aa. Scope of Application

(1) Primacy of the Contract

In a first step, it is important to note that Art. 79 is – as is the case with regard to almost all provisions of the CISG – only applicable within the boundaries of the parties’ agreement. That has two consequences: First, where the contract itself gives rise to specific rights of a party, it has to be determined by way of interpretation according to Art. 8 whether Art. 79 is overruled by this specific agreement of the parties and thus does not apply. Examples particularly include express guarantees or liquidated damages clauses that supplement – but do not replace – the standard right for damages under the CISG. In these cases the claims arise directly out of the contract and are not damages claims pursuant to the CISG.

Second, the purpose of Art. 79 is not to modify the contractual risk allocation. Rather, where a risk is contractually allocated to one of the parties, it cannot rely on Art. 79 to evade damage claims. The most important example here is the seller’s procurement risk. The very fundament of a sales contract is that the seller agrees to deliver goods to the buyer. In agreeing so, the seller assumes the risk of procuring these goods, be it by manufacturing them from raw materials or by acquiring them from a third party. This procurement risk includes the risk that the seller has to turn to alternative, costlier ways of procuring the goods in case its primarily intended way of getting the goods fails. In that case the seller cannot rely on Art. 79 if its primarily intended way is barred by an impediment since it contractually assumed the procurement risk. The other side of the coin is the buyer’s utility risk. Analogous to what has been said with regard to the seller’s procurement risk, by virtue of the contractual risk allocation the buyer bears the risk of using or selling the goods as intended, the so called utility risk. Hence, it cannot invoke Art. 79 if it runs into any impediments in doing so. Where a party is unwilling to assume such risk it has to include a contractual clause limiting its liability accordingly.

Both, specific rights as well as the implied contractual risk allocation can also be influenced by trade usages and practices applicable to the parties’ contract.


(2) Non-conforming Goods

Particularly scholars from common law legal backgrounds are of the opinion that Art. 79 does not apply to the delivery of non-conforming goods or goods encumbered with third party rights. The background of this restrictive view is the still existent fear among common law jurists that the requirement of fault is introduced into the CISG via the perceived backdoor of Art. 79. This fear is, however, unfounded since a correct application of Art. 79, i.e. particularly giving regard to the primacy of the contractual procurement risk, hardly ever results in an exemption of the seller with regard to the delivery of non-conforming or encumbered goods. Only in cases where it is impossible for the seller to procure the goods owed on any market accessible to it exemption is possible. Moreover, neither the unequivocal wording of Art. 79, i.e. ‘failure to perform any of his obligations’ (emph. add.), nor the uniform concept of breach of contract underlying the CISG leave room for a distinction between delivery of non-conforming or encumbered goods and other failures to perform.

Last modified: Friday, 23 October 2015, 6:29 PM