Luca Davini
Lawyer in Milan and Turin

In the case of an international sale governed by the United Nations Convention on Contracts for the International Sale of Goods (Vienna,1980, hereinafter the CISG) the buyer’s obligations consist basically of: payment of the price of the goods and taking delivery of the goods.

Other minor but no less important obligations are provided for in the contract, for example, depending on the circumstances of the particular case, opening a documentary credit or providing a bank guarantee on first demand. In this article, we will examine what remedies are provided by the CISG in favor of the seller in case the buyer fails to fulfill his obligation to pay or take delivery of the goods or other contractual obligations also in the light of some cases taken from international jurisprudence, which as seen in the first point of the decalogue, applies the CISG uniformly, with the aim of drawing some operational guidelines to be used in case of buyer’s default.

GUIDELINES FOR THE SELLER

Section III of Part III of Chapter III of the CISG regulates the remedies that are available to the seller in the event of buyer default.

In general, art. 61 (1) of the CISG states that when the buyer fails to perform an obligation of his own, the seller may:

-take the remedies provided in articles from 62 to 65 of the CISG (demand for performance, termination of the contract); and 

-claim for damages as provided in articles from 74 to 77 of the CISG

SELLER’S REMEDIES IN PARTICULAR: LEGAL BASES

In particular, articles from 62 to 65 of the CISG cover:  

1. Article 62: the demand for performance which consists of the seller’s request to the buyer to pay the price or, as the case may be, to take delivery of the goods or to fulfill his other contractual obligations;

2. Article 63: the power of the seller to set the buyer an additional period of time, of reasonable duration, for the buyer to perform its contractual obligations (for example by sending a notice in which it will set the buyer a deadline by which to take delivery of the goods);

3. article 64: the seller’s right to terminate the contract, which termination can be requested only in the following cases:

a-in the case of essential non-performance (as provided in Art.25 CISG).

In practice, an essential breach occurs when the buyer fails to pay all or a large part of the agreed price, fails to collect the goods, or when he defaults on other obligations under the contract (e.g., fails to open the agreed documentary credit); or

b-where the buyer fails, within such additional period as may be fixed by the seller under Article 63 -which is an option and not an obligation- to fulfill the obligation to pay the price or take delivery of the goods by a certain date.

The fixing of an additional period presupposes, of course, that the time limit for, say, prepayment or taking delivery of the goods has expired, and that the seller intends to make a last attempt to obtain what is demanded (perhaps in the presence of a temporary financial difficulty on the part of the other party).

Reasonable delay does not justify a request for termination unless the deadline was agreed upon as essential in the contract; or

c- in case the buyer declares that he will not pay or collect the goods. In this case, no doubt arises, and termination of the contract may be declared, the counterparty’s intention not to comply with the contract being well understood.

IV-article 65: the seller’s right to ask the buyer for indications (technical specifications) on the form, size or other characteristics of the goods and of the possibility in the seller’s own right to unilaterally set these parameters in the absence of a response from the buyer (in the only case, of course, that no specifications had been previously agreed upon in the context of the contract).

This section of the CISG reflects, by placing itself on the side of the seller, many of the provisions of Section III of Chapter II of Part III in Articles 45 to 62 of the CISG that deal with the assumptions of remedies available to the buyer in the event of the seller’s default, remedies that we have already examined in the previous Decalogue article (see seventh point of the Decalogue).

COMPENSATION OF DAMAGE

(art.74-77 CISG)

In the probable case of a claim for damages arising from non-performance, damages shall consist of a sum equal to the loss, including lost profits, suffered by the other party as a result of the non-performance, provided that the buyer has not defaulted due to force majeure (see Art.79 CISG and point six of the Decalogue).

A typical case justifying a claim for damages is when the buyer fails to collect the goods, the seller consequently terminates the contract and sells the goods to a third party.

In this case, the number of damages is normally equal to the difference between the price paid by the third party and the price that should have been paid by the defaulting buyer, plus other related costs and expenses incurred by the seller up to full compensation for the loss suffered by the seller.

In addition to compensation for damages as seen above, the seller may claim interest on the basis of Article 78 (according to the prevailing case law, interest must be calculated at the legal rate provided by the law applicable to the relationship between the parties set forth in the contract or determinable in accordance with the rules of private international law: as a rule, the law of the country where the seller is based will be arrived at by the latter route).

A judgment has also recognized the right, in addition to interest, to compensation for the cost of a credit facility (CLOUT CASE No. 281 Oberlandsgericht Koblenz, Germany, September 17, 1993).

Equally, one may seek reimbursement of attorneys’ fees incurred in the recovery of credit (CLOUT CASE No.166 Landgericht Berlin, Germany,March 21, 2003).

CONCLUSIONS

In the event that the buyer does not pay the price, the seller will have to consider on a case-by-case basis what is the best strategy to follow in light of the circumstances of the concrete case.

If well-established business relations are in progress a reasonable delay in payment would not justify a request for termination of the contract and it would probably be advisable to set an additional period for the fulfillment of the contract (i.e., collection of the goods, payment, etc.), and then declare it terminated in the only case where the additional period has expired fruitlessly.

If, however, it is a matter of goods specially manufactured to the buyer’s specifications and unsaleable to third parties perhaps it would be better to insist on fulfillment and bring a suit to that effect but, we repeat, in the light of the circumstances of the concrete case.

Otherwise, for example, in the case of unpaid wine that is still in the seller’s warehouses in the face of a buyer who has clearly said that he does not intend to take it back, it will normally be preferable instead to always set an additional time limit, then declare the contract terminated if it expires fruitlessly, and then sell the goods to a third party and take action for damages against the buyer, provided that the cost-benefit analysis of the transaction is favorable and that obviously the buyer has not become insolvent in the meantime, provided that an appropriate mechanism for dispute resolution has been provided for in the contract.