall of
manufacturer

▪ Relevant point in time → Time at which buyer should have given notice
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Lesson 2 – CISG – Buyer's Remedies

Part 3 – Sale of Goods

Chapter 1

Fundamental breach of contract (Art 25 CISG)

Declaration of avoidance (Art 26 CISG)

Section 3 – Remedies for breach of contract by the seller (Arts 45 – 52 CISG)

Chapter 5

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Lesson 2 – CISG – Buyer's Remedies

Buyer's Remedies: Art 45 CISG:

If the seller fails to perform any of his obligations under the contract or this Convention,
the buyer may:
(a) exercise the rights provided in articles 46 to 52;
(b) claim damages as provided in articles 74 to 77.
The buyer is not deprived of any right he may have to claim damages by exercising his
right to other remedies.
No period of grace may be granted to the seller by a court or arbitral tribunal when the
buyer resorts to a remedy for breach of contract.

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Lesson 2 – CISG – Buyer's Remedies

Basic system of remedies (Art 45(1) CISG)

▪ Breach of contract approach
➢ Every breach of contract triggers same set of remedies
− Generally all remedies available for every breach of contract
− Seriousness of breach addressed in context of individual remedies
❖ Avoidance, delivery of substitute goods

➢ Clear distinction between non-conformity and non-delivery

− Aliud and peius distinction irrelevant → Every deviation in the goods is non-conformity, independent
of its seriousness → Non-delivery only, if nothing has been delivered

▪ Clear distinction of CISG from traditional Roman law system (so called "cause
approach")
➢ Impossibility, delay and improper performance do not exist as specific groups of cases with
individual sets of remedies

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Lesson 2 – CISG – Buyer's Remedies

Damages claim always available (Art 45(2) CISG)

▪ Damages combined with avoidance
➢ Traditional position in Civil Law → Expectation interest cannot be combined with avoidance
of contract
− Example: Arts 107(2), 109(2) Swiss Code of Obligations

➢ CISG approach → Expectation interest can be claimed in addition to avoidance of the

contract

No period of grace available (Art 45(3) CISG)

▪ Once buyer has resorted to remedy, seller cannot be awarded additional time to
perform
➢ Provision addresses primarily courts in Romanic legal systems, where courts have the
discretion to give debtor a final period to perform, before allowing buyer's remedy
➢ Not possible under CISG

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Lesson 2 – CISG – Buyer's Remedies

Available remedies
▪ Specific performance (Art 46 CISG)
➢ Claim for delivery (Art 46(1) CISG)
− KG Zug, 10 December 2020, CISG-online 5926: Not available where seller of a specific good (sports
car) sold the good twice, because delivery is then no longer possible

➢ Claim for substitute delivery in case of non-conforming goods (Art 46(2) CISG) → Requires
fundamental breach under Art 25 CISG
➢ Claim for repair in case of non-conforming goods (Art 46(3) CISG)

▪ Avoidance of contract (Art 49 CISG)

➢ Non-conforming goods (Art 49(1)(a) CISG → Requires fundamental breach under Art 25
CISG
− Seller can prevent avoidance by cure under Art 48 CISG

➢ Non-delivery (Art 49(1)(b) CISG → Unless delay itself amounts to fundamental breach, buyer
must fix additional period of time to perform (Art 47 CISG)
➢ Declaration of avoidance necessary (Art 26 CISG) → No ipso iure avoidance

▪ Price Reduction (Art 50 CISG)

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Lesson 2 – CISG – Buyer's Remedies

▪ Damages (Art 45(1)(b), 74 – 77 CISG)

➢ Loss, including loss of profit (Art 74 sentence 1 CISG)
➢ No fault necessary → Damages limited by foreseeability to debtor (Art 74 sentence 2 CISG)
and exemption by impediment (Art 79 CISG)
➢ In case of avoidance of contract
− Calculation based on substitute transaction possible (Art 75 CISG)
− Calculation based on market price possible (Art 76 CISG)

➢ Creditor must take reasonable measures to mitigate / avoid losses (Art 77 CISG)
➢ Debtor is exempt from damages, in case of impediment beyond its control that was
unforeseeable and which cannot be avoided or overcome (Art 79 CISG)

▪ General exclusion of remedies (Art 80 CISG)

➢ Remedies not available to the extent the breach has been caused by the creditor (Art 80
CISG)

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Lesson 2 – CISG – Buyer's Remedies

Avoidance of the contract: Art 49 CISG:

The buyer may declare the contract avoided:
(a) if the failure by the seller to perform any of his obligations under the contract or this
Convention amounts to a fundamental breach of contract; or
(b) in case of non-delivery, if the seller does not deliver the goods within the additional
period of time fixed by the buyer in accordance with paragraph (1) of article 47 or
declares that he will not deliver within the period so fixed.
However, in cases where the seller has delivered the goods, the buyer loses the right to
declare the contract avoided unless he does so:
(a) in respect of late delivery, within a reasonable time after he has become aware that
delivery has been made;
(b) in respect of any breach other than late delivery, within a reasonable time:
(i) after he knew or ought to have known of the breach;
(ii) after the expiration of any additional period of time fixed by the buyer in
accordance with paragraph (1) of article 47, or after the seller has declared that
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Lesson 2 – CISG – Buyer's Remedies

(iii) after the expiration of any additional period of time indicated by the seller in
accordance with paragraph (2) of article 48, or after the buyer has declared that
he will not accept performances.
Principles
▪ Two scenarios for avoidance in Art 49(1) CISG
➢ Art 49(1)(a) CISG → Breach of contract amounts to a fundamental breach of contract under
Art 25 CISG
− Type of breach irrelevant → Breach of "main" or "additional" obligation can justify avoidance if
requirements of Art 25 CISG met
− In practice → Most cases concern avoidance because of non-conformity of the goods and delay

➢ Art 49(1)(b) CISG → Non-delivery of the goods that is not in and of itself a fundamental
breach of contract
− Requires fixing an additional period of time under Art 47 CISG
− Delay is not necessarily a reason for immediate avoidance
❖ Different in Common Law legal systems
❖ Same as in Civil Law legal systems → "Nachfrist"

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Lesson 2 – CISG – Buyer's Remedies

Fundamental breach of contract: Art 25 CISG:

A breach of contract committed by one of the parties is fundamental if it results in such
detriment to the other party as substantially to deprive him of what he is entitled to expect
under the contract, unless the party in breach did not foresee and a reasonable person of
the same kind in the same circumstances would not have foreseen such a result.
Principles
▪ Art 25 CISG accommodates for the fact that every breach, independent of its
seriousness triggers remedies for breach of contract → no de minimis rule
▪ Art 25 CISG addresses availability of remedies at level of remedies
➢ Availability of remedies not dependent on nature of breach

▪ Fundamental breach needed where remedy leads to unwinding of contract

➢ Avoidance of contract → Arts 49(1)(a), 72 CISG
➢ Claim for delivery of substitute goods → Art 46(2) CISG
➢ Not: Claim for damages → Always available

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Lesson 2 – CISG – Buyer's Remedies

Requirement 1: Buyer substantially deprived of what it is entitled to expect

▪ Undefined legal term → Fact sensitive issue
➢ Breach must go to the root of the contract
➢ For the buyer the existence of the contract must have been founded on the expectation that
the obligation breached would have been properly performed

▪ Problem 1: Delivery of non-conforming goods

➢ Majority view: As long as buyer can make use of the goods, no fundamental breach
− Buyer can resell the goods → If necessary, at reduced price
❖ Ethical buyer to resell shirts manufactured by child labor?
− Buyer can use the goods for other purposes
− Dispute: If non-conformity can be cured under Art 48 CISG, is fundamental breach at all possible?
❖ See Art 48(1) CISG → "Subject to article 49"

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Lesson 2 – CISG – Buyer's Remedies

▪ Problem 2: Delay
➢ Art 49(1)(b) CISG → Non-delivery not necessarily fundamental breach
➢ Fundamental breach only, if entire contract is based on timely performance
− Otherwise: Avoidance only following expiry of additional period of time to perform

Requirement 2: Foreseeability
▪ Seller must have been able to foresee that breach would amount to fundamental
breach
➢ View of reasonable third party in shoes of seller decisive

▪ Relevant point in time → Conclusion of the contract

➢ Contractual risks are allocated at time of contracting → Seller may have never signed or
charged higher price or procured additional insurance, if possibility of fundamental breach
recognized

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Lesson 2 – CISG – Seller's Obligations
Conformity of the Goods

Practical Exercise

Civil Court Basel-Stadt, 1 March 2002, CISG-online 729

Seller S is located in Belgium. Buyer B is located in Switzerland. The contract is for the
delivery of soy protein products and was concluded in December 1996. Buyer wanted
to resell the goods to a food company that produces vegetarian meat substitutes. In
their communications leading up to the conclusion of the contract, the parties had
consistently referred to soy protein products to be produced on the basis of soy beans
that have not been genetically modified. The contract specifically stated that these
communications should form part of the contract.

After delivery of the goods in early 1997 the buyer forwarded them to its customer.
Testings showed that the soy protein products contained traces of genetically modified
soy beans, namely close to 1%. During the court proceedings, beginning in 2001, it
was established that 1999 such traces are considered unavoidable by the legislator.
Before 1999 a zero-tolerance approach had been taken.

Did the buyer have a right to avoid the contract?

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Lesson 2 – CISG – Seller's Obligations
Conformity of the Goods

Decision
▪ Conformity of the goods
➢ Contractual agreement → Art 35(1) CISG → No genetically modified soy beans to be used
for the product
➢ Buyer cannot resell to its customer

▪ Remedies → Avoidance of contract justified?

➢ Buyer bases avoidance of contract on non-conformity of the goods → Art 49(1)(a) CISG
− Needs fundamental breach → Art 25 CISG

➢ Problem: Is breach of contract fundamental?

− Communications of the parties clear
− Buyer active in sensitive market
❖ At time of delivery zero-tolerance approach

▪ Court ruled in favor of avoidance

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Lesson 2 – CISG – Buyer's Remedies

Calculation of damages: Art 74 CISG:

Damages for breach of contract by one party consist of a sum equal to the loss, including loss
of profit, suffered by the other party as a consequence of the breach. Such damages may
not exceed the loss which the party in breach foresaw or ought to have foreseen at the
time of the conclusion of the contract, in light of the facts and matters of which he then
knew or ought to have known, as a possible consequence of the breach of contract.
Principles
▪ Full compensation
▪ Compensation in money → "sum equal to the loss"
▪ Strict liability → No fault necessary → Debtor is protected by foreseeability rule (Art 74
sentence 2) and exemption through impediment (Art 79 CISG)
▪ No doubt that loss of profit is recoverable
▪ Art 74 CISG not mandatory → Exclusion / limitation of liability possible, validity to be
assessed under domestic law → Art 4 sentence 2(a) CISG

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Lesson 2 – CISG – Buyer's Remedies

Recoverable losses
▪ Protected Interests
➢ Expectation interest → Aggrieved party to be placed in the same position it had been in, had
the contract been properly performed
➢ Reliance interest → Aggrieved party to be place in the same position it had been in, had it
never heard of the contract

▪ Types of losses
➢ Non-performance loss → Losses arising immediately from non-performance
− Non-conforming goods
❖ Difference calculated on basis of inferior value of goods
❖ Loss calculated based on substitute goods
− Non-delivery
❖ Loss calculated on basis of substitute goods

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Lesson 2 – CISG – Buyer's Remedies

▪ Incidental loss → Losses arising in connection with non-performance

➢ Costs for mitigation of losses
➢ Costs for examination of substitute goods
➢ Costs for additional workforce / space necessary
➢ Legal costs → Lawyer fees

▪ Consequential loss → Losses arising as further consequence of the non-

performance
➢ Loss of profit
➢ Damage to other property of the buyer
➢ Liability of buyer towards third parties
− Penalty / Liquidated damages

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Lesson 2 – CISG – Buyer's Remedies

▪ Disputed areas
➢ Non-pecuniary loss
− Main problem is definition of non-pecuniary loss
❖ Majority of German speaking commentators: If it cannot be calculated with difference theory, it is a non-
pecuniary loss
❖ Opposing (correct) view: True non-pecuniary loss is only pain and suffering, loss of amenities etc;
decisive task is interpretation of contract; if contract protects a specific interest, compensation is due;
remaining problem is calculation but not general acknowledgement of existence of loss

➢ Loss of reputation
− Increasingly recognized, either as pecuniary loss (correct) or as non-pecuniary loss that is
recoverable by way of exception (does not hurt)

➢ Loss of possibility to use goods

− Increasingly recognized, determination of market price is real issue

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Lesson 2 – CISG – Buyer's Remedies

Calculation of damages based on substitute transaction: Art 75 CISG:

If the contract is avoided and if, in a reasonable manner and within a reasonable time after
avoidance, the buyer has bought goods in replacement or the seller has resold the goods,
the party claiming damages may recover the difference between the contract price and the
price in the substitute transaction as well as any further damages recoverable under article
74.

Principles
▪ Provision facilitates proof of loss
➢ No foreseeability rule
➢ Buyer can simply recover difference between contract price and higher price it had to pay to
acquire substitute goods
− Concrete calculation of loss

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Lesson 2 – CISG – Buyer's Remedies

Requirement 2: Substitute transaction

▪ The case must be about non-delivery and buyer must have acquired substitute goods
instead of claiming delivery
▪ Problem: Buyer who is constantly active on the market in buying and selling → What
is the substitute transaction?
➢ Risk that buyer uses economically disadvantageous purchase to claim that this was the
substitute transaction triggered by the non-delivery

Requirement 3: Reasonableness of substitute transaction

▪ If [insert cheap car brand here] is not delivered, do not replace by [insert luxury car
brand here]

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Lesson 2 – CISG – Buyer's Remedies

Calculation of damages based on market price: Art 76 CISG:

If the contract is avoided and there is a current price for the goods, the party claiming
damages may, if he has not made a purchase or resale under article 75, recover the
difference between the price fixed by the contract and the current price at the time of
avoidance as well as any further damages recoverable under article 74. If, however, the
party claiming 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.

For the purposes of the preceding paragraph, the current price is the price prevailing at the
place where delivery of the goods should have been made or, if there is no current price at
that place, the price at such other place as serves as a reasonable substitute, making due
allowance for differences in the cost of transporting the goods.

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Lesson 2 – CISG – Buyer's Remedies

Principles
▪ Provision facilitates proof of loss
➢ No foreseeability rule
➢ Buyer can simply recover difference between contract price and the higher price it would
have had to pay on the market to acquire substitute goods
− Abstract calculation of loss

▪ Buyer can choose whether to use Art 75 CISG or Art 76 CISG

➢ Disputed; some authors claim that buyer must first attempt to enter into substitute transaction
➢ My view: Free choice of buyer → Restriction makes no sense and nowhere to be found in
wording

Requirement 1: Contract is avoided

▪ Same as under Art 75 CISG

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Lesson 2 – CISG – Buyer's Remedies

Requirement 2: No substitute transaction

▪ If buyer has already acquired substitute goods, calculation based on market price no
longer possible
➢ Risk that buyer acquires substitute goods below market price but calculates loss on market
price → Windfall not tolerated

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Lesson 2 – CISG – Buyer's Remedies

Mitigation of loss: Art 77 CISG:

A party who relies on a breach of contract must take such measures as are reasonable in the
circumstances to mitigate the loss, including loss of profit, resulting from the breach. If he
fails to take such measures, the party in breach may claim a reduction in the damages in
the amount by which the loss should have been mitigated.
Principles
▪ Self-understood → Party should not be able to claim losses it could have reasonable
avoided or mitigated
▪ If violated, aggrieved party's claim for damages is reduced → Cannot be held liable by
contract breacher → Art 77 CISG is not actual obligation
Duty of aggrieved party
▪ Take measures reasonable under the circumstances
➢ Examples: Resellers should call customers in case of non-delivery by seller to negotiate
longer delivery periods and / or acquire substitute goods to perform towards customers; if
machine is defective and causes danger to property, experts should be called to take safety
measures etc
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Lesson 2 – CISG – Buyer's Remedies

Exemption from damages: Art 79 CISG:

A party is not liable for a failure to perform any of his obligations if he proves that the failure
was due do an impediment beyond his control and that he could not reasonably be
expected to have taken the impediment into account at the time of the conclusion of the
contract or to have avoided or overcome its consequences.
If the party's failure is due to the failure by a third person whom he has engaged to perform the
whole or a part of the contract, that party is exempt from liability only if:
(a) he is exempt und the preceding paragraph; and
(b) the person whom he has so engaged would be so exempt if the provisions of that
paragraph were applied to him.
The exemption provided by this article has effect for the period during which the impediment
exists.
The party who fails to perform must give notice to the other party of the impediment and its
effect on his ability to perform. If the notice is not received by the other party within a
reasonable time after the party who fails to perform knew or ought to have known of the
impediment, he is liable for damages resulting from such non receipt.
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Lesson 2 – CISG – Buyer's Remedies

Nothing in this article prevents either party from exercising any right other than to claim
damages under this Convention.
Principles
▪ Damages claim not subject to fault → Strict liability → Art 79 CISG protects contract
breacher
▪ Not equivalent to "impossibility" at domestic level
▪ Art 79(1) CISG only exempts from damages claim → Art 79(5) CISG → Avoidance of
contract still possible
▪ Specific performance cannot be claimed in case of Art 79(1) CISG
➢ Basis for exclusion is disputed

▪ Disputed, whether Art 79 CISG can serve as ground for hardship / economic
impossibility

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Lesson 2 – CISG – Buyer's Remedies

Requirement 1: Impediment beyond control of debtor

▪ Often summarized as "force majeure"
➢ Examples: War, natural catastrophes, terrorist / pirate attacks
➢ Disputed: Economic hardship
➢ Disputed: Ethical hardship
➢ Parties often use ICC Force Majeure Clause to define impediment → Art 79(1) CISG to that
extent inapplicable

▪ If impediment arises from sphere of debtor, this is breach of contract, no exemption

possible
➢ Choice of dangerous transport route
➢ Improper organization of business
➢ Disputed: Strikes

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Lesson 2 – CISG – Buyer's Remedies

Requirement 2: Not foreseeable at time of contracting

▪ Contractual risks are allocated at time of contracting → If occurrence of impediment is
foreseeable at this point, then debtor contractually agrees to perform despite the risk
of the impediment
▪ Parties often use ICC Force Majeure Clause to define impediment → Art 79(1) CISG
to that extent inapplicable
Requirement 3: Consequences of impediment cannot be avoided / overcome
▪ If debtor can avoid impact of impediment, it cannot rely on Art 79(1) CISG
➢ Examples: Using factories in other places for production, choosing different transport route,
redirect ship, unload goods in different place

Requirement 4: Impediment causes non-performance

▪ Causal link between impediment and breach of contract needed
➢ Example: Headquarter is destroyed by fire, but factory in other place up and running → No
reliance on Art 79(1) CISG

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Lesson 2 – CISG

Thank you and best of luck

for the Vis Moot

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