International sale: common provisions to the parties

Marcello Mantelli
Lawyer in Milan and Turin

In the last article of this blog dedicated to international sales, we examine the provisions contained in chapter V of the United Nations Convention on Contracts for the International Sale of Goods (so called CISG), which apply to both the seller’s and the buyer’s obligations, with particular reference to those rules that we find most interesting in the context of wine sales contracts, namely the assumptions of early default, split-delivery contracts, and the regulation of storage of goods.

FROM THE FIRST SECTION OF CHAPTER V OF THE CISG

The first section of Chapter V of the CISG contains three provisions that allow for the non-performance (or partial non-performance) of the contract or the suspension of performance of an obligation under the contract, in special situations, when a party has in some way threatened future non-performance of its obligations [articles 71, 72 and, in some respects, article 73(2)], or in the case of breach of a contract providing for divided deliveries of goods (Article 73).

In contrast, under the conditions stipulated in the third article of the section (art. 73), where the parties have stipulated a contract providing for an allocated delivery of bottles of wine, the aggrieved party may terminate the contract limited to a single delivery, future deliveries, or the entire contract.

THE ANTICIPATED NON-PERFORMANCE

Specifically, article 71 authorizes the seller or buyer to suspend performance of obligations under the contract of sale if it is unlikely that it will receive a substantial part of the counter-performance promised by the other party.

Careful attention should be paid, however, to the fact that the party suspending the performance of its obligations does not violate the contract only if the suspension is lawful and provided that, before or after the shipment of the goods, he immediately informs the other party.

On the other hand, he must execute the contract if the other party provides adequate guarantees about the performance of its obligations.

The right to suspend its own performance under Article 71 CISG subsists until the time when performance is due, but once it has passed the date when performance is due, the aggrieved party must rely on the other remedies contained in the Convention, which have been discussed in the preceding articles of the blog.

The right to suspend under article 71 must then be distinguished from the right to terminate the contract under article 72: in fact, unlike termination of the contract, which results in the termination of the parties’ obligations, suspension of contractual obligations presupposes that the contract will continue and encourages mutual assurance that both parties will perform.

Article 72, on the other hand, authorizes a seller or buyer to terminate the contract if it becomes clear that before the scheduled date of performance the other party will commit a material breach of contract.

Consider the case of a U.S. distributor of wine and spirits who sued an Italian exporter with respect to an international sales contract involving the delivery of bottles of wine produced according to specifications expressly requested by the distributor.

The Italian exporter, after accepting the order received from the distributor, due to the subsequent inability to agree on the method of payment for the goods, informed the distributor that he no longer intended to execute the delivery of the goods and intended to sell the bottles at another distributor.

The U.S. distributor sued the Italian exporter with the aim of recovering damages for the wine producer’s alleged anticipated default and to obtain against him an order to deliver the ordered bottles of wine.

The court called upon to decide the dispute, found that the contract could be considered concluded, that the distributor was ready to execute it, that there had been an anticipated breach on the part of the exporter, and that said breach had caused damage to the distributor.

The prerequisites for the more drastic remedy of terminating the contract are stricter than those for suspension, both in terms of the seriousness of the breach and the notification requirements under the two provisions.

Indeed, Article 72 requires “reasonable” notice only if time permits and exempts the party from notice if the other party has declared that it will not perform while Article 71 requires immediate notice of suspension, without exception.

CONTRACTS WITH APPORTIONED DELIVERIES

Article 73 contains special rules for contracts with divided deliveries by establishing cases in which a seller or buyer has the right to declare the contract terminated with respect to a single delivery, future deliveries, or the contract as a whole.

According to article 26, a declaration of termination is effective only if the aggrieved party has communicated it to the other party.

Note that article 73 does not preclude the application of other articles of the Convention: when, for example, a seller fails to deliver part of the wine or a buyer fails to pay for part of the wine, the aggrieved party has the right under article 47 or article 64:

– to grant the defaulting party an additional period of time to remedy the non-performance, and

– to terminate the contract with respect to such delivery if the default persists after the expiration of the additional period granted.

When only some – but not all – parts of the goods are delivered, the aggrieved party may have recourse to either article 51 on partial delivery or article 73.

Indeed, the aggrieved party could assert both the right to suspend its performance under article 71, discussed above, and the right to terminate the contract with respect to future deliveries under article 73.

An aggrieved party also has the right either to terminate its contractual obligations to make further deliveries under article 72 or article 73.

CONSERVATION OF GOODS

Parties to a sales contract governed by the Convention will sometimes rightly find themselves in possession or control of goods that should be in the hands of the other party.

For example, a seller of wine may find himself in such a situation if a buyer refuses to make payment and the seller then suspends delivery, or if the buyer simply refuses to take delivery of the goods.

A buyer may be in similar circumstances if he or she has taken delivery of wine and subsequently declares that he or she wishes to terminate the contract (which means that the goods must be returned to the seller as provided for in articles 81 (2) and 82 examined in the preceding sections of the Decalogue) or requests replacement goods under Article 45 (2) (which requires the buyer to return the goods received, as provided for in Article 82).

The first two provisions of section VI of Part III of chapter V, articles 85 and 86, devoted to the preservation of goods require the buyer or seller to take reasonable measures to preserve the goods in its possession and also give the preserving party the right to retain the goods until the other party reimburses the costs of preservation.

The remaining two other provisions of the section introduce additional elements regarding the preservation of goods:

– Article 87 provides that storing the goods in a third-party warehouse at the other party’s expense (provided such expense is not unreasonable) is an appropriate method of preservation;

– Article 88 gives the party storing the goods the right (or even the obligation, in specific circumstances), to sell the goods and retain from the proceeds a sum equal to the expenses reasonably incurred in storing and selling the same, paying the other party the excess amount.

Condividi su:

Leave a Reply

Your email address will not be published. Required fields are marked *

*

Marcello

Dear Aurelia, the information you have provided are not sufficient for an answer which is subject to a professional engagement. In any case, we should study the provisions of the contract and identify governing law of the contract.If it does not provide anything on governing law then conflict law shall apply (in the most part of the countries likely the governing law will be the law of the country where the agent is domiciled). best regards Marcello Mantelli

VAI AL COMMENTO
Aurelia

I signed a contract with a fashion agency but there were no termination clauses in the contract and decided to withdraw it before one week after signature so sent them an email but after 14 days they sent me an email and asserted that because i didnt withdraw in legal deadlines i have to perform the contract and pay whole money.Noboday told me about any deadlines and nothing was in the contract!! Why did they claim such a thing?

VAI AL COMMENTO

Follow Us