The Harmonisation of the International Sale of Goods Through Principles of Law and Uniform Rules [1 ed.] 9781527549128, 9781527546493

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The Harmonisation of the International Sale of Goods through Principles of Law and Uniform Rules

The Harmonisation of the International Sale of Goods through Principles of Law and Uniform Rules By

Jorge Balmaceda

The Harmonisation of the International Sale of Goods through Principles of Law and Uniform Rules By Jorge Balmaceda This book first published 2020 Cambridge Scholars Publishing Lady Stephenson Library, Newcastle upon Tyne, NE6 2PA, UK British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library Copyright © 2020 by Jorge Balmaceda All rights for this book reserved. No part of this book may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the copyright owner. ISBN (10): 1-5275-4649-7 ISBN (13): 978-1-5275-4649-3

“Profit is a blessing, if it’s not stolen” —William Shakespeare, The Merchant of Venice, 1597

TABLE OF CONTENTS

Preamble ..................................................................................................... x Abstract......................................................................................... xii Main Abbreviations ................................................................................. xiii Introduction ................................................................................................ 1 Part 1 - The Differentiation of the Law of Sale of Goods Under Common Law and Civil Law Systems Chapter 1 ................................................................................................... 8 Common Law: English Law SECTION 1 - ASPECTS COMMON TO ALL CONTRACTS IN COMMON LAW § 1 - The fundamentals of English contract law § 2- The basics of the English system § 3 - Validity of contracts SECTION 2 - THE LEGAL REGIME FOR THE SALE OF GOODS IN ENGLAND AND WALES § 1 - The fundamentals of the contract of sale of goods § 2 - The effects of the contract of sale of goods Chapter 2 ................................................................................................. 71 Civil Law: French and Chilean Law SECTION 1 - THE LEGAL REGIME OF THE CONTRACT OF SALE OF GOODS IN FRANCE §1 - The fundamentals of the contract of sale of goods §2 - The effects of the contract of sale of goods

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Table of Contents

SECTION 2 - THE LEGAL REGIME FOR THE SALE OF GOODS IN CHILE §1 - The fundamentals of the contract of sale of goods §2 - The effects of the contract of sale of goods Part 2 - Harmonisation of the International Sale of Goods by Civil Law Primacy Chapter 1 ............................................................................................... 155 Harmonisation by Inspiration of the General Principles of the Civil Law System and of UNIDROIT SECTION 1 - THE SOLUTIONS PROVIDED BY THE GENERAL PRINCIPLES OF THE CIVIL LAW SYSTEM § 1 – Party autonomy in the international sale of goods § 2 - Good faith in the international sale of goods SECTION 2 - SOLUTIONS INSPIRED BY THE UNIDROIT PRINCIPLES § 1 - The foundations of the UNIDROIT principles § 2 - Relations between the UNIDROIT principles and the general principles of the civil law system § 3 - Formation of consent according to UNIDROIT principles § 4 - The effects of the contract according to the UNIDROIT principles Chapter 2 ............................................................................................... 226 Harmonisation by Adoption of Uniform Rules: The 1980 Vienna Convention SECTION 1 - FORMATION OF THE INTERNATIONAL SALE OF GOODS CONTRACT § 1- The fundamentals of the sale of goods in the Vienna Convention of 1980 §2 - The content of the sales contract SECTION 2 - SANCTIONS FOR NON-PERFORMANCE OF THE OBLIGATIONS OF THE PARTIES § 1 - Remedies in case of preservation of the contract §2 - Remedies in case of invalidation of the contract

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Overall Conclusion ................................................................................. 290 Comparative Table of the Main Subjects Treated in the Work .............. 300 Bibliography ........................................................................................... 307 Annexes .................................................................................................. 318

PREAMBLE

The present work, which was entrusted to the Holy Spirit, was written entirely in French and obtained maximum qualification, dated November 13, 2017, when it was defended before a commission composed of doctors Dondero, Grimaldi, Pizarro Wilson, Vernières and Dupichot. I am deeply grateful for the collaboration of Doctors Dupichot and Pizarro Wilson, and international arbitrator Jamal Chaykhouni. Also, for the patience and permanent support of my wife, Mariangela Rossi and my children, Anna and Enzo. Similarly, the collaboration and support provided by the vice-deans of Universities Mayor (Dr. Felipe Meléndez Avila) and Bernardo O'Higgins (Dr. Fernando Villamizar Lamus) and Dr. Jane Ching from Nottingham Law School (NTU). The present translation (free from the author) develops the general aspects of contract law in the common law and civil law systems, together with the particularities of the sale of goods in those systems, and in international law. An abundant and detailed study of arbitral and judicial jurisprudence, international and national, nourishes the development of the topic. The study seeks to determine which system prevails in the international trade order, and in what ways. It is both a theoretical and practical work, which aims to serve as support for the drafting of international commercial contracts, and in international and domestic commercial litigation, relating to the sale of goods. The first part analyses national laws: the legal regime for the sale of goods under the common law in England, a country chosen based on its geographical proximity to France, and given that very famous judgments, based on common law, are of English origin (chapter 1). The legal regime for the sale of goods in the civil law system is developed afterwards France, country chosen for having been the cradle of the Napoleonic Code, the basis of continental European private law, and Chile, given that its civil code has served as a model law for many other Latin American countries (chapter 2). The second part analyses the harmonisation movements in the international sale of goods: the general principles that inspire the civil law system, and the UNIDROIT Principles on International Commercial Contracts (chapter 1). The solutions adopted by uniform substantive rules

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(the 1980 Vienna Convention on the International Sale of Goods) are then developed, justifying how it has opted for a classical technique for the elaboration of uniform instruments, consisting of adopting the solutions of one system of law as the main rules (the civil law system), associating those of another system (the common law) by way of exceptions - mitigation of damage, anticipatory breach, etc.- (chapter 2).

ABSTRACT

Common law and Civil Law are the main legal systems in the world, and the sale of goods is the most important contract. Sales of goods have been ruled either by English Law or Civil Law, which has posed problems sometimes due to different approaches regarding certain principles and institutions. The 11th April 1980 Vienna Convention on contracts for the international sale of goods tried to harmonise these differences with a codification technique, typical of Civil Law, giving privilege to rules of Civil Law most of the time but also introducing institutions from Common Law, that are not incompatible with civil law, as we will see. The general principles of civil law and Unidroit Principles help with this harmonisation goal, integrating the rules of the CISG and also with the interpretation phase. The power of codification prevails over Common Law, giving certitude and sophistication to this matter, which is vital for global commerce. Keywords: civil law; common law; general principles of law; goods; international; sale; Unidroit principles; Vienna Convention 1980

MAIN ABBREVIATIONS

AC: Appeal Cases All ER: All England Law Reports Art.(s).: article(s) Plen. Ass.: Plenary meeting of the Court of Cassation. Bull. civ.: bulletin of judgments of the Court of Cassation (civil chambers) Cass.: Cour de cassation CCI: Chambre de Commerce International de Paris (International Chamber of Commerce of Paris, France) c. civ. ch.: Chilean Civil Code c. com. ch.: Chilean Commercial Code Ch.: Chancery division c. civ.: French civil code c. com.: French Commercial Code c.consom.: French Consumer Code C.Ap.: Court of Appeal CE: French Council of State Civ.: civil chambers of the Court of Cassation Com.: Commercial Chamber of the Court of Cassation C. Sup.: Supreme Court CPC ch.: Chilean Code of Civil Procedure CP: Constitution (Chile) CPR: Civil Procedure Rules (United Kingdom) CNUDCI / UNCITRAL: United Nations Commission on International Trade Law CISG / CISG: Vienna Convention of 11th April 1980 on Contracts for the International Sale of Goods CLOUT: Case Law on Uncitral Texts (case law compiled by the United Nations Commission on International Trade Law) CLR: Commonwealth Law Reports D.: Dalloz DLR: Dominion Law Reports ed.: Edition EWCA Civ.: England and Wales Court of Appeal. Civil GATT: General Agreement on Tariffs and Trade GAFTA: Grain and Feed Trade Association (based in London, England)

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Main abbreviations

GAJC: Major civil case law decisions Gaz. Pal.: Gazette du Palais GATS: General Agreement on Trade and Services Incoterms: International Commercial Terms (ICT) I.B.M.: International Business Machinery ICC: International Chamber of Commerce, Paris, France JCP: Juris-classeur périodique K.B.: King's bench division Law Com.: English Law Commission LCIA: London Court of International Arbitration LR CP: Law Reports Common Pleas Lloyd's Rep.: Lloyd’s Law Reports N.U.: United Nations P. U.: Unidroit Principles of International Commercial Contracts (2016) PECL: Principles of European Contract Law. Q.B: Queen's Bench. G.D.R.: German Democratic Republic Req.: Chamber of Applications of the Court of Cassation. RTD civ / RTDC: quarterly civil law review. S.G.A.: Sale of Goods Act (1979) U.N.: United Nations U.P.: Unidroit Principles of International Commercial Contracts (2016)

INTRODUCTION

1. The enunciation of some prolegomena to the study of the sale of goods in the civil and common law systems (I) will precede a brief presentation of the subjects to be studied (II), after which we will explain the drafting plan chosen for our study (III). I. Prolegomena to the study of the sale of goods in the civil and common law systems 2. The common mistake - Many jurists, law professors, lawyers and magistrates believe that civil law and common law systems are irreconcilable. That is a mistake. Others consider that the differences between these two legal systems, supposedly insurmountable, would be the consequence of struggles and rivalries of the past, mainly for the control of the New World (Missouri, Louisiana and Quebec, among others, were French colonies in North America and wars were fought with England for the control of certain American colonies). That is another mistake. A thorough examination of the two most important systems of law, civil law and common law, on a specific subject such as the sale (international sale of goods), allows us to conclude that there are more convergences and affinities between the English and French legal traditions than differences. These legal traditions and the systems in which they are taxed are not irreconcilable, moreover. In this sense, the growing importance adopted by the written laws, acts, in the United Kingdom and the United States, is today well recognized. 3. The French influence - The influence of "French-style" coding is considerable and almost "omnipotent" Napoleon Bonaparte, at St. Helen, had a premonitory formula about it: "My true glory is not in having won forty battles; Waterloo will erase the memory of so many victories. What nothing will erase, what will live forever, is my Civil Code. It will therefore be necessary to redo it in thirty years time1. 1

Cf. Napoleon 1st at Saint Helena, Paris, Dalloz, 2004, reed. of the original civil code of 1804, commemoration of its bicentenary, back cover.

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Introduction

4. Affinities - There are also philosophical affinities between these two traditions: So, about Voltaire's exile in England, we can read: "The stay in England and its consequences (1726-1734). Voltaire's three-year stay in England (1726-1729) was very important for the development of his ideas. He had the best reception, frequented the greatest lords and befriended the most outstanding writers. He publishes his Henriada, which he dedicates to the queen, he initiates to the theories of Newton and to the theater, absolutely new for him, of Shakespeare. But, above all, he is influenced by Locke, and admires a country where the freedom to think was almost unlimited, where all forms of doubt and denial were found and tolerated2.

Mutatis mutandi, on the other side of the Atlantic, the "founding fathers" of the United States of America were francophiles. We know the famous phrase attributed to Thomas Jefferson: "Every man has two countries: his own and France." More recently, in England, Sir Winston Churchill was known to be a great francophile. In addition, we note certain linguistic affinities between France and England. French words or words of French origin are found everywhere in the English legal vocabulary, such as bureau, clerc, justice, cour(t), jurisdiction, regime, administration, jury, etc. Even the motto of the British crown is written in French: "Dieu et mon droit." Thus, the influence of French law on common law is indisputable. Both Gallia and Britannia were provinces of the Roman Empire and both were marked by their civilizing culture: their law, their architecture (the Roman arch, the baths). In fact, the basic principles of Roman law, a fertile legal source, have irrigated the two legal systems that are the object of this study: good faith (with nuances, as we shall see), party autonomy, responsibility, and unjust enrichment. These principles have been transmitted by medieval canonists and glossators and have finally been included in the Napoleonic Code, which has become the favorite model of civil codes throughout the world. 5. The importance of international trade - The sale of goods was the cause of the greatness of the British and French empires since trade is vital for the prosperity of countries. Indeed, in the words of Professor Raymond: "The sale of goods is at the heart of the economic questions posed by our modern society. Simplifying, we can say that our entire economy is founded 2

Cf. Voltaire, Lettres Choisies, Paris, Hachette, 1935, p. 4.

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on the sale of goods: the sale allows to give work, therefore a salary, to people who will spend this money to buy new goods. By the way, the treasury collects taxes that make it possible to finance public expenditure and redistribute income to allow, once again, the purchase of goods. In this type of economy, if there is no sale of goods, the economy falls like a house of cards3. In France as in England, the freedom to trade is ancient. The famous Le Chapelier law of 14 June 1791 and the Allarde decree of 2-17 March 1792 established that trade could be freely exercised in France; unlike what happened in the former Spanish colonies (such as Chile) that were obliged to trade with the metropole, a situation that was one of the causes of independence. II. Presentation of the topics to be dealt with 6. The links between civil law and common law - Within the framework of this study, our aim is to highlight the connections between civil law and common law systems - through the study of the principles of party autonomy, good faith, and responsibility - and the way in which their differences, which are not irreconcilable, have been dealt with by the 1980 Vienna Convention on Contracts for the International Sale of Goods (CISG), most of the time privileging the civil law system of normative codification. Some corresponding elements with the Chilean law of sale (of French inspiration) have also been proposed. 7. Rules of Law - We will first analyze the main rules of law relating to the sale of goods in English, French and Chilean law in order to highlight their similarities and differences. Next, we will study the influence of the general principles of the Civil Law system and Unidroit on the method used by the CISG to level these differences in various situations. Thus we shall see, for example, how the rules of common law on the formation of consent are very close to those of civil law, although with some small distinctions in relation to the offer, and reflect the theory of reception arising from French law. On the other hand, we will analyze the way in which the CISG moves away from French civil law with regard to the rules of risk transfer, but that it adheres to this system for preliminary negotiations, sanctioning the guilty 3

Cf. RAYMOND Guy, La vente de marchandises, Paris, Dalloz, collection "Connaissance du droit", 1996, p. 4.

Introduction

4

or brutal rupture of the negotiations according to a general principle of good faith present in the whole contract iter and that is transversal in the Vienna Convention of 1980; fact that is even recognized by authors on the other side of the English Channel. This observation is of paramount importance in order to demonstrate the basic hypothesis of this book. We will see the serious consequences that can result from parties breach of this general principle. In addition, the rights and obligations of the parties in the CISG will be the subject of in-depth analysis in order to determine their sources in civil and common law. On this subject, we will show how the CISG has been adjusted to an old notion, which mixes latent defects and lack of conformity. We will consider the standard related to the examination and the quality required of the goods, the evolution of the caveat emptor and the primacy of the de minimis non curat lex rules in the CISG. We will see in particular the importance of timely delivery for certain goods, as well as the existing subtleties in relation to civil law concerning the determination of the selling price in the CISG. The mechanism of interpretation of the CISG and contracts for the international sale of goods will be studied in order to determine whether they approximate the parol evidence rule of common law, whether they constitute an original mechanism or whether they are closer to the subjective and objective rules of civil law. The standard of the prudent family man will be approached on this particular. The forced execution of the contract will be analyzed in relation to the remedies/sanctions for the breach of contract (in this work we will speak indistinctly of remedies or sanctions for such breach). We will see how the nachfrist of German law is picked up by the CISG, in order to grant grace periods to the parties with a view to avoiding a too rapid termination of the contract. We shall also see that the resolution mentioned in the Vienna Convention of 1980 is a sort of ultima ratio, which punishes only serious infringements, as is the case in French civil law and Chilean law in recent years. The anticipatory breach of common law will be confronted with the unilateral resolution present in the French Civil Code since the reform of the law of obligations and contracts in 20164, in order to elucidate the similarities and differences with the anticipated resolution enshrined in article 72 of the CISG. Price reduction (almost unknown by the common law) will be analyzed in the French and Chilean civil law. This would show its proximity with the CISG provisions. 4

Art. 1226, new, c.civ.

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In addition, we will observe that specific performance is the privileged remedy/sanction against non-performance in the CISG, which avoids the need to procure replacement goods, a fact recognized by common law doctrine. Furthermore, even though the Vienna Convention of 1980 privileges the contract preservation and specific performance, we will demonstrate that it nevertheless does not forget the granting of compensation for complementary or autonomous damages, with the sole exception of the exemption provided for in article 79. Always in relation to execution by equivalence, we will see how the CISG has taken the criterion of the Napoleonic Code on the foreseeability of harm (precursor of its English equivalent with almost half a century of progress), with some nuances regarding the extent of the compensation, in the case of a willful or grossly negligent contractual infringement. The obligation to mitigate damages and the principle of full compensation will also be considered. We will analyse the possible compatibility of the former with the general principle of good faith of civil law and the possibility of compensation for moral damages, not considered by the CISG. The exemption provided for in Article 79 CISG will be analysed in detail in order to determine whether it is limited to force majeure of civil law or whether it extends to imprévision/hardship. We will see at this point the originality of the CISG, the particular effects of the rule and the practical problems that this innovation has posed to its interpreters. The loopholes in the 1980 Vienna Convention will be highlighted in order to find the best system to fill them. 8. The Primacy of civil law - We will observe in this way that most of CISG's solutions find their origin in civil law and that its core institutions are closer to continental law than to common law. In short, we will seek to give a new, comparative view of the CISG, analyzing the two systems that inspire it (considering three countries), in order to be able to criticise them, within the framework of solutions practiced by the Convention. We hope that by the end of the reading of this book the reader will reach the same conclusion as we do: in order to harmonise two inspiring legal systems, the CISG has for the most part favoured civil law, in consideration of the pre-existence of its institutions in relation to those of common law and the force of "French-style" codification (civil codification gives certainty, generality and clarity to the application of a treaty of this type). In the words

6

Introduction

of Professor René David, "the rule of English law (legal rule), closely conditioned by the procedure, does not have the character of generality that a rule of law formulated by doctrine or by legislators has in France"5. 9. Sources - The bibliography used is multilingual: French, Spanish and English. All translations are free by the author. Difficulties were sometimes encountered, as an equivalent word in the target language was missing. However, we have tried to maintain the original meaning of the English, French and Chilean primary texts. As far as the Unidroit Principles are concerned, the 2010 and 2016 versions have been used. The 2016 version is the last available to date. Finally, it should be pointed out that we have used recent examples and a vast body of case law to illustrate our analysis as well as possible. III. Drafting plan 10. In the first part, we will identify the differences between English, French and Chilean law concerning the regimes for the sale of goods. In a second part, we will analyse the movement of harmonisation of the international sale of goods, carried out from the general principles of the civil law system, the Unidroit Principles, and also the solutions proposed by the Vienna Convention of 1980, which are more often than not inspired by civil law. It is therefore through the study of the rules of law relating to the sale of goods in English, French and Chilean law, its principles, and the harmonisation mechanisms established by the CISG that we will seek to demonstrate the supremacy of the civil law system in relation to common law in the 1980 Vienna Convention.

5

Cf. DAVID René, Le droit anglais, 2nd edition, collection "Que sais-je" nº1162, Presses Universitaires de France, Paris, France, 1969, p. 9.

PART 1 – THE DIFFERENTIATION OF THE LAW OF SALE OF GOODS UNDER COMMON LAW AND CIVIL LAW SYSTEMS

11. Leitmotiv - The main theme of this work can be summarised as follows: CISG, when choosing a practical solution to harmonise the differences that exist between two systems of law, most often privileges civil law, i.e., "French-style" codification. In order to understand how and why this phenomenon occurs, it is necessary to know and understand these differences with a particular interest in the sale of goods. Thus, we will first study the legal regime of the sale of goods in common law in England (chapter 1); before analysing, in a second time, the legal regime of the sale of goods in civil law in France and Chile (chapter 2).

CHAPTER 1 COMMON LAW: ENGLISH LAW

Two preliminary general observations on common law are imposed: 12. On the one hand, common law is a legal system that undoubtedly extends beyond the United Kingdom. However, we will analyse it only within the framework of this country, because of its geographical proximity to France, with whom it shares a history; but above all given that the historical origins of common law are to be found in England. Famous judgments in the basis of the common law system have an English origin, as it is the case with Hadley v Baxendale6 and Dunlop Pneumatic Tyre Co. Ltd. v New Garage Motor7, among many others. 13. On the other hand, it should be noted that we will not speak of "British law" since a country that is part of the United Kingdom, Scotland, has a mixed legal system (common law and civil law); a characteristic that is essentially derived from the 1979 Sale of Goods Act. The fundamentals of English contract law will be analysed first (Section 1), before studying the legal regime of the contract of sale of goods in England (Section 2), with reference to case law and the most important rules of law. SECTION 1 - ASPECTS COMMON TO ALL CONTRACTS IN COMMON LAW 14. In this section, we will observe, on the one hand, that English law has French (Norman) origins and that therefore, we can affirm that common law comes from the norman rule. At the same time, it should be noted that 6 7

(1854), EWHC J70. (1915) A.C. 79.

Common Law: English Law

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the worldwide geographical distribution of common law on the planet rivals that of civil law; each system applies to a similar number of countries (§ 1). On the other hand, we will seek to analyze the importance of jurisprudence for common law (case law) by enquiring how legal interpretation employs reasoning, as an inductive method. In addition, we will see how the force of facts has prevailed in England, forcing parliament to legislate. We have indeed seen the multiplication of laws (acts) within which the 1979 Sale of Goods Act appears as the most revealing example for our object of study. From this point of view, we will demonstrate that codification, in principle characteristic of the civil law system has a great utility in matters of sale of goods in both systems (§ 2). Finally, we will highlight certain similar notions between the two systems, but where nuances are of paramount importance for the validity of contracts, such as the English consideration. The study of the validity of contracts in English law will consider the essential differences that exist with civil law, especially when it comes to the offer and the moment of the formation of the consent (§ 3). § 1 - The fundamentals of English contract law A. The formation of English contract law 15. Origins - After the fall of the Roman Empire, Germanic tribes, Saxons and English successfully invaded the British Isles. These peoples did not properly have a legal tradition, like Rome, but rather secular customs, of Celtic origin, the first known populations of the British Isles. The "new" Anglo-Saxon kings respected their tradition, which resulted in the law to apply in the post-empire era. On the other hand, the Vikings8, in the various places where they settled, brought their traditions (ordeals), sometimes very "barbaric" and cruel. However, the most significant contribution will come later, from the northern border of present-day France, from a former territory of Roman Gallia, Normandy. It is indeed after the victory of William the Conqueror at the Battle of Hastings, in 1066, that the foundations of the English legal system will be laid. The Norman King decides to appoint judges in the conquered territories. Common law is thus born of a mixture of local traditions and judicial decisions: 8

The Vikings settled from the eighth century north of the River Thames in northeastern England, and progressively mingled with the local population and nobility.

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Part 1 Chapter 1 "What was common practice among judges became a system thanks to the principle of stare decisis, according to which judges must follow the decisions made by their ancestors. The law was created by the decisions of judges who recognized certain customs and not others”9.

It is therefore at this time that a unified system has seen the light of day, for the first time since the fall of the Roman Empire, in the ancient province of Britannia. In the beginning, this system worked on the basis of a writ (formal demand that exposed the facts) which had to emanate from judicial precedents, according to the "ubi remedium ubi ius" rule ("where there is is a right there is a remedy"). Clearly, this was not always fair and, on the other hand, limited the application of justice to known cases. It is for this reason that the English kings allowed the introduction of equity. To this end, the Lord Chancellor was authorized by the kings to decide in equity (ex aequo et bono). This dualism persists10. Indeed, common law was originally a mixture of case law (according to the stare decisis) and equity. The system has received its name from the following rule: "The common law is so called because it has formed a common law for the whole kingdom, when the King of England has appointed the judges who have established it11.

B. Dissemination of English contract law 16. Countries and territories - Today, common law is widespread in various countries and territories (mostly former British colonies): Antigua and Barbuda, Australia, Bahamas, Bangladesh, Barbados, Belize, Bermuda, Bhutan, Botswana, Brunei, Cameroon, Canada (with the exception of Quebec), Cayman Islands, Cyprus, Dominica, England, Fiji, Gambia, Ghana, Gibraltar, English Grenada, Guyana, Hong Kong, India, Ireland, Jamaica, Kenya, Kiribati, Liberia, Malawi, Malaysia, Maldives, Malta, Marshall Islands, Micronesia, Myanmar, Nauru, Nepal, New Zealand, Niger, Pakistan, Palau, Papua New Guinea, Saint Kitts and Nevis, Saint Lucia, Saint Vincent and the Grenadines, Samoa, Sierra Leone, Singapore, Solomon Islands, Sri Lanka, Tanzania, Tonga, Trinidad and Tobago, Tuvalu, Uganda, United States of America (except Louisiana), Zambia and 9 See BRANAA Jean-Éric, BRUNON-ERNST A., CHAUDOIR N., et al., The English of Law: England and Wales, Belin, Paris, 2006, p. 8. 10 Complemented by numerous laws (acts). 11 See BRANAA, J-É., BRUNON-ERNST, A., CHAUDOIR, N., et al., op. cit. p. 48.

Common Law: English Law

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Zimbabwe. Other countries have a "mixed" system (common law and civil law): Israel, Lesotho, Namibia, Scotland, South Africa, Swaziland, Vanuatu, Mauritius, Philippines, Puerto Rico12. For its part, civil law governs territories that were former French or Spanish colonies, and is also present in other countries that introduced it voluntarily, namely: Angola, Argentina, Belgium, Benin, Bolivia, Brazil, Burkina Faso, Burundi, Cameroon, Canada (Quebec), Cape Verde, Central African Republic, Chad, Chile, Colombia, Comoros Islands, Republic of Congo (Brazzaville), Democratic Republic of Congo (Zaire), East Timor, Ecuador, El Salvador, Equatorial Guinea, France, Gabon, Guatemala, Guinea, Guinea-Bissau, Haiti, Honduras, Indonesia, Italy, Ivory Coast, Lebanon, United States of America (Louisiana), Luxembourg, Macao, Madagascar, Mexico, Monaco, Mozambique, Nicaragua, Niger, Panama, Paraguay, Peru, Portugal, Rwanda, San Marino, Sao Tome and Principe, Senegal, Seychelles, Spain, Suriname, Togo, Uruguay, Spain and Venezuela13. § 2- The basics of the English system 17. Composition - Today, English legislation is composed of a richer mix of sources: case law, equity, acts and European legislation (at least until its exit from the European Union, foreseen as a consequence of the referendum on the "Brexit" of 2016). The latter is imposed on English law, just as equity is imported into case law14. A. The case law 18. The case law - case law is the centerpiece of English law. It is composed, as far as private law is concerned, of the decisions of the British Supreme Court (former House of Lords15), the Court of Appeal, the High Court, the County Courts, as well as the decisions of other Commonwealth jurisdictions. Certain judgments have become famous because they have established principles to follow in order to grant a decision in specific hypotheses. We will analyze the most important, 12 Cf. AZZOUZ Saliha, Contract Law, Les Points Essentiels du Droit des Contrats Internationaux, ed. Ophrys, Paris, 2015, pp. 165-166. 13 Ibidem. 14 Enel, 1964, ECR 585 (6/64). 15 The Supreme Court is still composed of members of the former House of Lords, in order to make a "smooth" judicial transition, which seeks to harmonise the system with the Human Rights Act, 1998.

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Part 1 Chapter 1

regarding each element of the "English" sale of goods (Dunlop, Hadley, Romalpa, etc.), and others that mention Chile and France, since they are the two countries that interest us, especially for the present work. It should be noted, however, that the Supreme Court is not bound by its previous rulings and is therefore perfectly free to make jurisprudential changes, as in France, although in practice it rarely does. The other judicial jurisdictions are not free and are therefore subject to their own previous decisions, as well as to decisions emanating from the higher-order jurisdictions. 19. Structure of judgments - Judicial decisions granted under a common law system are composed of three parts: the description of facts; the enunciation of principles and the manner in which they are to be applied (ratio decidendi); the decision of the court (obiter dicta). Only the ratio decidendi, the part that creates the law, is imposed on the lower jurisdictions (although the obiter dicta have persuasive force)16. The ratio decidendi extracts general principles of law from particular cases. That is why it is said that English law operates inductively (from individual to general) and that civil law operates deductively (from general to particular).17 20. The Flexibility of the English system - Some elements, however, make the system described above more flexible: overruling, distinguishing (a judge may, if he finds some material differences with a precedent, apply other principles to resolve a dispute) and departing (an appellate court may not apply an erroneous precedent). As for the Supreme Court, it is not bound by its earlier decisions, as indicated above. B. The equity 21. Equity - Is at the top of the system. The Black's Law dictionary defines equity as: "Law administered in accordance with justice, as opposed to the strictly formulated rules of customary law"18. 22. The contribution of equity - For a system that could not pronounce jurisprudential "reversals," and that had to conform to writs strictly, equity emerged as a solution before an extremely rigid justice. 16 See BRANAA, J-É., BRUNON-ERNST, A., CHAUDOIR, N., et al., op. cit. p. 11. 17 Ibid, p. 231. 18 Cf. BRANAA, J-É., English Law Made Simple, le droit anglais facile, Ellipses, Paris, 2013, p. 88.

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On the other hand, equity has allowed the introduction of justice solutions, such as specific performance; rescission; injunctions; trusts19; and vices of consent20. C. The acts 23. Laws - Within laws, several are fundamental (European Communities Act, 1972; Human Rights Act, 1998; Habeas Corpus Act, 1679; Bill of Rights Act, 1689). There is one that is particularly interesting for the present study, the 1979 Sale of Goods Act (hereinafter, s.g.a.), and, subsidiarily, those that have a relationship or link with it, such as: the Supply of Goods and Services Act, 1982; the Factors Act, 1889; the Unfair Contract Terms Act, 1977; the Misrepresentation Act, 1967. § 3 - Validity of contracts A. Basic notions 24. Importance of the contract of sale of goods - Sale has always been the most important property contract in all legal systems. Common law is no exception to this economic and legal rule: it is regulated in English law by the Sale of Goods Act, 1979, cited above (Sale of Goods Act; s.g.a. ). Also others who came to bring clarifications21. In order to understand its particular regulation, it is necessary to study certain general concepts of English contract law, which have a supplementary relationship with the sale of goods contract. 25. Concept of contract - According to English law, a contract is a legally binding promise. This definition, derived from contract law, was raised by Sir Jack Beatson in the book Anson's Law of Contract (28th edition, Oxford University Press, 2002, p. 1), where he states precisely: « Contract law is the branch of law that determines that a promise is legally binding on the person who has made this promise »22.

19

Cf. BRANAA, J-É., BRUNON-ERNST, A., CHAUDOIR, N., et al., op. cit. p. 10. Cf. FROMONT Michel, Grands systèmes de droit étrangers, 7th ed., Dalloz, Paris, 2013, p. 117. 21 See supra. 22 Cf. BRANAA, J-É., BRUNON-ERNST, A., CHAUDOIR, N., et al., op. cit, p. 231. 20

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26. Consensualism: as a general rule, contracts are consensual (with the exception of payment mandates, building management contracts, prenuptial contracts, contracts for the purchase of future buildings, credit contracts, insurance contracts and contracts for the purchase of vehicles23) and bilateral. In most cases, as in civil law, its foundation lies in the party autonomy principle24. 27. Types of provisions in a contract - Contracts in English law include three categories of provisions: conditions, warranties and innominate terms25. Conditions are provisions of fundamental importance; their breach authorises the diligent contractor to seek avoidance and to claim damages in the event of culpable breach by the other party. For example, in relation to the obligation to deliver on time in the case of commercial sales, perishables or raw materials. Warranties are less important or non-essential provisions. In case of infringement, the diligent party may only claim damages. For example, the obligation to deliver the goods in proper condition and in accordance with their usual or intended function. Innominate terms, or intermediate terms, are obtained by excluding the two previous categories (what is not a condition nor a warranty is an innominate or intermediate provision). The remedies (sanctions for nonperformance) are diverse and depend on the nature of the breach of contract: "the sanction for breach of an intermediate provision depends on the nature of the breach. If the plaintiff has lost all benefit of the contract, he shall be entitled to consider the contract as repudiated and to claim damages. Otherwise, he can only claim damages"26. Consequently, if the breach is crucial and deprives the contract of any interest for one of the parties, we speak of fundamental breach27. 28. Classification of contracts under English law - Contracts may be solemn (deed, under seal or covenant) and simple or consensual (simple contracts); bilateral or unilateral; express or implied or quasi-contracts; valid, void, voidable, and illegal. As in civil law, consensual contracts are the general rule. Deeds are required, exceptionally, in the sale of real estate and donations or charities. 23

Cf. AZZOUZ, S., op. cit, pp. 48-49. With the exception of consumer and employment contracts, among others. 25 Cf. AZZOUZ, S., op. cit. p. 34. 26 Ibidem. 27 Fundamental Infringement (non-compliance). 24

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Bilateral contracts are those in which the two parties bind each other since the formation of the convention. In unilateral contracts, on the other hand, only one of the parties is obligated from the outset and, subsequently, the other party may eventually become obligated at a later stage (in the sale of a property, for example, the real estate agent is obligated to show the property and to look for potential buyers -not to sell it- but if he sells it, the seller is obligated to pay him a commission)28. Express is a contract in which its provisions are mentioned in writing by the parties; implicit, on the other hand, is the one deduced from their relationships or actions. Quasi-contracts, as in civil law, are acts that are not contracts but are recognized by law, in order to avoid unjust enrichment. Lawful contracts are those that normally produce all their effects. Null contracts are those that have been declared ineffective in legal proceedings, for example, due to a vice (or defect) in consent. Voidable, those who have a vice or other cause of nullity. Illegal contracts are those that violate public order, morality or may constitute a criminal offense. 29. The importance of consideration in common law - To be valid contracts must have consideration, i.e. a pecuniary counterpart - money consideration - (normally29), present or future30 or something of interest to the other party31. Preterite considerations, and also those that are not subject to economic evaluation, are not valid in English law32. It should be pointed out that consideration is a different notion from civil law’s cause. It imports a quid pro quo. In this way, liberalities do not have sufficient consideration33 and must obey specific form conditions (deeds). "Amount of consideration. The amount of the consideration matters little; in fact its amount is not a condition of validity. Anything that one person might consent to change against another's promise may serve as consideration for this promise. Courts do not require that there be equality of value between the consideration of one side and the promise or injury of the other. The fact 28

Cf. BRANAA, J-É., BRUNON-ERNST, A., CHAUDOIR, N., et al., op. cit, p. 235. 29 A guarantee at the time of contracting would be a sufficient consideration, Roscorla v Thomas, (1842) EWHC J74. 30 Currie v Mass, (1875) LR 10 Ex 153. 31 Dickinson v Dodds, (1876) 2 Ch D 463. 32 Roscorla v Thomas, (1842) EWHC J74. 33 Bret v JS, (1600) Cro Eliz 756.

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Part 1 Chapter 1 that the consideration is adequate or sufficient does not mean that it should have sufficient economic value. The courts see in a "simple peppercorn”34 a sufficient consideration35 ».

30. Capacity - It is also necessary that the parties have contractual capacity (minors36, the mentally ill and persons without discernment alcoholics, drug addicts - declared bankrupt, prisoners, and those who contract on behalf of legal persons without having sufficient powers of attorney are excluded37) and that there is also the intention to create a legal relationship (according to the definition of contract). This intention is presumed in commercial and civil contracts, if they are onerous, and is often discarded in relationships between relatives38. Finally, an agreement of wills (offer and acceptance) is necessary. 31. Privity of contract - Contracts in common law, as a general rule, as in civil law, do not produce effects in relation to third parties. However, under the Contracts -Rights of Third Parties- Act 1999, it is possible for third parties to claim rights in certain cases, for example, where the buyer has made it clear to the supplier that he was buying products for a third party39. "Traditionally, the contract had no effect on third parties: it did not create any obligation or right in respect of them. This rule, to which the legislator had made numerous exceptions, was abandoned in 1999 (Contracts (Right of Third Parties) Act, 1999). Since then, the third party has the right to require the promisor to respect the clause granting him rights and may object to both parties modifying this clause to his detriment"40.

34

This explains the fact that large companies are often offered and/or sold for only £1. See on this point (last consulted on 30 September 2016): http://news.bbc.co.uk/2/hi/uk_news/magazine/5262616.stm https://www.theguardian.com/business/2008/nov/19/woolworths-highstreetretailers 35 Cf. LEVASSEUR Alain A., Le contrat en droit américain, Dalloz, Paris, 1996, pp 43-44. 36 With the exception of contracts necessary for the maintenance of the life of the incapacitated person (food, housing, medicines). This rule is laid down in article 3 of the 1979 Sale of Goods Act. 37 See AZZOUZ, S., op. cit, p. 46. 38 Balfour v Balfour (1919) 2 KB 571; Jones v Padavatton, (1968) EWCA Civ 4. 39 Cf. BRANAA, J-É., BRUNON-ERNST, A., CHAUDOIR, N., et al., op. cit. pp. 233-234. 40 Cf. FROMONT, M., op. cit., pp. 120-121.

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B. Formation of the consent 32. The offer - The party making the offer is called the offeror and the party receiving it the offeree. An offer must be distinguished from an invitation to negotiate. Advertisements and display of products in shop windows41 are not genuine offers, but only simple invitations to negotiate42 unless the ads contain an associated price in case of customer dissatisfaction, as established in Carlic v Carbolic Smoke Ball Co.43 and reiterated in other cases44. Therefore, the offer should be made to a specific person, as a general rule. The offer must contain: the indication of the price, quantity, quality, time, and place of delivery, in the sales contract. As far as electronic commerce is concerned, the rules are diverse and do not fall within the scope of this study45. The offer expires by revocation: a common law-offer can be withdrawn if there is no consideration of the other party (absence of earnest money46); rejection; expiry of a term; conditional offer whose condition has failed; or, after death or in case of dementia of the offeror. 33. Acceptance - Must be pure and simple. As in civil law, if the addressee of the offer formulates on his part another proposition, a counteroffer takes place. "However, the English judge sometimes admits that the offeror implicitly accepted the general terms and conditions of business of the acceptor if he did not protest upon receipt of the acceptance47. 41

See Partridge v. Crittenden, (1968) 1WLR 1204. Cf. FROMONT, M., op. cit., p. 118. 43 (1892) EWCA Civ 1 : a company announced a "miraculous" cold cure drug that offered £100 compensation if it didn't work. In consideration of the latter element, it was ordered to pay this sum to the applicant, who was not cured of her cold. 44 See Pharmaceutical Society of G.B. v Boots Cash Chemist Ltd., (1953) EWCA Civ 6; Fisher v Bell, (1961) QB 394. 45 It must be said, however, that according to the European directive 2000/31/EC, transposed by SI 2002 No. 2013, the entry on a website of a supplier and the seal of a tab provided for that purpose, is an offer, if there was the intention to buy. The seller must communicate his acceptance, expressly or through the execution of the contract. On the other hand, it should be borne in mind that the contract conclusion phases should be clearly explained, as well as the existing error correction mechanisms, before placing an order. See BRIDGE Michael G., The Sale of Goods, Oxford University Press, United Kingdom, 3rd edition, 2014, pp. 14-15. 46 See Dickinson v Dodds, (1876) 2 Ch D 463. 47 Ibidem. 42

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Silence, as a general rule does not constitute acceptance48. The consent is formed as soon as the acceptance is communicated to the offerer by postal mail (postal rule)49 if this has been the means chosen by the parties. Common law recognizes the "emission" theory. It should be noted that the place of formation of consent is not regulated by the Sale of Goods Act 1979. Finally, consent must not be vitiated. The notion of vices of consent did not originally exist in the English system. As we said before, it was introduced through equity50. C. The vices of consent 34. The vices that make it possible to annul a contract by rescission in common law are: mistake, misrepresentation, duress, and undue influence. Similarly, the illegality of the object may affect the validity51 of the contract. As we will see below with respect to the obligations of the parties, breach of conditions, in certain cases, or a fundamental breach may also be grounds for invalidation of a contract by avoidance (resolution). 35. Mistake - In accordance with section 6 of the Sale of Goods Act, if both parties have erred as to the identity of the thing that is the object of the contract, its present existence (res extincta) or its property (res sua), or the provisions, the contract is null and void (in reality the object matter of the contract is missing). As a general rule, unlike civil law, an error as to the essential quality of the object is not grounds for nullity under English law52-53. However, if only one of the parties has made an error in the clauses of the contract or in the essential quality of the object (quality being the determining reason for the contract), and the other party has been aware of this error, the contract will be null and void. Institution of equity, the judge may order specific performance or rescission54. 48

See Felthouse v Bindley, on the offer to purchase a horse, stating that acceptance would be presumed subject to rejection of the offer, (1863) 1 New Rep. 401. 49 See Grant, (1879) LR 4 Ex D 216. 50 See supra. 51 Cf. FROMONT, M., op. cit., p. 118. 52 Cf. BRANAA, J-É., BRUNON-ERNST, A., CHAUDOIR, N., et al., op. cit. pp. 236-7. 53 Cf. AZZOUZ, S., op. cit, p. 80. 54 Cf. BRANAA, J-É., BRUNON-ERNST, A., CHAUDOIR, N., et al., op. cit. pp. 236-7.

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The error in the person, as a general rule, is irrelevant (with the exception of contracts intuitu personae). 36. Misrepresentation - may take place in writing, verbally or for lack of information55 and may be fraudulent56 (willful) or negligent. In the latter case, the remedy is damages57. If fraud has occurred, the victim can sue for rescission and/or damages58, the first measure being discretionary59. Fraud has been defined in Derry v Peek60 as: "To make a false representation (1) consciously of it, or (2) without thinking that it is true or (3) with indifference. There must be intent to deceive,61 and it must lead to the conclusion of the contract62. On the other hand, in case of negligence or the absence of fraud, the victim must choose between claiming damages or acting in nullity63. Under the Misrepresentation Act of 1967, negligence is presumed. The defendant must prove that he was not negligent64. It should be noted that commercial exaggerations are not treated as misrepresentations by the courts65. The same applies to the reservation of information (non disclosure). Contracts of utmost good faith (uberrimae fidei) in which there is an obligation to disclose all facts (insurance contracts, family law contracts, sale of real estate or shares) and those in which there is a bond of trust between the parties (partners, doctor-patient, lawyer-client, commercial representative-principal) 66are the exception. 37. Duress - Implies violence, physical or moral. In the second case, the coercion can be exercised on the other party, its property or be of an 55

See Gordon v Selico Ltd. (1986) 18 HLR 219. The unsubstantiated arguments on that point are ordered to pay the costs. See: Supreme Court Act of 1981, rule 51, and CPR part 44. 57 Section 2 (2) Misrepresentation Act 1967. 58 Cf. BRANAA, J-É., BRUNON-ERNST, A., CHAUDOIR, N., et al., op. cit. p. 236. 59 See Crawford, (1939) 3 All ER 271, 288. 60 See (1889) LR 14 App Cas 337. 61 See Tackey v Mcbain, (1912) AC 186. 62 See Hurd, (1881) 20 Ch. D1. 63 Before the Misrepresentation act 1967 the only possible sanction was nullity ab initio. 64 Cf. FROMONT, M., op. cit. p. 119. 65 Cf. AZZOUZ, S., op. cit, p. 74. 66 Ibid, p. 75. 56

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economic nature: "Economic coercion occurs when one of the parties is blocked and has no choice but to accept the conditions of the other. Economic coercion includes threats to property. The threat is directed towards financial well-being. It is not a direct threat of bankruptcy if you refuse to sign the contract. In most cases, the threat is indirect, for example: "I won't do business with you if you don't cut your prices in half””67. 38. Undue influence - Case law has held that the use of a position of authority or experience to obtain a party's consent in order to enter into a contract is a case of undue influence68. In this case, rescission is a remedy of equity and residual in relation to force (it takes place when there is no moral violence, but rather a subtle fear of disturbing the other party, who would then seek revenge). The English courts recognize two forms: current undue influence and presumed undue influence. The latter may be the result of a special relationship between the parties and/or a relationship of trust. The first form involves direct harassment of the other party. The second takes place between people bound by a special relationship (attorney-client, priest-faithful, physician-patient, trustor-trustee, parent-children), or trust (between spouses, for example). In such cases, abuse by the most informed or powerful is presumed. 39. The illegality of the object - It occurs in the case of contracts prohibited by law69 (for example, gaming acts1845 and 1892)70 since they threaten public order (economic public order: infringements of free competition, legal provisions allowing tax evasion) or morality (drug trafficking, sexual), or have as their object the commission of a criminal or civil offence. The underlying principle is that no one should take advantage of an illegal act (ex turpi causa non oritur action)71. The sanction of these contracts, as in civil law, is the nullity, or the absence of action to act in law.

67

Ibid, p. 83. See BRANAA, J-É., BRUNON-ERNST, A., CHAUDOIR, N., et al., op. cit. p. 236. 69 Illegality. 70 Cf. FROMONT, M., op. cit. p. 119. 71 Cf. AZZOUZ, S., op. cit, p. 81. 68

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SECTION 2 - THE LEGAL REGIME FOR THE SALE OF GOODS IN ENGLAND AND WALES 40. This section analyses the most important differences between common law and civil law in relation to the sale of goods. On the one hand, we will see why English law is considered to be characterized by a "Darwinian approach" during the pre-contractual phase; a situation that a priori is not compatible with respect for certain principles contained in the 1980 Vienna Convention, such as good faith, so cherished in civil law, but also recognized by some common law authors. In addition, we will see how the title retention clause, an unequivocal creation of civil law, was incorporated by English law in the 1970s and generalized in practice (§ 1). On the other hand, it should be noted that the rights and obligations of the parties are similar in both legal systems, with some nuances. As regards remedies/sanctions for breach of contractual obligations, specific performance, a rule favoured by the 1980 Vienna Convention, is almost unknown in English law, as are other remedies enshrined in that treaty (price reduction); a law that uses damages as a general rule, in accordance with the Hadley rule72. Otherwise, the common law anticipatory breach is different from the unilateral resolution introduced in the new article 1226 of the French Civil Code, since the latter is not anticipatory. Finally, the study of the parol evidence rule of common law, characterized by an intrinsic rigidity, will show that this resource is foreign to the interpretation system consecrated by CISG, of clearly civilist inspiration (§ 2). § 1 - The fundamentals of the contract of sale of goods A. Basic notions 41. Applicable law - The sale of goods is regulated in English law mainly by the Sale of Goods Act 1979, a law modernising the original law dating from 1893 which has been revised several times73. The main provisions of this Act, excluding sales in Scotland and sales to consumers, are discussed below, as this study focuses on commercial sales of goods in general and international sales in particular. 72 73

See Hadley v Baxendale, (1854), EWHC J70. Amendments have been introduced in 1994, 1995, 2002 and 2015.

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42. Characteristics: 1. The Sale of Goods Act 1979 is a kind of codification of the English law on the sale of goods, i.e., the development of case law since its original enactment at the end of the nineteenth century. On this point, it is worth considering that: "The sale of goods Act may not be a code in the sense understood by a civilian jurist since it is confined to a special contract (sale) and permits penetration by the general uncodified law to fill its lacunae, but it can rightly be called a codification for the conscious attempt to summarize rather than reform the antecedent case law."74. 2. The loopholes in this law are filled by merchant law75 and by other laws, by case law, by equity and related institutions (vices of consent, for example). 3. It consecrates the consensual character of the sale. This character can be deduced from the definition of sale in the 1979 Act. Until 1954, sales over £10 had to be the subject of a written contract, otherwise it was not possible to deduce legal action in the event of non-performance. This fact is interesting because we will see later a similar treatment in the current Chilean civil law76. 4. The law does not regulate preliminary negotiations. It is often said that English law adopts a Darwinian approach in the pre-contractual phase, favouring competition over other considerations; while civil law, inspired by Roman and canon law, favours good faith. Unlike civil law, good faith is not a general principle of English law. The Sale of Goods Act of 1979 only states that “A thing is deemed to be done in good faith within the meaning of this Act when it is in fact done honestly, wether it is done negligently or not"77. The most famous case in this regard is May and Butcher Ltd. The King 78 , in which the House of Lords refused to recognise a pre-contractual agreement. Lord Buckmaster said on this point: "It has long been a well recognized principle of contract law that an agreement between two parties to enter into an agreement in which some critical part of the contract matter

74

Cf. BRIDGE, M.G., op. cit. p. 5. Lex Mercatoria. 76 Art. 1709 c.c.ch. 77 Section 61 (3) s.g.a. 78 See (1934) 2 KB 17. 75

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is left undetermined is no contract at all"»79. This criterion has always been reproduced80 by subsequent case law. However, this solution does not necessarily mean that the party who caused harm during the preliminary negotiations phase does not incur civil liability, especially if there was performance prior to the conclusion of a final sales contract81. In the absence of a general principle of good faith, the principle of unjust enrichment, tort liability and the principle of estoppel82 have provided solutions in this regard. The principle of unjust enrichment has been recognized in English law since 199183 and does not require the concomitance of a loss of the plaintiff correlative to the benefit of the defendant84. As far as tort liability is concerned, it is admitted as a source of damages from Box v Midland Bank85. The idea is that there may be a duty of diligence at the pre-contractual stage, in which case, damages caused to the aggrieved party by a possible misrepresentation86 will have to be compensated. The difficulty of this action is to establish the existence of this obligation, which is not always easy. On the other hand, and always in relation to the principle of good faith, it should be noted that under the Unfair Contract Terms Act unfair terms against consumers are prohibited87. Terms are abusive if they have been drafted by the seller and cause a contractual imbalance to the detriment of the buyer-consumer, who has not had the opportunity to negotiate the contractual stipulations. 43. Material Scope - It is important to determine precisely the scope of application of the 1979 Sale of Goods Act. Several of its provisions exclude

79

Cf. GILIKER Paula, Pre-Contractual Liability in English and French Law, Kluwer Law International, Netherlands, 2002, p. 33. 80 Walford v Miles, (1992) 2 AC 128. In this case, a contract to negotiate exclusively was invalidated. 81 In Foley v Classique Coaches Ltd., (1934) 2 KB1, fuel had been supplied for three years without contract. The Court considered that there was an obligation to deliver fuel of reasonable quality and price. 82 Application of the venire contra factum proprium non valet rule. 83 See Lipkin Gorman v. Karpnale Ltd., (1991) 2 AC 548. 84 Cf. GILIKER, P., op. cit., p. 97. 85 (1979) 2 Lloyd's report 391: a customer applied for a loan. The head of the local bank assured him of his intention, but he was eventually rejected. 86 False representation. 87 Unfair Contract Terms Act, 1977.

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its application to sales to consumers88 if they are governed by English consumer protection legislation89. According to Article I. (1) and (5) of the Law, applies to contracts of sale of goods concluded after January 1, 189490. She disposes of the particular : “1) This Act applies to contracts of sale of goods made on or after (but not those made before) 1 January 1894”. “5) Certain sections or subsections of this Act do not apply to a contract to which Chapter 2 of Part 1 of the Consumer Rights Act 2015 applies”.

2. The sales involved are those by description (when the buyer has not examined the goods) or by samples, and exclude those governed by the Consumer Law, as noted above. 3. These may be pure and simple or conditional sales91, sales, or sales promises. The first involves the transfer of ownership from their conclusion. The second, is subject to the expiration of a term or the fulfillment of a condition, for a sales contract to arise92. 44. Definitions : Definition of a sales contract. A sale, under English law, is a contract by which a person, the seller, transfers or agrees to transfer ownership of certain goods to another, the buyer, if there is a monetary consideration for that transaction, which is the price. The Sales of Goods Act of 1979 specifically states: "2 Contract of sale. (1) A contract of sale of goods is a contract by which the seller transfers or agrees to transfer the property in goods to the buyer for a money consideration, called the price."

2. Definition of seller. The seller is not only the owner, but also anyone who is in a situation similar to that of the owner, for example, the beneficiary of a letter of credit and the owner's agents 93. 3. Definition of goods. According to section 61 (1) of the Sale of Goods Act, the goods that may be the subject of a contract of sale under English 88

For example, section 5A of the s.g.a. 1979. Consumer Rights Act 2015. 90 The law of 1893, reformed by the s.g.a 1979, has introduced this vacatio legis. 91 Section 2 (3) and 61 (1) s.g.a. 92 Section 2 (4) and (5) s.g.a. 93 Section 38 (2) s.g.a. 89

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law are the following94: personal movable property (except money), industrial crops, rents, immovables by destination and adhesion, and undivided shares in the property. The disposition indicates in effect: "61 Interpretation 1) In this Act, unless the context or subject matter otherwise requires, “goods” includes all personal chattels other than things in action and money, and in Scotland all corporeal moveables except money; and in particular “goods” includes emblements, industrial growing crops, and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale; and includes an undivided share in goods”.

45. Capacity Required to Sell - The Sale of Goods Act 1979 provides that capacity is regulated by contract law95. The latter states that minors, and those who are deprived of discernment because they are under the influence of alcohol, drugs, or disease, can not subscribe a contract. Exceptionally, minors may purchase certain goods that are necessary for them. It is also interesting to note that, in accordance with the Minors Contract Act 1987 96, the judge may require them, eventually, out of equity, to return the property acquired. 46. Object Rules - Merchandise that can be sold. Various types of goods are subject to the Sale of Goods Act 1979. The above definition should be supplemented by the rules laid down in numbers 5 (1), 13 and 15, 20 A and B, which allow the sale of future goods, by samples, by description, by bulk or specific goods. 1. Future goods. The sale of future assets has not always been favorably received by common law case law97. Traditionally, it has been more linked to sales promises. Today things have changed because the law expressly provides for this possibility98. This rule of equity allows the sale of animals, 94

Sale of Goods in Scotland is subject to special rules which are not dealt with in this work. This is explained by the fact that it has a mixed legal system, unique in Europe, constituted by rules of common law and civil law. 95 Section 3 s.g.a. 96 Minor's Contract Act 1987, section 3. 97 Which strictly interpreted the nemo dat rule. See on this point Lorymer v Smith, (1822), 1 B&C 1. 98 Section 5(1) s.g.a. permits the sale of present and future goods. The latter, to the extent that they are manufactured by the seller or acquired by him after the conclusion of the sales contract. The practical usefulness of this provision is easily understandable, as traders in England (as elsewhere) buy goods to resell them later.

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commodities99, minerals, and crops, among others, as well as the sale of ships and aircraft to be built. 2. Goods sold on the basis of samples. The doctrine criticizes the persistence of this category, which seems archaic. On this point, Professor M.G. BRIDGE states: "It is hard to justify the continuing existence of a separate sale by sample. The rules concerning such sales are petrified incidents in the evolution of modern law of sale. Sale by sample rules should not be allowed to impede the normal development of the law..."100. 3. Goods sold by description. These are sales relating to goods that the buyer has neither seen nor proven. There is an implicit clause in them, according to the Sale of Goods Act101, according to which the goods must correspond to their description. 4. Wholesale goods (bulk). They are those included in large loads, and in large quantities. 5. Specific, unascertained, and ascertained goods. The first are those that have been agreed at the time of the conclusion of the contract and are irreplaceable. In addition, shares within the framework of an undivided lot102. Unascertained goods are goods that have not been identified, or also those that have been subject to a partial determination, by reference to the lot to which they belong103. Ascertained goods, contrario sensu, are those that have been individualized with certainty and fullness. The importance of this classification lies in the fact that specific and ascertained goods may be subject to specific performance104, unlike unascertained goods. It is also interesting in relation to the transfer of ownership. B. Transfer of ownership and risk 47. General rules on the transfer of ownership - The fundamental rule to apply is party autonomy105. The parties are free to determine the timing

99

Raw materials. BRIDGE, M.G., op. cit. p. 411. 101 Section 13 (1) s.g.a. 102 Section 61 (1) s.g.a. 103 For instance, 500 tonnes of wheat out of the cargo on board The Challenger. See The Law Commision and the Scottish Law Commision, (Law Com. Nº145), (Scot. Law Com. Nº145), Sales of Goods Forming Part of a Bulk, London, England, 1993, p. 3. 104 S.G.A. section 52. 105 Party autonomy. Section 17 (1) indicates that in sales of specific or ascertained goods, the transfer takes place when the parties so determine. 100

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and form of the transfer of ownership, which is a notable difference from civil law regimes106. In principle, the transfer of ownership takes place at the time of the conclusion of the contract107 or when the price is paid in exchange for the delivery of documents. On the other hand, specific goods are transferred to the buyer as soon as the contract is concluded or, when delivered, measured or weighed108. 48. Special rules on the transfer of ownership - There are, however, certain exceptions to party autonomy: 1. Some goods are not subject to freedom of contract, in particular, future goods, which will be transferred at the time of their acquisition or when they already exist, and unascertained goods whose transfer of ownership will take place at the time of their determination. In sales of future goods by description, or unascertained, if they are in a deliverable state and are unconditionally appropriated, ownership of them passes to the buyer109. 2. In sales of unascertained goods, there is transfer of ownership, as soon as they have been specified110. This is especially true when the seller is bound to test, to measure and weight: the sale is made by these acts, and when the buyer becomes aware of them111. In order for the transfer of ownership to take place in the sale of goods comprised in bulks112, the transfer of title and its identification (marking) are necessary113. From this moment the buyer becomes the owner of them. Before that, you will have an undivided right in the lot114, as a general rule,

106

The c.c.ch., according to Roman law, distinguishes between titles and modes of acquisition of property, as we will see in the second chapter. 107 "The Law Commission, op. cit, p. 20, point 4.8. 108 This section (18) s.g.a. is probably of civil origin, but some authors refuse to admit it. See BRIDGE, M.G., op. cit. p. 86. 109 Section 18, No. 5 (1) s.g.a. 110 Section 16 s.g.a. 111 Section 18 (3) s.g.a. 112 A bulk according to section 61 (1) is a mass or collection of goods of the same kind, included in a defined space and fungible between them in relation to their quantity. 113 In Re Wait, 1927, 1 Ch. 606, the buyer had paid the selling price of 500 tons of wheat included in 1000 tons, but the goods had not been marked, nor had knowledge or other documents representing the goods been received. For these reasons, the property was not considered as transferred in this case. 114 Section 20 A s.g.a.

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and a property in common with others, when the goods have been separated and repositioned in the lot115. Increases and reductions operate proportionally. Consequently, in sales of goods to be specified at the time of delivery, and which are part of a lot that is then reduced, if there is only one buyer, he appropriates the remaining goods, as soon as they are reduced116. If the seller, in accordance with the contract, has delivered the goods to the buyer, a carrier or another bailee or custodier for the purpose of transferring them to the buyer, and has not reserved the right to dispose of the goods, he is to be taken to have unconditionally appropriated appropriated the goods to the contract117. It is important to note that when goods are delivered on a vessel chartered by the buyer, it will depend on the circumstances to qualify the captain as a charterer or agent118. 49. Common rules for the transfer of future goods, unascertained and within bulks - For the transfer to occur, it is necessary: 1. The unconditional appropriation of the buyer119 or his representatives. Unconditional appropriation can occur in three ways: expressly, by informing the seller of the conformity of the goods received120; tacitly121; or, if the buyer retains the goods for a longer period than the intended or reasonable. Thus, if the seller has sent the goods for confirmation of conformity, the transfer occurs from the buyer's confirmation, or, after the expiration of the prescribed or a reasonable period122-123.

115

« The Law Commision and the Scottish Law Commision », op. cit., p. 5, point 2.7. 116 Section 18, No. 5, (3), (a) and (b) s.g.a. 117 Section 18, no. 5, (2) s.g.a. 118 Section 45, 5 s.g.a. 119 Section 18 (1) s.g.a. 120 This is delicate. In Hayes Bros Buick-Opel-Jeep Inc. v Canada Permanent Trust Co., 1976, 15 NBR (2d) 166, the express acceptance of serial number certificates and invoices was sufficient to conclude the existence of acceptance, even if the vehicles were never delivered. 121 In Kirkham v Attenborough, 1897, the constitution of a guarantee was considered a sign of tacit acceptance. See BRIDGE, M.G., op.cit., p. 89. 122 In Poole v Smith's cars (Balham Ltd.), 1962, 1 WLR 744, the absence of a secondary market, rapid depreciation, demands for restitution by the seller and the temporary nature of delivery have been the criteria considered in determining the extension of the time. 123 Section 18, 4 (a) and (b). s.g.a.

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2. It is also necessary that the goods are in a “deliverable state”. This occurs when the goods conform to their contractual description in quantity and quality124. Another important exception to the general rules on the transfer of ownership is the retention of title clause, which deserves special treatment, and which we will see below. 50. Retention of title in English law - In sales of certain goods, it is possible to reserve the right to dispose of them until certain conditions are met. In such a case, notwithstanding delivery to the buyer, carrier or other bailee or custodier for the purpose of transimision to the buyer, or where a bill of exchange and a bill of lading have been delivered to the buyer, title shall not pass to him unless certain conditions are met125. This right is presumed to exist when the goods have been shipped, and, according to the bill of lading, can be delivered to the order of the seller or his agent126. The most important condition in practice is the reservation of transfer of ownership until payment127 (normally the full payment of the price), which is known as all-monies clause, retention of title clause or Romalpa clause and that produces as main effect to suspend the transfer of ownership until the complete payment of the price. Otherwise, the transfer will take place according to the general rules at the time of conclusion of the contract128. The condition often also stipulates that the goods produced with the goods sold will be the property of the original seller129. The Romalpa130 case is at the basis of this common law jurisprudence on the reservation of title. The facts are as follows: a Dutch company, Aluminium Industrie Vaassem BV, supplier of aluminium to the English company Romalpa Aluminum Ltd, manufacturer of aluminium foil, stipulated a clause to guarantee its future payments. It provided that the aluminium would not be transferred to the buyer before full payment of the price. The products 124

Otherwise, the buyer will acquire an annullable right, as we will see later, regarding the seller's obligations. 125 Section 19, (1) and (3) s.g.a. 126 Section 19, (2) s.g.a. 127 Section 17 and 19 s.g.a. 128 Section 18 s.g.a. 129 See SCHMITTHOFF, The Law and practice of International Trade, 12a ed. MURRAY Carole, HOLLOWAY David and TIMSON-HUNT Daren, Sweet and Maxwell-Thomson Reuters, London, England, 2012, p. 84. 130 See (1976), 1 WLR 676.

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manufactured by the English company with this material were entrusted to it as depository, and could be sold by it, as commercial agent of the supplier. Romalpa filed for bankruptcy, and the creditors took legal action to collect their credits, seizing the products and the prices paid. The Court of Appeals and the High Court rejected them, considering that the clause was valid131. 51. Characteristics of the reservation of title clause: 1. It may apply to all types of goods and obligations, present or future, between the same parties132. 2. Although in practice it works similarly to a real encumbrance, by limiting the buyer's powers, it is not mandatory to register it133 under two conditions134: 2.1. The seller must retain ownership of the goods. 2.2. The buyer must resell and receive the price of the goods as the original seller's agent. 3. Its practical importance is great because it is often used. The I.C.C. has considered that title retention clauses, in their simple and extensive forms, have often been used in English sales since the mid-1970s. Under the 1979 Sale Act, the parties may agree on the time and conditions under which ownership of the identified goods will be transferred to the buyer. A retention-of-title clause does not constitute the granting of security by the buyer135. 52. Types of clause: 1. Simple clause. As its name suggests, it has no particulars. The transfer of the property is reserved until a condition is met, usually the full payment of the sale price. 2. Wide clause. In this case, the seller authorizes the buyer to sell the goods, as his agent. This type of clause was applied in the Romalpa case. 3. General warranty. This type of clause gives rise to debate. Some authors136 see a possible failure of consideration137 because, despite the payment of a price, there would be a reservation of transfer, which would pose a problem from the point of view of the equilibrium of the contract and the validity of this type of clause. It is also known as all monies paid clause, 131

In the same sense, see Armour v Thyssen Edelstahlwerke A.G., 1991, AC 339. I.C.C,, " Retention of Title ", 2nd ed., Paris, France, 1993, p. 121. 133 Cf. BRIDGE, M.G., op. cit. p. 125. 134 Cf. SCHMITTHOFF, op. cit., p. 84. 135 I.C.C., op. cit., p. 121. 136 DAVIES Iwan, Retention of Title clauses in Sale of goods Contracts in Europe, Ashgate Publishing, Cornwell, U.K., 1999, p. 107. 137 Lack of consideration, of quid pro quo. 132

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and has been judged as valid by the House of Lords138 according to the principle of party autonomy139. 53. Consequences of the reservation of title: 1. The risk passes to the buyer140, even if the title has not been transferred to him141. 2. The seller will have action to claim the sale price142. 54. Other exceptions to the general rules on the transfer of ownership - In certain cases, there will be no transfer of ownership, as a consequence of the lack of object. These situations take place: 1. If the property perished before the conclusion of the contract, the contract shall be void143. Consequently, there will be no transfer of ownership. 2. As a consequence of a mistake of one of the parties on the object. The rules on vices of consent are expressly incorporated in the Sale of Goods Act 1979 144. Thus, the buyer's or seller's mistake on the object sold will have the effect of nullifying the sale. Any transfer of ownership is linked to the risk of loss, i.e., the determination of who should bear the damage, material loss or destruction of the objects sold in case of force majeure or acts of third parties. We will now look at the rules that apply to this issue. 55. Risks in the sale of goods - The general principle is that the risk of loss or deterioration falls on the seller and passes to the buyer since the transfer of ownership operates, even if the delivery has not yet taken place145, according to the roman law rule res perit domino. However, the exceptions to this rule are numerous and important.

138

In Armour v Thyssen Edelstalhwerke A.G., (1991) AC 339, it has been resolved that the seller would remain the owner until payment of all existing debts between the parties, regardless of their origin. 139 See Frigoscandia v Continental Irish Meat Ltd., (1982) ILRM 396. 140 Section 20 s.g.a. 141 See DAVIES, I., op. cit. p. 102. 142 Section 49 (2) s.g.a. 143 Section 6. Presumably inspired by Coutourier v Hastie, 1853, 9 Ex. 102. In this case, a sale of maize was annulled by the House of Lords, in view of the nonexistence of the object from a commercial point of view, since the maize had been resold in Tunisia after being exposed to high temperatures. 144 Section 62 (2) s.g.a. 145 Section 20 (1) s.g.a.

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56. Exceptions to the res perit domino rule - The general rule mentioned above may be replaced by the stipulations of the parties, in accordance with the principle of party autonomy. The parties are free to modify the general rules. Therefore, the risk borne by the seller until delivery, can be transferred to the buyer before that time146. 57. Party autonomy- The principle is crucial in both legal systems, constituting a fundamental "pillar" for the formation of contracts. Its legal enshrinement is found in several articles/texts of law, through the common expression "unless otherwise agreed", which authorizes the parties to modify the complementary (non-binding) provisions of the Law. These are the rules: 10 (1) (time of payment), 11(2) (breach of conditions), 17 and 18 (transfer of title), 19 (1) (reservation of title), 20 (1) (risks), 28 (simultaneity of delivery and payment), 31 (delivery by instalments), 34 (right to examine the goods) and 36 (acceptance of the goods) of the Sale of Goods Act 1979. According to this principle, parties may, as in civil law, elevate a stipulation to the rank of essential. In the words of Judge J. Blackburn: "Parties may think some matter, apparently of very little importance, essential; and if they sufficiently express an intention to make the literal fulfilment of such a thing a condition precedent, it will be one"147. In this regard, it is important to note that in common law, there are different categories of stipulations, as we have already noted148. The most important are the conditions, which are similar to the essential elements of civil law, but with the difference that their breach can be treated as if it were an element of the nature of the contract, according to the principle under discussion. Thus, in case of breach of a condition by the seller, the buyer has a triple option: either to demand a breach of condition in order to terminate the contract and obtain damages149; to consider the breaches by his co-contracting party as elements corresponding to the nature of the sales contract (warranties) and to claim only damages; or to waive his right to sue150. 146

In Horn v Minister of Food, (1948), 2 All ER 1036, concerning the sale of a damaged potato crop, the court concluded that the parties had modified the risk rules, and replaced them with an obligation, at the seller's expense, to reasonably maintain the potatoes, thus transferring the risk to the buyer. 147 Cf. BRIDGE, M.G., op. cit. p. 512. 148 See supra. 149 Cf. AZZOUZ, S., op. cit. p. 90. 150 Waiver, section 11(2) s.g.a.

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Exoneration clauses are authorized, in accordance with the principle of party autonomy, provided that they do not exclude possible negligence151, a fundamental breach or a condition. The first situation, by application of the nemo auditur propter turpitudinems allegans rule. Otherwise, the contra preferentem rule is imposed152. The second, because otherwise, the contract would be null and void. As exceptions, their interpretation is always restrictive. In order to determine whether a waiver clause is reasonable, it is necessary to verify whether it is in accordance with custom153. The burden of proof is on the editor. The consequences of the principle in the sale regulated by the Sale of Goods Act of 1979 are the following: 1. The parties may modify the sanction for breach of certain contractual rules, i.e., sanction the breach of an essential obligation as if it were an element of the nature of the contract. 2. They may determine the delivery location. 3. They may determine the form of payment (letter of credit, debt settlement, check, transfer, etc.) 4. They may approve partial deliveries154. 5. They may change the time of payment (delivery and payment are generally concomitant conditions)155. 6. They may transform the buyer's acceptance period into an essential element (as well as the delivery period in commercial sales of raw materials and food). 7. The parties may limit the liability of the parties. 8. They may reserve transfer of title of the property until full payment of the price156. 9. Parties may change the burden of risk157. 10. Stipulate a waiver to the essential character of timely delivery in commercial sales158. 151 In White v John Warwick & Co. Ltd. (1953) 1 WLR 1285, the disclaimer in the lease of a bicycle with a broken chair that caused injuries was declared null. 152 Cf. BRIDGE, M.G., op. cit. p. 477. 153 Ibid, p. 494. 154 Section 31 (1) s.g.a. 155 Section 28 s.g.a. 156 Romalpa Clause. 157 Section 20 (1) s.g.a. 158 These waivers can be tacit as well. In Hartley v Hymans, (1920) 3 KB 475, the buyer, after the expiration of the time of certain deliveries, demanded other deliveries of goods, which was considered as a renunciation of the right to reject them and the formulation of new purchase offers.

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11. Define the applicable law and the competent court for conflict resolution, etc. 58. Frustration - This occurs when "the execution of a contract becomes impossible as a result of an unforeseeable and insurmountable event" and is regulated by the Frustated Contracts Act of 1943. The "classic" frustration hypotheses retained by English law are: the declaration of war, the death or illness of one of the parties and the fire159 of the property covered by the contract160. In principle, force majeure exemption clauses are admissible under English law, but only if they are strict. Therefore, if their breadth is too wide, they may be subject to interpretation against proferentem161 by the court. 59. Effects of force majeure - In promises of sale of species, if the object disappears after its conclusion, without fault of the parties, and before the risk passes to the buyer, there will be no contract of sale162 . The principle is evident when dealing with specific obligations, but the jurisprudence has considered that in generic obligations the object changes, since genus numquam perit163. 60. Imprévision - Hardship is not accepted in English law as a ground for exemption from liability on the sale. It will always be necessary to seek an alternative means of meeting the obligations of the parties and bearing the additional costs164. 61. The fault of the parties165 - In particular, delay in delivery or receipt transfers the risk to the party at fault.

159

Taylor v Caldwell, (1863) 3B & S 826, 122 ER 309. See LAWSON F.H., “Remedies of English Law”, penguin books Ltd., England, 1972, p. 177. 161 See BRIDGE, M.G., op. cit. p. 474. 162 Section 7 s.g.a. 163 In this regard, clause 20 of GAFTA 100 - Grain and Feed Trade Association, 2010, confers the possibility of renewing the delivery, subject to notification to the buyer within the prescribed time - up to 7 days after delivery and not less than 21 days before the start of a contractual period. In this case, the buyer can demand the termination of the contract after 30 days, or renew it for that period. 164 See Noblee Thorl GmbH, 1962, AC 93, Egypt's closure of the Suez Canal has not been considered an obstacle as the delivery of nuts could have been made through Cape Horn in southern Chile. 165 Section 20 (2) s.g.a. 160

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The buyer is liable166 for losses suffered when the seller is in a position to deliver the goods, requests their receipt, and the buyer, by default or simple rejection, does not receive them. In this case, the buyer will also have to reimburse the seller's custody costs and compensate the seller for any loss167. For its part, when the seller culpably delays delivery, or if the goods do not conform to the contract, it is liable for the losses suffered by the buyer. 62. Sales according to the Incoterms of the International Chamber of Commerce - World trade is mainly by sea: about 80% of it takes168 place by the sea. Mass production centres are often located far from places of consumption, which explains why long journeys are necessary before goods can reach their destination, through "multimodal transport"169. This being the case, damage to the goods often occurs. In addition, perishable goods170 do not last long if their packaging and/or refrigeration are not adequate. In these cases, the general rule is that the risk rests with the seller until the time of delivery171. The seller will normally insure the goods on behalf of the buyer172 and inform him of the means of delivery173. If the goods are delivered by sea, the seller must specify to the buyer whether the trade usages applicable to the intended routes require insurance. If the seller omits the foregoing and the goods are damaged, the buyer may claim damages for non-delivery or failure of consideration. There is, however, a problem with the application of some Incoterms174 166

Demby Hamilton & Co. Ltd. v Barden, (1949) 1 All ER 435: the buyer has had to bear losses of apple juice, rotten as a result of its delay in giving instructions for delivery. 167 Section 37 s.g.a. 168 Source: http://info.arte.tv/fr/le-transport-maritime-mondial-infographies (accessed 08.09.16) 169 By "mixed" means: land, sea/and or air. 170 Fruits and vegetables, flowers, meat and frozen goods, among others. 171 In Mash & Murrell Ltd. v Joseph I. Emmanuel Ltd., (1961) 1 All ER 485, the Court of Appeal dismissed the plaintiff's claims, stating that the fault for the deterioration of potatoes delivered from Cyprus was attributable to the buyer who left them for five days in a port, and not to the seller who had them transported. 172 As an agent or on his behalf. 173 Section 32 (2) and (3) s.g.a. 174 International Commercial Terms, nomenclatures of the International Chamber of Commerce of Paris, ICC, Incoterms 2020.

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in international sales regulated by English law and not by the CISG: 1. F.O.B. Sales175 If the seller delivers the goods to a carrier and does not reserve the right to dispose of them176, ownership is transferred when the goods are placed on board177, as are the risks. The seller's notification of delivery, and not necessarily the precise indication of the vessel, has been deemed sufficient to transfer the risk to the buyer178. It is his responsibility to insure the goods, in accordance with the special nature of the F.O.B. sales contract, since the risk was transferred to him at the time of delivery of the goods to the ship. 2. F.A.S. Sales179: if the seller only has to deliver the goods to the carrier, his obligation to keep them ends at that time, and the risk passes to the buyer. 3. Sales C.I.F.180 This is the most widespread mode. The seller must "do everything" in the country of delivery. Going further in the contractual iter, it is logical to conclude that the risk has been transferred to the buyer181 from the moment of loading182 and that any losses will be borne by the insurance and/or reinsurance companies. However, the criteria are not clear on this point: In C.I.F. contracts, the consequences of transferring the risk to the buyer from the cargo are not resolved until today183-184. In practice, the risk is transferred to the buyer as soon as he pays before examining the goods, and he may have to sue the seller for the price if he sees problems with the quality and/or suitability of the goods185. On the other hand, it should be noted that in C.I.F. sales, the buyer will generally pay upon delivery of the transport documents, which include the 175

"Free on Board, delivered on board the vessel nominated by the buyer at the named port of shipment or procures the goods alreay so delivered, Incoterms I.C.C. 2020. 176 The reserve is rather a characteristic of FOB sales and not of CIF sales. See BRIDGE Michael G., The International Sale of Goods, Law and Practice, 2nd ed. Oxford University Press, United Kingdom, 2007, pp. 358-359 177 Ibid, p. 339. 178 Wimble, Sons & Co. v Rosenberg & Sons, 1913, 3 KB 743. 179 "Free Alongside Ship", delivered alongside the vessel nominated by the buyer at the named port of shipment, Incoterms I.C.C. 2020. 180 "Cost, Insurance and fleet", Incoterms I.C.C. 2020. 181 Professor Bridge concludes that the risk corresponds to the buyer during the trip, therefore, the seller's right of payment does not relate to a possible breach of contract by the carrier. See BRIDGE Michael G., The International Sale of Goods, op. cit. p. 380. 182 See The Julia, 1949, AC 293. 183 Cf. BRIDGE, M.G., Benjamin's Sale of Goods, first supplement to the 8th ed., Sweet & Maxwell, London, England, 2010, para. 19-083. 184 Cf. BRIDGE, M.G., The Sale of Goods, op. cit. p. 148. 185 Cf. BRIDGE, M.G., The Sale of Goods, op. cit. p. 571.

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bill of lading. At this stage, the property will pass to the buyer, and not with the previous loading of the goods186. § 2 - The effects of the contract of sale of goods A. Rights and obligations of the parties We will first analyse the seller's rights and obligations before studying those of the buyer. The seller has several obligations: transfer his title, deliver the goods, ensure their peaceful possession, provide information and advice. 63. Obligation to transfer title - The seller must own the goods he sells. The law is clear in this regard and states that it is implied in the sale that the seller has the right to sell, or, in the promises of sale, that he will have this right at the time of transfer of ownership. Rule 12 (1) s.g.a. indicates, in effect: "Implied terms about title, etc. (1) In a contract of sale, other than one to which subsection (3) below applies, there is an implied term on the part of the seller that in the case of a sale he has a right to sell the goods, and in the case of an agreement to sell he will have such right at the time when the property is to pass.

If this is not the case, the sale will be null and void, for failure of consideration187. The justification for this severe sanction lies in the fact that it is an essential element of the sales contract. The word "title" has a broader meaning in English law than in civil law. It may be a bill of lading, a customs warehousing certificate188, a delivery order for the goods, or any other document used in ordinary trade as proof of possession or control of the goods, which authorizes, by endorsement or delivery of such documents, the person in possession to transfer or receive the goods described in such documents189. In some cases, the seller will not own the goods he sells. These cases are described below. 186

Ibid, p. 341. In Rowland v Divall, 1923, 2KB 500, the resale of a stolen car has been qualified as a contract without consideration. 188 Dock warrant. 189 Section 1 (4) of Factors Act 1889. 187

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64. Nemo dat - As in civil law, no one can transfer more rights than he has. The rule of Roman origin nemo dat quod non habet190 is also maintained, as is logical, in English law. Therefore, if the seller is not the owner, he can only transfer his legal status in relation to the goods, and nothing more191, but the buyer can acquire a just title192, subject to the condition of being in good faith193 and ignoring the lack of title of his predecessor194. It is important to note in this regard that the English notion of good faith is simpler than the dual, civilistic notion. Although more modest, it comes close to a subjective notion, stating that something is presumed to have been done in good faith when it has been done “honestly” even if there is negligence.195 The Roman rule has apparent exceptions: 1. Commercial agents: commercial agents and consignees, and the endorsers of titles on the goods196, even if they are not owners, can transfer the title of their principal. 2. On the other hand, if the seller remains in possession of the goods sold or the securities representing them (bill of lading and bill of exchange), their transfer, by himself or through his agent, is valid with respect to bona fide third parties (who were unaware of the first sale). 3. The same is true for a type of constitutum possessorium197. If the buyer acquires material possession of the goods sold or of the documents mentioned above, - with the exception of the conditional buyer198, or in the case of bona fide sub-buyers199 -200.

190

"No one can transfer ownership of a thing that doesn't belong to him." Lexique des termes juridiques 2015-2016, Dalloz, Paris, 2015, p. 699. 191 Section 21 s.g.a. 192 "Good title." 193 In Vowles v Island Finances Ltd., 1940, 4 DLR 357, the bona fide subacquirer of a car that had previously been sold under condition, by the same selling company, has been deemed to hold a good title. 194 Section 23 s.g.a. 195 Section 61 (3) s.g.a. 196 Section 24 s.g.a. 197 It should be noted that this type of constitutum possessorium is included in constructive delivery, the expression of symbolic deliveries in English law. 198 Under the Consumer Credit Act 1974, the right of buyers in installment sales is conditional; subject to full payment of the sales price. 199 Section 25 s.g.a. 200 In Four point garage Ltd. v Carter, (1985) 3 All ER 12, the seller, on instructions from the buyer, delivers a car to the subacquirer. The latter does not pay, but the

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65. Obligation to deliver the goods - The seller must deliver in accordance with the terms of the contract of sale. The concept of "delivery" is linked to the transfer of possession. Rule 61 (1) s.g.a. defines it as the: "voluntary transfer of possession from one person to another...”. 66. Characteristics 1. Payment and delivery are concomitant circumstances, as a general rule. However, as this is an element of nature (warranty), the parties may waive this circumstance201. 2. It must be integral. Delivery by instalments can only take place in case of agreement between the parties202-203. 67. Forms of delivery - The manner of delivery must be agreed between the parties. In the absence of an agreement, there can be real delivery; symbolic delivering the keys (of vehicles or warehouses, for example), delivering a portion of the goods -representing the total-204; or, by way of a constitutum possessorium. At this point, the buyer will have to pay the price205, as a general rule. 68. Place of delivery - As in civil law, in the absence of a special rule, it must be made at the seller's domicile in respect of generic goods206 or at the place where they are located, if they are species207-208

Court considers that the absence of a physical delivery in the "chain" did not constitute an obstacle to the transfer, since the seller had acted as the buyer's agent. 201 Section 28 s.g.a. 202 In Cobec Brazilian Trading and Warehousing Corpn v Alfred C.Toepfer, (1982), 1 Lloyd's Rep 528, affd (1983) 2 Lloyd's Rep 386, the two-stage delivery of a shipment of 25,000 tons of soybeans has been considered late, as it was indivisible and should have taken place before a certain date. 203 FOSFA - Federation of Oils, Seeds and Fats Associations Ltd.- 22 authorises partial deliveries, considering in this case the existence of separate contracts. 204 See Dixon v Yates, 1833, 5 B& Ad. 313. 205 Rule 28 s.g.a. 206 Art. 1247 (old), 1342-6 (new) c.civ. 207 Art. 1609 c.civ. 208 Rule 29 s.g.a.

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On the other hand, the application of Incoterms shall determine whether it will take place at the producer's establishment209, next to the vessel210, on board the vessel211, in the port of destination212 or other less usual ways. 69. Delivery time - The time of delivery has similarities with continental law. Indeed, as in French law, delivery in a commercial sale must be made within a "reasonable time"213 if there are no special provisions agreed by the parties in this regard. A reasonable time frame is a matter of fact. In the case of perishable products or clothing, the period will be shorter compared to other products that may last over time214. 70. It should be noted that in certain cases, timely delivery is essential. This is the case of sales of raw materials - where it is generally linked to the buyer's correlative obligation to give instructions215 - and when it comes to commercial sales of goods. Thus, in the latter case, it is customary to set a time of the year during which delivery will take place. Then there will be no delay until the period is over216.

209

Ex-Works. F.A.S. 211 F.O.B. 212 C.I.F. 213 See Cass. Civ. 3rd, 10 April 1973, Bull.civ.III, no. 274: "In the absence of a time limit, it is for the judges of the instance to determine the reasonable time during which sellers should deliver the thing sold" and Cass. Com, 12 November 2008, nº07-19676; Contrats, conc. Consom. 2009, comm. no. 30, note L. Leveneur; Bull.civ.IV, no. 192; RDC 2009.599, obs. S. Pimont; JCP G 2008.IV.2997 : "In the absence of an agreed time limit, it is for the judges of the instance to determine the reasonable time within which the seller had to deliver the thing sold; in kind, the parties had not set a date for the putting into service of the machine sold. The judges of the instance considered that a six-month period was reasonable given the complexity and age of the material sold. Appeal rejected (MALAURIE Philippe, AYNÈS Laurent and GAUTIER Pierre-Yves, Droit des contrats spéciaux, 8th. ed., Défrenois, Paris, 2016, pp. 203-204). 214 Cf. BRIDGE, M.G., The Sale of Goods, op. cit. p. 274. 215 See Bunge Corpn v Tradax S.A., (191) 1 WLR 711. In this case, the Court of Appeal and the House of Lords held that the failure of the buyer to give instructions for delivery within the time limit provided for in a transaction relating to the sale of 5000 tonnes of soya constituted an infringement of a condition and was therefore essential. 216 See ATIYAH, P.S., The Sale of Goods, 9a. ed., ADAMS, J.N., Pitman Publishing, London, England, 1995, p. 97. 210

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The most emblematic case in this regard is Bowes v Shand of 1877 217. In this case, the House of Lords dismissed the plaintiff's claims by considering that his action for non-acceptance was ill-founded (he had delivered a shipment of rice in advance in February, although it had been stipulated that delivery would take place in March and/or April). On the other hand, it should be pointed out that when it has been stipulated that delivery will take place as soon as possible218, it means within a reasonable time, meaning the shortest possible time219. Finally, it should be noted that in case of delivery by instalments, it is necessary to analise each specific delivery in order to be able to determine whether it was made in a timely manner or not220. Failure to deliver on time will be punished as a breach of a condition by the seller221. In this case, the buyer can refuse delivery, refrain from accepting the goods and pay the price, and claim damages222. If the price has already been paid, you can recover it for failure of consideration, along with reversing the burden of risks223. 71. The particularities of the obligation to deliver - The seller must deliver the goods in quantity, quality, and suitability, in accordance with the contractual stipulations. You must also deliver the necessary documents to the buyer, as we will see. 72. Quantity to be delivered - If the number of goods delivered is less than that stipulated in the contract, the buyer may reject them or, failing that, pay the corresponding price. On the other hand, if the quantities are higher, he may accept the quantities stipulated in the contract of sale and reject the additional goods, reject them in their entirety, or accept the surplus and pay the difference at the contract price224. This rule, which allows the buyer to reject the goods in case of differences in delivery, is subject to the condition that it is reasonable, i.e., for significant differences. It is a consequence of the Roman principle of de

217

2 App. Cas 455. ASAP, "as soon as possible". 219 See BRIDGE, M.G., The Sale of Goods, op. cit, p. 275. 220 See Jackson v Rotax Motor and Cycle Co., (1910) 2 KB 937. 221 Cf. ATIYAH, P.S., op. cit, p. 98. 222 Section 51. 223 Cf. BRIDGE, M.G., The Sale of Goods, op. cit. p. 144. 224 Section 30 s.g.a. 218

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minimis non curat lex, according to which the law is not interested in small details, i.e., unimportant things225-226. 73. Quality of goods - Until the promulgation of the Law of Sale of Goods of 1893 (succeeded by that of 1979), the "golden rule"227 to apply on this point was the Roman law caveat emptor rule. According to it, the buyer had to examine the goods before contracting. In the absence of examination, or if an error occurred in the examination, negligence was presumed. Despite its apparent rigidity, fraud was never admitted228. Today there are implicit clauses relating to the quality 229 and suitability of the goods. According to them, the goods must be of "satisfactory" quality230. This is a necessary condition, i.e., essential to the sale. Before the amendment introduced in 1994 by the Sale and Supply of Goods Act, goods had to be of merchantable quality231; a notion introduced after James Drummond and Sons v E.H. Van Ingen & Co.232 which referred to fabrics purchased on the basis of samples. The products were defective because they lacked cohesion and were easily damaged, something that the examination of the samples had not demonstrated. In this case, the House of Lords condemned the sellers for not selling good quality products. Subsequently, the Sale and Supply of Goods Act 1994, has defined this quality, providing: “For the purposes of this Act, goods are of satisfactory quality if they meet the standard that a reasonable person would regard as satisfactory, taking account of any description of the goods, the price (if relevant) and all the other relevant circumstances”233.

How can the necessary and sufficient quality to meet these obligations be determined? 225

Cf. ATIYAH, P.S., op. cit. p. 106. According to this principle, in Shipton Anderson & Co. v Weil Bros. & Co., (1912) 1 KB 574, a difference of 55 pounds by 4950 tons has been considered insufficient to refuse delivery of the goods. 227 See ATIYAH, P.S., op. cit. p. 111. 228 See BRIDGE, M.G., The Sale of Goods, op. cit. p. 341. 229 Section 14 (2) s.g.a. 230 This is reasonable, given that the seller, often the manufacturer, is in a privileged position to know the advantages and defects of the goods it produces. See BRIDGE, M.G., The Sale of Goods, op. cit. p. 360. 231 Merchandise of commercial quality. 232 (1887) 12 App. Cas. 284. 233 Section 1.- (2A). 226

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Under the Sales of Goods Act 1979 234, this is in relation to what an average person estimates such as, considering its description, price, and other circumstances of importance. Quality, the law adds, involves: the finish, the suitability for the purposes for which these types of goods are usually supplied, durability, and the absence of minor defects. 74. Special cases - Sales by description; sales in part by description and in part by samples. To consider a sale by description, it is necessary that it must influence the sale235 and the description of the goods, for example: wool clothes, a hot water bottle, etc.236 New goods will always be sold by description, unlike second-hand goods, which often will not be237. If the sale is by description, it is implicitly understood that the goods correspond to this description. This is an essential obligation (condition)238239 . The description of the goods will always be necessary for sales of goods, in consideration of their nature. On the contrary, it is not necessary in the sales of species, since the goods in these cases are sold tale quale. In practice, they are often specified, as this allows a breach of contract to be invoked in the event of non-conformity of the goods and also to avoid uncertainty. Where the goods do not conform to their description240, even if they have been sold tale quale, the seller will breach his contractual obligations. On the other hand, if the goods conform to their description, even if the final result is not as desired by the parties, the contract is valid. This was the case in Ashington Piggeries Ltd. v Christopher Hill Ltd241. In this case, the seller sold food prepared in accordance with the instructions given by the buyer. A dispute arose because the Norwegian supplier added a chemical that turned out to be toxic. The House of Lords held that in this case there had 234

Regulation 14 (2A) s.g.a. Cf. ATIYAH, P.S., op. cit. p. 115. 236 Ibid, p. 122. 237 Ibidem. 238 Section 13 s.g.a. 239 For this reason, in Elder Smith Goldsborough Mort Ltd. v Mcbride, (1976) 2 NSWLR 631, the sale of a stallion bull, which turned out to be infertile, has been considered a breach of description and contract. 240 In Wieler v Schilizzi, 1856, 17 CB 619, the description concerned linseed tale quale and the shipment was found altered, contaminated with mustard, for which reason the seller was condemned. 241 (1972) AC 441. 235

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been no breach of contract with242 respect to the description given by the seller, which was consistent, but with respect to the toxicity of a chemical used by the seller. It should be noted that in this and other similar cases, where there is no problem of conformity with the description of the goods, there is always an action for damages under section 14 (2) and (3) s.g.a. for any damage caused243, which is logical. The express stipulations will, therefore, be very important. In Drake v Thos Agnew & Sons. Ltd244, in a case of sale of paintings, it was concluded that, as a general rule, statements about the authorship of works of art were merely opinions. In order to be able to invoke the rule of description, it is necessary that the parties give it the character of condition, in an express manner. On the other hand, if the sale is made partly by description and partly by samples, the goods must conform to their description. The seller is not liable where the buyer has examined the goods before the conclusion of the contract, and the examination has revealed defects; or in the case of a contract of sale on the basis of samples whose defects would have become apparent after a reasonable examination. 75. The required standard - There is theoretically a very broad spectrum: luxury goods, ordinary quality goods, low cost goods. The question then arises as to what level of quality is required of the seller in the absence of an express term. English case law has ruled that basic quality is sufficient245. Thus, unlike the Unidroit246 principles, it is not necessary for them to be of average quality. A certain degree of tolerance is also allowed, in consideration of price, as it is often associated with the quality of the goods247. Professor P.S. ATIYAH considers that: "The price at which goods are sold is often relevant in deciding what quality the buyer is entitled to expect. This was the case under the former provisions, and is the case under the 1994 Act which again expressly mentions price”248.

242

To section 13 s.g.a. See ATIYAH, P.S., op. cit. p. 127. 244 (2002) EWHC 294 (QB). 245 See Geo. Wills & Co. Ltd. v Daniels Pty Ltd., (1957) 98 CLR 77. 246 Art. 5.1.6 U.P., 2016. 247 Cf. BRIDGE, M.G., The Sale of Goods, op. cit. p. 376. 248 ATIYAH, P.S., op. cit. p. 155. 243

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76. Suitability of goods - It is important not only that the goods delivered conform to their description and are of a certain quality, but also that they are suitable for the purposes set out in the contracts. Like quality, it is also a condition and an implicit clause in the sale of goods249. On this point, we must ask ourselves what is the margin of tolerance provided by the law. Case law has concluded, for example, that the following defects are inadmissible: random and unpredictable failures of hard disks250, problems with the transmission and finish of luxury cars251 (used cars, for their part, must be capable of being driven safely, at least), etc. Since the law252 expressly indicates the aesthetic state of the goods as a hypothesis of specific aptitude, the question arises as to the degree of perfection required of the goods. The Law Commission253 had indicated that negligible damage to the goods should be accepted if it did not impair their proper functioning. However, the de minimis rule has not prevailed at this point. The criterion is very strict, according to the jurisprudence established in International Business Machines Co. v Scherban 254-255 according to which defects, even minor, entitle the buyer to refuse delivery of the goods. 77. On the suitability of goods for long sea voyages - When it comes to selling food, they often have to make long journeys to reach their target markets on continents other than production. As mentioned above, the risk of deterioration is sometimes considerable, and this risk weighs on the buyer as soon as the goods are delivered to the carrier. In this case, the seller must provide the appropriate packaging to fulfil his obligation to deliver256 taking into account the obligation to accomplish the purposes intended (sale of fruit, vegetables, meat or other products in good health and sale conditions). 78. Documents that the seller must deliver to the buyer - In F.O.B. sales, the seller generally must deliver to the buyer the bill of lading, 249

Section 14 (3) and (6) s.g.a. See Seagate Technology Inc., (1998) 86 BLR 34. 251 See Capital Bank Plc (2006) CSIH 49. 252 Section 14 (2B) (b) s.g.a. 253 Law Com No. 160, 1987. 254 IBM 255 (1925) 1 WWR 405. In this case, the buyer refuses delivery on several occasions because the machine dial glass had been broken. 256 See Marsh, (1920) 1 KB 672. 250

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certificates of origin of the goods257, export permits in certain cases258-259, and if he is obliged to contract the vessel, he must notify this operation. On the other hand, in C.I.F. sales, the physical delivery obligation is replaced by documentary obligations. This type of sale is rather a documentary sale, and the delivery of documents is often done through a bank branch. The seller must contract or franchise the means of freight and insurance in relation to the goods shipped, which must conform in terms of description, quantity, and quality with the C.I.F. contract, and transfer to the buyer the benefit of these contracts. The carrier is not a commercial agent of the buyer who delivers the goods in shipment, and is not necessarily a party to the C.I.F. contract under which the goods will be delivered to the port of destination. It is presumed that the C.I.F. buyer is obliged to pay against delivery of the shipping documents, which will include a bill of lading (or other transport document), an insurance document and an invoice260. In general, the seller must deliver to the buyer documents containing identical descriptions of the goods261. Previously the practice was stricter262. 79. On the specific suitability of certain goods - In certain cases, the buyer informs the seller that he needs goods with particular characteristics. In these cases, the seller cannot deliver goods of basic or average quality. It will only fulfil its obligation by providing the particular qualities required for the goods, and not others.263

257

The Chile-E.U. free trade agreement requires this document for the import of goods (art. 58 and annex III). 258 Incoterms 2010, for A2 (FAS). 259 Incoterms 2010, for B2 (CIF) (CFR). 260 Cf. BRIDGE, M.G., The Sale of Goods, op. cit. p. 296. 261 Art. 14 (e) of the UCP 600, I.C.C. Rules, 2007, requires total conformity between the credit and the invoice, but no longer with the other documents, which must be only in general terms. 262 In Soproma SpA v Marine and Animal By-Products Corpn, (1966) 1 Lloyd's Rep 367, the letter of credit had specified Chilean fish, 70% protein. But, the bill of lading pointed to "Chilean fish food" and the description of the invoices was in accordance with the letter of credit. Divergences were found in the certificates of quality (67% minimum) and analysis (69.7% proteins). This has invalidated the documents, as the old rule was stricter. 263 In Manchester Importer, (1922) 2 AC 74, the buyer had purchased 500 tonnes of a specific coal needed for that ship. The responsibility of the sellers was established according to section 14 (3). See BRIDGE M.G., op. cit. p. 403.

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80. Rules of evidence - The onus probandi corresponds to the seller264, therefore, it is to him who will correspond to prove that the delivery has been made in opportune time, and that the quantity, quality, and aptitude of the goods are the correct ones. 81. Costs - As in civil law, in the absence of other stipulations, delivery costs are borne by the seller265. This is a logical rule, since he receives a price for the goods. In addition, it should help make trade more fluid, freeing up sellers of goods. 82. The delivery must be total, not partial - The rule is the same as in civil law (the creditor cannot be obligated to receive payment by stalments266). In case of partial non-performance of the obligation to deliver, it is necessary to determine whether or not such non-performance is significant, whether it gives rise to damages or even whether it can justify the termination of the contract267. The delivery of the goods to the carrier, according to the contract or at the request of the buyer, is presumed to have been made to the latter. The seller has an obligation of result on this point. Unless otherwise stipulated, he must contract with the carrier on behalf of the buyer, taking into account the characteristics of the goods to be delivered. If it does not do so, and these deteriorate, the buyer can reject them and claim damages. 83. Obligation to warranty quiet possession to the buyer - The seller must guarantee the buyer against any claims by third parties and his own. Naturally, with respect to third parties, you should only avoid legal discomfort (lawsuits, etc.), but not theft or other acts that do not fall within its scope268. It is an obligation of nature269 - warranty -, then: 1. The parties may waive it. 2. The seller is not obligated to defend the sub-buyers.

264

Rule 30 s.g.a. Rule 29 s.g.a. 266 Art. 1244 (old) 1342-4 (new) c.civ. 267 Rule 30 s.g.a. 268 On this point, Professor ATIYAH states: "But if the third party acts independently, the buyer can probably only rely on the subsection where the third party’s act was a lawful act", op. cit. p. 85. 269 Section 12 (5) s.g.a. enshrines this obligation, and section 12 (5A) s.g.a. specifies that it is a guarantee. 265

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More often than not, therefore, the seller must defend the buyer against third party claims270. However, sometimes it is the seller himself who disturbs the buyer's possession. This was the case in Empresa Exportadora de Azúcar v Industria Azucarera Nacional S.A. (Cubazúcar v Iansa) of 1983271. This jurisprudence is important for the present study, given the nationality of the parties and their scope. The parties were as follows: The seller, the state-owned Cuban sugar-exporting company (Exportadora de Azúcar), and the buyer, a corporation in Chile in the field of manufacturing and selling sugar (IANSA : Industria Azucarera Nacional S.A.). The facts were as follows: The Chilean company, IANSA S.A., had bought Cuban sugar, which was to be delivered in Chile by the seller, Exportadora de Azúcar de Cuba. The seller participated in negotiations with the Cuban government, which resulted in order for the return of the vessel carrying the sugar sold C.I.F.272. The bill of lading had been transferred against payment, and the vessel had entered a Chilean bay273. The plaintiff, IANSA, filed a claim for damages in view of the increase in the price of the goods on the international market, the non-delivery, and the costs of the arbitration proceedings, following the seller's breach of an obligation relating to the nature of the contract274; that of guaranteeing the seller's own peaceful possession of the goods, according to the specific obligation enshrined in section 12 (5) (a) s.g.a. However, the Court of Appeals dismissed the applicant's claims, considering that: 1. It was not reasonable for him to sell the goods at such a high price, but rather he would have sold them on the domestic market, and for domestic consumption. 270

In Microbeads AG v Vinhurst Road Markings Ltd, (1975), 1 WLR 218, during the course of the seller's prosecution of industrial patents, a third party registered a patent, which the parties were unaware of. The Court of Appeal condemned the seller, since he was to guarantee the buyer's possession of an industrial invention and to avoid inconvenience from third parties, according to section 12 (5) (b) s.g.a. 271 (The Playa Larga) 2 Lloyd's Rep 171. 272 Cost, Insurance and Freight, C.C.I., Incoterms 2020. 273 According to Professor BRIDGE, the shipment of goods by the seller, in a C.I.F. sale is an act of physical execution, of delivery. Once made, the obligations of physical delivery cease. See BRIDGE, M.G., The International Sale of Goods, op. cit. p. 126. 274 Warranty.

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2. While it is true that the defendant could have sold at a higher price to a third party, there was no evidence to that effect. (Source: (1983) 2 Lloyd's Rep 171) 84. Temporary limitation of the eviction warranty - Under the 1980 Limitation Act275 the limitation period is six years. However, some authors consider that it persists for as long as it is necessary to guarantee the peaceful possession of the buyer, i.e., for as long as he has a possessory interest276. 85. The seller also has an obligation of information and advice, which manifests itself in various ways: 1. In the case of maritime routes, for example, he has the duty to inform the buyer if insurance is customary in this type of situation; otherwise, he assumes the risks277. 2. He must inform the buyer of any inconvenience that may disturb his rights: "12 (4) In a contract to which subsection (3) above applies there is an implied term that all charges or encumbrances known to the seller and not known to the buyer have been disclosed to the buyer before the contract is made”.

This obligation is an element of the nature of the contract278. 3. It must inform the buyer about the dangerousness of certain goods. More often than not, the seller is in a privileged position vis-à-vis the buyer, since he knows the particularities and problems that certain goods may present. It is for this reason that he is obliged to inform the buyer of the precautions to be taken with regard to their use, dangerousness, etc. On the basis of this obligation of information and/or advice, the sellers were convicted in several cases, for negligence, for not having informed the other contracting party about the known dangerousness of the products, and for breach of section 14 (3) s.g.a. also279. In two famous cases, noncompliance with this obligation resulted in the death of animals in the first, and human beings in the second280. 275

Limitation Act, 1980, section 5. Cf. BRIDGE, M.G., The Sale Of Goods, op. cit, p. 193. 277 Section 32 s.g.a. 278 Warranty, according to section 12 (5 A) s.g.a. 279 Lack of suitability for the purpose for which the contract was drawn up. 280 See Ashington Piggeries, (1972) AC 441 and Vacwell Engineering Co. Ltd. v BDH Chemicals Ltd., (1969) 3 All ER 1681. In the second case, the seller reported 276

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To fulfil this obligation, sellers must inform their contractual partners of all "foreseeable" dangerous assumptions, explicitly in instructions, brochures or other documents.281 Sellers also have a number of rights. 86. Right to be paid in accordance with contractual provisions - If the buyer does not pay the agreed price, the seller may exercise certain rights, or protective measures that preserve his interests. 87. Lien and Privilege - They operate in the event of non-payment or incomplete payment282. In doctrine, it is said that the seller has a right of retention, before the property passes to the buyer and a privilege after the transfer of ownership283. The right of retention is a logical consequence of the fact that delivery and payment are reciprocal conditions284. This right of retention terminates in the event of renunciation, when the buyer becomes the holder or when he delivers the goods to the carrier, warehouse keeper or other custodian for transfer to the buyer without reserving the right to dispose of them285-286. The same effect occurs when a title duly transferred to the buyer is transferred to a sub-buyer or pledged, by way of monetary consideration, and in good faith on the part of the subbuyer or the creditor287. Sub-sales that the buyer may have made are not opposable to the seller, unless the latter agrees with them; the documents representing the goods have been given to a third party in good faith, as buyer or owner, and subject to a consideration of value288; or if the transfer has been pledged (in this case it is subject to the rights of the constituent). the risk of vapors, but not the risk of explosion, which caused the death of an employee of the buyer. 281 Cf. ATIYAH, P.S., op. cit. p. 173. 282 Section 41 s.g.a. 283 See BRIDGE, M.G., The Sale Of Goods, op. cit. p. 587. 284 Section 28 s.g.a. 285 Section 43 s.g.a. 286 In D.F. Mount Ltd. v Jay & Jay (Provisions) Ltd, (1960) 1 QB 159, the court dismissed the claims of the sellers who authorized an under-sale, without being paid by the buyer. Therefore, the link was not established. 287 Section 47(2) s.g.a. 288 Indeed, it is one of the cases in which financial consideration is relevant: "There is therefore an important exception to this refusal of the courts to assess the economic value of the consideration. It is the case where there would be change of

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88. Stoppage in transit - In the event of buyer insolvency, the seller can stop the goods in transit, even if he has lost possession of them. Insolvency is a factual situation. However, under the law289, the buyer is insolvent in the case of a company if he has not paid a debt of at least £750 within three weeks of the request for payment. In practice, contractual performance will be frozen until the arrival of a liquidator290. The effects are as follows: 1. The exercise of this right does not necessarily imply the termination of the contract291. 2. With this right, the seller can take back the goods, provided they are in transit, and hold them until payment is made or guaranteed292. This can take many forms: The retention may be manifested by the material seizure of the goods by the seller or by their notification293 to the carrier, warehouse keeper or other custodian in possession of the goods. The notification is valid, whether it is made to the client or his agent. In the first case, it must take place in circumstances that allow you to inform your employee or agent before verifying delivery of the goods to the buyer. Upon receipt of the notice, the goods must be delivered according to the instructions of the seller and at his expense294. Like the previous privilege, this right disappears in the event of a waiver, when the buyer becomes the owner or when the seller delivers the goods to the carrier, warehouse keeper or other custodian for transfer to the buyer without reserving the right to dispose of them. Similarly, where a title duly transferred to the buyer is transferred to a sub-buyer or as security, for financial consideration, and in good faith by the sub-buyer or creditor. It is understood that the goods are in transit as soon as they are delivered to the carrier, warehouse keeper or other custodian for the purpose of transferring them to the buyer, and until such time as he or his agent takes possession of them, at or before destination; if the goods have been rejected fungible things or money for unequal amounts. It is considered that in this particular case the courts cannot be made either deaf or blind, as the inequality of benefits is obvious. It is impossible to say then that the parties have been able to consider of equal value things whose inequality of values is manifest" (LEVASSEUR A., op. cit. p. 44). 289 Section 123, Insolvency Act 1986. 290 Cf. BRIDGE, M.G., The Sale Of Goods, op. cit. p. 586. 291 Section 48 (1) s.g.a. 292 Section 44 s.g.a. 293 According to Phelps Stokes & Co. v Comber, (1885) 29 Ch.D 813, the notice must specify the goods and the intention to repossess them. 294 Section 46 (4) s.g.a.

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by the buyer, they remain in the possession of the carrier, warehouse keeper or other custodian; and, when the carrier, warehouse keeper or other custodian refuses to deliver the goods to the buyer or his agent. An only partial delivery does not imply the definitive conclusion of the transport of all the goods295. 89. Right to resell the goods in the event of non-payment or incomplete payment. The law defines what is to be understood by non-payment. The seller is deemed not to have paid if the full price has not been paid, or if a letter of credit or other conditional payment instrument has not been honored296. In the case of perishable goods or where the seller has notified the buyer of its intention to sell, if the buyer fails to pay or guarantee payment within a reasonable time, the seller may resell the goods and claim from the original buyer compensation for damages suffered as a result of the breach of contract297. The exercise of this right has several effects. On the one hand, if the seller has expressly reserved the right to resell the goods in the event that the buyer does not pay, if the goods are finally sold, the original contract is terminated as of right, without prejudice to the seller's right to claim damages.298 On the other hand, if the seller resells the goods, the sub-agent will have a just title that can be relied upon against the original buyer299. Like the seller, the buyer must also fulfill certain obligations and has several rights. 90. Accept and receive the goods - The buyer must accept and receive the goods unconditionally, in strict compliance with the clauses of the contract300, and is not obliged to accept delivery of the goods by instalments301. This obligation has several characteristics: 1. Where goods are to be delivered partially, partial rejection of the goods may or may not be considered a ground for terminating the

295

Section 45 s.g.a. Section 38, (1), (b). s.g.a. 297 Section 48 (3) s.g.a. 298 Section 48 (4) s.g.a. 299 Section 48 (2) s.g.a. 300 Section 27 s.g.a. 301 Section 31 (1) s.g.a. 296

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contract302, depending on the circumstances. The criterion is often quantitative303. This is important because a sale by partial deliveries is a single contract, not a chain of contracts, as so many deliveries exist304. 2. As in civil law, it is an element of the nature of the contract (warranty), therefore the parties may waive it305. 3. Like the seller's delivery obligation, timely acceptance is essential for perishable goods306. In some cases, acceptance time has not been considered essential, however307. The doctrine has criticized this dichotomy308 because there are no real reasons for it. 4. Failure by the purchaser to comply with this obligation shall be punishable by damages for non-acceptance. Its effects are multiple: 1. If the buyer validates the conformity of the goods, or if he acts as the owner, or if he has not rejected the goods within a reasonable time, the goods shall be deemed to have been accepted. Exceptionally, sub-sales and repairs do not constitute acceptance of the goods, contrary to civil law. 2. Acceptance of goods in a business unit309 presumes acceptance of the whole unit310. 91. Pay the price of the goods - The characteristics of this obligation are as follows: 1. For the buyer to take possession of the goods, he must pay or guarantee payment. 2. The price must be determined in the sales contract, otherwise there is no sale311. 302

Section 31 (2) s.g.a. In Maple Flock Co. Ltd. v Universal Furniture Products (Wembley) Ltd., (1934) 1 KB 148, the seller's breach of quality of a single delivery -within 65- has not been considered sufficient to repudiate the rest of the contract. 304 Cf. BRIDGE, M.G., The Sale of Goods, op. cit. p. 556. 305 Section 28 s.g.a. 306 Cf. ATIYAH, P.S., op. cit. p. 263. 307 In Kidston & Co. v Monceau Ironworks Co. (1902) 7 Com. Cas. 82., the Court found that the buyer's delay in issuing delivery instructions did not prevent the seller from organizing production and transportation in the contractual period. 308 See BRIDGE, M.G., The Sale of Goods, op. cit. p. 331. 309 A commercial unit, according to the s.g.a., is a unit division in which the value would decrease if certain goods were excluded. 310 Section 35 s.g.a. 311 In May & Butcher v R., (1934) 2 K.B. 17, the House of Lords stated that if price fixing has been left for later, the parties have not actually contracted. 303

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It must be determined at the time of the conclusion of the contract of sale, according to the contractual mechanism, or by subsequent negotiations of the parties312. If the foregoing fails and the price is not determined, a reasonable price will be paid, depending on the particular circumstances of each case313. It should be noted that when the price is to be determined by a third party, and this determination does not take place, there is no contract of sale (a condition is missing). However, if certain goods have already been delivered to the buyer, the buyer will have to pay the price anyway314. If the indeterminacy of the price by a third party results from the fault of one party, that party shall be liable to indemnify the other315. 3. In the absence of a contractual stipulation, the price must be paid immediately, in cash. But if payment is made by letter of credit and subject to a certain time limit, the seller is presumed to have given credit to the buyer to pay and may not retain the goods316. 4. Once the goods have been transferred to the buyer317, the unjustified lack of payment obligation authorizes the seller to demand payment of the price. The same shall apply to sales subject to a deadline, if the buyer refuses to pay the price318. The foundation of this principle is the following: " the purchaser has received a quid pro quo, a completed consideration"319. 92. Imputation of payment - In order to understand the consequences of payment, it is necessary to distinguish the different situations that may arise: 1. In contracts for the sale of goods which must be individualized and which form part of a lot that has been identified and for which all or part of the price has already been paid, the buyer becomes co-owner of an undivided part of the lot, which is representative of the goods paid for and due to the buyer.

312

Section 8 (1) s.g.a. Section 8 (2) and (3) s.g.a. 314 Section 9 (1) s.g.a. 315 Section 9 (2) s.g.a. 316 See ATIYAH, P.S., op. cit. p. 259. 317 The buyer may reject the goods in certain cases, as we shall see. 318 Section 49 (1) and (2) s.g.a. 319 Cf. BRIDGE, M.G., The Sale of Goods, op. cit., p. 609. 313

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2. Where the buyer has paid only the price of certain goods that are included in a lot320, any partial deliveries he may receive shall be set off against the payments made and assigned to those goods321. All co-owners of a lot are presumed to have consented to the delivery of the goods due to the buyer, as well as those which are made in accordance with the law of the third parties who contracted with one of them. There is no obligation to compensate for differences that may arise between them. Their agreements –party autonomy- can always alter these rules322. 93. Consequences of failure to pay. They are multiple. 1. The partial breach of the obligation to pay and/or receive, as well as the obligation to deliver, if serious, may give rise to a claim for damages against the seller323, according to the de minimis rule. The evaluation of its amount will be carried out estimating the direct damage suffered as a result of the breach of contract. In cases where there is an alternative market for the goods, the quantum of compensation shall correspond to the difference between the contract price of the goods and the price of that market, or between that first price and the price at the time they were to be delivered or refused (if there was no time limit specified)324. 2. Failure to pay the price also entitles the seller to resell the goods to other buyers without further liability. In this case, we are talking about a falling market325. 3. In spot contracts326, failure to pay immediately will often be considered a breach of condition. 4. If the property in the goods has been transferred to the buyer, and the buyer does not pay the price due to negligence or bad faith, the seller may demand payment of the price. 5. If payment of the price was subject to a time limit and has not been made within that time limit, the seller may demand payment of the price even if ownership of the goods has not yet been transferred to the buyer327. 320

Section 20 (A) s.g.a. Contrary to civil law, partial payments partially release. 322 Section 20(B) s.g.a. 323 Section 30 s.g.a. 324 Section 51 s.g.a. 325 A falling market: a declining market. 326 Instant execution contracts. 327 Section 49 s.g.a. 321

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In addition to these obligations, the buyer has certain rights. 94. Indemnification - As we have seen above, the buyer is entitled to compensation if the goods are damaged. 95. Examination - The buyer has the right to examine the goods within a reasonable time to see whether they conform to the quality and quantity stipulated in the contract. In C.I.F. sales, in the case of documentary sales, the buyer cannot suspend payment until the goods are examined, because their very nature prevents them from doing so.328 This is the case, for example, of sales in which the bills of lading have been falsified, since they act as the title and receipt of the goods, then the beneficiaries may be in good faith329. In the case of sales on the basis of samples, the buyer has the right to compare the goods received with the samples330. It is understood that the goods and their quality must be in conformity with the samples received, free from defects which may affect them, after reasonable examination of the samples. This is essential in such a sale -condition-331 . 96. Nature of the test - The required test is the ordinary332 and the place, in the case of complex goods333, will often be the buyer's premises. It must be done within a reasonable time. This, of course, will depend on the types of goods, because the examination of a nuclear reactor will be more difficult than that of a combustion engine, for example. This is, therefore, a factual situation which the parties will take into account when determining the modalities of the examination334. The examination will usually be carried out by the buyer himself or by his employees. However, in international sales, especially of raw materials or food, it is carried out by independent agencies that issue certifications on the condition of the goods that are often binding on the parties. 328

Cf. BRIDGE, M.G., The Sale of Goods, op. cit. p. 324. United City Merchants (Investments) Ltd v Royal Bank of Canada, (1983) 1 AC 168. 330 Section 34 and 35 (2) ( b) s.g.a. 331 Section 15 (3) s.g.a. 332 Heilbutt v Hickson, (1872) LR CP 438: it was provided that, during the FrancoPrussian war, the buyer of shoes for the French army was not obliged to disarm them in order to find internal manufacturing defects. 333 See BRIDGE, M.G., The Sale of Goods, op. cit. p. 536. 334 In Bernstein v Pamson Motors (Golders Green) Ltd, (1987), 2 All Er 220, the buyer of a car that took four weeks and traveled 140 miles before presenting defects, has been dismissed in his claims for having acted too late. 329

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97. Right to reject goods received in excess or defective - Several situations may occur: 1. In the case of an indivisible contract, if the buyer accepts some goods, he may not refuse the others. 2. On the other hand, if the contract is divisible and rejects some goods and accepts others, it does not lose the right to reject the others if there is a breach of contract by the seller; if the goods do not conform to the contract. It should be noted that the buyer is not presumed to accept the goods if he accepts a repair, or if a sub-sale takes place335. However, he shall be presumed to have accepted the goods, and may not reject them, if he commits acts that are harmful or contrary to the seller's rights336, or if he does not reject them within a reasonable time337. On the other hand, it will also be prevented from doing so338 in cases where the breach of a condition has been assimilated to that of a warranty339. 98. C.I.F. sales and rejection - In this case, as the obligation to deliver is replaced by a documentary obligation, the buyer must reject the documents that the seller has sent him. Professor BRIDGE indicates on this point: "A C.I.F. contract is a documentary sale in that the seller's normal duty to deliver goods is replaced by a duty to ship or cause them to be shipped and a duty to tender certain documents evidencing that carriage and insurance contracts have been entered into on appropriate terms. In transit, the goods are represented by a transport document, clasically a bill of lading, which is their documentary expression until the transit comes to an end. The orthodox view is that the buyer has separate rights of rejection and termination arising out of documentary breaches and breaches concerning the quality and timely shipment of the goods, but the true position is a little more complex than this. The rejection of documents will entail the rejection of the goods, since the C.I.F. seller may not unilaterally alter the contract and tender the goods physically on shore. Likewise, the rejection of the goods will require the buyer to place any documents already received at the disposal of the seller340.

335

Section 56 (6) (a) and (b) s.g.a. Section 35 (1) (b) s.g.a. 337 Section 35 (4) s.g.a. 338 Section 11 (2) s.g.a. 339 See BRIDGE, M.G., The Sale of Goods, op. cit. p. 539. 340 Cf. BRIDGE, M.G., The Sale of Goods, op. cit. p. 570. 336

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On the other hand, it should be noted that the requirement of quality certificates, issued by independent bodies, with respect to the conformity of goods, is not a condition that may prevent payment in a CIF sale341. Finally, it should be noted that this right does not apply to buyers of second-hand goods, for reasons that the doctrine considers to be of historical342 and systematic343 origin. 99. Effects of rejection. If non-performance is not important344 (quantity or defects) it will be considered as the infringement of a warranty; but if the delivery time is essential, it will give rise to a breach of condition. 2. The buyer has no obligation to return the goods; his manifestation of rejection is sufficient345. 3. If the rejection takes place at the time of the offer of delivery (before physical delivery), it avoids the transfer of ownership and risks to the buyer346. 4. The rejection authorizes the buyer to sue for failure of consideration. 5. The seller may, however, make further delivery attempts during the period provided for by rule 54 s.g.a.; as long as the essential period has not expired, and until it is unacceptable in its effects347. B. Sanctions for non-performance of contractual obligations 100. Damages - In English law, specific performance is the exception. The general rule is compensation for damages, which results in the remedy par excellence. There are several types. Reliance damages are the general rule and are intended to place the creditor in the same situation as before the breach of contract348. Expectation damages place the creditor in the hypothetical situation of a perfectly executed contract, so that the loss of profit is included. 341

In Berger & Co. Inc. v Gill&Duffus S.A., (1984) AC 382, the House of Lords has concluded that the seller was not required to give a certificate of conformity in order to be entitled to be paid in a C.I.F. sale. 342 The massive sale of second-hand goods follows the law of 1893. 343 This right exists in civil law, arts. 1641 and 1644 c.civ. 344 Section 15 A s.g.a. 345 Section 35 (A) and 11 (4) s.g.a. 346 Section 18 (5) s.g.a., contrario sensu. 347 See BRIDGE, M.G., The Sale of Goods, op. cit. p. 577. 348 See Doyle v Olby (Ironmongers Ltd.), (1969) 2 QB 158, 167.

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Nominal damages are intended to compensate for unjustified losses in relation to their amount349. Contemptuous damages sanction reckless legal actions. Finally, punitive damages are intended to prevent the repetition of civil offences350. 101. Active legitimation - The seller has this right in the event that the buyer unreasonably refuses to accept the non-transferred goods. For its part, the buyer can claim damages when: 1. The seller does not deliver the goods. 2. Do it with a delay. 3. If they do not conform in quality, quantity351 or suitability to the explicit or implicit provisions of the contract. 102. The burden of proof - To be borne by the applicant. He will have to prove, first, that the damages produced are a consequence of the breach of contract and, then, that they have no other cause352. Two principles are at the basis of this obligation-right to compensate damages: mitigation and remoteness of damages. 103. Remoteness - The primordial rule was established in Hadley v Baxendale353. In this case, the owner of a mill, Mr. Hadley, had to send certain damaged parts from Gloucester to Greenwich so that the manufacturer could confirm the exact dimensions of new parts to be manufactured. A problem arose: the carrier, Baxendale and Ors, delivered late. Hadley claimed damages for losses incurred during the time his mill stopped operating. In this case, the court dismissed the plaintiff's claim. Baron Alderson, in ruling on the case, stated: “Where two parties have made a contract which one of them has broken, the damages which the other party ought to receive in respect of such breach of contract should be such as may be fairly and reasonably be considered either as arising naturally, i.e. according to the usual course of things, from such breach of contract itself, 349

See Constantine vs Imperial Hotels Ltd., (1944) K.B. 693. See Rookes v Barnard, (1964) UKHL 1. 351 According to the de minimis rule, already seen. 352 In Beoco Ltd. v Alfa Laval Co. Ltd., (1994) 4 All ER 464, the buyer attempted to repair a machine, which caused an explosion. Consequently, his claim for damages for loss of profit was dismissed. 353 (1854), EWHC J70. 350

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or such as may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it. Now, if the special circumstances under which the contract was actually made where communicated by the plaintiffs to the defendants, and thus known to both parties, the damages resulting from the breach of such a contract, which they would reasonably contemplate, would be the amount of injury which would ordinarily follow from a breach of contract under these special circumstances so known and communicated. But, on the other hand, if these special circumstances were wholly unknown to the party breaking the contract, he, at the most, could only be supposed to have had in his contemplation the amount of injury which would arise generally, and in the great multitude of cases not affected by any special circumstances, from such a breach of contract”354. Since this case, remoteness has been considered taking into account two variables: the probability of loss and the knowledge of the other party355, which has also been enshrined by law356. This is a rule that differs from civil law, where the debtor at fault is liable for the direct foreseen or foreseeable damages357. 104. Mitigation - According to this principle, every person should avoid, within the limits of his or her possibilities, aggravating the damage caused to him or her358. The expenses necessary for these purposes, however, are borne by the debtor of the main performance, which is obvious, since no one can take advantage of his own malice (or fault) since otherwise would import an unjust enrichment. If the buyer is the debtor of the obligation, the amount of damages is equivalent to the difference between the selling price and the market price at the time the goods were accepted or rejected359. On the other hand, if the seller is in default of delivery, it will be equivalent to the difference between the market price between the date on which they should have been delivered and that of the contract360. 354 See BRIDGE, M.G., Benjamin’s Sale of Goods, Sweet & Maxwell, London, 2010, p. 981. 355 Cf. BRIDGE, M.G., The Sale of Goods, op. cit., pp. 655-656. 356 Section 50 (2) and 51 (2) s.g.a. 357 Art. 1150 (old) 1231-3 (new) c.civ. 358 See British Westinghouse Electric and Mfg Co. Ltd. v Underground Electric Rys Co. Of London Ltd., (1912) AC 673. 359 Section 50 s.g.a. 360 Section 51 s.g.a.

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However, if the price of the second market is lower than that of the contract, the seller may not recover the difference between the selling price and that of the other market361. In the case of goods that do not conform to specifications, the buyer may sue for breach of the warranty obligation362. The amount, in this case, shall be the difference between the value that would have been due if the goods had been found to conform to the specifications and their actual value. With regard to the mitigation/minimization of damages, it should be noted that the award of simple interest is possible under the Senoir Courts Act 1981363-364 which authorizes the High Court to award simple interest plus damages (at its discretion) from the date of the cause of action until the date of judgment. 105. Special cases: Indirect damage. It is also possible to claim compensation for indirect damages365, in theory, which is rarely recognized366; with the exception of the costs of maintenance of the goods, since the refusal of the buyer to accept them367. 2. Attribution of damages in cases of misrepresentation. In this case, the plaintiff can recover the direct losses suffered by the contract. He cannot recover the loss of profit, but the difference between the purchase price and the value the goods would have had if the misstatement had been true368 and the loss of profit relating to an alternative contract. 3. Loss of profit. If the rule for measuring the amount of damage comes from other markets, the courts apply the alternative in this case. 4. Loss of an opportunity. To be compensated, it is important that the loss of opportunity is the object of the transaction, or at least part of it369. Often, direct damages are deducted from them370. 361

Cf. BRIDGE, M.G., Benjamin's Sale of Good's, op. cit. p. 1021. Section 53 s.g.a. 363 Section 35 A (1) Senior Courts Act 1981. 364 In 1934, section 3 of the Law Reform (Miscellaneous Provisions Act) introduced the possibility of awarding interest, in addition to damages, by the courts. See LAWSON F.H., op. cit. p. 148. 365 Section 54 s.g.a. 366 See ATIYAH, P.S., op. cit. p. 436. 367 Section 37 s.g.a. 368 Cf. ATIYAH, P.S., op. cit. p. 502. 369 See BRIDGE, M.G., The Sale of Goods, op. cit. p. 650. 370 Ibidem, p. 685. 362

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5. Loss of a negotiation. If the buyer terminates the contract after it has been concluded, the seller may claim that it has lost the opportunity to sell the goods to another buyer. In this case, the amount will generally be discretionary, if the conditions of remoteness and foreseeability are met371. 6. Intangible harm. If the seller has not fulfilled its obligation to deliver in accordance with the contractual terms, the courts may award damages for this reason alone. It should be noted, however, that the amounts granted on this basis are limited372. 106. Damages clauses and penalty clauses - The former are admitted by the Common Law, under the denomination of liquidated damages and constitute a conventional valuation of damages373. Its usefulness is limited, since the judge is not bound by this type of clauses374. Moreover, penalty clauses are rejected from Dunlop Pneumatic Tyre Co. Ltd. v New Garage Motor375. In the species, a clause was introduced in a distribution contract, according to which a tyre dealer could not sell at a price lower than that indicated by the manufacturer. Otherwise, he had to pay the sum of £5 per tyre as compensation. The House of Lords concluded that this was not a penalty clause, as these were characterized by stipulations that operated in terrorem, and required exorbitant sums to be paid in the event of contravention. Liquidated damages376, on the other hand, make a true estimate of the damage377. If a sum is payable in the event of non-performance of an obligation to give money, and is greater than the original sum, this clause is a penalty clause378.

371

See Lazenby Garages Ltd. v Wright, (1976) 1 WLR 459, the seller claimed damages because the buyer repudiated the contract for the sale of a 2002 model BMW the day after its conclusion, which prevented the seller from liquidating its stocks. The Court of Appeal dismissed the seller's action as it should have considered a possible loss, and since the car was resold two months later. 372 In Ruxley Electronics and Constructions Ltd. v Forsyth, (1996) AC 344, 2.500.sterling pounds. 373 Cf. SCHIMITTHOFF, op. cit. p. 92. 374 See BRIDGE, M.G., The Sale of Goods, op. cit., p. 645. 375 (1915) A.C. 79. 376 Conventional compensation for damages. 377 Cf. BRIDGE, M.G., Benjamin's Sale of Good's, p. 983. 378 Cf. BRIDGE, M.G., The Sale of Goods, op. cit., p. 647.

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Other more recent and famous case law are in a similar sense379. 107. Fault of the creditor - Qualified as contributory negligence by common law in the Law Reform (Contributory Negligence) Act 1945. Unlike civil law, it does not produce compensation for fault380. 108. Specific performance - As we have seen, the general rule in common law in case of breach of contract is compensation for damages. Only exceptionally is specific performance recognized, that is, by equity. Professor ATIYAH states: "The English courts still seem most unwilling to use this jurisdiction, still less to extend it”381. The Sale of Goods Act 1979 has provided it for the case of breach of contracts in which there is an obligation to deliver certain382 species or goods. We can say that it has been introduced with the aim of harmonising English law with Scottish law383 and that it basis its necessity, in certain cases, in the case of single or irreplaceable goods, or when compensation for damages does not seem the best solution384-385. 109. Termination of contract for non-performance - Less exceptionally than specific performance, English law and case law allow for the termination of a contract. The contract may be terminated unilaterally by one of the parties386 in the following cases: 379 See Cavendish Square Holdings BV v Talal El Makdessi, (2012) EWHC 3582 (Comm); Parking Eye Limited v Beavis, EWCA Civ 402. In these cases it was found that the contested provisions were not penalty clauses, nor were they illegal. In addition, the classic criterion was refined by adding that in order for such a provision not to be rejected, it must: be a secondary obligation, satisfy a legitimate interest, be proportionate and not exorbitant. 380 In Lambert v Lewis, (1982) AC 225, the House of Lords held that the buyer of a trailer that caused a serious accident could not be exonerated if the trailer defect was evident. 381 See ATIYAH, P.S., op.cit., p. 507. 382 Section 52 (1) s.g.a. 383 Cf. BRIDGE, M.G., The Sale of Goods, op. cit. p. 630. 384 This is the case with complex contracts. For example, in Land Rover Group Ltd. v UPF (UK) Ltd. (2002) EWHC 3183, the plaintiff needed a particular chassis for one of its models, and for this reason, he had invested significant sums with a supplier. Without specific performance, it would have had to end vehicle production. 385 In Sky Petroleum Ltd. v VIP Petroleum Ltd. (1974) 1 All ER 954, the plaintiffs obtained an injunction according to which the defendants were to sell them oil for ten years, which in fact mattered specific performance of the contractual obligations. 386 To that end, it must notify the other party of its intention to terminate the contract. See LAWSON F.H., op. cit., p. 281.

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If the breach of contract by one of the parties is of substantial importance, the other party may request termination. That will be the case: 1. If you are deprived of the consideration by which one of the parties had contracted. 2. If the breach achieves and calls into question the very purpose of the contract - fundamental breach -387. It is a somewhat obsolete alternative, but it exists in theory388 and is difficult to satisfy389. 3. If the breach is the result of a negative or frustrating breach. It takes place when one party lets the other party know that it will not perform one or more of its obligations. 4. If the clause or obligation in question is essential to the contractual relationship - condition - the degree of non-performance is indifferent. Such is the case, for example, of the seller's failure to meet its obligations to deliver on time raw materials and food, in commercial sales, or to deliver goods of satisfactory quality and fit for their intended use. When a clause is a condition, the lesser infringement produces the end of the contractual relationship. 110. Anticipatory breach - Occurs when one party is certain that the other will not perform its contractual obligations. In this case, the former has the right to terminate the contract "preventively."390 However, avoidance is a kind of ultima ratio in English law. In most cases, damages will be preferred, and an alternative market will be sought to dispose of the goods. Finally, it should be pointed out that nothing prevents the parties from stipulating an ipso jure cancellation clause. 111. Consequences of the termination: 1. Exonerates the buyer from contractual risk, who can, therefore, buy goods at a better price, in a falling market391. 1. It operates for the future. 387

See Hong Kong Fir Shipping Ltd. v Kawasaki Kisen Kaisha (1962), 2 QB 26. Cf. ATIYAH, P.S., op.cit., p. 198. 389 See BRIDGE, M.G., The Sale of Goods, op. cit. p. 436. 390 Hochster v. De la Tour, 2 E & B 678: in this case, it was ruled that a contract for the lease of future services could be terminated preventively by its provider, in order to allow him to claim damages; Bowdell v. Parsons, 10 East, 359: if one party obliges itself to sell goods within a certain period of time and sells them to another before their expiration, the contract can be terminated preventively by the future buyer, in order to allow him to claim damages. 391 See BRIDGE, M.G., The Sale of Goods, op. cit. p. 511. 388

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3. Certain stipulations survive termination: acquired rights and arbitration clauses. 4. The initial obligation of the party at fault shall be transformed into an obligation to pay damages. 5. The parties should make mutual restitutions, if possible392. 112. Reduction of price - It has its origin in civil law, in the actio quanti minoris of the Roman law. It is interesting to note that it was transposed in 1994 in relation to sales to consumers393, and its usefulness is limited to this type of sales. C. Rules of interpretation 113. Rules of interpretation - The Common Law enshrines certain rules in this regard: 1. Rule of harmonious interpretation. According to it, the court must interpret the contractual provisions considering the whole of the contract394. It is similar to the rule contained in article 1189, paragraph 1, new, of c. civ. 2. Rule of the absurd. If several interpretations are possible for a clause, those that are unreasonable should be discarded395. 3. Attributive rule. As in civil law, if a clause can have two meanings, one capable of producing some effect must be preferred to another that is not396. 4. Restrictive rule. According to the ejusdem generis rule, generic words should be interpreted as strictly as possible397. 5. Standard v special clauses. If there is a contradiction between the two, the latter will be privileged398. 6. Parol evidence rule. A contract is considered a "final" agreement in common law. Therefore, neither negotiations, nor other previous contracts,

392

When it comes to the annulment of a contract for vices of consent (rescission), the courts are not very demanding in this respect: only substantial restitutions are demanded. See LAWSON F.H., op. cit. p. 281. 393 Section 48 ( c ) s.g.a., suppressed by the Consumer Rights Act, 2015 394 See International Fina Services AG v Katrina Shipping Ltd. (1965), 2 Lloyd’s Rep 344, CA. 395 See LG Schuler AG v Wickman Machine Tools Sale Ltd. (1974), AC 235. 396 Cf. BRIDGE, M.G., The international sale of goods, op. cit., p. 43. 397 Ibid, p. 42. 398 See Naviera Amazónica Peruana S.A. v Cia. Internacional de Seguros del Perú (1987), 1 Lloyd's Rep 116.

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even between the same parties, will not be considered for interpretation, as a general rule399. CHAPTER CONCLUSION The legal framework for the sale of goods in England is provided mainly by the Sale of Goods Act 1979, which is an update of the 1893 Act. This text has sought to carry out a kind of codification on the subject, compiling the most recognised rules, case law and commercial practices. Although advantageous in view of the uncertainty caused by the absence of written rules, its technique is complex, and even rudimentary in comparison with similar ones in continental law. The law is a kind of "mosaic" that is sometimes difficult to understand, but not inharmonious. It should also be noted that some of the measures it envisages are no longer justified. This is the case of selling on the basis of samples400, for example. Finally, it should be noted that the term rescission is used without clarity, indistinctly, to mean termination and nullity, which indicates a gap in legislative technique. 2. Moreover, unlike civil law and the 1980 Vienna Convention, there is no general principle of good faith in English law to be respected in preliminary negotiations. This circumstance allows us to indirectly verify the primacy of civil law in the CISG. The English Sale of Goods Act is content to give a vague definition in good faith: its section 61 (3) indicates that an action is presumed in good faith when it has been carried out honestly, without or with negligence. In this way, the law enshrines an incomplete and paradoxically close idea to the subjective notion of good faith of civil law, established, for example, in article 706 of the Chilean Civil Code401 and in articles 1135 (old) and 1194 (new) of the French Civil Code; far from the contractual or objective significance of articles 1545 of the Chilean Civil Code and article 1104 (new) of the French Civil Code, which has been extended with respect to the original provision - paragraph 3 of former article 1134 - as we shall see below, to further strengthen the protection of the pre-contractual phase. 399

Exceptionally, extrinsic elements may be added in the case of manifestly ambiguous or technical stipulations. Cf. BRIDGE, M.G., The international sale of goods, op. cit. p. 44. 400 See BRIDGE, M.G., The Sale of Goods, op. cit. p. 411. 401 This article states in paragraph 1: "Good faith is the awareness of having acquired title of the thing by legitimate means, free from fraud and all other vice”.

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Consequently, preliminary negotiations are not covered by English law and may take place between several competitors, unless the parties expressly prohibit it by establishing limitations and a duty of care402. The principle of unjust enrichment403, tort liability, and the principle of estoppel can help (in theory) those who have suffered damage during this phase. Otherwise, one can expect "Darwinian free selection" in commercial matters. 3. Preference for the preservation of the contract. English law and practice privilege the preservation of the contract for the event of non-essential breach of contract. This is an important difference from the classical civil law system. As we have seen, for example, vices of consent were introduced into the English system for reasons of equity, and enshrined in the Misrepresentation Act of 1967, incorporated into the Sale of Goods Act of 1979; although they had existed for centuries in continental law. For a contract for the sale of goods to be avoided in English law, the breach must be fundamental, a principle that has been taken up by the CISG in its articles 25, 49 and 64, or it must be a condition or stipulation to which the parties have attached capital importance. Even in this case, they may have decided that the breach is to be considered as a warranty, which allows them to maintain and continue the contract, exclude termination, and allow only compensation for damages incurred. The Roman de minimis rule is respected. However, certain obligations will always be essential and their breach, however minor, will be severely punished: timely delivery in commercial sales, fitness of goods for the intended purposes, and their finish, free of defects, even minor, will result in termination of the contract and compensation for damages. The reduction of price, actio quanti minoris, recognized for centuries in civil law, enshrined in particular in the new article 1223 of the French Civil Code and article 1868 of the Chilean Civil Code, exists as a remedy in English law, but is limited, by virtue of section 48 C) of the Sale of Goods Act 1979, to sales to consumers. It can therefore be concluded, because of its obvious Roman origin, that its inclusion in Articles 44 and 50 of the CISG is not based on 'English' but on civil law. 4. Compensation for damages is established as a general rule. Specific performance is exceptional in English law and is awarded only in cases where it is strictly necessary, i.e., specific obligations or where 402 403

Due diligence. Introduced after Lipkin Gorman v Karpnale Ltd., (1991) 2 AC 548.

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compensation for damages is not the best option, as it would not meet the needs of the creditor. This is the case of complex or irreplaceable services. The general rule is damages. It shall be for the benefit of the seller when the buyer unreasonably refuses to receive and/or pay for the goods. In this case, the former may also stop the goods -stoppage- (contribution of English law that was maintained in article 71 (2) of the CISG), seek an alternative market to resell them and will be entitled to compensation for the losses suffered and the differences between the sale value and the resale value. He will be able to sue for the price also, in the event of non-payment upon transfer of ownership. If the right to resell has been expressly reserved for the event of non-payment, the original contract shall be terminated as of right. In relation to the buyer, the latter shall be entitled to compensation for defects in quality (basic, as a general rule), in the aesthetic presentation of the goods (immaculate, in the case of new products, as a general rule), significant differences in quantity, suitability for the purposes provided for in the sales contract, and, of course, if the seller does not deliver or delivers late. It is interesting to note that penalty clauses, unlike civil law, have been divided into common law, and as, on the one hand, in the absence of the institution of lésion énorme404, those "terrifying" ones have been conceptualized as "criminal" and prohibited, and, on the other, those "not terrifying", admitted under the concept of liquidated dammages. It is important to stress the uncertainty that this criterion implies. Compensation for damages is based on two pillars since Hadley v Baxendale405: remoteness and mitigation. The first is similar to civil law compensation for direct damages (foreseeability already existed in France long before the English decision); the second is a real contribution of English law, recognized by the CISG in its article 77, which we will examine below. It should be noted that the granting of simple interests is possible in English law under the Seniors Courts Act of 1981, section 35 A (1), together with compensation for damages; an institution also taken up by the CISG in its article 78. 5. The rights and obligations of the parties are similar in the two systems of law. The "English" sale adds, however, the right of "stoppage" in transit, which has also been established by CISG in Article 71(2). 404 405

Gross disparity. (1854), EWHC J70.

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6. With regard to the transfer of ownership, it is interesting to note that the retention clause (title retention clause, Romalpa clause or All Monies paid Clause) is a creation of civil law, which has been taken over by common law since the 1970s, starting with the Romalpa case406. Prior to this jurisprudence, it was already mentioned in article 2367 of the French Civil Code, in a positive manner, and articles 680 and 1874 of the Chilean Civil Code, as we shall soon see. The usefulness that we must recognize to the English regime in this point, is the possibility of considering the buyer as agent of the seller, with the purpose of being able to sell the products elaborated with the raw materials provided by the original seller, who will receive the products of the sub-sales, in addition. 7. With regard to risks, we note that there are no significant differences between the two systems, as a general rule. Notwithstanding the above, there is an important difference today concerning the exceptions to non-compliance. At the time of the CISG (1980) and the 1979 Sale of Goods Act, neither English law nor the French and Chilean civil codes recognized hardship or the theory of imprévision. The common law, according to case law that insisted on the need to always seek alternatives in order to "save" the contract, and the latter, out of respect for the principle of binding force of contracts, established in article 1134, paragraph 1, (old) 1103 (new) of the French Civil Code, and 1545 of the Chilean Civil Code. Today, since the issuance of ordinance no. 2016-131 of 10 February 2016, the new article 1195 of the French Civil Code positively enshrines the theory of imprévision, allowing the parties to discard it, since it is not of public order. Otherwise, the contract may be renegotiated by them, terminated, adapted or reviewed by the judge. 8. Under the parol evidence rule, contracts are considered "final" agreements in common law. Thus, neither negotiations nor other prior contracts are considered for interpretation, as a general rule. As we will see below, the CISG takes a different position on this matter, the importance of which is fundamental. It sets out interpretative techniques of civil law, which gives us another important argument in support of the assertion of the primacy of civil law in the 1980 Vienna Convention. 9. However, the common law anticipatory breach has had an influence on Article 72 of the CISG. 406

(1976), 1 WLR 676.

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According to this provision, a party may unilaterally terminate a contract of sale of goods when it is clear that the other party will not fulfil its obligations. In this way, the CISG permits termination by one party if it is certain that the other will commit an essential breach of contract after giving notice. The unilateral resolution is introduced into French law by the aforementioned 2016 ordinance, in the new article 1226 of the French Civil Code, but without being anticipatory. She doesn't exist in Chilean law. 10. Finally, another argument that confirms the primacy of civil law in the CISG is the moment of the formation of consent. As we have seen, English law follows the postal rule, i.e., the “emission” theory. On the other hand, the 1980 Vienna Convention ascribes to the theory of reception in its articles 18 no. 2 and 22, which will be further developed.

CHAPTER 2 CIVIL LAW: FRENCH AND CHILEAN LAW

In recent years there have been significant changes in French civil law, which directly or indirectly affect the subject of this study. The french law of obligations and contracts in general, and the Napoleonic Code in particular, represent an essential source of chilean private law. Thus, the legal rules relating to the sale of goods are similar in Chile and France, with some nuances. In particular with regard to the ways of acquiring property, for which the Chilean Civil Code followed the Romano-Germanic trend. As a result, the Chilean Civil Code contains articles that are very similar in their wording to the provisions of the French Civil Code. Its jurisprudence is also similar on several issues; for example, in relation to preliminary negotiations and their relation to the general principle of good faith, which has a very limited scope in common law, as we have already seen, as opposed to civil law and the CISG, which has adopted the latter's approach on this matter, as we will demonstrate. We will highlight the differences between common law -in this case the legal regime for the sale of goods in England- and the civil law system adopted by France and Chile. In order to do so, the first step will consist of analyzing the French legal regime on the sale of goods (section 1), and then continuing with the study of the Chilean legal regime on the sale of goods (section 2). SECTION 1 - THE LEGAL REGIME OF THE CONTRACT OF SALE OF GOODS IN FRANCE This section discusses several topics that differ significantly from the common law regime applicable to the sale of goods and that are of substantial importance to the CISG. These are the preliminary negotiations and the principle of good faith, the formation of consent, the theory of imprévision in its current enshrinement, resolution, unilateral resolution,

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force majeure, penalty clauses, specific performance, compensation for damages, price reduction, interpretation of contracts, exoneration clauses and the principle of party autonomy, transfer of title and risks, reservation of title, and the obligations of the parties in the sale of goods. Some of these issues, such as, for example, the theory of imprévision, have undergone substantial changes as a result of French ordinance Nº2016131 of 10 February 2016. The same applies to the resolution (possibility of unilateral denunciation), among others. Therefore, it is very interesting for a Chilean lawyer to analyze these "transversal" institutions in their current configuration, given that they adopt today in France the forms that they will probably have in Chile in the future. Therefore, we will briefly describe the current treatment of these issues in French law, and then compare it with its regulation in Chilean private law, which is logically more rigid since it is a law that receives foreign influences, but also reveals some originality. On the other hand, it will be demonstrated that the CISG is governed by civil law in relation to the formation of consent, since the English postal rule departs from the theory of reception adopted for contracts between absentees in Article 1121 of the French Civil Code. The Vienna Convention enshrines the latter in Articles 18 No. 2 and 22. Moreover, since the general principle of good faith is intrinsically linked to the notions of justice and equity, it would have been incomprehensible if a universal legal instrument such as the CISG had enshrined a restrictive notion of it, as common law has done. Otherwise, we will seek to demonstrate that certain sanctions or remedies for non-compliance with contractual obligations enshrined in civil law (specific performance and price reduction) are in harmony with the general principle of good faith in civil law, enshrined in articles 1104 and 1112, paragraph 1, of the French Civil Code and present in two forms in the 1980 Vienna Convention: according to a general concept, in Article 7 No. 1 of the CISG; and, in particular, with regard to the application of the principle to the performance of the contract, as reflected in Articles 34, 37, 48, 49, 51, 64, 71 and 72 of the CISG. Finally, it will be revealed that the common law interpretation system is incompatible with the rules adopted by the 1980 Vienna Convention in its Articles 7 No. 1 and 8 No. 1, 2 and 3, which enshrine, respectively, respect for good faith in international trade -as a rule of general application-, subjective and objective interpretation, with consideration of preliminary negotiations. These provisions are of undeniable civilist inspiration, and far from the parol evidence rule of common law.

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§1 - The fundamentals of the contract of sale of goods A. Basic notions 114. Definition of sale - The contract of sale is defined in Article 1582 of the French Civil Code as follows: "The sale is a convention by which one party undertakes to deliver one thing and the other to pay for it. It may be done by public document or by private agreement”.

115. Characteristics 1. The sale is in principle a consensual contract. Article 1583 of the French Civil Code provides that the sale is completed as soon as the parties agree on the object and price. Therefore, the principle governing the sale of movable property in general and of goods in particular is "consensualism". 2. The sale is synallagmatic, as seller and buyer bind each other. The first is obliged to deliver the goods and to deliver the property free of any encumbrances and hidden defects, mainly. The second is obliged to pay the price and receive the goods. 3. The sale is an onerous contract, since the value of the service to be provided by one of the parties is represented by the value of the service provided by the other. 4. The sale is a commutative contract, because the reciprocal obligations of the parties are considered as equivalent, according to the new article 1108, paragraph 1, of the c.civ. Exceptionally the sale can be aleatory, in the case of sale of future things or when the possibility that the sold things may exist is eventual and not certain407. 5. The sale is a contract for transfer of ownership. Unlike other legal systems, the sale transfers ownership in France, without the need for additional acts. 6. Being a juridical act, its specific essential elements are the thing and the price.

407 Cf. MALAURIE Ph., AYNÈS L. and GAUTIER P.Y., Droit des contrats spéciaux, 8th. ed., Defrénois, Paris, France, 2016, p. 148; COLLART DUTILLEUL F. and DELEBECQUE Ph. Civil and Commercial Contracts, 10th. ed. Dalloz, Paris, France, 2015, p. 132.

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B. Special essential elements of the contract of sale of goods 116. The goods (the thing) - They are defined by the Larousse dictionary as: "Objects, materials or supplies purchased by the company and intended for resale without having undergone any prior transformation"408. Le Littré, for its part, specifies: "That which is furniture and object of commerce"409. The jurisprudence, for its part, has adopted a broad meaning of the term, which includes even professional equipment410-411. According to these definitions, goods can be fruits or products, with the exception of furniture that is outside the trade: illicit drugs, military equipment, the human body412, counterfeit goods413, and all those prohibited by special laws414. 117. Third party goods - Unlike the Chilean law that authorizes it415, the sale of someone else's thing is null and void in France, of relative nullity, in favor of the buyer416, who also has the right to be compensated417. Article 1599 of the French Civil Code provides as follows: "The sale of another's thing is null and void: it may give rise to damages when the buyer has ignored that the thing belonged to another”.

However, the buyer may acquire the property by effect of the three-year acquisitive prescription provided for in article 2276 of the c.civ., or by ratification by the owner, or if the seller becomes the owner and confirms the voidable act. The real owner, on the other hand, can claim them within this statute of limitations. 118. Future goods - Future things can be sold without problems. 408

http://www.larousse.fr/dictionnaires/francais/marchandise/49382, 3rd definition, accessed 19 January 2017. 409 See RAYMOND Guy, op. cit. p. 3. 410 See DUPICHOT Ph., op. cit. p. 694. 411 See Cass.Com., 13 March 1985, Appeal No. 83-17.112, Bull.civ. IV, No. 99. 412 Art. 16-1, point 3, c.civ. 413 See Com., 24 September 2003, No 01-11.504, Bull.civ. IV, nº147. 414 See article 1598 of the c. civ. 415 See Art. 1815 c.c.ch. 416 See Cass, 3rd, Civ., April 16, 1973: Bull.Civ. III, nº198, p.218. 417 See Civ. 3rd, 22 May 1997, No. 95-17.480, Bull.Civ. II, 114.

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The former article 1130 of the c.civ. allowed it, and its new article 1163, paragraph 1, provides in this regard: "The obligation has as its object a present or future performance". These are sales under a condition precedent. For example, the fruits of an upcoming harvest or machines to be built. In the first case, the sale is aleatory, the contract is commutative in the second case418. 119. Goods that do not exist - If they have ceased to exist419, the sale is null, of relative nullity today420, according to article 1601, paragraph 1, of the c.civ. On the other hand, if they exist partially, the buyer has an optional right: to demand the nullity of the sale or the reduction of the price, in accordance with paragraph 2 of the aforementioned article. The parties may, however, in the event of ignoring the existence of the goods, stipulate an aleatory sale, and assume the risks421. 120. Specific and generic goods - Generally, the sale of specific goods does not pose a problem. We sell a car, a crop, etc. A particular form of specific sale of goods is the so-called "block sale". In this type of sale the precise object of the sale is "the lot of goods presented in an individualized block that gives to the thing the legal qualification of certain body."422 This is the case, for example, of the sale of a stock of goods or of all the rice contained in a barn. Generic goods may be sold too (10,000 liters of milk, for example). The object is determinable. In this case, subsequent weighing, counting or measuring operations are necessary for the goods to be finally determined. 121. Price - The price must be real and serious. Real, that is, to exist and not to be simulated.

418

Cf. COLLART DUTILLEUL F. and DELEBECQUE Ph., op. cit. p. 132. This would be the case, for example, in the sale of a harvest of rotten legumes, Req. 5 Feb. 1906, DP 1907, I, 468. 420 Although the object of the act is missing, only the private interest is committed, art. 1179, sub. 2, new, c.civ. 421 See BOURDEISEAU J. and ROULET V., L'essentiel du droit des contrats spéciaux, Gualino, Lextenso, Paris, France, 2015, p. 42. 422 Cf. COLLART DUTILLEUL F. and DELEBECQUE Ph., op. cit. p.140. 419

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Serious, that is, it shouldn't be derisory. However, exceptionally, the sale "to one euro" is allowed in cases of serious economic difficulties and if there is an associated consideration423. Otherwise, the sale is null, of relative nullity424, in accordance with the new article 1179 of the c.civ. as the criterion of the seriousness of the vice425 has been replaced by that of the protected interest. The sale could also be reclassified as a disguised donation426. In accordance with trade usages, the price does not include taxes, unless otherwise agreed427. 122. The sale "at a loss" - It is prohibited in France under penalty of fine by article L. 442-2 of the Code of Commerce, in order to prevent unfair competition. Exceptionally, it is authorized in the case of goods that are out of fashion, seasonal, in the event of cessation of activity, downward restocking and in the case of small traders (art. L. 442-4 C.com). 123. Earnest money deposit - This is a reciprocal withdrawal clause428. They are provided for in Article 1590 of the French Civil Code, which defines them as follows: "If the promise of sale has been made with a deposit, each of the cocontractors can retract. Who gave them, losing them. And he who has received them, restoring the double".

This definition was included in article 1803 of the Chilean Civil Code. They are different from down payments, which are related to a firm sale. In the latter form, the price paid is a fraction of the total price. On the other hand, the deposit authorizes to retract, losing them the buyer, or with refund of the double of its amount on the part of the seller.

423

Com. January 3, 1985, Bull. IV, No. 8 and Civ. 3rd, 3 March 1993, Bull. III No.

28. 424

Civ. 3rd, 11 February 2014, appeal in cassation no. 12-25.756, available at: https://www.legifrance.gouv.fr/affichJuriJudi.do?idTexte=JURITEXT0000286063 16, (revised 7 February 2017). 425 Absence of an essential element of the sale in this case. 426 Cass.civ. 1st,. October 22, 1975, Bull.civ. I, no. 288. 427 Com. 9 January 2001, appeal in cassation No. 97-22.212, Bull.Civ.IV, no. 8. 428 See COLLART DUTILLEUL F. and DELEBECQUE Ph., op. cit. p. 148.

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124. Price determination - The currency used in internal sales is the euro. The parties may agree on indexation clauses to limit inflation429. An invoice must be issued between merchants in accordance with Article L. 441-3 of the c.com. They must specify: the identification of the parties, their professional address, the quantities of goods, unit price without VAT, their precise description, any price reductions, the date of issue and payment. The price may be fixed by the parties or by a third party, in accordance with articles 1591 and 1592 of the French Civil Code. In the absence of price determination, the sale is null and void, relative nullity today, because it is the interest of the parties that would be harmed430. In accordance with Article L. 410-2 of the c.com, the parties are free to determine the price of goods in France, with the sole exception of so-called "sensitive" goods, such as reimbursable medicines, for example431. 125. Pricing in "framework" contracts - Framework contracts are common in the distribution of goods. Under this type of contract, a supplier undertakes to supply a distributor for a specified period, on an exclusive basis, or a specified volume of goods. The practice whereby the supplier could unilaterally fix the price of goods to be supplied under this type of contract became customary in France. Jurisprudence finally pronounced on the matter in four famous judgments dated December 1, 1995. On that occasion the Plenum of the Court of Cassation concluded that contracts that allow one of the parties to unilaterally fix prices are valid as long as they are not abusive432. The new article 1164 of the French Civil Code enshrines the previous case law by stating: "In framework contracts, it may be agreed that the price shall be fixed unilaterally by one of the parties, with the burden of justifying the amount in the event of litigation. In the event of abuse in the fixing of the price, compensation for damages and, where appropriate, termination of the contract may be claimed".

C. Protection of good faith at the pre-contractual stage 429

In Chile, for this purpose, prices are often stipulated in pesos or their equivalent in U.F. (a unit created in the 1970s to combat the excessive inflation of the time). 430 Cf. CHÉNEDÉ F., Le nouveau droit des contrats et des obligations, Dalloz, Paris, France, 2016, p. 78. 431 Cf. COLLART DUTILLEUL F. and DELEBECQUE Ph., op. cit. p. 148. 432 Cass. ass. plén. December 1, 1995, D.1996.13, note L. Aynès, concl. Jeol.

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126. Preliminary negotiations - They are known as les pourparlers. Unlike English law, where there is no general principle of good faith433, civil law establishes it as one of its fundamental pillars, which is not surprising if one considers the influence of canon law in France434. This principle has been transposed to the American continent, as we will see later (section 2). The principle of good faith is present throughout the c.civ. and is found in various institutions (marriage, prescription, possession, resolution, etc.). Therefore, it would not be logical to consider that, in the absence of an express rule, preliminary negotiations could be left to the will of the parties, without any limitation, or not be subject to the principle of good faith. Article 1134, paragraph 3, of the c.civ., prior to the reform of the law of contracts and obligations operated by Ordinance No. 2016-131 of February 10, 2016, limited itself to stating that the agreements must be "executed" in good faith. It should be noted that article 1337 of the Italian Civil Code of 1942 had already expressly enshrined the protection of preliminary negotiations by stating: "The parties, in the conduct of the negotiations and in the formation of the contract, must act in good faith". From the point of view of case law, and in the absence of an express normative consecration in the manner of the Italian Civil Code, with which French law shares a common legal tradition, French case law had to clarify the legal regime of the pre-contractual phase. 127. Jurisprudence - The most famous decision in this regard is Manoukian issued by the Commercial Chamber of the Court of Cassation on 26 November 2003 435. On that occasion, the spouses Wajsfisz had entered into negotiations with the well-known clothing company Manoukian with a view to transferring to it their shareholding in the also famous fashion company Stock. Six months after the start of negotiations between the parties, Manoukian agrees to introduce modifications requested by the cedants and to stipulate certain conditions. Subsequently, on November 13, 1997, the spouses Wajsfisz send a communication to the company to inform that the absence of the accountant would delay the signing of a protocol of agreement that would introduce the requested modifications. Finally, on November 24th of the same year, the spouses Wajsfisz inform the 433

See May and Butcher Ltd. vs. The King, (1934) 2 KB 17. The given word had to be kept under penalty of perjury. See TERRÉ F., SIMLER Ph. and LEQUETTE Y., Droit civil. Les Obligations, Dalloz, Paris, France, 11th edition, 2013, p. 39; POPINEAU-DEHAULLON C., Les remèdes de justice privée à l'inexécution du contrat, étude comparative, L.G.D.J., Paris, France, 2008, p. 16. 435 D. 2004. 869, note A.-S. Dupré-Allemagne. 434

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Manoukian society that they had already signed, on November 10th, a promise of cession with the clothing company Les Complices. The company Manoukian then demands compensation for damages, jointly and severally, to the spouses Wajsfisz and the company Les Complices, for guilty breakdown of negotiations. In this case, the Paris Court of Appeal recognized only the responsibility of the spouses Wajsfisz, condemning them to pay the sum of four hundred thousand francs to the plaintiff. Both parties deducted cassation appeals against the appeal judgement. The Wajsfisz spouses, since they considered that they had not committed abuse, since, according to them, the preliminary negotiations were free and unregulated. Manoukian, for his part, argued that the company Les Complices should also be ordered to pay damages for the loss of profits incurred, corresponding to the expected profits resulting from the planned contract -perte des gains-. The Court of Appeals limited itself to the costs of preliminary studies and negotiation costs, dismissing it436. The French Court of Cassation issued a judgement in this case confirming the appeal judgement, stating that it had well justified its decision. It also considered that the Wajsfisz spouses acted in bad faith, making the Manoukian society believe that negotiations with it took place normally. This, in turn, would not have suffered loss of profit, since the agreement between the parties was not final. This ruling, along with similar ones, marked a first step towards recognizing the guilty break in the preliminary negotiations. Its scope is important given that: 1. Clarifies that the principle of good faith-loyalty must apply to the entire contractual iter. This is perfectly logical if one considers that good faith is a principle of general application in the civil law system. Therefore, to limit it only to article 1134, paragraph 3, (old) of the civ. would, in our opinion, have been an error of interpretation437. 2. The loss of profit cannot be reasonably compensated in these cases, since the minimum necessary certainty is lacking438. 436

Its Chilean counterpart, Forestal Bío-Bío v Madesal and another, C. Ap., Concepción, 1996, Civ. nº 374-93, goes in the same direction, as we will see later in the following section. 437 Article 24 of the c.c.ch. provides, for example, that in the absence of the preceding rules of interpretation of the law (grammatical, historical, logical and systematic element), the general spirit of the law, i.e. the general principles, and equity, must be taken into account. 438 In the same sense: Civ.3rd, 26 June 2006, appeal in cassation No. 04-20.040.

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The only exception that remains on this point is the loss of the possibility of concluding a contract with a third party439. 3. In the absence of a contract, the applicable legal regime should be tort liability440-441. 4. The civil sanctions applicable to the guilty breach of preliminary negotiations cannot be extended to bona fide third parties, but only to those who were participants in the fraud (in this case, and ironically, to the company "Les Complices"). Third parties must be part of the fraud. 5. The freedom to break preliminary negotiations is recognized, but subject to certain conditions: 5.1. In order for the infringement not to be guilty, there must be a legitimate reason, e.g., a third party should offer a better price, products of better quality or better adapted to certain needs, etc. 5.2. The breach must not be the result of fraudulent manoeuvres or the intention to harm the other negotiating party442. 5.3. The other party must be informed in good time, i.e., before the conclusion of a preparatory or final contract with a third party443. 5.4. No unexpected damage should be caused. In this regard, it should be noted that preliminary studies and professional fees and expenses are necessary investments and are not reimbursable to the other negotiating party, unless they lose their aleatory character as a result of fraud444 by the other party. 6. There is freedom to conduct parallel negotiations, but in this case: 6.1. The other party must be informed of this situation. 6.2. Negotiated prices cannot be too different445. 7. The extent of compensation must be fair and reasonable, otherwise the victim of the guilty breakdown of the negotiations would be placed in a better position than he was before the failed negotiations446.

439

See CAPITANT H., TERRÉ F. and LEQUETTE Y., Les grands arrêts de la jurisprudence civile. Volume 2, Obligations, Special Contracts, Security Interests, 13th. ed., Dalloz, Paris, France, 2015, p. 10. 440 See GILIKER Paula, op. cit. p. 46. 441 Ordinance No. 2016-131 of 10 February 2016, subsection 1 "Negotiations", clarifies this point: "This liability shall in principle be of a non-contractual nature, unless this negotiation phase and its termination are conventionally agreed”. 442 See Cass.civ., 12 April 1976, Bull.Civ. I nº122, p.98. 443 In other words, preferential agreements and option agreements. 444 Cf. CAPITANT H., et al., op. cit. p. 9. 445 See Cass. Civ. 4 June 1997, RDTC 1997.921. 446 See CAPITANT H., et al. op. cit. p.10.

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128. Doctrine - The doctrine, for its part, had considered other possibilities for framing the wrongful termination of negotiations: culpa in contrahendo447, contractual risk448 and arbitrary breach449. These solutions are coherent, but incomplete for the French case, because they do not take into account their particularities. As Professor Dupichot was able to write on this subject: "For a long time, the role of good faith was limited to that of article 1134, paragraph 3, of the Civil Code: conventions were to be "executed in good faith" by virtue of this provision. No doubt manipulating the argument to the contrary, it was inferred that there was no particular duty to contract in good faith, on the sole condition of resorting to the vices of consent. It is now accepted that the situation is different and that it was already different in the minds of the drafters of the Civil Code, who seemed to consider that the duty to enter into agreements in good faith was obvious: indeed, the draft Civil Code of Year VIII already specified that "agreements must be entered into and executed in good faith", having asked Portalis to withdraw the word "celebrated" which, useless, seemed not to add anything450 ". 129. Legal Consecration - The principle of good faith in its objective meaning (good faith - loyalty)451 refers to the entire contract iter452, i.e., before, during and even after the execution of the contract. In this order of ideas, and enshrining the Manoukian jurisprudence, the new article 1104 of the c.civ. establishes: "Contracts must be negotiated, formed, and executed in good faith. This provision is of public policy".

On the other hand, article 1112, paragraph 1, (new) c.civ. establishes an express duty of "loyalty" by providing that preliminary negotiations must satisfy the requirements of good faith. A number of rights or obligations are imposed on the parties as a consequence of the loyalty they owe to each other under Article 1112, namely: 447

Cf. Von Jhering, Germany, 1860. Cf. Windshied, Germany, 1906. 449 Cf. Flaggella, Italy, 1906. 450 See DUPICHOT Philippe, Le pouvoir des volontés individuelles en droit des sûretés, Dalloz, París, 2003, p. 77. 451 Good faith-loyalty is synonymous in French law with an "attitude of integrity and honesty". See DUPICHOT Ph., op. cit. , p. 76. 452 And the fulfillment of obligations that also emanate from the nature of the contract, usages or equity. Article 1194 (new) c.civ, Article 1135 (old) c.civ. 448

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An obligation of information, enshrined in the new article 1112-1 of the c.civ., which obliges, under penalty of nullity for willful misrepresentation, to communicate to the other party the information that one of the parties knows and that is decisive453 for obtaining the consent of the other454. The idea is to facilitate the informed consent of the parties455. It is interesting to note that the debtor of this duty is not necessarily the seller or the professional, but that of the parties who know decisive information for the signing of the contract. 2. An obligation of confidentiality, established in the new article 11122 of the c.civ., by virtue of which the parties must refrain from disclosing without authorization confidential information known during negotiations456. On the other hand, the new articles 1102 and 1112, paragraph 1, first part, of the c.civ. establish the principle of freedom of contract. The first article establishes the right to contract or refrain from contracting, to choose the other party, the content and form of the contract, in accordance with the law. It is therefore absolutely true today that a party is free to terminate preliminary negotiations and that it has the right to conduct parallel negotiations, in both cases, respecting the above-mentioned limitations. However, the loss of profit has been expressly excluded by the new article 1112, paragraph 2, of the c.civ., in accordance with the existing jurisprudence in France on the matter. The importance of this legal consecration is crucial because, on the one hand, it avoids any possible confusion about the scope of good faith in the pre-contractual field and, on the other hand, it enshrines the jurisprudence and doctrine that have existed for years on the subject in France.

453 According to Baldus, Civ. 1st, 3 May 2000, Bull. Civ. I, No. 131 and Theuillon, Civ.3rd, 17 January 2007, D. 2007, p. 1051; the "estimation of the value of the performance" is expressly excluded in paragraph 2 of article 1112-1 c.civ. 454 See Com. 28 june 2005, appeal in cassation No. 03-16.794, Bull. 2005 IV, No. 140, p. 151: "But given that the breach of a pre-contractual obligation of information, supposedly established, cannot be sufficient to characterize the fraud by willful misrepresentation, if we do not add the finding of intentionality and a determining error caused by it ... ". 455 See TERRÉ F., SIMLER Ph. and LEQUETTE Y., op. cit. pp. 284-285. 456 See Com. 3 Oct. 1978, Bull. des arrêts Cour de Cassation Chambre commerciale, nº 208, p. 176; Com. 3 June 1986, Bull. 1986, IV, nº110, p. 94.

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D. Formation of consent The c.civ. had not regulated this issue, the importance of which is paramount457. This omission has just been corrected by Ordinance No 2016131 of 10 February 2016, which once again expressly enshrines the solutions proposed by case law. 130. The offer - It is characterized by several elements: 1. It must be precise and therefore contain the essential elements of the proposed contract, according to article 1114 (new) of the civ. This is the legal recognition of the jurisprudence of the third civil chamber of the Court of Cassation dated 27 June 1973 (Civ. 3rd. , 27 June 1973, Bull. civ. III, nº 446, p. 324). As for our object of study, it is interesting to note that article 1583 of the c.civ. clarifies that the offer must mention the goods and the price, which are the specific essential elements of the sale in general, and of the sale of goods in particular. 2. It must be firm, according to the same article 1114 c.civ., which specifies that it must express the will to be bound in case of acceptance. The jurisprudence of the Commercial Chamber of the Court of Cassation is recognized here (Com., 6 March 1990, JCP II 21583). 3. In addition, according to article 1113 (new) c.civ., the offer may be express (a "statement") or implied ("unequivocal conduct of the offeror"). 4. Under the terms of the aforementioned Article 1114, the offer may be made to the general public or to a specific person. If it is firm, the consequences will always be the same458. 5. It may be withdrawn after the prescribed (or reasonable459) period or when it has not reached the addressee. Otherwise, tort liability shall arise in accordance with articles 1115, 1116 and 1117, paragraph 1, of the civ.460 Its expiration occurs due to the death or incapacity of the offeror, according to article 1117, paragraph 2, of the c.civ.

457

Neither did the c.c.ch. For this reason, the c.com.ch. has dealt with it in its articles 97 and following. 458 On the other hand, in Chilean legislation, the offer to the general public is not obligatory, as a general rule, according to article 105, paragraph 1, c.com.ch. 459 Civ. 3rd, 20 May 2009, Bull.Civ, III, nº118. 460 In English law, on the other hand, the offer can always be revoked if there is no consideration. See MALAURIE P., AYNÈS L. and STOFFEL-MUNCK Ph., Droit des obligations, 8th ed. LGDJ, Paris, France, 2016, p. 272.

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6. In the case of electronic tenders, they should indicate the various stages to be followed for the conclusion of the contract, its rules, language and file, in accordance with the new articles 1125 to 1127-6 c.civ. 131. Acceptance - Its main characteristics are as follows. 1. It must be pure and simple and express the will to be bound "in the terms of the offer," according to the new article 1118 of the c.civ. According to the last paragraph of this provision, a manifestation of will indicating different terms would have no effect or would constitute a counter-offer, as the case may be. 2. Acceptance must be externalised, knowing that silence does not constitute acceptance461, as a general rule, unless it is a "circumstantial" silence, i.e., one that expresses the will to commit oneself, taking into account existing commercial relations between the parties, trade usages, special relations or in accordance with the law, according to the new article 1120 c.civ. This is the consecration of the jurisprudence of the First Civil Chamber of the Court of Cassation dated 24 May 2005 (Civ. 1st, 24 May 2005, D. 2006.1025, JCP 2005. I.195, nº 1). Professors Terré, Simler and Lequette point out in an interesting way on this subject: "Silence is undoubtedly worth acceptance when past commercial relations have given rise to the repeated conclusion of contracts of the same nature, without a formally expressed acceptance; in the absence of an express refusal, the offeror then has the right to rely on the conclusion of the contract462. 3. In accordance with the new article 1122 of the French Civil Code, a conventional "reflection" period and a "retraction" period may be stipulated in favour of the addressee of the offer. 4. The theory of reception463 for contracts between absent parties is enshrined in article 1121 of the c.civ., which states that the contract is concluded as soon as acceptance reaches the offeror. From that moment on, it can no longer be retracted, because according to article 1118, paragraph 2, c.civ., the contract has already been formed. This is the consecration of the jurisprudence of the Third Civil Chamber of the Court of Cassation dated 16 June 2011 (Civ. 3rd, June 16, 2011, No.

461

In French law "qui ne dit mot ne consent pas" (he who remains silent does not grant), according to an old rule of the law. 462 Op. cit., p. 150. 463 The c.c.ch., on the other hand, preserves the theory of declaration (emission), articles 97 and 101 c.com.ch.

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09-72679, Bull. III, nº103, Gas. Pal 3 November 2011, No. 307, p. 16 and ff.) and the reform proposals of the Catala and Terré projects. 5. In the case of electronic acceptance, the "double click" rule has been enshrined in Article 1127-2 (new) c.civ. Thus, the recipient has the right to confirm the order before approving it, and the offeror, for its part, must acknowledge receipt. 132. Formation of consent in so-called "special" sales: 1. The sale on approval (à l’essai). This is a sale subject to a condition precedent. This is expressly established in article 1588 c.civ.464 The buyer has the right to reject the goods if subjective qualities have been stipulated (that are not met) or if commercial practices permit465. During the period provided for or customary, the buyer of these goods, or of equipment, vehicles, machines, may use them to verify their conformity; as long as he has not done so, consent shall not be formed. Once the time limit has expired, he must confirm the conformity of the goods or reject them. If he keeps quiet, the sale will be perfected466. 2. Sale subject to taste (à l’agréage ou à la dégustation). It is a species of the previous genus. These are products that must be tasted and whose quality must satisfy the buyer: wines467, oils, olives, and, more generally, all the products and goods that are usually sold in this way. This type of sale is residual today and is rather limited to direct sales from producers or restaurant suppliers. According to Professor Bénabent468, this is a real promise of sale, because the buyer still has control of his decision. Professors Collart Dutilleul and Delebecque confirm this legal nature, adding: "Unless the parties agree otherwise, such a contract is then analysed as a unilateral

464

However, some authors consider that it would actually be a sale subject to a resolutory condition or with the unilateral termination option. Cf. BÉNABENT A., op. cit., pp. 99-100 and COLLART D., F. and DELEBECQUE Ph., op. cit., p. 91. They consider that the buyer has received use of the good, therefore, the resolution seems more appropriate to the facts than the effect of a condition precedent. 465 Traditionally, animals and clothing. 466 Civ. 1st, 13 Oct. 1998, Bull.Civ. I, No. 304; Contrats, conc. consom. 1998, comm. 161; RTD civ., 1999.376, obs. J. Mestre: "a sale concluded under the suspensive condition of satisfactory proof is concluded if, at the end of the trial period, the buyer has not expressed his will not to keep the property". 467 Com. May 13, 2003, Bull.civ. IV, No. 82; R., p.430; D. 2004.414, note by Bahans and Menjucq. According to the use of Bordeaux, a sale is perfect as soon as the wine broker sends a confirmation letter, if there is no claim in a short time. 468 Op. cit. , p. 100.

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promise of sale, with a discretionary right of option in favour of the beneficiary”469. 3. Pending hearing sale (en disponible). This is a variety of the previous form of sale. These are goods that are not available on the day the sale is concluded. She imports a "Pending hearing" clause to perfect the consent of the parties. 4. Sale with faculty of restitution. These are sales under resolutory conditions. One trader buys goods from another and reserves the right to return them if he does not resell them within a certain period of time. 5. Sale based on samples (avec échantillons). In this type of sale, consent is given as soon as the buyer has approved the samples (provided they are in conformity with the goods)470. 6. Sale to the weight, account or measure. The sale takes place from the moment these operations are verified, in accordance with article 1585 of the c.civ. 7. Sale in block (en bloc). Contrario sensu, according to the terms of article 1586 of the c.civ., the sale is perfect in this case from the conclusion of the contract, even if the operations contemplated in the previous point, or the payment, have not yet been carried out. 8. Sale with repurchase option (au remeré). It is provided for in articles 1659 and ff. of the c.civ. It is rarely used for goods, but in theory, it is still useful. This is a sale subject to a resolutory condition471: the parties stipulate a right of repurchase for the seller within a specified period, which may not exceed five years. If the resolutory condition is met (repurchase by the seller within the prescribed period), the acts of administration and conservatories, leases, collection of fruits, subsist, within the limit of good faith. The acts of disposition of movable property end, as a result of the resolution and the Law (and no longer of its retroactive effect, which has been abandoned by the new article 1229 c. civ.).

469

Op. cit., p. 101. See Cass. Req. 26 Dec. 1922: PD 1924, l, 23 - Comp. 471 See Cass. civ. 24 Oct. 1950: JCP 50, II, 5835, note R.C. 470

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133. Practical Formalism - Although consensualism is the general rule472, purchase orders are common among professionals473. Purchase orders are private deeds that have a probative purpose among merchants. Normally, the front side indicates the parts, the objects sold, the delivery, the warranty, and the particular conditions. On the reverse side, the general conditions. E. Transfer of ownership and risk 134. The transfer of ownership in France - unlike other legal regimes474 - in which the sale generates only the obligation to transfer property, it is translational of property under French law. In the words of Professor Bénabent: "Most foreign rights remained faithful to the rule known in Roman law and in our ancient law: the sale itself only produced obligations for the parties, among which was for the seller the obligation to transfer the thing to the buyer, i.e., an obligation to give. Therefore, it was not the contract that produced a translational effect, but the tradition (material delivery) to which the seller was bound. In this conception, the contract of sale is like the other contracts: it only creates obligations, among which the obligation to transfer the property of the thing to the buyer475". The golden rule is consensualism. The sale is perfect and the property is transferred in full right from the formation of consent, in accordance with the new article 1196 paragraph ; 1583 c.civ.; and, article L. 132-7 c.com., as a general rule476. Exceptionally, the transfer will be deferred in sales where the transfer is subject to a standstill period, a suspensive condition (including sales of future goods and on approval) and those that have a reservation of title clause. This is the same in the sales of generic goods and to the measure 472

Former article 1341 of the c.civ., current 1359, provides for written proof of acts for an amount greater than a sum fixed by decree (currently 1500 euros). However, acts between traders are excluded from this requirement, in accordance with Article L.110-3 c.com. Thus, the proof of sales of goods is free between traders. In Chile, article 1709 c.c.ch. establishes that contracts containing the delivery of goods in an amount greater than 02 U.T.M. must be in writing. This limitation to testimonial evidence also does not apply between merchants, according to article 128 c. com.ch. See TERRÉ F., SIMLER Ph. and LEQUETTE Y., op. cit. p. 181-182. 473 See RAYMOND Guy, La vente de marchandises, Dalloz, Paris, France, 1996, p. 61. 474 German, Chilean, for example. 475 Op.cit., pp. 113-114. 476 In common law the situation is the same. See supra.

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(those to weight, account or measure). This, given that its transfer takes place at the time of its individualization477. The transfer of the goods is enforceable against third parties from the moment the buyer takes possession of them, the latter being title to the movable property, in accordance with article 2276 c.civ. 135. Risks - With the transfer of ownership operated by the sale, the risks of loss or deterioration normally pass to the buyer, at that time. The new article 1196, paragraph 1, and 1583 c.civ., and article L. 132-7 c.com. enshrine the res perit domino rule478 of Roman law. In this regard, the latter states: "The goods leaving the seller's or consignor's warehouse travel, unless otherwise agreed, at the expense and risk of the party to which they belong, except for recourse against the agent and the carrier responsible for the carriage." However, exceptions of legal origin qualify the application of the aforesaid rule. This is the case of generic goods, because genera non pereunt479, and also because, prior to its individualization, there is not really a transfer of ownership if there is fault on the part of the seller480-481 in maritime sales482; sales under suspensive condition (including the sale of future and goods on approval); custom-made sales; or, if the seller is in default of delivery, in accordance with the new article 1344-2 c.civ., unless he proves that the goods would also have perished in the hands of the buyer, pursuant to article 1351-1, paragraph 1, new, c.civ. In all these cases, the transfer of risk is subsequent to the contract. The parties may also modify these rules by virtue of the principle of party autonomy, since they are not of public policy483. Thus, they may indicate that the seller assumes the risk of force majeure; defer the transfer of title and related risks until the time of delivery, or until another time484;

477

See BÉNABENT, op. cit., p. 117. "When something perished, it is in principle its owner who bears the loss", cf. Locutions latines juridiques, Dalloz, Paris, France, 2007, p. 83. 479 Ibid, p. 35. Gender does not perish. The debtor can always obtain equivalent goods to satisfy his obligation. 480 In this case there is no force majeure. 481 See Civ. 1st 22 January 1991, Bull.civ.I, nº28; Com. 26 May 2010, Bull.civ.IV, nº101. 482 In F.O.B. and C.I.F. sales, goods travel at the buyer's risk. See DELEBECQUE Ph., Droit maritime, 13th ed. Dalloz, Paris, France, 2014, pp. 863 and 867. 483 See TERRÉ F., SIMLER Ph. and LEQUETTE Y., op. cit. , p. 723. 484 Ibid, p. 682. 478

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or stipulate a reservation of title clause485. In these cases, the risks continue to weigh on the seller until the time and conditions stipulated. It should be noted that prior to the 2016 reform of the law of contracts and obligations, former article 1182 c.civ. granted an alternative right to the buyer under suspensive condition, in case of losses suffered by force majeure: he could request the termination of the sale, and therefore the restitution of sums already paid, or demand the goods in the state they were in, but without the right to a price reduction. In the case of the disappearance of the goods, the obligation to deliver was no longer relevant and the buyer could claim restitution of the sums paid. Today, the situation is a little different because the retroactive effect of the fulfilled suspensive condition has been eliminated by the new article 1304 of the c.civ. According to this, the obligation becomes pure and simple as soon as the condition is fulfilled486. Thus, at present, if the goods sold under a suspensive condition are damaged or destroyed by a case of force majeure, or if the condition is not met, it is the seller who must bear the losses. He loses the price and the expenses of conservation. The buyer, for his part, shall be entitled to the restitution of the sums paid, since, according to the new article 1304-6, paragraph 3, c.civ. The obligation is considered never to have existed. 136. The retention title clause in France – It has been defined as: "The clause which aims to defer the transfer of ownership until full payment of the price by the buyer”487. It is enshrined in article 2329, paragraph 4, c.civ. as a guarantee of movable property and its legal nature is that of a sale subject to the suspensive condition of payment of the price488-489. Its scope is great, because in both French and English law, it plays as a true guarantee of conventional origin490, since the seller remains the owner of the goods until the fulfillment of a condition that is often the full payment of the price. 485

See Com., November 20, 1979, Bull.civ. IV, nº 300 ; Civ. 1st, 4th July 1995, Bull.civ. I, no. 305. 486 However, the parties may provide for a retroactive effect. 487 See DUPICHOT Ph., op. cit. , p. 693. 488 Cf. COLLART DUTILLEUL F. and DELEBECQUE P., op. cit. p.189. 489 See Cass.com, October 1, 1985, Bull.civ. IV, nº222, D., 1986, IR, 169 ff. obs. D.1986.246, note Cabrillac (implied sun. ); Versailles, 20 May 1987, D.1988, somm. 8, obs.Derrida.Adde: Cass. 3rd civ., November 30, 1988, Bull.civ., III, nº173, D., 1988, IR, 304. 490 See DUPICHOT Ph., op. cit. , p. 694.

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However, there are important differences between the two regimes, because French law, unlike English law491, does not always allow their effectiveness if the object is incorporated into another492 or if it is transformed (unless it can be separated without detriment)493. With regard to the risks, by application of the rule res perit domino, the seller must bear those of loss or deterioration until the fulfillment of the condition494. §2 - The effects of the contract of sale of goods A. rights and obligations of the parties Given its bilateral character, the sale of goods produces obligations for both parties. The seller must, principally, deliver the goods in accordance with the instructions received, within the agreed time, and remedy the eviction. For its part, the buyer is obliged to receive them and pay their price. We will begin our analysis with the obligations that weigh on the seller. 137. Obligation to deliver conforming goods - The seller must deliver the goods in accordance with the quantity and quality stipulated in articles 1603, 1604495, 1614 and 1616 of the c.civ. It should be noted that the obligation to deliver does not necessarily concern the "physical delivery" of the goods, but only "leaving the thing sold at the disposal of the buyer so that he may receive it"496. If physical delivery has not been agreed, the seller must make them available to the buyer by handing over the endorsable documents representing the goods497498 ; otherwise, by handing over the goods to the carrier or, in the case of multimodal transport, to the first of them.

491

In Romalpa (1976), 1 WLR 676, we saw that the aluminum covered by the clause was transformed into aluminum foil, which did not alter its effectiveness. 492 See Com. March 22, 1994, Bull. IV, Nº110: a boat engine. 493 See Com. March 22, 1994, Bull. IV, Nº121: slaughtered animals. 494 See Civ. 3rd, 13 November 1997: RCA 1998, No. 103. 495 Article 1604 c.civ. states: "Delivery is the carriage of the thing sold in power and possession of the buyer”. 496 See BÉNABENT A., op. cit., p. 145, quoting MAZEAUD, Leçons de droit civil, t.III, vol.2, 1980, No. 930, by De Juglart. 497 Bill of lading, waybill, air waybill. 498 See COLLART DUTILLEUL F. and DELEBECQUE Ph., op. cit. p. 222-223.

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138. Delivery, Maintenance, Transportation, and Other Expenses Unless otherwise noted, all charges will be borne by the buyer in accordance with article 1593 c.civ. 139. Quantity and quality of the goods to be delivered - When the goods delivered do not conform in quantity with the contractual stipulations, this situation may constitute the crime fraud, provided for in the new article L.441-1499 of the c. consom. When it comes to the quality of the goods, in the absence of express stipulations, a loyale et marchande (merchantable) quality is required, that is to say, an average quality500. The above formula corresponds to the spirit of the old article 1246 of the c.civ. (repealed by Ordinance No. 2016-131 of 10 February 2016), which stated that the debtor was not obliged to give the best, but neither could he offer the worst. In the same vein, the new article 1166 c.civ. provides: "Where the quality of the performance is not determined or cannot be determined by the contract, the debtor must provide a quality of performance in accordance with the legitimate expectations of the parties, taking into account its nature, usages and the amount of the consideration". 140. Developments in case law - Until 1983, French case law gave the buyer the possibility of suing for non-conformity consequence of nondelivery or hidden defects, in both cases within the short period of two years provided for in article 1648 of the French Civil Code501. However, it gradually broadened the concept of non-conformity and also authorized the action in resolution, in order to allow more time to sue. From 1993 onwards, the judges adopted a "stricter" position: the buyer had therefore to assess whether it was a question of non-conformity for the normal use of the goods -and in this case to sue for latent defects-, or whether it was a question of differences between the goods received and those ordered -in which case he would imperatively have to sue for breach of the obligation to deliver-502.

499

Out of ordinance Nº 2016-131, 10 february 2016. The standard is lower in common law, because in the absence of a stipulation, the basic quality is sufficient, see supra: Geo. Wills & Co. Ltd. v Daniels Pty Ltd., (1957) 98 CLR 77. 501 See C.Ap. Amiens, 18 July 1974, Gaz. Pal., 1975.1.64, note Plancquel; Planiol and Ripert, t.X, by Hamel, nº126. 502 See COLLART DUTILLEUL F. and DELEBECQUE Ph., op. cit., pp. 301-304. 500

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Thus, for example, there is lack of conformity in the delivery of vehicles composed of parts remaining from others503 and latent defects if the engine suffers from internal defects504. 141. Time of delivery - In the absence of special stipulations, delivery must be immediate, or within a reasonable time505. Thus, for example, in the case of "seasonal" products (sunglasses, bathing suits, sunscreens, fans, sweaters, coats, stoves, etc.) it would logically be unreasonable to deliver them after the periods during which these products are normally sold to consumers. 142. Place of delivery - In the absence of an agreement, the goods are due at the place where they were on the date of conclusion of the contract, according to article 1609 c.civ. 143. Scope of the obligation - The seller must deliver not only the goods, but also all their fruits and accessories. Thus, for example, in the case of new cars, spare wheels, manuals and user documentation should normally be included. Similarly, all necessary administrative documentation is considered as "accessory" and, therefore, must follow the same fate of the goods506. 144. Proof of delivery - Delivery is the seller's primary obligation. If necessary, it is up to him to prove that it has actually taken place, in accordance with the new article 1353 of the c.civ. 145. Guarantee obligation - The seller has a dual obligation in this respect. It must guarantee to the buyer the ownership of the goods, i.e., give a guarantee of eviction, and also justify that they are suitable for the intended or normal use for this type of goods, i.e., give a guarantee against latent defects. 146. Eviction warranty - It's also double. On the one hand, the seller must refrain from disrupting the buyer's domain through facts or the exercise of other rights that would be incompatible with those of the

503

See Civ. 1st, November 5, 1996, J.C.P.97.II.22872, note Radé. See Civ. 1st, May 23, 1995, Bull. I, No. 217. 505 See Civ. 3rd, 10 April 1973, Bull.civ. III, nº274; Com. 12 November 2008, Bull.IV, nº192. 506 See Civ 1st, 22 January 1991, Bull.I, No. 23; Civ. 1st, 5 October 1994, C.C.C. 1995.4. obs. Leveneur. 504

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buyer507. According to the first part of article 1625 c.civ. must therefore guarantee the "peaceful possession" of the goods sold. On the other hand, must defend him from possible claims deduced by third parties who have a cause prior to the sale508. Discomfort in fact is excluded. This warranty is imprescriptible509. Its conditions are the following: 1. Imputability of the seller, i.e., as a result of the seller's negligence510. 2. Origin prior to sale. 3. The buyer, for his part, must be in good faith, i.e., he must have been unaware of the existence of third party rights prior to the sale511. The effects of the eviction guarantee are multiple: If the eviction is total, the buyer is entitled to restitution of the price, fruits and compensation for damages, i.e., costs of conservation and improvements. If the seller was in bad faith, he is even entitled to the payment of voluptuary improvements in accordance with articles 1630, 1631, 1634 and 1635 c.civ. However, if the eviction is only partial, the buyer has the alternative right to demand the resolution of the sale or to be reimbursed a fraction of the price, according to articles 1636, 1637 and 1639 of the c.civ. 147. Warranty against latent defects - In order to be in the presence of vices that can be qualified as "hidden," they must meet the following characteristics: 1. Defects in the goods must render them unfit for "normal" use under article 1641 c.civ. Thus, for example, the vibrations and noise of the air in a passenger car do not make it unsuitable for normal use512; the same for a collectible car, which should not be understood suitable for everyday use513. However, it should be borne in mind that if the parties have agreed on a specific use and the goods are not suitable for such use, we are faced with a hypothesis of non-performance of the obligation to deliver, and not of latent defects, as we have seen above.

507

See Com. 31 January 2006, Nº05-10.116, Bull.civ.IV, 27: the seller must not assert rights that may affect the use or disposal of the goods sold. 508 Leases, usufructs, easements, etc. 509 See Civ. 3rd, October 20, 1981, Bull.civ. III, nº168, D., 1982, IR 531, note Audit. 510 He failed to raise a guarantee, for example. 511 See Civ. 1st, May 10, 1995, nº93-14.767, Bull.civ.I, 203. 512 See C.Ap. Nîmes, 18 December 1980, D., 1983.29, note Larroumet. 513 See Civ. 1st, 24 November 1993, nº92-11.085, Bull.civ. I, nº347.

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If the defects are minor, or easily repairable, and therefore do not prevent the thing from being fit for "normal" use, they should be ignored. De minimis non curat lex. 2. They must be "hidden", that is, unknown to the parties, according to article 1642 c.civ. In the case of professional sellers, the warranty has two effects: 2.1. On the one hand, they are presumed to know the defects that may affect the goods they sell514, especially in the case of manufacturers. However, a question arises in the framework of this study, which deals with sales that take place between two parties that are professionals. Indeed, according to the case law, the professional buyer is also presumed to know the defects that may affect the products he acquires515. However, this is a simple legal presumption, which may be reversed if the buyer proves that it could not reasonably have been aware of the defects affecting the goods. Therefore, the examination required is the ordinary or customary (it should not lead to the destruction of the goods). This is the same standard that is required under English516 and Chilean law517. 2.2. The scope of the warranty between professionals is limited to the return of the price and the restitution of the goods, except in bad faith, ie., fraud of the seller518 . 3. The buyer would not have bought the goods if he knew of the defects, or would have bought them at a lower price. The professional salesperson must know, habitually, the existence of vices that are not apparent (the so called latent defects). This presumption is not irrefragable among professionals of the same specialty. However, if he knew them, his responsibility is grave and twofold. On the one hand, since we are faced with a hypothesis of willful misrepresentation519, in terms of the new article 1137, paragraph 2, of the c.civ., which enshrines the

514

Cf. BÉNABENT A., op. cit. p. 179. See Civ. 1st, 18 December 1962, Bull.civ.I, nº554. 516 See Heilbutt v Hickson, (1872) LR CP 438. 517 Art. 146 c.com.ch. 518 See RAYMOND GUY, op. cit. , p. 89. 519 Professional sellers should not be naive and report all defects in the goods they sell. All of them have some defects or limitations, since nothing and no one is perfect, but a different thing is to keep quiet defects that make them useless for normal use. See on this item the debate Diogène ou Cicéron? in COLLART DUTILLEUL F. and DELEBECQUE Ph., op. cit. p. 245. 515

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jurisprudence on the matter520-521 by stating: "It is also fraudulent for one of the contracting parties to intentionally disguise information whose determining character is known to the other". On the other hand, in addition to failure to comply with the obligation to provide "information", silence in this case may constitute the criminal offence of "tromperie" (fraud)522. It should be noted that the number of complaints in this regard has gradually increased in recent years523, which is normal in view of the fact that products are becoming increasingly sophisticated. The operational difficulties are increasing: cars, computers,524 mobile phones are today complex technological goods, so they are susceptible to failure. In these cases, the buyer can act against his seller and against his predecessors up to the manufacturer525. Jurisprudence has established that this action is contractual526 and recursive527 in nature. In this way, convicted sellers can act against their own sellers, by legal subrogation, under the new article 1346 c.civ. 4. Prior to sale. Subsequent defects are considered to be the result of normal or abnormal use of the goods. This requirement is logical, since the buyer must assume the risks of the goods as soon as they are transferred to him528. 148. Jurisprudential obligations: information, advice and security These obligations have been the product of jurisprudential action, starting from the former articles 1134, paragraph 3, and 1135 of the c.civ., relating to good faith-loyalty, today articles 1104 and 1194 of the same code.

520

See Cass.civ, 3rd, October 2, 1974, GAJC, t.2, No. 150. The draft of the ordinance linked willful misrepresentation to the seller's duty to provide information. This was not maintained in the final text. See CHÉNEDÉ F., op. cit. , p. 52. 522 Article L-441-1, new, c.consom. 523 See BÉNABENT A., op. cit. , p. 177. 524 The Samsung Galaxy Note 7, for example, was famous and had to be withdrawn from markets around the world and banned from use in aircraft due to risks of spontaneous combustion. See in: http://www.lefigaro.fr/secteur/hightech/2016/10/11/32001-20161011ARTFIG00127-samsung-galaxy-note-7chronologie-d-une-descente-aux-enfers.php , accessed 7 February 2017. 525 See Civ. 3rd, March 7, 1990, Bull. III, no. 72. 526 See Civ. 1st, October 9, 1979, Bull.I, nº241. 527 See Civ. 1st, July 6, 1988, Bull.civ. nº231. 528 Cf. COLLART DUTILLEUL F. and DELEBECQUE Ph., op. cit., pp. 251-252. 521

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149. Information - The professional seller, as we have seen, must be familiar with the goods he sells, whether manufacturer, distributor or importer. It is also an obligation of contractual nature529 and concerns all its iter. Thus, beginning with the pre-contractual period, the seller must inform the buyer of the essential characteristics of the goods530. Even between merchants, the seller must provide the buyer with all the information necessary for the buyer to make informed purchases. According to Professor Bénabent: "Whoever deals with a professional is not exempt from providing the information he has in his possession and whose absence alters the consent of the co-contractor. This is the case, in particular, for the manufacturer of a new product531. 150. Advice - This obligation is a consequence of the previous obligation. It's both positive and negative. Positive, because in our field of study, the seller must indicate to the buyer which goods are most suitable for distribution, import or sale in specific markets. Negative, as it must discourage certain sales and even refrain from offering the most expensive or sophisticated goods, for example, if this can translate into difficulties in emerging markets, among other possible hypotheses of application of good faith-loyalty. This obligation, like the previous one from which it derives, are obligations of "means"532, because the seller can only give his opinion, but does not control the will of the buyer, who being also professional, is supposed to be prudent or "wise" in his acquisitions. 151. Security - This obligation is expressly mentioned in the new article 1245 of the c.civ., which replaced the old 1386-1 of the same code, emanating from European Directive 85/374 of 25 July 1985. For the purposes of this study, all types of merchandise are affected, because all movables are533. The seller is obliged to sell goods that offer safety conditions in accordance with technical and scientific knowledge and current standards. 529 See Civ 1st, 31 January 1973, J.C.P. 74.II.17846, note Malinvaud-Com., 25 June 1980, Bull. IV, No. 276; Civ.1st, July 3, 1985, Bull. I, no. 211. 530 Cf. BÉNABENT A., op. cit., pp. 155-156. 531 Op. cit., p. 157. 532 See Civ 1st, 23 April 1985, Bull.civ. I, nº125, RTD civ. 1986.367, obs. J.Huet Cass.com, 14 March 1989, Bull.civ, IV, nº89, p.58. 533 Art. 1245-2, new, c.civ.

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In addition, if they cause personal injury or damage to other goods or property, these must be compensated under the new article 1245-1 c.civ. It should be noted here that, according to the new article 1245-3 of the c.civ., the goods are considered "defective" if they "do not offer the security that can legitimately be expected", taking into account the circumstances, presentation and reasonable use. Thus, for example, today's abnormal, and even dangerous, use of toys such as "drones" would, in our opinion, exclude the seller's liability. The responsible party is then the producer of the goods. If it cannot be identified, its original personal liability then becomes joint and several and extends to sellers, distributors and importers under the new Article 1245-6 c.civ. Their liability is strict, but their obligation "of result" may be excluded if it is proved: that they did not put the goods into circulation, that the technical knowledge in force at that time did not make it possible to know their dangerousness, or if they were in conformity with the legislation in force at that time. The above exceptions are not admissible as a defence, however, in the case of products derived from the human body534. Unlike the two previous obligations, it is for the buyer to prove the infringement, the causal link and the resulting damages, according to the new article 1245-8 c.civ. Next, we will look at the obligations on the buyer. 152. Pay the price - This is the principal obligation of the buyer. In effect, he must pay the seller or its representative the stipulated535 or current price of the goods, unless otherwise agreed, at the time and place of delivery, in accordance with article 1650 c.civ. Otherwise, he must do so at the seller's registered office/address in accordance with the new article, 1343-4 c.civ.536. It is customary among merchants to agree to deferred payments, to 30 or more days. This is a practice, however, limited for alcoholic beverages and foodstuffs to "30 days at the end of the month" in accordance with Article L. 443-1 of the Consumer Code; in other cases, to "45 days at the end of the month", or 60 days from the issue of the invoice, in accordance with Article L. 441-6 of the same code. In the case of deferred payments, under article 1652 c.civ., the buyer is obliged to pay interest, especially if the goods produce fruits (animals, for example), The buyer must also pay the "incidental" costs of the sale, such as VAT, transportation costs, legal fees, etc., unless otherwise stipulated. 534

Art. 1245-11, new, c.civ. See supra about earnest money, deposit and indexation. 536 The payment of the price has become "portable". 535

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The price must be expressed in euros. If it has been in another currency, it must be converted into euros on the day of payment. As far as proof of payment is concerned, delivery presumes payment. It is up to the seller to prove otherwise537. 153. Accept and receive the goods - This obligation is the counterpart to the seller's obligation to deliver. The buyer becomes the owner of the goods from the conclusion of the sale, which operates its transfer. Therefore, he must receive the goods and pay the transportation costs. However, if he considers that they are not in conformity, he may refuse to remove them or return them to the seller, a commercial practice (and therefore a source of law) known as laissé pour compte538-539-540. The seller, for his part, must keep them until they are removed by the buyer. Failure to comply with this obligation has serious consequences. B. Sanctions for non-performance of contractual obligations French law provides for various penalties in the event of nonperformance of contractual obligations, depending on the party concerned and the timing and nature of the infringement. The buyer is undoubtedly the most privileged party in this respect, i.e., the most protected, because he has the most means to take legal action. Thus, he may rely on nullity, exceptio non adimpleti contractus, resolution, price reduction, redhibitory action, imprévision, specific performance and damages. The law, in fact, recognizes numerous mechanisms for the parties in case of breach of their obligations in the context of a sale of goods. 154. Nullity - The recent reform of the law of contracts and obligations defined it soberly as follows: "A contract which does not meet the conditions required for its validity is null and void" (new article 1178, paragraph 1, first part, c.civ.). It is interesting to note that the aforementioned 2016 ordinance introduced some notable changes to this institution:

537

See Com. October 23, 1990, Bull. IV, nº251; Com. 9 July 1991, Bull. IV, nº253. See Cass.com, 27 January 1970, JCP, 1970.II.16554, obs. A. Huet, RTD civ. 1971.136, obs. Loussouarn; Cass.com., 26 May 1981, Bull.civ., IV, no. 248. 539 See COLLART DUTILLEUL F. and DELEBECQUE Ph., op. cit. p.233. 540 This practice is enshrined in Article 49 of the CISG. 538

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1. It established an interrogatory action: a party can warn a party who can demand the nullity to act within a maximum period of six months, under a preclusion warning, or to confirm the contract, according to the new article 1183, paragraph 1, of the c.civ. 2. It also established the possibility of declaring the nullity of consensus: article 1178, paragraph 1, in fine of c.civ. authorizes the parties to declare the nullity by mutual agreement. This is a specific application of party autonomy enshrined in the new articles 1103 and 1193 of the c.civ. 3. Finally, on the basis of contemporary doctrine, it has made a distinction between relative and absolute nullity, not in relation to the gravity of the vices, but rather in consideration of the interest harmed. Thus, the new article 1179 c.civ. establishes that nullity is relative when the violated rule concerns a private interest, and absolute if it affects the general interest. As regards more precisely our object of study, the sale of goods, nullity can take place in the following situations541: 1. If the seller sells other people's goods, the sale is null and void. Article 1599 c.civ., unlike other foreign law542, sanctions it in this way. This nullity is however relative, to the benefit of the buyer543. 2. The same sanction applies in case of willful misrepresentation. If the seller does not declare the latent defects that affect the goods, violates its duty of information, a consequence of good faith-loyalty. French case law has assimilated the omission of information on latent defects to the lies and fraudulent manoeuvres of the bad faith seller. Consequently, the seller is obliged to declare the defects of which he has become aware544 and which it is presumed that as a professional he knows, as we have seen. Consequently, the seller, who is silent in these cases, deceives his buyer. This position was introduced into French law by Goutailler and others with spouses Jacob545. Subsequent judgments have taken the same position. However, the error caused by the omission or reticence must be decisive and intentional: "Failure to comply with a pre-contractual obligation to 541

Duress hypotheses are rather theoretical. We therefore refer to the general rules on this subject, which are of virtually no interest to this study. 542 The sale of other people's property is valid under Chilean law, but unenforceable to the true owner, according to Article 1815 c.c.ch. 543 See 3rd Civ., 16 April 1973, Bull. Civ. III, nº198, p.218. 544 See TERRÉ F., SIMLER Ph. and LEQUETTE Y., op. cit. pp. 258-262. 545 See Civ. 3rd, October 2, 1974, Bull.civ.III, nº330, p.251, D.1974. GO. 252, Rec. gén. lois et jurisp. 1975. 569, nº458, obs. Blanc.

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provide information, supposedly established, is not sufficient to characterize willful misrepresentation, if one does not add a finding of the intentional nature of this infringement and of a determining error caused by it"546. The reform enshrined this jurisprudence in the new article 1137, paragraph 2, of the c.civ., which provides: "It also constitutes fraud the intentional concealment by one of the contractors of information whose determinant character for the other knows". 3. Another possible scenario is where the buyer mistakenly buys goods. To be accepted, under the terms of the new Articles 1132 and 1133 c.civ. The error must be "excusable"547 and "essential", i.e., relate to qualities that determine the conclusion of the contract. One of the most famous cases in France is Poussin, a sentence handed down by the first Civil Chamber of the Court of Cassation on 22 February 1978: the owners of a painting sell it to the Louvre thinking that it was a work by the Carrache school, but later the museum exhibits it as a Poussin. Upon realizing their mistake, sellers sue for nullity, and their appeal is rejected. Finally, the Court of Cassation annuls the judgment in favour of the sellers. The error could be confused with the lack of conformity. However, a classical analysis of the contract rules out this possibility548. Thus, when the buyer buys goods thinking that they have an essential quality that they suffer, there is error. This would be the case, for example, if a person buys 4x2 all-terrain vehicles thinking they are 4x4, buys table grapes thinking they are wine grapes, or buys 3G mobile phones thinking they are 4G, among other possible hypotheses. In all cases, there is a false representation of reality that, unlike fraud, has as its origin the action of the buyer himself. However, unlike lack of conformity, he is not aware of what he is buying549. It will be sanctioned with the relative nullity of the sale. 155. Resolution - French law provides for several cases of termination in the event of breach of contract.

546

See Com., 28 June 2005 (No. 03-16794), Bull. 2005 IV, No 140, p. 151. It should be noted that in this study, in analogous application of existing case law on latent defects, we must conclude that an error relating to essential qualities among professionals in the same sector would be inexcusable. 548 See COLLART DUTILLEUL F. and DELEBECQUE Ph., op. cit. pp. 287-288. 549 In the latter case, he is aware of what he wants, but receives other goods. See ibid. 547

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If the seller breaches his duty of conformity or warranty, i.e. does not deliver the goods in conformity, or does not do so within the period prescribed, or if the goods have latent defects, the buyer may demand termination of the contract of sale, or delivery, in accordance with article 1610 of the c.civ. in the first cases; and also exercise redhibitory action, in accordance with article 1644, part one, c.civ., in the last one. The lawsuit imports constitution in default and allows the judicial resolution of the contract, if the infringement is significant. This is the solution adopted by the new article 1224 c.civ., which enshrines the existing case law on the matter550. Otherwise, the court will only award damages551, or a period of grace to the seller to fulfill its fundamental obligation, namely specific performance, under the new article 1228 c.civ. In the case of continuing performance contracts of a fixed or indeterminate duration, the termination may be total or partial, taking into account the divisibility or indivisibility of successive deliveries552. Otherwise, if a resolutory condition has been stipulated, the judge will confine himself to verifying the resolution already produced553. Finally, the buyer may unilaterally terminate the contract on his own initiative, "at his own expense and risk" under certain conditions established by the new article 1226 c.civ: 1. The infringement must be sufficiently serious: it is so when the debtor endangers the interests of554 the creditor, in the event of a breach of an essential obligation or when it is intentional555. 2. The notice of the other party is necessary to constitute it in default, mentioning that if the obligation is not performed within a reasonable period of time, the contract may be terminated. 3. If the debtor fails to perform its obligations, the creditor may notify the termination of the contract of sale. 4. The debtor can challenge the decision and therefore appeal it in court. It is for this reason that the resolution is made "at the expense and risk" of the creditor. 550

See Cass.civ., April 14, 1891, DP, 1891.1.329, note Planiol; Cass.com., May 27, 1981, Bull.civ., IV, nº252; 3rd civ., March 22, 1983; Bull.civ., III, nº84 ; CA Versailles, October 13, 1988, D., 1988, IR 280; CA Paris, November 22, 1988, D., 1989, IR 16. 551 TERRÉ F., SIMLER Ph. and LEQUETTE Y., op. cit. , p. 617. 552 See COLLART DUTILLEUL F. and DELEBECQUE Ph., op. cit. p. 235. 553 Ibidem. 554 For example, too late a delivery. Com, 4 June 1980, Bull.IV, nº239; Civ. 1st, 10 October 1995. 555 See TERRÉ F., SIMLER Ph. and LEQUETTE Y., op. cit. p. 713.

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This institution is the legal consecration of the Tocqueville556 jurisprudence of the First Civil Chamber of the Court of Cassation, later taken up by other judgments557. It is a commutative justice solution. In the words of Professors Terré, Simler and Lequette: "In an economy of abundance, it is good to give the disappointed co-contractor the means to regain his freedom, because it will be easy for him to find another cocontractor who meets his expectations558. The seller, for his part, may invoke the same trilogy. Thus, it can unilaterally terminate the contract if the buyer does not receive the goods, in accordance with article 1657 c.civ. and resell them559. It can also demand the resolution, if the buyer does not pay the price, according to article 1654 c.civ., or the judicial recognition of the fulfillment of a stipulated resolutory condition, if it were the case. 156. Price reduction - This is a specific action in favour of the buyer in the case of latent defects, provided for in Article 1644 c.civ. Under the ordinary law of obligations, the creditor may accept imperfect performance by requesting a proportional reduction of the price560 (article 1223, new, c.civ. ). With respect to the special law of sale, article 1644 c.civ. confers on the buyer the alternative right to demand the resolution or to preserve the goods, with price reduction. In case of breach of the obligation to deliver in the sale of goods, there is a special solution. Indeed, in some cases of non-performance of the obligation to deliver, the judge may proceed to the réfaction561, reducing the selling price562-563 when: the seller did not deliver the entire order; the delay is minor; the goods are of a quality inferior to that agreed, but the sale remains, however, useful or necessary for the buyer; the gravity of the infringement does not justify the resolution. 556

See Civ. 1st, October 13, 1998, Bull.civ. I, No. 300, D.1999. 197, note C. Jamin, Somm. 115, obs. Ph. Delebecque, JCP 1999.II.101333, note Rzepecki, Défrenois 1999.374, obs. D. Mazeaud, RTD civ. 1999. 374, obs. J. Mestre. 557 See Civ. 1st, 28 October 2003, Bulletin civil 2003, I, n° 211, p. 166. 558 Cf. TERRÉ F., SIMLER Ph. and LEQUETTE Y., op. cit. p. 712. 559 It is the same solution that exists in English law for a "falling market". 560 Late payment and notification by the debtor are necessary. 561 See Cass.req. May 23, 1900, DP, 1901.1.1269; Cass.com. March 23, 1971, Bull.civ., IV, nº89, D.1974.40, note Alter; Rennes, Ch.1 B, October 25, 1989, Rev.jur.Ouest, 1990/2, p.270; Cass.com. December 15, 1992, Bull.civ., IV, nº421, JCP, 1994.II.22075, obs.M. Poulnais. 562 See COLLART DUTILLEUL F. and DELEBECQUE Ph., op. cit. pp. 220-221. 563 This solution, typical of French law, has been adopted by CISG, Arts. 44 and 50.

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It may also be invoked, in accordance with the general rules, in the case of latent defects affecting the goods. 157. Specific performance - This remedy for breach of the parties' obligations occurs in the event of breach of the seller's obligation to deliver. In the case of generic goods, the buyer has the right to replace them with similar goods at the expense of the original seller564. It is enough to constitute the seller in default. The new article 1222 c.civ. provides as follows: "After the constitution in default, the creditor may also, within a reasonable time and at a reasonable cost, enforce the obligation himself or, with the prior authorization of the judge, destroy what has been done in contravention of it. It may request the debtor to reimburse the sums committed for that purpose. It may also require the debtor to advance the sums necessary for such execution or destruction". The doctrine qualifies this device as "indirect forced execution"565. If the goods have disappeared or if they have been sold to third parties in good faith, this sanction shall be transformed into compensatory damages, corresponding to the present value of the goods566-567. It is also used in cases when the buyer fails to pay the price or receive the goods568. Under the 2016 reform of the law of contracts and obligations, three conditions are necessary for specific performance to be admissible: 1. The debtor in arrears must be constituted in default. 2. Specific performance must be possible: the new Article 1221 c.civ. contains the jurisprudential criteria in the matter569. 3. It must be reasonable: the costs must not be exorbitant or disproportionate in relation to the creditor's interest570.

564

"Replacement Faculty." This option is common in the case of the sale of cereals. See BÉNABENT A., op. cit. p. 154. 565 Cf. CHÉNEDÉ F., op. cit. , p. 124 566 See BÉNABENT A., op.cit, p. 154. 567 See Com. October 5, 1993, Bull. IV, nº313. 568 See COLLART DUTILLEUL F. and DELEBECQUE Ph., op. cit. pp. 304 and 307. 569 See Civ. 3rd, 11 May 2005, Bull.civ. III, nº103: absurd, due to a minimal difference between the delivered good and the ordered good; Civ. 1st 27 November 2008, Bull.civ.I, nº269: consolidation of third party rights; Req. 14 March 1900, DP 1900.1497: intuitu personae obligation. 570 Forced execution must not mean abuse of the creditor's right. See CHÉNEDÉ F., op. cit. , p. 124.

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Let us remember that specific performance is a new remedy in English law, introduced out of equity571. In Chilean law, it exists by transposition of French law572. On the other hand, article 1553 c.c.ch., concerning forced execution of obligations to do, provides in paragraphs 1 and 2, respectively, two manifestations of specific performance: the creditor's right to demand direct performance by the debtor and the power to demand authorization for performance by a third party at the debtor's expense (which is similar to the power of replacement under French law). 158. Compensation for damages - It is the general remedy to the breach of contractual obligations. If the infringements of the parties are not serious enough to declare the termination of the contract of sale of goods, the total or partial breach will be remedied by awarding compensatory damages573 and late performance with interest on arrears574. The new article 1231-1 c.civ. provides in this regard: "The debtor shall be liable, if appropriate, for the payment of damages, either for breach of the obligation or for the delay, if he does not justify that performance was prevented by force majeure". It includes the consequential and moral damages suffered by the parties, even if the plaintiff is a legal person575 and future damages, provided they are true. Also, the loss of profit576 (perte des gains), enshrined in the new article 1231-2 c.civ. Speculative damages are excluded, because the damage must be certain and a direct consequence of the infringement to be compensated577, in accordance with the new article 1231-4 c.civ. However, French jurisprudence

571

And to harmonise English law with Scottish law. See supra. Art. 1489 c.c.ch. 573 See Civ. 1st, 29 January 2003, Bull. civ. III, No. 23. 574 The former shall take place in the event of total or partial non-execution and shall be justified. The second, in case of delay in the payment of the obligations of the parties, do not need proof, and are due from the constitution in default according to article 1231-6, new, c.civ. See TERRÉ F., SIMLER Ph. and LEQUETTE Y., op. cit. p. 616. 575 See Cass.com, 15th May 2012, nº11-10278, Bulletin 2012, IV, n° 101. 576 See Com November 5, 1951, D.1952.3. 577 In the same sense, the new Article 1231-3 c.civ. limits the scope of compensation to foreseeable direct damages, except in cases of gross negligence, in which case it extends to unforeseen direct damages, Article 1231-4, new, c.civ. This is a solution similar to the remoteness rule established by the English Hadley rule. Chilean law is in harmony with French law, art. 1558 c.c.ch. 572

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authorizes compensation for the "loss of an opportunity" (perte d'une chance), when it has value in itself, and therefore certainty578. However, if the buyer defaults on his obligation to pay the price, the seller can obtain enforcement or termination, in addition to damages if he has suffered damage579. Similarly, if the buyer refuses to take back the goods, without cause, in addition to the full resolution provided for by article 1657 of the French Civil Code, the seller may resell the goods580 and claim damages, if appropriate, or if it receives a lower price. The seller, on the other hand, must indemnify for damages: if the sales are by weight, unit or measure, these are not concluded for reasons attributable to him; if he sells other people's goods, in accordance with article 1599 c.civ., and, in particular, in the hypothesis of latent defects, in which case they will be complementary or independent of the estimatory and redhibitory actions. The law distinguishes in this regard whether he was in bad faith or whether he was aware of the existence of the defects581, in which case he must compensate the price and all damages suffered582-583, according to the new article 1231-3 and article 1645 c.civ., foreseen or foreseeable; or, being in good faith, only the selling expenses and the price, in accordance with article 1646 c.civ. It should be noted that there is no obligation under French law to mitigate damages, i.e., to minimize harm584, such as common law mitigation585, but the parties must help each other, in accordance with the principle of good faith, in this case the seller. Failure to comply with the seller's obligations under the ordinary law, or information, advice and security, also give rise to compensatory damages.

578

See Civ. 2nd, 1st April 1965, Bull.civ. II, No. 336, p. 230; 8 November 1971, D. 1972.667, note C.Lapoyade-Deschamps. 579 See COLLART DUTILLEUL F. and DELEBECQUE Ph., op. cit. , p. 304. 580 See Cass.com., April 21, 1950, Rev.trim. 1951.262, obs. Carbonnier. 581 The one that is presumed to be professional salespeople, as has already been seen. 582 For example, the consequences of an accident caused by the thing or the compensations that the buyer had to pay third parties for this reason. See BÉNABENT A., op. cit. p. 192. 583 Loss of profit too. Cass.com, January 20, 1998, Bull.civ. IV, no. 35. 584 See Civ. 2nd, 19 June 2003, Bulletin 2003 II No. 203, p. 171. 585 The refusals of the Court of Cassation on this issue have been criticised, in the sense that France would move away from the dominant tendencies of comparative law and, given that the social interest demands also to reduce the damages suffered. See TERRÉ F., SIMLER P. and LEQUETTE Y., op. cit., pp. 960-962.

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Under the terms of the new article 1231-7 c.civ. when a judgement or unilateral resolution is final, interest on arrears begins to accrue. In the case of sums of money, they are automatically debited from the constitution in default of payment, according to the new article 1344-1 c.civ. Finally, it should be noted that anatocism is authorised in France, provided that the delay is more than one year, that the contract stipulates it or that the judge orders it, in accordance with the new article 1343-2 of the c.civ. 159. Penalty Clauses - A penalty clause is a conventional compensation for damages resulting from the breach of the obligations of one of the parties to a contract. The doctrine defines it as: "that by which the co-contractors assess in advance the damages due by the debtor in the event of delay or nonperformance586". She has a dual character: fixed sum587 and private remedy588. It is often confused with the right of withdrawal clause and immobilization indemnity. In the first case, however, there is not breach, but rather the opposite, hence the name589-590 . In the second, the amount paid is the price paid for exclusivity591, and therefore is not a private remedy. The differences with common law are considerable in this respect. As we have seen, English law makes a distinction between liquidated damages and penalty clauses. The former, of a lump sum legal nature, are authorised and are considered a reliable estimate of the damage; the latter, given their in terrorem592 character, are prohibited in principle593-594. Thus, common 586

See TERRE F. SIMLER P. and LEQUETTE Y., p. 675. By virtue of this agreement, the parties definitively determine the amount of damages in the event of non-performance. In this sense: ibid, p. 637. 588 See POPINEAU-DEHAULLON Catherine, op. cit. p. 60, quoting BENABENT A., Droit Civil, les obligations, 10e ed., coll. Domat droit privé, Paris: Montchrestien, 2005, nº427, p. 258. 589 Ibid, p. 55. 590 See Com. October 14, 1997, Bull.civ. IV. nº255. 591 See COLLART DUTILLEUL F. and DELEBECQUE Ph., op. cit. pp. 65-66. 592 See Dunlop Pneumatic Tyre Co. Ltd. v New Garage Motor, (1915) A.C. 79; 593 For example, when the amount stipulated is considerable and disproportionate to the damages suffered by the creditor. See POPINEAU-DEHAULLON Catherine, op. cit. , p. 36. 594 See Cavendish Square Holdings BV v Talal El Makdessi, (2012) EWHC 3582 (Comm); Parking Eye Limited v Beavis, EWCA Civ 402. In these cases it was found that the contested provisions were not penalty clauses, nor were they illegal. In addition, the classic criterion was refined by adding that in order for such a provision 587

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law denies the character of private remedy to penalty clauses, on the one hand, and confuses penalty clauses with "enormous" penalty clauses, on the other595. According to the article R. 132-2 nº 3 of the c.consom. In this case, excessive penalty clauses between professionals are not allowed. Good faith-loyalty doesn't allow it either. As Professor Dupichot points out: "The contemporary movement to prevent over-indebtedness and to seek a certain contractual balance, in favour of the concepts of good faith and loyalty, cannot remain without influence on the ordinary law of the surety contract. The taking into account of a principle of proportionality of the guarantee by special laws and, in particular, by a consumer right whose power of attraction has been emphasised, requires a condemnation of the somewhat obsolete conception of a guarantee conceived in the exclusive interest of the creditor and an even more evident consecration of the proportionality requirement”596. However, the reform of the law of obligations confirms this by authorising the introduction of such clauses as lump-sum compensation. Article 1231-5, paragraph 1, c.civ., authorizes the judge, recognizing also its character as a private remedy: "to moderate or increase the penalty thus agreed upon if it is manifestly excessive or derisory". This change is proportional in the case of partial execution. These rules are mandatory, or of public policy597, and their application requires the debtor to be in default (paragraphs 4 and 5 of the aforementioned article). 160. Exception of non-performance - The exceptio non adimplenti contractus of Roman law is enshrined in the new article 1219 c.civ. For its admissibility, it requires that a breach of a party's obligations be "sufficiently serious", or that the interest of its counterparty disappears598. With the reform of the law of obligations, the anticipated suspension599 was introduced. In this regard, the new article 1220 c.civ. authorizes the creditor, after notification by the debtor, to suspend performance of his not to be rejected, it must: be a secondary obligation, satisfy a legitimate interest, be proportionate and not exorbitant. 595 If the clause qualifies as a penalty clause, the judge must annul it and apply common law remedies. Cf. POPINEAU-DEHAULLON Catherine, op. cit. , p. 36. 596 See DUPICHOT Ph, op. cit. , p. 111. 597 Provisions to the contrary are considered unwritten. It is the consecration of the civil jurisprudence, 1st, October 17, 2012, appeal in cassation nº 11-16292. 598 Cf. CHÉNEDÉ F., op. cit. , p. 121. 599 Different from the anticipatory breach of common law and art. 72 CISG.

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obligations when it is manifest or certain that the other party will not perform his obligations and that the consequences will be "serious". However, no criteria have been established to determine when "the debtor's future default is manifest". It can then be estimated, in relation to the special rules of the sale600, that the hypotheses of insolvency and bankruptcy will be admissible, among others. In the case of the buyer's obligation to pay the price, however, he may invoke the exception if the seller has not fulfilled his obligation to deliver, that is, if he has not delivered the goods to him or if the goods are of unsatisfactory quality, with even minor defects601; if he lacks administrative documents; if he has not been able to control the goods602; or if he is threatened with eviction by the action of a third party. In this regard, it should be noted that the commercial practice known as laissé pour compte 603 allows the buyer to reject or even return nonconforming goods. On the seller's part, in accordance with article 1612 c.civ., he may invoke the exception and refuse to deliver, if the buyer does not pay him the price604; in cash sales, if he runs the risk of not receiving payment605; in forward sales, in the terms of article 1613 c.civ.606 or, in the case of force majeure, during its execution607. This right of retention is enforceable against third parties, or, sub-buyers of the original buyer608. 161. Other remedies for the seller: 1. The seller enjoys a special privilege and the right to claim the goods, provided by the new article 2332, paragraph 4, c.civ. According to this text, the seller can claim them within eight days and prevent their resale. 2. He may take back the goods in the buyer's possession or present an order for payment609. 600

Art. 1613 of the c.civ. See Civ 1st, April 4, 1991, Bull.I, nº130: for small defects in the painting of a car, almost imperceptible. 602 See Com, October 21, 1974, Bull. IV, nº261. 603 See COLLART DUTILLEUL F. and DELEBECQUE Ph., op. cit. pp. 219-220. 604 Thus, for payments by check, you can do so until the document is cashed. See BÉNABENT A., op. cit. p. 135. 605 Unless the buyer guarantees payment. 606 Insolvency or bankruptcy. 607 Similar to the English hardship. 608 See Civ. 1st, September 24, 2009, Bull. I., nº178 ; J.C.P. 2009, nº44.386, obs. A. AYNES. 609 Cf. RAYMOND GUY, op. cit. pp. 83-84. 601

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162. Expiration - It was introduced by Ordinance No. 2016-131 of 10 February 2016, in the new articles 1186 and ff. c.civ., enshrining the jurisprudence of the First Civil Chamber of the Court of Cassation (Civ. 1st, 8 October 2008, appeal in cassation No. 07-17.646)610. Paragraph 1 of this article defines it as follows: "A validly formed contract shall lapse if one of its essential elements disappears". However, we have not found jurisprudential applications of this institution in relation to the sale of goods or movable property, object of our study, but only in relation to promises of sale of real estate. They were declared null and void on the ground that the suspensive condition to which they were subject was not fulfilled611. Under these judgments, it can be concluded that caducity applies to promises to sell goods, subject to a suspensive condition of financing or otherwise, which would lapse as a result of a breach of those conditions. As far as its effects are concerned, it terminates the contract and may give rise to refunds, such as nullity, under the new Article 1187 c.civ. It also leads to the expiration of interdependent contracts612 when their execution has become impossible or when the contract disappeared was its determining condition, according to the new article 1186, paragraph 2, c.civ. However, caducity of a contract does not result in the expiration of a penalty clause contained therein. 163. Limitation of liability - In accordance with the principle of party autonomy, the parties may modify the effects of some of their obligations. Thus, in the terms of article 1627 c.civ. If the seller is in good faith, it is possible to waive the obligation to warranty against latent defects and eviction by third parties for the seller's benefit613. This possibility is understandable; it is equivalent to the renunciation of an element that corresponds to the nature of the legal act "sale" and not to an essential element, such as the price and the thing. However, this possibility of waiver does not extend to the price paid, except in the case of a buyer who has purchased "at his risk and danger", according to article 1629 c.civ.

610

See Corinne RENAULT-BRAHINSKY, L'essentiel de la réforme du droit des obligations, Gualiano, Lextenso, Paris, France, 2016, p.79. 611 Civ. 3rd, 18 February 2016, appeal in cassation No. 15-10.007; Civ. 3rd, 29 May 2013, appeal in cassation No. 12-17.077. 612 Those necessary to carry out the same operation. 613 In the sales between professionals the waiver does not pose problems. Cf. RAYMOND GUY, op. cit. pp. 89-90.

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In our field of study, both parties must be professionals "of the same specialty", according to doctrine and jurisprudence614, in order for the waiver of the warranty of hidden defects to be valid. On the other hand, French law does not permit the waiver of the warranty of eviction regarding personal acts of the seller, in accordance with article 1628 c.civ. It has been argued on this point that it is a public policy rule whose infringement is therefore sanctioned with absolute nullity615. This scheme complies with the nemo auditur propriam turpitudinems allegans rule: no one can take advantage of his own fault, which in this case is serious and can therefore be equated with fraud. On the other hand, it is also possible to stipulate between professionals clauses renouncing claims on the occasion of late deliveries616, stating, for example, that "the seller will make every effort to deliver the goods within a reasonable time. If he cannot do so for any reason, he will not incur any liability on his part”. If it does not matter a waiver of future fraud or gross negligence, this clause shall always be valid617. It is also possible to waive certain parts of the delivery obligation (content or conformity of the goods) between professionals. Indeed, as professors Collart Dutilleul and Delebecque point out: "It happens differently in the relationships between professionals or for the benefit of the occasional salesperson. The clauses limiting the liability of the seller are permitted, in particular when they refer to the date of delivery, the

614

See BÉNABENT A., op. cit. pp. 179-180; MALAURIE Ph., AYNÈS L. and GAUTIER P.Y., op. cit. p. 273: among professionals "of the same speciality", because they would have the same possibilities of evaluating the risks of this area. The defect must also be "undetectable". See Com. 8 of October 1973, J.C.P. 75.II.17927, note GHESTIN; Com. 3 of December 1985, Bull. IV nº287; Civ. 1st, 20 February 1996, Bull. I, No. 86; Com. 19 March 2013, appeal in cassation No. 1126566. 615 The new article 1162 c.civ. states: "The contract may not derogate from public policy either by its stipulations or by its object, whether or not the latter has been known to all the parties”. 616 See Cass.com, June 15, 1981, Bull.civ.IV, nº270. 617 In the famous Chronopost case, Com. 22 October 1996, D.1997.121, note A. Sériaux, Somm. 175, obs. Ph. Delebecque, Ch. Larroumet, p.145, the waiver of claims set out in a contract for the delivery of a package, providing a similar clause, was taken as unwritten due to gross negligence of the debtor of the obligation, therefore, inexcusable.

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content or non-conformity of the thing delivered, whether or not the buyer is a professional of the same specialty as the seller618-619. As far as the clauses limiting the obligation of security are concerned, between professionals, they are also valid. While this solution may seem questionable a priori, it is important to note that there was a legal limitation in this respect: the former article 1386-15, paragraph 2, of the c.civ. tolerated it, but only with respect to damage to goods. Since this article was abolished by Ordinance No. 2016-131 of 10 February 2016, its current validity is questionable. However, in the absence of an express rule excluding them and in accordance with the rule that "everything that is not prohibited in private law is permitted", one may think that the situation has not changed. Consequently, in our opinion, these clauses would remain valid. 164. Imprévision - The Dalloz dictionary defines it as follows: "(Civil law) Theory according to which the judge must restore the equilibrium of a contract whose conditions of performance have been seriously modified to the detriment of one of the parties, as a consequence of events reasonably unforeseeable at the time of the conclusion of the convention620. It is based on the rebus sic stantibus621 clause of canon law and the principle of good faith-loyalty. It is characterized by several elements: 1. Unpredictability: the parties could not foresee the occurrence of events that alter the status quo existing at the time of the conclusion of the contract; for example, a war, excessive inflation, additional costs of raw materials, etc. 2. Excessive onerosity: the equilibrium, the economy of the commutative onerous contract is broken as a result of events not foreseen by the parties. Although enforcement remains possible, it is very difficult 618

See COLLART DUTILLEUL F. and DELEBECQUE Ph., op. cit. p. 233. See Civ. 1st, December 20, 1988, Bull.civ. I, nº373, D., 1989, IR 24, JCP, 1989.II.21354, obs. Virassamy; Civ. 1st, 24 November 1993, D.1994, som.236, obs. G. Paisant, JCP, ed. E., 1994.II.593, obs. L. Leveneur. 620 Lexique des termes juridiques 2015-2016, Dalloz, Paris, France, 2015, p.550. 621 St. Thomas Aquinas, professor at the Sorbonne, declared that not fulfilling his promise was tantamount to lying if the circumstances that could have been foreseen at the time of the contract were maintained; if, on the contrary, circumstances change profoundly, he who promised something does not commit any fault if he refuses to carry it out. This doctrine of canon law was later legalized in the 14th century by Bártolo and Baldo. Cf. TERRÉ F. SIMLER P. and LEQUETTE Y., p. 520. 619

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from an economic point of view, as well as being able to consider benefits as "equivalent" under article 1108, paragraph 1, of the French Civil Code. The revision of contracts due to imprévision was banned for a long time in France622. In Canal de Craponne623, the Court of Cassation refused to admit it, on the grounds that it contradicted the binding force of contracts enshrined in the former article 1134 (old) of the c.civ.624. However, other decisions approached the notion of imprévision, by the way of good faith, without consecrating it625. The effects of an alteration in the economy of a contract may be limited by indexation or hardship clauses. The latter have been recognized by case law 626 since they invite the parties to renegotiate the contract made more onerous for one of them, which continues to produce its normal and current effects during the negotiations, unless its suspension is foreseen627. Therefore, there is no breach of contract law. In administrative matters, however, the traditional position has been different. With the First World War, the reality of the facts prevailed. She was thus admitted by the Council of State in the famous Compagnie générale d'éclairage de Bordeaux628 case. In the species, the Conseil d’État recognized that an unforeseeable increase in the price of coal, consequence of the war effort, had disrupted the economy of a contract necessary for the general interest of the population, thus enshrining the theory of imprévision, in administrative matters. It was finally admitted in the field of private law 622

In English law hardship is not admitted: Tsakiroglou & Co Ltd v Noblee Thorl GmbH, 1962, AC 93. In Chile, neither in ordinary jurisprudence, but in arbitration. See infra. 623 See Civ. 6 March 1876, PD 1876.1.193, note Giboulot. The Marquis of Galliffet, the operator of the canal, was unable to obtain the revaluation of the irrigation levy stipulated in 1520, which became derisory at the end of the 19th century due to labour surcharges. 624 Article 1103 of the c.civ. 625 Huard, Com. 3 November 1992, held that the oil company BP had failed to perform the contract in good faith by depriving concessionaire Mr. Huard of the means to charge competitive prices (ordered BP to pay damages of 150,000 francs); Chevassus, Com. 24 November 1998, stipulated that the agent should be able to exercise the mandate and thus charge competitive prices. 626 Paris, September 28, 1976, PCJ 1978.II.18810 note J. Robert. 627 "The hardship clause, still called the safeguard clause, best illustrates this reality. It allows one or other of the parties to demand a reconfiguration of the contract that binds them if there is a change in the initial data in view of which they had committed themselves, which modifies the balance of this contract to the point of subjecting one of them to an unfair hardship”. Cf. TERRÉ F., SIMLER Ph. and LEQUETTE Y., op. cit. p. 524. 628 CE, 30 March 1916.

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by Ordinance No. 2016-131 of 10 February 2016, but subject to certain conditions. 165. Legal Consecration - Since the reform of the law of obligations in 2016, the new article 1195 c.civ. enshrines the imprévision, in three stages: 1. The aggrieved party may request a renegotiation from its cocontractor. In the meantime, it must continue to fulfil its obligations. In our object of study, this would be the case, for example, of an excessive supervening onerousness, consequence of greater costs to import goods629. 2. If negotiations fail, the parties may agree to terminate the contract on a date and under conditions to be determined by them, or ask the judge to review it. 3. In the absence of an agreement, the aggrieved party may apply to the court for a review or ruling under the same conditions. In order to limit the effects of imprévision, it is very likely that clauses will become customary whereby the parties undertake to assume the risks of excessive onerousness630. Then we would be faced with the paradox of "preventing" unpredictability. 166. Force majeure - Just as imprévision makes it more difficult to fulfil obligations, force majeure makes it impossible. It has in common, with the first institution, the "unpredictable" character, but also adds the notion of "insurmountable", in accordance with existing jurisprudence631. The new Article 1218 c.civ. enshrines it by defining it in accordance with case law, providing that there is force majeure when an event beyond the control of the debtor, which could not reasonably have been foreseen, and whose effects could not be avoided by appropriate measures, prevents performance of the debtor's obligations. The notion of fortuitous case disappears with the reform. In our field of study, if goods are destroyed or damaged as a result of a force majeure event (storms, fires, earthquakes, pests632, for example) the

629

It remains to be seen what will happen in the future in the EU with British products, after Brexit. Similarly, with Mexicans and Chinese in the United States, as a result of the so called “trade wars”. 630 See CHÉNÉDE F., op. cit. , p. 96. 631 See Plen.Ass. 14 April 2006, two judgments, GAJC, t.2, nº183-184. 632 This was the case with phylloxera, which decimated several vineyards in France in the 19th century. Civ. April 14, 1891, GAJC, t.2, no. 180.

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seller is exempted from his obligation to deliver, as a general rule633. This, according to the res perit domino rule634 . In the case of his obligation to guarantee, if the seller is in bad faith, i.e. if he knew of the existence of latent defects affecting the goods, force majeure does not benefit him635 in accordance with article 1645 c.civ. and the nemo auditur rule. It should be noted that, according to the new article 1218, paragraph 2, c.civ., if the breach is final, the contract is terminated as of right636. Otherwise, if it is only temporary, performance may be suspended637, unless the latter justifies the decision. C. Rules of interpretation 167. The "subjective" interpretation - The general rule is the "subjective" interpretation, which seeks to determine the intention of the contracting parties. It is provided for in the new Article 1188, paragraph 1, c.civ. If it is not possible to determine the intention of the parties, the system of "objective" interpretation is imposed, that is, the meaning that a "reasonable" person would give to a particular provision in the same case can be given. This is the spirit of paragraph 2 of the same article. Some special rules also help the interpreter: 1. Contra proferentem rule: in the case of adhesion contracts, obscure or doubtful clauses are interpreted against their editor. Those of free discussion (de gré à gré), against the creditor, according to the new article 1190 c.civ. 2. Systematic rule: this is a double rule: 2.1 - The clauses of a contract are to be interpreted in relation to one another (art. 1189, par. 1, new, c.civ.). 633

Unless otherwise stipulated or he is in default of delivery pursuant to article 1351, new, c.civ., or the goods have also perished in the event of performance pursuant to article 1351-1, new, c.civ. 634 It should be remembered that, as a general rule, the buyer becomes the owner from the time the contract is concluded. 635 Professors COLLART DUTILLEUL and DELEBECQUE explain that if damages constitute one of the effects of the warranty for latent defects, force majeure must not benefit the seller. See op. cit. , p. 250. 636 Under the conditions of Articles 1351 and 1351-1, new, c. civ. 637 In our opinion, this solution cannot be reconciled with the "insurmountable" nature of the unpredictability. It seems to us that the legislator has mixed two institutions here: imprévision and force majeure. However, the reform seeks to establish the jurisprudence in this sense: Civ. 1st, February 24, 1981, Bull.civ.I, nº65.

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2.2 Existing contracts between the same parties must contribute to a consistent interpretation of a given transaction (Article 1189, paragraph 2, new, c. civ.). 3. Attribution rule: when a clause is susceptible of having two meanings, that which can give effect to it must be preferred to that which is not (art. 1191, new, c. civ.). 4. Rule of the prohibition of denaturalization: enshrining the jurisprudence initiated by the judgment of the Civil Chamber of the Court of Cassation of 15 April 1872 (GAJC, t.2, nº 161), the new article 1192 c.civ. prohibits the revision of contracts. Interpretation involves clarifying the rules that are the subject of interpretation and nothing more than that. Because its main source of inspiration is French law, Chilean civil law takes many of the rules of the legal regime just described. In this, it also differs from English common law. SECTION 2 - THE LEGAL REGIME FOR THE SALE OF GOODS IN CHILE The Chilean civil code was drafted by Andrés Bello in the 1850s and came into force on January 1, 1857. It took as its model the Napoleonic Code on obligations and contracts (Book IV, "Obligations and Contracts", articles 1437 to 2524 of the c.c.ch.). That's why it is not uncommon to find very similar provisions in the French and Chilean civil codes638. However, some differences can be observed. In fact, Andrés Bello preferred to be inspired by the Romano-Germanic system when it came to the transfer of property. Thus, in Chilean civil law, the transfer of title must be accompanied by a mode of acquisition of property (tradition, prescription, occupation, accession, law, hereditary succession) in order for property to be transferred. For the purposes of this study, the title is the contract of sale and the mode of acquisition the tradition of the goods. 1 - The fundamentals of the contract of sale of goods A. Basic notions 168. Definition of sale in Chile - Article 1793 of the c.c.ch. defines sale as follows: "The purchase-sale is a contract in which one of the parties is obliged to give one thing and the other to pay it in money. That one says sell 638

For example, the ancient article 1134 of the Napoleonic Code served as the basis for articles 1545 and 1546 of the c.c. ch.

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and this one buys. The money the buyer gives for the thing sold is called a price". 169. Characteristics of the sale of goods in Chile. 1. The sale of goods is regulated in Chile by the Civil Code (articles 1793 and ff.), the Chilean Commercial Code (articles 130 and ff.) and the CISG, which was ratified by Chile and became national law in 1990. 2. It is consensual, in principle639. However, sales in excess of 02 UTM640 must be reported in writing. This is a rule of evidence; otherwise, the existence of this contract cannot be proved by witnesses641. 3. It is synallagmatic, onerous commutative in principle and aleatory when dealing with future goods. In the latter case it is necessary to distinguish: 3.1 If the parties believe that the goods exist and ultimately do not, then there is no contract642; 3.2. If the parties expect the existence of the goods for the future, then it is agreed that the sale will take place under suspensive condition; 3.3. If the sale is concluded at the expense and risk of the parties who do not know whether the goods have already disappeared, then it is aleatory and valid if all parties are in good faith. 4. Goods can be sold by specification, to taste, weight, measurement, in batches or on a sample basis. 5. Unless otherwise stipulated, the deposit does not deprive the buyer of the right to withdraw from the contract643. 6. The goods must be the property of the seller, as a general rule. 170. Tradition - Defined in article 670, paragraph 1, of the c.c.ch. as follows: "Tradition is a way of acquiring the domain of things and consists in the surrender that the owner makes of them to another, having on the one hand the faculty and intention to transfer the domain, and on the other hand the capacity and intention to acquire it".

639

We will see later in the CISG that its article 11 establishes the same thing. Monthly Tax Unit. Two U.T.M.'s were equivalent to 128 euros on November 16, 2016. 641 Article 1709, paragraph 1, c.c.ch. establishes: "Acts or contracts containing the delivery or promise of a thing worth more than two tax units must be recorded in writing. 642 Article 1814 c.c.ch. establishes the rule, which is repeated in article 138, paragraph 1, c.com.ch. 643 Art. 107 c.com.ch. 640

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The tradition of movable property can be real or symbolic644; that of immovable property, on the other hand, is solemn and requires the registration of the title in the Property Registry of the respective Real Estate Conservator(s)645. B. Special essential elements of the contract of sale of goods 171. The price - As in French law, the price and the thing are the essential elements of the contract of sale. The price must be paid in money, be real, serious and determined or determinable by the parties. In this way, if most of the price is paid in goods, the contract qualifies as a swap646. A real price means that it should actually be paid and not simulated647. Serious price is not synonymous with "fair". The higher courts have determined that a serious price is opposed to a ridiculous price648. In short, the price must show a genuine willingness to be bound by the parties to the contract. The determination of the price of goods is also regulated in Articles 139 and ff. of the Chilean Commercial Code, according to which it may be determined by the parties or by a third party. If the goods have been delivered, the parties are presumed to have fixed the current price on the day of the conclusion of the contract649; if there are differences, the average price. An interesting rule to mention is that contained in Article 141 of the Chilean Commercial Code, which establishes: "In the case of the purchase of goods for the price offered by another, the buyer, in the act of being requested by the seller, may either put it into effect or desist from it. After three days without the seller requiring the buyer, the contract will be void. But if the seller has delivered the goods, the buyer must pay the price of the goods on the day of delivery”.

644

Art. 684 c.c. ch. Art. 686 c.c. ch. 646 Art. 1794 c.c.ch. 647 See C.Sup. November 11, 1922. G. 1922, 2nd week, No. 65, p. 319. R., vol. 21, sec. 1. p.973, in Repertorio de Legislación y Jurisprudencia Chilenas, Código Civil y Leyes Complementarias, tomo VII, Ed. Jurídica de Chile, 3rd ed. 1997, Santiago, Chile, p.196. 648 See C.Ap. Santiago, 11 September 1958, R., t. 58, sec. 2ª, p.21, ibid. 649 Art. 139 c.com.ch. 645

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According to the general rules, payment must be in full650, unless otherwise agreed by the parties, and must be made at the time of delivery or within the prescribed time651. 172. Third-party goods - Unlike the French regime652, the sale of another’s property is valid under Chilean law, but unenforceable to the real owner. In this case, the buyer may demand specific performance of the seller's obligation to deliver, or termination of the contract, in both cases with damages. The true owner, for his part, may claim the goods before the prescription operates. C. Protection of good faith at the pre-contractual stage 173. Preliminary negotiations - Their treatment is similar to that of French law. Negotiators are bound to respect the general principle of good faith, as the state of trust that has arisen between them at this pre-contractual stage must be honoured653. Thus, the rules of tort liability must be applied to its infringement654. According to professors Domínguez: "It is not that whoever initiates contractual dealings has to be bound since then and cannot give up. Withdrawal is a right it has, as a manifestation of contractual freedom, which logically contains the right not to contract. But as with any right that is not absolute, its exercise must not be abusive and harmful655. In addition, according to Professor Barros: " ...However, already during the negotiation of the contract arise for the parties duties of care. If the parties regulate their negotiations through agreements in principle or other preliminary agreements, the reciprocal duties become contractual obligations under the terms of those agreements. In the absence of such preparatory contracts, the interpretation and effects of which pertain to the 650

Art. 1591 c.c.ch. Art. 1872 c.c.ch. 652 Article 1599 of the French civil code states that the sale of other people's goods is null and void in France. 653 See Francisco Javier Saavedra G., Teoría del Consentimiento, Ed. Jurídica Conosur, Santiago de Chile, 1994, p. 268. 654 See ZULOAGA RÍOS Isabel Margarita, Teoría de la Responsabilidad Precontractual, Lexis Nexis, Santiago de Chile, 2nd. edition 2007, p. 118, quoting Corral Hernán H., Lecciones de responsabilidad civil extracontractual, Santiago de Chile, 2003, pp. 41, 43 and 44. 655 See DOMINGUEZ B. Ramón, DOMINGUEZ A. Ramón and DOMINGUEZ H. Carmen, Revista de Derecho de la Universidad de Concepción, Chile, Nº199, año LXIV, p. 181. 651

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law of contracts, the duties of care that the parties must use in the negotiation are imposed by law, and not by convention, so that precontractual liability is non-contractual"656. Talking in good faith in pre-contractual negotiations is tantamount to talking about loyalty657. Some authors consider that according to the unitary theory it is one and indivisible658, so it would be useless to divide it in two. However, most authors consider that although it constitutes a single principle, it has two meanings in Chilean civil law: subjective and objective good faith. The first form can be defined as follows: "It is the internal or psychological conviction that the subject is in a regular legal situation, even if objectively this is not the case; even if there is an error659. It is the recognition of the aphorism of Roman law error communis facit ius and it is qualified in concreto. Its legal source is article 706, paragraph 1, of the c.c.ch., which establishes: "Good faith is the awareness of having acquired dominion over the thing by legitimate means, free from fraud and all other vices”. The most important practical consequence of this provision with respect to the sale of goods is that the bona fide posessor can acquire the domain660 by ordinary acquisitive prescription of two years, since they are movable property. On the other hand, the objective notion of the principle is found in article 1546 of the c.c.ch., which states that: "Contracts must be performed in good faith, and therefore bind not only what is expressed in them, but all things which emanate precisely from the nature of the obligation, or which by law or custom belong to it”. It is in qualified in abstracto. The importance of this notion is considerable, since it applies before the conclusion of the contract during the pre-contractual phase, at the time of its conclusion, but also during execution, and even beyond661. In this way, the principle extends to the entire contract iter. To avoid any confusion as to its scope, some authors consider that it 656

See BARROS B. Enrique, Tratado de Responsabilidad Extracontractual, Ed. Jurídica de Chile, Santiago, Chile, 2006, pp. 1003-1004. 657 See LÓPEZ SANTA MARÍA Jorge, Los Contratos, Parte General, tomo II, ed. Jurídica de Chile, Santiago de Chile, 1998, p. 391. 658 See PEÑAILLO Daniel, Libro homenaje al profesor Fernando Fueyo Lanieri, Instituciones Modernas de Derecho Civil, ed. Cono Sur, Santiago de Chile, 1996, p. 40. 659 See LÓPEZ SANTA MARÍA Jorge, op. cit. , p. 392. 660 Arts. 702 and 2507 and following c.c.ch. 661 In this way, for example, a party may demand copies of the contract, annexes or other sources of information in the years following final performance of the contract.

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would be necessary to amend this article 1546 and explicitly mention that it extends to the entire contract iter, in the manner of Article 1337 of the Italian Civil Code662 -663. Articles 101, paragraph 1, and 102 of the Chilean Commercial Code, which we shall see below regarding the formation of consent, and which in a certain way protect the pre-contractual phase, do so only in relation to merchants, and, given their specialty, cannot be applied by analogy in this matter, as if it would be an express rule of ordinary and supplementary law. Hence the importance of the proposed amendment. In this regard, Professor López Santa María states: "During the precontractual phase, which sometimes precedes the moment of the conclusion of the contracts, good faith demands that each of the negotiators present things according to reality. The required attitude is to speak clearly, abstaining from inaccurate or false statements, as well as from a silence or reticence that could lead to a mistaken representation of the subjective or objective elements of the contract that is glimpsed"664. 174. Case law - Chilean jurisprudence in this area is scarce, there are few decisions. The sentence issued in Caja de Crédito Popular with Schiavetti, widow of Maino, Teresa and Others of the Court of Appeals of Santiago, dated August 25, 1948, defines pre-contractual liability as: " ... that which arises from commercial fairness, which requires compensation for the damage caused by confidence in the formation of the contract"665. In doing so, it upheld the first instance decision by finding that the defendants had exercised a right, not to enter into a contract, as soon as they had used all means to do so, without success, and had also acted in good faith (with the sole exception of reversing the award of costs). The most famous decision on this issue in Chile is Forestal Bío-Bío v Madesal and another issued by the Court of Appeals of Concepción in 1996 (Civ. No. 374-93). In this case, one company negotiated the purchase of several plots of land with another company, for which it had to incur significant expenses 662 The c.civ. has already done so, in the new Article 1104, which states that contracts

must be negotiated in good faith. See ZULOAGA Ríos Isabel Margarita, op. cit., pp. 80-81, quoting Gómez Balmaceda R. and Rosende Alvarez H., Comentario crítico a la ponencia principal presentada por el profesor don Álvaro Puelma Accorsi, en Los Contratos Preparatorios, en Estudios sobre reformas al Código Civil y Código de Comercio, de la fundación Fernando Fueyo Laneri, Santiago, 2000, p. 395. 664 See LÓPEZ SANTA MARÍA Jorge, op. cit. , p. 399. 665 See ZULOAGA R. Isabel Margarita, op. cit. p. 186, quoting Revista de Derecho y Jurisprudencia, T.46, year 1949, 2nd. Part, section 2, p. 48. 663

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(studies, professional fees, etc.). However, on the day of the signing of the deed of sale at the notary's office, it was noticed that the land had already been sold to another company, and for a higher price. The plaintiff jointly and severally sued the seller and the buyer for damages, in order that they should be ordered to compensate the damages caused (millionaire expenses). The Court of Appeals convicted the defendants. She established their extra-contractual liability, providing that, although there is a right to withdraw from a negotiation, it is not possible to do so arbitrarily, without informing the other negotiator, and, above all, causing him/her harm. A subsequent judgement of the Supreme Court of 22 November 2001, by ultra petita, annulled the judgement of the Court of Appeals of Talca of 8 November 1999, which had recognised the defendant's pre-contractual liability. In this case, the plaintiff demanded recognition of the obligation to enter into a sales contract and compensation for the damages arising from the delay. The Supreme Court held that the appellate decision extended beyond the defendant and rejected it in all its parts666. D. Formation of consent The rules relating to the formation of consent in the sale of goods are contained in Articles 97 and ff. of the Chilean Commercial Code. They are very similar to French standards, but with some nuances. 175. The offer - The Chilean Commercial Code enshrines the declaration (emission)667 system in articles 97, 99, 101 and ff.: -

-

666

“Art. 97. For the verbal proposal of a business to impose the respective obligation on the tenderer, it must be accepted in the act of being known by the person to whom it is addressed; and notwithstanding such acceptance, the tenderer remains free from any commitment”. “Art. 101. Given the answer, if in it the proposal is approved purely and simply, the contract remains in the perfected act and produces all its legal effects, unless before the answer is given the withdrawal, death or legal incapacity of the tenderer occurs".

Ibid, p. 190. The emission system (or declaration), in its simplest version, considers that the contract is formed as soon as the recipient of the offer has made the decision to accept it. Thus, for example, in the contract by correspondence, at the time and place when the accepting party signs its letter of acceptance. See TERRÉ F., SIMLER Ph. and LEQUETTE Y., op. cit. , p. 189.

667

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As in French law, the offer must be complete, pure and simple668. As regards the possibility of withdrawal, the offeror may withdraw before acceptance, unless he is obliged to wait for a certain period or for a reply from the addressee669. The untimely retraction matters compensation for damages to the seller, unless the offeror performs the contract offered670671 . On the other hand, it should be noted that offers made in catalogues672 or other written media, addressed to an unspecified public, are generally not binding. In this respect, the same criticisms can be made as mentioned above, although there are a number of provisions673 in the special legislation that seek to protect consumers. For example, article 12 A of the Law on the Protection of Consumer Rights, No. 19.496 of 7 March 1997, which obliges the offeror to send electronically the confirmation of the sale and of the contract to the buyer and to prove that the contractual clauses have been read. 176. Acceptance - Silence does not matter acceptance, according to the roman rule qui tacet non utique fatetur674. Conditional acceptance is equivalent to a counteroffer675.

668

Art. 101 c.com.ch. Art. 99 c.com.ch. 670 Art. 100 c.com.ch. 671 C.Sup., 12 April 2012, Legal Publishing No. 60175, Rol No. 218-2011, in: Código de Comercio 2014, Legal Publishing, Thomson Reuters, Santiago de Chile, 2014, p. 58. 672 Art. 105 c.com.ch. 673 See on this point BARROILHET Silvia, Revista chilena de derecho informático, nº3, 2003; available at : http://www.derechoinformatico.uchile.cl/index.php/RCHDI/article/view/10664/11 418 (accessed 21 November 2016). 674 Silence is always equivocal, it has no significance, except in cases where the law or the judge attributes legal effects to it. For example, the cases of articles 2125 (the habitual agent must decide within a reasonable period under penalty of acceptance), 1233 (testamentary assignee, idem) and 1956, paragraph 3, c.c.ch. (lease contract: tacit renewal in case of continuation after expiration). See LEÓN H. Avelino, La voluntad y la capacidad en los actos jurídicos, editorial jurídica de Chile, Santiago de Chile, 3rd. ed. 1979, p. 48 and ff. 675 Art. 102 c.com.ch. 669

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If it is verbal, it must operate immediately, and if it is written, within 24 hours if both parties are in the same place. Otherwise, by return mail676-677 . It is clear that all these rules need to be updated with regard to the possibility of electronic contracting, as they run the risk of becoming obsolete, given that commercial transactions have acquired a dizzying speed, and are therefore no longer in line with the reality of the facts. E. Transfer of ownership and risk 177. Transfer of ownership in the sale of goods - As we have noted, the Chilean system is based on Roman law. The title, in this case the contract of sale, needs an additional way to transfer the domain validly. Article 588 of the Chilean Civil Code provides for several modes. For its part, the Chilean Commercial Code establishes that the shipment of goods made by the seller to the buyer's domicile, or to another agreed place, imports its tradition678 and specifies that it takes place as soon as the bill of lading, the invoice or the bill of lading is transmitted, by fixing the buyer's trademark (with the seller's consent) or by other means authorized by trade usages679. An interesting situation arises in relation to the sale of goods that are not owned by the seller. According to this "dualistic" system, such a sales contract is valid. Personal rights and obligations arise from the contract, but they will be unenforceable to the true owner, since tradition is imperfect according to the nemo dat rule. Thus, article 1815 of the Chilean Civil Code expressly permits the sale of other people's property680. The basis of the foregoing standard is that the sale does not transfer ownership under Chilean law. It is only a title that entitles to obtain it later681. 178. Retention of title - Two articles deal with this subject: on the one hand, article 680 c.c.ch., contained in book II of the Chilean civil code, title 676

Art. 98 c.com.ch. According to article 104 c.com.ch., the place where the initial or modified offer is accepted is presumed to be the place where the contract is concluded. 678 Article 148 c.com.ch. 679 Art. 149 c.com.ch. 680 Art. 1815 c.c.ch.: "The sale of another's thing is valid, without prejudice to the rights of the owner of the thing sold, as long as they're not extinguished by the time lapse." 681 See ALESSANDRI R. Arturo and SOMARRIVA U. Manuel, Curso de Derecho Civil, tomo IV, Fuentes de las Obligaciones, Ed. Nascimiento, Santiago, Chile, 1942, p. 372. 677

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VI: "Of tradition", paragraph 1: "General provisions”; on the other hand, article 1874, contained in book IV, title XXIII: "Of the sale", paragraph 9: "Of the obligations of the buyer", of the same code. The first one states: "Tradition can transfer the domain under a suspensive or resolutory condition, as long as it is expressed. Once the delivery has been verified by the seller, the domain of the thing sold is transferred, even if the price has not been paid, unless the seller has reserved the domain until the payment, or until the fulfillment of a condition".

As for the second one, specify: "The clause of not transferring the domain but by virtue of the payment of the price, will not produce any other effect than that of the alternative claim stated in the preceding article682; and the buyer paying the price, the disposals that he would have made of the thing or the rights that he would have constituted on it in the intermediate time will subsist in any case".

Traditionally it was argued that these two norms were antagonistic and irreconcilable, and that their conflict should be resolved in favor of article 1874 of the Chilean civil code, special rule683. This trend also prevailed in case law. However, in recent years, the doctrine has evolved684, considering that there is no real contradiction between the provisions, since, on the one hand, article 680 conforms to the general rules of tradition and makes express reference to price, that is, to sale; on the other hand, the "true" meaning of article 1874 (special rule) would consist in specifying that there continues to exist an alternative right to sue in the contract of sale, as indicated by the rule of obligations in relation to bilateral contracts685. Therefore, the reservation of title clause is valid.

682

Article 1873 c.c.ch., in the rules of sale, establishes the same as art. 1489 c.c.ch., within the rules of obligations, the alternative right to demand resolution or forced performance, with compensation for damages, in both cases. 683 See MEZA B., Ramón, Manual de Derecho Civil, de las Fuentes de las Obligaciones, tomo I, 8th. ed., Ed. Jurídica de Chile, Santiago, Chile, 1995, pp. 157158. 684 See CAPRILE B. Bruno, "La Reserva de Propiedad, garantía eficaz en el derecho chileno?", Revista Chilena de Derecho, Vol. 27, n° 1 (2000), pp. 29-49. 685 Art. 1489 c.c.ch.

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In our opinion, the position of contemporary doctrine is correct and pragmatic, since it adapts not only to the evolution of law686, but also to the existing legal reality in comparative law687. The retention of title clause is not often used in Chile, since the case law is based on classical doctrine. In a famous decision on the matter, the Supreme Court rejected a third party claim filed by the seller of an aircraft sold with this clause, which was seized by other creditors of the buyer, in consideration of article 1874 of the Chilean Civil Code 688. 179. Transfer of risk - Under Chile's "dualistic" system, there are provisions on the risks associated with the effects of the obligations and the rules governing the sale. In Title XII of Book IV, article 1550 of the Chilean civil code689 enshrines the rule res perit creditoris and establishes that the risk is assumed by the creditor from the moment of signing the contract, which may seem unfair to the extent that there has been no tradition and, therefore, no transfer of ownership. Article 1820 of the Chilean Civil Code specifies the scope of the rule for sale, stating: "The loss, deterioration or improvement of the certain species or body being sold, belongs to the buyer, from the moment the contract is perfected, even if the thing has not been delivered; unless it is sold under suspensory condition, and the condition is fulfilled, then, the species perishing totally while the condition hangs, the loss will be the seller's, and the improvement or deterioration will belong to the buyer. Article 142 of the Chilean Commercial Code reiterates this rule by specifying: "The loss, deterioration or improvement of the thing, after perfecting the contract, are the buyer's account, except in the case of stipulation to the contrary, or that the loss or deterioration have occurred due to fraud or fault of the seller or internal vice of the thing sold”. This stipulation is a consequence of the periculum emptoris rule (risk belongs to the buyer) of the Roman law distinguishing emptio (purchase) 686

Article 680 was based on article 821 of the 1853 project, which expressly referred to sale. Cf. CAPRILE B. Bruno, op. cit. 687 Romalpa clause in common law and reservation of property enshrined by French law in article 2367 of c. civ. 688 See Santiago, 29.MAR.962, R., t. 59, sec. 1, p. 261, in : Repertorio de Legislación y Jurisprudencia Chilenas, Código Civil y Leyes Complementarias, tomo VII, Ed. Jurídica de Chile, 3rd ed. 1997, Santiago, Chile, p. 375. 689 "Art. 1550. The risk of the certain body whose delivery is due is always borne by the creditor; unless the debtor is in default of performing it, or has undertaken to deliver the same thing to two or more persons for different obligations; in either case, the debtor shall bear the risk of the thing until its delivery”.

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from venditio (sale). The bilateral sales contract did not exist, there were two acts. In contrast to the rule res perit creditoris, article 1820 of the Chilean civil code establishes that improvements in things and their fruits belong to the buyer. The seller, on the other hand, is responsible for slight negligence, until delivery690. In accordance with articles 1550 and 1820 of the Chilean Civil Code and 142 of the Chilean Commercial Code, exceptions to the rule res perit creditoris are provided for: 1. If the debtor is in default of delivery. 2. If the debtor has obliged himself to give the same thing to different people as a consequence of different obligations. 3. On alternative obligations. 4. In the event of fraud or gross negligence on the part of the seller, the seller shall be liable. 5. In conditional sales: if the object disappears before the condition is met, the risk lies with the seller. 6. Sales to taste, weight or measure, before the conclusion of such operations691. 7. In forward sales, if the object disappears before the expiration of the term and it has not been delivered. 8. Principle pacta sunt servanda: the parties may replace the previous provisions. In all the above cases, the risk shall be borne by the seller. 180. Party autonomy - The principle is enshrined in article 1545 of the Chilean Civil Code, which takes as its source the first and second paragraphs of former article 1134 of the French Civil Code692. This article states: "Any legally concluded contract is a law for the contracting parties, and cannot be invalidated except by their mutual consent or for legal reasons". According to Professor López Blanco693, the consequences in Chilean law are the following: 690

"Art. 1549. The obligation to preserve the thing requires that due care be employed in its custody”. 691 MEZA B., Ramón, Manual de Derecho Civil, de las Fuentes de las Obligaciones, tomo I, 8th. ed., 1995, Ed. Jurídica de Chile, Santiago, Chile, p. 119. 692 Current 1103, 1104 and 1193 c.civ. 693 See LÓPEZ BLANCO José Luis, Compraventa Internacional de Mercaderías, Ace Ediciones y Publicaciones S.A. Edition, printed by Xerox de Chile S.A., Santiago de Chile, 2001, pp. 38-39.

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1. Freedom of the parties to contract without any limits other than those of public order and proper conduct. 2. Freedom in the choice of content and effects of obligations694 (with the same limitations). 3. Once concluded, the contract becomes law for the parties. 4. Obscure clauses should be interpreted according to the intention of the parties and not necessarily by their literal expression. We can add other important consequences that emanate from the principle pacta sunt servanda, in relation to the contract of sale: 5. The price can be freely agreed by the parties in the sale of goods, since it is about movable property, without any limit, unlike the sale of real estate695 in which the price must be "fair" so as not to incur serious loss. 6. The stipulation of a penalty clause may have a punitive character in Chilean private law and therefore be complementary to compensation for damages696. 7. The scope of the principle of autonomy does not extend to imprévision. 181. Imprévision - In general, Chilean jurisprudence has rejected the theory of imprévision since it has considered that it is not compatible with the principle of party autonomy, following the classic French model. The most famous decision in this matter is Galtier Auguste con Fisco issued by the Supreme Court on January 10, 1925, which states that the courts cannot modify the law of the contract. Otherwise, we would find ourselves in a hypothesis of violation of the law of the contract, that is to

694

In this way, as in French law, the parties can terminate a contract by mutual agreement. 695 According to article 1889 c.c.ch., the sale price of real estate may not exceed twice the market price, on the part of the buyer, nor be less than half for the seller. 696 Art. 1543 c.c.ch., first part.

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say, of cassation697. Subsequently, other judgments have confirmed this principled jurisprudence698. A minority doctrine, however, considers that it can be applied taking into account the commutative onerous character of the sale, which matters the equivalence of the parties' performances, the principle of good faith, the theory of cause and the application of equity699. This doctrine has been adopted by the arbitral jurisprudence in Chile. This is the case, for example, for the following decisions: Inversiones Mónaco Ltda. v ENAP, Arbitrator: Mr. Carlos Urenda Zegers, November 13, 1986. In this case, the former bought ENAP's shares before the 1982 world financial crisis, as a consequence of which the shares lose significantly in value, in circumstances in which the US dollar, the currency of payment, was significantly revalued, which led to a considerable increase in the amount of the debt. Mónaco demanded the Nullity, for absence of cause, since the imbalance in the benefits, consequence of unforeseeable causes and foreign to the parts, was enormous. 697

On that occasion, the French businessman Mr. Galtier was awarded the modernization works of the port of San Antonio, in 1911. The contract foresaw that payments would be made in pounds sterling gold. The first payments were made in "gold" pounds, but during the First World War it became difficult to find such a currency, which is why the government continued to pay the businessman in "paper" pounds, with the same nominal value, but lower in practice. Mr. Galtier sued the State of Chile requesting payment of the difference between the agreed gold pounds and the paper pounds received. The court of first instance rejected the complaint. The actor deduced appeal, which was accepted. The Court of Appeal considered that the acceptance of partial payments did not imply the waiver of its right to claim, since full payment had not taken place. The State appealed in cassation, which was accepted by the Supreme Court, who considered that the law of the contract provided for payment in good "pounds sterling gold" and not in "gold" (Supreme Court, January 10, 1925, Galtier Auguste v Fisco, in: RDJ, vol. XXIII, 2nd. Part, first section, p. 423 and ff. ) – See in: URREJOLA S. Bárbara, Teoría de la Imprevisión, thesis, U. de Chile, 2003, pp. 211 and ff. 698 In an interesting case, a life annuity was stipulated in favor of a widow, its amount becoming derisory on the occasion of inflation. The court of first instance accepted the plaintiff's claim for revaluation, but the Court of Appeals and the Supreme Court dismissed it, establishing that although it was a regrettable situation, inflation is not a source of obligations in Chilean law (Supreme Court, December 23, 1963, Guzmán widow of Shirazawa, Berta and others with Empresa de los Ferrocarriles del Estado, in: RDJ, volume 60, 2nd. Part, first section, p. 407 and ff. ) - See in: ibidem. 699 Ibid, p. 185, in quotation to Professor Juan Carlos Dörr Z, Notas acerca de la Teoría de la Imprevisión, Revista Chilena de Derecho, volume XII, Nº2, MayAugust, Santiago, Chile, 1988, p. 264.

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The arbitral tribunal accepted the claim, considering that the imprévision is an institution resulting from the principle of good faith, and, despite the absence of specific regulation in the commutative contracts, should be applied in the case by equity700. 2. In the same way, it was admitted in Sociedad Constructora La Aguada Ltda. with EMOS S.A., arbitrator Mr. Claudio Illanes Ríos, ratified by the Supreme Court on October 10, 1994701. In this case, the plaintiff won a tender to carry out works in a canal, but during its execution it had to modify the method envisaged by EMOS, the client, since the ground did not allow to work according to the plan, since dangerous landslides took place. The plaintiff demanded compensation for damages, as a consequence of a necessary overpricing, given the higher costs involved in unplanned and indispensable work to be done. The arbitral tribunal, in a double decision (one devoted to the existence of the obligation to pay and the other to the amount) decides in favor of the plaintiff, considering that an unforeseeable, serious and extraordinary event made it necessary to modify the constructive method, which turned out to be more costly, had to be assumed in consequence by the defendant. The Supreme Court, hearing the complaint, upheld the court's decision. According to some authors702, recent judicial jurisprudence follows the line of arbitration. This is the case of Guillermo Larraín Vial v Serviu, issued by the Santiago Court of Appeals on November 14, 2006. On that occasion, the court ruled that it was not possible to require a party to assume the higher costs not foreseen for the execution of a work, since they were exogenous to a contractual relationship existing for several years, causing a great loss for one of the parties and an unjust enrichment for the other. Consequently, the contract had to be revised. However, other professors703 consider that it is questionable to accept the imprévision in a judicial venue in a case such as the previous one, since the latter implies the absence of a legal text regulating the situation. This would not be the case in the species, since article 2003, number 2 a, of the c.c.ch. foresees in a special way the reimbursement to the builder when higher costs arise, not foreseen in a lump sum construction contract. The norm in comment disposes: 700

Ibid, pp. 218-227. Ibid, pp. 227 and ff. 702 See ALCALDE (2007), pp. 361-372. 703 See LECAROS José M., Notes on civil law, contracts, general part, p. 18. 701

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"Art. 2003. Contracts for the construction of buildings, entered into with an entrepreneur, who is responsible for the entire work for a single fixed price, are also subject to the following rules: 2a. If unknown circumstances, such as a hidden defect in the ground, give rise to costs that could not have been foreseen, the entrepreneur must have them authorized by the owner; and if the owner refuses, the judge may decide whether or not the work surcharge should have been foreseen, and fix the corresponding price increase for this reason”.

§2 - The effects of the contract of sale of goods A. Rights and obligations of the parties The rights and obligations of the parties are similar to those of French law. The seller has two main obligations: to deliver the thing sold and to guarantee it. The buyer must pay the price and receive the goods. We'll start by studying the seller's rights and obligations. 182. Obligation to deliver the goods - Failure by the seller to comply with the obligation to deliver will cause the tacit resolutory condition contained in the general rules of obligations to operate, article 1489 of the Chilean Civil Code, reiterated in the special rules of sale, article 1826, paragraph 2 of the same code, which establishes: "If the seller has delayed delivery due to his fault, the buyer may, at his discretion, either persevere in the contract or withdraw from it, and in both cases be entitled to compensation for damages according to the general rules". In order to sue for resolution or forced performance, it is necessary that the buyer, for his part, is not in default, that is, has paid or is ready to pay. In addition, the breach must be guilty or willful. This will not be the case if it is a consequence of force majeure. 183. Force majeure and fortuitous case - These concepts are enshrined in article 45 of the Chilean Civil Code, which is based on former article 1148 of the French Civil Code704. It states: "Force majeure or fortuitous event is the unforeseen event that it is not possible to resist, such as a shipwreck, an earthquake, the seizure of enemies, acts of authority exercised by a public official, and so on. ». However, unlike its French model, Chilean law distinguishes more clearly between force majeure and fortuitous case. Force majeure has the 704

Current 1218.

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same characteristics of gravity and unpredictability as under French law, but the fortuitous case is the consequence of facts of nature705. On the other hand, force majeure derives more often than not from acts of the authority or of third parties, which make the performance of a contract impossible (for example, a law modifying the specifications necessary for the importation of automobiles into Chile, when this hypothesis is not provided for in a contract for the importation of such goods). It is interesting to note that Chilean jurisprudence has established that earthquakes do not constitute fortuitous cases, because Chile is a seismic country706. Neither does the lack of stock of an article707. In this case, despite the difficulties that may arise, the seller must always find a solution to deliver the goods sold. 184. Quantity and quality - The seller must deliver the goods according to the quantity, quality and characteristics agreed in the sales contract or, failing that, of medium quality708. 185. Expenses - The expenses associated with the shipment are charged to the seller, in accordance with articles 1571709 and 1825 of the Chilean Civil Code. This last article says: "The seller naturally bears the costs that are made to make the thing available to deliver, and the buyer those that are made to transport it after delivery”. 186. Scope of the obligation - Delivery includes the goods and their accessories, i.e., their natural and civil fruits710-711 with the exception of installment sales, conditional sales, or if the parties have agreed that the fruits will belong to the seller until the time of delivery.

705

Acts of God in English law. See C.Ap. Santiago, 10 September 1940, R., t.39, sec. 1, p. 203, in: Repertorio de Legislación y Jurisprudencia Chilenas, tomo I, op. cit. p. 205. 707 See C. Ap. de Valdivia, 17 April 1941, G. 1941, 1st Sem. No. 91, p. 491, R., vol. 39, sec. 2, p. 1, in: ibid, p. 206. 708 Art. 145 c.com.ch. 709 The expenses incurred in the payment correspond to the debtor. 710 Arts. 1816 and 1829 c.c.ch. 711 Delivery is included in the obligation to give in Chile. See ALESSANDRI R. Arturo and SOMARRIVA U. Manuel (updated by VODANOVIC H. Antonio), Curso de derecho civil, tomo III, De las obligaciones, ed. Nascimiento, Santiago de Chile, 1941, p. 28. 706

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187. Ways of delivery - According to the Chilean Commercial Code712, the tradition of goods may be carried out by various symbolic means: transfer of the bill of lading, of the invoice, according to trade usages, fixing of marks; by delivery to the buyer's registered office or at an agreed place713. 188. Time of delivery - Timely delivery of goods is essential, especially for perishable goods. Thus, in the absence of a stipulation, they must be delivered within 24 hours after the conclusion of the contract714, unless there is a stipulated time limit or condition, which must be respected. It should be noted that expiration will occur if the buyer's economic powers are significantly reduced. In this case, he may not demand delivery unless he pays or guarantees payment. This provision is contained in articles 1826 in fine of the c.c.ch. and 147 of the c.com.ch.; in accordance with the general rule of expiration established in article 1496, paragraph 2º, of the Chilean Civil Code, applicable to debtors whose guarantees have diminished considerably in value. Its importance is great, because the unilateral resolution does not yet exist in Chilean legislation. It is therefore one of the few existing preventive "unilateral" remedies at this point in the contract iter. Article 151 of the Chilean Commercial Code, for its part, reaffirms that the seller may retain unpaid goods until full payment has been made, including interest. Delivery will be made to the place where they were at that time, if any, or to the seller's home, if not715. In the case of species, the seller must deliver the intended species and not others. In the case of gender obligations, the seller fulfils his obligation by delivering an average quality716. If this standard is not met, the warranty obligation applies. 189. Warranty obligation (hidden/latent defects and eviction) - This is an element of the nature of the contract, and can therefore be waived717 in accordance with the principle of party autonomy, as noted above. Contrario sensu, the parties can confer a redhibitory character to vices that do not have this nature. 712

Art. 149 c.com.ch. Art. 148 c.com.ch. 714 Art. 144, paragraph 2º, c.com.ch. 715 Arts. 1587, 1588 and 1589 c.c.ch. 716 Art. 145 c.com.ch. It is worth noting here the difference with English law, where we have seen that the standard demanded is a "basic" quality, only. See supra. 717 Unless the seller is in bad faith, art. 1842 c.c.ch. 713

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The seller must deliver quality goods that meet the agreed characteristics or, in the absence of a special agreement, of medium quality. If this is not the case, they will be considered to have latent defects, a situation that will allow the resolution or forced compliance to be demanded, with compensation for damages, if they are significant718, or the reduction of the price in the opposite case, in accordance with articles 154 of the Code of Commerce and 1860 of the Chilean Civil Code. The latter states that: "The hidden vices give the buyer the right to demand either the rescission of the sale or the reduction of the price, as he sees fit". In the case of sales by specification, the buyer may demand termination if the goods received are not of average quality719 or that provided for in the contract. In sales based on samples, they are presumed to have been made under a resolutory condition, if the goods do not conform to the samples720. In the case of sales to taste, the right to taste is presumed, and the sale is deemed to have been subject to a condition precedent of approval within three days, if no other period is stipulated721. In case of batch sales, the buyer has the right to examine and reject also within three days, if the seals are intact in case of faults in quantity, or proving that they were not damaged by chance or maliciously, for quality defects722. As in French law, the defects, must be serious, hidden and prior to sale723. For example, case law has made it clear in relation to the hidden nature that the malfunction of parts of a combine harvester that prevent its proper use constitutes a hidden defect that the buyer may have been unaware of at the time of the conclusion of the contract724. On seriousness, the doctrine indicates that defects are serious if they prevent the normal use of goods, or at least cause an imperfect use725.

718

It should be noted that the choice is at the discretion of the buyer, and therefore could demand resolution in the case of minor defects. However, that would be unreasonable. 719 Art. 134 c.com.ch. 720 Art. 135 c.com.ch. 721 Arts. 131 and 132 c.com.ch. 722 Art. 159 c.com.ch. 723 Art. 1858 c.c.c.h. 724 Santiago, 22 June 1887, G. 1887, nº1992, p.788, in: Repertorio de Legislación y Jurisprudencia Chilenas, volume VII, op. cit. p. 345. 725 See MEZA B. Ramon, op. cit., p. 144.

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As a consequence of the relative effect of contracts, sub-buyers have no action against sellers ab initio, and can therefore only act against their cocontractors726. The guarantee of eviction, however, as in French law, is rare in the case of goods. The seller must guarantee the buyer the peaceful possession of the goods acquired, that is to say, that he will not be subject to any inconvenience on his part, nor on the part of third parties who may claim rights prior to the sale727. The case law has specified in this regard that not only the total or partial deprivation of the objects sold matters eviction, but also the judicial declaration of pre-sale rights that limit the rights of the buyer728. In contrast to the warranty of absence of latent defects, sub-buyers may, in exercising this right, take action against all previous sellers729. 190. Is there a real duty of information and advice in Chile? - It is more limited than its French equivalent and its regime is limited to the obligation to ensure the absence of latent defects (conformity). Thus, if the seller knew or should have known of the defects affecting the goods, he has an obligation to inform the buyer730. Otherwise, the waiver of this warranty would be invalid and would be considered fraudulent. In spite of this rule and in the absence of other rules, the principle of good faith obliges the seller to act loyally in preliminary negotiations and, therefore, to always mention the qualities and defects of the goods he sells. It would therefore be unacceptable to limit the application of this duty to information to the hypothesis set out above, since it cannot be reconciled with this principle and with the rules on the interpretation of contracts731. 191. Is there a security obligation in Chile? - Unlike French law, there is no uniform jurisprudence in Chile in this sense. It's quite contradictory. Some judgments condemn sellers who have sold dangerous products and 726

See PIZARRO W. Carlos, Étude critique sur la responsabilité contractuelle en droit positif chilien, thesis for the doctorate in private law, U. Panthéon-Assas, París, Francia, 2003, p.220. 727 Art. 1839 c.c.ch. 728 See C.Ap. Talca 13th august 1921, G. 1921, 2º sem., nº235, p. 958, in: Repertorio de Legislación y Jurisprudencia Chilenas, Código Civil y Leyes Complementarias, volume VII, Ed. Jurídica de Chile, 3rd ed. 1997, Santiago, Chile, p. 314. 729 Art. 1841 c.c.c.h. 730 This would always be the case for professionals. See ALESSANDRI, op. cit. p. 408, contrario sensu. 731 Systematic element.

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caused personal injury732; others reject the resulting actions733. The main reason for this hesitation is that there is no general duty of safety as in France. Therefore, the obligation remains residual in Chile, limited to Law No. 19,946 on the Protection of Consumer Rights. Article 45 of this Law establishes that the supplier of the products must incorporate in itself or its annexes the necessary warnings in Spanish734. Apart from this standard, we find no express mention of this obligation, applicable in this case. It should be pointed out that, since this is a special law of public law and public order, it cannot be applied by analogy. Therefore, its scope remains for the time being only indicative or suggestive in relation to our object of study. 192. Receive payment - This will then be discussed in relation to the buyer's obligation to pay the price. 193. Damages - The seller is entitled to compensation in accordance with the general rules. Next, we'll look at the buyer's rights and obligations. 194. Pay the price - This is the counterpart of the seller's right to receive payment. In case of eviction, the buyer must deposit the price with the competent court735. Unlike the seller's right in the legal expiration of the term, the seller has no right to withhold it. 195. Receive the goods - Like delivery or tradition, it can be real or symbolic. If the buyer is in default of receiving, he will have to pay the expenses of conservation. The seller, for his part, will only be liable for gross 732

L'Oréal Chile S.A., juzgado de policía local, 15th September 2008, rol 3407-2007 (in relation to damages caused by an eye lash mascara) and Salamanca v Bruno Fritsch Ltda., C.Ap. Santiago, 23 October 2009, rol 9504-2009. In: CORRAL T., Hernán, Responsabilidad por Productos Defectuosos, análisis y propuestas para el derecho civil y de consumo en Chile, ed. Abeledo Perrot, Legal Publishing Chile, Santiago de Chile, 2011, p.150. 733 See C.Ap. Santiago, 17 November 1910, G.1915, p.278. In this case the court rejected the plaintiff's action, considering that the manufacturer could not be held responsible for the entire canning process, because it was obliged to rely on those responsible for direct production. 734 See CORRAL T., Hernán, op. cit. p.129. 735 Ibid.

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negligence736 and may demand termination or forced performance, with compensation for damages. Upon receipt, the buyer also has the right to inspect the goods. 196. Examine the goods - As in English law, this is a standard examination. Let us recall in this point the jurisprudence relating to the sale of goods - footwear737, which is applicable almost identically in Chilean law. The Chilean Commercial Code specifies that, in the absence of inspection, the buyer loses its right to claim for lack of quantity or quality738. 197. Guarantee of absence of latent defects - conformity - See supra. B. Sanctions for non-performance of contractual obligations 198. Specific performance - As in French law, it is the general rule in Chilean private law. Payment is regulated by articles 1568 and following of the Chilean Civil Code. It is defined as "the provision of what is due". It must be timely and complete because, as in French739 and English740law, the creditor is not obliged to accept partial payments. In this regard, article 1591 of the Chilean Civil Code establishes: "The debtor may not oblige the creditor to receive by parties what is due to him, except in the case of a contrary agreement; and without prejudice to the provisions of the law in special cases. The total payment of the debt includes interest and compensation due". 199. Performance by equivalence - This is exceptional in Chilean law, and corresponds to compensation for damages arising from breach of contract, or consequence of delay. It takes place when specific performance is impossible741 or when it is no longer desired. It generally extends to direct foreseen damages742.

736

Art. 1827 c.c.ch. Heilbutt v Hickson, (1872) LR CP 438. 738 Art. 146 c.com.ch. 739 Article 1244 (old) 1342-4 (new) of the French Civil Code. 740 Rule 30 s.g.a. 1979, concerning the seller's obligation to deliver. 741 In the breach of negative covenants, for example. 742 Article 1558 c.c.ch. provides for the compensation of direct foreseen damages in case of negligence, as well as of unforeseen damages in case of fraud. 737

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Article 1556 of the Chilean Civil Code states: "Compensation for damages includes consequential damages and loss of profit, whether arising from non-compliance with the obligation, imperfect compliance or delayed compliance. Except in cases where the law expressly limits it to consequential damages”.

Compensation can take different forms: 1. Compensation for compensatory damages. As in the French model, it must be equivalent to specific performance, and are divided into: 1.1. Consequential damages743, conceived by the Supreme Court of Chile as: "The real and effective decrease in the creditor's net worth as a direct consequence of the debtor's breach". 1.2. Loss of profit, defined by the same court as: "The amount or sum of money that the creditor has stopped earning and that he could have received if the debtor had fulfilled his obligation in a timely manner"744. 1.3. Moral damages, understood as: " ... the grief, pain or discomfort that a person suffers, in his physical sensitivity or in his feelings, beliefs or affections"745. The compensation is therefore a consequence of the breach of the law of the contract. According to article 1489 of the Chilean Civil Code: "In bilateral contracts is involved the resolutory condition that one of the contracting parties does not comply with what has been agreed. In such a case, however, the other contracting party may at its own discretion request the termination or forced execution of the contract, with compensation for damages”. As explained above, the parties must always act in resolution or specific performance (forced execution), in order to apply for the consequent award of damages. However, a new doctrine and jurisprudence considers that

743

See C.Sup, 24.OCT.979, Fallos del mes Nº251, Second Judgment, p. 289, in: Repertorio de Legislación y Jurisprudencia Chilenas, Código Civil y Leyes Complementarias, volume V, Ed. Jurídica de Chile, 3rd ed. 1997, Santiago, Chile, p. 350. 744 Ibidem. 745 See C.Ap. Santiago, 28 March 1958, R., t. 56, p. 195, in: ibid.

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compensatory damages can take place directly, autonomously, without the need to seek resolution or specific performance746-747-748. Chilean law does not have a rule such as the English Hadley, i.e. an obligation to minimise damage. Nor is there an obligation of proximity. On the other hand, all damages must be compensated749. 2. Interests on arrears. Compensation for late payments constitutes legal compensation. When set, the creditor does not need to prove damages. Therefore, the delay in payment is sufficient750. It is governed by the Chilean civil code, which establishes general rules, and by Law No. 18.010 of 27 June 1981 for money lending operations751. The main difference between these two sources is that the latter enshrines anatocism in Article 9 752 and establishes that the conventional maximum interest rate753 may not exceed 50%754 of the current755 interest rate. In case of non-compliance, it is reduced to legal interest.

746

See C.Sup. Nº3341-2009; C.Sup. Nº8123-2010; C.Sup. Nº720-2013; C.Sup. Nº16.882-2013; C.Sup. Nº21.342-2014. 747 The "modern" doctrine considers that autonomous compensation for breach of obligations to give (deliver) is possible on the basis of a correct interpretation of article 1489 c.c.ch., as it clearly is with respect to positive and negative covenants. See LÓPEZ D. Patricia, La autonomía de la indemnización de daños en la jurisprudencia nacional reciente : un cambio de paradigma? Available in http://www.scielo.cl/scielo.php?script=sci_arttext&pid=S07188072201400020000004, accessed 6 July 2017. 748 The new art. 1228 c.civ. operates with this logic and authorizes the judge expressly in this sense. 749 Article 2329 c.c.ch., states within the rules of tort liability that all damages must be compensated. The national doctrine considers that this rule is applicable to both, contract and tort law. 750 Article 1559 nº2 c.c.ch. 751 According to article 1 of Law Nº18.010, money lending operations are those for which one of the parties delivers or undertakes to deliver a certain amount of money, and the other to pay it at a time other than that at which the convention is held. The same applies to cash discount transactions for money-representative documents. 752 Art. 9, subsection 3, Law Nº18.010: "The interests corresponding to a defaulted operation that have not been paid shall be incorporated to it, unless the contrary is expressly established". 753 Article 6, last paragraph, Law Nº18.010. 754 As a general rule, and exceptionally other hypotheses provided for in art. 6, 6 bis and 6 ter of Law Nº18.010. 755 Average interest charged by banks and financial institutions in Chile.

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For its part, the Chilean Civil Code deals with interest in all other cases, providing that interest accrues as soon as the debtor is in default756, or, in the case of negative covenants, as soon as they are breached. It adds that if a penalty clause stipulates a higher interest than the legal maximum, it will be reduced to the conventional maximum, i.e., the current interest increased to the legal maximum. Thus, if a penalty clause stipulated in a sale of goods establishes a moratorium interest that exceeds the increased current interest, it will be reduced up to the legal rate. 200. Penalty Clauses – It is a conventional and anticipated assessment of damages resulting from a breach of contract. Its legal status under Chilean law is influenced by the French Civil Code. In fact, several of these provisions reproduce French standards. For example, the creditor's alternative right to sue the penalty or the principal obligation, the need for the debtor to be in default757, etc.758. In other cases, however, the author of the Chilean Civil Code has distanced himself from his main source and has opted for other rules. For example, it allows the creditor to claim damages without being obliged to claim the application of the penalty clause759-760 . With the penalty clause, the parties may also provide for compensation for indirect damages which, as a general rule, are not awarded in Chile. Being ancillary, its destiny depends on the principal obligation, and, being conditional, arises if the principal obligation is not fulfilled. It is governed by articles 1535 and ff. of the Chilean Civil Code, which defines it as follows: "The penalty clause is one in which a person, in order to ensure the fulfillment of an obligation, is subject to a penalty, which consists of giving or doing something in case of not executing or delaying the main obligation. She's "autonomous761," moratory or compensatory. The penalty clause may not exceed twice the principal obligation. Thus, in a contract for the sale of goods, the parties may not stipulate a penalty higher than 200% of the price of the goods. Otherwise, in accordance with article 1544, paragraph 1, of the Chilean Civil Code, it would be considered excessive and would be reduced to a fair proportion. 756

Art. 1557 c.c.ch. Art. 1537 c.c.ch. 758 See CORRAL T., Hernán, La Cláusula Penal, función y eficacia del contrato penal en el derecho chileno, ed. Jurídica de Chile, Santiago, Chile, 2012, p.50. 759 Ibid, p. 56. 760 Art. 1543 c.c.c.ch., second part. 761 According to art. 1542 c.c.ch., the existence of perjucios is not necessary. 757

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Finally, it is interesting to note that, unlike English law762, penalty clauses may have a punitive character in Chilean private law and be added to the compensation for damages, in a conventional manner763. Here too it differs from French legislation764. 201. Loss of opportunity - Not always compensated under Chilean private law. For example, damages are awarded in the case of employees who die or become disabled as a result of a work-related accident765, in the case of medical liability for breach of the lex artis766, or when attorneys cause their clients to lose the benefits of an appeal they did not deduce on time767. However, it does not apply in commercial matters768. 202. Price reduction - The actio quanti minoris or aestimatoria - has always existed in civil law and is included, as we have seen, in the new article 1223 of the French Civil Code; as well as in articles 44 and 50 of the CISG, as we will see below. For its part, the Chilean Civil Code enshrines it in article 1868, which establishes: "If the latent defects are not of the importance expressed in number 2 of Article 1858, the buyer shall not be entitled to rescind the sale but only to reduce the price”. Article 154 of the Chilean Commercial Code further specifies that the statute of limitations is six months in commercial matters. 762

Dunlop Pneumatic Tyre Co. Ltd. v New Garage Motor, (1915) A.C. 79. Art. 1543 c.c.ch., first part. 764 The former article 1152 c.civ., now article 1231-5, paragraph 1, excludes this possibility. 765 See C.Sup., 13 June 2006, Rol 4514-2005, in: TAPIA R., Mauricio, Pérdida de una Chance. Su Indemnización en la Jurisprudencia Chilena, Revista de Derecho, Escuela de Postgrado Nº2, December 2012, pp. 251-264, available at: www.revistaderecho.uchile.cl/index.php/RDEP/article/download/31008/32736, accessed 16 November 2016. The Court ordered the payment of damages following an occupational accident. 766 See C.Sup., 20 January 2011, Rol 2074-2009, in: ibid. a woman and her baby die of cancer. The doctor did not detect the tumor. The Court orders the payment of damages for the loss of the opportunity not to have received medical treatment to improve the mother's quality of life. 767 See Supreme Court, 11 April 2007, Rol 3291-2005, Legal Publishing No. 36311, in : ibid. The Court ordered him to pay monetary compensation to his client. 768 See Supreme Court, July 4, 2011, Rol 137-2010, Legal Publishing No. 49550, in: ibid. The bank publishes a client's name in a delinquency register, which prevents him from joining a company. The Court dismissed his claim for compensation on the grounds that the damage was incidental. 763

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In a judgment similar to the one analyzed on the same subject in English law, the Court of Appeals of Valparaiso concluded that the latent defects that do not affect the use of the products (shoes) only allow a price reduction769. On the other hand, one sector of national doctrine770 considers that the buyer would also have the right to claim damages, which is questionable in light of the above-mentioned case law. However, Professor Meza771 specifies that this would be the case if the seller knew of the defects or should have known of them according to his activity. 203. The exception of a non fulfilled contract - The exceptio non adimplenti contractus of civil law is enshrined in article 1552 of the Chilean Civil Code, which establishes: "In bilateral contracts, none of the contracting parties is in arrears, failing to comply with what has been agreed, while the other does not comply with it on its part, or does not comply with it in the due form and time". According to this provision, as in French law, specific performance, by equivalence, and termination, are subject to this condition, since prior to non-performance the two parties to a bilateral contract are reciprocal creditors and debtors. Following Domat and Pothier, Chilean jurisprudence has established that the cause of the obligation of one party must be considered as the object of the obligation of the other772. Thus, the seller cannot claim payment of the price from the buyer if he has not delivered the goods, nor can the buyer claim delivery of the goods if he is in default of payment of the price.773

769

Shoes had been reinforced with cardboard inside, which was considered a minor defect. C.Ap. Valparaíso, October 31, 1914. G. 1914, 2nd Week, Nº484, p. 1330, in: Repertorio de Legislación y Jurisprudencia Chilenas, tomo VII, op. cit. p. 344. The reasoning is interesting, because it is similar to that of English jurisprudence. See Heilbutt v Hickson, (1872) LR CP 43 in the previous chapter. 770 See ALESSANDRI R. Arturo and SOMARRIVA U. Manuel, Curso de Derecho Civil, volume IV, Fuentes de las Obligaciones, Ed. Nascimiento, Santiago, Chile, 1942, p. 409. 771 See MEZA B. Ramon, op. cit, p. 146. 772 See C.Ap. de Talca, 26 August 1931, G. 1931, 1st week, No. 75, p. 351, R., t., 30, sec. 2, p. 1, in: Repertorio de Legislación y Jurisprudencia Chilenas, Código Civil y Leyes Complementarias, volume V, Ed. Jurídica de Chile, 3rd ed. 1997, Santiago, Chile, p. 276. 773 Art. 1826, subsection 3, c.c.ch. contrario sensu.

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204. Is unilateral termination of the contract possible in Chile? Unlike French774, English law775 and the CISG776, it is not yet possible to unilaterally terminate a sales contract under Chilean law. The sole exceptions, in which it is possible to terminate a contract unilaterally are contracts of mandate777, commodate778, deposit779, mutuum780 and commercial companies781. The general rule for bilateral contracts remains termination for guilty breach of bilateral obligations. 205. Resolution for breach of the parties' obligations - The equivalent of the former article 1184 of the French Civil Code782 is article 1489 of the Chilean Civil Code, which enshrines the tacit resolutory condition and the diligent contracting party's optional right to demand resolution or forced execution, in both cases, with compensation for damages. However, it does not provide for the possibility of a grace period like French law. The seller may thus act in resolution when the price is not paid, according to article 1873 of the Chilean Civil Code, specific application of the general rule of article 1489 of the same, which establishes: "If the buyer is in default of paying the price at the said place and time, the seller has the right to demand the price or the resolution of the sale, with compensation for damages”. The resolution pronounced does not give the right to act against third parties, sub-buyers in good faith783. The buyer, on the other hand, can demand the resolution when he does not receive the goods according to the quality, quantity and specifications provided. The classical doctrine784 considers that, in all cases of breach of obligations by one of the parties, the other party may always request the

774

Art. 1226 c. civ. Anticipatory breach. 776 Art. 72 nº1 CISG. 777 Art. 2163 nº3 c.c.ch. 778 Arts. 2177 and 2180 nº2 c.c.ch. 779 Art. 2226 c.c.ch. 780 Art. 2204 c.c.ch. 781 Art. 379 c.c.ch. 782 Current 1218, 1224, 1227 and 1228. 783 Arts. 1490-1491 and 1876 c.c.ch. 784 Cf. PIZARRO W. Carlos, ¿Puede el acreedor poner término unilateral al contrato?, in revista Ius et Praxis, V.13 nº1, Talca, Chile, 2007; available at: http://www.scielo.cl/scielo.php?script=sci_arttext&pid=S071800122007000100002 , quoting ALESSANDRI R., Arturo, De la compraventa y 775

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termination of the contract. The gravity of the infringement would be irrelevant. The sentence given by Professor FUEYO is categorical in this regard: “5. Does a minor breach of contract economy authorize termination? Both the national doctrine and our jurisprudence have traditionally been uniform in estimating that compliance must follow the literal rules of payment, and must therefore be exact, complete and timely. It is, therefore, indivisible: either it is fulfilled or it is not. The cited doctrine appears exposed in my Civil Law, Of the Obligations in the following terms: "The only thing that eliminates the possibility of resolutory action, making it perish, is the complete payment, which is indivisible"”785.

We have seen that in common law the situation is different, because it is necessary that there is a significant breach of the contract (fundamental breach) to justify the pronouncement of the termination. Let us note in this regard that Professor Pizarro indicates that in the case of entire obligations the situation is more serious than in the case of severe obligations786. In France, we also know that, following the amendment introduced by Ordinance No. 2016-131 of 10 February 2016, Article 1228 of the c.civ. allows the judge, optionally, to pronounce the judgment or enforcement, with a period of grace, or to award damages. In spite of what has been seen, and in harmony with comparative law, a new doctrine has recently begun to emerge in Chile according to which breach of contract must have some relevance to justify a judicial resolution. In order to be admissible, it is necessary to prove the existence of a breach of essential obligations, or of a certain importance. In other words, they give rise to dissatisfaction of the creditor's interests787. In the modern line, Professor LYON suggests:

de la promesa de venta, T. II, vol. I, Santiago, Ed. Jurídica, reprinted 2003, No. 1662, p. 384 and ff. (accessed 16 November 2016). 785 Cf. FUEYO (2004), p. 307-308. 786 Ibidem. 787 See VIDAL O. Álvaro R., La Noción de Incumplimiento Esencial en el Código Civil, revista de derecho de la Pontificia U. Católica de Valparaíso, Chile, XXXII, first semester 2009, quoting CLARO S.., Luis, Explicaciones de Derecho Civil Chileno y Comparado (Santiago, 1978) pp.190-193 and ABELIUK M., René, Las obligaciones, 4th ed., Santiago, 2001, I, p. 344; available at: http://www.scielo.cl/scielo.php?script=sci_arttext&pid=S071868512009000100006 (accessed November 21, 2016).

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"We may agree with an assertion such as that described. Of course, the judge cannot deny the judgment if there has been a breach, but it must be a real breach and not a purely nominal one. If the breach of contract does not prevent or hinder the attainment of the results expected at the time of contracting, such breach can only give rise to compensation for damages and require forced performance, and not the termination of the contract, because the true basis of the action for termination is none other than the difficulty of achieving the purposes of the contract, the product of the aforementioned breach788.

The jurisprudence has ratified this reasoning789, concluding that the principle of good faith prevented the resolution for minor reasons. De minimis non curat lex. In our opinion, in the absence of an express rule establishing the aforementioned possibility, a modification of the Chilean Civil Code is necessary in order to avoid problems of interpretation and contradictory decisions in this matter. C. Rules of interpretation 206. Interpretation rules applicable to the sale of goods - Articles 1560 and following of the Chilean Civil Code have replicated the rules of the Napoleonic Code, with some minor differences. Following the example of French case law, the Supreme Court of Chile ruled that it was not possible to challenge in cassation a judgement rendered in accordance with those rules, unless this would distort the law of the contract790. It is therefore an issue on which judges have a wide discretion. The general rule of thumb indicates that the will of the parties should have priority first and foremost in the interpretation of a contract. Article 1560 of the Chilean Civil Code, based on the former article 1156 of the French Civil Code791, states in this regard that: "Knowing clearly the intention of the contracting parties, one should be to it rather than to the literal of the words ".

788

See LYON ( 2017), p. 254. See C.Ap. Concepción, October 4, 2007, available at: http://www.scielo.cl/scielo.php?script=sci_arttext&pid=S071868512009000100006 (accessed November 21, 2016). 790 See C.Sup., July 28, 1967, R. , t. 64, sec 1a., p.255; April 28, 1971, R., t.68, sec 1a., p.110; and June 28, 1972, R., t.69, sec. 1a., p. 95, in: Repertorio de Legislación y Jurisprudencia Chilenas, op. cit. vol. V, p. 392. 791 Current 1188. 789

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This is a logical consequence of the principle of party autonomy, according to which the parties are sovereign to regulate their contractual relations, only within the limits of public order, law, morality, and proper conduct. Similarly, the provision is consistent with the principle of objective good faith which, as we have seen, applies to the entire contract iter: before, during the negotiations; at the time of the conclusion of the contract; and afterwards, for its interpretation and further development. The most important specific rules are as follows: 1. Attributive Effect: Article 1562 of the Chilean Civil Code, based on the former article 1157 of the French Civil Code792, establishes that the meaning that allows a clause to produce effects must take precedence over other meanings that may be given to it. In application of this rule, the Supreme Court793 has established that the administrator of a company could not represent it if in a clause it was established that the use of the corporate name belonged to another partner, and this despite the fact that the power of administration included its use, in accordance with article 393 of the Chilean Commercial Code. 2. Integration rule: provided for in article 1564 of the Chilean Civil Code, inspired in part by former article 1161 of the French Civil Code794. It states, on the one hand, that the provisions of a contract should be interpreted harmoniously with each other (para. 1) and, on the other hand, that it is important to take into account the provisions of other contracts concluded by the same parties (para. 2). It is interesting to note that the first paragraph of article 1564 of the Chilean Civil Code is almost identical to the original French article that inspired it, but that its second paragraph, introduced by the author of the Chilean Civil Code, Venezuelan Andrés Bello, comes surprisingly close to paragraph 2 of the new article 1189 of the French Civil Code. 3. Presumptive clauses rule: customary clauses are presumed in contracts. Article 1563 of the Chilean Civil Code is identical in this sense to the former article 1160 of the French Civil Code. 4. Contra proferentem: established in article 1566, paragraph 2, of the Chilean Civil Code, inspired by the former article 1162 of the French795 Civil Code. It provides that if a clause is ambiguous, in the absence of an explanation that should have been given by its drafter, it shall be interpreted against it. 792

Current 1191. See C.Sup. 24 August 1937, nº34, p.144, R., t. 34, sec. 1ª, p.515, in: Repertorio de Legislación y Jurisprudencia Chilenas, volume V, op. cit. p. 432. 794 Current 1189. 795 Current 1190. 793

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Accordingly, case law decided that an ambiguous sales contract, drafted by the buyer's lawyer, should be interpreted against the buyer796. It should be noted that the new article 1190 of the French Civil Code takes up the same idea, stating that: "In case of doubt, the contract of free discussion shall be interpreted against the creditor and in favour of the debtor, and the contract of adhesion against the person who proposed it". 5. Rule of the last alternative: it enshrines the in dubio pro debitoris rule according to which, in case of doubt, the presumably weaker party (debtor) must be protected. In addition, the Chilean Civil Code establishes some complementary rules to facilitate interpretation. 6. Restrictive interpretation: according to this rule, the terms of a contract, even if general, should only apply to the subject matter on which it has been contracted, and not to others. This rule is contained in article 1561 of the Chilean Civil Code, which is equivalent to the former article 1158 of the French Civil Code797. The case law has concluded in this respect that the power to approve certain guarantees did not apply to others798. 7. Expansive rule: it is foreseen in article 1565 of the Chilean Civil Code, which establishes that, if a contract has considered an example, it is not limited to it. 207. Limitation of liability - Under the principle of party autonomy, the parties may freely stipulate disclaimers of liability, but always within the limits of law, public order, morals and proper conduct. They can thus modify the specific liability rules in the contract of sale, the general rule of which is ordinary negligence. The only limitations will be: 1. That contained in article 1465, last part, of the Chilean Civil Code according to which "renonciation of future fraud is not valid"799. 2. Prohibition to exclude essential elements from the contract of sale. Professor Meza explains in this regard that: "The obligation to remedy is of the nature of the contract of sale; it belongs to it without the need for a stipulation, but it can be modified and even abolished without the contract ceasing to exist or degenerating into a different contract"800. 796

See C.Ap. de La Serena, August 24, 1903, R., t. 3, sec. 1, p.217, in: Repertorio de Legislación y Jurisprudencia Chilenas, volume V, op. cit. p. 438. 797 Repealed by Ordinance No. 2016-131 of 10 February 2016. 798 Undated, R., t. 18, sec. 1ª, p.267, in: Repertorio de Legislación y Jurisprudencia Chilenas, volume V, op. cit. p. 428. 799 Under sanction of Nullity. 800 See MEZA B. Ramon, op. cit. , p. 125.

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Thus, the parties may increase, reduce or remove their degree of liability; for example, by stipulating that the seller shall not be liable for latent defects801. 208. Case law - Jurisprudence has made it clear on this subject that the clauses exempting the debtor from liability are fully valid and have their origin in the principle of party autonomy; but also in articles 1547 in fine and 1558, paragraph 3, of the Chilean Civil Code, with the sole limitation that they cannot exempt from liability parties who act maliciously or incur in gross negligence802. CHAPTER CONCLUSION 1. The sale of goods is regulated in Chile by the Civil Code (Book IV "Of Obligations in General and Contracts", Title XXIII "Of the Sale", Articles 1793 to 1896) and the Commercial Code (Book II "Of Contracts and Mercantile Obligations in general", Title II "Of the Sale", Articles 130 to 160). Its main source was the Napoleonic Code, Book III "The Different Forms of Acquisition of Property", Title VI "Of Sale", Articles 1582 to 1685. However, there were some differences from the French model. Thus, in order to transfer ownership of goods in Chile, it is necessary, in addition to a title - the contract of sale, as a general rule - a way of acquiring, the tradition, also as a general rule. It is often verified in a real way, by delivery to the buyer, but sometimes it is only symbolic, through the tradition of the bill of lading, invoice, waybill or airway bill, by fixing the buyer's mark and by other means authorized by trade usages, verified by himself or his agent. Another interesting difference is that unlike France803, the sale of other people's goods is valid in Chile804, so we can find cases in which they have been sold without the consent of their real owner. If they are delivered, the third party can acquire them by acquisitive prescription. On the other hand, if delivery does not take place, the buyer may demand forced performance or termination of the sale, with compensation for damages. The owner, on the other hand, can claim them pending the acquisitive prescription period.

801

See ALESSANDRI R. Arturo and SOMARRIVA U. Manuel, op. cit. , p. 409. See C.Ap. de Punta Arenas, 26 de Enero de 1990, R., t.87, sec. 2ª., p.23, in: "Repertorio de Legislación y Jurisprudencia Chilenas", op. cit., volume V, p. 249. 803 Art. 1599 c.civ. 804 Art. 1815 c.c.ch. 802

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Finally, it should be noted that, although its main source is the Napoleonic Code, penalty clauses in Chilean law differ from the norms established in French law, and also from English law. It may therefore be punitive in nature and thus cumulative with damages by agreement of the parties805. 2. The transfer of risks, however, operates in the same way in French and Chilean law. The res perit creditoris rule is enshrined in the Chilean Commercial Code806 and the Chilean Civil Code807, in accordance with the French Civil Code. Therefore, periculum emptoris is the rule that applies in the absence of contrary stipulations according to party autonomy, in case of constitution in arrears, fraud or negligence of the creditor, in the so-called "special"808 sales or in case of acts of God or force majeure. With respect to the fortuitous case and force majeure, it should be noted that the drafter of the Chilean Civil Code made a contribution by specifying the differences between the two809, even though case law may assimilate them, since they produce the same effect. 3. On the other hand, we have seen that the reservation of title clause, unlike English810 and French811 law, is not widely used in Chile. The reason is that, according to "classical"812 doctrine, the drafter of the Chilean Civil Code would have made an error, even a contradiction, between the general rules of tradition813 and the special rules of sale814. The former would allow the clause, and the latter would reject it; therefore, the latter would be applicable by specialty and the clause would be useless. Although the "modern"815 doctrine considers that there is no real contradiction between these rules, lawyers avoid taking risks of interpretation on this point and do not use it very often in the drafting of contracts for the sale of goods.

805

Art. 1543 c.c.ch., first part. Art. 142 c.com.ch. 807 Arts. 1550 and 1820 c. c. ch. 808 To taste, measure or weight. 809 Art. 45 c.c.ch. 810 Romalpa clause, all monies paid, title retention clause. 811 Arts. 2329 Nº4 and 2367 c.civ., 624-9 and 624-15 c.com. 812 See supra. 813 Art. 680 c.c.ch. 814 Art. 1874 c.c.ch. 815 See supra. 806

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4. On the other hand, the scope of the principle of good faith is similar in Chilean and French law. In this way, its objective meaning obliges to apply it to the whole contract iter, unlike English law, in which there is no general principle of good faith, leaving the pre-contractual phase unprotected. In addition, we have found that Chilean jurisprudence is aligned with French jurisprudence. The most famous judgment on this subject, Forestal Bío Bío v Madesal and another, issued by Concepción Court of Appeals, 1996 (Civ. Nº 374-93) is very similar to Manoukian of the Commercial Chamber of the French Court of Cassation of 26 November 2003. Both condemn the guilty breach of preliminary negotiations. In this regard, it should be noted that the protection afforded by article 1546, part one816, of the Chilean Civil Code is limited and open to various interpretations. It would therefore be interesting to consider an amendment similar to that introduced into French law by the current article 1104 of the French Civil Code, according to which "contracts must be negotiated, formed and performed in good faith" (para. 1). As will be shown afterwards, the CISG departs from common law in this respect and also enshrines the general application of the principle of good faith in its article 7, paragraph 1, beyond the simple interpretation of contracts for the international sale of goods. This instrument therefore recognizes the notion of good faith of the civil law system which, unlike that adopted by common law, includes the protection of preliminary negotiations. 5. Chilean private law does not recognize the theory of imprévision in express rules. Judgments handed down by the ordinary courts have almost always rejected it. However, this is not the case of arbitral justice which, taking up a minority doctrine, has accepted it on several occasions in consideration of the principle of good faith. In order to avoid contradictory decisions between these two types of courts, it would be desirable to enshrine them in the civil code, as the Italian 817 and the French818 civil codes have already done. 6. Chilean private law has not favored the preservation of contracts as English law does, with fundamental breach and breach of condition, and French law, with the new article 1228 c.civ. 816

Equivalent to former article 1134 c.civ., final paragraph. Art. 1337 of the Italian Civil Code. 818 Art. 1104 of the civ. 817

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The "classical" doctrine allows any breach, even a minor one, to be sanctioned with resolution or forced execution, plus damages, in both cases. However, it is observed that a new doctrine and jurisprudence are beginning to emerge, in parallel with comparative law, according to which only considerable contractual breaches would justify termination. The basis of this criterion would be the principles of good faith and party autonomy, applied to the interpretation of contracts, which derive into the need for them to produce effects, if possible, and for the parties to act fairly. De minimis non curat lex. 7. With regard to other remedies/sanctions for breach of contract, we have noted that the actio aestimatoria or quanti minoris is a creation of civil law819, also recognized by common law820 - late - and with a more limited scope. This action, almost unknown in common law, as we have seen, was adopted by the CISG and enshrined in Articles 44 and 50. It is therefore a contribution of the civil law system, in accordance with the priority given to the preservation of the contract by the 1980 Vienna Convention. On the other hand, it should be noted that while resolution and forced execution are rights of the buyer under Chilean821 and French822 private law, it would seem more logical to invoke them in accordance with the de minimis rule, i.e., exceptionally, and to claim damages, as a general rule. With regard to penalty clauses, it is interesting to note that, unlike English law, where it is traditionally prohibited823, civil law expressly authorizes them and regulates their effects. Similarly, it is important to note that the Chilean judge has limited powers compared to the French judge, because he has no possibility of increasing the compensation824 if not only of reducing its amount, when it is "enormous"825. 8. We have also observed that specific performance is the general rule of civil law826, as opposed to English law, where damages prevail. The 1980 Vienna Convention also enshrined this general rule of the civil law system in Articles 28 and 46 No. 1, giving the debtor the possibility of 819

New Article 1223 c. civ. Rule 48 ( c ) s.g.a., suppresed by the Consumer Rights Act, 2015. 821 Arts. 1489 and 1873 c.c.ch. 822 Arts. 1183 and 1184 (old) c.civ. 1304, 1304-7, 1218, 1224, 1227 and 1228 c. civ. 823 See Dunlop Pneumatic Tyre Co. Ltd. v New Garage Motor, (1915) A.C. 79 824 New Article 1231-5 c. civ. 825 That is, if it doubles the amount of the principal obligation (gross disparity), art. 1544 c.c.ch. 826 Arts. 1569 c.c.ch. and 1235, inc. 1, old, 1302, inc. 1, new, c. civ. 820

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correcting his performance in accordance with Articles 47, 48 and 63 No. 1, as will be discussed below. The common law doctrine, as we shall also see, explicitly recognizes that this is a civil law device. This assertion is an argument in support of our hypothesis that the influence of civil law on the CISG is greater than that of common law. Specific performance is a remedy of equity in English law, little used. As for interest, it accrues from the constitution in arrears or from the expiration of the term in civil law827, and from the cause of action in English law828. 9. With regard to the rules for the interpretation of contracts, there are great similarities between Chilean and French private law, which is consistent if one considers that the provisions of the Napoleonic Code have apparently been translated and supplemented by the Venezuelan writer of the Chilean civil code, with some clarifications. For example, article 1564, paragraph 2, c.c.ch. has considered, in anticipation, the systematic interpretation in a manner very similar to paragraph 2 of the new article 1189 of the French Civil Code. These civil law rules have also been assumed by the CISG, as we shall see. On the one hand, the rule of subjective interpretation adopted by article 8nº1 of CISG is in perfect harmony with the new article 1188, paragraph 1, of the French Civil Code (former article 1156 c.civ. ) and with article 1560 of the Chilean Civil Code. On the other hand, the "prudent familiy man" standard that inspires the rule of objective interpretation adopted by article 8 No. 2 of the CISG, as well as the rule that provides for recourse to preliminary negotiations established in No. 3 of the same article, are concepts of civil law and not common law (there is incompatibility with the parol evidence rule of common law). 10. As for the formation of consent, we have seen that French civil law maintains the theory of reception in article 1121 of the c. civ. The 1980 Vienna Convention does the same in articles 18nº2 and 22, thus moving away from the postal rule of common law. 11. However, the rights and obligations of the parties are very similar in the two legal systems, civil law and common law. Thus, for example, the 827 828

Art. 1557 c.c.ch. and 1146 old, 1231 new c. civ. Rule 35 A (1) Senior Courts Act, 1981.

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caveat emptor rule is recognized by civil law829, which English law has recognized since 1893 until the 1979 law (s.g.a.)830. The CISG also conserves this Roman rule in its articles 38 and 39. Similarly, timely delivery of goods is often essential in English law831 and civil law832. Security and advice obligations are more limited in Chile than in France. It is hoped that they will be more widely applied in the future. On the other hand, there are also significant differences between common law and civil law as to the necessary quality of the goods sold and to be delivered. The standard required in the absence of an express stipulation is "average" quality in French833 and Chilean834 law, and only "basic" in the common law system.

829

Art. 146 c.com.ch. Then it adopted the merchantable quality rule. See supra. 831 Bowes v Shand, 1877, 2 Ap. Cas. 455 832 Cass.com, November 12, 2008, nº07-19676 and art. 144, inc. 2º, c.com.ch. 833 Art. 1641 c. civ. 834 Art. 145 c.com.ch. 830

PART 2 – HARMONISATION OF THE INTERNATIONAL SALE OF GOODS BY CIVIL LAW PRIMACY

So far, we have analysed the fundamentals of contract law in common law, more specifically the legal regime of sale in England. Similarly, we have studied the bases of the legal regime of sale in civil law, focusing on France and Chile. This dual study has shown that common law and civil law differ on a number of important issues. Thus, in civil law, the general principle of good faith occupies a central place, even in preliminary negotiations; unlike common law, in which the scope of the principle is limited and does not protect negotiations. On this point, we will see in this second part that the 1980 Vienna Convention retains the concept of civil law and protects the entire contract iter in accordance with its Article 7 No. 1 and by application of the U.P. in accordance with Articles 7(2) and 9(2) thereof. Furthermore, with regard to the formation of consent, we have noted that common law enshrines the postal rule, or the so-called "emission" system. At this stage, it will be sought to demonstrate that the CISG also departs from common law in this matter, enshrining, as in French civil law, the theory of reception in articles 18 No. 2 and 22. Otherwise, it was observed that the hermeticism of the parol evidence rule differs from the subjective and objective criteria of interpretation enshrined in civil law. In this second part, we will demonstrate that the interpretative rules of common law are incompatible with these criteria, also retained by CISG in its Article 8(1) and (2); they are also different from the rule foreseen in Article 8(3) of the Convention. With respect to sanctions for breaches of the obligations of the parties, we have seen, on the one hand, that the common law remedy par excellence is compensation for damages, while specific performance is in civil law. On the other hand, we have established that the scope of price reduction, creation of Roman civil law (actio aestimatoria/quanti minoris), is limited in common law. We will examine the events that followed the Vienna Convention of 1980 which, also in this matter, followed civil law by

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enshrining specific performance as a general sanction for breach of the obligations of the parties, in its articles 28 and 46, a fact even recognized by common law doctrine. In the first chapter, we will demonstrate that the general principles of civil law and UNIDROIT have been used as instruments of harmonisation by the CISG. In addition, the Unidroit principles are closely linked to the 1980 Vienna Convention, which allows for the integration of its loopholes, in accordance with Articles 7(2) and 9(2). The second chapter deals with harmonisation through the adoption of material/uniform rules: the 1980 Vienna Convention. At this stage, we will come to understand how and why the Convention favoured the civil law system and its codification most of the time, without, however, ruling out common law. We will see how, in order to harmonise the apparently irreconcilable differences between common law and civil law, it used a classical technique for the elaboration of uniform instruments, which consists of adopting the solution of one system of law as main rules (civil law) associating those of another system (common law) as exceptions. This last configuration refers to the mitigation damages of common law, which has already been analyzed, and to the anticipatory breach, which we will examine later.

CHAPTER 1 HARMONISATION BY INSPIRATION OF THE GENERAL PRINCIPLES OF THE CIVIL LAW SYSTEM AND OF UNIDROIT

General principles of law are of paramount importance, not only for national law, but also for international law. Several general principles inspire international commercial law, including: liability, restitution in case of unjust enrichment, respect for acquired rights, prescription, good faith, pacta sunt, estoppel, contract preservation, etc835. The principles of good faith and party autonomy, omnipresent in international conventions of private law, will be of special interest to us. Other principles are also of great importance in this field, such as the principles of European contract law, known as the "Lando" principles, but above all the principles derived from the International Institute for the Unification of Private Law, the "Unidroit" principles, which refer to international trade in general, and to the sale of goods in particular. Thus, we will first analyze the principles of party autonomy and good faith (section 1), and then study the UNIDROIT principles by making some references to other principles (Lando, etc.) where relevant (section 2). SECTION 1 - THE SOLUTIONS PROVIDED BY THE GENERAL PRINCIPLES OF THE CIVIL LAW SYSTEM The general principles of civil law (of obligations) have been of enormous importance for national laws and international trade law. Like

835

See Les Sources et les Normes dans le Droit de l'OMC, under the direction of Vincent Tomkiewicz, with the collaboration of Thierry García and David Pavot, Nice Colloquium of 24 and 25 June 2010, Editions A. Pedone, Paris, France, 2012, pp. 108-109.

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trade usages and contracts, they also form part of the lex mercatoria836 and are applied in ICC judgments. As Professors Jacquet, Delebecque and Corneloup point out: "Commenting on Dworkin, the philosopher P. Ricoeur writes that "more often than not it is principles than rules that contribute to the solution of difficult cases. In fact, arbitral jurisprudence has identified principles that can resolve many "difficult cases": pacta sunt servanda and the principle of good faith come first, other more precise principles are deduced from them or relate to them. This reaffirmed the principle of international responsibility. The same applies to the principle non adimplenti contractus, of compensation between two related debts; compensation must be limited to foreseeable damage. The creditor of an unfulfilled or improperly performed obligation must always endeavour to minimise his damage”"837. The report to the President of the Republic concerning Ordinance No. 2016-131 of 10 February 2016 on the reform of French contract law indicates among its objectives: "1º To affirm the general principles of contract law, such as good faith and contractual freedom". In a chapter entitled "Introductory provisions", the ordinance enshrines the principles of freedom of contract, binding force of contracts and good faith, codified in new articles 1102, 1103 and 1104 of the French Civil Code. The report adds: "This choice to highlight three fundamental principles expresses one of the essential objectives pursued by the ordinance: to find a balance between contractual justice and party autonomy". Some principles are also expressly enshrined in the CISG. This is the case of the principle of good faith, in article 7nº1. Others were implicitly included, such as the principle of contract conservation838 underlying articles 34, 37, 48, 49, 51, 64, 71 and 72 of CISG. In this section, we will demonstrate that good faith, one of the principles on which civil law is based, has been enshrined by CISG as a general principle in article 7, No. 1, without limiting it to interpretation, as some common law authors have erroneously asserted. It even extends to preliminary negotiations, as in French or Chilean law.

836

See JACQUET J-M, DELEBECQUE Ph. and CORNELOUP S., Droit du commerce international, 3rd ed., Dalloz, Paris, France, 2014. 837 Ibid, p. 33. 838 The favorus contractus principle requires the maintenance of the contract as far as possible. See EBERHARD Steven, Les sanctions de l'inexécution du contrat et les Principes UNIDROIT, Cedidac, Switzerland, 2005, p. 70.

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We will note that this general principle of good faith derived from civil law has received positive recognition in several instruments of international trade law, for example: GATT (Article XXIII:1(b)), GATS (Article 26.1) and Article 2A of the UNCITRAL Model Law on International Commercial Arbitration. It is therefore understandable that CISG attaches great importance to it. In addition, we shall see how good faith-loyalty obliges, as a general rule, to perform the obligations contracted in the form stipulated in the contract, that is, in nature. In addition, the possibility of claiming price reduction, creation of civil law, enshrined in Article 50 of CISG, is also consistent with this spirit of cooperation inherent in good faith. In the perspective of enabling the contractual objective to be met, we will demonstrate that the termination for breach of the parties' obligations should not be extremely rigid and operate in the face of any contractual breach. Only a breach of a certain importance, i.e., essential, must give rise to an action for termination of the contract for the sale of goods, as provided for in the U.P. and CISG. We will also demonstrate that, while mitigation of damages is more of a common law obligation, good faith-loyalty also requires it. Thus, article 77 of CISG, while inspired by common law, is also in accordance with the civil law system. Finally, the practical utility of the principles of good faith and party autonomy in international trade and how the former relates directly to other principles omnipresent in the 1980 Vienna Convention, such as contract preservation, will be examined. We will start by studying the principle of party autonomy. § 1 – Party autonomy in the international sale of goods A. Historical background 209. Origins - The principle of party autonomy, a consequence of the Roman pacta sunt servanda rule, is the principle par excellence of private law. Thus, unlike the principle of good faith839, it is recognized by the two main systems of law840 with the same force, which is coherent, since liberalism has strongly marked both sides of the English Channel.

839

As we have seen, its scope is very limited in common law. See supra. Some common law authors believe that the principle is a consequence of good faith. In our opinion, this is a mistake, because good faith in civil law is omnipresent, even before the conclusion of the contract, as we have seen. See Good Faith and

840

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In the United Kingdom, Adam Smith and other philosophers have had great importance in this conception of economics and law: Locke, Hume, Burke, mainly. In France, Montesquieu and Rousseau, among others, can be cited, some of whose ideas were enshrined in the Napoleonic Code of 1804, a monumental work that served as the basis for the "globalization"841 of this principle. The Civil Code of 1804 established the principle of party autonomy in its article 1134 (current articles 1103 and 1193), borrowing a formula from Domat842. Consequently, its systematization can be considered a French contribution to the world843, although its origins date back to Roman times (pacta sunt). B. Manifestations 210. Manifestations of the principle - Other principles emanate from party autonomy: freedom of contract, binding force, and privity of contract844 . Freedom of contract means the possibility to conclude a contract or to refrain from doing so, to choose the other contracting party and also to freely determine the content of the contract. Binding force means that validly concluded contracts are laws for the contracting parties845. Therefore, they can only be released by mutual consent or for legal reasons (nullity, resolution, expiration).

International Economic Law, edited by MITCHELL Andrew D., SORNARAJAH M. and VOON Tania, Oxford University Press, London, England, 2015, p. 19. 841 The French Civil Code of 1804 inspired other civil codes on all continents. Among them, the Chilean Civil Code, which in turn has been the model law for many other Latin American codes (Ecuador, Colombia, Panama, etc.). 842 "As conventions are formed, all that has been agreed is the law of those who have made them and they can only be revoked with their common consent. See TERRE, SIMLER and LEQUETTE, op. cit. p. 485, quoting DOMAT, Les lois civiles dans leur ordre naturel, Livre I, titre I, sec. II, VIII. 843 The c.c.ch. consecrates it in article 1545, already seen. 844 See TERRE, SIMLER and LEQUETTE, op. cit. , p. 33. 845 Some authors believe that without this principle international law "would be nothing more than a joke". See MITCHELL Andrew D., SORNARAJAH M. and VOON Tania, op. cit. , p. 18.

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On the other hand, as a limitation to the effects of contracts, the parties must respect the international and national public order of the states to which they belong846. Privity of contract is the application of the Roman rule res inter alios acta, according to which contracts only affect the parties, as a general rule847. C. Positive sources 211. Positive sources - The principle of party autonomy was expressly recognized by article 26 of the 1969 Vienna Convention on the Law of Treaties, which establishes: "Pacta sunt servanda. Every treaty in force is binding upon the parties to it and must be performed by them in good faith…”. In accordance with Article 6 of the CISG848, the principle of party autonomy can be expressed as follows: a. Parties may derogate the application of the Convention. b. They may provide for a partial derogation. c. The parties may modify the effects of the CISG by mutual agreement. In line with the above, the 1980 Vienna Convention confirms that party autonomy is the main source of law for international sales of goods. On the other hand, according to article 29 of the CISG, the parties may modify or terminate their contracts of sale of goods by mutual agreement, on an amicable basis, which is also an application of the principle and of cooperation, the latter being a consequence of the principle of good faith. D. Practical utility 212. Practical utility of the principle in international sales - In practice, the use of the principle of party autonomy means the total or partial exclusion, by will of the parties, of the CISG and the choice of a law that is

846

The police laws of the states of the parties, given their imperative character, are a limit to their autonomy, which they must respect. See articles 3 and 7 of the 1980 Rome Convention on the Law Applicable to Contractual Obligations. 847 Sometimes these are relative third parties (assignees, heirs). 848 Article 6 of CISG: “The parties may exclude the application of this Convention or, subject to article 12, derogate from or vary the effect of any of its provisions”.

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related to the economics of the contract849. Thus, the principle of party autonomy gives certainty to the 1980 Vienna Convention850. This exclusion must be express, as a general rule851, and exceptionally tacit, if the parties have chosen the law of a non-contracting State of the CISG852. This process, which consists of excluding the CISG, is called opting out853. An interesting judgement is the one issued in Nuova Fucinati SpA v Fondmetall International AB854 by an Italian court in 1993. In this case, the parties, an Italian company and a Swedish company, had decided that the contract would be governed by Italian law. At the time, Italy had incorporated the CISG into its domestic law, but Sweden had not. The civil court of the city of Monza (Italy), which heard the dispute between the parties, refused to apply the CISG and decided that the applicable law was Italian domestic law. His decision was heavily criticised855 because the Convention was an integral part of Italian law. Thus, even in the case of express exclusion of the parties, the Italian public

849

See JACQUET J-M, DELEBECQUE Ph. and CORNELOUP S., op. cit. pp. 214215. 850 Ibidem. 851 See CLOUT Case No. 433 (federal), Northern District of California, 27 July 2001, available at: http://www.cisg.law.pace.edu/cisg/wais/db/cases2/010727u1.html , accessed 20 February 2017. 852 See UNCITRAL, Digest of Case Law on the United Nations Convention on International Sale of Goods, United Nations, New York, 2016, pp. 37-38. 853 See AUDIT Bernard, Vente; available at: http://www.dalloz.fr/documentation/Document?id=ENCY/INTR/RUB000248/PL AN043/201109&ctxt=0_YSR0MT1hdXRvbm9taWUgZGUgbGEgdm9sb250w6kgdmVudGXC p3gkc2Y9cGFnZS1yZWNoZXJjaGU=&ctxtl=0_cyRwYWdlTnVtPTHCp3MkdHJ pZGF0ZT1GYWxzZcKncyRzb3J0PcKncyRzbE5iUGFnPTIwwqdzJGlzYWJvPV RydWXCp3MkcGFnaW5nPVRydWXCp3Mkb25nbGV0PcKncyRmcmVlc2NvcG U9RmFsc2U=&nrf=0_UmVjaGVyY2hlfExpc3Rl , accessed 1 March 2017. 854 R.G. No. 4267/88, 29 March 1993, Civil Court of Monza, Italy, available at: http://cisgw3.law.pace.edu/cases/930114i3.html, accessed 20 February 2017. 855 See CARR Indira, International Trade Law, Routledege-Cavendish, LondonNew York, 4th ed., 2010, p. 69., quoting FERRARI, Uniform Law of International Sales : issues of applicability and private international law, 1995, 15 journal of law and commerce 159, p. 173.

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order included the CISG and its application, indirectly856-857. Its Article 1, No. 1, a) provides that it applies to parties who have their establishments in different states when those states are contracting states858. Other judgments also uphold the thesis of the court of Monza. On the other hand, if the parties merely exclude the CISG but do not specify the applicable law, the latter must be determined in accordance with the rules of private international law. If they are European parties, the 1980 Rome Convention applies to contracts concluded up to December 17, 2008, and the European Regulation (EC) No. 593/2008, known as Rome I, to subsequent contracts. According to Article 4(1)(a) of the latter, the applicable law is the law of the seller's domicile. In other cases, the rules of the Hague Convention of 15 June 1955 on the Law Applicable to International Sales of Personal Property859 provide that the applicable law shall be: 1. The law of the country where the seller has his habitual residence at the time of receiving the order. 2. In its defect, the law of the country of the establishment which received the order. 856

Rather, French case law deals with the "localization" theory, according to which the choice of the parties in favour of a given law is only one of the elements to be taken into account in determining the applicable law. See JACQUET J-M, DELEBECQUE Ph. and CORNELOUP S., op. cit. pp. 212-213. 857 In an opposite sense, the German Federal Court of Justice, June 25, 1997: the clothing company Bennetton sues a German retailer for not paying the prices of the clothes delivered. The defendant invokes the nullity of the franchise agreement because it would be contrary to German law, but the court decided that "the agreement of the parties in favour of the application of German national law cannot in itself be analysed as an exclusion of the CISG because, by the conventional reference to German law, the CISG, an integral part of that law, is also covered by the agreement". See WITZ Claude, Une clause de droit applicable figurant dans un contrat de vente internationale de marchandises n'exclut pas l'application de la Convention de Vienne sur la vente internationale de marchandises, available at: http://www.dalloz.fr/documentation/Document?id=RECUEIL/OBS/1998/0507&ct xt=0_YSR0MT1hdXRvbm9taWUgZGUgbGEgdm9sb250w6kgdmVudGXCp3gkc 2Y9cGFnZS1yZWNoZXJjaGU=&ctxtl=0_cyRwYWdlTnVtPTTCp3MkdHJpZGF 0ZT1GYWxzZcKncyRzb3J0PcKncyRzbE5iUGFnPTIwwqdzJGlzYWJvPUZhbH NlwqdzJHBhZ2luZz1UcnVlwqdzJG9uZ2xldD3Cp3MkZnJlZXNjb3BlPUZhbHNl wqd4JHNmPXBhZ2UtcmVjaGVyY2hl&nrf=0_UmVjaGVyY2hlfExpc3RlRGVS ZXN1bHRhdFVycw== , accessed 1 March 2017. 858 Cf. FAWCETT J., HARRIS J. and BRIDGE M., International Sales of Goods in the Conflict of Laws, Oxford university press, United Kingdom, 2005, p. 680. 859 The convention of 22 December 1986 has not yet entered into force.

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3. Or the law of the buyer's country if the order was received in that country. The parties may also be subject to neutral, even non-state, rules of law, such as ICC Incoterms or the general rules of professional bodies860. The jurisprudence has recognized this practice as perfectly valid861. In addition, it established that the arbitrator may apply "all the principles and customs of commerce known as lex mercatoria, provisions of an international character intended, in the absence of a particular legislative competence, to be applied to the settlement of a dispute"862. On the other hand, the parties may also attribute jurisdiction to a foreign court. These clauses are legal, according to French case law since the Sorelec863 ruling of the Court of Cassation. They are subject to two conditions: 1. The dispute must be of an international character 2. The clause must not frustrate "the imperative territorial competence of a French jurisdiction"864. In Chile, the situation is similar. These clauses are lawful, in accordance with Article 1462 of the Civil Code, which states: "There is an illicit object in everything that contravenes Chilean public law. Thus the promise to submit in Chile to a jurisdiction not recognized by Chilean law is null and void because of the vice of the object”. Article 245 of the Chilean Code of Civil Procedure, on the other hand, requires that decisions of foreign courts: 1. Are not contrary to the laws of the Republic. 2. Do not oppose national jurisdiction. 3. That the defendant has been served with the action. 4. That they are irrevocable.

860

AUDIT B., ibid. See C. Ap. de Montpelier, 3 December 2002, JDI 2004.888, note S. PoillotPeruzzetto. In this case, the court recognized a clause relating to the rules and practices of the Seed Trade Federation as the only ones applicable. See JACQUET J-M, DELEBECQUE Ph. and CORNELOUP S., op. cit. pp. 219-220. 862 See Valenciana, Civ., 1st., 22 October 1991, Bull. 1991 I nº275, p. 182. 863 See Civ.,17 December 1985, Rev.crit. DIP 1986.537, noted Hélène GaudemetTallon. 864 See JACQUET J-M, DELEBECQUE Ph. and CORNELOUP S., op. cit. , p. 758. 861

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Therefore, it is forbidden to submit the contract to a court "not recognized" by Chile865 and that these choice of forum clauses are valid in the case of international contracts, in the international sphere866 -867 . In addition, article 318 of the Code of Private International Law (Bustamante Code)868 provides that the parties shall expressly or tacitly determine the court competent to settle their commercial or civil disputes, provided that at least one of them is a national or domiciled in the contracting state to which it belongs. The CISG rules are supplementary869. Consequently, and in accordance with the principle of party autonomy, the parties are free to regulate the formation, effects and termination of contracts for the international sale of goods870. Accordingly, they may modify the rules of transfer of ownership and risk and establish a conventional guarantee, i.e., a retention of title clause, stipulate that the seller shall assume the risks of force majeure, or defer the transfer of ownership and the risks associated with the time of delivery to another time. Likewise, the parties may modify the scope of their obligations and waive the obligation to guarantee latent defects and the eviction of third parties in favour of the seller871; establish additional conditions of proof or relating to the formation of consent; stipulate that the seller will be liable even for slight negligence, among other possibilities; or, terminate the contract by mutual consent, in accordance with article 29nº1 of the CISG872 (thus, the principle limits the possible injustices that one party can commit .

865

See Mauricio Hochschild S.A.C.I. with Ferrostaal A.G., C.Sup., January 22, 2008, nº3247-2006. 866 See State Street Bank and Trust Company with Inversiones Errázuriz Ltda. and others, C. Sup. 14 May 2007, No. 2349-2005. 867 Cf. VÁSQUEZ, María Fernanda, Sobre la contratación internacional y la posibilidad de someterse a tribunales extranjeros, El Mercurio Legal; available at: http://www.elmercurio.com/Legal/Noticias/Analisis-Juridico/2016/05/13/Sobre-lacontratacion-internacional-y-la-posibilidad-de-someterse-a-tribunalesextranjeros.aspx , accessed 19 March 2017. 868 Panamerican Code, therefore, ratified by Chile and not by France or the United Kingdom. 869 With the exception of article 12 in fine CISG, which is of public order. 870 See OVIEDO A. J., La costumbre en la compraventa internacional de mercaderías, Revista Jurídica del Perú, año LIII nº 47, June 2003, p. 235. 871 See supra, in the previous chapter, the existing limitations in this regard. 872 Art. 29 No. 1 CISG: “(1) A contract may be modified or terminated by the mere agreement of the parties”.

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to the detriment of the other, favouring the stability of the contractual bond873). This last hypothesis is another triumph in the CISG of civil law over common law. CISG requires, as we have seen, a consideration, for the validity of contracts, but ICC has determined that this is not necessary for modifications of international sales of goods874. 213. The limits of the principle - There are several limits to party autonomy. On the one hand, the parties may not derogate from the requirement of a written amendment if the domestic law of either party so requires. This is in line with Article 12 of CISG. On the other hand, the provisions of Articles 89 to 101 of CISG are considered to pertain to international public policy and therefore cannot be derogated from by the will of the parties875 and the provisions of Articles 89 to 101 of CISG are considered to pertain to international public policy and therefore cannot be derogated from by the will of the parties876. It should be noted that there is a counterweight to the principle of party autonomy877. Contracts have a natural limit that avoids the inequalities to which the extreme application of the principle could lead: good faith. This principle is closely linked to the principle of party autonomy, as soon as contractual autonomy imposes the need to negotiate and enforce contracts in good faith, in the customary tradition of the WTO878.

873

See PANIZZON M., Good faith in the jurisprudence of the WTO, the Protection of Legitimate Expectations, Good Faith Interpretation and Fair Dispute Settlement, Hart Publishing, Oxford and Portland, Oregon, U.S.A., 2006, p. 70. 874 ICC, No. 7331 (1994), available at http://cisgw3.law.pace.edu/cases/947331i1.html, accessed 19 February 2017. 875 See UNCITRAL, Digest of Case Law on the United Nations Convention on International Sale of Goods, United Nations, op. cit. p. 37. 876 Similarly, if both parties are European, they cannot disregard the mandatory provisions of the Rome Convention or the Rome I Regulation. See JACQUET J-M, DELEBECQUE Ph. and CORNELOUP S., op. cit. , p. 221. 877 For some common law lawyers the situation is different: they consider pacta sunt to be a consequence of good faith. Cf. MITCHELL Andrew D., SORNARAJAH M. and VOON Tania, op. cit. pp. 18-19. They admit, however, a controversy in common law, according to which it would be two independent principles, as recognized in civil law. 878 See PANIZZON M., op. cit. pp. 61-62.

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§ 2 - Good faith in the international sale of goods A. Historical background 214. Origins - Unlike the previous principle, its scope is more limited in common law, as we have seen before. However, some common law authors recognize the French origins of this principle879. Its origins in English law are later than in civil law, and date back to the 18th century. At that time, a famous judgement was handed down in Carter v Boehm880. In this case, Mr. Carter, Governor of Fort Marlborough, Sumatra, Indonesia, had taken out insurance in the event that the fort fell under attack from another country, as he foresaw a French attack. The fort could resist an attack from the natives, but not from a European power like France, and that's what happened when the French broke in, the fort fell into their hands. Following this event, Mr. Carter requested payment from his insurer, Mr. Boehm, who refused because witnesses had established that the insured knew the limits of protection of the fort and the likelihood that he would be attacked by a European power, which he would not resist. On this occasion, Lord Mansfield established the absolute duty of good faith in insurance contracts881. In his own words: “Insurance is a contract based upon speculation. The special facts, upon which the contingent chance is to be computed, lie most commonly in the knowledge of the insured only; the underwriter trusts to his representation and proceeds upon the confidence that he does not keep back any circumstance in his knowledge, to mislead the underwriter into a belief that the circumstance does not exist, and to induce him to estimate the risque as if it did not exist. Good faith forbids either party by concealing what he privately knows, to draw the other into a bargain from his ignorance of that fact, and his believing the contrary” 882. Consequently, the scope of this judgment is limited to insurance contracts. However, beyond the insurance contract and the implied conditions relating to the quality and suitability of the goods for sale (they must be of 879

See HARISSON Reziya, Good Faith in Sales, Sweet&Maxwell, London, England, 1997, p. 685. 880 3 Burr. 1905; 97 E.R. 1162 881 Utmost good faith o uberrimae fidei. 882 See Carter v Bohem, (1766) 3 Burr 1905.

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"satisfactory" quality, which is an essential condition, as we saw in Part One, Chapter 1), common law, unlike civil law, does not establish a general principle of good faith. It is important to note that English law and common law lawyers are not familiar with the principle, which is far from being considered "general". Thus, for example, the English Department of Trade and Industry, in relation with the transposition in the United Kingdom of the European Directive on unfair terms in consumer contracts, stated in its first consultation document, paragraph 2, that its main effect was the introduction for the first time of the concept of good faith in contract law in the United Kingdom883. Some common law lawyers also consider that the CISG does not sanction a general principle of good faith884, but only stipulates it with respect to the interpretation of contracts of sale of goods in article 7, paragraph 1, which provides: “(1) In the interpretation of this Convention, regard is to be had to its international character and to the need to promote uniformity in its application and the observance of good faith in international trade”885-886. However, other common law jurists recognize that the scope of the principle mentioned in CISG goes beyond its mere interpretation. In this sense (in free translation): "Australian law has not yet committed itself unqualifiedly to the proposition that every contract imposes on each party a duty of good faith and fair dealing in contract performance and enforcement. This can be contrasted with the CISG, where good faith has been established as a principle to not only regulate the interpretation of the Convention but also as a principle to be enforced in dealings between parties. Arguably, the approach or methodology adopted by domestic courts appears to be an internationally accepted one. It could be argued that good faith is becoming an international custom. So, not only by analogy can the socialization be 883

Cf. Harisson Reziya, op. cit., p. 3. See BRIDGE M., The International Sale of Goods, Law and Practice, op. cit., p. 534. 885 See GOODE R., KRONKE H. and MCKENDRICK E., Transnational Commercial Law, texts, cases and materials, 2nd ed., Oxford University Press, United Kingdom, 2015, p. 233 and ff., quoting FARNSWORTH E. Allan, Duties of Good Faith an Fair Dealing under the UNIDROIT principles, Relevant International Conventions and National Laws (1995) 3 Tul J Int'l & Comp L47, 56. 886 Other authors acknowledge that good faith is a general principle of CISG. See: ibid, p. 237, quoting KASTELY Amy H., Unification and community: A Rhetorical Analysis of the United Nations Sales Convention (1987-8) 8 Northwestern J Int'l L & Bus 574, 596-7. 884

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transplanted, but through Article 9, good faith must be applied to the CISG. As Article 9 is linked to Article 8, parties must negotiate in good faith. The intent of the parties links articles 7, 8 and 9 and good faith is thus regulating the behaviour and conduct of parties with each other”887.

It is evident, in our opinion, that if the principle of good faith is a general principle of international trade law, it is thanks to the French jurists, who were able to systematize to perfection and codify these notions developed by Canon law. Furthermore, if the history of the CISG (United Nations Proceedings Records888) is examined, it is recognized that France proposed incorporating the principle of good faith and retained it in the adopted text, while Norway advised its deletion. The first position has triumphed and the text is therefore in line with the French tradition of promoting and protecting that principle. B. Manifestations 215. As is usual in a relationship that must be cordial, both parties must help and even collaborate in the enshrining of their common goal, which is the satisfaction of mutual obligations. This has several consequences, which arise from good faith for the parties to a contract for the international sale of goods: 1. The duty of loyalty dictated by good faith prohibits the seller from selling more goods than he can actually supply889, offering the buyer goods that are not suitable or useless for the destination markets. 2. Similarly, the seller should suggest the most economical means of transport and the shortest routes890. In short, he should make performance as simple as possible. If the seller is entitled to fix prices unilaterally, such fixing cannot be abusive, as we have already seen891. 4. The seller may not mislead or misrepresent the goods for sale, which would constitute fraud. Similarly, it may not omit or keep silent about certain circumstances of which it is aware, and whose manifestation would

887

See ZELLER Bruno, Damages Under the Convention on Contracts for the International Sale of Goods, Oceana publications, New York, U.S.A., 2005, p. 26. 888 P. 87 Official CISG documents; available at: https://www.uncitral.org/pdf/english/texts/sales/cisg/a-conf-97-19-ocred-e.pdf , accessed 02 March 2017. 889 See TERRÉ F., SIMLER Ph. and LEQUETTE Y., op. cit. , p. 488. 890 See Civ. 28 Nov. 1905, DP 1909.1.193, S. 1909.1.269. 891 See Cass. Ass. plén, 1. December 1995, D.1996.13, note L. Aynès, Jeol.

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lead the buyer to decline the purchase, or to reduce the price, a silence that would be described as "willful misrepresentation"892. 5. On the other hand, he must fulfill his duties of information, counsel, and security, already studied in the previous chapter, which are manifestations of the principle of good faith. 6. The buyer must receive the goods at the agreed time, without unnecessary delays893, pay the agreed price, avoid unnecessary claims, do not postpone payments to obtain credit indirectly, among other possible cases of disloyalty. 216. Nemo auditur rule - According to the Roman nemo auditur proriam turpitudinems allegans rule, no one can take advantage of his own fraud or gross negligence, which are equivalent. If the fault affects both parties, according to the associated Roman rule in pari causa turpitudinis cessat repetitio, neither of them can act against the other894. These rules of Roman law, collected by civil law, are also present in common law, but with some nuances. Thus, the common law doctrine of clean hands provides that if one party has acted in bad faith against the other, she cannot be heard by the court. It is a consequence of the Roman law rule ex dolo malo non oritur actio, nullus commodum capere potest de iniuria sua propria et ex iniuria non oritur .895 Therefore, we can see that the two main systems of law, although they do it differently, enshrine important exceptions or defenses based on good faith. 217. Period of grace and possibility of redress - In accordance with Article 47 of CISG, the buyer may grant the seller a period of grace for the performance of its obligations, in which case he undertakes to respect it, in accordance with the spirit of cooperation between the parties and observance of the given word, emanating from good faith. In the same spirit, article 48 of CISG authorizes the seller to remedy defects in the conformity of the goods, provided that, according to a criterion of apparent commutative justice, this does not cause harm to the

892

See supra. Article 60 of the CISG obliges the buyer to cooperate, he must do everything that can reasonably be expected of him so that the seller can make the delivery. 894 See TERRE, SIMLER and LEQUETTE, op. cit. , p. 472. 895 See MITCHELL Andrew D., SORNARAJAH M. and VOON Tania, op. cit. pp. 29-30. 893

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buyer (unreasonable delays or inconvenience, and reimbursement of expenses already paid by the buyer). This period of grace is also a consequence of good faith and its manifestation in the duty of collaboration, because it helps to attain the object of the contract. In Professor Carr's words: "Not all breaches are going to be fundamental to enable a party to avoid the contract. And, even if they are, the party may not wish to avoid the contract. Given that the philosophy behind the Vienna Convention is to enable performance by the parties, it introduces a remedy that is unusual in common law systems - that is, the fixing of an additional period of time for performance by the other party. This possibility is available to both the buyer and the seller...896". 218. Preservation of goods - On the buyer's side, if he rejects the goods, he must preserve them and may retain them until the costs of preservation are reimbursed, in accordance with article 86 of the CISG. This rule is an obvious manifestation of the existence of a duty of mutual collaboration, sanctioned positively, because even the delay in execution by the buyer, who could have made the non adimplenti contractus rule operate, obliges the seller to wait and help his counterpart. In the case of the seller, if the goods remain in his possession or under his control, he must also retain them if the buyer does not accept delivery or pay the price. He has the same right of retention as mentioned above, in accordance with Article 85 of CISG. In this area, the Vienna Convention of 1980 goes further than the English law of 1979. The latter is limited, in its section 36, to providing that the buyer should not return the goods to the seller897. 219. Resolution - In the perspective of contributing to the fulfillment of the contractual purpose, linked to good faith - loyalty, the resolution for breach of the obligations of the parties should not be extremely rigid and operate in the face of any breach of contract. On the contrary, only a breach of a certain importance, or even of a fundamental nature, should give rise to an action for termination of the contract for the sale of goods. The foregoing criterion is set out in Article 64 of the CISG, which stipulates the seller's right to demand termination if breach of any of the buyer's obligations is essential, or if the buyer fails to pay the price or to receive delivery within the additional time allowed, or declares that he will not do so. 896

Cf. CARR I., op. cit., p. 85. See BRIDGE M., The International Sale of Goods, Law and Practice, op. cit., pp. 585-586. 897

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Mutatis mutandis, the buyer, in accordance with Article 49 of CISG, may demand termination if the breach of one of the seller's obligations is essential, or, if the seller fails to deliver within the additional time allowed, or declares that he will not do so. In addition, article 82 of the CISG prevents the buyer from suing for resolution or demanding delivery of substitute goods if he cannot return them in the same condition in which they were received, which is also consistent with the honesty characteristic of good faith. 220. Price reduction - On the other hand, the possibility of applying for the price reduction provided for in article 50 of the CISG is consistent with this spirit of cooperation inherent in good faith, since it provides that such a reduction is not possible if the seller remedies its failure to deliver conforming goods, if it has been granted a grace period, or if the buyer has refused subsequent repair or delivery. This is consistent with good faith and honesty, because otherwise the buyer would experience an unjust enrichment. 221. Specific performance - Good faith-loyalty obliges, as a general rule, to perform the obligations contracted in the form stipulated in the contract, i.e., in nature. Traditionally, compliance by equivalence (compensatory damages) is residual in civil law898, and only takes place when specific performance has become impossible. In common law, the situation is reversed, according to the remedies precedes rights rule899. Therefore, as we have seen above, specific performance in this legal system applies essentially when damages would not satisfy the creditor of the obligation900, considering equity; or, under rule 52(1) of the English Sale of Goods Act of 1979, in the case of particular species or goods. The CISG, in its Articles 28 and 46, favored specific performance, an institution of good faith. In fact, as Professor Carr points out: "It must be noted that under the Vienna Convention specific performance is not conditional on damages being inadequate. In the context of sale of goods, it is unlikely to be awarded that often since it would be possible to 898

As we have seen, this has changed in France with the reform of the law of contracts and obligations. Thus, today it must be possible and reasonable, in accordance with article 1221, new, of the c.civ. 899 "Procedure first." In civil law the opposite rule is "if there is no interest, there is no action". 900 See Land Rover Group Ltd. v UPF (UK) Ltd., (2002) EWHC 3183.

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source similar goods from another merchant. Courts in England are reluctant to order specific performance when acquiring goods from another source could take well over nine months as Société des industries Métallurgiques S.A. v Bronx Engineering Co. Ltd. suggests. This reluctance can cause problems for the buyer. The Vienna Convention follows the civil law tradition in respect of specific performance and this is no bad thing given the grief that hunting for goods in the open market can cause901.

222. Good faith and mitigation of damages - As we have seen, there is no obligation to reduce the damage caused in French legislation902-903. In common law, however, it is mandatory to do so904. This rule has also been enshrined in article 77 of CISG, which requires that reasonable measures be taken to reduce the harm and punishes its omission with a proportional reduction of the damages awarded to the creditor (debtor of this obligation). This obligation to reduce harm, while rooted in common law905, is also a manifestation of the cooperation inherent in good faith. In this case, helping the aggrieved party to reduce its losses is an action that is in accordance with morals, or at least business ethics. Thus, we can observe that, although common law does not enshrine a general principle of good faith like civil law, it applies it indirectly, in particular through the duty of cooperation of the parties in the contract for the sale of goods, a duty that is characteristic of good faith in civil law and that the CISG finally preserved in the aforementioned article 77. 223. Good faith and legitimate expectations - The two notions are intrinsically related. If the parties enter into a contract with each other it is because they trust each other and seek to achieve a common goal with the contract for the sale of goods. In this sense, legitimate expectations imply that the contract is performed as intended.

901

See CARR I., op. cit. pp. 86-87. See Civ. 2nd, 19 June 2003, Bulletin 2003 II No. 203, p. 171. 903 See supra TERRE F. SIMLER P. and LEQUETTE Y., pp. 960-963. 904 See British Westinghouse Electric and Mfg Co. Ltd. v Underground Electric Rys Co. Of London Ltd., (1912) AC 673 905 Hadley rule, see supra. 902

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Some WTO arbitral awards have been favourable to the recognition of a link between good faith and906 legitimate expectations. Others, however, deny it.907 It is interesting to observe for our object of study the case Australiasubsidy GATT 47 (1950) panel report, because it referred to Chile and one of its main export products at that time, sodium nitrate. The facts were as follows: During the Second World War, Australia provided import subsidies for sodium nitrate, which lasted until 1947. At that time, Chile filed a complaint, and a panel was formed. It concluded that, despite the applicant's legitimate expectation that sodium nitrate and ammonium sulphate (competition) would receive the same treatment during the post-war shortage and that a change in the treatment of sodium nitrate in this context was unpredictable (which penalised the prices of the Chilean product compared to those of the competitive fertiliser), Australia had acted in the spirit of GATT908 (and thus in good faith). 906

Affaire DS 24, United States - Restrictions on imports of cotton underwear and synthetic and man-made fibers: In this case, on December 22, 1995, Costa Rica requested consultations with the United States regarding the restrictions applied by the United States to its textile imports. In a judgment rendered on 8 November 1996, a special dispute settlement panel declared the limitations incompatible with the Agreement on Textiles and Clothing on the basis of the words, context and general purpose of the Agreement (exporting members can legitimately expect that the transitional safeguards will be applied in a moderate manner in order to protect domestic producers of equal and/or directly competitive products). The applicant appealed on certain points and the appeal body upheld the appeal and ratified its claims on 10 February 1997, which was adopted on 25 February 1997. Cf. MITCHELL Andrew D. , SORNARAJAH M. and VOON Tania, op. cit., p. 50. See: https://www.wto.org/french/tratop_e/dispu_e/cases_e/ds24_e.htm, accessed 9 March 2017. 907 Affaire DS 50, India-protection of industrial property of pharmaceuticals and chemicals. In this case, the United States requested consultations with India, as it considered that the defendant was not granting patent protection for pharmaceutical and chemical products intended for agriculture, thus infringing Articles 27, 65 and 70 of the Agreement on Trade-Related Aspects of Intellectual Property Rights. In its judgement of 5 September 1997, the panel found that India had violated Articles 63:1, 63:2, 70:8 and 70:9 of the Agreement. India appealed and the appellate body upheld the judgement on 19 December 1997, with the exception of Article 63:1, as it considered that this did not fall within the mandate of the panel. See: https://www.wto.org/french/tratop_f/dispu_f/cases_f/ds50_f.htm, accessed 9 March 2017. 908 Subsidies are essentially transitional under GATT Article XVI.

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224. Good faith and integrity of consent - Defects of consent are not a common cause for annulment of international sales of goods. Arbitral tribunals are quite reluctant to admit them, since the parties are professionals who know their trade well, as a general rule, and therefore difficult to deceive909. In spite of this, the hypotheses of willful misrepresentation are theoretically possible, if the seller breaches his obligation to provide information, to cooperate and to have good faith and loyalty. 225. Estoppel - This institution is a consequence of good faith and also applies the Roman rule recognized by the lex mercatoria: non licet venire contra factum proprium or allegans contraria non audiendus est. It consists of the impossibility, for one of the parties, of taking advantage of an act by which the other party has given him confidence and subsequently suffered damage. It obliges the parties to act consistently. The Dalloz dictionary defines it as follows: "(General procedure). A common law concept that sanctions contradictions in the conduct of a litigant during the successive phases of the trial. This application of the principle of procedural loyalty is also accepted in French civil proceedings (Com., 20 September 2011, No. 10-22.888; Civ.1st., 24 September 2014, No. 13-14-534), specifying that the mere fact that one party contradicts itself to the detriment of another does not necessarily mean inadmissibility, particularly in the case of actions of a different nature that do not oppose the same parties (Ass.plen., 27 February 2009). The theory of estoppel has been enshrined by the legislator in the field of arbitration, but according to the Conseil d’État, it is not applicable to the tax litigation procedure (judgment, April 1, 2010)910 ".

In WTO proceedings, the appellate body has always rejected its application. This may be a consequence of the opposition of some of its members to recognize the general character of the principle, but it is also in contradiction with Article 3.10 already seen, which obliges to resolve differences in good faith911.

909

See JACQUET J-M, DELEBECQUE Ph. and CORNELOUP S., op. cit. , p. 267. Lexique des termes juridiques 2015-2016, Dalloz, Paris, France, 2015, p. 449. 911 See MITCHELL Andrew D., SORNARAJAH M. and VOON Tania, op. cit. , p. 21. 910

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Similarly, it has no place in the CISG, according to Professor Bridge, because restitution would be possible even in case of resale, processing or consumption of goods912. 226. Negotiations and pre-contract phase - The principle of good faith, according to the conception of civil law, extends to the entire contract iter: before the conclusion of the contract, as opposed to fraud and willful misrepresentation (then the seller must adequately fulfill his obligations of information, advice and security), at the time of the conclusion of the contract, and even after that. It is interesting to note that even among common law authors, who believe in principle that good faith is not a general principle in the CISG and that its scope focuses on the interpretation of contracts for the sale of goods, some admit that it also extends to preliminary negotiations913. The guilty rupture of negotiations is sanctioned by the Rome II regulation with the notion of culpa in contrahendo. The applicable law will be the one corresponding to the foreseen contract. Otherwise, it will be necessary to apply the connection criteria specific to non-contractual obligations (place of damage, etc.)914. 227. Post-contract phase - As we have said, the principle refers to the entire contract iter, even after the contract has produced all its effects between the parties. In accordance with the principle of good faith-loyalty, the CISG obliges the seller, in its Articles 41 and 42, to warranty the buyer the absence of eviction, i.e. the transfer of ownership free of claims or rights of third parties, especially those related to industrial property. It's logical that no one wants to buy pledged products, for example. The three rights compared in our object of study go in the same direction915. On the other hand, it is usually necessary to settle certain transactions between the parties after the contract (orders in progress, liquidation of stocks). Thus, some obligations sometimes extend over several years; for 912

See BRIDGE M., The International Sale of Goods, Law and Practice, 2nd ed., Oxford University Press, U.K., 2007, p. 584. 913 See DEEB GABRIEL Henry, Contracts for the Sale of Goods, A Comparison of U.S. and International Law, 2nd ed., Oxford University Press, New York, U.S.A., 2009, pp. 22-23. 914 See JACQUET J-M, DELEBECQUE Ph. and CORNELOUP S., op. cit. , p. 695. 915 Section 12 (4) of the English Sale of Goods Act 1979, arts. 1625 and ff. cod.civ and 1839 c.c.ch.

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example, those of non-competition or confidentiality. In this case, the parties must act fairly towards each other. These situations are often provided for in special clauses916. Similarly, if one of the parties requests documents or information from the other several years after the conclusion of the contract, there is an obligation of loyalty to deliver them (if they are still available), even after the limitation periods have expired, which is a consequence of the duty of cooperation required by good faith. 228. Good faith and equity - Equity is often confused with good faith, as both concepts seek to emphasize the spirit of the contract. But they do it differently. If good faith has an endogenous relationship with the contract, equity is exogenous917. Thus, for reasons of equity, it has been accepted that abuse of pricing in a framework contract should be sanctioned with damages, or termination of the contract in its absence, in the new article 1164 of the French Civil Code, which enshrines the jurisprudence of the Plenary Assembly of the Court of Cassation of 1 December 1995. Equity can be applied contra legem. The parties may also expressly authorize the arbitrator to rule ex aequo et bono918. Good faith, however, is intimately linked to the pacta sunt919 principle throughout the entire contract iter, thus preventing going against the law. 229. Relationship with excessive onerousity - We have seen that hardship is not accepted by common law920. As the name implies (difficulties), the parties must seek alternative means or solutions to contractual upheavals, overcome them and fulfil their contractual obligations. In civil law, as we have also noted, Chilean law has rejected the imprévision, at the level of ordinary courts921; however, it is often recognized by arbitral tribunals922. 916

See JACQUET J-M, DELEBECQUE Ph. and CORNELOUP S., op. cit. p. 306. See TERRÉ, SIMLER and LEQUETTE, op. cit., pp. 494-495. 918 See MITCHELL Andrew D., SORNARAJAH M. and VOON Tania, op. cit. pp. 27 and 154. 919 Ibid, p. 19 and ff. 920 See Tsakiroglou & Co Ltd. v Noblee Thorl GmbH, 1962, AC 93 921 See Galtier Auguste v Fisco, C.Sup., Cass., 10.ENE.925. 922 See Inversiones Mónaco Ltda. v ENAP, arbitrator Mr. Carlos Urenda Zegers, 13.NOV.986; Sociedad Constructora La Aguada Ltda. with EMOS S.A., arbitrator Mr. Claudio Illanes Ríos, ratified by the Supreme Court on 10.OCT.994. 917

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The situation in France is particular. We know that there was a dichotomy between the jurisprudence of the Conseil d’État, which recognised it, since Compagnie générale d'éclairage de Bordeaux923, and that of the Court of Cassation, which rejected it in accordance with its famous Canal de Craponne judgment924. This situation has evolved since then. The new article 1195 of the c.civ., resulting from the reform to the law of contracts and obligations of 2016, now enshrines the theory of imprévision, in three stages. Thus, the parties can now renegotiate, agree to terminate the contract, or ask the judge to review it or terminate it. This legislative development is interesting. The doctrine called for an amendment in this sense, on the basis of the principle of good faith, explaining that too strict performance of contractual stipulations did not take into account good faith when a change in circumstances made one party's performance derisory and the other's too burdensome925. At the international level, price fluctuations of certain commodities are common (e.g., crude oil) and therefore the provision of preventive clauses in this regard is widespread. The CISG addresses this difficulty in its article 79, but on the basis of an "enlarged" force majeure, as we shall see later. 230. The introduction of the principle into common law - The principle of good faith is historically limited in English law, according to the famous Carter v Bohem926 judgment. With a few small exceptions, which are actually equity927 solutions, case law has always rejected the principle. In the famous ruling of the House of Lords Walford v Miles928, Lord Ackner indicated that it opposed the contradictory nature of a negotiation in which each party has opposing interests. He declared: “... the concept of a duty to carry on negotiations in good faith is inherently repugnant to the adversarial position of the parties when involved in negotiations. Each party to the negotiations is entitled to pursue his (or her) own interest, so long as he avoids making misrepresentations. To advance that interest he must be entitled, if he thinks it appropriate, to threaten to withdraw from further negotiations or to withdraw in fact in the hope that 923

See CE, 30 March 1916. See Civ. 6 March 1876, PD 1876.1.193, note Giboulot. 925 Cf. TERRÉ F., SIMLER Ph. and LEQUETTE Y., op. cit. pp. 520-523. 926 See 1766, 3 Burr. 1905. 927 See Island Finances Ltd. 1940, 4 DLR 357. In this case, it was established that the bona fide sub-buyer of a car that had previously been sold under condition, and by the same selling company, had a fair title. 928 See (1992) 2 AC 128. 924

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the opposite party may seek to reopen the negotiations by offering him improved terms. Mr Naughton, of course, accepts that the agreement upon which he relies does not contain a duty to complete the negotiations. But that still leaves the vital question: how is a vendor ever to know that he is entitled to withdraw from further negotiations? How is the court to police such an ‘agreement’? A duty to negotiate in good faith is as unworkable in practice as it is inherently inconsistent with the position of a negotiating party...”.

However, this argument is debatable from two points of view: from a logical point of view and a scientific point of view. a. From a logical perspective, if such a sentence sanctioned malice, it should favor good faith and protect it, because malice is synonymous with "bad faith”. If on the one hand we reject malice, implicitly and otherwise our argument favors good faith. There is an inherent syllogism in the argument: 1) Malice is always unacceptable (major premise). 2) Bad faith is synonymous with malice (minor premise). 3) Bad faith is always unacceptable (conclusion). b. Moreover, according to scientific studies conducted since the 1980s, particularly based on Harvard Law School's theory of negotiation, negotiation can and should be consensual rather than conflicting or contradictory. According to the famous Harvard School of Negotiation, negotiation should be based on four pillars929: 1) Problems must be separated from people. 2) We must focus on the interests and not on the positions of the parties. 3) All possible alternatives should be explored (brainstorming). 4) It is necessary to propose solutions based on objective criteria. Almost all modern doctrine confirms these elements. Conflicting negotiations should be the exception, not the rule, and limited to serious cases (conflicting or irrational counterparts)930-931.

929

See FISHER Roger, URY William, & PATTON Bruce, Getting to Yes, Negotiating Agreement Without Giving in, Houghton Mifflin Company, Boston/New York, second edition, 1991. 930 See COHEN Herb, ¡Negotiate this! By Caring, but not T-h-a-t Much, Business Plus, New York/Boston, 2003, p. 86. 931 KENNEDY Gavin, Everything is negotiable. How to get the Best Deal Every Time, RH Books, U.K., 2008, p. 89.

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On the other hand, there has been an evolution in this respect in the positive law of common law. Indeed, American commercial law has expressly enshrined good faith932, demonstrating a global and progressive trend towards the promotion and protection of "French-style" good faith. 231. Good faith and the progressive abandonment of the caveat emptor rule - According to this Roman rule, the buyer had to make an exhaustive examination of the goods he bought, under penalty of not being able to allege defects of conformity. As we have seen above, this rule was present in common law until the enactment of the Merchandise Sale Act of 1893, even though Heilbutt v Hickson had already established the sufficiency of a "normal," nonexhaustive, or "destructive" examination of the goods933. However, section 14 (2C) of the English Sale of Goods Act 1979 has excluded the possibility of a claim if this examination reveals defects in the goods934. Article 35 of the CISG is broader in this respect and in accordance with the principle of good faith, since it does not establish an express rule such as common law, which allows for broader claims of non-conformity935. 232. Good faith and insurance of goods - The insurance contract is considered an uberrima fidei contract. Therefore, the insured must give the insurer all the information necessary to insure the property. Otherwise, according to the common law, the sanctions in case of breach of this obligation in favour of the insurer or reinsurer will be, according to the cases: estoppel936, nullity for willful misrepresentation or the termination of the contract937. Insurance contracts associated with international sales of goods are often written in English, which has become the common language of the business world938. 932

Article 1-304 of the Uniform Commercial Code of the United States of America provides that all contracts contained therein must be performed in good faith. 933 See (1872) GO CP 438. 934 See BRIDGE Michael, The International Sale of Goods, Law and Practice, op. cit., p. 563. 935 With the exception of art. 35 No. 3 CISG (if the buyer was aware of the defect or should have been aware of it at the time the contract was concluded). 936 See COX Raymond, MERRETT Louise and SMITH Marcus, Private International Law of Reinsurance and Insurance, Informa Law, London, England, 2006, p. 92. 937 See COX Raymond, MERRETT Louise and SMITH Marcus, op. cit. pp. 93-94. 938 See JACQUET J-M, DELEBECQUE Ph. and CORNELOUP S., op. cit. p. 275.

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In the absence of contractual stipulation, the applicable law is that of the insurer's residence (Rome I regulation, art. 7), except in the case of closer ties with another country939. 233. WTO Jurisprudence - Chile (taxes on alcoholic beverages), case DS87 - This is a very interesting case for this study, as it deals with the sale of European products to Chile, pacta sunt and good faith. Chile is an emerging country, the so called “Switzerland of South America”940. Its economy is based mainly on the export of minerals (copper, iron, lithium), wines and spirits (produced mainly from vineyards imported from France in the nineteenth century), fruits, fish, meat and wood. The main markets for these products are China, the United States, Japan, Brazil, South Korea and the European Union. In this case, the European Union requested consultations with Chile on June 4 and December 15, 1997, because Chile had levied lower taxes on the national liqueur "Pisco" than on liqueurs imported from Europe, which would be contrary to Article 3:2 of GATT 1994. A second European lawsuit (DS110) concerned an amendment to national legislation on the taxation of alcoholic beverages in Chile and was added to the original (DS87). In a decision rendered on 15 June 1999, a panel constituted under the WTO dispute settlement procedure declared that the Chilean tax system was incompatible with Article 3:2 of GATT 1994. However, the defendant appealed on the following grounds: 1. The taxation was not arbitrary as the special group believed, since its basis was hybrid: the alcohol content (specific tax) and the prices of the products (ad valorem tax), and not their origin or denomination. 2. The panel would not have considered that several locally produced alcoholic beverages were subject to higher taxes than European products for these reasons. However, the WTO appellate body upheld the complaint and ratified its claims on 12 September 2000. Chile then asked the Dispute Settlement Body for a reasonable period to harmonise its domestic tax legislation with its position, which finally happened on March 21, 2003 941.

939

Ibid, p. 630. See: https://thegedi.org/chile-the-switzerland-of-south-america/ , accessed 23 December 2019. 941 Available at: https://www.wto.org/french/tratop_e/dispu_e/cases_e/ds87_e.htm, accessed 20 March 2017. 940

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C. Positive sources 234. Positive sources - Good faith is enshrined in many international treaties. Thus, article 38 (1) ( c ) of the Statute of the International Court of Justice provides that one of the sources of law to be used in its judgments is "the general principles of law recognized by civilized nations", including good faith. Article 7 of CISG and articles 18, 26 and 31 of the 1969 Vienna Convention on the Law of Treaties do the same. In addition, Article 1.7. of the UNIDROIT Principles provides as follows “Article 1.7 (Good faith and fair dealing) (1) Each party must act in accordance with good faith and fair dealing in international trade. (2) The parties may not exclude or limit this duty”.

For its part, Article 2(2) of the Charter of the United Nations provides that its members must fulfil their obligations in good faith. The principles of European contract law also stipulate in articles 1-106, 1-201 and 1-202 that the parties must act in good faith in the exercise of their rights and in the performance of their obligations, promote it and cooperate with each other. On the other hand, Article 3.10 of the WTO "Understanding on Rules and Procedures Governing the Settlement of Disputes", Annex 2, provides as follows: “10. It is understood that requests for conciliation and the use of the dispute settlement procedures should not be intended or considered as contentious acts and that, if a dispute arises, all Members will engage in these procedures in good faith in an effort to resolve the dispute...”. In its Article 4 on consultations, the following is added in paragraph 3: “If a request for consultations is made pursuant to a covered agreement, the Member to which the request is made shall, unless otherwise mutually agreed, reply to the request within 10 days after the date of its receipt and shall enter into consultations in good faith within a period of no more than 30 days after the date of receipt of the request, with a view to reaching a mutually satisfactory solution...”. GATT942 in Article XXIII:1(b) and GATS943 in Article 26.1 also refer indirectly to good faith (in relation to legitimate claims and expectations). 942 943

General Agreement on Tariffs and Trade. General Agreement on Trade in Services.

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Article 2A of the UNCITRAL Model Law on International Commercial Arbitration - International Origin and General Principles (adopted by the Commission at its thirty-ninth session in 2006) provides as follows: “(1) In the interpretation of this Law, regard is to be had to its international origin and to the need to promote uniformity in its application and the observance of good faith” . We can therefore state that the principle of good faith has received universal recognition, thanks to its French-style codification. D. Practical utility 235. Usefulness of principle in international sales - Good faith is to some extent the introduction of morality into positive law944, but it is more than an "ideal" notion collected by medieval canonists, developed by Portalis, Domat, Pothier and transposed into the Napoleonic Code, as some common law jurists believe. Others recognize that it gives rise to duties of loyalty, cooperation and information945. She is the basis of the Western legal system. In fact, it has great practical utility: a. Justifies the making of a decision in a litigation when several are possible. Good faith is a polyvalent concept, of course, but there are others in law that are also polyvalent and are widely used in spite of it (justice, for example, admits several meanings: commutative, distributive, social, etc.). b. It is used to avoid unfair decisions, i.e., to control the strict application of the law. In this sense, the values associated with it are found in institutions such as estoppel, abuse of rights, legitimate expectations, respect for acquired rights, etc. c. Legitimate sentences, because it helps to give them internal consistency with the values associated with good faith. Some arbitrators are sometimes criticized for having a certain "bias" in favor of large multinational corporations. This risk is considerably reduced, or nullified, when they justify their decisions with values inherent in the principle of good faith. It will be much more difficult to grant unfair and a priori favorable decisions to the economically "powerful" if they are taken with due regard for good faith and its corollary principles. 944 945

12.

See TERRÉ F., SIMLER Ph. and LEQUETTE Y., op. cit. p. 486. See MITCHELL Andrew D., SORNARAJAH M. and VOON Tania, op. cit. , p.

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d. Helps reduce operating costs. Acting honestly in business relationships is a real investment in the short and long term. Customers become loyal and companies avoid paying large fines. Volkswagen's "dieselgate" is a good example in this respect: a software program that cheats during the control of polluting emissions and which was discovered by the US authorities, forced the car manufacturer to intervene in the cars in question and to compensate thousands of car owners and dealerships. This has demonstrated the importance of selling goods in good faith. The bill was heavy for the German company. In the United States alone it amounted to $17.5 billion by the end of 2016946. The scandal damaged their sales and the brand confidence of many customers. Some models will disappear. In addition, several distributors have filed lawsuits against the manufacturer for large losses suffered as a result of this deception947. The traditional reliability associated with "made in Germany" has also been strongly questioned. e. The principle is essential for the normal functioning of international trade. The free movement of goods within the European Union and their movement around the world presupposes that the parties trust each other. Without this, transactions become more complicated and delayed. f. Helps to interpret contracts in general and sales contracts in particular. As we have seen, according to the contra proferentem rule, obscure or doubtful clauses must be interpreted against the writer. Similarly, those that are ambiguous must be applied restrictively, according to the former article 1158 of the French Civil Code and article 1561 of the Chilean Civil Code. This interpretative rule, an expression of good faith - loyalty known as in dubio mitus, obliges, if the contractual clauses are not sufficiently clear, to prefer the least onerous meaning for the debtor948.

946

See: http://www.lemonde.fr/automobile/article/2017/01/11/la-facture-dudieselgate-s-envole-pour-volkswagen-aux-etats-unis_5060831_1654940.html , accessed 2 March 2017. 947 See: https://www.nytimes.com/2016/04/07/business/owner-of-3-vwdealerships-sues-carmaker-over-diesel-scandal.html?_r=0 , consulted on 02 March 2017. 948 See MITCHELL Andrew D., SORNARAJAH M. and VOON Tania, op. cit. p. 45 and ff.

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236. Other general principles - In addition to party autonomy and good faith, a fundamental principle enshrined in CISG is that of the preservation of the contract, a principle related to the two previous principles. According to this principle, under the de minimis rule of civil law, the buyer is entitled to a reduction in the price of the goods if they contain minor defects (and not the resolution of the contract). In the same spirit, the parties should give each other additional time limits and continue with the execution of the contract, as we will see later. This principle underlies Articles 34, 37, 48, 49, 51, 64, 71 and 72 of the CISG and is a consequence of good faith-loyalty949. Other principles are present in the CISG, such as reasonableness (articles 8, 16, 18, 25, 33), consensualism (article 11), full compensation950 (article 74) and economy (articles 25, 77). SECTION 2 - SOLUTIONS INSPIRED BY THE UNIDROIT PRINCIPLES So far we have demonstrated the primacy of the civil law system in the CISG, which has incorporated several general principles of civil law into its own provisions. Another extremely useful tool for harmonizing common law rules on the sale of goods and the civil law system are the Unidroit Principles of International Commercial Contracts (U.P.), 2016. For this purpose, we will use the text available in French (which we will translate, as it contains many useful examples). Although they are not an instrument of civil law in the strict sense (given the heterogeneous composition of UNIDROIT), we will see that they privilege this system over common law. In addition to the express text of the principles, several arguments support our hypothesis: 1) The presence on the Unidroit pilot committee of the famous french Professor René David and other famous civil law jurists helps to understand the importance attached to the principles of civil law. 2) The geographical location of the Institute in Rome, cradle of civil law, gives us another argument to understand this preponderance of civil law in this other instrument of harmonisation which are the Unidroit principles. 3) Among the direct sources consulted in the development of the Principles, several civil codes were used. 949

See DIMATTEO L., DHOOGE L., GREENE S. et. al., International Sales Law a Critical Analysis of CISG Juriprudence, Cambridge University Press, New York, U.S.A., 2005, p. 25. 950 Compensation at CISG follows the civil law rule that all damages must be compensated.

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4) The Principles take the form of a structured codification, in the manner of civil law. 5) The Principles favour good faith, as does civil law. 6) The rules governing the interpretation of contracts which they provide for enshrine civil law techniques. 7) Finally, the adoption of several general principles of civil law confirms the relationship between the UNIDROIT Principles and civil law. Although the Unidroit Institute was established in 1926, the Principles follow the Vienna Convention of 1980 (its first version dates from 1994). However, the link with the Convention is close: the Principles help to integrate the loopholes in the Convention, in accordance with Articles 7(2) and 9(2) of the CISG. § 1 - The foundations of the UNIDROIT principles A. Historical background 237. Origins - The International Institute for the Unification of Private Law (Unidroit) was created on 20 April 1926 in Rome, Italy. 63 countries are members of UNIDROIT, including France, Chile, the United Kingdom, China, the United States of America, India and Brazil. Its objective is the harmonisation and unification of private international law. Thus, its activity was related to the work of UNCITRAL951, which, in particular, developed the 1980 CISG 952. Since 1971, the Institute has worked on the development of principles relating to international commercial contracts, finally published in 1994 and subsequently revised in 2004, 2010 and 2016. The direct sources used were the Algerian Civil Code, the Foreign Economic Contracts Act of China of 1975, the American Uniform Commercial Code, the Civil Codes of the Netherlands and Quebec, the ICC Rules of Paris and UNCITRAL, mainly953. The UNIDROIT Principles can be considered a civil law instrument, since they manifest themselves as a structured codification954. However,

951

United Nations Commission on International Trade Law. See JACQUET J-M, DELEBECQUE Ph. and CORNELOUP S., op. cit. , p. 97. 953 See CARR Indira, op. cit. , p. 92. 954 Cf. CLAEYS Ignace, ERAUW Johan, FONTAINE Marcel et al., Les principes unidroit relatifs aux contrats de commerce international (éd.2010) et l'arbitrage, actes du Colloque CEPANI du 24 mai 2011, Bruylant, Bruxelles, Belgique, 2011, p. 22. 952

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they also enshrine common law institutions, such as the anticipatory breach provided for in Article 7.3.3 U.P. Although the Principles are not binding, they have a certain doctrinal and persuasive authority and are usually used by arbitral tribunals, when the contract makes express reference to them, to general principles or to lex mercatoria955, in accordance with their preamble, which provides as follows: “Preamble - Purpose of the Principles These Principles set forth general rules for international commercial contracts. They shall be applied when the parties have agreed that their contracts be governed by them. They may be applied when the parties have agreed that their contracts be governed by general principles of law, the lex mercatoria or the like. They may provide a solution to an issue raised when it proves impossible to establish the relevant rule of the applicable law. They may be used to interpret or supplement international uniform law instruments. They may be used to interpret or supplement domestic law. They may serve as a model for national and international legislators”.

The U.P. are also used to integrate loopholes and assist in the interpretation of contracts of international sale of goods956, since they go beyond the CISG by regulating certain situations not foreseen by it (error, force, defects of representation, etc.)957. It should be noted that they have also influenced the domestic legislation of some countries, including France958.

955

The concept of lex mercatoria dates back some 50 years and includes general principles of law derived from international practice. However, they are not a codification of the lex mercatoria, but a kind of index in relation to its content. See EBERHARD S., op. cit. , p. 46. 956 Ibid, p. 93. 957 Ibidem. 958 In the relation to the President of the Republic of Ordinance No. 2016-131 of 10 February 2016, it is indicated as follows.

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B. Basic notions 238. Legal Nature - The Principles are not international treaties like the CISG, but general rules with a worldwide vocation959 whose purpose is to balance diverse interests. In this sense, it can be said that they are a "postmodern restatement"960 or a soft law. 239. Scope of the U.P. - Its main utility with respect to CISG is to be able to fill its loopholes961. This is possible because, in its Article 7(2), it refers as mechanisms of integration to the general principles and rules of private international law. It is therefore common for them to be used in international commercial arbitration962. This is very important and useful. In fact, even if the UNIDROIT principles are post-CISG and much broader in scope, they can be used in all cases where they do not contradict the CISG. Therefore, the U.P. are complementary963 to the CISG. Its "didactic" writing with comments and examples for each article, makes its use very practical964. Moreover, its application is more "conciliatory" than that of the rules of private international law, which implies opting for the law of one country965, in spite of other states and to the detriment of the application of uniform criteria966.

959

On the other hand, other principles, such as the Principles of European Contract Law, have a different vocation (all European contracts, including consumer contracts, in Europe). Cf. EBERHARD Steven, op. cit., p. 45. 960 A compilation of the law in force at a given time. Cf. EBERHARD S., op. cit. , p. 50. 961 See RIMKE Joern, Force majeure and hardship: Application in international trade practice with specific regard to the CISG and the UNIDROIT Principles of International Commercial Contracts, available at: http://www.cisg.law.pace.edu/cisg/biblio/rimke.html , accessed 7 april 2017. 962 For example, with regard to interest rates and their manner of application, which are not referred to in Article 78 of the CISG and which are dealt with in Article 7.4.9 U.P. Similarly, Article 25 of CISG is limited to providing a 'generic' definition of essential infringement, which is clarified in several cases in Article 7.3.1 Unidroit. See BRIDGE M., The International Sale of Goods, op. cit. pp. 535-536. 963 Several times they repeat solutions also consecrated by the CISG. See EBERHARD S., op. cit. , p. 64. 964 See GOODE R., KRONKE H. and MCKENDRICK E., op. cit. , p. 243. 965 The implementation of a national law often requires legal advice from one or more of the parties, which is often costly. Cf. EBERHARD S., op. cit. , p. 48. 966 Ibidem.

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In addition, close to the coding technique, they help to avoid the need for "endless" international contracts, such as those resulting from common law, by allowing a teleological or systematic interpretation967. § 2 - Relations between the UNIDROIT principles and the general principles of the civil law system A. Party autonomy 240. U.P. and party autonomy - Several U.P. articles deal with the subject. Mainly: 1. Article 1.1 U.P. establishes freedom of contract by stating that the parties are free to enter into a contract and to determine its content. 2. On the other hand, article 1.3 U.P. enshrines the binding force of the contract or pacta sunt servanda, similar to the former article 1134 of the French civil code, by stating: “Article 1.3 (Binding character of contract) A contract validly entered into is binding upon the parties. It can only be modified or terminated in accordance with its terms or by agreement or as otherwise provided in these Principles”.

Some specific limitations to this rule will be seen in relation to Article 7.2.2 U.P. and specific perfomance. 3. Similarly, article 1.4 U.P. deals with the general limits of principles, stating that they must respect national and international peremptory norms, in accordance with private international law. 4. For its part, Article 1.5 U.P. establishes the power according to which the parties may dispose of the U.P., repealing its provisions or effects, unless they provide otherwise. 5. Article 3.1.2 U.P. reaffirms the principle of consensualism by stating: “Article 3.1.2 (Validity of mere agreement) A contract is concluded, modified or terminated by the mere agreement of the parties, without any further requirements”.

6. Article 4.1 U.P. establishes as a "golden rule" for the interpretation of contracts, the common intention of the parties. 7. In accordance with article 4.8 U.P. The parties' intention should be privileged in the face of possible omissions in the contracts. 967

Ibid, p. 50.

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However, the scope of the principle of party autonomy does not extend to the Imprévision. 241. Imprévision - She is treated under the English name of hardship in articles 6.2.1, 6.2.2 and 6.2.3 U.P. The principle, established by Article 6.2.1, is that parties must comply with their obligations, even if they become more onerous. The U.P. illustrate this with an example very relevant to our object of study, indicating that if one of the parties is obliged to transport goods from one country to another at a fixed price, it cannot ask for an increase in its tariffs by invoking an unforeseen increase in fuel costs as a consequence of a regional political crisis968. The binding force of the contract is imposed in relation to the difficulties, but not absolutely. In fact, the following two articles authorize the renegotiation of a contract that has become more burdensome for one of the parties if certain conditions are met. 242. Eligibility conditions : a. The modification of benefits (increase in the cost of a part or decrease in the value of a consideration) must be "fundamental". The increase in costs, as the comments of the U.P. indicate,969 will often be the result of an increase in the price of the raw materials needed to produce the goods (oil for the plastics industry; lithium for the electronics industry; copper and steel for the automotive sector; cotton for the textile industry, etc.). Although the principles do not indicate what is to be understood by fundamental alteration, however, applying the criteria of commutative justice and also applying article 7.3.1 U.P. (right of termination in case of fundamental non-performance) by analogy, this could be considered to be the case if the disturbance of conditions is greater than 50%. The doctrine concludes in the same sense970. The comments of the U.P. give as an example the case of the former G.D.R. where after German reunification there was no longer a market for the sale of electronic products imported from the former socialist republics (former U.S.S.R. and others), the public was no longer interested in them because they preferred Japanese products or products manufactured in West 968

See U.P., 2016, p. 226. Ibid, p. 228. 970 See CLAEYS Ignace, ERAUW Johan, FONTAINE Marcel and others, op. cit. , p. 104. 969

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Germany, much more powerful and modern. In this case, the seller's service lost all its commercial value. In all cases, the assessment must be objective and not just that of the creditor971. b. The disruption of the contractual economy must occur after the conclusion of the contract. Otherwise, the aggrieved party would not be acting in good faith, because it would be acting with willful misrepresentation, or even with a perfect knowledge of the events that will alter the contractual equilibrium in the future; a balance that is necessary in a collaborative relationship. c. The alteration was not reasonably foreseeable. Otherwise, there would be negligence. The comments of the U.P. illustrate this situation with the example of the sale of crude oil at a fixed price, without having taken into account the risk of war in a highly conflictive zone. In this case, the contingency cannot be invoked because the lack of foresight is unreasonable in such circumstances972. On the other hand, if the circumstances were foreseeable, but not their effects, the imprévision is accepted. According to the examples proposed in the comments of the U.P., this would be the case of a devaluation of the order of 80% within one month, of a currency that was in the process of slow depreciation at the time of the conclusion of the contract of sale973. It should be noted here that hardship is often associated with, but not limited to, long-term performance contracts. d. The alteration must escape the control of the aggrieved party. If the aggrieved party can reasonably overcome the difficulties, he still has control of the situation, and therefore there is no hardship, but only a situation unfavorable to his interests that he must assume. e. The risks must not have been assumed by the aggrieved party. This implies the absence of an exoneration clause in this respect and also that the injured party has not assumed this risk according to the nature of the contract. The comments of the U.P. associate them with speculative operations974. As for our object of study, this would be the case, for example, of the purchase of goods that bring a new technology not yet tested. As we have seen before, the imprévision is not accepted in common law as a cause of exoneration of responsibility, since it always requires seeking 971

See U.P., 2016, p. 229. Ibid, p. 229. 973 Ibid, p. 230. 974 Ibidem. 972

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an alternative means to meet the obligations of the parties and bear the additional costs associated with it975. As for the civil law system, we have seen that in Chile it is rejected by the ordinary courts, as a general rule976, and exceptionally admitted by them977 and more widely by the arbitral tribunals978. In France, she was excluded in civil matters after Canal de Craponne979 but was admitted in administrative matters in Compagnie générale d'éclairage de Bordeaux980. However, as has been pointed out, after the reform of the law of contracts and obligations, ordinance No. 2016-131 of 10 February 2016, the new article 1195 of the French Civil Code finally enshrined the theory of imprévision, allowing the parties to discard it (it is not of public order). Otherwise, the contract may be renegotiated, terminated, adapted or reviewed by the judge. This modification seems to be inspired by the U.P., because it foresees the same effects. The relation to the President of the Republic concerning the Ordinance of 10 February 2016 confirms this influence by stating: "The first subtitle, entitled "The contract", is subdivided into four chapters, relating to the liminal provisions (chapter I), the formation of the contract (chapter II), its interpretation (chapter III) and its effects (chapter IV). The plan adopted is therefore clear, simple and chronological, to ensure accessibility and easier understanding than in the current civil code, whose rules relating to the contract are scattered over five chapters. Like the PECL and UNIDROIT principles, this chronological plan, which reflects the entire legal life of the contract, from its formation to its conclusion, also facilitates the understanding and application of established norms”. 243. Effects - the U.P. states in article 6.2.3 that in the event of hardship the aggrieved party may request the commencement of renegotiations (without delay and without suspending performance of its obligations either), and that if these fail within a reasonable time, it may submit the matter to the competent court, which may alternatively adapt the contract to 975

See Tsakiroglou & Co Ltd v Noblee Thorl GmbH, 1962, AC 93. See Galtier Auguste v Fisco, C.Sup., Cass., January 10, 1925. 977 See Guillermo Larraín Vial v SERVIU, C.Ap. de Santiago, 14 November 2006. 978 See Inversiones Mónaco Ltda. v ENAP, arbitrator Mr. Carlos Urenda Zegers, 13.NOV.986.; Sociedad Constructora La Aguada Ltda. v EMOS S.A, arbitrator Mr. Claudio Illanes Ríos, ratified by the Supreme Court on 10.OCT.994. 979 See Civ. 6 March 1876, PD 1876.1.193, note Giboulot. 980 See CE, 30 March 1916. 976

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restore the balance of performance or terminate the contract on such date and under such conditions as it shall determine, if it finds the existence of such981. However, it is important to note that the examples given by the comments of the U.P. expressly exclude the possibility of requesting a price renegotiation in case an indexation clause982 has been provided. The request should be made as soon as possible, as soon as the hardship983 is ascertained and should also be substantiated984. In this way, it must have a real reason, that is, the request for renegotiation must not have "tactical" or dilatory purposes, but must be made in good faith985. The outcome of the renegotiations will depend on the circumstances of the case. If they fail, the aggrieved party may apply to the competent court for a decision (which will take place on the date and under the conditions fixed by the court, or for adaptation of the contract to restore the balance of benefits). In addition, it could require the parties to resume renegotiations. The U.P. gives as an example with respect to effects the case in which one of the parties undertakes to buy goods (beer) for three years. After some time, the national legislation of the buyer's country prohibits the sale of alcoholic beverages. This leads to renegotiations for a month. After that term, he sues the court. In this case, the buyer should try to find an alternative market for his seller, in which case, if he manages to sell the goods, even at a lower price, the contract would remain valid and the reduced price would be borne by the buyer. Otherwise, the court could terminate the contract and the buyer would remain liable for payment of the last outstanding delivery986. Finally, it should be noted that the U.P. are very useful for integrating the institution of hardship in contracts for the international sale of goods, since Article 79 of CISG provides for force majeure, but not imprévision987. In this case, if the parties consider the U.P. in their contract of sale as a supplementary law, the judge may modify the contract in cases of excessive onerousness. Not in the opposite case988.

981

Article 6:111: change of circumstances, of the PECL, goes in the same direction. See U.P, 2016, p. 233. 983 This may take time in the case of gradual changes in conditions. 984 See U.P., 2016, pp. 233-234. 985 Ibidem. 986 See U.P., 2016, pp. 235-236. 987 Cf. RIMKE Joern, op. cit. 988 Ibidem. 982

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244. Belgian and Chilean solutions - While in France the problem has been definitively solved with the new article 1195 of the Civil Code, which emerged with the 2016 reform, several countries that follow the French civil codification technique will also have to reform their codes and harmonise them with that code. Some have already acknowledged the imprévision989. Others, without reform, have found coherent solutions based on this theory. In this regard, it is interesting to cite the Belgian and Chilean cases. 245. The Belgian case - There is a very interesting judgment on this subject in Belgian case law: Scafom International BV & Orion Metal BVBA v Exma CPI SA. The facts were as follows: This was a contract for the sale of metallic tubes in which the parties had not foreseen the disproportionate increase in the price of steel following the explosion in demand in China. The buyer, a company from the Netherlands, sued the French seller for specific performance, because the latter refused to continue delivering at contractual prices, which had become derisory in the international context. The Tongres Commercial Court confirmed the claim in a judgment of January 25, 2005, declaring that the CISG was applicable in the present case and that Article 79 of the CISG was only applicable in cases of force majeure. In addition, Belgian law did not recognise the imprévision990. The Antwerp Court of Appeal issued a reversal judgment on 15 February 2007. It considered that article 79 of CISG did not, in fact, regulate imprévision, but that article 7.2 of the CISG made applicable the general principles on which it was based, thus obliging the parties to renegotiate in good faith, and ordered the buyer to pay 450,000 euros. The buyer appealed in cassation, arguing that article 29, paragraph 1, of the 1980 Vienna Convention recognized the principle of the Conventionlaw, that article 55 of the CISG stipulated that the price to be paid was the price determined in the contract, and that article 79 of CISG did not provide for exemption in the event of imprévision. These claims were rejected by the Belgian Court of Cassation. The latter argued that a change in circumstances that might unjustifiably increase benefits could constitute an impediment within the meaning of Article 79 of CISG. In addition, Articles

989

Article 1198 of the Argentine Civil Code, modified by Law No. 17.711, establishes the imprévision. 990 Available at: http://cisgw3.law.pace.edu/cases/050125b1.html, accessed 14 April 2017.

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7.1 and 7.2 oblige consideration of the general principles of international trade law set out in the U.P. (which incite to renegotiate in the case). 246. The Chilean case - In Chile, some authors have proposed the same solution. Thus, Professor Dörr believes that it is possible to accommodate the imprévision without the need to modify the Chilean Civil Code991. A correct interpretation of the law would suffice, for four reasons: a. Cause of the obligation: if we allow the contractual economy to be disturbed in its purpose, the contract would be ineffective for absence of cause, which would be contrary to article 1467 of the Chilean Civil Code. b. In accordance with articles 1440, 1441 and 1444 of the Chilean Civil Code, it is essential that there be equivalence of benefits in onerous commutative contracts, according to their nature, which would be violated by too rigid adherence to pacta sunt servanda, regardless of unforeseen circumstances. c. The principle of good faith is synonymous with loyalty and honesty. Anything contrary to this guiding principle of private law must be rejected. Thus, the wording of the contract cannot contradict this principle. Therefore, the pacta sunt must be subject to good faith and not the other way around. According to article 1546 of the Chilean Civil Code, the contract binds not only to what it expressly stipulates, but also to what arises out of its nature, and therefore obliges you to act in good faith. Demanding benefits that have become excessively onerous would undermine the duty of cooperation inherent in good faith-loyalty, which must be rejected. d. If we do not accept the above arguments, we must, out of equity (recognized by several legal provisions in Chile: article 170 No. 5 c.p.c.ch., 24 c.c.ch. and 73, para. 2º, c.p.r. of 1980) consider the doctrine and comparative law that recognize the theory of imprévision. Professor Alcalde992, for his part, in commenting on the sentence "Guillermo Larraín Vial v SERVIU", considers that the direct application of the general principles of law (good faith, prohibition of unjust enrichment and abuse of law) would have allowed the theory of imprévision to be included in this case. In relation to the imprévision, it is worth mentioning the legal framework of force majeure on the part of the U.P. 991

DÖRR Z. Juan Carlos, "Notas acerca de la teoría de la imprevisión", Revista Chilena de Derecho, vol. 12, 1988. 992 Cf. ALCALDE R. Enrique, Revista Chilena de Derecho, Vol. 34, No. 2 (May August 2007), pp. 361-372.

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247. Force Majeure - In accordance with article 7.1.7 U.P., force majeure exempts the debtor from contractual liability for an obligation breached because of it. This article uses the name (force majeure) and certain conditions of civil law, such as the unpredictable and insurmountable nature of the event993, but also others of common law (frustration and impossibility of performance). Let us remember that the English doctrine of frustration has its origins in Taylor v Caldwell .994In this case, the fire in a theatre where concerts had been scheduled was recognised as constituting a frustration hypothesis of the contract, not attributable to the parties, terminating the contract for impossibility of performance. Frustration can occur in English law as a consequence of the loss of the object of the contract and also due to legal prohibitions995. It is broader than the doctrine of force majeure in civil law, since it extends to situations other than the impossibility of execution alone. For example, in Krell v Henry996, a lease was terminated to see closely the coronation of King Edward VII due to the change of date of the event. As we have seen, rule 7 of the English Sale of Goods Act 1979 provides on this point that, in promises of sale of species, if the object disappears after its conclusion, without the fault of the parties, and before the risk passes to the buyer, there will be no contract of sale. 248. Eligibility conditions: 1. The debtor must notify the creditor that he is unable to perform, the causes and consequences of this impediment. Otherwise, he will owe damages to the creditor. 2. The facts constituting the impediment must have been unforeseeable. There is an interesting case to cite on this subject. The facts were as follows: A Mexican company undertook to sell courgettes and cucumbers to an American company for a period of one year. The contract was subject to the U.P. The buyer filed a lawsuit against the seller before the Mexican arbitration center because he had not delivered within the agreed time.

993

Article 1218, new, c.civ. and 45 c.c.ch. See (1863) 3b & S 826, 122 ER 309 995 See RIMKE Joern, op. cit. 996 See (1903) 2 KB 740. 994

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The defendant objected to the force majeure exception because, according to him, the climatic phenomenon "El Niño"997 was the cause of the breach of his delivery obligation; according to him, it was a case of force majeure or hardship. In its ruling of 30 November 2006, the arbitral tribunal granted the buyer's claim on the grounds that the climate phenomenon invoked, although insurmountable (torrential rains and floods), was not unforeseeable in this case. In fact, El Niño-type climatic phenomena are recurrent in the Pacific and therefore predictable. Furthermore, the defendant had not taken the precaution of informing the purchaser of these contractual performance difficulties. With respect to a possible hardship situation, the court concluded that, pursuant to article 6.2.3 U.P., it grants the right to renegotiate, and not to a waiver of liability998. 3. The facts constituting the impediment must also be insurmountable. This is the fundamental difference with hardship where the aggrieved party finds itself in more difficult conditions to comply with its obligations, but these conditions are not insurmountable, but only more costly and damaging to its interests. The comments of the U.P. give as an example the case in which the buyer is obliged to pay in a foreign currency (U.S. dollars) and subsequently, due to strict exchange controls, it is impossible to pay in that currency. In this case, the U.P. authorizes the seller to terminate the contract999. 249. Effects - If the unforeseen circumstances allow the revision of the contract, in order to rebalance the performance of the parties, force majeure frees the parties permanently or temporarily from their obligations. In accordance with article 7.1.7 U.P., the debtor is exempt from paying damages. If the breach is fundamental, termination of the contract is possible1000. Otherwise, the creditor of the defaulted obligation may suspend his own obligations. 997

“El Niño” is a large-scale ocean phenomenon in the Pacific, affecting wind patterns, sea temperature and rainfall. Source: http://www.meteofrance.fr/climatpasse-et-futur/comprendre-le-climat-mondial/el-ninola-nina , accessed 09 April 2017. 998 See CLAEYS Ignace ; ERAUW Johan, FONTAINE Marcel et al. , op. cit. pp. 107-108. 999 See U.P., 2016, p. 252. 1000 See U.P., 2016, p. 252.

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The suspension of the aggrieved party's obligations shall be the most frequent consequence of force majeure. Comments from the U.P. indicate that this will take more or less time, depending on the circumstances of the case1001. Finally, there is the alternative of renegotiating. B. Good faith 250. Unidroit principles and good faith - The U.P. does not define good faith. They merely state, in Article 1.7 No. 1, that the parties must act in good faith in international trade, and indicate that this is a peremptory norm, which the parties may not derogate from, in Article 1.7 No. 2. Article 5.1.3 U.P. states that the parties have a duty to cooperate in the performance of their obligations. As indicated by the comments of the U.P. some situations require more active collaboration to this end. They illustrate this with a case contrary to good faith, that in which one of the parties buys all the goods available on the market, leaving the other in the impossibility of supplying itself to fulfill its obligation of delivery to the first, established in a contract of sale1002. The protection of good faith is found in several provisions of the U.P. (in Article 4.8 as a mechanism to save omissions in the text of the contract, in Article 7.1.6 in relation to unfair exemption clauses, in Article 7.1.7 in relation to exemption in case of force majeure, in Article 7.2.2 in relation to unreasonable specific performance, Article 7.4.8 in relation to mitigation of damages, Article 7.4.13 in relation to penalty clauses, Articles 2.1.15 and 2.1.16 in relation to negotiations, etc.)1003. We will see on a case-by-case basis. It is interesting to note the high protection afforded to the safeguarding of the principle, since the U.P. imposes the extended obligation to preserve the rights of the other party, even pending a condition1004, and the prohibition contained in Article 5.3.3 U.P. to invoke its non-realization1005 or its realization1006, on the party that prevented or provoked the event, respectively1007.

1001

Ibidem. See U.P., 2016, pp. 160-161. 1003 See EBERHARD, op. cit. , p. 72. 1004 See art. 5.3.4 U.P., 2016. 1005 See Art. 5.3.3 nº1 U.P., 2016 1006 See Art. 5.3.3 nº2 U.P., 2016 1007 See CLAEYS Ignace ; ERAUW Johan, FONTAINE Marcel et al. , op. cit. p.28. 1002

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251. Estoppel - Article 1.8 U.P. establishes the prohibition known in the civil law system by venire contra factum proprium rule, known as estoppel in common law. They may be acts or omissions1008 that have caused the other party to await the contract or its performance. The U.P. gives several examples concerning the willful misrepresentation of one party to remain silent while the other party continues to act in error. The consequence is that the party who acted in bad faith cannot take advantage of his counterpart's error. The U.P. give the following second example: B made the mistake of believing that it could perform its contract with A in a particular way. A is aware of this and does not intervene while B continues its execution. B and A meet regularly. B's performance is subject to examination between the parties, but A makes no reference to B's error. A cannot insist that performance was not that required by the contract. We can think of the case in which the seller delivers goods of a certain quality several times, and at a given moment, the buyer tells the seller that this is not the agreed quality. In this case, the buyer's reticence, or even permanent silence, prevents him from making a claim later, because his attitude is contrary to the duty of collaboration and delicacy inherent in good faith. § 3 - Formation of consent according to UNIDROIT principles A. The pre-contractual phase 252. The U.P. and the negotiations - Article 2.1.15, No. 1 U.P. enshrines the freedom to negotiate and withdraw from the negotiations. The only limitation is that the parties must act in good faith, which is provided for in number 2 of that article. Therefore, if one of the parties causes harm to the other, breaking or during the course of negotiations, it must compensate the other. No. 3 of the same article states that a party who does not intend to reach a final agreement acts in bad faith. The brutal or guilty rupture of preliminary negotiations is sanctioned by the U.P., in the same way as in civil law1009.

1008

Ibid, p. 23. See Manoukian, Cass, Com, 26 November 2003, D. 2004. 869, note A.-S. Dupré-Allemagne; Forestal Bío-Bío v Madesal and another", C. Ap., Concepción, 1996, Civ. nº 374-93. 1009

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A hypothesis of No. 3 of the above-mentioned article would be the case where, for example, one of the parties entered into long negotiations with the other, without having a serious desire to contract with it, but only to obtain industrial or trade secrets, or to know possible margins for the fixing of unfair prices for its goods. The possible hypotheses are infinite. From examples (not limited) given by official U.P. comments (sale of a restaurant, military equipment, bank loans, etc.), we can extract the following hypotheses as constituting bad faith negotiations: (a) Negotiations carried out for the sole purpose of avoiding the sale to a competitor. In this case, the guilty party must indemnify the difference in price to the seller who obtained a lower selling price as a result of this mise en scène. (b) The continuation of negotiations knowing that it will be impossible to obtain certain essential import authorizations. This is a fraudulent action. The guilty party shall compensate the injured party for the costs incurred after learning of the difficulties. (c) Negotiations without the powers of representation necessary to enter into a contract, resulting in delays in the conclusion of a contract with a third party. In this case, the aggrieved party is entitled to a "reliance"1010 - in order to be compensated for the lost opportunity. (d) Breaking of preliminary contracts. The aggrieved party shall be entitled to demand performance of the final contracts. (e) Modification of the price agreed in the preliminary talks. If this has required investments, the aggrieved party is entitled to be reimbursed for the expenses incurred. In all cases, the aggrieved party could obtain damages, as a general rule, and other remedies (performance of the contract) if the duty to negotiate in good faith has been expressly imposed1011. B. The contractual phase Consensualism is enshrined in Article 3.1.2 U.P. (validity of the mere agreement).

1010 According to the U.P.'s comments, the creditor generally does not recover the "expectation" (positive interest) if the original contract had been concluded. See U.P., 2016, p. 64. 1011 Ibidem.

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253. The offer - As in French civil law1012, the offer must be precise and firm, according to article 2.1.2 U.P. It can be withdrawn (even irrevocable) if the notice of withdrawal reaches its addressee before or at the same time as the offer, according to article 2.1.3., No. 2 U.P., and revoked, as in common law1013 , i.e., before the sending of its acceptance, according to article 2.1.4. U.P. Exceptionally, it is not possible to revoke it when a term is associated with acceptance or when it is irrevocable. The offer is ineffective if there is a rejection or counteroffer. 254. Acceptance - According to article 2.1.6 U.P., acceptance may be express or tacit1014, and, as in French law1015, it recognizes the theory of reception1016 because its number 2 states: “(2) An acceptance of an offer becomes effective when the indication of assent reaches the offeror” (articles 1.10, No. 2 and 2.1.3, No. 2 U.P. provide that notices and the offer shall take effect as soon as they reach the offeree). The contract is concluded at the moment of acceptance or when behaviour justifying the agreement of wills is established, according to article 2.1.1 U.P. According to official comments, the reason for this provision lies in the complexity of international contracts, which sometimes make it difficult to determine the exact timing of the formation of consent because of the existence of complex and successive transactions1017. An example of the formation of consent is given where the parties begin to perform without clarity as to when and indicate that in such cases an arbitral tribunal may decide that consent has been formed as soon as there is a clear intention on the part of the parties to be bound by the contract. As in French law1018, silence does not, as a general rule, constitute acceptance unless the usages1019 or practices of the parties give it this meaning. 1012

Article 1114, new, c.civ. See Dickinson v Dodds, (1876) 2 Ch D 463. 1014 The carriage of goods is expressly regarded as a presumption of tacit acceptance. See U.P., 2016, p. 46. 1015 Article 1121 c.civ. enshrines the theory of reception, as we have seen before. 1016 The reason would be that it is often the recipient of the offer who chooses the means of delivery, and therefore qualifies its risks. See U.P., 2016, p. 47. 1017 See U.P., 2016, pp. 36-37. 1018 Art. 1120, new, c. civ. 1019 This is the case of circumstantial silence, i.e. when the conduct takes the form of payment of the price, carriage of goods by air or other means of rapid transport, 1013

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The offer, if verbal1020, must be accepted immediately. If in writing, within the period stipulated by the offeror or, failing that, within a reasonable period of time1021-1022in accordance with article 2.1.7. U.P. Late acceptance may produce effects, i.e., form consent, if the offeror informs the addressee of its intention to accept it, in accordance with article 2.1.9 U.P.1023 . In this case, consent shall be formed on the day on which such late acceptance reaches the offeror1024. Similarly, acceptance that arrives late due to a delay in transmission (problems with the post office in a written communication or with the server in the case of an electronic communication, for example) may form consent, provided that the sender proves that it was sent on time and that the offeror does not object1025. Like the offer, the acceptance may be withdrawn if it is received at the same time as it has taken effect, in accordance with article 2.1.10 U.P.1026 . According to article 2.1.11 U.P., any addition, modification or limitation of the offer that substantially modifies it (price, place and time of execution, resolution of disputes, etc.) constitutes a counterproposal. Otherwise, if after the conclusion one of the parties sends modifications or additions to the other, these are valid, provided that they do not alter the essence of the contract and that the addressee does not express its disagreement, in accordance with article 2.1.12 U.P. The parties may also give the character of essential to an accidental element of the contract, according to article 2.1.13 U.P. In this case, the agreement of the parties is fundamental to the conclusion of the contract1027. However, the parties may leave the determination of a term to a third party or to a subsequent agreement, without affecting the validity of the

or when the bank or the carrier notifies the offeror of the transfer of funds or dispatch of the goods. See U.P., 2016, pp. 46-47. 1020 The U.P. equates electronic offers with verbal offers, so they must be answered without delay. See U.P., 2016, p. 49. 1021 Taking into account the means of communication used by the bidder. 1022 According to article 1.12 U.P., public holidays are generally counted in the calculations. However, if a time limit expires on a public holiday, it is extended until the next working day and the time zones to be considered are those of the party setting the time limit (unless circumstances indicate otherwise). 1023 Equivalent to art. 21 CISG. 1024 See U.P., 2016, p. 51. 1025 Ibid, pp. 51-52. 1026 Equivalent to art. 22 CISG. 1027 The U.P. gives as an example an agreement in relation to the payment of the costs of the advertising campaigns. Whether the parties agreed that this would be essential to the formation of consent. See U.P., 2016, p. 58.

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contract already concluded, provided that there is another way of determining it1028. § 4 - The effects of the contract according to the UNIDROIT principles A. Sanctions for non-performance of contractual obligations 255. Specific performance and price reduction – Specific performance is the most direct application of the pacta sunt servanda principle1029, because according to it, the creditor obtains a benefit identical to that stipulated in the contract. As we have seen above, specific performance is the golden rule in the civil law system, unlike common law, where it remains exceptional, i.e., a remedy/sanction for breach of contract, limited to cases where it is indispensable to the creditor1030, in relation to obligations to deliver specific goods1031, or equity. The drafters of the U.P. used a classical technique for the elaboration of uniform instruments, using as main rules the solutions of one legal system, the civil law system, and associating the rules of another, the common law, by way of exception1032. Thus, the U.P. establish specific performance as a general rule for nonpecuniary obligations, in article 7.2.2, with certain exceptions, in particular, that relating to the efficient breach taken from common law and enshrined in letter c) of that article, according to which the debtor may be exempted from performance in the event that he can obtain a greater benefit from another commercial transaction. However, he must reimburse the creditor for the losses. In replacement transactions, i.e., those intended to obtain the object of the contract from a third party1033, in accordance with article 7.4.5 U.P., the creditor is entitled to the difference between the price of the original contract and that of the replacement contract, as well as to compensation for additional damages. Otherwise, the substitute transaction would be 1028

Art. 2.1.14 U.P., 2016. See CLAEYS Ignace ; ERAUW Johan, FONTAINE Marcel et al., p. 131. 1030 See Land Rover Group Ltd. v UPF (UK) Ltd, (2002) EWHC 3183 (Commercial Court), as we saw in the first chapter, in this case the plaintiff needed a particular chassis for one of its models. Therefore, specific performance was indispensable. 1031 Section 52 (1) s.g.a. 1032 See CLAEYS Ignace, ERAUW Johan, FONTAINE Marcel et al., p. 132. 1033 See EBERHARD S., op. cit. pp. 118-119. 1029

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unreasonable for the creditor and the general rule of specific performance should be upheld1034. Other exceptions concern the impossibility of specific performance, in fact or law1035-1036 and the obligations intuitu personae when the creditor does not request performance within a reasonable time1037, provided for in article 7.2.2 U.P. a), d) and e). The right o specific performance includes the right to compensation and replacement, set forth in article 7.2.3 U.P. for delivery of defective goods or insufficient payments or in currencies other than those provided for in the contract1038. However, a difficulty arises with regard to the exception laid down in Article 7.2.2 (b) when the costs of enforcement are too high (“…enforcement is unreasonably burdensome or expensive”). Under normal conditions, price reduction would be the solution to a forced execution that has become more onerous. Thus, the comments of the U.P. give as an example the case of a new car that is sold with a slight paint defect1039 and indicate that if the cost of repainting is higher than the cost of decreasing its value, the buyer can only request the reduction of the purchase price. A problem arises, this provision must be reconciled with Article 6.2.1 U.P. In the case of an obligation to perform, the obligation is imposed even though it has become too burdensome. For some authors, the only possible solution would be a systematic interpretation, which would make these two apparently antinomic rules coherent. Thus, hardship should be considered as a general rule and, therefore, renegotiation would be the ideal solution when specific performance has become too burdensome. Only in exceptional cases could the rule of Article 6.2.1 U.P. be avoided. when adaptation is impossible. In this case, Article 7.2.2(b) U.P. would apply and not before. The principle favor contractus, derived from the pacta sunt and director of the U.P. imposes to proceed thus. Extreme cases may constitute force majeure1040. 1034

See CLAEYS Ignace, ERAUW Johan, FONTAINE Marcel et al. , p. 134. In this case, the creditor can claim damages (unless this impossibility is the result of a case of force majeure), demand resolution or suspend performance of its obligations. See EBERHARD S., op. cit. p. 115. 1036 See U.P., 2016, p. 257. 1037 Exception established to prevent speculation. Ibid, p. 259. 1038 Ibid, p. 260. 1039 Ibid., p. 261. 1040 See EBERHARD S., op. cit. , p. 117. 1035

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256. Damages - Unliquidated damages are the golden rule in common law. They constitute a means of compliance by equivalence, i.e., subsidiary, and a penalty for late performance in the civil law system, as seen above. In the same sense as civil law, article 7.4.1 U.P. provides that nonperformance gives rise to damages exclusively or in addition, without the need to prove the negligence of the debtor. They may therefore have a compensatory or moratorium character, as in civil law. However, they shall not be enforceable in the event of breach due to force majeure, hardship, according to Article 6.2.1 U.P. and in the case of stipulation of exoneratory clauses1041. It should be noted, however, that in case of force majeure, if the debtor of the defaulted obligation does not notify the creditor, or if the notification does not reach him within a reasonable time, he will be liable for damages caused to his co-contractor, in accordance with article 7.1.7 No. 3 U.P. 257. Some cases of damages: a. First, damages should be awarded in case of breach of good faith during the pre-contractual period, in accordance with article 2.1.15 U.P. (in case of bad faith negotiations), breach of the duty of confidentiality (according to article 2.1.16 U.P. ) and vices of consent (according to article 3.2.16 U.P.). b. Subsequently, during the period of performance of the contract, and in the case of pecuniary obligations, its breach gives rise to the obligation to compensate damages under Article 7.2.1 U.P. It should be noted that, in this case, specific performance is equivalent to compensatory damages, in addition to interests on arrears. c. Similarly, any "non-essential" breach is resolved in damages1042. d. If the debtor who has not fulfilled his obligations wants to take advantage of the contract and prepare his performance or make an offer to the creditor and this performance is still useful to the creditor, the latter is entitled to compensation for the damage suffered by the delay or the performance still imperfect, despite the attempt at correction1043. e. The foregoing right is not an obstacle to the award of damages for delay in execution. f. The award of damages also occurs in cases where the creditor no longer wishes specific performance; by mistrust, loss of interest or loss of usefulness.

1041

See U.P., 2016, p. 284. See CLAEYS Ignace ; ERAUW Johan, FONTAINE Marcel et al., p. 139. 1043 See EBERHARD S., op. cit. p. 107. 1042

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258. Scope of reparation - Compensation must be comprehensive in accordance with article 7.4.2 U.P. This includes the damnun emergens (effective loss) and lucrum cessans (loss of profit). As indicated in the comments of the U.P.1044 This rule has been taken from the CISG (art. 74). Full compensation includes: a. Moral harm. On this point, the U.P. went further than the CISG, which, in regulating exhaustively the compensation for damages, kept silent on this point1045. This rule is useful in international trade, since it makes it possible to repair damage to the reputation of companies, by economic or symbolic means (publication of judgments)1046. b. The assessment of the damage on the day of the sentence. According to the comments of the U.P. In the case of a breach of contract, the judge must take into account the variations in the damage suffered between the time of the breach and the time of his decision1047. c. Certitude of damage. Compensation is limited to the anticipated and foreseeable damages1048, in accordance with Article 7.4.4 U.P., because there must be a sufficient causal link between the breach and the damage1049. Unlike civil law, the existence of negligence is indifferent to the U.P.1050. Current and future damages of this nature will be indemnified in accordance with article 7.4.3 No. 1 U.P. Similarly, there must be a reasonable likelihood of loss of profit, in accordance with number 2 of that article. Depending on its eventuality, only

1044

See U.P, 2016, p. 286. Cf. EBERHARD S., op. cit. , p. 189. 1046 Ibidem. 1047 U.P., 2016, p. 287. 1048 The comments of the U.P. give an example to this end and indicate that if the seller delivers late, the lost profit must be compensated, but not the loss of an advantageous contract with a third party, which was unpredictable. Cf. U.P., 2016, p. 291. 1049 Ibidem. 1050 As we have seen supra, some civil law legislations provide for the compensation of direct foreseen damages in case of negligence, and also of direct unforeseen damages in case of fraud or gross negligence (art. 1558 c.c.ch.). In the same sense, the new Article 1231-3 c.civ. limits the scope of compensation to anticipated or foreseeable direct damages, except in cases of gross negligence, in which case it extends to unforeseen direct damages, Article 1231-4, new, c. civ. 1045

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one proportion can be assigned. The comments illustrate this with the example of a tender dossier submitted late, which is therefore rejected1051. Forseeability has been taken into account by the U.P. based upon Article 74 of the CISG and is considered in accordance with the comments of the U.P.1052 with respect to a "prudent family man" (bon père de famille of civil law). This is also a common law rule1053. In fact, Hadley v Baxendale1054 is based on two pillars: remoteness and mitigation. The first concerns the predictability of damage, as we have seen above. The amount of compensation will depend on the likelihood of success, taking into account the conditions (price, modalities, etc.) and the number of competitors. In this sense it would be useful to use risk management techniques (objective criteria: an impact matrix and risk trees, in order to determine the possible success rate that existed, and thus extrapolate this percentage as a factor to apply to the amount of the lost contract, and ultimately determine the amount of damages to be awarded for the loss of profits). To illustrate the interest of this discipline, we can give the example of the use of a risk tree: Let us consider four competitors for a one million euro contract. Two competitors are 50% more efficient than the plaintiff, whose performance is equal to that of the fourth, according to experts. Thus, two competitors are "worth" more (25% + 12.5% = 37.5%) and the other two, including the plaintiff, are "worth" only 12.5%. Just like that: 0,125 x 1,000,000 = EUR 125,000 of loss of profit to be allocated in the case in question to the applicant. Otherwise, they shall be determined on the basis of equity. d. Only damages (present, future, loss of profit, moral and physical) are considered. In accordance with the principle of unjust enrichment and good faith, damages have only one reparative function: to put the creditor in the position he would have been in if the harm had not occurred. Therefore, punitive and restitutory damages from common law are excluded1055. e. Increase in liabilities. If the creditor has had to enter into a replacement contract for nonperformance, after termination he may recover the difference between the 1051

See U.P., 2016, p. 289. Ibid, p. 282. 1053 See EBERHARD S., op. cit. p. 195. 1054 See (1854), EWHC J70. 1055 Cf. EBERHARD S., op. cit. pp. 191-192. 1052

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original contract price and the substitute, as well as damages for any additional damage, in accordance with article 7.4.5 U. P. In the absence of the former, the current market price, according to article 7.4.6 No. 1 U.P. f. Contributory negligence. Article 7.4.7 U.P. provides that when the creditor has contributed to the production of the harm, or if it has been caused by an event by which he has assumed the risk, the damages will be reduced proportionally. This is a particular application to damages of the general rule of non-performance set out in Article 7.1.2 U.P. The above is commutative justice, linked to good faith and the notion of unjust enrichment, retained by common law (contributory negligence)1056 and civil law1057-1058. The comments of the U.P. illustrate this with examples where the seller gave the wrong delivery address, or where the damage was caused by the creditor's employees, or where a breach of contract by the debtor (supply to a third party in the context of an exclusivity clause) was committed as a result of another breach by the creditor (requirement of payment in cash without respecting a time limit for that purpose)1059. g. Decreases in assets and increases in liabilities. Compensation may consist of the replacement by equivalence of lost performance or the repair of damaged objects in the event of partial loss. As for the loss of value of the goods, the compensation must compensate for this loss, taking into account currency devaluations (according to arbitration practice)1060. h. Necessary expenses as a consequence of the debtor's default. All expenses that are a necessary (and reasonable) consequence of nonperformance must be reimbursed. These include: attorneys' fees, capital costs borrowed for the failed transaction, court costs, etc1061. i. Interests. 1056 See Lambert v Lewis, (1982) AC 225: as we have seen above, common law gives it an all-or-nothing treatment (it does not operate a compensation of negligence like civil law). 1057 Article 2330 c.c.ch. allows for the reduction of compensation in this case. 1058 Contributory negligence exonerates the debtor when it has been the exclusive cause of the damage. Otherwise, he must be negligent to justify a partial exemption. Cf. MALAURIE Philippe, AYNÈS Laurent and STOFFEL-MUNCK Ph. Droit des Obligations, 8th. ed., LGDJ, Paris, France, 2016, p. 549; Civ. 1st , 31 january 1973, Bull.civ. I, No. 41. 1059 See U.P. 2016, p. 295. 1060 Cf. EBERHARD S., op. cit., p. 200. 1061 Ibid, p. 201.

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The U.P. innovates in this area. In fact, the CISG does not pronounce on when interest should be paid, nor does it indicate the applicable interest rate. The rules proposed by the U.P. help to integrate this loophole1062. According to article 7.4.9 U.P., the interest in case of non-payment of sums of money, and according to article 7.4.10 P.U., the interest on damages for non-performance of non-monetary obligations, are accrued from the date of expiration or default of the debtor1063, without the need of constitution in arrears. The interest rate, according to Article 7.4.9 U.P. No. 2 is: “…the average bank short-term lending rate to prime borrowers prevailing for the currency of payment at the place for payment, or where no such rate exists at that place, then the same rate in the State of the currency of payment”. As a last resort, U.P. comments provide for an "appropriate banking fee"1064. It is also important to note that the U.P. does not contain rules on anatocism1065. They could therefore be attributed by the court seised in the light of the provisions in force in the national law applied1066. In addition, compensation for additional losses may be awarded for any additional losses in accordance with article 7.4.9 No. 3 U.P. Lastly, it should be pointed out in this connection that damages are normally awarded in a single award. Otherwise, article 7.4.11 U.P. provides for the possibility of indexation. 259. Mitigation of damages - As we have noted, this is a common law rule1067 but it harmoniously combines with the duty of good faith-loyalty in civil law. This rule has been taken by Article 77 of CISG. This obligation is not enshrined in French civil law1068. As we have seen, this has given rise to some criticism, in the sense that France would be moving away from the dominant trends of comparative law, and because social interest and the economy demand that the damage suffered be reduced as much as possible1069. 1062

Ibid, p. 209. The comments of the U.P. indicate that they must be paid from the day on which the damage occurred. See U.P., 2016, p. 300. 1064 Ibid, p. 299. 1065 Charging interest rates over other interest rates. 1066 In this regard, EBERHARD believes that the financial challenges suggest a better consideration of them. See op. cit. , p. 211. 1067 See Hadley v Baxendale, (1854), EWHC J70. 1068 See Civ.2nd , 19 June 2003, Bulletin 2003 II No. 203, p. 171. 1069 See TERRE F., SIMLER P. and LEQUETTE Y., op. cit., pp. 960-963. 1063

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In the same line, the comments of the U.P. indicate that it would not be reasonable, from an economic point of view, to allow an increase in damage that could have been reduced by reasonable measures1070. Chilean civil law does not either provided for a specific rule in this regard, but as we have seen above with regard to imprévision, it could be applied on the basis of the principle of good faith-loyalty and its inherent duty of cooperation. As for the expenses necessary to reduce the damage, they will be paid by the creditor, but will have to be reimbursed subsequently by the debtor, provided they are "reasonable", in accordance with article 7.4.8 Nº2 U.P. 260. Currency of payment - In accordance with article 7.4.12 U.P. In the case of a claim for damages, damages shall be paid in the currency in which the loss was suffered or in the currency in which the pecuniary obligation was expressed, whichever is more appropriate. 261. Resolution - Since the U.P. are in favor of the preservation of the contract, this way of terminating the contractual relationship appears as a kind of ultima ratio reserved, as in the CISG1071, to the most serious cases1072. Resolution must therefore be rejected in all situations that can be assimilated to opportunistic behaviour on the part of the creditor. The mechanism adopted is from civil law. Common law, as we have seen above, allows termination only in exceptional cases. Thus, in English law, avoidance is permitted only if a consideration is missing in a contract; with regard to the breach of a condition (it should be remembered that the English Sale of Goods Act 1979 provides in section 14 (2) that the qualities and characteristics of the goods must be satisfactory) and in the event of fundamental breach or frustrating breach. On the other hand, US law distinguishes between contracts subject to the substantial performance regime (similar to obligations of means in civil law) and those subject to the perfect tender rule regime (similar to obligations of results in civil law). In the first case, resolution occurs when the breach has a material significance, which is similar to the fundamental breach. In the second, the UCC of the United States provides in article 2-601 the right to reject the goods and to terminate the sale, if they do not correspond to those agreed upon1073.

1070

See U.P., 2016, pp. 296-297. Articles 49 and 64 of CISG. 1072 See CLAEYS Ignace; ERAUW Johan; FONTAINE Marcel et al., p. 137. 1073 See EBERHARD S., op. cit. pp. 155-156. 1071

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It is interesting to note that in the U.P. resolution can be invoked even in case of force majeure, therefore the creditor will not be able to sue in this case for specific performance or damages. In this respect, the U.P. gives as an example the case in which, following an embargo on exports from the seller's country, the seller cannot deliver wine to the buyer1074. Then, the latter can demand the termination of the contract. 262. Conditions - The cases that can give rise to resolution must be of sufficient importance. They can be grouped into two categories, on the one hand, of "material non-performance" and, on the other, of "qualified delay". a. Cases of material non-performance. Article 7.3.1 No. 1 U.P. provides for termination if the breach is material1075. The U.P. define non-performance1076 and article 7.3.1 No. 2 contains a number of non-exhaustive hypotheses in points (a) to (e), which constitute fundamental breaches1077. These are: a.1.Substantial deprivation of the creditor of what he expected from the performance (7.3.1 n°2, a) U.P.) An exception is made where “...the other party did not foresee and could not reasonably have foreseen such result”. This would be the case, for example, where the buyer needs the goods to be delivered within a certain period of time or for them to have certain characteristics. If the seller ignored these conditions in good faith and did not comply with them, the resolution would not apply. a.2. When strict compliance with the obligation is essential (7.3.1 n°2, b) U.P.) This situation must be verified on a case-by-case basis. However, as the comments of the U.P.1078 indicate, in the case of a contract for the sale of goods, timely delivery is normally essential. This is the case of sales of food,1079 raw materials, clothing (linked to the seasons in which they are going to be sold) and, in recent years, in sales 1074

See U.P., 2016, p. 267. The PECL do the same in article 9:301: right to terminate contract, No. 1. 1076 Article 7.1.1 U.P., 2016, stipulates: “Non-performance is failure by a party to perform any of its obligations under the contract, including defective performance or late performance. 1077 It should be noted that the hypotheses presented are the same as those foreseen in Article 8 PECL: essential non-performance (with the exception of letters d) and e) of the U.P., which are additional to these). 1078 See U.P., 2016, p. 268. 1079 Cf. EBERHARD S., op. cit. , p. 144. 1075

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of electronic products where there is fierce competition to launch products to markets at a dizzying rate, among other products. a.3. If non-performance is intentional (7.3.1 No. 2 (c)). If it is fraudulent, therefore contrary to good faith, the contract may be terminated. a.4. In successive performance contracts, if the creditor, following a partial breach, has reason to believe that this situation will not change in the future (7.3.1 No. 2(d)) This is the case for sales with successive deliveries. If the buyer notices serious defects in the goods and has reason to believe that they will not be solved in future deliveries, he can demand resolution. This would be the case, for example, of the sale of goods (cars, computers, mobile phones, etc.) with defects that make their use dangerous1080. In relation to this hypothesis we find the anticipatory breach of common law, enshrined by article 7.3.3 U.P. It allows the creditor to terminate the contract before the expiration of a term or the fulfilment of a condition, if it is certain that the debtor will not fulfil its obligations1081. The U.P. and even the CISG, as we shall see1082, go further than French law on this subject, more attached to pacta sunt. This, on the one hand, because, as we have seen above, the new article 1226 of the French Civil Code authorizes unilateral resolution when non-performance has already occurred, but not in a "preventive" manner like the U.P. and the CISG. On the other hand, because the new article 1220 of the French Civil Code, in this case, only allows the early suspension of the creditor: "A party may suspend the performance of its obligation as soon as it is evident that its counterpart will not perform on the due date and that the consequences of this breach are sufficiently serious for it". On the other hand, according to Article 7.3.4 U.P. if the creditor is not sure of a future default, but it is likely, i.e., if there are doubts about it, it can only ask for performance guarantees, suspend performance of its obligations in the meantime, and even terminate the contract if the guarantees are not provided within a reasonable time1083. 1080

This was the case of the Samsung Galaxy Note 7 phone, which had to be withdrawn from the market due to defects in its batteries. 1081 The PECL follow the same line in article 9:304. 1082 Article 72, para. 1, CISG. 1083 Some authors consider that article 7.3.4 U.P. contains a difficult paradox to resolve, because if the creditor waits without doing anything when he has doubts about the proper performance of the debtor, he could suffer harm and, if he acts preventively, assumes the risk of owing them to the debtor. See EBERHARD S., op. cit., pp. 146-147.

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a.5. Excessive loss (7.3.1 nº2, e)) If the debtor who has not fulfilled his obligations wishes to avail himself of the contract and prepares its performance or offers it to the creditor and this performance remains useful to the creditor, the latter is only entitled to compensation for damages. The comments of the U.P. give as an example the case in which the seller had to deliver a product specially designed for the buyer (and that, therefore, could not sell to a third party) within a certain period of time that he did not respect1084. However, he is able to deliver it a month later. He can do it because the execution is still useful for the buyer and the loss in case of resolution would be huge. Therefore, the comments of the U.P. point out that it is more likely that the execution will be qualified as essential if it took place prior to the preparation of the execution1085. b. Qualified delay. The U.P. take the nachfrist mechanism of the CISG1086 in art. 7.3.1 nº3. According to the latter, the creditor may demand termination of the contract if he has given the debtor an additional period of time in which to perform, without the debtor performing. Even if objectively the infringement may not be serious, the U.P. qualifies it as such because there is a violation of the legitimate expectations of the co-contractor and a loss of usefulness for the creditor1087, elements that are important to sanction. 263. The operation of the resolution - The resolution operates by means of notification to the debtor, which must be made within a reasonable time after knowledge of the essential or late non-performance. Otherwise, the creditor loses the right to sue in accordance with article 7.3.2 No. 2 U.P. Comments indicate that notice should be immediate when the creditor can easily obtain a replacement contract. Otherwise, the delay will be longer, if he has to inform himself in order to obtain it. The notification operates as soon as it is received1088. It should be noted that the U.P., unlike the PECL1089, does not provide for the situation where the debtor offers late performance to the creditor or if the debtor learns of this intention from another source, and does not wish 1084

See U.P., 2016, p. 269. Ibidem. 1086 Provided for in Articles 47, 49 (1) (b), 63 and 64 (1) (b) CISG. 1087 Cf. EBERHARD S., op. cit. , p. 148. 1088 According to article 1.10, No. 2 U.P. 1089 Article 9:303 : Notice of termination, No. 3, b), PECL 1085

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to do so. In this case, the comments indicate that, in good faith, you must inform the debtor of your refusal, under penalty of damages1090. This rule is important because the debtor has the right to cure his default under article 7.1.4 U.P. According to the latter, the debtor can correct his default if he notifies the creditor and executes it without delay and if the latter has no legitimate interest in rejecting it1091. Comments to the U.P. indicate that this would be the case if the delay in performance resulted in personal injury or property damage1092. However, in accordance with good faith and the favor contractus principle, the comments specify that the debtor's offer must be reasonable and that there is no legitimate interest if the creditor refuses because he has decided that he does not wish to continue contractual relations1093. If he does so without a legitimate reason, a notice of termination would have no effect, just as it would lose the possibility of appeal following a breach that could have been corrected1094. The correction may result in the replacement or repair of the defective goods, "provided that there is no trace of the previous non-performance and that this does not constitute a threat to the value or quality of the whole product1095". The counterpart to the debtor's right of correction is the additional period of performance that the creditor may grant to the debtor, in accordance with good faith and the favor contractus principle. This is provided for in Article 7.1.5 U.P. and takes place, at the creditor's initiative, when timely performance is not essential or when it is useful to the creditor. Thus, he can notify the debtor that grants him an additional period of time to perform his obligations and stipulate an ordinary termination clause in case of further breach. If the debtor rejects the grace period, the creditor may resort to other remedies/sanctions to which he is entitled. As we have seen, if the debtor fails to perform during this new term, the creditor may terminate the contract on the basis of a "qualified delay," even if the non-performance itself is not essential. However, according to article 7.1.5 Nº4 U.P. this would not apply, under the favor contractus rule and the

1090

See U.P., 2016, p. 270. This is logical, otherwise any fundamental breach would be excluded by this route, which is unreasonable. See Ibid, p. 242. 1092 Ibidem. 1093 Ibidem. 1094 Ibid, p. 244. 1095 Ibid, p. 243. 1091

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de minimis rule of civil law, where the breach is not significant in relation to the debtor's obligations as a whole. This rule does not constitute an obstacle to the award of damages in case of delay in performance. So, according to the comments to the U.P. it can be concluded that if the seller should have delivered a product specially prepared for the buyer on a certain date and is delayed by one week, for example, he can claim this additional term, but with compensation for damages for additional transportation costs following this late delivery1096. 264. Effects of the resolution - Civil law institution, operates for the future. Thus, Article 7.3.5 U.P. provides that its application releases the parties from their respective obligations. However, its number 2 states that it does not exclude the right to claim damages for non-performance. Neither does it affect arbitration clauses, nor those whose purpose is to produce effects in the event of termination1097, according to article 7.3.5 Nº3 U.P. In accordance with Article 7.3.6 U.P. each of the parties will receive in nature what it has provided to the other. Thus, the seller will receive the goods, and the buyer, the price if it has already been paid. According to the comments to the U.P. This provision applies even when the buyer believed that he was acquiring goods with certain characteristics that they did not have1098. Any (reasonable) storage costs must also be reimbursed, as specified in article 7.3.6 No. 4 U.P. However, for contracts with successive services (long-term, sales with staggered deliveries), refunds will only be made for periods following termination, as indicated in Article 7.3.7 No. 1 U.P. Otherwise, if restitution in nature is impossible, it shall take the form of damages (in accordance with the rules on performance by equivalence of civil law), as indicated in article 7.3.6 no. 2 U.P. However, this shall not be enforceable if the impossibility of performance in nature is attributable to the other party, as indicated in No. 3 of the same article. Based on the comments to the U.P.1099, this would be the case, for example, when goods are destroyed due to manufacturing defects (e.g., a car with defective brakes). In this case, the buyer could terminate the contract and claim the purchase price, too.

1096

Ibid, p. 247. Those relating to the duty of confidentiality, which subsists, and penalty clauses, fundamentally. 1098 See U.P., 2016, p. 277. 1099 Ibid, p. 279. 1097

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265. Nullity - Chapter 3 of the U.P. on the validity of contracts expressly excludes the incapacity of the parties, as indicated in article 3.1.1 U.P. and their official comments. The commentary to the following article, which enshrines consensualism, stipulates that the expression indicating that mere will is sufficient for the validity of commercial contracts, is also reflected in the absence of need for consideration of common law, and of cause foreseen in some countries subject to the civil law system1100. However, the causes of invalidity are the impossibility of disposing of the goods covered by the contract, mistake, fraud, threat and gross disparity. These causes may be the work of one of the parties, or of a third party, as indicated in article 3.2.8 U.P. As for mistake, its conditions of admissibility are: serious character (of importance, according to the de minimis rule) and excusable (otherwise, gross negligence would preclude nullity, according to the comments to the U.P.).1101) in the terms of article 3.2.2 U.P., according to which a reasonable person would have made the same mistake in the same circumstances, and that the other party, according to good faith in commercial matters1102, could not excuse his ignorance. In addition, article 3.2.2 U.P. provides that the other party must have participated in this error, i.e., be a victim of it, or be at its origin. As to the impossibility of disposition, the commentaries1103 to article 3.1.3 U.P. specify that the rule departs from civil law (the object must be possible) and therefore provide that in the case of article 3.1.3 No. 1 U.P., if one of the parties cannot dispose of the goods (e.g. because of an embargo) or if they have already disappeared, this is not an obstacle to the validity of the contract1104 (the final validity will be subject to the conditions of validity of the domestic law). On the other hand, as regards number 2 of that article, if there are defects in the title (the seller is not the owner of the goods for sale or lacks sufficient power), this sale is valid in principle (but is subject to subsequent acquisition of title or ratification by the principal). As far as fraud is concerned, it should be noted that willful misrepresentation is expressly recognised in Article 3.2.5 U.P. As we have 1100

Ibid, p. 101. Ibid, p. 108. 1102 Errors of value or motivation are not relevant according to the U.P., See Ibid, p. 107. 1103 Ibid, pp. 102-103. 1104 In France, according to article 1601, paragraph 1, c.civ, this sale is null and void. In Chile, according to articles 1814 c.c.ch. and 138, para. 1, c.com.ch., it is Null, of absolute nullity. 1101

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seen above, it has just been enshrined in French law following the reform of the law of contracts and obligations1105. Simple advertising exaggerations in the negotiations are excluded, and therefore cannot be considered as fraud, according to the comments of the U.P.1106. With regard to threat (Article 3.2.6 U.P. ), unlawful threats, the comments give as an example the conclusion of contracts under the threat of judicial persecution (on the occasion of another contract), or under threats prejudicial to the reputation of one of the parties1107. Finally, with regard to gross disparity, Article 3.2.7 U.P. treats it as an "excessive advantage" obtained against good faith (unfairly) linked to the weakness situation of one of the co-contractors (one benefits from his dependence, economic difficulties, ignorance, etc.). It should be noted that it refers to movable goods, goods, which goes beyond its traditional guardianship in some civil law countries1108. In order for the benefit to be characterized as excessive, it must clash with the conscience of a reasonable person1109. In addition, it must be unfair. In this regard, the comments of the U.P. point out that it is important to take into account the bargaining power of the parties and the nature and purpose of the contract. This is illustrated by the example of a seller selling an antiquated product to a buyer who needed it and was unaware of the situation1110. You can then cancel the contract. In the event of gross disparity, the court seized of the case may declare the contract (or the affected clause) null and void or adapt it (as in the case of imprévision), in accordance with article 3.2.7 no. 2 P.U. to conform to the requirements of good faith in commercial matters1111. 266. Procedure - The operation of the nullity is similar to that of the resolution, therefore, must be notified within a reasonable time, in accordance with Article 3.2.12 U.P. The right to claim nullity is lost upon confirmation of the null act, or by express or tacit waiver, according to articles 3.2.9 and 3.2.10 U.P.

1105

Article 1137, para 2, new, c.civ. See U.P., 2016, p. 112. 1107 Ibid, p. 113. 1108 In Chile, according to article 1889 c.c.ch., it only refers to real estate. 1109 See U.P., 2016, p. 115. 1110 Ibidem. 1111 Ibid, p. 116. 1106

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267. Effects : 1. Under the favor contractus principle, they are limited to the clauses affected by the cause of avoidance (unless it is unreasonable to maintain the others). 2. It operates with retroactive effect, unlike the resolution, and, like the latter, allows for the restitution of what has been given, with the same limitation in terms of specific performance that has been made impossible. In case of doubt about the application of the nullity or the resolution, the latter should be privileged, according to the official comments of article 3.2.4 U.P., which privilege the means based on non-performance in relation to other remedies (nullity, damages)1112. 268. Exception of contract not performed - The exception non adimplenti contractus of civil law1113 is enshrined in article 7.1.3 U.P. This allows one of the parties to suspend its obligations in two cases: a. For simultaneous services: if the other has not offered to perform his service. The U.P. illustrates this by indicating that the seller is not obliged to deliver if the buyer, obliged to pay with a confirmed letter of credit opened in euros, has not had the latter issued1114. b. In the case of successive performances: in the event that the other party has not performed its part. The exception finds two limitations in the U.P.: i. Good faith. Thus, as the comments to the U.P. indicate1115. If the debtor has discharged a significant part of his obligations, it shall be limited. A reasonable proportionality test should be expected for that purpose1116. Otherwise, the exception would undermine the collaboration inherent to good faith, and preservation of the contract. Thus, the variant rite non adimplenti contractus (exception of execution until the complete satisfaction of the service) would not be admissible according to the U.P. ii. The nemo auditur propriam turpitudinems allegans rule is enshrined. Article 7.1.2 U.P. provides that a party may not invoke the nonperformance of the other party if it is the result of its fault, or if it has assumed the risk. This last case is taken as an example by the comments of the U.P. indicating that this hypothesis would be fulfilled if the debtor of 1112

Ibid, p. 110. As we have seen above, it is enshrined in article 1219, new, c.civ. and 1552 c.c.ch. 1114 See U.P., 2016, p. 240. 1115 Ibidem. 1116 See CLAEYS Ignace ; ERAUW Johan, FONTAINE Marcel et alt, p. 137. 1113

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the benefit were insured against the risk that, once verified, has meant the noncompliance1117. It should be noted in this regard that the creditor's rights to suspend performance of its obligations, while the debtor exercises its right of correction or constitutes sufficient performance guarantees, enshrined in Articles 7.1.4 No. 4) and 7.3.4 U.P., respectively, are specific consequences of the breach of contract exception enshrined in the UNIDROIT principles. 269. Penalty Clauses - The U.P. follows the tradition of civil law and authorizes the stipulation of penalty clauses. Their usefulness is significant, because, on the one hand, they deter a possible breach and, on the other hand, their introduction avoids lengthy debates on the need to award and the amount of damages to be awarded1118. The amount is often a proportion of the sales contract price or a fixed sum. This amount, however, according to good faith and article 7.4.13 No. 2 of the U.P. can not be exorbitant. The judge may reduce the amount if it is excessive in relation to the damage suffered, taking into account the circumstances. The comments of the U.P. illustrate this with a case in which the payment had been stipulated in five equal instalments of 50,000 euros each, with an ordinary resolutory clause in the event of non-payment of one of them, and a penalty equivalent to the sums already paid (two instalments in this case) and not paid, in addition to the return of the object sold. They conclude that this was a situation in which the court must reduce the amount of compensation because otherwise it would lead to unjust enrichment 1119. However, the scope of Article 7.4.13 U.P. is essential, since CISG, in view of the disparity of treatment of this issue in the main legal systems, had renounced to regulate it. Therefore, this provision is very useful, in a supplementary manner, in international arbitration1120. The comments specify that it is necessary to distinguish between the indemnities provided for in the contract and the right of withdrawal, which allows one of the parties to be released in return for the payment of a certain amount or the loss of the deposit. Since these are not compensations, even

1117

See U.P., 2016, p. 239. See CLAEYS Ignace; ERAUW Johan, FONTAINE Marcel et al., p. 142. 1119 See U.P., 2016, pp. 304-305. 1120 See BONELL Michael, The Unidroit Principles in Practice, Caselaw and Bibliography on the Principles of Commercial Contracts, Transnational Publishers Inc, Ardsley, New York, U.S.A., 2002, p. 515. 1118

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if they are excessive, the comments consider that there would be no problem with them1121. It is also important to distinguish between penalty clauses and the judicial fine established in Article 7.2.4 U.P. Thus, if the judge considers that a penalty clause is sufficient, he may refuse to establish a judicial fine1122. It should also be noted that the judicial fine is compatible with the right to claim damages, but is not advisable in case of non-performance of the delivery obligation, as it is often easier to enforce it by ordinary means1123. 270. Limitation of Liability Clauses - This type of clause is common in complex international contracts. They can take many forms. For example, allowing the seller to deliver goods of lower quality, limiting remedies/sanctions to breach of contract, repairing the goods only, limiting the amount of damages to be awarded in case of breach, etc.1124 Article 7.1.6. U.P. prohibits, on the one hand, unfair terms and, on the other, terms that would permit a performance substantially different from that which the debtor had to perform1125. Under this rule, the judge may, for reasons of equity, discard clauses that would be manifestly unfair. For example, those that would hold the debtor liable, even in cases of force majeure1126. The comments to the U.P. give as an example of an unfair term the case in which the debtor would be exempted from liability as a result of possible gross negligence on his part1127, which is also in accordance with the nemo auditur rule of civil law, according to which no one can take advantage of his own fault. As far as our subject matter is concerned, the clauses in question are those that exclude the seller's liability in all cases or allow him to unilaterally modify the object in order to distort its performance (for 1121

See U.P., 2016, p. 308. Ibid, p. 263. 1123 Ibid, pp. 262-263. 1124 See EBERHARD S., op. cit. pp. 173-174. 1125 In common law, as we have seen before, those that exclude a fundamental breach, a possible negligence or a condition are prohibited. 1126 In common law, force majeure clauses are common. They terminate the contract and relieve the debtor from the obligation to compensate damages in the event of non-performance. On the other hand, they allow him sometimes to receive the difference between the contract price and the then existing price. See BRIDGE M., The International Sale of Goods, Law and Practice, 2nd edition, Oxford University Press, United Kingdom, 2007, p. 322. 1127 See U.P., 2016, p. 260. 1122

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example, that would allow him to deliver goods of a quality below a minimum standard, or that stipulated as essential). Note that, unlike the penalty clauses, the U.P. does not allow the judge to moderate these other clauses. Therefore, if they are manifestly unjust, they will have to be dismissed. Finally, it should be noted that, in accordance with Articles 3.1.4 and 3.3.1 U.P. the provisions relating to the validity of contracts (defects and avoidance) are mandatory and cannot be derogated from by the parties. In the event of infringement, they would receive the penalties they had provided for themselves and, in the event of silence, the means based on the infringement that were reasonable under the circumstances. B. Rules of interpretation 271. Rules of Interpretation - Some of the rules enshrined by the U.P. also appear in the CISG. However, the former emphasize techniques such as the contra proferentem and the standard of a reasonable person to resolve possible differences of interpretation1128. 272. Basic rule - The U.P. rules in this matter are clearly of civil law. Thus, article 4.1 U.P. indicates in the same way as the French civil code1129 and the Chilean civil code that the "golden rule" for the interpretation of a contract is the common intention of the parties1130. To find this "common" intention, Article 4.3 U.P. indicates that it is necessary to take into account the preliminary negotiations, the usages, and practices of the parties, their conduct after the conclusion of the contract, the meaning generally given to expressions in the commercial sector in question and the nature and purpose of the contract. The comments of the U.P. give several examples on the subject. It is interesting to note for the purposes of this study the case concerning the sale of oil at a given price, in barrels. If the parties did not indicate whether the barrels were 36 gallons (British Imperial) or 42 gallons (standard), it was concluded that the volume concerned was the latter, as it is the most common in this commercial sector1131. 1128

See CARR, op. cit. , p. 94. Art. 1188, para. 1, new, c.civ. 1130 Article 5:101 (1) PECL states: “(1) A contract is to be interpreted according to the common intention of the parties even if this differs from the literal meaning of the words”. 1129

1131

See U.P., 2016, p. 147.

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In the absence of clear intent, Article 4.1 No. 2 U.P. states that it is appropriate to seek the meaning that “reasonable persons as the same kind of the parties would give to it in the same circumstances”1132. The comments of the U.P. clarify this point by specifying that this is a person with the same linguistic knowledge, technical competence or commercial experience as the parties1133. 273. Special rules: 1. Systematic rule. As in civil law1134, the U.P. stipulate that contractual clauses must not be interpreted in isolation, but that the entire contract must be considered. 2. Attributiverule. As in continental law 1135, article 4.5 U.P. stipulates that the clauses of a contract must be interpreted in such a way as to produce an effect. 3. Rule contra proferentem. Also, in accordance with civil law1136, article 4.6 U.P. provides that in case of ambiguity, the clauses of a contract shall preferably be interpreted against the party who drafted them1137. 4. “New” rules. While the U.P. follow and repeat well-known rules of the civil law system, they nevertheless make some contributions by enshrining additional rules as well. This is the case with the following rules: a. Linguistic differences International commercial contracts are often drawn up in several languages, as the parties are often of different nationalities. Article 4.7 U.P. states that in this case, the base version shall be preferred. The comments of the U.P. illustrate this with the case where the "original" contract had been written in English, and the translations made in other languages, to obtain copies. Therefore, if there are differences between the translations, the original1138 (English) version would be preferred.

1132

Paragraph 2 of article 1188, new, c.civ., provides the same. See U.P., 2016, pp. 143-144. 1134 Art. 1189, para. 1, new, c.civ., and art. 1564, inc. 1, c.c.ch. 1135 Art. 1189, para. 2, new, c.civ., and art. 1562 c.c.ch. 1136 Art. 1190, new, c.civ. and 1566, para. 2, c.c.ch. 1137 Article 5:103 PECL enshrines the same rule. 1138 See U.P., 2016, p. 153. 1133

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b. Omissions The U.P. give rules for dealing with omissions related to the determination of the quality of performance (article 5.1.6 U.P. )1139, pricefixing (5.1.7 U.P.)1140, time1141 and place1142 of performance (articles 6.1.1 and 6.1.6 U.P.), order of performance1143 (article 6.1.4 U.P. ) and unspecified currency (article 6.1.10 U.P.). In accordance with article 4.8 U.P., these omissions shall be supplied taking into account the nature and purpose of the contract, the intention of the parties, good faith, and reasonableness (fairness). C. Rules of representation 274. Rules of representation - The U.P. only govern external relations, between the representative or represented and third parties. Intermediaries without powers of representation (agents) and commercial representatives are not treated either, according to article 2.2.1 U.P. Attribution of powers. It may be express or tacit and is not subject to any formal conditions, in accordance with article 2.2.2 No. 1 U.P.; therefore, it may take the form of a contract of mandate or a resolution of the board of directors. 2. Extent. The comments to the U.P. illustrate this with the case of a ship's captain, who may, in case of urgency, consign the goods to another for delivery1144, a faculty that would be implicit in such a case. Even in case of extinction of powers, in accordance with Article 2.2.10 U.P. the representative (mandatary) remains authorised to perform the acts necessary to protect the interests of the represented (principal). The comments to the U.P. give as an example the case in which, despite the 1139

It must be at least equal to the average. As in Chilean civil law (art. 139 c.com.ch.), it establishes that in the absence of stipulation, the price will be the one in force in the commercial branch in question or a reasonable price, if it cannot be determined. 1141 It will take place at the specified date or time. Otherwise, within a reasonable time. It should be noted that, as in civil law (articles 1305-3, new, c.civ. and 1497 c.c.ch.), the creditor may refuse performance before the expiration date if he has a legitimate reason, according to article 6.1.5 U.P. 1142 The obligation to deliver takes place, unless expressly stipulated, at the registered office of the debtor, in accordance with article 6.1.6 no. 1), b), U.P. 1143 The U.P. recommend simultaneous execution, if possible and unless otherwise stipulated, in accordance with article 6.1.4 No. 1 U.P. 1144 See U.P., 2016, p. 83. 1140

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death of the principal, the agent is still authorized to resell the goods purchased on behalf of the principal or to keep them in an appropriate warehouse1145. 3. Effects vis-à-vis third parties. Article 2.2.3 U.P. enshrines the rules of contemplatio domini according to which the representative who acts within the limits of his powers, with the knowledge of third parties of this fact, directly links the principal with them1146. The representative must act in this situation for and on behalf of the principal. However, if the representative acts without sufficient powers, or beyond them, as provided in Article 2.2.5 U.P. the act shall, in principle, be unenforceable against the principal and third parties1147 unless the latter could reasonably have believed that the agent had acted lawfully1148, or if subsequent ratification by the principal takes place. In the latter case, the act shall be validated retroactively1149. Otherwise, the representative shall be liable to indemnify the damages to third parties, in addition to the unenforceability of the act, in accordance with Article 2.2.6 U.P.1150 . The U.P. are innovative in this sense, since they allow third parties to oppose ratification before it takes place (art. 2.2.9 No. 3), or give the principal a period of time to do so (art. 2.2.9 No. 2). However, sometimes, as the comments of the U.P. indicate, if the principal wants to remain anonymous or the third party intends to contract directly with the agent, in such cases, it is useful for the representative to act on his behalf. This is the situation foreseen in number 2 of article 2.2.3 U.P. 1145

Ibid, p. 99. Disclosed agency of common law. 1147 The comments of the U.P. give as an example the case in which the representative buys goods in quantities and prices higher than the authorized ones. In this case, the contract shall have no effect. See U.P., 2016, p. 88. 1148 It is a manifestation of the civil law rule error communis facit jus, emanating from good faith. The comments of the U.P. illustrate this with the case in which a person regularly hires for a company, with their consent, but without sufficient powers. The latter cannot reject an unfavourable transaction in this context because it would act in bad faith. See ibid., p. 89. 1149 Art. 2.2.9 Nº1 U.P.; Articles 2160, para. 2, c.c.ch. and 1998 of the French Civil Code are in the same line. Cf. Civ. 1st , April 28, 1980, Bull.civ.I, No. 129; RTD civ. 1981.408.obs. G. Cornu. 1150 Based on U.P. comments, positive and negative interests are comprised. They use as an example the case in which the representative sells oil without the power of the seller. In this case, the buyer could demand the difference between the contract price and the current market price. Cf. U.P. 2016, p. 90. 1146

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This is the case, for example, in which the principal expects an increase in the price of certain raw materials and wants to remain anonymous in his purchase1151. The representative will then have to assign his rights and shares to the principal at a later date in order to link him to third parties. Likewise, the representative will be the only one obliged if he does not show his powers of representation1152, that is to say, if the third party did not know or should not have known that he represented the interests of the represented party. This would be the case, for example, if one trader buys goods for another without informing the seller. Then the only one engaged with the seller would be the first merchant1153. Exceptionally, if the third party discovers the true owner, he could also act against him, as indicated in article 2.2.4 No. 2 U.P., which is a way of protecting or asserting his good faith, or the belief that he acted with one person and not with another. 4. Power to delegate. As in civil law, the power to delegate is an element of nature in the U.P.1154. Thus, article 2.2.8 U.P. establishes that the mandatary has the implicit power to delegate for a delegate to perform certain acts. Intuitu personae acts are excluded, of course, provided that it is expressly forbidden to do so. CHAPTER CONCLUSION Several general principles of civil law contribute to the harmonisation of rules governing the international sale of goods. Among them, party autonomy, good faith, and contract preservation (favor contractus), mainly. Party autonomy and good faith are creations of civil law, enshrined in the Napoleonic Code several years before they were taken into account by common law. Its first origins are in Roman civil law (pacta sunt and bona fides). The principle of contract preservation, on the other hand, comes closer to the pragmatism of common law (civil law, due to the influence of canon law at its origins, is more "moralistic", which is reflected in institutions such as the Cause, which has now "disappeared" in France, but not in other civil law countries such as Chile). The principle finds interesting manifestations

1151

Ibid, p. 86. Undisclosed agency of common law. 1153 See U.P., 2016, p. 87. 1154 Articles 2135 c.c.ch. and 1994 c.civ. See Civ.1st , 29 May 1980, Bull.civ.I, Nº163. 1152

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in the debtor's right of correction and in the additional period of execution, nachfrist manifestation, which are enshrined by the CISG. These general principles are extremely useful in the international sale of goods. The CISG includes them expressly or implicitly among its provisions, with the purpose of harmonising the rules on the international sale of goods: party autonomy, in its articles 6 and 29; good faith, in article 7 Nº1; contract preservation, in its articles 34, 37, 48, 49, 51, 64, 71 and 72, mainly. As we have seen, the principle of good faith helps reduce transaction costs and allows international trade to function normally. It applies to the pre-contractual phase, for the preservation of the goods, in relation to remedies/sanctions for breach of contract (price reduction, obligation to mitigate damages, reparation of performance), to the integrity of the consent and to the imprévision. As far as party autonomy is concerned, it gives security to the parties and allows them to totally or partially derogate from non-mandatory rules, and also to use the law that best suits the economy of the contract. 2. The UNIDROIT Principles, for their part, are also an instrument largely inspired by civil law, which constitutes a kind of general law of international contracts. Its drafters used a classical technique for the elaboration of uniform instruments, taking as main rules the solutions of a legal system, in this case, civil law, and associating as exceptions the rules of another legal system, in this case, common law. We find this mechanism in relation to specific performance, resolution, penalty clauses, rules of interpretation, rules of representation, etc. In addition, the U.P. enshrine the consensualism of civil law, therefore, the mere will of the parties is sufficient for the validity of commercial contracts, which translates into the absence of need for consideration of common law or civil law cause. Thus, we can affirm that the U.P. constitute an instrument that gives primacy to civil law to harmonise the rules relating to the international sale of goods. 3. In this way, the U.P. are of maximum utility for international commercial arbitration, since they contain rules that integrate certain loopholes in the CISG. For example, they add considerations relating to moral damages, the calculation of interest or the regulation of penalty clauses, where the 1980 Vienna Convention had remained silent. The relationship between the U.P. and the CISG is one of integration. Some institutions consecrated in the U.P. were taken from the CISG. For

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example, the rules of consent formation, harm reduction, full compensation, and the period of grace allowing for late performance of the parties' obligations (inspired by nachfrist). 4. Other institutions have been perfected by the U.P. This is the case of imprévision. Article 79 of CISG provides for force majeure, but not for imprévision. However, the U.P. allows the latter to be integrated into contracts for the international sale of goods. Thus, if the parties consider the U.P. as a complementary law in an international contract of sale of goods, the judge may modify the contract in cases of excessive onerousness, which has an obvious practical utility. 5. The U.P. are also very useful in the interpretation of international contracts. They are essentially based on civil law rules, but add additional tools. This is the case of the "linguistic" rule of article 4.7 U.P., which favours the language of an original document over its translations, or of the rules that prevent omissions on the part of the parties (determination of the quality of the service, fixing of the price, time and place of performance, order of services and unspecified currency, mainly). 6. It is also interesting to underline the consecration of the attenuation/mitigation of damages by the U.P. Although this rule comes from common law, it is undeniable that it is perfectly compatible with the general principle of good faith; an affirmation that leads to an understanding of the existing criticisms of its (still) non-receipt by civil law. 7. Finally, it should be noted that the U.P. have an important influence not only on the international sphere, but also on national laws. In this way, for example, they have been recognized in the report to the President of the Republic concerning Ordinance No. 2016-131 of 10 February 2016 on the Reform of the French Law of Contracts and Obligations. In this sense, it seems to us that we find in the new article 1195 of the c.civ. the spirit of the U.P., by foreseeing effects for the imprévision similar to those enshrined in these international principles.

CHAPTER 2 HARMONISATION BY ADOPTION OF UNIFORM RULES: THE 1980 VIENNA CONVENTION

The CISG, as indicated in its preamble, aims to harmonise different social and legal systems. Following the example of the Unidroit Principles, the CISG drafters used a classical technique for the elaboration of uniform instruments: to adopt the rules of one legal system as main rules (civil law) associating those of another system (common law) as exceptions. The CISG regulates the formation of the contract and the rights and obligations of the parties in international contracts of sale of goods. We will analyse these elements in detail, focusing first on the formation of the contract for the international sale of goods (section 1), and then analysing the sanctions for non-performance with the obligations of the parties (section 2). SECTION 1 - FORMATION OF THE INTERNATIONAL SALE OF GOODS CONTRACT § 1- The fundamentals of the sale of goods in the Vienna Convention of 1980 In this section, we will demonstrate that the rule contained in Article 7 nº1 of the CISG goes beyond the mere interpretation of contracts for the international sale of goods. Good faith is enshrined in this provision as a general principle, in the manner of the civil law system and therefore, unlike common law, its scope is broad and extends to preliminary negotiations. Furthermore, with respect to the formation of consent, we observe that the 1980 Vienna Convention maintains the theory of reception, in the manner of modern civil law, but with some nuances because the initial indeterminacy of the selling price does not affect the validity of the contract for the international sale of goods.

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Similarly, we will demonstrate that the rights and obligations of the parties to the CISG are similar to those of the civil law system, with some nuances as well, as regards the confusion between latent defects and conformity defects established by the Convention, and the "portable" nature of the payment of the price (following the reform to the law of contracts and obligations relating to Ordinance No. 2016-131 of 10 February 2016, the payment of the price has become portable in France, in the case of monetary obligations). In addition, with regard to the transfer of risks, we will observe that this is dissociated from the mere exchange of wills, in articles 67 to 69 of the CISG and is linked to the delivery of the goods. On the other hand, in the absence of a general recognition in the civil law system of the imprévision (France and Chile), at the time of the writing of the CISG, we observe that in its article 79 enshrines an "enlarged" force majeure and not the hardship of common law. Finally, we will demonstrate that the rules of interpretation adopted by CISG make good faith a guiding principle. The objective and subjective criteria for the interpretation of civil law are enshrined in Article 8(1) and (2) respectively, on the basis of the civil concept of "prudent family man". These elements demonstrate the primacy of the civil law system in CISG, a postulate corroborated by the "syncretic" rule of article 3, which requires that preliminary negotiations be considered in the interpretative process of the contract, a rule that is incompatible with the common law parol evidence rule. We will begin with an analysis of the basic concepts of the Convention. A. Basic notions 275. The United Nations Convention on Contracts for the International Sale of Goods (CISG) was signed in Vienna on 11 April 1980 by 791155-1156

1155 ALFREDO Pierre, L'essentiel du droit du commerce international, Ellipses, Paris, 2014, p. 52. 1156 To date, in force in 85 countries. Source: http://www.uncitral.org/uncitral/en/uncitral_texts/sale_goods/1980CISG_status.ht ml, accessed 8 May 2017.

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States, including France1157 and Chile1158, but not the United Kingdom1159. It is the result of the work begun in 1968 within the framework of UNCITRAL, which had prepared its first draft in 1976. The CISG entered into force on 1 January 1988, once the condition provided for in Article 99 had been fulfilled (on the first day of the month following the expiration of a period of twelve months after the date of deposit of the tenth instrument of ratification). It deals with the rights and obligations of the parties to an international contract of sale of goods and the transfer of risks, but not with the conditions of transfer of ownership, which are governed by the applicable national law in accordance with the lex locus regit actum rule. The CISG also does not deal with the validity of the contract1160 (defects of consent, capacity), prescription1161-1162 or personal injury caused by the goods1163. Its objective is to harmonise the different legal and social systems in order to contribute to the elimination of obstacles to international trade and to promote their development1164.

1157

The text entered into force in France on 1 January 1988. Cf. JACQUET JeanMichel, DELEBECQUE Philippe, CORNELOUP Sabine, Droit du commerce international, 3rd ed. Dalloz, Paris, France, 2014, p. 363. 1158 CISG became a national law on October 3, 1990 in Chile, the date of its publication in the Official Gazette. 1159 According to some authors, this is simply a delay, a consequence of other legislative priorities. Cf. GOODE R., KRONKE H. and MCKENDRICK E., op. cit. , p. 218. 1160 Art. 4 of CISG. 1161 It is covered by the Convention on the Limitation Period in the International Sale of Goods, U.N., New York, 1974. It is not in force in France, Chile or the United Kingdom. Source: http://www.uncitral.org/uncitral/fr/uncitral_texts/sale_goods/1974Convention_stat us.html, accessed 23 June 2017. 1162 The statute of limitations must be distinguished from the statute of caducity of art. 39 of the CISG. 1163 Art. 5 CISG. 1164 Preamble, CISG.

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Its scope of application is the sale of goods,1165 but only tangible property1166 (excluding intangible property, ships and aircraft), between parties having their1167 places of business in different States1168. It can be excluded by the parties, expressly or implicitly, totally or partially, as well as modify its effects1169. It is important to note in this regard that the designation by the parties of a national law is not sufficient to exclude the Convention if it concerns a signatory state1170. B. Protection of good faith at the pre-contractual stage 276. The guilty breakdown of negotiations - The CISG does not deal with the guilty termination of negotiations. It remains silent on this point as on other topics1171. Thus, article 74 only considers damages caused by the breach of contracts already formed1172. Sometimes, the negotiation of international contracts leads to lengthy discussions that include the exchange of documents, provisional agreements (letters of intent, protocols, pacts of preference, unilateral or synallagmatic promises) and their culpable or brutal rupture is not a hypothesis that has

1165 Excluded are sales of aircraft, ships, electricity, those for personal or family use, bills of exchange and money, auctions and sales in which the provision of services is a predominant part of the seller's obligations (franchise, concession). See Art. 2 of CISG. Cf. ALFREDO P., op. cit. , p. 52. 1166 International jurisprudence has considered goods to be movable and tangible goods, new or second-hand, living or inanimate, and software, among other things. See Digest of Case Law on the United Nations Convention on Contracts for the International Sale of Goods, United Nations publication, New York, 2016, p. 7 (CLOUT case No. 380, Tribunale di Pavia, Italy, 29 December 1999. Available at: http://www.unilex.info/case.cfm?id=734, accessed 25 June 2017; CLOUT case No. 281, Koblenz Court of Appeal, Germany, 17 September 1993. Available at: http://www.unilex.info/case.cfm?id=64, accessed 1 October 2018. 1167 If one of the parties has more than one place of business, the one with the closest relationship to the contract will be taken into account in accordance with Article 10 of CISG. 1168 Art. 1 CISG. 1169 Art. 6 CISG. 1170 Nuova Fucinati SpA v Fondmetall International A.B., a contrario. This decision of the court of Monza, Italy, has been strongly criticized as we saw in the previous chapter. Cf. CARR Indira, op. cit., p. 69, in citation to FERRARI, Uniform Law of International Sales: issues of applicability and private international law, 1995, 15 journal of law and commerce 159, p. 173. 1171 Paradoxically, the CISG does not define "sale" or "goods". 1172 Cf. BRIDGE Michael, The International Sale of Goods, op. cit., p. 552.

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been foreseen. As we have seen before, the solutions in the civil1173 and common law1174 system are different in this regard. It remains to be seen how this dilemma can be resolved. If the parties have established that the contract will be governed by general principles of law or lex mercatoria, the U.P. may be used to solve the problem1175, in accordance with its preamble. If this is not the case, the special clauses provided for this purpose (where they exist)1176 or the applicable1177substantive law rules must be taken into account. Accordingly, if civil law legislation is applicable, the culpable breach of preliminary negotiations will be sanctioned and subject to the conditions established by doctrine, law and jurisprudence; namely, to cause harm and to be guilty, i.e., in bad faith (absence of a legitimate motive) or brutal. In such cases, in the absence of a contract, the offending party shall incur civil non-contractual liability. Another solution is to consider that, by application of the general principle of good faith set out in Article 7 nº1 of the CISG, we must come to the conclusion that there is tacit protection of preliminary negotiations by CISG, on the understanding that a general principle, by definition, extends to the entire iter contractus. It is true that some common law jurists consider that CISG does not sanction a general principle of good faith1178. Others consider that Article 7 nº1, Part II, of the CISG is the result of a compromise between the civil law 1173

The new article 1104 of the c.civ. establishes that contracts must be negotiated in good faith, a provision that is of public order. See Manoukian, Cass., Com, 26 November 2003, D. 2004. 869, note A.-S. Dupré-Allemagne; Forestal Bío-Bío v Madesal and another, C. Ap., Concepción, 1996, Civ. nº 374-93. 1174 Preliminary negotiations are not regulated by English law and may take place between several competitors, unless expressly prohibited, establishing limitations in this regard and a duty of care. 1175 As we have seen above, Article 2.1.15 nº2 U.P. regulates this situation and sanctions the culpable breach of preliminary negotiations. 1176 Some authors consider it useful to include clauses that render the preparatory instruments obsolete or that keep them wholly or partially within the scope of the contract. See COLLART DUTILLEUL F. and DELEBECQUE Ph., op. cit. , p. 123. 1177 According to French law, it would be the law of the crime scene. According to the Rome II Regulation (Article 12 and Recital 30), the concept of culpa in contrahendo must therefore be applied, in principle, to the law that would have been applicable if the contract had been concluded. Otherwise, according to the criteria for the connection of non-contractual obligations, the place of occurrence of the damage, common habitual residence or exception clause. Cf. JACQUET, DELEBECQUE and CORNELOUP, op. cit. , p. 695. 1178 Cf. CARR INDIRA, op. cit., p. 72, quoting HONNOLD, Uniform Law for International Sales under the 1980 United Nations Convention, 1999, Kluwer.

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tradition, which protects good faith throughout the iter contractus, and the common law tradition, which is reluctant to recognize a general principle of good faith1179. As for international jurisprudence, it has recognized that good faith is a general principle of CISG1180, as it is in the civil law system. As a result, the theoretical debate now seems unnecessary and praxis shifts towards the civil law system: in practice, preliminary negotiations are protected by the United Nations Convention on Contracts for the International Sale of Goods (CISG), although it does not include explicit provisions to that effect. C. Formation of consent 277. The offer - Consensualism. The contract for the international sale of goods is not subject to any formal requirement as to its validity, nor as to its proof1181, according to Art. 11 of the CISG. It can, therefore, be concluded orally. However, some countries have required, in accordance with Articles 12 and 96 of the CISG, a written document as a condition for the existence of the contract and subsequent amendments. This is the case of China, Chile, Russia and Argentina1182, among others1183, which have a tradition of sales deed. 278. Conditions of validity of the offer according to CISG: a. It must be aimed at specific people. According to Article 14 nº2 of the CISG, an offer to indeterminate persons is only an invitation to negotiate (unless otherwise stated). 1179

Cf. GOODE R., KRONKE H. and MCKENDRICK E., op. cit. , p. 233. See CLOUT case No. 445, Federal Supreme Court, Germany, 31 October 2001. Available at: http://www.unilex.info/case.cfm?id=736, accessed 08 June 2017; CLOUT case No. 465, Corte d'appello di Milano, Italy, 11 December 1998. Available at: http://www.unilex.info/case.cfm?id=359, accessed 08 June 2017; ICC International Court of Arbitration, Judgement No. 8128/1995. Available at http://www.unilex.info/case.cfm?id=207, accessed 08 June 2017; Renard Constructions v Minister for Public Works, Court of Appeal, New South Wales, Australia, 12 March 1992. Available at: http://www.unilex.info/case.cfm?pid=1&do=case&id=57&step=FullText, accessed 08 June 2017. 1181 It can even be proven by witnesses. 1182 Cf. JACQUET, DELEBECQUE and CORNELOUP, op. cit. p. 375; CARR, op. cit. , p. 72. 1183 Chile, for example. 1180

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This rule departs from French law, which considers that a binding offer can be addressed to specific or indeterminate1184persons. b. Be firm. The offer, in accordance with article 14 nº1 of the CISG, must state "the intention of the offeror to be bound in case of acceptance"1185. c. Precise. It must clearly designate the goods1186 and the price (determined or determinable1187). However, the CISG allows the price to be determined later in Article 55 °. Under this provision, where the parties have not expressly or even tacitly determined the price, the buyer is liable for the current price in the relevant branch of trade for the same goods "sold in similar circumstances". 279. Offer Revocability - As in the civil law system, an offer is not revocable if it is made as "irrevocable" or associated with a term. Otherwise, it may be revoked prior to the sending of the acceptance by the addressee, in accordance with article 16 of the CISG. On the other hand, in English law, as we have seen, an offer can always be revoked before its acceptance by the recipient, even if a time limit has been set (unless the recipient has offered a consideration)1188.

1184

See art. 1114, new, c.civ. In Chile, on the other hand, as we have seen before, the offer to an indeterminate public is not obligatory, as a general rule, according to article 105, subparagraph 1, c.com.ch. (exceptions in consumer law). In English law, as we have also seen, the offer must be firm and made to a particular person, as a general rule, unless it contains an associated price in case of customer dissatisfaction, Carlic v Carbolic Smoke Ball Co, (1892) EWCA Civ 1. 1185 It's the same rule as in civil law. See article 1114, new, of the French civil code and 101 of the c.com.ch. 1186 In this sense, the dispatch of a smaller quantity of goods (2,700 pairs of shoes and not the 3,400 requested) was considered as a counter-offer by the offeror at the time of its receipt. See CLOUT case No. 291, Frankfurt Court of Appeal, Germany, 23 May 1995. Available at: http://www.unilex.info/case.cfm?id=188, accessed 25 June 2017. 1187 Art. 14 nº1 CISG. 1188 Cf. CARR., op. cit. p. 74.

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280. Acceptance - As in the civil law system, silence does not matter acceptance, as a general rule1189. The exception is the circumstantial silence, according to article 18 of the CISG1190. Acceptance may be express or tacit1191, as in continental law1192, immediately when oral, or within the period provided for in the offer. However, the Convention gives effect to late acceptances in the case of an excusable and undisputed delay on the part of the offeror, or if the offeror expresses its consent to such late acceptance1193. The CISG enshrines the system of reception1194 in articles 18 nº2 and 22 so that the contract is formed when the acceptance reaches the offeror1195 as in French law1196-1197. In addition, Article 19 of the CISG specifies the possibility for the parties to make non-essential1198 modifications to the acceptance, which 1189

In English law the situation is similar as we have seen above, Felthouse v Bindley, in relation to an offer to purchase a horse, expressing that acceptance would be presumed under reservation of refusal, (1863) 1 New Rep. 401. 1190 See art. 1220, new, c.civ. 1191 This is the case of the shipment of the goods or the payment of the price, according to number 3 of article 18 of the CISG. 1192 See art. 103 c.com.ch. 1193 See art. 21 CISG. 1194 For communications subsequent to the formation of consent, article 27 CISG maintains the issuing system (retained by Chilean civil law; art. 101 c.com.ch. ). This rule applies to notification of non-conformity and third party claims (art. 39 CISG); notification of specific performance claims (art. 46 CISG); price reduction (art. 50); compensation for damages (art. 45, nº1, letter b) or late interest (art. 78 CISG); notification of resolution (arts. 49, 64, 72 and 73 CISG); notification of grace periods (art. 47 and 63 CISG), among others. See UNCITRAL Digest of Case Law on the United Nations Convention on International Sale of Goods, op. cit. , p. 51. 1195 In this sense, article 24 CISG clarifies that an offer or acceptance is immediate if it is oral or if it is transmitted by any other means to the addressee himself, in his establishment, postal address or habitual residence. International jurisprudence has made it clear that a change of residence is indifferent. See Arrondissementsrechtbank, Amsterdam, Netherlands, 5 October 1994. Available at: http://www.unilex.info/case.cfm?id=124, accessed 2 June 2017. 1196 In English law, as we have seen above, consent is formed as soon as acceptance is communicated to the offeror by mail (postal rule), in accordance with Household Fire Insurance Co. v Grant, (1879) LR 4 Ex D 216. In Chile, as we have also seen, articles 99 and 101 c.com.ch. enshrine the theory of issuance or declaration. 1197 Cf. articles 1121 and 1118, inc. 2, c. civ. From that moment on, acceptance can no longer be withdrawn. 1198 International case law has decided on this point that stipulations relating to price changes as a result of market variations and the setting of a time limit for rejection are not essential changes. See CLOUT case No. 155, C. Cass. January 4, 1995.

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shall form an integral part of the contract1199. Examples of essential changes include: price, payment, quality or quantity of the goods, place or time of delivery1200, an extension of the parties' liability and settlement of disputes. This hypothesis occurs when the parties, as is often the case, do not enter into formal negotiations other than exchanges of e-mails or faxes1201. As seen in relation to the formation of consent, we can affirm that we find more elements of the civil law system than common law in the CISG. This is the case of the firmness and accuracy of the offer, or the rules on revocability and retractation. This observation allows us to consider that, in this respect, the CISG effectively maintains the first system as a general rule and the second as an exception. §2 - The content of the sales contract A. Rights and obligations of the parties The seller's obligations are reduced to three in the CISG. There is no security obligation as in the two legal systems analysed1202. 281. Delivery obligation - This includes the delivery of the goods and related documents1203, in accordance with Article 30 of the CISG.

Available at: http://www.unilex.info/case.cfm?id=106, accessed 25 June 2017; CLOUT case No. 50, Landgericht Baden-Baden, Germany, 14 August 1991. Available at: http://www.unilex.info/case.cfm?id=13, accessed 25 June 2017. 1199 French law adopts the theory of consensus (discarding contradictory clauses and integrating gaps by seeking the will of the parties and the applicable national legislation) and the English theory of last shot (retaining the general conditions of the accepting party if the offeror does not react) for the modification of the general conditions of sale. Cf. JACQUET Jean-Michel, DELEBECQUE Philippe, CORNELOUP Sabine, op. cit. , p. 377. 1200 In this regard, the comments in the United Nations meeting minutes on CISG indicate that an acceptance expressing "immediate surrender" would imply a substantial modification. CISG official records, United Nations, New York, 1991, p. 24. 1201 Ibidem. 1202 Cf. JACQUET Jean-Michel and DELEBECQUE Philippe, Droit du commerce international, cours Dalloz, series droit privé, París, 1997, p. 139. 1203 These documents can be: sanitary certificates (fumigation, health), fiscal documents, customs, administrative (security for dangerous goods, for example) certificates of origin, guarantee, user manuals, non re-export certificates, export authorizations, bill of lading, air waybill or waybill, commercial invoices, packing lists, transport documents, insurance, etc.

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Moment Delivery shall be made within the agreed1204 time limits or conditions or, failing this, within a reasonable time in accordance with Article 33 of the CISG. As we have already pointed out, timely delivery is essential for raw materials, seasonal products (fruits, vegetables, clothing), when the contractual purpose so requires and when the parties so wish. Otherwise, the delay in delivery is tolerable. However, in today's economy, time is increasingly essential and customers often rely on on-time delivery1205. This is explained by competition between different economic actors and by the rapid technological obsolescence of certain products (mobile phones, computers, televisions, etc.). This situation forces manufacturers to regularly introduce new products into more efficient and differentiated markets at a dizzying rate. Timely delivery is therefore essential if the parties have agreed to it, if it is a seasonal, basic product (raw materials), or if the parties' commercial uses or practices so provide. Place Delivery must take place at a place agreed upon by the parties1206. If the contract involves carriage, delivery is effected “by delivery of the goods to the first carrier for transmission to the buyer”1207-1208. In other cases, by making them available to the buyer instead of the1209 seller's place of business, in accordance with article 31 of the CISG. 1204

It is often the opening of a letter of credit, but it can also be the opening of a line of credit. 1205 Cf. JACQUET, DELEBECQUE and CORNELOUP, op. cit. p. 379. 1206 To this end, they often refer to ICC Incoterms (international commercial terms) which establish the place of delivery of goods, conditions of carriage, transfer of risks, costs, documents and insurance. Its 2010 version considers four categories: group E : EXW (ex-works); group F : FAS (free alongside ship), FOB (free on board), FCA (free carrier); group C: CIF (cost, insurance and freight), CFR (cost and freight), CPT (carriage paid to), CIP (carriage and insurance paid); group D : DAT (delivered at terminal), DAP (delivered at place), DDP (delivered duty paid). ICC Model International Sales Contract, ICC Publication No. 738 EF, ICC, Paris, France, 2013, pp. 47-54. The 2020 version (entering into force on 1 january 2020) replaces DAT for DPU (delivered at place unloaded). 1207 According to art. 32 nº1 CISG, the seller must notify the buyer of the shipment. 1208 Cf. JACQUET, DELEBECQUE and CORNELOUP, op. cit. , p. 379. 1209 This is a rule that is in harmony with both legal systems, payment is quérable, and therefore, unless otherwise stipulated, it is made, as a general rule, at the debtor's domicile (articles 1342 to 1342-6, new, c.civ. and 1588, inc. 2, c.c.ch. ). In English law, as we have also seen, and in the absence of a special rule, is the seller's domicile

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The CISG does not say anything about expenses. It should be noted that the seller may make payment of the price a condition for delivery of the goods or the documents representing them, in accordance with article 58 of the CISG numbers 1 and 2. 282. Obligation of conformity – The CISG confuses lack of conformity with latent defects1210, which are differentiated by the civil law system, as we have seen. Thus, the obligation of conformity includes in the CISG conformity itself (the goods correspond to those actually ordered) and guarantee of absence of latent defects. The eviction guarantee is dealt with in Article 41 of the CISG. 283. Conformity itself - It is regulated in article 35 nº 1 of CISG, which stipulates that the seller must deliver goods whose quality, quantity, packaging and conditioning correspond to that stipulated in the contract or, where appropriate, to the samples. It is therefore said that the goods must be "SLM"1211. In the absence of contractual stipulation, they must be fit for customary use1212with respect to goods of the same type (and price) or in accordance with the intended use and expressly or tacitly specified to the seller1213. The packaging must be adapted to the type of goods sold or, at least, be reasonable and sufficient to protect them until their destination. It should be noted that the seller is not liable for defects in conformity or for latent defects which the buyer knew or ought to have known at the time of the conclusion of the contract1214, in accordance with article 35 No.

for generic goods or the place where they are located, if they are species (rule 29 s.g.a.). 1210 Cf. MALAURIE Ph., AYNÈS L. and GAUTIER P.Y., op. cit. p. 194; COLLART DUTILLEUL F. and DELEBECQUE Ph., op. cit. , p. 296. 1211 "Sound, loyal and merchantable". See JACQUET, DELEBECQUE and CORNELOUP, op. cit. pp. 380-381. 1212 In English law, as we have seen above, rule 14 (2) s.g.a. states that there is an implicit condition in the sale of goods, which must be of satisfactory quality and fitness. The standard is the "basic" quality, contrary to civil law, where it is a "medium" quality (art. 145 c.com.ch. and former art. 1246 c.civ. ). However, the new article 1166 c.civ. establishes that if the quality is not determined or determinable, the nature, uses and amount of the consideration must be taken into account. 1213 Art. 35 no. 2, points (a) and (b), CISG. 1214 The presumption of knowledge for professionals of French law (Cass.civ., 1st, December 18, 1962, Bull.civ.I, nº554) does not exist in CISG, but will naturally be

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3 CISG, if the buyer has not examined the goods within a short period of time, according to the circumstances1215. In addition, the defects must have existed at the time the risk passed to the buyer1216 (delivery). 284. Eviction warranty - According to articles 41 and 42 of CISG, the seller must, as in civil law1217 and English law1218, guarantee the buyer peaceful possession of the goods and deliver them free of any rights or claims of third parties, especially with respect to intellectual or industrial property. The same exception of knowledge on the part of the buyer with regard to latent defects applies in this regard1219. It should be noted that, as in civil law, the obligation can be excluded through party autonomy, through the mention of stipulations in this regard1220-1221. 285. Obligation to transfer ownership - Article 30 of CISG provides for this obligation, but does not specify the conditions of such transfer; they must be sought in accordance with the rules of1222private international law1223. According to professors Collart Dutilleul and Delebecque: "More than the transfer of ownership of which it does not deal, the Vienna Convention of April 11, 1980 links risk transfers to the delivery of goods”1224. What the Convention does deal with is risk transfer. applied in practice, contrary to the profane. JACQUET Jean-Michel and DELEBECQUE Philippe, op. cit. , p. 141. 1215 Art. 38 nº1 CISG. 1216 Art. 36 nº1 CISG. 1217 Art. 1625, c.civ. and art. 1839 c.c.c.ch. 1218 Rule 12 (5) s.g.a. enshrines this obligation, and rule 12 (5A) s.g.a. specifies that it is a warranty. 1219 Art. 42 no. 2, point (a) CISG. 1220 See JACQUET Jean-Michel and DELEBECQUE Philippe, op. cit. , p. 141. 1221 It should be recalled that French law does not allow the obligation to evict to be waived in the case of legal acts or simple acts of one's own, in accordance with article 1628 c.civ. In this regard, it was held that it is a question of public policy, and therefore its infringement is sanctioned with absolute nullity. 1222 The Convention on the law governing transfer of title in international sales of goods (The Hague, 15 April 1958) has only been ratified by Italy. Cf. JACQUET Jean-Michel, DELEBECQUE Philippe and CORNELOUP Sabine, op. cit. , p. 365. 1223 See UNCITRAL Digest of Case Law on the United Nations Convention on International Sale of Goods, op. cit. , p. 144. 1224 See COLLART DUTILLEUL F. and DELEBECQUE Ph., op. cit. p. 197.

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286. Transfer of risk - Unlike French law, which follows the rule of the Roman law res perit domino1225, the transfer of risks is dissociated from the mere exchange of wills in articles 67 to 69 of the CISG and is linked to the delivery of goods (even if the property was previously transferred). This choice is explained by the fact that the buyer acquires physical mastery and control of the goods at1226 the time of delivery. This being the case, this is often expressly stipulated when stablishing retention of title clauses1227. The transfer of risk to the buyer from the time of delivery has as an exception in case of loss or damage to the goods as a result of an act of the seller1228. In addition, the goods must be individualized in order for the transfer of1229risk to take place. The possible hypotheses are as follows: a. The transfer of risk occurs at the time of delivery to the first carrier, in accordance with Article 67 of CISG. b. If the goods are sold during the course of carriage, the transfer will take place as soon as the contract is concluded, in accordance with art. 68 CISG. c. In the absence of transport, the risk is transferred as soon as the goods are made available to the buyer, in accordance with article 69 of CISG. d. The above rules must be combined with the ICC1230Incoterms, which are commonly used in the international sale of goods. In this way we have, in sequential order (from less obligation to more obligation of the seller): d.1. Ex-works sale: the risks are borne by the buyer from the moment the goods are placed at his disposal at the seller's place of business. FCA (free carrier) sale: the risks are transferred to the buyer at the time of delivery to the carrier. d.3. FAS (free alongside ship) sale: the risks are borne by the buyer at the time of delivery next to the ship.

1225

With the transfer of ownership effected by the sale, the risks of loss or deterioration normally pass to the buyer at that time (articles 1196, subpara. 1, new, and 1583, c.civ., 132-7 c.com.). In Chilean law it is through tradition that follows sale (this operates as a "title") as we have seen above. 1226 Cf. MALAURIE Ph., AYNÈS L. and GAUTIER P.Y., op. cit. pp. 181-182. 1227 See TERRE, SIMLER and LEQUETTE, op. cit. , p. 726. 1228 Art. 66 of CISG. In this case, the buyer is not obliged to pay the price. Cf. COLLART DUTILLEUL F. and DELEBECQUE Ph., op. cit. , p. 197. 1229 Arts. 67 nº2 and 69 nº3 CISG. 1230 ICC publication No. 738 EF, op. cit. pp. 47-54.

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d.4. FOB (free on board) sale: the risks are borne by the buyer at the moment the goods pass over the ship's rail 1231-1232. d.5. For Incoterms of group "C": CIF (cost insurance and freight), CFR (cost and freight), CPT (carriage paid to) and CIP (carriage and insurance paid), the risks are transferred to the buyer on boarding at the port (or airport) of origin1233. d.6. DAT sale (delivered at terminal) – DPU sale (delivered at place unloaded): the risks weigh on the buyer from the moment of delivery at a given place, at the terminal, at the port or at the agreed destination, unloaded. DAP sale (delivered at place): the risks are assumed by the buyer as soon as the goods are ready to be unloaded at the agreed destination. DDP sale (delivered duty paid): risks are transferred to the buyer as soon as the goods are placed at his disposal, cleared, import formalities carried out, transport and ready to be unloaded at the agreed destination. Finally, it is important to note that Article 70 of CISG provides that the risk transfer rules do not preclude the imposition of sanctions in favour of the buyer in the event of a fundamental breach of the seller's obligations. 287. Force majeure and Imprévision in the CISG - Article 79 of the CISG is included in section IV entitled "Exemptions" and comprises only two articles. In its essential part (numeral 1), it provides that: “(1) A party is not liable for a failure to perform any of his obligations if he proves that the failure was due to 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 it, or its consequences”. 288. Doctrine - This article has given rise to several criticisms because the doctrine considers that it is not clear enough. It has therefore been the subject of various interpretations.

1231

The buyer receives the goods before departure and therefore bears the risks of transport. Cf. JACQUET Jean-Michel and DELEBECQUE Philippe, op. cit. pp. 150-151. 1232 Cf. Cass.com., July 9, 1996, Bull.civ., IV, nº216. 1233 Without prejudice to their subsequent transfer of ownership in the CIF sale (the buyer usually pays against the transport documents, which include the bill of lading. In this case the property will pass to the buyer, and not at the time of the previous loading of the goods). See BRIDGE Michael, The Sale of Goods, op. cit. , p. 341.

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On the one hand, some authors believe that it concerns force majeure and also the frustration of common law. According to Professors Collart, Dutilleul and Delebecque: "The Vienna Convention only partially deals with the seller's exemption. In effect, it defines the exculpatory circumstances that the latter may invoke in order to evade its responsibility. Cases are thus evoked which correspond to the force majeure of French domestic law, but more broadly conceived as does the English law of frustration” 1234. On the other hand, several authors consider that this apparent inclusion of the English frustration in the article was not really successful, because its effects are different. Professors Goode R., Kronke H. and Mckendrick E. state at this point: “The article is entitled 'exemptions', but it deals with this only in terms of civil law which can be called 'force majeure'. There is no equivalent in common law. The frustration doctrine operates very differently in common law, because the effect of its application under the doctrine is to terminate the contract between the parties; however, the content of article 79 does not reflect the force majeure doctrine of any legal system either. On this point, the provision is a compromise”1235. Professor Carr adds: "One of the downsides of this provision is that the party who fails to perform due to impediments (obligor) is not liable in damages. This means that other remedies are still available to the other party (obligee), including specific performance. The obligee may elect avoidance provided there is a fundamental material breach. This option of avoidance is however not available to the obligor. This is different from the English doctrine of frustration, where the contract comes to an end in the event of frustration”1236. 289. Jurisprudence - International jurisprudence, for its part, is largely unfavourable to considering that this article enshrines the imprévision. In particular, the ICC International Court of Arbitration decided in 1989 that price increases in an open market were not sufficient to implement this provision1237. Similarly, in Nuova Fucinati SpA v Fondmetall International AB1238, an Italian court decided in 1993 to exclude CISG (as we saw - and criticized 1234

Cf. COLLART DUTILLEUL F. and DELEBECQUE Ph., op. cit., pp. 298-299. Cf. GOODE R., KRONKE H. and MCKENDRICK E., op. cit. pp. 257-258. 1236 CARR I., op. cit. , p. 91. 1237See ICC International Court of Arbitration, No. 6281 of 1989, 26 August 1989. Available at: http://cisgw3.law.pace.edu/cases/896281i1.html, accessed 18 May 2017. 1238Cf. R.G. No. 4267/88, 29 March 1993, Civil Court of Monza (Italy). Available at: http://cisgw3.law.pace.edu/cases/930114i3.html, accessed 20 February 2017. 1235

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earlier), since its article 79 does not provide for the eccessive onerositá sopravvenuta (imprévision). It is worth mentioning here another famous case, Scafom1239 2009, also discussed, in which the Belgian Court of Cassation admitted the theory of imprévision but on the basis of the U.P. and not of article 79 of the CISG. Finally, it should be noted that some cases of force majeure have also been rejected by case law1240. 290. Conditions required by Art. 79 CISG - Four conditions are required by this article to exempt the debtor from liability. 1. The breach must be independent of the will of the debtor1241. 2. The event giving rise to the non-performance must not have been reasonably foreseen at the time of the conclusion of the contract1242. 3. Neither should it have been superfluous or avoidable1243. These first three conditions have the same characteristics as force majeure in civil law1244, and are in conformity with the nemo auditur rule, because the debtor must strive to fulfill his obligations. As we have seen above, force majeure is characterized by the irresistibility and unpredictability of the event in which it consists,

1239 Available at: http://cisgw3.law.pace.edu/cases/090619b1.html, accessed 18 May

2017. This is the case, for example, of the seller's refusal to supply. See International Commercial Arbitration Tribunal of the Russian Federation Chamber of Commerce and Industry, No. 155/1994, 16 March 1995. Available at: http://cisgw3.law.pace.edu/cases/950316r1.html, accessed 18 May 2017. 1241 For this reason, a court recognized the exemption of article 79 of CISG for the benefit of a bona fide seller who delivered defective goods as a result of manufacturing defects on the part of his supplier. Tribunal de Commerce de Besançon, France, 19 January 1998. Available at: http://www.unilex.info/case.cfm?id=416, accessed 2 June 2017. 1242 Thus, for example, the exemption of article 79 CISG did not apply in the case of a buyer who bought caviar from a seller in a country affected by a trade embargo, a situation which meant the confiscation and destruction of the goods and yet forced the buyer to pay the price. See CLOUT case No. 163, Arbitration Court attached to the Hungarian Chamber of Commerce and Industry, Hungary, 10 December 1996. Available at: http://www.unilex.info/case.cfm?id=424, accessed 2 June 2017. 1243 For this reason, a court did not recognize the exemption opposed by a tomato seller affected by torrential rains that partially damaged crops in the country of origin, considering that it could still meet its obligations. Therefore, the impediment was not insurmountable in this case. Court of Appeals of Hamburg, Germany, 4 July 1997. Available at: http://www.unilex.info/case.cfm?id=438, accessed 2 June 2017. 1244 See JACQUET Jean-Michel and DELEBECQUE Philippe, op. cit. p. 146. 1240

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according to article 1218, new, c.civ., and article 45 of the Chilean civil code. It is also the consequence of an event beyond the control of the debtor of the performance, so it is not attributable to him. 4. The debtor must have warned the other party of an impediment that seriously affects its ability to perform. This is an additional requirement, but quite logical and consistent with the good faith-loyalty of civil law. 291. Special case: the fact of the third party responsible for the total or partial execution of the contract - In accordance with article 79 no. 2 of CISG, in this case, both parties, the party who wishes to take advantage of the exoneration and the third party, must comply copulatively with the requirements of origin. The case law has decided that the third parties referred to in this article are the subcontractors and employees of the parties1245. For example, the exemption was not granted in the case of a seller who sold a defective vine wax, issued directly by the manufacturer, because the court, in this case, the Federal Supreme Court of Germany, held that the condition was not met because the situation was not beyond the seller's control: an examination could have avoided the damage caused to the buyer1246. 292. Effects - In accordance with Article 79 No. 5 CISG, the aggrieved party is entitled to: “exercise any right other than the right to claim damages under this Convention". Thus, the creditor cannot claim damages (because the non-performance is not attributable to the debtor) but can claim the termination of the contract (if the performance is no longer useful)1247 or the reduction in price. It should also be noted that the effects are transitory according to Article 79 No. 5 CISG, i.e., once the impediment has disappeared, the creditor is entitled to request performance in nature.

1245

Cf. CLOUT case No. 166, Arbitration, Schiedsgericht der Handelskammer, Hamburg, Germany, 21 March 1996. Available at: http://www.unilex.info/case.cfm?id=195, accessed 2 June 2017. 1246 See CLOUT case No. 271, Federal Supreme Court, Germany, 24 March 1999. Available at: http://www.unilex.info/case.cfm?pid=1&do=case&id=384&step=Abstract, accessed 18 May 2017. 1247 Ibidem.

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293. Particular conclusion - Article 79 is a "hybrid" creation that enshrines the force majeure of civil1248 law1249 but more broadly conceived1250. The Imprévision was not consecrated by the CISG1251. Therefore, in order to avoid problems in the event of disruptions to the contract economy due to higher raw material prices or changes in the market, it is recommended to “prevent the imprévision” stipulating hardship clauses1252. Such clauses may provide for suspension of effects, exoneration of liability or renegotiation, pursuant to the U.P.1253. The only limit is respect for good faith1254. 294. Other obligations of the seller - The seller must also organise the transport of the goods, in the case of CIF sales and sometimes FOB sales12551256 , although the costs are borne by the buyer.

1248

See UNCITRAL Digest of Case Law on the United Nations Convention on Contracts for the International Sale of Goods, op. cit. , p. 261. 1249 It should be remembered, as we have seen above, that the force majeure is maintained in article 45 c.c.ch. and its conditions: unpredictable and insurmountable. In France, the new article 1218 c.civ. consecrates it, with the same characters, but excluding the notion of fortuitous event. 1250 Cf. COLLART DUTILLEUL F. and DELEBECQUE Ph., op. cit. pp. 298-299. 1251 As discussed earlier in Chapter 1, the imprévision is not accepted in common law (Tsakiroglou & Co. Ltd v. Noblee Thorl GmbH, 1962, AC 93). In the civil law system, we have seen that in Chile it is rejected by the ordinary courts, as a general rule, and exceptionally admitted by them (Guillermo Larraín Vial v SERVIU, C.Ap. de Santiago, November 14, 2006) and more widely recognized by arbitral tribunals (Inversiones Mónaco Ltda. v ENAP, arbitrator Mr. Carlos Urenda Zegers, 13.NOV.986).), Sociedad Constructora La Aguada Ltda. v EMOS S.A., arbitrator Mr. Claudio Illanes Ríos, ratified by the chilean Supreme Court 10.OCT.994.). In France, it was excluded in civil matters since Canal de Craponne, Civ. 6 March 1876, DP 1876.1.193, note Giboulot. After the reform to the law of contracts and obligations, ordinance no. 2016-131 of 10 February 2016, the new article 1195 c.civ. definitively consecrated it. 1252 Cf. CARR Indira, op. cit. , p. 92. 1253 See JACQUET Jean-Michel y DELEBECQUE Philippe, Droit du Commerce International, op. cit. , p. 129. 1254 If material law is French law, willful misconduct and gross negligence will be excluded accordingly. See: Ibidem. 1255 In FOB sales, this is the case when the seller acts as the buyer's agent. Cf. JACQUET Jean-Michel and DELEBECQUE Philippe, Droit du Commerce International, op. cit. , p. 149. 1256 In CIF sales, in addition, the seller must underwrite the insurance.

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As for the seller's other obligations under civil law system (information, advice), they are not regulated by CISG (except for one exception in article 32, No. 3, which provides that the seller, who is not obliged to insure the goods, must nevertheless inform the buyer accordingly). 295. Receive the goods - In return for the seller's obligation to deliver, the buyer must, in accordance with article 60 of CISG, remove the goods and perform all acts necessary for the seller to deliver. This is a good faith obligation: the buyer must cooperate with the seller to fulfil the contractual purpose as expeditiously as possible. In fact, if the obligation to deliver is performed at the seller's place of business, the buyer must remove the goods himself or through a third party1257. Examples of actions that facilitate delivery include the case where the buyer must subsequently specify certain characteristics of the goods to be delivered1258 or the case where the seller is allowed to enter the buyer's premises, if necessary1259. However, the buyer may reject the goods in the following cases1260: fundamental non-performance on the part of the seller, in accordance with Art. 49, No. 1 (a) of CISG; if he fails to deliver within the agreed grace period pursuant to Art. 47 of CISG; or if the seller delivers before the agreed period or delivers in excess of the agreed quantity pursuant to Art. 52, Nos. 1 and 2 of CISG1261. 296. Examination of goods: (a) Time-limit. The buyer must examine the goods, or have them examined by a third party1262, as soon as possible, depending on the circumstances, in accordance with article 38 of CISG (on arrival at destination and in cases of 1257 See Digest of Case Law on the United Nations Convention on Contracts for the International Sale of Goods, op. cit. , p. 320. 1258 Cf. JACQUET Jean-Michel y DELEBECQUE Philippe, Droit du Commerce International, op. cit. p 143. 1259 See UNCITRAL Digest of Case Law on the United Nations Convention on International Sale of Goods, op. cit. , p. 194. 1260 Ibidem. 1261 In all these cases, the buyer must take the necessary measures to ensure the preservation of the goods (and even take possession if necessary). He is entitled to reimbursement of expenses incurred in accordance with Article 86 of CISG. 1262 This third party may even be a sub-buyer of the goods. See CARR Indira, op. cit. p. 78.

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diversion or re-dispatch, the examination may be postponed until arrival at the new destination). If the buyer does not report any defects in conformity within a maximum of two years after delivery of the goods (except in the case of various warranties) in accordance with Article 39 No. 2 CISG, his right to do so shall lapse. This, unless the seller has known the conformity defects or latent defects and has not communicated them to the buyer1263-1264. (b) Nature of the examination. The CISG does not indicate it. It will, therefore, be determined by the contract or by previous practices existing between the parties. In its defect, by the customs of the place where it is carried out1265. CISG record proceedings (Canadian proposal)1266 and the comments of UNCITRAL Digest of Case Law on the United Nations Convention on Contracts for the International Sale of Goods suggest a "reasonable" method and cost1267, appropriate to the type of goods, packaging and economies of a classical buyer1268, as is the case in the two systems of law analysed1269. It should be noted that the buyer may object to payment if he has not had an opportunity to examine the goods (unless the terms of delivery or payment make this impossible), in accordance with article 58, No. 3 of CISG. 297. Paying the price - Differences with civil law (at the time of CISG writing). CISG departs from civil law on this subject in two aspects1270:

1263

The fraudulent reluctance of civil law (article 1137, para. 2º, new, c.civ. ) is enshrined in article 40 of CISG. 1264 Even if CISG does not establish the presumption of "knowledge" of professional salespeople, it would be difficult to ignore it in practice. Cf. JACQUET Jean-Michel and DELEBECQUE Philippe, Droit du Commerce International, op. cit. , p. 141. 1265 Cf. CARR Indira, op. cit. , p. 78. 1266 See CISG official records, op. cit., p. 106; available at: https://www.uncitral.org/pdf/english/texts/sales/cisg/a-conf-97-19-ocred-e.pdf, accessed 17 May 2017. 1267 See CLOUT case no. 423, Supreme Court, Austria, 27 August 1999. Available at: http://www.unilex.info/case.cfm?id=480, accessed 2 June 2017. 1268 See CLOUT, cas no. 230, Karlsruhe Court of Appeal, Germany, 25 June 1997. Available at: http://www.unilex.info/case.cfm?id=296, accessed 2 June 2017. 1269 Art. 146 c.com.ch.; Heilbutt v. Hickson, (1872) LR CP 438. 1270 Cf. JACQUET, DELEBECQUE and CORNELOUP, op. cit. pp. 386-387.

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a. The indetermination of the initial price is not a cause of nullity for the CISG1271. Article 55 provides that, in this case, the parties shall be deemed (unless otherwise stipulated) to have tacitly referred to: "... the price generally charged at the time of the conclusion of the contract for such goods, sold under comparable circumstances in the trade concerned". b. The price is not "querable"1272-1273 but "portable"1274. Article 57 CISG states that payment must take place at the seller's place of business, or at the place of delivery of the goods or the documents representing them. In addition, the buyer must bear any increased costs that may result from the seller's change of establishment. 298. Means of payment - Payment may be made in cash (rarely), by bill of exchange, credit card, cheque, international transfer, assignment of credit, performance guarantee, subrogation or compensation. 299. Time of payment - Payment must be made at the agreed time, or otherwise, as soon as the seller or the carrier makes the goods and/or the documents representing them available to the buyer, in accordance with article 58 (1) and (2) of CISG. In order for payment to take place, no formality is required, in accordance with Article 59 of CISG. 300. Special rule - The CISG introduces a precision in its article 56, which stipulates that, if the price is fixed on the basis of the weight of the 1271

In English law, as we have seen above, the initial indetermination of the price does not affect the validity of the contract. In this case, a reasonable price will have to be paid, according to the particular circumstances of each case, in accordance with rules 8 (2) and (3) s.g.a. We find a similar rule in article 139 c.com.ch. (In France, on the other hand, the price must be determined ab-initio, in accordance with article 1583, new, c.civ., under penalty of nullity. Cf. COLLART DUTILLEUL F. and DELEBECQUE Ph., op. cit. p. 124). 1272 In accordance with Article 1342-6, new, c.civ. In the absence of any other designation (legal, contractual or judicial), payment must generally be made at the debtor's domicile. The same applies to article 1588, para. 2º, c.c.ch. However, it should be noted that article 1343-4, new c.civ. establishes a special rule: "In the absence of any other legal, contractual or judicial obligation, the place of payment of the obligation to pay the sum of money is the domicile of the creditor" (the payment of the price has therefore become portable). 1273 The creditor must require payment to the debtor in civil law, as a general rule. Cf. TERRE, SIMLER and LEQUETTE, op. cit. , p. 1395. 1274 The payment is "portable" when the debtor must take it to the creditor. See Ibidem.

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goods, their net weight must be taken into account (unless otherwise stipulated). 301. Ancillary obligations to payment of the price - Article 54 of CISG provides that the buyer must take the measures and comply with the contractual, legal or regulatory formalities necessary to enable payment of the price. The comments in the UNCITRAL Digest of Case Law on the CISG indicate that this is the case for opening letters of credit, providing bank guarantees for payment, accepting bills of exchange and obtaining administrative authorizations for international transfers1275. Moreover, the comments make a typical civil law distinction and consider that, in the case of commercial measures, the buyer's obligation is of results. On the other hand, obligations of an administrative nature (and which remain outside its control) are only obligations of means (an authorisation for an international transfer, for example)1276. The cost of the operations is charged to the buyer1277. 302. Currency of payment - In accordance with the principle of party autonomy, the parties may determine the currency they will use in their contractual relations. Otherwise, and in accordance with the "portable" nature of the payment of the price consecrated by CISG, several decisions maintain that the currency to be used is that of the1278seller's place of business. 303. Limitation and disclaimer clauses - Such clauses are common in complex international contracts. They can take many forms. For example, allowing the seller to deliver goods of lower quality, limiting remedies/sanctions for breach of contract to the repair of the goods only, limiting the amount of damages, and so on1279. The CISG does not mention them. This loophole can be integrated with the U.P. in accordance with Articles 7(2) and 9(2) of CISG. 1275 See Digest of Case Law on the United Nations Convention on Contracts for the International Sale of Goods, op. cit., p. 292. 1276 Ibidem. 1277 See Landgericht Duisburg, Germany, 17 April 1996 (in relation to the costs of paying the price by cheque). Available at: http://www.unilex.info/case.cfm?id=193, accessed 25 June 2017. 1278 See CLOUT case No. 255, Tribunal cantonal du Valais, Switzerland, 30 June 1998. Available at: http://www.unilex.info/case.cfm?id=369, accessed 2 June 2017. 1279 See EBERHARD S., op. cit. pp. 173-174.

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Let us recall that article 7.1.6 U.P. prohibits, on the one hand, unfair terms, and, on the other, those that would allow a performance substantially different from that which the debtor would have to grant1280. According to this rule, the judge may, for reasons of equity, discard clauses that are manifestly unfair. For example, those that make the debtor liable for the defaulted obligation even in cases of acts of God1281. However, some authors prefer the renvoi to the law of the contract. Therefore, if the applicable law is French law, these clauses are valid with the limitations mentioned above: they are allowed between professionals of the same specialty1282 within the limits of fraud/gross negligence1283-1284. 1280

In common law, as we have seen before, those that exclude a fundamental breach, a possible negligence or a condition are prohibited. 1281 In common law, force majeure clauses are common. They terminate the contract and release the debtor from the obligation to pay damages in the event of nonperformance. The creditor, on the other hand, can terminate the contract. Otherwise, they sometimes allow the creditor to receive the difference between the contract price and the then existing price. Cf. BRIDGE M., The International Sale of Goods, Law and Practice, Michael Bridge, 2nd ed., Oxford University Press, United Kingdom, 2007, p. 322. 1282 Cf. BÉNABENT A., Droit des contrats spéciaux civils et commerciaux, op. cit., p. 180; MALAURIE Ph., AYNÈS L. and GAUTIER P.Y., op. cit. pp. 273-274: among professionals "of the same specialty", since they would have the same possibilities of appreciating the risks. The vice must be undetectable, too. See Com. October 8, 1973, J.C.P. 75.II.17927, note GHESTIN; Com. December 3, 1985, Bull. IV No. 287; Civ. 1, February 20, 1996, Bull. I, No. 86; Com. 19 March 2013, no. 11-26566. 1283 See COLLART D., F. and DELEBECQUE Ph., op. cit. pp. 298-299. 1284 According to article 1627 of the c.civ. if the seller acts in good faith (a possibility that does not extend to the price paid, except in the case of a buyer who has bought "at his own risk" according to article 1629 c.civ.), the obligation to guarantee the absence of latent defects and the eviction of third parties can be waived in favour of the seller). On the other hand, it is possible to stipulate limitation clauses between professionals for eventual late deliveries (Cass.com., June 15, 1981, Bull.civ.IV, nº270) within the limits of fraud/gross negligence (Chronopost, Com., 22 October 1996, D.1997.121, note A. Sériaux, Somm. 175, obs. Ph. Delebecque, Chr. Larroumet, p.145). It is also possible to waive between professionals certain items of the obligation to deliver as such - the content or conformity of the goods - (COLLART DUTILLEUL F. and DELEBECQUE Ph., op. cit., pp. 232-233; Cass. 1st., civ. 20 December 1988, Bull.civ. Virassamy; Cass.1st., civ., 24 November 1993, D.1994, som.236, obs. G. Paisant, JCP, ed. E., 1994.II.593, obs. L. Leveneur). Clauses limiting the safety obligation between professionals are also valid. The old article 1386-15, para. 2º, cod.civ., repealed by ordinance Nº 2016-131, of February 10, 2016, tolerated them. In accordance with party autonomy which indicates that

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Force majeure clauses are also permitted, within the limits of good faith1285. These define events which the parties will consider to be cases of force majeure, even if they are not unforeseeable or irresistible1286. It should be noted in this regard that ICC has drafted a standard clause for this purpose1287. These provisions oblige the parties to do what is necessary to reach a new agreement1288. Finally, it should be noted that these stipulations must be interpreted restrictively, because of their exceptional nature and in accordance with the principle of good faith. B. Rules of interpretation 304. Difficulties in the interpretation of contracts for the international sale of goods. a. Although international treaties, such as CISG, try to harmonise and avoid interpretation problems, different interpretations are always possible and occur in different jurisdictions due to the richness of language. Other times ambiguity is1289sought and even cultivated. b. In most cases, courts are reluctant to recognize decisions made by others1290. Each jurisdiction tends to interpret CISG from a local1291"perspective", which is incompatible with the mandate to achieve an "autonomous" interpretation, as set out in Article 7 No. 1 of CISG, which considers "the need to promote uniformity in its application". "everything that is not prohibited is permitted", we believe that the situation has not changed. 1285 Clauses intended to preclude good faith are prohibited. This is perfectly logical, since good faith is one of the basic principles of CISG. Its Article 6 has limitations, so the parties cannot waive its essential provisions which are mandatory, as is the case with Article 7 of the CISG. See BRIDGE M., The International Sale of Goods, Law and Practice, op. cit. , p. 535. 1286 Cf. JACQUET Jean-Michel, DELEBECQUE Philippe and CORNELOUP Sabine, op. cit. p. 129. 1287 See ICC force majeure 2003 clause. Available at: https://iccwbo.org/publication/icc-force-majeure-clause-2003icc-hardship-clause2003/ , accessed 16 November 2019. 1288 Cf. JACQUET Jean-Michel, DELEBECQUE Philippe and CORNELOUP Sabine, op. cit. p. 290. 1289 Ibid, p. 285. 1290 Cf. CARR, op. cit. , p. 71. 1291 Ibidem.

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305. Autonomous interpretation as a solution - Due to its international character, CISG tries to avoid resorting to national laws for its interpretation and that of contracts for the sale of goods. To this end, it uses two instruments: good faith and general principles of law. 306. The Role of Good Faith in Interpretation - Article 7 No. 1, Part II of CISG states that in its interpretation it is necessary to promote "...the observance of good faith in international trade". The use of good faith as an interpretative criterion is a civil law solution. Let us remember that there is no general principle of good faith in common law1292, so the courts on the other side of the English Channel are reluctant to use it1293. Some common law jurists consider that CISG does not sanction a general principle of good faith1294, but simply stipulates it in its article 7 no. 1 for the sole purpose of its interpretation. Now, even though some common law authors have argued that Article 7 No. 1, Part 2 of CISG is the result of a compromise between the civil law tradition, which protects good faith throughout the contract iter, and the common law tradition, reluctant to recognize a general principle of good faith1295, international jurisprudence has recognized that good faith is a general principle of CISG1296, as it is in the civil law system. Other common law jurists recognize that the scope of the principle in CISG goes beyond the mere question of interpretation (and is, therefore, a general principle). Thus, as Professor Zeller points out: "Australian law has 1292

May and Butcher Ltd. vs. The King, 1934) 2 KB 17. Except in cases where the law imposes an express duty of good faith, of course, as is the case with the insurance contract or the provisions of the Unfair Contract TermsAct, 1977, for example. 1294 See CARR INDIRA, op. cit., p. 72, quoting HONNOLD, Uniform Law for International Sales under the 1980 United Nations Convention, 1999, Kluwer. 1295 Cf. GOODE R., KRONKE H. and MCKENDRICK E., op. cit. , p. 233. 1296 See CLOUT case No. 445, Federal Supreme Court, Germany, 31 October 2001. Available at: http://www.unilex.info/case.cfm?id=736, accessed 08 June 2017; CLOUT case No. 465, Corte d'appello di Milano, Italy, 11 December 1998. Available at http://www.unilex.info/case.cfm?id=359, revised 08 June 2017; ICC International Court of Arbitration, Judgement No. 8128/1995. Available at: http://www.unilex.info/case.cfm?id=207, accessed 08 June 2017; Renard Constructions v. Minister for Public Works, Court of Appeal, New South Wales, Australia, 12 March 1992. Available at: http://www.unilex.info/case.cfm?pid=1&do=case&id=57&step=FullText, accessed 08 June 2017. 1293

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not yet committed itself unqualifiedly to the proposition that every contract imposes on each party a duty of good faith and fair dealing in contract performance and enforcement. This can be contrasted with the CISG, where good faith has been established as a principle to not only regulate the interpretation of the Convention, but also as a principle to be enforced in dealings between parties. Arguably the approach or methodology adopted by domestic courts appears to be an internationally accepted one. It could be argued that good faith is becoming an international custom. So, not only by analogy can the socialization process be transplanted, but through Article 9, good faith must be applied to the CISG. As Article 9 is linked to Article 8, parties must negotiate in good faith. The intent of the parties links articles 7, 8 and 9 and good faith is thus regulating the behaviour and conduct of parties with each other”1297. Professor Bridge adds in the same vein: "Given that an explicit standard of good faith and fair dealing was rejected by the conference delegates, does this mean that the standard itself was rejected as a general principle or only that express mention of the standard was rejected? The latter approach is likely to gain the ascendancy. A further point is that, if the Unidroit principles have a part to play in filling gaps in the coverage of the CISG, they do have a general duty of good faith and fair dealing in Article 1.7.”1298. The good faith provided for in Article 7(1), second part, of the CISG, must be expressed in two ways1299: a. In an honest communication between the parties1300. b. In the way each party acts, it must take into account the legitimate interests of the other. It is, therefore, a positive duty, a meaning retained by certain international decisions and by doctrine. 307. Jurisprudence - A judgment of the Munich Higher Regional Court (oberlandesgericht) of 8 February 19951301 (No. 7 U 1720/94)1302 is particularly interesting in this regard. 1297

See ZELLER Bruno, Damages Under the Convention on Contracts for the Intenational Sale of Goods, Oceana publications, New York, U.S.A., 2005, p. 26. 1298 Cf. BRIDGE M., The International Sale of Goods, Law and Practice, op. cit., pp. 534-535. 1299 See GOODE R., KRONKE H. and MCKENDRICK E., op. cit. , p. 237. 1300 See CLOUT case No. 445, Federal Supreme Court, Germany, 31 October 2001. Available at: http://www.unilex.info/case.cfm?id=736, accessed 10 June 2017. 1301 Court of Appeal. 1302 Available at: http://cisgw3.law.pace.edu/cases/950208g1.html, accessed 8 June 2017.

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In the species, a buyer wanted to terminate a contract for the sale of 11 BMW cars on the basis of non-delivery of the cars (the specially prepared cars were ready for delivery at two different times, but the buyer asked the seller to return them to the supplier, following the fluctuations of the Italian lira in relation to the German mark at the time). However, since the buyer had waited two and a half years to bring the matter before the courts, his passivity was punished, as it was considered contrary to good faith1303. 308. Doctrine - The legitimate interest of the other party to the contract is enshrined, according to doctrine, by the following elements provided by CISG1304 : a. Communications::the addressee of a communication transmitted with errors (acceptance, notification of a defect, etc.), must inform the sender of his error or treat it as a valid communication, in accordance with Articles 21 No. 2 and 27 of CISG. b. Insurance of goods: the seller must take into account the interests of the buyer when taking out insurance of the goods and their transport in accordance with article 32 of CISG. c. Specification of goods: if the seller, in the absence of the buyer, specifies the size, shape or other characteristics of the goods, he must make this specification known to the buyer and allow a reasonable time to formulate a different specification, if he so wishes, in accordance with article 65 of CISG. d. Seller's power of correction: if the seller wishes to correct defects affecting the goods or the documents representing the goods, he must take into account any difficulties and additional costs that may arise, in accordance with articles 34, 37 and 48 of CISG. e. Examination of the goods: the buyer must take into account the seller's interest and therefore examine the goods and notify as soon as possible any defects that may affect them, in accordance with articles 38, 39, 40 and 44 of CISG. f. Repair of the goods: the buyer may require the seller to remedy lack of conformity, but without this being unreasonable, according to article 46

1303

The judgment must be demanded by the buyer within a reasonable time in accordance with Art. 49 No. 2 b) CISG. 1304 Cf. GOODE R., KRONKE H. y MCKENDRICK E., op. cit., pp. 237-238, quoting KASTELY Amy H., Unification and Community: A Rhetorical Analysis of the United Nations Sales Convention (1987-8) 8 Northwestern J Int'l L&Bux 574, 596-7.

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no. 3 CISG; in other words, the buyer must not impose unnecessary, disproportionate or superfluous costs on the seller. g. Formation of consent: as we have seen above, CISG enshrines the theory of reception1305, in accordance with civil law1306, and unlike common law1307. However, considering the enshrinement of this theory, good faith requires that the offeror be given a reasonable opportunity to know it, since it is unreasonable to believe that when acceptance is received, it will be read and analysed immediately, whether by e-mail or otherwise. In particular, account should be taken of time differences, public holidays, cases of force majeure, or other situations which may delay the taking of actual knowledge thereof. 309. General principles enshrined by CISG - Article 7 No. 2 of CISG provides that the loopholes in the Convention should be integrated through the general principles on which it is based or, failing that, in accordance with the law applicable under the rules of private international law. Several principles inspire CISG: 1. Good faith and party autonomy, already commented. 2. Full compensation. As in civil law1308, all damages must be compensated1309: consequential damages, lost profits, and even moral damages. 3. Consensualism. As we have seen, the contract for the international sale of goods is not subject to any formal requirement as to its validity or proof, according to article 11 of the CISG. Thus, it can be concluded orally, and its existence can be proved by witnesses. According to the principle of consensualism, the parties may also orally modify or supplement a contract for the international sale of goods and prove this modification by witnesses1310. 1305

Art. 22 of CISG. Article 1121, new, c. civ. 1307 Postal rule, Household Fire Insurance Co. v Grant, (1879) LR 4 Ex D 216. 1308 See Cass.com, January 20, 1998, Bull.civ, IV, no. 35; art. 1556 c.c.ch. 1309 See CLOUT case No. 424, Supreme Court, Austria, 9 March 2000. Available at: http://www.unilex.info/case.cfm?id=474, accessed 10 June 2017; CLOUT case no. 93, Arbitration - Internationales Schiedsgericht der Bundeskammer der gewerblichen Wirtschaft - Vienna, 15 June 1994. Available at: http://www.unilex.info/case.cfm?id=56, accessed 26 June 2017. 1310 See CLOUT case no. 176, Supreme Court, Austria, 6 February 1996. Available at: http://www.unilex.info/case.cfm?id=202, accessed 10 June 2017. 1306

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Exceptionally, a written document will be required for certain countries which, in accordance with Articles 12 and 96 of CISG, have imposed it as a condition for the existence of a contract for the international sale of goods and its subsequent modifications (e.g. Chile, China, Russia and Argentina, which have a tradition of written sales). 4. Mitigation of damages. As noted above, it is one of the two pillars of the English1311Hadley rule. This common law rule, according to which allocation of damages will be reduced to the extent that the injured party has not attempted to reduce the damages caused by the other party, was enshrined by CISG in Article 77 and recognized by international jurisprudence as a general principle of CISG1312. 5. Favor contractus. The parties should prefer the preservation of the contract for the international sale of goods to its termination and therefore take measures to promote its survival. In accordance with this rule, the resolution has been adopted as ultima ratio by international jurisprudence1313. 6. Portable payment of price. Article 57 of CISG provides that payment of the price must be made at the seller's place of business or, failing that, at the place of delivery of the goods or the documents representing them. International jurisprudence has had occasion to decide that this is a general principle, therefore applicable to the payment of the price, but also to the compensation of damages1314. In addition, other principles apply in relation to CISG. This is the case of the UNIDROIT principles, in particular, dealt with in the previous chapter. The practical usefulness of the Unidroit principles is great for the interpretation of the 1980 Vienna Convention on the International Sale of Goods. Although they were created after the CISG1315 and, therefore, their 1311

See Hadvley v Baxendale, 1854, EWHC J70. See ICC Court of Arbitration, Judgement No. 8817. Available at: http://www.unilex.info/case.cfm?pid=1&do=case&id=398&step=FullText, accessed 10 June 2017. 1313 See CLOUT case No. 428, Supreme Court, Austria, 7 September 2000. Available at: http://www.cisg.at/8_2200v.htm, accessed 10 June 2017. 1314 See CLOUT case No. 49, Düsseldorf Court of Appeal, Germany, 2 July 1993. Available at: http://www.unilex.info/case.cfm?id=26, accessed 10 June 2017. 1315 The first version dates from 2004. 1312

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legitimacy as a source of inspiration is debatable1316-1317their practical utility is considerable, and they are often applied by courts to integrate the loopholes in CISG on certain issues. As we have previously analyzed, the Unidroit principles, for example, have been successfully used by the Belgian Court of Cassation in the famous case Scafom International BV & Orion Metal BVBA v Exma CPI SA in1318order to apply the theory of imprévision, not explicitly recognized by the CISG. Similarly, Article 7.4.9 of the UNIDROIT principles has been used to determine the interest rate applicable to interest on arrears, since Article 78 of CISG does not say anything about it1319-1320 Obviously, when general principles cannot be applied, private international law rules are used to resolve the conflict1321. 310. The "subjective" method of interpretation - Article 8 No. 1 of CISG follows the general rule of "subjective" interpretation of civil law1322, which consists in seeking the intention of the contracting parties. The provision reads as follows: “(1) For the purposes of this Convention statements made by and other conduct of a party are to be interpreted according to his intent where the other party knew or could not have been unaware what that intent was”. According to the comments in the UNCITRAL Digest of Case Law on the CISG, this subjective intention of the parties must be expressed in a positive manner, i.e., it must be expressed in one way or another. Therefore, 1316

See GOODE R., KRONKE H. and MCKENDRICK E., op. cit. pp. 242-243. However, the U.P. can be considered part of the lex mercatoria. Its preamble states that: “They may be applied when the parties have agreed that their contract be governed by general principles of law, the lex mercatoria or the like ». 1318 C.07.0289, 19 June 2009. Available at: http://www.unilex.info/case.cfm?id=1457, accessed 10 June 2017. 1319 See ICC Court of Arbitration, Judgement No. 8128. Available at: http://unilex.info/case.cfm?pid=1&do=case&id=207&step=FullText, accessed 10 June 2017. 1320 Article 78 of CISG does not indicate from when interest on arrears is due, which interest rate is applicable and whether it is simple or compound interest. Similarly, it says nothing about penalty clauses. See BRIDGE M., The International Sale of Goods, Law and Practice, op. cit. pp. 536-537. 1321 In this way, some courts have used domestic law to determine the interest rate applicable to interest on arrears, and not the UNIDROIT principles. The problem with this recourse to domestic law is the lack of homogeneity that can occur. See GOODE R., KRONKE H. and MCKENDRICK E., op. cit. , p. 243. 1322 Article 1188, para. 1, new, c.civ. 1317

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if it remains unknown to the other party, it is irrelevant and cannot be invoked1323. 311. The “objective" method of interpretation - If it is not possible to determine the intention of the parties, the system known as "objective" interpretation of civil law may be applied1324. It is then a question of determining what meaning a "reasonable" person would give to a particular provision in the same situation. Thus, Article 8 No. 2 of the CISG provides: “2) If the preceding paragraph is not applicable, statements made by and other conduct of a party are to be interpreted according to the understanding that a reasonable person of the same kind as the other party would have had in the same circumstances”. This provision is in harmony with article 4.1, no. 2 U.P., discussed above. According to the comments in the UNCITRAL Digest of Case Law on CISG, one can conclude, according to the "objective" system of interpretation: a. The intention to be bound by a contract for the international sale of goods and the final quantity of goods desired by the buyer, based on the buyer's request to the seller to issue an invoice for goods already delivered1325. b. That an offer for sale of goods is sufficiently precise, in the terms of article 14 no. 1 of CISG (precise designation of the goods and express or implicit fixing of the quantity and price of the goods, or transmission of indications allowing their determination) if a reasonable person of the same type as the addressee can deduce the necessary elements, in the same circumstances1326. c. That an expert buyer must know the quality of the goods he buys and, therefore, cannot reject them later on the pretext of a breach of contract in this regard1327.

1323

See CLOUT Case No. 5, Landgericht Hamburg, Germany, 26 September 1990. Available at: http://www.unilex.info/case.cfm?id=7, accessed 13 June 2017. 1324 Article 1188, inc. 2º, new, c.civ. 1325 See CLOUT case No. 215, Bezirksgericht St. Gallen, Switzerland, 3 July 1997. Available at: http://www.unilex.info/case.cfm?id=306, accessed 13 June 2017. 1326 See CLOUT case No. 106, Supreme Court, Austria, 10 November 1994. Available at: http://www.unilex.info/case.cfm?id=110, accessed 13 June 2017. 1327 See Bundesgericht Switzerland, 22 December 2000, published at http://www.cisg.law.pace.edu/cisg/wais/db/cases2/001222s1.html, accessed 13 June 2017.

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d. The presumed intention to waive limitation periods, in case the seller initiates lengthy negotiations with the buyer to initiate legal action following conformity defects1328. e. The intention to modify the risk rule contained in article 31 (a) CISG, if the seller undertakes to deliver the goods DDp, takes out an insurance policy and transports them by his own means. In this case, the stipulation goes beyond costs, and also includes risks, according to international jurisprudence1329. f. The willingness to accept the price charged by the seller if the buyer has accepted delivery of the goods without making any claim1330. g. The predictability of losses, in terms of Article 74 of CISG1331. 312. Syncretic Rule - Finally, a syncretic rule, similar to the one contained in the U.P. is1332laid down in Article 8 No. 3 of CISG, according to which, in determining the intention of the parties, or what a reasonable person would have understood, account must be taken of any negotiations that may have taken place between them, the practices, customs, and their subsequent behaviour. This previous rule is consistent with the protection of good faith throughout the contract iter which, unlike common law1333-1334, characterizes the civil law system1335. It approaches the systematic interpretation of civil law1336. 1328

See CLOUT case No. 270, Federal Supreme Court, Germany, 25 November 1998. Available at: http://www.unilex.info/case.cfm?id=356, accessed 13 June 2017. 1329 See CLOUT case No. 317, Karlsruhe Court of Appeal (Germany), 20 November 1992. Available at: http://www.unilex.info/case.cfm?id=63, accessed 13 June 2017. 1330 See CLOUT case No. 151, Grenoble Court of Appeal (France), 26 February 1995. Available at: http://www.unilex.info/case.cfm?id=127, accessed 13 June 2017. 1331 See CLOUT, cas nº541, Supreme Court, Austria, 14 January 2002. Available at: http://www.unilex.info/case.cfm?id=858, accessed 13 June 2017. 1332 Article 4.3 U.P. provides that account must be taken of the preliminary negotiations, the usages and practices of the parties, their post-contract behaviour, the meaning generally given to expressions in the commercial sector concerned and the nature and purposes of the contract. 1333 May and Butcher Ltd. v The King, (1934) 2 KB 17. 1334 In English law, negotiations are not important for interpreting the contract, according to the parol evidence rule. Cf. ZELLER B., op. cit. , p. 98. 1335 Manoukian, Cass, Com, 26 November 2003, D. 2004. 869, note A.-S. DupréAllemagne; Forestal Bío-Bío v Madesal and another, C. Ap., Concepción, 1996, Civ. nº 374-93; art. 1104, new, c.civ. 1336 Art. 1189, inc. 2, new, c.civ.; art. 1564 c.c.ch.

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According to international jurisprudence, this CISG rule is different from the common law parol evidence rule1337. 313. Recourse to commercial uses – The customs of international trade constitute one of the sources of lex mercatoria, as do Incoterms, U.P., arbitral awards, contracts, and general principles 1338. In civil law, usages are part of the contract. Thus, the new article 1194 of the French Civil Code states: "Contracts bind not only what is expressed in them, but also all the consequences that equity, customs or the law confer on them". In addition, the usages assist in the good faith interpretation of the contract, a general principle that inspires CISG, as we have noted. In this sense, article 1546 of the Chilean Civil Code establishes: "Contracts must be performed in good faith, and therefore bind not only what is expressed in them, but all things which emanate precisely from the nature of the obligation, or which by law or custom belong to it”. Article 9 of CISG enshrines the logic of civil law on uses1339, and the differences between the uses and practices established by the parties (in its No. 1), of those existing in international trade (in its No. 2). Both are binding on the parties to an international contract for the sale of goods and must therefore be considered in the good faith interpretation of the contract. As to the necessary duration of a practice to constitute an obligatory use between the parties, case law has held that it must be a long-term relationship and be present in multiple contracts. Therefore, the existence of two deliveries is not sufficient to establish it1340-1341 .

1337 See CLOUT Case No. 23, Federal District Court, Southern District of New York,

United States of America, 14 April 1992. Available at: http://www.unilex.info/case.cfm?id=9; CLOUT, Case No. 413, Federal District Court, Southern District of New York, United States of America, 6 April 1998. Available at: http://www.unilex.info/case.cfm?id=336, accessed 13 June 2017. 1338 The lex mercatoria consists rather of spontaneous rules. In this sense, CISG escapes its content. Cf. JACQUET Jean-Michel, DELEBECQUE Philippe and CORNELOUP Sabine, Droit du commerce international, op. cit. pp. 62-63. 1339 In common law, section 1-205 UCC also considers usages of trade for purposes of interpretation. 1340 See CLOUT case no. 360, Amtsgericht Duisburg, Germany, 13 April 2000. Available at: http://www.unilex.info/case.cfm?id=715, accessed 13 June 2017. 1341 In Chilean law, according to article 5 c.com.ch., two prior judgments asserting the existence of custom and pronounced in accordance with it, or three public deeds, prior to the trial where they must serve as evidence, are sufficient to establish it. In French law, the test is free between merchants, according to article L.110-3 cod.com.

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In relation to Article 9, No. 1 of CISG, the following cases may be cited which have been considered as constituting established trade usages between the parties: a. The case in which the seller has repeatedly received late payments from the buyer, without claiming or demanding resolution. In this case, the doctrine considered that a practice or use in this sense had been established between the parties. Thus, the buyer may invoke as an exception a tacit waiver of the termination action if the seller later decides not to tolerate these late payments any longer1342. b. The case in which the seller was obliged to deliver spare parts, since it was a custom held between the parties1343. c. The case in which the seller has abruptly finished delivering the goods to a regular buyer. In this case, case law held that a failed factoring operation, due to the buyer's state of difficulty, was not sufficient reason to terminate the business relationship abruptly, since the legitimate interest of the buyer had to be taken into account1344. With regard to article 9, no. 2 of CISG, the jurisprudence and doctrine have established the following criteria with respect to international trade usages: a. ICC Incoterms have been considered tacitly incorporated, in accordance with international practice, into bulk oil sales. However, for the sale of dry raw materials, have been rejected1345. Similarly, the "CIF" and "FOB" sales made without reference to the Incoterms of the ICC of Paris, have been considered as "CIF" and "FOB" sales made in consideration of those1346.

1342

Cf. BRIDGE M., The International Sale of Goods, op. cit., pp. 545-546, quoting HONNOLD, Uniform Law for International Sales under the 1980 United Nations Convention, 1999, Kluwer, p. 126. 1343 See ICC Court of Arbitration, Judgement No. 8611/HV/JK, published at http://www.unilex.info/case.cfm?pid=1&do=case&id=229&step=FullText, accessed 13 June 2017. 1344 See CLOUT case No. 202, Grenoble Court of Appeal (France), 13 September 1995. Available at: http://www.unilex.info/case.cfm?id=151, accessed 13 June 2017. 1345 Cf. BRIDGE M., The International Sale of Goods, op. cit., pp. 546-547. 1346 See CLOUT case No. 447, United States Federal District Court, Southern District of New York, 26 March 2002. Available at: http://www.unilex.info/case.cfm?id=730, accessed 14 June 2017.

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b. International usages and practices relating to the commercial sector in question are automatically included in a contract for the international sale of goods, unless the parties have expressly excluded them1347. c. To be mandatory, a usage must be known by the parties. Even if it is only local, it will remain mandatory for the foreign party in this case (regarding the sale of raw materials)1348. d. For silence to be considered an acceptance of a letter of confirmation, the existence of such use in the respective states of all interested parties must be proved1349. e. In the sale of minerals, the possibility of adjusting the selling price has been considered as an international use1350. f. A bill of exchange given by the buyer can modify the payment term established in the contract, until its expiration, in accordance with international usages1351. g. Trade Usages may authorize the presence of the buyer at the time of examination of the goods1352. h. Interest on arrears may be fixed, taking into account the prime rate, in accordance with international practice1353. i. The U.P. has been considered to have the legal nature of international usages, applicable in accordance with Article 9, No. 2 of CISG1354. 1347

See CLOUT case No. 579, United States Federal District Court, Southern District of New York, 10 May 2002. Available at: http://www.unilex.info/case.cfm?id=739, accessed 14 June 2017; corte di appello di Genova, Italy, 24 March 1995. Available at: http://www.unilex.info/case.cfm?id=198, accessed 14 June 2017. 1348 See CLOUT case No. 175, Graz Court of Appeal, Austria, 9 November 1995. Available at: http://www.unilex.info/case.cfm?id=370, accessed 13 June 2017. 1349 See CLOUT case No. 276, Frankfurt Am Main Court of Appeal, Germany, 5 July 1995. Available at: http://www.unilex.info/case.cfm?id=169, accessed 14 June 2017. 1350 See ICC Court of Arbitration, Judgement No. 8324, published at http://www.unilex.info/case.cfm?pid=1&do=case&id=240&step=FullText , accessed 14 June 2017. 1351 See CLOUT Case No. 5, Landgericht Hamburg, Germany, 26 September 1990. Available at: http://www.unilex.info/case.cfm?id=7, accessed 14 June 2017. 1352 See Helsinki Court of Appeal, Finland, 29 January 1998. Available at: http://www.unilex.info/case.cfm?id=490. , accessed 14 June 2017. 1353 See Juzgado Nacional de Primera Instancia en lo Comercial nº10, Argentina, October 23, 1991. Available at: http://www.unilex.info/case.cfm?id=184., accessed 14 June 2017. 1354 Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry, Case No. 229/1996, 5 June 1997. Available at:

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It should be noted that all these uses and practices, which are particular between the parties, or international, apply preferably to the provisions of the CISG1355. Finally, it should be noted that, in accordance with the general rules of evidence in civil matters, the party alleging the existence of the usage in question must prove it1356-1357 . 314. The Frigaliment case - The famous Frigaliment Importing v BNS International case1358, although earlier, illustrates how the CISG interpretive system works. In the species, the Southern District Court of New York used the same method as the former. In that case, a Swiss company had concluded two contracts relating to the purchase of chickens from a US company. The first sales contract specified government-inspected, grade A frozen fresh American chickens of 2 1/2 to 3 pounds each, all individually packaged in secure fiber cartons suitable for export. The second contract was identical, except for the quantity. When the first shipment arrived, the buyer protested because the chickens were not young, suitable for frying, but for cooking. Despite the buyer's claim, the second delivery was identical to the first. The buyer sued for breach of the conformity obligation because, according to him, the seller had to deliver young chickens, suitable for roasting and frying. The seller, for its part, argued that "chicken" meant any type of poultry that met the contractual specifications on weight and quality, including what is called “stew chicken”. The court1359used the following method: it searched for the meaning of the word "chicken" in the contract without result; then, it considered the relations between the parties; then, the possible existence of other contracts http://www.unilex.info/case.cfm?id=731, accessed 14 June 2017; ICC Court of Arbitration, Judgement No. 9333, published at: http://www.unilex.info/case.cfm?pid=1&do=case&id=400&step=Abstract, accessed 14 June 2017. 1355 Cf. GOODE R., KRONKE H. and MCKENDRICK E., op. cit., pp. 244-245; See CLOUT Case No. 425, Supreme Court, Austria, 21 March 2000. Available at: www.cisg.at/10_34499g.htm, accessed 13 June 2017. 1356 See CLOUT case no. 360, Amtsgericht Duisburg, Germany, 13 April 2000. Available at: http://www.unilex.info/case.cfm?id=715, accessed 13 June 2017. 1357 The general rule of onus probandi is contained in articles 1353, new, c.civ. and 1698 c.c.ch. 1358 190 F.Supp. 116 (N.D.S. AND 1960). 1359 U.S. District Court for the Southern District of New York.

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or negotiations between them; finally, the court consulted the international trade usages and customs on this subject. In the end, since the method used did not allow a clear meaning to be found for the term "chicken", it rejected the claim on the grounds that it had failed to provide evidence that the term should be applied in a particular sense under the contract (restricted) and not in a broad sense1360. 315. Representation and the CISG - The CISG, unlike the U.P., does not deal with representation. A Convention on Agency in International Sale of Goods was signed in Geneva on 17 February 1983. However, this treaty is not in force in France, Chile, or the United Kingdom1361. Therefore, in our opinion, the solution is to have recourse to the U.P.1362 on this point, in accordance with Articles 7(2) and 9(2) of CISG which allow the latter to integrate their loopholes. SECTION 2 - SANCTIONS FOR NON-PERFORMANCE OF THE OBLIGATIONS OF THE PARTIES Articles 45 to 52, 62 to 65 and 74 to 77 of CISG provide various sanctions for non-compliance with the parties' obligations: damages, specific performance, resolution and price reduction. It should be noted that under Articles 45 No. 3 and 61 No. 3 of CISG, as soon as the parties have acted using one of these devices, the court may not grant the parties any period of grace. In this section, we will demonstrate that sanctions for non-compliance with the obligations of the parties enshrined in the 1980 Vienna Convention are in harmony with the general principle of good faith in civil law. Thus, we will see that the CISG, unlike common law, favors specific performance. On the other hand, we will observe that the general principle of good faith is considered in article 7 No. 1 of the CISG with the same breadth as in civil law and is reflected in the promotion of contract preservation by means of various measures aimed at avoiding termination, this being an ultima ratio between the remedies/sanctions for breach of contract enshrined in the 1980 Vienna Convention. In addition, we will see that the price reduction, creation of civil law of Roman origin and almost unknown in common law, was consecrated by the

1360

Cf. DIMATTEO Larry A., International Contracting: Law and Practice, 3rd. ed., Kluwer Law International, London, England, 2013, pp. 254-256. 1361 Cf. http://www.unidroit.org/fr/etat-agency, checked on 20 June 2017. 1362 U.P. Section 2, Articles 2.2.1 to 2.2.10 U.P.

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CISG with the same favor contractus spirit, inherent to good faith of civil law. We will begin with the analysis of sanctions for non-performance with the obligations of the parties tending to the contract preservation. § 1 - Remedies in case of preservation of the contract A. Specific performance 316. As we have seen, specific performance is the general rule for contractual breaches in civil law, while performance by equivalence, that is, compensation for damages, is that of common law1363. The CISG clearly pronounced itself in favour of civil law on this point in Articles 28 and 46, No. 1, which provide: "Article 28. If, in accordance with the provisions of this Convention, one party is entitled to require performance of any obligation by the other party, a court is not bound to enter a judgement for specific performance unless the court would do so under its own law in respect of similar contracts of sale not governed by this Convention". “Article 46. (1) The buyer may require performance by the seller of his obligations unless the buyer has resorted to a remedy which is inconsistent with this requirement”.

In the words of Professor Carr: "« ... The Vienna Convention follows the civil law tradition in respect of specific performance and this is not bad thing given the grief that hunting for goods on the open market can cause1364.

Specific performance as a basic sanction in the CISG is governed by the principle of good faith and favor contractus1365. In this spirit, article 46 (2) 1363

According to the common law rule "remedies precede rights", specific performance in this system is an institution applicable to cases where compensation for damages does not satisfy the creditor's obligation, by equity, or, in accordance with rule 52(1) of the S.G.A. 1979, to use in respect of particular species or goods. 1364 CARR I., op. cit. pp. 87. 1365 The comments in the UNCITRAL Digest of Case Law on CISG indicate that the fact that specific performance is the first remedy/sanction dealt with in articles 45 to 52 of CISG is a reflection that the 1980 Vienna Convention seeks to rescue the contractual bond to the limit, leaving termination as the last possibility, limited to

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and (3) authorize the seller to deliver substitute goods and repair1366. Both are means of specific performance and also have their origin in civil law. Thus, the new article 1222 of the c.civ. authorizes the creditor, after constituting the debtor in default, to enforce the performance itself and to request payment in advance or reimbursement of the sums necessary for that purpose1367. However, it is important to note that article 82 of CISG prevents the buyer from demanding delivery of substitute goods if he cannot return them in the same condition in which they were received (unless they have been sold, consumed, processed, perished, or destroyed as a result of their examination, or this impossibility is not culpable), which requires honesty and therefore good faith. 317. Conditions of specific performance: 1. Correspondence with national legislation. As the comments in the UNCITRAL Digest of Case Law on CISG indicate1368, this is a compromise between two legal systems that do not attach equal importance to specific performance1369. Therefore, for a court to be able to order specific performance, it is necessary that this sanction for breach of the contractual obligations of the parties be possible under national law. Otherwise, damages may only be awarded1370. Although article 28 of CISG provides that: “...a court is not bound to enter a judgement for specific performance unless the court would do so under its own law in respect of similar contracts of sale not governed by this Convention”, and this is a recommendation and not a mandatory requirement, it is very unlikely to do so if specific performance was not a serious cases. UNCITRAL Digest of Case Law on the United Nations Convention on International Sale of Goods, op. cit. , p. 252. 1366 This right must be invoked at the time of denouncing the non-conformity of the goods, or within a reasonable time thereafter, in accordance with articles 39 and 46 no. 2 of CISG. 1367 The faculty of replacement is a technique well known in French law. Cf. JACQUET Jean-Michel, DELEBECQUE Philippe and CORNELOUP Sabine, Droit du commerce international, op. cit. , p. 297. 1368 See Digest of Case Law on the United Nations Convention on Contracts for the International Sale of Goods, op. cit. , p. 139. 1369 It should be noted that section 2-716(1) of the Uniform Commercial Code of the United States of America allows for specific performance in the case of unique goods or where appropriate. 1370 See Digest of Case Law on the United Nations Convention on Contracts for the International Sale of Goods, op. cit. , p. 139.

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habitual sanction in this system, since it would encounter practical problems (lack of correspondence with procedural law, essentially). 2. Reasonableness of the measure. Specific performance must be reasonable. Although the CISG does not expressly state this (as the U.P. do1371), this is in conformity with the good faith that should inspire any interpretation, and with the general principles, according to Article 7, Nos. 1 and 2 of CISG1372. 3. Specific performance must be possible. It will not be possible if the object is a species that has disappeared (e.g., unique goods that have been destroyed). Similarly, it will not be possible, as stated in Article 46(1) of CISG, if the creditor has previously invoked a sanction incompatible with this remedy. For example, if the buyer had sued for the resolution, or if the seller had reduced the price of the goods1373. Conversely, if specific performance fails, or if the non-performing party fails to remedy its performance within the period of grace granted pursuant to Articles 47 and 63 CISG, the aggrieved party may subsequently seek resolution or price reduction. 4. Essential breach. For specific performance to be admissible, the non-performing party must have substantially breached its obligations. In the case of the seller, for example, must not have delivered in sufficient quantity, with packaging defects, defective goods or other than agreed. On the buyer's part, he must not have paid the full price and must not have offered or guaranteed payment of the balance of the price. 318. Types of specific performance. It could be: a. "Direct", if the creditor requires the debtor to perform the service directly. b. "Indirect", in the case of the faculty of replacement1374 provided for in art. 75 of CISG.

1371

Article 7.2.2(b) U.P. provides that specific performance is excluded when the costs are unreasonable. 1372 In reference to these general principles, the U.P. has been applied on occasions, as we saw in the previous chapter. 1373 See Digest of Case Law on the United Nations Convention on Contracts for the International Sale of Goods, op. cit. pp. 139. 1374 In civil law is provided for in Articles 1222, new, c.civ. and 1553 no. 2 c.c.ch.

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319. Limitation period - As a general rule (hypothesis of Article 46, No. 1 of CISG), the action to obtain specific performance is not subject to any express time limit1375. In the case of a claim for replacement or repair goods, specific performance must be invoked within a "reasonable" period of time, as stipulated in article 46 CISG Nos. 2 and 3. Finally, it should be stressed that specific performance does not preclude the award of damages. B. Price reduction 320. Origin - The action to demand price reduction is a creation of civil law. As we have seen before, it is an invention of Roman law in which it was known as actio quanti minoris or aestimatoria. French civil law has enshrined this action in the new article 1223, para. 1, and in article 1644 of the c.civ. In Chilean and French civil law, price reduction is preferred to both redhibitory and resolutory actions of the sales contract1376. Therefore, the court may order réfaction when the goods have moderate defects but are still fit for their intended use; however, it is not possible in the case of defects in conformity relating to the nature, origin or trademark of the goods. In the CISG, on the other hand, reduction is possible for all types of defects1377. In Chile, it is the action to use necessarily if the defects of conformity are not sufficiently serious1378. 321. Legal Basis - Articles 44 and 50 of CISG enshrine the action to demand price reduction.

1375

It will therefore be subject to the time limits provided for in the 1974 Convention on the Limitation Period in the International Sale of Goods, if this is the case (neither France, nor Chile, nor the United Kingdom have ratified this Convention, but the United States of America has done so). Article 8 establishes a general limitation period of four years and Article 23 establishes a maximum period of ten years in the event of suspension. Otherwise, the time limit would be governed by domestic law (in France, in accordance with article 2224 c.civ. this term is usually five years. In Chile, likewise, according to article 2515, inc. 1, c.c.ch. In England, the general rule is six years for breaches of contract, according to rule 5 of the limitation act (1980). 1376 Art. 1644 of the c.civ. 1377 Cf. MALAURIE Ph., AYNÈS L. and GAUTIER P.Y., op. cit. , p. 222. 1378 See C.Ap. Valparaíso, October 31, 1914. G. 1914, 2nd Week, Nº484, p. 1330, in: Repertorio de Legislación y Jurisprudencia Chilenas, tomo VII, op. cit. p. 344.

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This action is for the benefit of the buyer in the event of non-conformity or latent defects1379, even if the price has already been paid. Thus, in case of lack of conformity, the buyer has the alternative right to claim damages (except for loss of profit) or price reduction (if he has a reasonable excuse for not having complained in due time, in accordance with Article 44 CISG). Article 50 of CISG, for its part, in accordance with the spirit of cooperation inherent in good faith, provides that such a reduction is not possible if the seller remedies his breach of the obligation to deliver the conforming goods, if he has been granted a grace period, or if the buyer has rejected the possibility of subsequent repair or delivery. This is in accordance with the honesty proper of good faith, because otherwise the buyer would experiment an unjust enrichment. 322. Grant conditions (determined by international doctrine and jurisprudence): 1. The seller's default may or may not be fundamental1380. 2. It applies even in the case of the exemption provided for in Article 79 of the CISG1381. 3. It is necessary to notify the seller of defects in the goods, prior to exercise1382. 4. The buyer must expressly declare his intention to reduce the price1383. 323. Method of calculation – Article 50 CISG stablishes a system for calculation, which has not been done by civil law, stating: “If the goods do not conform with the contract and whether or not the price has already been paid, the buyer may reduce the price in the same proportion as the value that the goods actually delivered had at the time of the delivery bears to the value that conforming goods would have had at that time”. 1379

As we have seen before, the CISG confuses in the same obligation the conformity with the guarantee of eviction. Cf. MALAURIE Ph., AYNÈS L. and GAUTIER P.Y., op. cit. p. 40; COLLART DUTILLEUL F. and DELEBECQUE Ph., op. cit. , p. 296. 1380 See CISG official records, op. cit., p. 42, available at: https://www.uncitral.org/pdf/english/texts/sales/cisg/a-conf-97-19-ocred-e.pdf, accessed 20 June 2017. 1381 Ibidem. 1382 See CLOUT case No. 56, Cantone di Ticino Pretore di Locarno Campagna (Switzerland), 27 April 1992. Available at: http://www.unilex.info/case.cfm?id=41, accessed 20 June 2017. 1383 See CLOUT case No. 83, Munich Court of Appeal, Germany, 2 March 1994. Available at: http://www.unilex.info/case.cfm?id=51, accessed 20 June 2017.

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324. Special cases that make it possible to demand a reduction in price: 1. In accordance with Article 79 No. 5 CISG, the aggrieved party is entitled to: “(5) ... exercising any right other than to claim damages under this Convention”. Thus, the creditor will not be able to claim damages (because the nonperformance is not attributable to the debtor), but the resolution (if the performance is no longer useful to him) or the price reduction. 2. If specific performance fails, or if the non-performing party fails to perform within the period of grace granted in accordance with Articles 47 and 63 of CISG, the aggrieved party may subsequently seek resolution or price reduction. Finally, it should be noted that the price reduction does not preclude the award of damages in accordance with Articles 45 No. 2 and 61 No. 2 of CISG. C. Compensation for damages 325. Conditions for granting - Any breach of contract that causes harm to the other party may give rise to the award of damages, regardless of the means that the aggrieved party may use to sanction the breach1384. Articles 45, no. 2 and 61 no. 2 of CISG expressly provide for this. Even if damages are normally awarded as a result of a breach of the obligation of conformity or to pay the price, they are also awarded as a result of reimbursement to sub-buyers of non-conforming goods 1385, storage of non-conforming goods1386, preservation of the goods (pursuant to articles 85-88 of CISG)1387, in order to compensate the aggrieved party for expenses incurred in preparing a contract for the international sale of goods1388, among a number of other possible cases. 1384

Cf. JACQUET Jean-Michel and DELEBECQUE Philippe, op. cit. , p. 145. See CLOUT case No. 168, Cologne Court of Appeal (Germany), 21 May 1996. Available at: http://www.unilex.info/case.cfm?id=227, accessed 14 June 2017. 1386 See CLOUT Case No. 138, Federal Court of Appeals for the Second Circuit, U.S.A., December 6, 1995. Available at: http://www.unilex.info/case.cfm?id=157, accessed 16 June 2017. 1387 See CLOUT case no. 304, ICC arbitration case no. 7531, 1994. Available at: http://www.unilex.info/case.cfm?id=139, accessed 16 June 2017. 1388 See CLOUT case No. 541, Supreme Court, Austria, 14 January 2002. Available at: http://www.unilex.info/case.cfm?id=858, accessed 14 June 2017; CLOUT case No. 235, Federal Supreme Court, Germany, 25 June 1997. Available at: http://www.unilex.info/case.cfm?id=257, accessed 14 June 2017. 1385

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The only exception is non-compliance in accordance with Art. 79 CISG, since its number 5 expressly excludes the right to damages in case of force majeure. As for delay in performance, it gives the right to claim damages for late payment1389, as in civil law1390. 326. Place of payment - In accordance with the principle adopted by CISG1391 according to which payment of the price is "portable", damages must also be paid at the plaintiff's home. 327. Quantum - As in civil law1392, it is comprehensive1393. Therefore, all damages must be repaired, except for the loss of chance (perte de chance)1394-1395: the damnum emergens (consequential damage) and the lucrum cessans (loss of profit) -13961397. Moral damage too1398. 1389

Art. 78 of CISG. Art. 1231-1, new, c.civ.; 1559 no. 2 c.c.ch. 1391 Art. 57 of CISG. 1392 The loss of income (loss of profit) is enshrined in the new article 1231-2 of the c.civ. and 1556 c.c.ch. 1393 Articles 1231-3 c.civ. and 1558 c.c.ch. provide for compensation for anticipated and foreseeable direct damages if the non-performance is the result of wilful misconduct or gross negligence. 1394 Possible damages are excluded, since the damage must be certain and a direct consequence of the breach, according to the new article 1231-4, c.civ. to be indemnified. However, French jurisprudence authorizes compensation for the "perte d'une chance" (loss of an opportunity), when it has value in itself, and, consequently, certainty (Civ. 2nd, 1 April 1965, Bull.civ. II, nº336, p.230 ; 8 November 1971, D. 1972.667, note C.Lapoyade-Deschamps). 1395 Cf. DJAKHONGIR Saidow, The Law of Damages in International Sales, The CISG and Other International Instruments, Hart Publishing, Oxford and Portland, Oregon, U.S.A., p. 255. 1396 See Helsingin hoviokeus, Finland, 26 October 2000. Available at: http://www.unilex.info/case.cfm?id=726, accessed 14 June 2017; CLOUT case no. 214, Handelsgericht des Kantons Zurich, Switzerland, 5 February 1997. Available at: http://www.unilex.info/case.cfm?id=305, accessed 2 June 2017; CLOUT case no. 168, Cologne Court of Appeal, Germany, 21 May 1996. Available at: http://www.unilex.info/case.cfm?id=227, accessed 14 June 2017. 1397 Loss of profit may occur, for example, as a result of the receipt of nonconforming goods or the failure to deliver seasonal goods in a timely manner. In these cases, the seller will have to sell at a lower price than expected, and will therefore lose a profit. See DJAKHONGIR Saidow, op. cit., pp. 158-159. 1398 The damage caused to a company's reputation as a result of the debtor's breach of contract raises problems in relation to the valuation of damages. On this point, various methods are used: deduct from the market value of the brand before default, 1390

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However, unlike civil law, compensation does not increase in cases of willful misconduct or gross negligence1399, the criterion adopted by Article 74 of CISG is another: “… 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 the 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”. According to the principle of foreseeability of harm, all normal consequences "for a reasonable person"1400 must be remedied by the debtor of the defaulted obligation, which is the cause of the harm. Thus, among several possible hypotheses, it has been resolved that: a. The seller of goods to a retailer had to foresee that the retailer would resell the purchased goods1401. b. The buyer who has not paid the price for consumable goods, as stipulated in the contract, had to foresee that the seller would lose its usual profit margin1402. c. A profit margin of 10% is foreseeable1403. A contrario, an unusual (huge) profit margin is not foreseeable1404. d. The buyer who did not obtain the issuance of a letter of credit had to foresee that the seller would have chartered a vessel to transport the goods1405. The principle of foreseeability of harm is common to both common law and civil law. the current value; value the loss according to the difference in market value of the brand before default and the price of a royalty after default, etc., ibid, pp. 257-262. 1399 As we have seen above, Article 1558 c.c.ch deals with the compensation of direct damages foreseen in case of fault and of unforeseen damages in case of malice. For its part, the new Article 1231-3, c.civ. provides: "The debtor shall be liable only for damages which are or could have been foreseen at the time of the conclusion of the contract, except where the non-performance is due to gross negligence or wilful misconduct. 1400 Art. 8 nº2 CISG. 1401 See CLOUT case No. 168, Cologne Court of Appeal (Germany), 21 May 1996. Available at: http://www.unilex.info/case.cfm?id=227, accessed 14 June 2017. 1402 See CLOUT case No. 427, Supreme Court, Austria, 28 April 2000. Available at: http://www.unilex.info/case.cfm?id=481, accessed 14 June 2017. 1403 See CLOUT case No. 217, Handelsgericht des Kantons Aargau, Switzerland, 26 September 1997. Available at: http://www.unilex.info/case.cfm?id=404, accessed 2 June 2017. 1404 Cf. ZELLER Bruno, op. cit. p. 96. 1405 See Supreme Court of Queensland, Australia, 17 November 2000. Available at: http://www.austlii.edu.au/au/cases/qld/QSC/2000/421.html, accessed 31 May 2017.

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In the first case, it has its origin in the famous Hadley vs. Baxendale1406 case seen above. This decision is based on two pillars: remoteness and mitigation. The first one is similar to the compensation of direct foreseen or foreseeable damages of civil law, and the second one is a profound contribution of English law, recognized by CISG in its article 77. It should be noted, however, that the principle is older in civil law, as it dates back to the Napoleonic code1407. The amount of damages is limited in the CISG by the principle of "foreseeability of harm", a solution enshrined by the U.P. in Art. 7.4.4. Similarly, it is limited to a "reasonable" level, in accordance with several decisions1408. 328. Methods of calculation - The methods for calculating the amount of damages used by CISG are as follows: a. Lack of conformity. It has been resolved that the compensation, in this case, corresponds to the difference between the contractual price of the goods purchased and the price of the non-conforming goods received 1409. b. Concrete method1410.

1406

(1854), EWHC J70. Art. 1150. 1408 See CLOUT case No. 541, Supreme Court, Austria, 14 January 2002. Available at: http://www.unilex.info/case.cfm?id=858, accessed 13 June 2017; CLOUT case no. 235, Federal Supreme Court, Germany, 25 June 1997. Available at: http://www.unilex.info/case.cfm?id=257, revised 14 June 2017; Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry, Case No. 375/93, 9 September 1994. Available at: http://www.unilex.info/case.cfm?id=249, accessed 16 June 2017. 1409 See CLOUT case No. 596, Zweibrücken Court of Appeal, Germany, 2 February 2004. Available at: http://www.uncitral.org/clout/clout/data/deu/clout_case_596_leg-1383.html, accessed 14 June 2017. 1410 Cf. DJAKHONGIR Saidow, op. cit., p. 172 ff. 1407

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This is the exercise of the faculty of replacement, after resolution of the contract1411, or a compensatory sale by the seller, within a reasonable time1412 and manner1413. In this case, the aggrieved party is entitled to the difference between the price of the goods provided for in the contract and the price of the replacement goods or of the goods covered by the countervailing sale, in addition to any additional damages that may be payable under article 75 of CISG1414. c. Abstract method1415. It is related to goods that have a current price. According to article 76 of CISG, if the contract is avoided without a replacement or compensatory sale, the aggrieved party is entitled to the difference between the price of the goods provided for in the contract and the current price1416 at the time of avoidance or taking possession if avoidance was claimed after avoidance, plus any additional damages that may be awarded. d. Party autonomy. 1411

This method is also applicable in cases of the anticipatory breach of Art. 72 no. 1 of CISG. In this hypothesis, the amount of damages should be determined at the time of termination of the contract and not at the time of the scheduled execution. Cf. DJAKHONGIR Saidow, op. cit. pp. 230-232. 1412 A period of two months was considered reasonable for seasonal products and scrap. See CLOUT case 130, Düsseldorf Court of Appeal, Germany, 14 January 1994. Available at: http://www.unilex.info/case.cfm?id=84, accessed 2 June 2017; Queensland Supreme Court, Australia, 17 November 2000. Available at: http://www.austlii.edu.au/au/cases/qld/QSC/2000/421.html, accessed 31 May 2017. 1413 It was agreed in this regard that replacement goods should be of the same type and quality as the originating goods. See ICC International Court of Arbitration, Judgement No. 8128/1995. Available at: http://www.unilex.info/case.cfm?id=207, accessed 08 June 2017. 1414 The comments in the Digest of Case Law on the United Nations Convention on International Sale of Goods indicate that if the price of substitute goods is lower than the price of the goods stipulated in the contract, article 76 of CISG may apply. See Digest of Case Law on the United Nations Convention on Contracts for the International Sale of Goods, op. cit. p. 242; CLOUT case No. 130, Düsseldorf Court of Appeal, Germany, 14 January 1994. Available at: http://www.unilex.info/case.cfm?id=84, accessed 2 June 2017; CLOUT case No. 227, Hamm Court of Appeal, Germany, 22 September 1992. Available at http://www.unilex.info/case.cfm?id=52, accessed 16 June 2017. 1415 Cf. DJAKHONGIR Saidow, op. cit., p. 188 ff. 1416 In accordance with Article 76(2) of the CISG, current price is the price of the place where the delivery should have been made, or, failing that, that of another place which seems reasonable to use as a reference.

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According to article 6 of CISG, the parties may modify the formula for calculating the amount of damages and stipulate other methods. It should be noted that the amount of damages may be reduced when the creditor is negligent and fails to mitigate its damages. This is in proportion to the loss that could have been avoided, in accordance with Article 77 of CISG .1417 As for compensation for moral damages, as we have seen above, the CISG has remained silent. However, the courts have awarded moral damages in a number of cases1418. The U.P., applicable by virtue of articles 7 no. 2 or 9 no. 2 of the CISG, help the interpreter to fill this loophole1419. 329. Mitigation of Damages - This is an obligation originating in common law but in perfect harmony with the good faith of civil law. As we have seen above, there is no obligation to reduce damages in civil law1420-1421contrary to common law1422-1423. We also found it in the U.P.1424 and the PECL1425. According to the latter, the creditor must take reasonable measures, depending on the circumstances, to limit losses, including loss of profit. Similarly, Articles 85 to 88 of the CISG oblige the parties to take concrete and reasonable measures to avoid losses. In this way, the seller 1417 It has been settled on this point that a seller who has resold goods (faculty of replacement) at a price not only lower than that stipulated in the contract, but also at the modified price suggested by the original buyer, has failed in his obligation to reduce the damages and has therefore been awarded damages equivalent to the difference between the purchase price and the modified suggested price. Cf. CLOUT case no. 395, Supreme Court, Spain, 28 January 2000. Available at: http://www.unilex.info/case.cfm?id=431, accessed 16 June 2017. 1418 See CLOUT case No. 313, Grenoble Court of Appeal (France), 21 October 1999. Available at: http://www.unilex.info/case.cfm?id=415, accessed 14 June 2017; Helsingin hoviokeus, Finland, 26 October 2000. Available at: http://www.unilex.info/case.cfm?id=726, accessed 14 June 2017. 1419 Article 7.4.2 nº2 U.P. regulates the compensation of moral damages. 1420 See supra TERRE F., SIMLER P. and LEQUETTE Y., pp. 960-963. 1421 Civ. 2nd., 19 June 2003, Bull. 2003 II, n° 203, p. 171. 1422 British Westinghouse Electric and Mfg Co. Ltd. v Underground Electric Rys Co. Of London Ltd., (1912) AC 673. 1423 In English law, it is a condition for claiming damages that the plaintiff has taken all reasonable steps to avoid or reduce losses as a result of breach of contract. See BRIDGE M., op. cit., p. 595. 1424 Art. 7.4.8 U.P., 2016. 1425 Art. 9 : 505 PECL.

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must keep the goods if the buyer does not receive them or does not pay the price, in accordance with article 85 of CISG. Conversely, if the buyer rejects the goods, he must keep them and may retain them until he is reimbursed for the cost of preservation in accordance with article 86 of CISG. The two preceding cases are an obvious manifestation of the existence of a reciprocal duty of collaboration, sanctioned positively, because even the delay, which could have made the non adimplenti contractus rule operate, obliges the parties to wait and to help their co-contractor. It should be noted that while the origin of this obligation to mitigate lies in common law1426, its recognition in the CISG is a manifestation of the cooperation inherent in good faith1427-1428 since helping the aggrieved party to reduce its losses is a measure that is in harmony with morals, or at least with business ethics. It is therefore related with the general principles of civil law, even if it has not (yet) been expressly enshrined in French or Chilean law 1429-1430. 330. Reasonable measures to reduce harm - According to doctrine, reasonable measures to reduce harm include the faculty of replacement and resolution of the contract1431. International jurisprudence, for its part, has recognized the following solutions as reasonable measures to mitigate damages: 1426

Hadley rule, see supra. Cf. ZELLER B., op. cit. , p. 112. 1428 Good faith and fair dealing require to some extent altruism. Therefore, it would not be fair to hold the non-performing party liable for all losses if the aggrieved party can reasonably avoid or reduce certain damages subsequent to a breach of contract. See DJAKHONGIR Saidow, op. cit. , p. 126. 1429 The refusals of the Court of Cassation on this issue have given rise to criticism, in the sense that France would move away from the dominant trends in comparative law and, given that social interest also demands a reduction in the harm suffered. Cf. TERRÉ F., SIMLER P. and LEQUETTE Y., op.cit., pp. 960-963. 1430 In Chile, we find some provisions on the insurance contract that oblige to minimize damages, for example, article 556 nº4 c.com.ch. However, because of its exceptional nature, there is no general rule in this regard. See HERMOSILLA E. Paola A. y REYES E., Ramón I., El Deber de Mitigar el Daño en Responsabilidad Contractual Chilena, p. 89, available at http://repositorio.uchile.cl/handle/2250/114927, (consulted June 17, 2017) quoting DOMÍNGUEZ R., Notas sobre el deber de minimizar el daño, revista chilena de derecho privado, nº5, 2005, P. 84. 1431 See in this sense: ZELLER B., op. cit. p. 111, quoting STOLL H., Kommentar zum Einheitlichen UN-Kaufrecht, 2000, p. 699. 1427

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a. Provisioning with a third party supplier due to the seller's inability to deliver the goods in a timely manner1432. b. The quick sale of perishable products, seasonal products1433 or in volatile markets1434. c. Payment of expenses for the preservation of goods not delivered as a result of a breach of contract by the buyer1435. d. The resale of goods to a third party as a result of a breach of contract by the buyer1436. On the contrary, the case law considered that the creditor had failed to reduce the damages in the following cases: a. The case where the buyer of a vineyard wax (vine wax) continued to use it after discovering that it was defective1437. b. The case where the seller has resold the goods (faculty of replacement) not only at a price lower than that stipulated in the contract, but also at the modified price suggested by the original buyer1438. c. Failure of the buyer to carry out a proper examination of the goods or to notify the seller of the lack of conformity1439. According to the Austrian Supreme Court, for example, the reasonableness of the measures should be assessed by considering a

1432

Nova Tool & Mold Inc. v. London Industries Inc. Ontario Court of Appeal, Canada, 16 December 1998. Available at: http://www.unilex.info/case.cfm?id=414, accessed 17 June 2017. 1433 See CLOUT case No. 130, Düsseldorf Court of Appeal (Germany), 14 January 1994. Available at: http://www.unilex.info/case.cfm?id=84, accessed 2 June 2017. 1434 See CLOUT case No. 277, Hamburg Court of Appeal (Germany), 28 February 1997. Available at: http://www.unilex.info/case.cfm?id=291, accessed 2 June 2017. 1435 See CLOUT case No. 301, ICC International Court of Arbitration, judgement No. 7585/1992. Available at: http://www.unilex.info/case.cfm?id=134, accessed 17 June 2017. 1436See CLOUT case No. 130, Düsseldorf Court of Appeal (Germany), 14 January 1994. Available at: http://www.unilex.info/case.cfm?id=84, accessed 2 June 2017. 1437 See CLOUT case No. 271, Federal Supreme Court, Germany, 24 March 1999. Available at: http://www.unilex.info/case.cfm?pid=1&do=case&id=384&step=Abstract, accessed 18 May 2017. 1438 See CLOUT, Case No. 395, Supreme Court, Spain, 28 January 2000. Available at: http://www.unilex.info/case.cfm?id=431, accessed 16 June 2017. 1439 See CLOUT Case No. 474, Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry, Judgement No. 54/1999, 24 January 2000. Available at: http://cisgw3.law.pace.edu/cases/000124r1.html, accessed 18 June 2017.

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"reasonable" person (civil law concept of "prudent family man") in the same situation as the plaintiff1440. The measures should aim at minimising the costs of compensation to the debtor, with a reasonable effort, i.e., prudent1441. 331. Penalty for failure to comply with the obligation to reduce harm to CISG. The second part of Article 77 of CISG punishes the breach of the obligation to mitigate damages by a proportional reduction of the damages to be awarded to the creditor (himself, the debtor of this obligation). Thus, for example, the seller who resold the goods (faculty of replacement) not only at a price lower than that stipulated in the contract, but also at the modified price suggested by the original buyer, breached his obligation to reduce damages and, for that reason, was awarded damages equivalent to the difference between the purchase price and the modified suggested price1442. 332. Notice to the debtor - It is not necessary to notify the other party that the creditor has taken steps to reduce the damages. However, the buyer's claim for damages (reimbursement of translation costs) has been rejected because he had not notified the seller that he would have a document translated that he could have provided directly to him1443. 333. Burden of proof - International jurisprudence has held that the burden of proof in this matter lies with the debtor of damages. Therefore, it is he who must prove that the creditor was negligent in reducing the damages suffered, and their amount1444.

1440

See CLOUT case No. 176, Supreme Court, Austria, 6 February 1996. Available at: http://www.unilex.info/case.cfm?id=202, accessed 10 June 2017. 1441 Cf. ZELLER B., op. cit., p. 114. 1442 See CLOUT, Case No. 395, Supreme Court, Spain, 28 January 2000. Available at: http://www.unilex.info/case.cfm?id=431, accessed 16 June 2017. 1443 See CLOUT case no. 343, Landgericht Darmstadt, Germany, 9 May 2000. Available at: http://www.unilex.info/case.cfm?id=501, accessed 19 June 2017. 1444 See CLOUT case No. 318, Celle Court of Appeal, Germany, 2 September 1998. Available at: http://www.unilex.info/case.cfm?id=498, accessed 19 June 2017; CLOUT case No. 176, Supreme Court, Austria, 6 February 1996. Available at: http://www.unilex.info/case.cfm?id=202, accessed 10 June 2017.

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334. Interests on arrears - One of the principles governing CISG is full compensation, and its article 78 recognizes the right to award damages for delay in compliance, as in civil law 1445-1446. According to this article, the debtor is constituted in arrears ipso iure. Therefore, it is not necessary to constitute him in default1447-1448 . As in civil law, it is also not necessary to prove damages1449. Despite this consecration of interest on arrears, Article 78 of the CISG, as we said before, does not regulate the interest rate to be applied1450. Given this omission1451, several solutions have been practiced to determine it. Between them:

1445

In English law, as we have seen above, Rule 35 A (1) of the SeniorCourts Act, 1981, allows the High Court to award simple interest plus damages (discretionary) from the date of the cause of action until that of the judgment. 1446 Art. 1231-1, new, c.civ.; 1559 no. 2 c.c.ch. 1447 See CLOUT case No. 217, Handelsgericht des Kantons Aargau, Switzerland, 26 September 1997. Available at: http://www.unilex.info/case.cfm?id=404, accessed 2 June 2017; CLOUT Case No. 301, ICC International Court of Arbitration, Judgement No. 7585/1992. Available at: http://www.unilex.info/case.cfm?id=134, accessed 17 June 2017. 1448 In accordance with article 1231-7, new, c.civ., these interests run from the judgment, or from the first instance judgment for confirmatory judgments and, in the case of revocatory judgments, from the second instance judgment (unless the court decides otherwise). 1449 Article 1559 nº2 c.c.ch. 1450 This omission was a consequence of the impossibility of reaching an agreement on this point between countries with religious systems with very different views on the legitimacy of interests (the Shari'a forbids them) and also because at that time the rates between Western and Eastern European countries were very distant. Cf. GOODE R., KRONKE H. and MCKENDRICK E., op. cit. , p. 253. 1451 Most authors consider this to be an internal loophole (praeter legem), i.e. an issue addressed but not resolved by the CISG. Others consider it to be an external loophole (intra legem), i.e. an issue outside the application of the CISG. According to article 7 No. 2 of the CISG, the solution to internal lacunae lies in the application of general principles of law and, in the absence of such principles, in the application of the corresponding law in accordance with the rules of private international law, as ultima ratio. On the other hand, if it is considered that there is an external gap, according to some authors, the corresponding law could be directly applied in accordance with the rules of private international law and without taking these principles into account. See FERRARI Franco, Contracts for the International Sale of Goods, Applicability an Applications of the 1980 United Nations Sale Convention, Martinus Nijhoff Publishers, Netherlands, 2012, pp. 258-263.

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a. Some decisions have applied the fee provided for in Article 7.4.9, No. 2 U.P.1452 (in accordance with Articles 7 No. 2 and 9 No. 2 of the CISG, which allow the use of general principles and international trade usages)1453. b. Some courts have directly applied the LIBOR rate, following trade uses also (Art. 9 of CISG)1454. c. Some decisions have applied the lex fori1455. d. Other, the fee applicable under the private international law rules of the forum1456 . We consider that the most correct solution is the first one, because in our opinion the U.P. are international principles/trade uses that have an external legitimacy capable of filling the loopholes of the CISG, and are more adapted to the international commercial logic than the other solutions used. 335. Penalty clauses - Not provided for in the CISG. As a consequence of the disparity of treatment between the main legal systems, the CISG has decided not to regulate this issue. In view of the foregoing, article 7.4.13 U.P., analysed above, is often used in a supplementary manner in this matter in international arbitration1457. Otherwise, the law of the obligation would have to be applied to determine its validity1458.

1452

According to Article 7.4.9 No. 2 U.P. : « The rate of interest shall be the average bank short-term lending rate to prime borrowers prevailing for the currency of payment at the place for payment, or where no such rate exists at that place, then the same rate in the State of the currency of payment. In the absence of such a rate at either place the rate of interest shall be the appropriate rate fixed by the law of the State of the currency of payment ». 1453 See ICC Court of Arbitration, Zurich, Switzerland, Judgement No. 8769. Available at: http://Unilex.info/case.cfm?pid=1&do=case&id=397&step=FullText , accessed 19 June 2017. 1454 See ICC Court of Arbitration, Milan, Italy, Judgement No. 8908. Available at: http://Unilex.info/case.cfm?pid=1&do=case&id=401&step=FullText., accessed June 19, 2017. 1455 See CLOUT case No. 85, Federal District Court, Northern District of New York, United States of America, 9 September 1994. Available at: http://www.unilex.info/case.cfm?id=59, accessed 19 June 2017. 1456 See CLOUT, case n°380, court of Pavia, Italy, 29 December 1999. Available at: http://www.unilex.info/case.cfm?id=734, accessed 19 June 2017. 1457 Cf. BONELL Michael, op. cit., p. 515. 1458 Cf. JACQUET Jean-Michel and DELEBECQUE Philippe, op. cit. , p. 129.

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§2 - Remedies in case of invalidation of the contract A. Resolution as ultima ratio 336. Termination and favor contractus - In accordance with the principle favor contractus, linked to good faith-loyalty, avoidance for breach of the parties' obligations cannot be the consequence of any breach of contract, e.g., a minimal breach. Therefore, like the U.P. 1459Articles 49 and 64 of CISG provide for an action for termination of the contract of sale of goods, for the benefit of the parties, following the breach of their respective essential obligations, as ultima ratio. The mechanism adopted is a civil law one1460; common law, as we know, only authorizes termination in exceptional cases1461. 337. Preventive measures aimed at avoiding resolution - Prior to the application of sanctions/remedies, the CISG gives priority to the possibility of redress for non-compliance by the offending party. This way: a. On the buyer's side, it may grant the seller a grace period to fulfill its obligations, in accordance with Article 47 of CISG, which it is obliged to observe in accordance with good faith - loyalty. Similarly, article 48 of CISG authorizes the seller to repair defects in the conformity of the goods, provided that this does not cause harm to the buyer (unreasonable delays or inconvenience and reimbursement of expenses already paid by the buyer)1462.

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Art. 7.3.1 U.P. , 2016. See GOODE R., KRONKE H. and MCKENDRICK E., op. cit. , p. 248. 1461Avoidance is only permitted if consideration is missing in a contract in connection with the breach of a condition (article 14 (2) of the 1979 Sales of Goods Act provides that the quality and suitability of the goods must be satisfactory and that this is such) and in fundamental breach or frustrating breach cases. American law distinguishes between contracts subject to the substantial performance regime (similar to obligations of means of civil law) and those subject to the perfect tender rule (similar to obligations of result of continental law). In the first case, resolution takes place when the contract violation is a material breach, which is similar to the fundamental breach. With respect to the second case, the UCC of the United States of America foresees in its article 2-601 the right to reject the goods, and to the resolution of the sale, if they do not correspond to those agreed upon. 1462 To this end, the seller must notify the buyer and the buyer, in turn, must indicate whether it accepts late performance. If the buyer does not respond within a reasonable period of time, he shall be deemed to have accepted in accordance with Article 48 (2) and (3) of CISG. 1460

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This period of grace is also a consequence of good faith-loyalty, because it allows to attain the object of the contract. b. On the part of the seller, mutatis mutandis, he may also grant the buyer a grace period to fulfil his obligations, in accordance with article 63 no. 1 CISG, which he also undertakes to respect. During the granting of grace periods, the parties may not make use of the remedies linked to the non-performance, with the exception of compensation for late damages. As Professor Carr points out, grace periods are an institution alien to common law1463, which finds its explanation only in relation to good faithloyalty and the favor contractus principle. 338. Notion of fundamental breach - Article 25 of CISG defines "fundamental" breach as follows: " 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”. It is noted that the notion is linked to the deprivation of the cause of the contract, as French jurisprudence has previously done1464 and as enshrined in the recent 2016 reform of French contract law and obligations1465 . B. Conditions 339. Resolution requirements in the CISG - The requirements to qualify a default as essential, allowing the parties to sue for avoidance are: a. A breach of one party's obligations must substantially deprive the other of what it expected from the performance of the contract.

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Cf. CARR I., op. cit. , p. 85. In Huard, Com., November 3, 1992, the Court of Cassation held that BP did not execute the contract in good faith by depriving the concessionaire, Mr. Huard, of the means necessary to be able to apply competitive prices. In Chevassus, Com., 24 November 1998, it resolved that the mandatary must be in a position to carry out the mandate and, therefore, to be able to practise competitive prices. 1465 The new Article 1224 c.civ. provides: "The resolution results either from the application of a resolutory clause or, in the event of a sufficiently serious breach, from notification by the creditor to the debtor or from a judicial decision". 1464

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b. A reasonable person of the same quality and in the same situation would have foreseen the result indicated in the previous letter (at the time of the conclusion of the contract1466). Article 25 of the CISG, unlike the U.P., does not give examples of essential infringements1467. However, the comments in the UNCITRAL Digest of Case Law on the CISG refer to cases that are very close to the hypotheses of article 7.3.1, No. 2, (a) to (e) of the U.P. 340. Jurisprudence - In relation to the seller, he may demand termination if the breach of one of the buyer's obligations is essential (art. 64, no. 1, a) of CISG), or if the buyer does not pay the price or does not receive delivery of the goods within the additional period granted to him, or declares that he will not do so (art. 64, no. 1, b) of CISG). International case law has indicated that constitute hypotheses of essential contraventions by the buyer: a. Refuse to open a letter of credit to the seller1468. b. The buyer's violation of a re-export prohibition1469. c. Definitive refusal to pay the price1470. d. Definitive refusal to receive the goods1471. On the buyer's part, he may demand termination if the seller's breach of one of his obligations is essential (art. 49, no. 1 (a) CISG), or if the seller fails to deliver within the additional period granted under art. 47, or if he declares that he will not do so (art. 49, no. 1 (b) CISG). International case law has established that the following are hypotheses of essential contraventions by the seller: a. Infringement of an exclusivity clause1472.

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See CLOUT case no. 275, Düsseldorf Court of Appeal, Germany, 24 April 1997. Available at : http://www.unilex.info/case.cfm?id=292, accessed 2 June 2017. 1467 Art. 7.3.1 nº2 U.P. 1468 See Supreme Court of Queensland, Australia, 17 November 2000. Available at: http://www.austlii.edu.au/au/cases/qld/QSC/2000/421.html, accessed 31 May 2017. 1469 See CLOUT case No. 154, Grenoble Court of Appeal, France, 22 February 1995. Available at: http://www.unilex.info/case.cfm?id=83, accessed 2 June 2017. 1470 See ICC Court of Arbitration, Judgment No. 9887, ICC International Court of Arbitration Bulletin, 2000, 118. 1471 See CLOUT case No. 217, Handelsgericht des Kantons Aargau, Switzerland, 26 September 1997. Available at: http://www.unilex.info/case.cfm?id=404, accessed 2 June 2017. 1472 See CLOUT case No. 2, Frankfurt Court of Appeals a.M., Germany, 17 September 1991. Available at: http://www.unilex.info/case.cfm?id=8, accessed 2 June 2017.

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b. The definitive, unjustified and serious refusal of the seller to comply with his obligations1473. c. Definitive breach of the first delivery in sales with successive deliveries1474. d. Late delivery in the case of seasonal products1475, raw materials, or where the parties have stipulated in the contract of sale of goods that timely delivery is essential1476. e. When delivery is excessively late (comments give as an example the case in which delivery was scheduled within a week and did not take place, but only partially – one third of the goods - two months later)1477. f. The non-conforming delivery of goods, in relation to their quality, in the event that the goods cannot be used or resold to a third party with reasonable efforts1478. g. Delivery of goods with serious defects that can not be repaired, even if they were still usable1479. h. The delivery of goods with serious defects, to be used in the production of other goods1480. i. The delivery of documents relating to goods with defects (or even false), if these defects prevent the buyer from reselling the goods1481. It should also be noted that Article 82 of the CISG prevents the buyer from suing for the order if he cannot return the goods in the same condition as they were received, which is in harmony with good faith-loyalty. 1473

See CLOUT case No. 136, Celle Court of Appeal, Germany, 24 May 1995. Available at: http://www.unilex.info/case.cfm?id=122, accessed 2 June 2017. 1474 See CLOUT case No. 214, Handelsgericht des Kantons Zurich, Switzerland, 5 February 1997. Available at: http://www.unilex.info/case.cfm?id=305, accessed 2 June 2017. 1475 See Court of Appeal of Milan, Italy, 20 March 1998. Available at: http://www.unilex.info/case.cfm?id=275, accessed 2 June 2017; ICC, Court of Arbitration, France, Judgement No. 8786, ICC International Court of Arbitration Bulletin 2000, 70. 1476 See CLOUT case No. 277, Hamburg Court of Appeal (Germany), 28 February 1997. Available at: http://www.unilex.info/case.cfm?id=291, accessed 2 June 2017. 1477 See CLOUT case No. 90, Pretura Circondariale di Parma (Italy), 24 November 1989. Available at: http://www.unilex.info/case.cfm?id=62, accessed 2 June 2017. 1478 See CLOUT Case No. 150, Court of Cassation, France, 23 January 1996. Available at: http://www.unilex.info/case.cfm?id=186, accessed 2 June 2017. 1479 See CLOUT case No. 107, Innsbruck Court of Appeal, Austria, 1 July 1994. Available at: http://www.unilex.info/case.cfm?id=132, accessed 2 June 2017. 1480 See CLOUT case No. 315, Court of Cassation, France, 26 May 1999. Available at: http://www.unilex.info/case.cfm?id=417, accessed 2 June 2017. 1481 See CLOUT case No. 171, Federal Supreme Court, Germany, 3 April 1996. Available at: http://www.unilex.info/case.cfm?id=182, accessed 2 June 2017.

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C. The operation of the resolution 341. Form - Termination is effected by unilateral notification of the aggrieved party to the infringing party, in accordance with article 26 of CISG, in the same manner as is possible under French law following the 2016 reform of the law of obligations and contracts1482. In the case of the buyer, in accordance with article 49, no. 2 CISG, he may notify the seller of the termination at any time if he has not delivered the goods. If the seller has already delivered the goods, the buyer must notify the seller of the termination within a "reasonable" time1483. Otherwise, his right will preclude. This way, the term runs: i. In case of late delivery, from the moment the buyer became aware of the delivery. ii. In case of breach of the seller'sother obligations, from the time the buyer became aware of the breach of contract. iii. If a period of grace has been granted to the seller, after its expiry, or as soon as the seller has declared that it will not fulfil its obligations within this period of grace. iv. After expiry of the additional period for performance requested by the seller in accordance with article 48 of the CISG.

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As we have seen above, article 1226, new, c.civ., authorizes the creditor to terminate the contract unilaterally "at his own risk", and subject to certain conditions (the breach must be sufficiently serious and follow a notice to the other party). If the debtor fails to perform his obligations, the creditor may notify the termination of the sales contract, but the debtor may challenge the termination in court). This article is the legal enshrinement of the jurisprudence Tocqueville, Civ. 1st. 13 October 1998, Bull.civ. I, no. 300, D.1999. 197, note C. Jamin, Somm. 115, obs. Ph. Delebecque, JCP 1999.II.101333, note Rzepecki, Défrenois 1999.374, obs. D. Mazeaud, RTD civ. 1999. 374, obs. J. Mestre. 1483 Notification should be made as soon as possible. Thus, the one made five weeks after the breach of contract was deemed timely (See CLOUT case No. 165, Oldenburg Court of Appeal, Germany, 1 February 1995. Available at: http://www.unilex.info/case.cfm?id=244, accessed 2 June 2017). That which was practiced eight weeks after non-performance was considered extemporaneous (See CLOUT case No. 481, Paris Court of Appeal, France, 14 June 2001. Available at: http://www.unilex.info/case.cfm?id=761, accessed 2 June 2017).

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As for the seller, Article 64 No. 2 CISG1484 provides that, if the buyer has not paid the price, the seller may at any time declare the contract avoided. If the buyer has already paid the price, he must notify him: i. In case of late performance, before knowing there was execution. ii. In other cases, within a reasonable time. This period runs: ii.a. As soon as the seller knew or should have known of the breach. ii.b. If a grace period has been granted to the buyer, after its expiration or as soon as the buyer has declared that he will not perform his obligations within this grace period. 342. Possibility of "preventive" resolution - Article 72, No. 1 of CISG, unlike civil law1485-1486 and in harmony with common law1487, the U.P.1488 and the PECL1489, allow for early resolution, if it is manifest that the other party will not comply with its obligations. International jurisprudence has ruled that future non-compliance is manifest in the following cases: a. If the buyer has not paid for previous deliveries1490. b. If the buyer has failed to his obligation to open a letter of credit1491. c. If the seller has not reduced the price of the goods and has not delivered the seasonal products on time1492. d. If the seller has deliberately stopped delivery of the goods1493. Article 72(2) CISG requires the creditor to notify the other party, if time permits, so that the debtor can give "adequate assurance of his performance". It should be noted that, in accordance with No. 3 of the same 1484

The Digest of Case Law on the United Nations Convention on Contracts for the International Sale of Goods indicates that, at the date of its publication, there was no case law relating to article 64 No. 2. 1485 Article 1226, new, civil code, allows unilateral resolution when non-compliance has already occurred, but not in a "preventive" manner as in the CISG or common law. 1486 See Gazette de la Chambre Arbitrale Maritime de Paris (CAMP) nº19, 2009. 1487 Hong Kong Fir Shipping Ltd. v Kawasaki Kisen Kaisha (1962), 2 QB 26. 1488 Art. 7.3.3 U.P. 1489 Art. 9 : 304 PECL 1490 See CLOUT case No. 130, Düsseldorf Court of Appeal (Germany), 14 January 1994. Available at: http://www.unilex.info/case.cfm?id=84, accessed 2 June 2017. 1491 See Supreme Court of Queensland, Australia, 17 November 2000. Available at: http://www.austlii.edu.au/au/cases/qld/QSC/2000/421.html, accessed 31 May 2017. 1492 See ICC Judgment No. 8786, January 1997. 1493 See Arbitral Award No. 273/95, Zürich Handelskammer (Switzerland), 31 May 1996. Available at: http://www.unilex.info/case.cfm?id=396, accessed 2 June 2017.

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article, such a notification is not necessary if the latter has indicated that it will not fulfil his obligations. 343. Resolution and force majeure - As in the case of U.P. force majeure does not prevent the termination of the contract. As already indicated, Art. 79 No. 5 of the CISG authorizes the aggrieved party to: “... exercising any right other than to claim damages under this Convention". 344. Effects of the resolution. 1. The decision releases the parties from their obligations, with the exception of compensation for damages due, under Article 81 No. 1 CISG. Without prejudice to the foregoing, the arbitration and criminal clauses survive the resolution, as in civil law1494. 2. Also, as in civil law, the resolution operates retroactively, as a general rule1495. Therefore, each party must return to the other what it has received, simultaneously. In accordance with article 84, No. 1 of the CISG, the seller will return the price with interest from the date of payment. The buyer, for his part, must return the goods and their benefits/fruits, according to No. 2 of the same article. More generally, he must reimburse the seller for any profits he has made from them. 345. Non adimpleti contractus exception – The CISG establishes as causes of exoneration the force majeure in article 79, and the non adimpleti contractus exception in article 80. This exception, as we have seen above, is an institution of civil law, of Roman origin. In accordance with the principle of good faith and the nemo auditur rule, Article 80 of the CISG provides that: “A party may not rely on a failure of the other party to perform, to the extent that such failure was caused by the first party’s act or omission”. For example, the seller invoked the exception on the ground that it was not liable for any lack of conformity because the buyer had not returned the allegedly defective goods, but the court dismissed the exception on the ground that the seller was responsible for the carrier's actions1496. 1494

See JACQUET Jean-Michel, DELEBECQUE Philippe and CORNELOUP Sabine, Droit du commerce international, op. cit. , p. 390. 1495 Art. 1304-7, new, c.civ.; arts. 1486 to 1491, 1875 and 1876 c.c.ch. 1496 However, it was rejected for other reasons (fault of the carrier, for whom the seller was responsible). Amtsgericht München, Germany, 23 June 1995. Available at: http://www.unilex.info/case.cfm?id=147, accessed 19 June 2017.

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However, in most cases, case law has applied the exception provided for in Article 80 of the CISG for breaches of contract resulting from acts or omissions of the other party. Examples of such breaches include: a. The buyer's refusal to accept delivery1497. b. The refusal to pay the price1498. c. An unjustified refusal by the buyer to the seller's offer of repair 1499. d. The fact that the seller did not indicate the port of delivery of the goods (which prevented the buyer from obtaining a letter of credit)1500. e. The seller's waiver of future deliveries (as a result of which the buyer has not paid for previous deliveries)1501. 346. Effects - The effects of the exceptio non adimplenti contractus are the impossibility of claiming damages (as in art. 79 CISG) and avoidance. CHAPTER CONCLUSION 1. The CISG has had to reconcile several legal systems: common law, civil law, shari'a, and others. This objective was not easy. It has therefore resorted to a classical technique for the elaboration of uniform instruments, using the solutions of one legal system as the main rules, in this case, civil law, and associating those of another, in this case, common law, from which it borrows certain rules on an ancillary basis. However, the CISG did not pronounce on certain issues, in particular on penalty clauses and interests on arrears. This omission was not accidental, but intentional, a consequence of irreconcilable differences. Fortunately, in most cases, the loopholes are filled without too much difficulty, using the UNIDROIT principles - a practice encouraged by articles 7, no. 2 and 9, and no. 2 of the CISG - or the law of contract, in accordance with the rules of private international law. 1497

See CLOUT case No. 133, Munich Court of Appeal, Germany, 8 February 1995. Available at: http://www.unilex.info/case.cfm?id=118, accessed 23 June 2017. 1498 Düsseldorf Court of Appeal, Germany, 18 November 1993. Available at: http://cisgw3.law.pace.edu/cases/931118g1.html, accessed 23 June 2017. 1499 See CLOUT case No. 282, Koblenz Court of Appeal, Germany, 31 January 1997. Available at: http://www.unilex.info/case.cfm?id=223, accessed 23 June 2017. 1500 See CLOUT case No. 176, Supreme Court, Austria, 6 February 1996. Available at: http://www.unilex.info/case.cfm?id=202, accessed 23 June 2017. 1501 Zurich Chamber of Commerce Arbitration Commission, Decision No. ZHK 273/95, 31 May 1996. Available at: http://www.unilex.info/case.cfm?id=396, accessed 23 June 2017.

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2. The rights and obligations of the parties to CISG are similar to those of civil law. However, there are some nuances. Thus, a difference between CISG and civil law is the seller's warranty obligation, which mixes latent defects and conformity itself. Another distinction is the power of the parties to remedy the performance of their obligations (arts. 47, 48 and 63, CISG No. 1). In addition, the right of "stoppage" in transit of the English sale has been enshrined by CISG in its Article 71, No. 2. 3. It has been demonstrated that the CISG consecrates the basic principles of the civil law system as general principles underlying its provisions. This is the case, in particular, of party autonomy in Article 6 and of good faith in Article 7(1) of the CISG. This difference from common law is paramount because, as we have noted, there is no general duty of good faith in this legal system. This has important consequences: a. The parties cannot renounce the obligation to act in good faith, that is, to be loyal to each other. b. The obligation of good faith extends to the entire contract iter, from the preliminary negotiations and even after the execution of the contract (duty of confidentiality and cooperation). c. The interpretation of the CISG and contracts for the international sale of goods must be made in good faith. 4. However, certain common law principles are enshrined in a subsidiary manner by CISG: the mitigation of damages and contract preservation. The favor contractus, although privileged by common law, is perfectly compatible with civil law. As we have seen, good faith requires the parties to work together to achieve the contractual purpose, which is reflected in particular in the primacy given to contract preservation whenever possible. On the other hand, the mitigation of damages, with the exception of insurance contracts, is still far from civil law, in which it is not widely applied.

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5. Moreover, even if favor contractus is a basic principle of the CISG, it devotes a wide range of sanctions to breach of contract arising under civil law. The price reduction, actio quanti minoris under Roman law, allows the buyer to pay less if the goods have minor conformity defects, in addition to receiving compensation for damages. The resolution operates as an ultima ratio, when the remedies to preserve the contract are ineffective. Compensation for damages, in accordance with the principle of full compensation, compensates the creditor for consequential damage, lost profits and moral damages. Although the CISG has not pronounced on compensation of moral damages, the existing jurisprudence has consecrated it, through the supplementary application of the U.P. Interests on arrears also are provided for in the CISG, as in civil law, but without defining their rate or the period from which they are due. This loophole was also integrated thanks to the U.P., or the law of contract, according to the rules of private international law. Nor are penalty clauses dealt with in the CISG, a loophole that is filled in the same way as in the previous situation. 6. However, CISG's rules on risk transfer move away from civil law. The Convention provides that the transfer of risks does not occur with the conclusion of the contract, as in French law. It is linked to the delivery of the goods (articles 67 to 69 of CISG). ICC Incoterms also modify the rules on risk transfer in international trade practice. 7. The force majeure disclaimer is also present at the CISG. Article 79, however, enshrines a "hybrid" rule that considers the force majeure of civil law, but according to a broader conception than that traditionally adopted. Its effects are transitory and do not allow claiming damages, but other remedies. A special clause has been drafted by ICC. The parties may also introduce other clauses, limiting or modifying liability, but on condition that the principle of good faith is respected.

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8. The rules of interpretation adopted by the CISG are similar to those provided for in civil law. Article 8(1) of CISG enshrines the general rule of "subjective" interpretation of civil law, which consists in determining the intention of the contracting parties. In the absence of the previous rule, and also in harmony with civil law, the "objective" interpretation is imposed, that is, the use of a standard similar to that of a “prudent familiy man”. International trade usages (including the UNIDROIT principles) also have a privileged importance in determining the obligations and rights of the parties (art. 9 of CISG).

OVERALL CONCLUSION

1. Common law and civil law are characterized by significant substantive differences. First, common law works in an inductive way: from the individual to the general, applying the solution established by jurisprudence to a given subject. On the other hand, civil law functions in a deductive manner: the abstract hypotheses provided for by law apply to a specific situation. 2. There are other disparities related to the different principles that inspire these two systems, as we have seen in this study; disparities that had to be harmonised in this international text that is the CISG of 1980. To this end, their negotiators/writers have resorted to a classical technique for the elaboration of uniform instruments: to take the solutions of one legal system as the main rules -most of the time civil law- and to associate those of another -in this case common law- as exceptions. Good faith is one of the cornerstones of civil law, a transversal principle that applies in all situations. In civil law, as we have seen, the scope of application of this principle is very broad, regulating the entire iter contractus, from preliminary negotiations1502 to after the execution of the contract. Therefore, their violation is punished in all countries with a civilist tradition. The situation is very different in common law1503. Thus, the parties are not subject to a good faith obligation, since there is no general principle in this sense, as in civil law. Exceptionally, the parties shall be obliged to respect it in insurance contracts, if express contractual stipulations to this effect are provided for, in contracts of utmost good faith or in relation to consumers1504.

1502 See Manoukian, Cass, Com, 26 November 2003, D. 2004. 869, note A.-S. Dupré-Allemagne; Forestal Bío-Bío v Madesal and another", C. Ap., Concepción, 1996, Civ. nº 374-93. 1503 See May and Butcher Ltd. v the King, (1934) 2 KB 17. 1504 Unfair Contract Terms Act 1977.

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The CISG clearly favoured the civil law system and the application of the principle of good faith, which is of paramount importance in demonstrating the assertion on which this work is based. Thus, its Article 7 No. 1 stipulates that the interpretation of the Convention (and therefore of contracts for the international sale of goods) must be made in such a way as to ensure respect for good faith in international trade. Some common law authors have recognized the fundamental importance of this rule, which in practice has translated into the primacy of civil law in the most sensitive aspect of contracts for the international sale of goods: its interpretation, because that is how the law comes to life. Unfortunately, in recent years, we have also seen the serious consequences of the violation of good faith in the marketing of certain goods (e.g., Volkswagen's "dieselgate"). 2.2. Party autonomy, on the other hand, is an omnipresent principle in the two legal systems analysed in this study (although we can affirm that this is a creation of civil law, enshrined in the Napoleonic code). Articles 6 and 29 of the CISG refer to this principle. By its virtue, CISG rules are supplemental1507. Consequently, the parties are free to regulate the formation, effects, and termination of contracts for the international sale of goods in good faith. In accordance with the principle of party autonomy, the parties may modify the risk transfer rules and establish a conventional guarantee, i.e. a retention of title clause, stipulate that the seller assumes the risk of force majeure, or postpone the transfer of ownership and the associated risks until the time of actual delivery or another moment. Similarly, the parties may modify the scope of their obligations and waive the obligation to guarantee latent defects and eviction by third parties in favour of the seller; establish additional conditions of proof or relating to the formation of consent; stipulate that the seller will be liable even for the slightest negligence, among other possibilities; or terminate the contract by mutual agreement, in accordance with article 29, No. 1 of the CISG. On this last point, it should be noted that international jurisprudence has resolved, privileging the civil law system, that a consideration is not necessary to terminate a contract for the international sale of goods1508. The boundaries to the limitation of liability stipulations will be found in fraud/gross negligence, in accordance with the general principle of good faith that inspires the CISG. 1507

With the exception of article 12 of CISG, which is of public order. International Criminal Court, case No. 7331 (1994), available at: http://cisgw3.law.pace.edu/cases/947331i1.html, accessed 19 February 2017.

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Overall Conclusion

2.3. Mitigation of damages, on the other hand, is an original principle of common law1509, which the CISG maintained in Article 77. However, although this principle is not expressly mentioned in the civil codes analysed, the doctrine considers it to be a logical continuation of good faith-loyalty. Thus, failure to comply with the obligation to mitigate damages will be punished by a reduction in the damages to be awarded, proportionate to the loss that should have been avoided, which is in accordance with the principle of good faith-loyalty. In addition, the faculty of replacement, characteristic of this principle, is also recognized in civil law1510-1511. 2.4. The favor contractus, enshrined by CISG in articles 34, 37, 48, 49, 51, 64, 71 and 72, is also a basic principle of common law. However, its contribution is similar to that of mitigation of damages, since the preservation of the goods, the periods of grace granted to the parties to enable them to perform their obligations (foreign to common law1512) and the limitation of losses (all related to mitigating damages in the CISG) are also manifestations of the duty of mutual cooperation, which is inherent in good faith-loyalty. Therefore, nothing in civil law opposes this principle, but rather the opposite. Consequently, it could be considered that the mitigation of damages and favor contractus are not yet sufficiently recognized by civil law as manifestations of a general civilist principle of good faith, which runs throughout the CISG. This finding is, however, recognized by an important part of the common law doctrine1513-1514. 2.5. Full compensation is also a principle common to the two legal systems analyzed in this study. Both recognize the reparation of the damage suffered and the loss of profit. However, the CISG does not extend it if there is fraud or gross negligence, as civil law does. The standard of redress used in accordance 1509 See British Westinghouse Electric and Mfg Co. Ltd. v Underground Electric Rys Co. Of London Ltd., (1912) AC 673. 1510 This option is common for the sale of cereals. Cf. BÉNAVENT A., op. cit. , p. 136. 1511 Art. 1222, new, French Civil Code. 1512 See CARR I., op. cit. , p. 85. 1513 See ZELLER Bruno, op. cit. p. 26. 1514 Professor BRIDGE, as we have seen above, suggests that only one express mention in this sense is missing, but CISG's relationship with the U.P. clarifies this point in the sense that the principle of good faith is of general application in the 1980 Vienna Convention. See BRIDGE M., The International Sale of Goods, Law and Practice, op. cit. pp. 534-535.

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with Articles 74 and 8(2) CISG (the amount of damage that a "reasonable" person should have foreseen at the time of the conclusion of the contract) is similar to that of a prudent family man. The criterion used by CISG is, therefore, a classical, objective civil law criterion and not that of the common law reliance/expectation, which is limited to placing the victim in the position he occupied before the contractual breach or which was subjectively expected of him. Thus, the expression "reasonable person", linked to the concept of “bon père de famille” in the French civil code, is used in several CISG provisions. For example, with regard to the examination and conformity of goods: minor defects, unlike common law, are not important -de minimis non curat lex- (arts. 35, 38 and 39). In addition, the termination must be the consequence of "significant" contractual breaches and not of any breach (arts. 25, 49, 64) and the interpretation must be made taking into account reasonable criteria (art. 8 No. 2 and 3), etc. The CISG, however, did not rule on moral damages, penalty clauses, and the determination of interest on arrears. These loopholes are often integrated with the UNIDROIT principles (Article 7.4.2, No. 2 U.P. ) in accordance with Articles 7, No. 2 and 9, No. 2 of the CISG, which allow the use of general principles and international trade usages, two characteristics that the doctrine attributes to the U.P. The other possibility of remedying these deficiencies, in accordance with Article 7, No. 2 of the CISG, is to use the applicable law in accordance with the rules of private international law. We prefer the first solution, as it comes closer to the autonomous interpretation that should inspire that of the 1980 Vienna Convention and the contracts for the sale of goods governed by it. 3. In relation to the formation of consent, the CISG is again inspired by civil law, in particular, French law. In the more "utilitarian" perspective of common law, an offer may be withdrawn if there is no consideration of the other party; rejection; lapse of time; conditional offer whose condition is not met; or after the death or in case of dementia of the offeror. In civil law and CISG, the offer must be firm and precise (article 14, no. 1). On the other hand, the common law enshrines the postal rule1515, i.e. the theory of emission1516, while the French civil code prefers the theory of "reception". 1515

See Grant, (1879) LR 4 Ex D 216. The c.com.ch. maintains the declaration system (emission) in articles 97, 99 and 101.

1516

294

Overall Conclusion

The CISG assumes the same postulate as French law in articles 18, no. 2 and 22. Thus, the contract is formed when acceptance reaches the offeror. In addition, the 1980 Vienna Convention allows parties to make modifications at the time of acceptance (article 19). This possibility differs from the last shot system of common law in that its scope is limited to "nonessential" modifications according to the CISG. 4. With respect to the rights and obligations of the parties, we can conclude that the CISG maintains the same rules as civil law as a general rule; with some exceptions. Thus, the seller's conformity obligation (art. 35 CISG) mixes the guarantee of absence of latent defects and conformity itself, as was done in the old French case law1517. In addition, the initial indetermination of the price is not grounds for nullity (art. 55 CISG). In this case, the parties are deemed (unless otherwise stipulated) to have tacitly referred to the price current at the time of the conclusion of the contract, in the same commercial sector and for the same type of goods. On the other hand, timely delivery is essential at CISG for seasonal products, raw materials, or if the parties have so stipulated. In the absence of stipulation, the expected quality of the goods must be, as in civil law1518, ordinary (art. 35, No. 2, a) CISG) (average). The CISG does not deal with its examination, but the comments in the UNCITRAL Digest of Case Law on CISG consider that it should also be a current (nondestructive) review1519. 5. The CISG does not regulate the transfer of ownership of goods, but the transfer of risks. It departs from the rules of civil law on this point, which establish that the transfer of risks takes place as soon as there is an exchange of wills. Articles 67 to 69 of CISG link it to the delivery of goods, as a general rule. However, in practice, international trade usages (ICC Incoterms) replace them most of the time.

1517

See CA.Amiens, 18 July 1974, Gaz.Pal., 1975.1.64, note Plancqueel; Planiol and Ripert, t.X, by Hamel, no. 126. 1518 Art. 145 c.com.ch. and former article 1246 cod.civ. 1519 See UNCITRAL Digest of Case Law on the United Nations Convention on International Sale of Goods, op. cit. p. 180.

The Harmonisation of the International Sale of Goods through Principles of Law and Uniform Rules

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6. As far as sanctions for breach of contract are concerned, the CISG enshrines a "range" of remedies/sanctions that are undoubtedly inspired by civil law: specific performance, price reduction, resolution, and damages. In common law, according to maximum remedies precedede rights, damages are the remedy par excellence. In civil law, on the other hand, the creditor's options are more numerous, and most of the time, they are left to his free choice. Following the logic of civil law, the CISG establishes as the first sanction against contractual non-compliance specific performance (arts. 28 and 46, no. 1), which is limited in common law to cases of single goods1520, when appropriate1521, or on the basis of equity. It is, therefore, an exceptional remedy in such a system. In the CISG, specific performance will be provided where it is reasonable, possible and the consequence of a fundamental breach of the contract of sale of goods. In addition, the court is only obliged to declare it if it would do so under its own law for similar sales contracts not regulated by the CISG. It is important to remember, once again, the practical utility of the preceding civil law sanction1522, since it avoids the need for hunting of replacement goods as is the case under common law. The price reduction is also a creation of the civil law that has its origin in the actio quanti minoris or aestimatoria, which was enshrined for the benefit of the buyer by articles 44 and 50 of the CISG for hypotheses of non-conformity or latent defects. This action is almost unknown in common law1523. It is interesting to note that the price reduction can be invoked even in the case of the exemption provided for by Article 79 of the CISG and does not exclude compensation for damages. The resolution, which exists in the two legal systems analyzed (avoidance in common law), is preceded by grace periods in the CISG that may be granted to the parties (arts. 47 and 63) or requested by the seller (art. 48). These terms are alien to common law1524, specific to the German Nachfrist and close to the "reasonable" rule of civil law, reiterative in the CISG. 1520

Section 52 s.g.a. Section 2-716(1) of the Uniform Commercial Code of the United States of America. 1522 Cf. CARR I. op. cit., pp. 86-87. 1523 See http://www.cisg.law.pace.edu/cisg/text/comparison50.html, accessed 29 June 2017. 1524 Ibidem, p. 85. 1521

296

Overall Conclusion

Favoring contract preservation, articles 49 and 64 of CISG establish a resolutory action of the contract of sale of goods in favor of the buyer and the seller, consequence of the essential breach of their obligations, but as a kind of ultima ratio, when other alternatives have not been successful. Similarly, Article 25 of the CISG specifies that a breach of contract, in order to be considered essential, must deprive the other party of what it expected from the contract, a concept similar to that of civil law. However, in accordance with the above-mentioned operation (enshrining the solutions of one legal system as main rules, associating those of another as exceptions), a common law institution, the anticipatory breach has been established in Article 72, No. 1 of CISG. In civil law, the new article 1226 of the French civil code authorizes unilateral resolution as soon as non-compliance occurs, and not in a "preventive" manner as CISG and U.P. do1525. 7. With regard to performance by equivalence, it is interesting to note that while the CISG does not consider damages compensation to be a "primary" remedy/sanction (as common law does), all contractual breaches give rise to its award, regardless of the means that the aggrieved party may use to sanction the breach (arts. 45, No. 2 and 61, No. 2). Therefore, all damages are compensated. The only exception is the noncompliance provided for in Article 79, which is expressly excluded under No. 5 of that Article. On this point, we can conclude that although full compensation is limited by the principle of foreseeability of harm (art. 8, No. 2 of CISG) common to the two legal systems analyzed1526, this notion is older in French civil law, going back to article 1150 of the Napoleonic Code (1804). The Hadley rule did not emerge until only half a century later (1854)1527. 8. The hypotheses of exoneration provided for in Articles 79 and 80 of CISG also have a clear civilist inspiration.

1525

Art. 7.3.3 U.P. Art. 1231-3, new Civil Code; art. 1558 c.c.ch.; Hadley rule of common law. 1527 Hadley v Baxendale, (1854), EWHC J70. 1526

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In Article 79, the CISG establishes a "hybrid" rule that enshrines the force majeure of civil law 1528-1529 but more broadly conceived1530. Therefore, unlike 'traditional' force majeure, its effects are transient, and it must be notified to the other party in order to operate. In addition, it does not preclude the application of sanctions for breach of contract other than damages. That is to say, in accordance with good faith and contract preservation, the aggrieved party may claim specific performance (or avoidance) once the impediment disappears. We can conclude that the notion of imprévision was not consecrated by the CISG, in the manner of "classical" civil law1531 and common law. It is therefore preferable to foresee it by stipulating hardship clauses1532 authorizing suspension of the effects of the contract, exemption from liability or renegotiation under the U.P.1533. Moreover, Article 80 provides for the exception non adimpleti contractus and, in accordance with the nemo auditur rule and the principle of good faith, provides that it may not be invoked as a consequence of a breach by the same party who wishes to invoke this exception. Like the exemption in Article 79, it precludes the award of damages, and furthermore the possibility of avoidance1534. 9. The interpretation of CISG and contracts for the international sale of goods is an important issue. Due to its international character, the CISG favours the so-called "autonomous" interpretation. To this end, it advocates the use of good faith (art. 7, No. 1, part 2) and the general principles of law (art. 7, No. 2, part 1). The use of good faith as an interpretative criterion is a civil law solution. As we have indicated several times throughout this work, common law does not take good faith into account except in a restrictive manner.

1528

See Digest of Case Law on the United Nations Convention on Contracts for the International Sale of Goods, op. cit., p. 427. 1529 It must be remembered, as we have seen before, that force majeure is maintained in article 45 c.c.ch. and that its conditions are unforseeabiliy and insurmountability. In France, article 1218, new, of the French civil code, consecrates it, with the same characters, but excluding the notion of fortuitous case. 1530 See COLLART DUTILLEUL F. and DELEBECQUE Ph., op. cit. pp. 298-299. 1531 We have seen that it has just been enshrined in article 1195, new, c.civ. 1532 See CARR Indira, op. cit. at 92. 1533 Cf. JACQUET Jean-Michel and DELEBECQUE Philippe, Droit du Commerce International, op. cit. p. 129. 1534 See Digest of Case Law on the United Nations Convention on Contracts for the International Sale of Goods, op. cit. , p. 441.

298

Overall Conclusion

Furthermore, Article 8 of the CISG, unlike the common law parol evidence rule, and according to the "golden rule" of interpretation of civil law, enshrines in its No. 1 the subjective interpretation, that is, the search for the intention of the parties, and, failing that, uses another civil law mechanism in its No. 2, i.e. an objective criterion close to that of "prudent family man" in order to find the meaning that a "reasonable" person, in the same situation, would have given to the point in question (considering also, in both cases, the preliminary negotiations, according to its No. 3), a criterion that is discarded in common law). 10. In relation to the existing loopholes in the CISG (penalty clauses, interests on arrears, and moral damages), we come to the conclusion that they must be filled, in accordance with articles 7, No. 2 and 9, No. 2 of the CISG, with the UNIDROIT principles. The "specialty" principle and the above-mentioned articles of the 1980 Vienna Convention encourage the use of U.P., even if they are subsequent to CISG. 11. The CISG does not regulate representation. Given that the Convention on Agency in International Sale of Goods signed in Geneva on 17 February 1983, is not in force in France, Chile or the United Kingdom, we can consider that a solution would be to integrate this loophole, once again, in accordance with articles 7, No. 2 and 9, No. 2 of CISG, using the rules provided for that purpose by the UNIDROIT principles (section 2 of the U.P., articles 2.2.1 to 2.2.10). 12. Finally, if the existence of a greater number of civil law institutions than common law institutions in the CISG is not sufficient to convince the reader of the primacy of civil law in the CISG, additional arguments, convincing in our opinion, may be presented in support of our thesis: i. Specific performance is privileged in the CISG because resolution/avoidance remains a solution of ultima ratio. Grace periods also favor specific performance. Instead, it is an exceptional common law remedy/sanction for noncompliance. ii. Interpretation is the way in which law comes to life in practice, making it one of the most important subjects of a treaty. These rules are indisputably from civil law, since there is no place for the common law parol evidence rule in the CISG interpretation rules1535. 1535 See CLOUT Case No. 23, Federal District Court, Southern District of New York,

United States of America, 14 April 1992. Available at: http://www.unilex.info/case.cfm?id=9 , accessed 29 June 2017.

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299

iii - The United Kingdom did not subscribe to CISG, allegedly due to other legislative priorities1536. However, this situation raises a question: in forty years, has this country not really been able to find the right time to do so, or is this position not really a tacit recognition of the primacy of civil law and its good faith cross-cutting principle in the 1980 Vienna Convention?. We can, therefore, conclude that the force of "French-style" codification was imposed on common law in the 1980 Vienna Convention.

1536

According to some authors, this is simply a delay, a consequence of other legislative priorities. See GOODE R., KRONKE H. and MCKENDRICK E., op. cit. , p. 218.

Good faith

Art. 1104 c.civ.

Principle of general application.

Limited application principle.

Section 61 (3) s.g.a. 1979.

France

England

Arts. 706 and 1546 c.c.c.ch.

Principle of general application.

Chile

Art. 7nº1 CISG.

Principle of general application.

CISG

Arts. 1.7 Nos. 1 and 2, 2.1.15, 5.1.2 c), 5.1.3, 5.3.3 Nos. 1 and 2, 5.3.4, 7.1.6.

Principle of general application.

U.P. 2016

COMPARATIVE TABLE OF THE MAIN SUBJECTS TREATED IN THE WORK

Unprotected. May and Butcher Ltd. v the King, (1934) 2 KB 17.

Postal rule. Household Fire Insurance Co. v Grant, (1879) LR 4 Ex D 216. Section 16 to 18 and 20 s.g.a., 1979.

Preliminary negotiations

Formation of consent

Transfer of risks

Section 10 (1), 11(2), 17, 18, 19 (1), 20 (1), 28, 31, 34 and 36 s.g.a. 1979.

Party autonomy

Arts. 1196, para. 1, and 1583 c.civ.; 132-7 c.com.

Reception theory, art. 1121 c.civ.

Protected. Art. 1104 c.civ. Manoukian, Cass, Com., 26 November 2003.

Arts. 1103 and 1193 c.civ.

Reception theory, art.18 nº2 and 22 CISG. Arts. 66 to 70 CISG.

Arts. 1550 and 1820 c.c.c.ch.; 142 c.com.ch.

Tacit protection by application of art. 7nº1 CISG.

Art. 6 CISG.

Theory of declaration (emission) arts. 97 and 101 c.com.ch.

Protected. Art. 1546 c.c.ch. Forestal Bío-Bío v Madesal and another, C. Ap. Concepción 1996, Civ. Nº 374-93.

Art. 1545 c.c.ch.

Reception theory, art. 2.1.6 nº2.

Protected. Art. 2.1.15 nº 1, 2 and 3.

Arts. 1.1, 1.3, 1.4, 1.5 and 3.1.2.

The Harmonisation of the International Sale of Goods through Principles of Law and Uniform Rules 301

Unilateral resolution

Exceptio non adimplenti contractus Resolution

Price reduction

Specific performance

302

Possibility of unilateral resolution, art. 1226 c.civ.

Consequence of non-compliance with essential obligations Arts. 1224, 1610 and 1654 c.civ.

Limited avoidance (fundamental breach, breach of condition, lack of consideration).

Anticipatory breach. De la Tour, 2 E & B 678; Bowdell v Parsons, 10 East, 359.

Arts.1219 and 1220 c.civ.

Arts. 1223 and 1644 c.civ.

Arts. 1221, 1222 and 1228 c.civ.

Section 39 and 41 s.g.a., 1979.

Exceptional (remedy of equity, obligations of species or when strictly necessary). Section 24 Consumer Rights Act, 2015.

There is no possibility of unilateral resolution.

Art. 1489 c.c.ch.

Art. 1552 c.c.ch.

Arts. 154 c.com.ch. and 1860 c.c.ch.

Arts. 1489, 1553 nos. 1 and 2 and 1568 c.c.ch.

Possibility of unilateral resolution, art. 72 of CISG.

Consequence of non-compliance with essential obligations. Arts. 49 and 64 CISG. Ultima ratio.

Art. 80 CISG.

Arts. 44 and 50 CISG.

Arts. 28 and 46 CISG. General rule.

Comparative Table of the Main Subjects Treated in the Work

Possibility of unilateral resolution Art. 7.3.3.

Art. 7.3.1.

Art. 7.1.3.

Art. 7.2.2 b).

General rule. Art. 7.2.2.

Remoteness, Hadley rule, Hadley v Baxendale, (1854), EWHC J70.

Mitigation, Hadley rule, Hadley v Baxendale, (1854), EWHC J70.

Hardship. Tsakiroglou & Co Ltd. v Noblee Thorl GmbH, 1962, AC 93.

Compensation for damages

Obligation to mitigate damage

Imprévision

Art. 1195 c. civ.

There is no obligation.

Full compensation, arts. 1231 to 1231-7 c.civ.

Guillermo Larraín Vial v SERVIU, C.Ap. de Santiago, 14 November 2006.

It is exceptionally retained, in accordance with the principle of good faith.

There is no obligation.

Full compensation, art. 2329 c.c.c.ch.

Extended force majeure. Art. 79 CISG

Art. 77 of CISG.

Full compensation, Art. 74 of CISG.

Hardship. Arts. 6.2.1, 6.2.2, 6.2.3

Art. 7.4.8.

Full compensation, Art. 7.4.2.

The Harmonisation of the International Sale of Goods through Principles of Law and Uniform Rules 303

Force majeure

304

Krell v Henry, (1903) 2 KB 740 Taylor v Caldwell, (1863) 3B & S 826, 122 ER 309.

Art. 1218 c.civ.

Art. 45 c.c.ch.

Sociedad Constructora La Aguada Ltda. v EMOS S.A., arbitrator Mr. Claudio Illanes Ríos, ratified by the Supreme Court on 10.OCT.994.

Inversiones Mónaco Ltda. v ENAP, arbitrator Mr. Carlos Urenda Zegers, 13.NOV.986;

Extended force majeure. Art. 79 CISG.

Comparative Table of the Main Subjects Treated in the Work

Art. 7.1.7.

Rules of interpretation

Preliminary negotiations are not considered.

Parol evidence rule.

Objective interpretation, art. 1188, inc. 2 c.civ.).

Subjective interpretation, art. 1188, inc. 1, c.civ. Subjective interpretation, art. 1560 c.c.ch.

Objective interpretation, art. 4.2. Examination of preliminary negotiations, art. 4.3 (a)

Usages and practices of the parties , Art. 4.3 b). International trade usages, art. 4.3 (e) and (f).

Examination of Preliminary Negotiations, Art. 8nº3 CISG.

Usages and practices of the parties, Art. 9nº1 CISG. International trade usages (lex

Subjective interpretation, Art. 4.1.

305

Objective interpretation, Art. 8nº2 CISG.

Subjective interpretation, Art. 8nº1 CISG.

The Harmonisation of the International Sale of Goods through Principles of Law and Uniform Rules

Penalty clauses

306

Cavendish Square Holdings BV v Talal El Makdessi, (2012) EWHC 3582 (Comm).; Parking Eye Limited v Beavis, EWCA Civ 402.

Dunlop Pneumatic Tyre Co. Ltd. v New Garage Motor, (1915) A.C. 79.

Art. 1231-5 c.civ. Art. R. 132-2 nº3 c.consom.

Arts. 1535 and following c.c.ch.

Not regulated

mercatoria, U.P.), art. 9 no. 2 CISG.

Comparative Table of the Main Subjects Treated in the Work

Art. 7.4.13.

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ANNEXES

ANNEX 1: UNIDROIT PRINCIPLES OF INTERNATIONAL COMMERCIAL CONTRACTS 2016 Preamble - Purpose of the Principles These Principles set forth general rules for international commercial contracts. They shall be applied when the parties have agreed that their contracts be governed by them. They may be applied when the parties have agreed that their contracts be governed by general principles of law, the lex mercatoria or the like. They may provide a solution to an issue raised when it proves impossible to establish the relevant rule of the applicable law. They may be used to interpret or supplement international uniform law instruments. They may be used to interpret or supplement domestic law. They may serve as a model for national and international legislators. Chapter 1 - General Provisions Article 1.1 (Freedom of contract) The parties are free to enter into a contract and to determine its content. Article 1.2 (No form required) Nothing in these Principles requires a contract, statement or any other act to be made in or evidenced by a particular form. It may be proved by any means, including witnesses.

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Article 1.3 (Binding character of contract) A contract validly entered into is binding upon the parties. It can only be modified or terminated in accordance with its terms or by agreement or as otherwise provided in these Principles. Article 1.4 (Mandatory rules) Nothing in these Principles shall restrict the application of mandatory rules, whether of national, international or supranational origin, which are applicable in accordance with the relevant rules of private international law. Article 1.5 (Exclusion or modification by the parties) The parties may exclude the application of these Principles or derogate from or vary the effect of any of their provisions, except as otherwise provided in the Principles. Article 1.6 (Interpretation and supplementation of the Principles) (1) In the interpretation of these Principles, regard is to be had to their international character and to their purposes including the need to promote uniformity in their application. (2) Issues within the scope of these Principles but not expressly settled by them are as far as possible to be settled in accordance with their underlying general principles. Article 1.7 (Good faith and fair dealing) (1) Each party must act in accordance with good faith and fair dealing in international trade. (2) The parties may not exclude or limit this duty. Article 1.8 (Inconsistent behaviour) A party cannot act inconsistently with an understanding it has caused the other party to have and upon which that other party reasonably has acted in reliance to ist detriment.

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Article 1.9 (Usages and practices) (1) The parties are bound by any usage to which they have agreed and by any practices which they have established between themselves. (2) The parties are bound by a usage that is widely known to and regularly observed in international trade by parties in the particular trade concerned except where the application of such a usage would be unreasonable. Article 1.10 (Notice) (1) Where notice is required it may be given by any means appropriate to the circumstances. (2) A notice is effective when it reaches the person to whom it is given. (3) For the purpose of paragraph (2) a notice "reaches" a person when given to that person orally or delivered at that person's place of business or mailing address. (4) For the purpose of this article "notice" includes a declaration, demand, request or any other communication of intention. Article 1.11 (Definitions) In these Principles - "court" includes an arbitral tribunal; - where a party has more than one place of business the relevant "place of business" is that which has the closest relationship to the contract and its performance, having regard to the circumstances known to or contemplated by the parties at any time before or at the conclusion of the contract; - "long-term contract" refers to a contract which is to be performed over a period of time and which normally involves, to a varying degree, complexity of the transaction and an ongoing relationship between the parties; - "obligor" refers to the party who is to perform an obligation and "obligee" refers to the party who is entitled to performance of that obligation; - "writing" means any mode of communication that preserves a record of the information contained therein and is capable of being reproduced in tangible form.

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Article 1.12 (Computation of time set by parties) (1) Official holidays or non-business days occurring during a period set by parties for an act to be performed are included in calculating the period. (2) However, if the last day of the period is an official holiday or an nonbusiness day at the place of business of the party to perform the act, the period is extended until the first business day which follows, unless the circumstances indicate otherwise. (3) The relevant time zone is that of the place of business of the party setting the time, unless the circumstances indicate otherwise. Chapter 2 - Formation and authority of agents Section 1: Formation Article 2.1.1 (Manner of formation) A contract may be concluded either by the acceptance of an offer or by conduct of the parties that is sufficient to show agreement. Article 2.1.2 (Definition of offer) A proposal for concluding a contract constitutes an offer if it is sufficiently definite and indicates the intention of the offeror to be bound in case of acceptance. Article 2.1.3 (Withdrawal of offer) (1) An offer becomes effective when it reaches the offeree. (2) An offer, even if it is irrevocable, may be withdrawn if the withdrawal reaches the offeree before or at the same time as the offer. Article 2.1.4 (Revocation of offer) (1) Until a contract is concluded an offer may be revoked if the revocation reaches the offeree before it has dispatched an acceptance. (2) However, an offer cannot be revoked (a) if it indicates, whether by stating a fixed time for acceptance or otherwise, that it is irrevocable; or (b) if it was reasonable for the offeree to rely on the offer as being irrevocable and the offeree has acted in reliance on the offer.

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Article 2.1.5 (Rejection of offer) An offer is terminated when a rejection reaches the offeror. Article 2.1.6 (Mode of acceptance) (1) A statement made by or other conduct of the offeree indicating assent to an offer is an acceptance. Silence or inactivity does not in itself amount to acceptance. (2) An acceptance of an offer becomes effective when the indication of assent reaches the offeror. (3) However, if, by virtue of the offer or as a result of practices which the parties have established between themselves or of usage, the offeree may indicate assent by performing an act without notice to the offeror, the acceptance is effective when the act is performed. Article 2.1.7 (Time of acceptance) An offer must be accepted within the time the offeror has fixed or, if no time is fixed, within a reasonable time having regard to the circumstances, including the rapidity of the means of communication employed by the offeror. An oral offer must be accepted immediately unless the circumstances indicate otherwise. Article 2.1.8 (Acceptance within a fixed period of time) A period of acceptance fixed by the offeror begins to run from the time that the offer is dispatched. A time indicated in the offer is deemed to be the time of dispatch unless the circumstances indicate otherwise. Article 2.1.9 (Late acceptance. Delay in transmission) (1) A late acceptance is nevertheless effective as an acceptance if without undue delay the offeror so informs the offeree or gives notice to that effect. (2) If a communication containing a late acceptance shows that it has been sent in such circumstances that if its transmission had been normal it would have reached the offeror in due time, the late acceptance is effective as an acceptance unless, without undue delay, the offeror informs the offeree that it considers the offer as having lapsed.

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Article 2.1.10 (Withdrawal of acceptance) An acceptance may be withdrawn if the withdrawal reaches the offeror before or at the same time as the acceptance would have become effective. Article 2.1.11 (Modified acceptance) (1) A reply to an offer which purports to be an acceptance but contains additions, limitations or other modifications is a rejection of the offer and constitutes a counter-offer. (2) However, a reply to an offer which purports to be an acceptance but contains additional or different terms which do not materially alter the terms of the offer constitutes an acceptance, unless the offeror without undue delay, objects to the discrepancy. If the offeror does not object, the terms of the contract are the terms of the offer with the modifications contained in the acceptance. Article 2.1.12 (Writings in confirmation) If a writing which is sent within a reasonable time after the conclusion of the contract and which purports to be a confirmation of the contract contains additional or different terms, such terms become part of the contract, unless they materially alter the contract or the recipient, without undue delay, objects to the discrepancy. Article 2.1.13 (Conclusion of contract dependent on agreement on specific matters or in a particular form) Where in the course of negotiations one of the parties insists that the contract is not concluded until there is agreement on specific matters or in a particular form, no contract is concluded before agreement is reached on those matters or in that form. Article 2.1.14 (Contract with terms deliberately left open) (1) If the parties intend to conclude a contract, the fact that they intentionally leave a term to be agreed upon in further negotiations or to be determined by a third person does not prevent a contract from coming into existence. (2) The existence of the contract is not affected by the fact that subsequently

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(a) the parties reach no agreement on the term; (b) the party who is to determine the term does not do so; or (c) the third person does not determine the term, provided that there is an alternative means of rendering the term definite that is reasonable in the circumstances, having regard to the intention of the parties. Article 2.1.15 (Negotiations in bad faith) (1) A party is free to negotiate and is not liable for failure to reach an agreement. (2) However, a party who negotiates or breaks off negotiations in bad faith is liable for the losses caused to the other party. (3) It is bad faith, in particular, for a party to enter into or continue negotiations when intending not to reach an agreement with the other party. Article 2.1.16 (Duty of confidentiality) Where information is given as confidential by one party in the course of negotiations, the other party is under a duty not to disclose that information or to use it improperly for its own purposes, whether or not a contract is subsequently concluded. Where appropriate, the remedy for breach of that duty may include compensation based on the benefit received by the other party. Article 2.1.17 (Merger clauses) A contract in writing which contains a clause indicating that the writing completely embodies the terms on which the parties have agreed cannot be contradicted or supplemented by evidence of prior statements or agreements. However, such statements or agreements may be used to interpret the writing. Article 2.1.18 (Modification in a particular form) A contract in writing which contains a clause requiring any modification or termination by agreement to be in a a particular form may not be otherwise modified or terminated. However, a party may be precluded by its conduct from asserting such a clause to the extent that the other party has acted in reliance on that conduct.

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Article 2.1.19 (Contracting under standard terms) (1) Where one party or both parties use standard terms in concluding a contract, the general rules of formation apply, subject to Articles 2.1.20 2.1.22. (2) Standard terms are provisions which are prepared in advance for general and repeated use by one party and which are actually used without negotiation with the other party. Article 2.1.20 (Surprising terms) (1) No term contained in standard terms which is of such a character that the other party could not reasonably have expected it, is effective unless it has been expressly accepted by that party. (2) In determining whether a term is of such a character regard is to be had to its content, language and presentation. Article 2.1.21 (Conflict between standard terms and non-standard terms) In case of conflict between a standard term and a term which is not a standard term the latter prevails. Article 2.1.22 (Battle of forms) Where both parties use standard terms and reach agreement except on those terms, a contract is concluded on the basis of the agreed terms and of any standard terms which are common in substance unless one party clearly indicates in advance, or later and without undue delay informs the other party, that it does not intend to be bound by such a contract. Section 2: Authority of agents Article 2.2.1 (Scope of the Section) (1) This Section governs the authority of a person ("the agent") to affect the legal relations of another person("the principal") by or with respect to a contract with a third party, whether the agent acts in its own name or in that of the principal. (2) It governs only the relations between the principal or the agent on the one hand, and the third party on the other.

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(3) It does not govern an agent's authority conferred by law or the authority of an agent appointed by a public or judicial authority . Article 2.2.2 (Establishment and scope of the authority of the agent) (1) The principal's grant of authority to an agent may be express or implied. (2) The agent has authority to perform all acts necessary in the circumstances to achieve the purposes for which the authority was granted. Article 2.2.3 (Agency disclosed) (1) Where an agent acts whithin the scope of its authority and the third party knew or ought to have known that the agent was acting as an agent, the acts of the agent shall directly affect the relations between the principal and the third party and no legal relation is created between the agent and the third party. (2) However, the acts of the agent shall affect only the relations between the agent and the third party, where the agent with the consent of the principal undertakes to become the party to the contract. Article 2.2.4 (Agency undisclosed) (1) Where an agent acts whithin the scope of its authority and the third party neither knew nor ought to have known that the agent was acting as an agent, the acts of the agent shall affect only the relations between the agent and the third party. (2) However, where such an agent, when contracting with the third party on behalf of a business, represents itself to be the owner of that business, the third party, upon discovery of the real owner of the business, may exercise also against the latter the rights it has against the agent. Article 2.2.5 (Agent acting without or exceeding its authority) (1) Where an agent acts without authority or exceeds its authority, its acts do not affect the legal relations between the principal and the third party. (2) However, where the principal causes the third party reasonably to believe that the agent has authority to act on behalf of the principal and that the agent is acting within the scope of that authority, the principal may not invoke against the third party the lack of authority of the agent.

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Article 2.2.6 (Liability of agent acting without or exceeding its authority) (1) An agent that acts without authority or exceeding its authority is, failing ratification by the principal, liable for damages that will place the third party in the same position as if the agent had acted with authority and not exceeded its authority. (2) However, the agent is not liable if the third party knew or ought to have known that the agent had no authority or was exceeding its authority. Article 2.2.7 (Conflict of interests) (1) If a contract concluded by an agent involves the agent in a conflict of interests with the principal of which the third party knew or ought to have known, the principal may avoid the contract. The right to avoid is subject to Articles 3.2.9 and 3.2.11 to 3.2.15. (2) However, the principal may not avoid the contract (a) if the principal had consented to, or knew or ought to have known of, the agent's involvement in the conflict of interests; or (b) if the agent had disclosed the conflict of interests to the principal and the latter had not objected within a reasonable time. Article 2.2.8 (Sub-agency) An agent has implied authority to appoint a sub-agent to perform acts which it is not reasonable to expect the agent to perform itself. The rules of this Section apply to the sub-agency. Article 2.2.9 (Ratification) (1) An act by an agent that acts without authority or exceeds its authority may be ratified by the principal. On ratification the act produces the same effects as if it had initially been carried out with authority. (2) The third party may by notice to the principal specify a reasonable period of time for ratification. If the principal does not ratify within that period of time it can no longer do so. (3) If, at the time of the agent's act, the third party neither knew nor ought to have have known of the lack of authority, it may, at any time before ratification, by notice to the principal indicate its refusal to become bound by a ratification.

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Article 2.2.10 (Termination of authority) (1) Termination of authority is not effective in relation to the third party unless the third party knew or ought to have known of it. (2) Notwhithstanding the termination of its authority, an agent remains authorised to perform the acts that are necessary to prevent harm to the principal's interests. Chapter 3 - Validity Section 1: General Provisions Article 3.1.1 (Matters not covered) This Chapter does not deal with lack of capacity. Article 3.1.2 (Validity of mere agreement) A contract is concluded, modified or terminated by the mere agreement of the parties, without any further requirements. Article 3.1.3 (Initial impossibility) (1) The mere fact that at the time of the conclusion of the contract the performance of the obligation assumed was impossible does not affect the validity of the contract. (2) The mere fact that at the time of the conclusion of the contract a party was not entitled to dispose of the assets to which the contract relates does not affect the validity of the contract. Article 3.1.4 (Mandatory character of the provisions) The provisions on fraud, threat, gross disparity and illegality contained in this Chapter are mandatory. Section 2: Grounds for avoidance Article 3.2.1 (Definition of mistake) Mistake is an erroneous assumption relating to facts or to law existing when the contract was concluded.

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Article 3.2.2 (Relevant mistake) (1) A party may only avoid the contract for mistake if, when the contract was concluded, the mistake was of such importance that a reasonable person in the same situation as the party in error would only have concluded the contract on materially different terms or would not have concluded it at all if the true state of affairs had been known, and (a) the other party made the same mistake, or caused the mistake, or knew or ought to have known of the mistake and it was contrary to reasonable commercial standards of fair dealing to leave the mistaken party in error; or (b) the other party had not at the time of avoidance reasonably acted in reliance on the contract (2) However, a party may not avoid the contract if (a) it was grossly negligent in committing the mistake; or (b) the mistake relates to a matter in regard to which the risk of mistake was assumed or, having regard to the circumstances, should be borne by the mistaken party. Article 3.2.3 (Error in expression or transmission) An error occurring in the expression or transmission of a declaration is considered to be a mistake of the person from whom the declaration emanated. Article 3.2.4 (Remedies for Non-performance) A party is not entitled to avoid the contract on the ground of mistake if the circumstances on which that party relies afford, or could have afforded, a remedy for non-performance. Article 3.2.5 (Fraud) A party may avoid the contract when it has been led to conclude the contract by the other party's fraudulent representation, including language or practices, or fraudulent non-disclosure of circumstances which, according to reasonable commercial standards of fair dealing, the latter party should have disclosed.

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Article 3.2.6 (Threat) A party may avoid the contract when it has been led to conclude the contract by the other party's unjustified threat which, having regard to the circumstances, is so imminent and serious as to leave the first party no reasonable alternative. In particular, a threat is unjustified if the act or omission with which a party has been threatened is wrongful in itself, or if it is wrongful to use it as a means to obtain the conclusion of the contract. Article 3.2.7 (Gross disparity) (1) A party may avoid the contract or an individual term of it if, at the time of the conclusion of the contract, the contract or term unjustifiably gave the other party an excessive advantage. Regard is to be had, among other factors, to (a) the fact that the other party has taken unfair advantage of the first party's dependence, economic distress or urgent needs, or of its improvidence, ignorance, inexperience or lack of bargaining skill, and (b) the nature and purpose of the contract. (2) Upon the request of the party entitled to avoidance, a court may adapt the contract or term in order to make it accord with reasonable commercial standards of fair dealing. (3) A court may also adapt the contract or term upon the request of the party receiving notice of avoidance, provided that that party informs the other party of its request promptly after receiving such notice and before the other party has reasonably acted in reliance on it. The provisions of Article 3.2.10(2) apply accordingly. Article 3.2.8 (Third persons) (1) Where fraud, threat, gross disparity or a party's mistake is imputable to, or is known or ought to be known by, a third person for whose acts the other party is responsible, the contract may be avoided under the same conditions as if the behaviour or knowledge had been that of the party itself. (2) Where fraud, threat or gross disparity is imputable to a third person for whose acts the other party is not responsible, the contract may be avoided if that party knew or ought to have known of the fraud, threat or disparity, or has not at the time of avoidance reasonably acted in reliance on the contract.

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Article 3.2.9 (Confirmation) If the party entitled to avoid the contract expressly or impliedly confirms the contract after the period of time for giving notice of avoidance has begun to run, avoidance of the contract is excluded. Article 3.2.10 (Loss of right to avoid) (1) If a party is entitled to avoid the contract for mistake but the other party declares itself willing to perform or performs the contract as it was understood by the party entitled to avoidance, the contract is considered to have been concluded as the latter party understood it. The other party must make such a declaration or render such performance promptly after having been informed of the manner in which the party entitled to avoidance had understood the contract and before that party has reasonably acted in reliance on a notice of avoidance. (2) After such a declaration or performance the right to avoidance is lost and any earlier notice of avoidance is ineffective. Article 3.2.11 (Notice of avoidance) The right of a party to avoid the contract is exercised by notice to the other party. Article 3.2.12 (Time limits) (1) Notice of avoidance shall be given within a reasonable time, having regard to the circumstances, after the avoiding party knew or could not have been unaware of the relevant facts or became capable of acting freely. (2) Where an individual term of the contract may be avoided by a party under Article 3.2.7, the period of time for giving notice of avoidance begins to run when that term is asserted by the other party. Article 3.2.13 (Partial avoidance) Where a ground of avoidance affects only individual terms of the contract, the effect of avoidance is limited to those terms unless, having regard to the circumstances, it is unreasonable to uphold the remaining contract.

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Article 3.2.14 (Retroactive effect of avoidance) Avoidance takes effect retroactively. Article 3.2.15 (Restitution) (1) On avoidance either party may claim restitution of whatever it has supplied under the contract or the part of it avoided, provided that it concurrently makes restitution of whatever it has received under the contract or the part of it avoided or, if it cannot make restitution in kind, it makes an allowance for what it has received. (2) If restitution in kind is not possible or appropriate, an allowance has to be made in money whenever reasonable. (3) The recipient of the performance does not have to make an allowance in money if the impossibility to make restitution in kind is attributable to the other party. (4) Compensation may be claimed for expenses reasonably required to preserve or maintain the performance received. Article 3.2.16 (Damages) Irrespective of whether or not the contract has been avoided, the party who knew or ought to have known of the ground for avoidance is liable for damages so as to put the other party in the same position in which it would have been if it had not concluded the contract. Article 3.2.17 (Unilateral declarations) The provisions of this Chapter apply with appropriate adaptations to any communication of intention addressed by one party to the other. Section 3: Illegality Article 3.3.1 (Contracts infringing mandatory rules) (1) Where a contract infringes a mandatory rule, whether of national, international or supranational origin, applicable under Article 1.4 of these Principles, the effects of that infringement upon the contract are the effects, if any, expressly prescribed by that mandatory rule. (2) Where the mandatory rule does not expressly prescribe the effects of an infringement upon a contract, the parties have the right to exercise such remedies under the contract as in the circumstances are reasonable.

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(3) In determining what is reasonable regard is to be had in particular to: (a) the purpose of the rule which has been infringed; (b) the category of persons for whose protection the rule exists; (c) any sanction that may be imposed under the rule infringed; (d) the seriousness of the infringement; (e) whether one or both parties knew or ought to have known of the infringement; (f) whether the performance of the contract necessitates the infringement; and (g) the parties’ reasonable expectations. Article 3.3.2 (Restitution) (1) Where there has been performance under a contract infringing a mandatory rule under Article 3.3.1, restitution may be granted where this would be reasonable in the circum- stances. (2) In determining what is reasonable, regard is to be had, with the appropriate adaptations, to the criteria referred to in Article 3.3.1(3). (3) If restitution is granted, the rules set out in Article 3.2.15 apply with appropriate adaptations. Chapter 4 - Interpretation Article 4.1 (Intention of the parties) (1) A contract shall be interpreted according to the common intention of the parties. (2) If such an intention cannot be established, the contract shall be interpreted according to the meaning that reasonable persons of the same kind as the parties would give to it in the same circumstances. Article 4.2 (Interpretation of statements and other conduct) (1) The statements and other conduct of a party shall be interpreted according to that party's intention if the other party knew or could not have been unaware of that intention. (2) If the preceding paragraph is not applicable, such statements and other conduct shall be interpreted according to the meaning that a reasonable person of the same kind as the other party would give to it in the same circumstances.

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Article 4.3 (Relevant circumstances) In applying Articles 4.1 and 4.2, regard shall be had to all the circumstances, including (a) preliminary negotiations between the parties; (b) practices which the parties have established between themselves; (c) the conduct of the parties subsequent to the conclusion of the contract; (d) the nature and purpose of the contract; (e) the meaning commonly given to terms and expressions in the trade concerned; (f) usages. Article 4.4 (Reference to contract or statement as a whole) Terms and expressions shall be interpreted in the light of the whole contract or statement in which they appear. Article 4.5 (All terms to be given effect) Contract terms shall be interpreted so as to give effect to all the terms rather than to deprive some of them of effect. Article 4.6 (Contra proferentem rule) If contract terms supplied by one party are unclear, an interpretation against that party is preferred. Article 4.7 (Linguistic discrepancies) Where a contract is drawn up in two or more language versions which are equally authoritative there is, in case of discrepancy between the versions, a preference for the interpretation according to a version in which the contract was originally drawn up. Article 4.8 (Supplying an omitted term) (1) Where the parties to a contract have not agreed with respect to a term which is important for a determination of their rights and duties, a term which is appropriate in the circumstances shall be supplied.

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(2) In determining what is an appropriate term regard shall be had, among other factors to (a) the intention of the parties; (b) the nature and purpose of the contract; (c) good faith and fair dealing; (d) reasonableness. Chapter 5 - Content, third party rights and conditions Section 1: Content Article 5.1.1 (Express and implied obligations) The contractual obligations of the parties may be express or implied. Article 5.1.2 (Implied obligations) Implied obligations stem from (a) the nature and purpose of the contract; (b) practices established between the parties and usages; (c) good faith and fair dealing; (d) reasonableness. Article 5.1.3 (Co-operation between the parties) Each party shall co-operate with the other party when such co-operation may reasonably be expected for the performance of that party's obligations. Article 5.1.4 (Duty to achieve a specific result. Duty of best efforts) (1) To the extent that an obligation of a party involves a duty to achieve a specific result, that party is bound to achieve that result. (2) To the extent that an obligation of a party involves a duty of best efforts in the performance of an activity, that party is bound to make such efforts as would be made by a reasonable person of the same kind in the same circumstances.

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Article 5.1.5 (Determination of kind of duty involved) In determining the extent to which an obligation of a party involves a duty of best efforts in the performance of an activity or a duty to achieve a specific result, regard shall be had, among other factors, to (a) the way in which the obligation is expressed in the contract; (b) the contractual price and other terms of the contract; (c) the degree of risk normally involved in achieving the expected result; (d) the ability of the other party to influence the performance of the obligation. Article 5.1.6 (Determination of quality of performance) Where the quality of performance is neither fixed by, nor determinable from, the contract a party is bound to render a performance of a quality that is reasonable and not less than average in the circumstances. Article 5.1.7 (Price determination) (1) Where a contract does not fix or make provision for determining the price, the parties are considered, in the absence of any indication to the contrary, to have made reference to the price generally charged at the time of the conclusion of the contract for such performance in comparable circumstances in the trade concerned or, if no such price is available, to a reasonable price. (2) Where the price is to be determined by one party and that determination is manifestly unreasonable, a reasonable price shall be substituted notwithstanding any contract term to the contrary. (3) Where the price is to be fixed by a third person, and that person cannot or will not do so, the price shall be a reasonable price. (4) Where the price is to be fixed by reference to factors which do not exist or have ceased to exist or to be accessible, the nearest equivalent factor shall be treated as a substitute. Article 5.1.8 (Termination of a contract for an indefinite period) A contract for an indefinite period may be ended by either party by giving notice a reasonable time in advance. As to the effects of termination in general, and as to restitution, the provisions in Articles 7.3.5 and 7.3.7 apply.

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Article 5.1.9 (Release by agreement) (1) An obligee may release its right by agreement whith the obligor. (2) An offer to release a right gratuitously shall be deemed accepted if the obligor does not reject the offer whithout delay after having become aware of it. Section 2: Third Party Rights Article 5.2.1 (Contracts in favour of third parties) (1) The parties (the "promisor” and the "promisee”) may confer by express or implied agreement a right on a third party (the "beneficiary”). (2) The existence and content of the beneficiary’s right against the promisor are determined by the agreement of the parties and are subject to any conditions or other limitations under the agreement. Article 5.2.2 (Third party identifiable) The beneficiary must be identifiable with adequate certainty by the contract but need not be in existence at the time the contract is made. Article 5.2.3 (Exclusion and limitation clauses) The conferment of rights in the beneficiary includes the right to invoke a clause in the contract which excludes or limits the liability of the beneficiary. Article 5.2.4 (Defences) The promisor may assert against the beneficiary all defences which the promisor could assert against the promisee. Article 5.2.5 (Revocation) The parties may modify or revoke the rights conferred by the contract on the beneficiary until the beneficiary has accepted them or reasonably acted in reliance on them.

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Article 5.2.6 (Renunciation) The beneficiary may renounce a right conferred on it. Section 3: Conditions Article 5.3.1 (Types of condition) A contract or a contractual obligation may be made conditional upon the occurrence of a future uncertain event, so that the contract or the contractual obligation only takes effect if the event occurs (suspensive condition) or comes to an end if the event occurs (resolutive condition). Article 5.3.2 (Effect of conditions) Unless the parties otherwise agree: (a) the relevant contract or contractual obligation takes effect upon fulfilment of a suspensive condition; (b) the relevant contract or contractual obligation comes to an end upon fulfilment of a resolutive condition. Article 5.3.3 (Interference with conditions) (1) If fulfilment of a condition is prevented by a party, contrary to the duty of good faith and fair dealing or the duty of co-operation, that party may not rely on the non-fulfilment of the condition. (2) If fulfilment of a condition is brought about by a party, contrary to the duty of good faith and fair dealing or the duty of co-operation, that party may not rely on the fulfilment of the condition. Article 5.3.4 (Duty to preserve rights) Pending fulfilment of a condition, a party may not, contrary to the duty to act in accordance with good faith and fair dealing, act so as to prejudice the other party’s rights in case of fulfilment of the condition. Article 5.3.5 (Restitution in case of fulfilment of a resolutive condition) (1) On fulfilment of a resolutive condition, the rules on restitution set out in Articles 7.3.6 and 7.3.7 apply with appropriate adaptations.

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(2) If the parties have agreed that the resolutive condition is to operate retroactively, the rules on restitution set out in Article 3.2.15 apply with appropriate adaptations. Chapter 6 - Performance Section 1: Performance in General Article 6.1.1 (Time of performance) A party must perform its obligations: (a) if a time is fixed by or determinable from the contract, at that time; (b) if a period of time is fixed by or determinable from the contract, at any time within that period unless circumstances indicate that the other party is to choose a time; (c) in any other case, within a reasonable time after the conclusion of the contract. Article 6.1.2 (Performance at one time or in instalments) In cases under Article 6.1.1(b) or (c), a party must perform its obligations at one time if that performance can be rendered at one time and the circumstances do not indicate otherwise. Article 6.1.3 (Partial performance) (1) The obligee may reject an offer to perform in part at the time performance is due, whether or not such offer is coupled with an assurance as to the balance of the performance, unless the obligee has no legitimate interest in so doing. (2) Additional expenses caused to the obligee by partial performance are to be borne by the obligor without prejudice to any other remedy. Article 6.1.4 (Order of performance) (1) To the extent that the performances of the parties can be rendered simultaneously, the parties are bound to render them simultaneously unless the circumstances indicate otherwise. (2) To the extent that the performance of only one party requires a period of time, that party is bound to render its performance first, unless the circumstances indicate otherwise.

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Article 6.1.5 (Earlier performance) (1) The obligee may reject an earlier performance unless it has no legitimate interest in so doing. (2) Acceptability by a party of an earlier performance does not affect the time for the performance of its own obligations if that time has been fixed irrespective of the performance of the other party's obligations. (3) Additional expenses caused to the obligee by earlier performance are to be borne by the obligor, without prejudice to any other remedy. Article 6.1.6 (Place of performance) (1) If the place of performance is neither fixed by, nor determinable from, the contract, a party is to perform: (a) a monetary obligation, at the obligee's place of business; (b) any other obligation, at its own place of business. (2) A party must bear any increase in the expenses incidental to performance which is caused by a change in its place of business subsequent to the conclusion of the contract. Article 6.1.7 (Payment by cheque or other instrument) (1) Payment may be made in any form used in the ordinary course of business at the place for payment. (2) However, an obligee who accepts, either by virtue of paragraph (1) or voluntarily, a cheque, any other order to pay or a promise to pay, is presumed to do so only on condition that it will be honoured. Article 6.1.8 (Payment by funds transfer) (1) Unless the obligee has indicated a particular account, payment may be made by a transfer to any of the financial institutions in which the obligee has made it known that it has an account. (2) In case of payment by a transfer of the obligation of the obligor is discharged when the transfer to the obligee's financial institution becomes effective.

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Article 6.1.9 (Currency of payment) (1) If a monetary obligation is expressed in a currency other than that of the place for payment, it may be paid by the obligor in the currency of the place for payment unless (a) that currency is not freely convertible; or (b) the parties have agreed that payment should be made only in the currency in which the monetary obligation is expressed. (2) If it is impossible for the obligor to make payment in the currency in which the monetary obligation is expressed, the obligee may require payment in the currency of the place for payment, even in the case referred to in paragraph (1)(b). (3) Payment in the currency of the place for payment is to be made according to the applicable rate of exchange prevailing there when payment is due. (4) However, if the obligor has not paid at the time when payment is due, the obligee may require payment according to the applicable rate of exchange prevailing either when payment is due or at the time of actual payment. Article 6.1.10 (Currency not expressed) Where a monetary obligation is not expressed in a particular currency, payment must be made in the currency of the place where payment is to be made. Article 6.1.11 (Costs of performance) Each party shall bear the costs of performance of its obligations. Article 6.1.12 (Imputation of Payments) (1) An obligor owing several monetary obligations to the same obligee may specify at the time of payment the debt to which it intends the payment to be applied. However, the payment discharges first any expenses, then interest due and finally the principal. (2) If the obligor makes no such specification, the obligee may, within a reasonable time after payment, declare to the obligor the obligation to which it imputes the payment, provided that the obligation is due and undisputed.

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(3) In the absence of imputation under paragraphs (1) or (2), payment is imputed to that obligation which satisfies one of the following criteria and in the order indicated: (a) an obligation which is due or which is the first to fall due; (b) the obligation for which the obligee has least security; (c) the obligation which is the most burdensome for the obligor; (d) the obligation which has arisen first. If none of the preceding criteria applies, payment is imputed to all the obligations proportionally. Article 6.1.13 (Imputation of Non-Monetary Obligations) Article 6.1.12 applies with appropriate adaptations to the imputation of performance of non-monetary obligations. Article 6.1.14 (Application for public permission) Where the law of a State requires a public permission affecting the validity of the contract or its performance and neither that law nor the circumstances indicate otherwise (a) if only one party has its place of business in that State, that party shall take the measures necessary to obtain the permission; (b) in any other case the party whose performance requires permission shall take the necessary measures. Article 6.1.15 (Procedure in applying for permission) (1) The party required to take the measures necessary to obtain the permission shall do so without undue delay and shall bear any expenses incurred. (2) That party shall whenever appropriate give the other party notice of the grant or refusal of such permission without undue delay. Article 6.1.16 (Permission neither granted nor refused) (1) If, notwithstanding the fact that the party responsible has taken all measures required, permission is neither granted nor refused within an agreed period or, where no period has been agreed, within a reasonable time from the conclusion of the contract, either party is entitled to terminate the contract.

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(2) Where the permission affects some terms only, paragraph (1) does not apply if, having regard to the circumstances, it is reasonable to uphold the remaining contract even if the permission is refused. Article 6.1.17 (Permission refused) (1) The refusal of a permission affecting the validity of the contract renders the contract void. If the refusal affects the validity of some terms only, only such terms are void if, having regard to the circumstances, it is reasonable to uphold the remaining contract. (2) Where the refusal of a permission renders the performance of the contract impossible in whole or in part, the rules on non-performance apply. Section 2: Hardship Article 6.2.1 (Contract to be observed) Where the performance of a contract becomes more onerous for one of the parties, that party is nevertheless bound to perform its obligations subject to the following provisions on hardship. Article 6.2.2 (Definition of hardship) There is hardship where the occurrence of events fundamentally alters the equilibrium of the contract either because the cost of a party's performance has increased or because the value of the performance a party receives has diminished, and (a) the events occur or become known to the disadvantaged party after the conclusion of the contract; (b) the events could not reasonably have been taken into account by the disadvantaged party at the time of the conclusion of the contract; (c) the events are beyond the control of the disadvantaged party; and (d) the risk of the events was not assumed by the disadvantaged party. Article 6.2.3 (Effects of hardship) (1) In case of hardship the disadvantaged party is entitled to request renegotiations. The request shall be made without undue delay and shall indicate the grounds on which it is based. (2) The request for renegotiation does not in itself entitle the disadvantaged party to withhold performance.

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(3) Upon failure to reach agreement within a reasonable time either party may resort to the court. (4) If the court finds hardship it may, if reasonable, (a) terminate the contract at a date and on terms to be fixed; or (b) adapt the contract with a view to restoring its equilibrium. Chapter 7 - Non-Performance Section 1: Non-Performance in General Article 7.1.1 (Non-Performance defined) Non-performance is failure by a party to perform any of its obligations under the contract, including defective performance or late performance. Article 7.1.2 (Interference by the other party) A party may not rely on the non-performance of the other party to the extent that such non-performance was caused by the first party's act or omission or by another event as to which the first party bears the risk. Article 7.1.3 (Withholding performance) (1) Where the parties are to perform simultaneously, either party may withhold performance until the other party renders its performance. (2) Where the parties are to perform consecutively, the party that is to perform later may withhold its performance until the first party has performed. Article 7.1.4 (Cure by non-performing party) (1) The non-performing party may, at its own expense, cure any nonperformance, provided that (a) without undue delay, it gives notice indicating the proposed manner and timing of the cure; (b) cure is appropriate in the circumstances; (c) the aggrieved party has no legitimate interest in refusing cure; and (d) cure is effected promptly. (2) The right to cure is not precluded by notice of termination.

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(3) Upon effective notice of cure, rights of the aggrieved party that are inconsistent with the non-performing party's performances are suspended until the time for cure has expired. (4) The aggrieved party may withhold performance pending cure. (5) Notwithstanding cure, the aggrieved party retains the right to claim damages for delay as well as for any harm caused or not prevented by the cure. Article 7.1.5 (Additional period for performance) (1) In a case of non-performance the aggrieved party may by notice to the other party allow an additional period of time for performance. (2) During the additional period the aggrieved party may withhold performance of its own reciprocal obligations and may claim damages but may not resort to any other remedy. If it receives notice from the other party that the latter will not perform within that period, or if upon expiry of that period due performance has not been made, the aggrieved party may resort to any of the remedies that may be available under this Chapter. (3) Where in a case of delay in performance which is not fundamental the aggrieved party has given notice allowing an additional period of time of reasonable length, it may terminate the contract at the end of that period. If the additional period allowed is not of reasonable length it shall be extended to a reasonable length. The aggrieved party may in its notice provide that if the other party fails to perform within the period allowed by the notice the contract shall automatically terminate. (4) Paragraph (3) does not apply where the obligation which has not been performed is only a minor part of the contractual obligation of the nonperforming party. Article 7.1.6 (Exemption clauses) A clause which limits or excludes one party's liability for nonperformance or which permits one party to render performance substantially different from what the other party reasonably expected may not be invoked if it would be grossly unfair to do so, having regard to the purpose of the contract. Article 7.1.7 (Force majeure) (1) Non-performance by a party is excused if that party proves that the non-performance was due to an impediment beyond its control and that it

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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 it or its consequences. (2) When the impediment is only temporary, the excuse shall have effect for such period as is reasonable having regard to the effect of the impediment on the performance of the contract. (3) The party who fails to perform must give notice to the other party of the impediment and its effect on its 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, it is liable for damages resulting from such non-receipt. (4) Nothing in this article prevents a party from exercising a right to terminate the contract or to withhold performance or request interest on money due. Section 2: Right to Performance Article 7.2.1 (Performance of monetary obligation) Where a party who is obliged to pay money does not do so, the other party may require payment. Article 7.2.2 (Performance of non-monetary obligation) Where a party who owes an obligation other than one to pay money does not perform, the other party may require performance, unless (a) performance is impossible in law or in fact; (b) performance or, where relevant, enforcement is unreasonably burdensome or expensive;; (c) the party entitled to performance may reasonably obtain performance from another source; (d) performance is of an exclusively personal character; or (e) the party entitled to performance does not require performance within a reasonable time after it has, or ought to have, become aware of the non-performance. Article 7.2.3 (Repair and replacement of defective performance) The right to performance includes in appropriate cases the right to require repair, replacement, or other cure of defective performance. The provisions of Articles 7.2.1 and 7.2.2 apply accordingly.

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Article 7.2.4 (Judicial penalty) (1) Where the court orders a party to perform, it may also direct that this party pay a penalty if it does not comply with the order. (2) The penalty shall be paid to the aggrieved party unless mandatory provisions of the law of the forum provide otherwise. Payment of the penalty to the aggrieved party does not exclude any claim for damages. Article 7.2.5 (Change of remedy) (1) An aggrieved party who has required performance of a non-monetary obligation and who has not received performance within a period fixed or otherwise within a reasonable period of time may invoke any other remedy. (2) Where the decision of a court for performance of a non-monetary obligation cannot be enforced, the aggrieved party may invoke any other remedy. Section 3: Termination Article 7.3.1 (Right to terminate the contract) (1) A party may terminate the contract where the failure of the other party to perform an obligation under the contract amounts to a fundamental non-performance. (2) In determining whether a failure to perform an obligation amounts to a fundamental non-performance regard shall be had, in particular, to whether (a) the non-performance substantially deprives the aggrieved party of what it was entitled to expect under the contract unless the other party did not foresee and could not reasonably have foreseen such result; (b) strict compliance with the obligation which has not been performed is of essence under the contract; (c) the non-performance is intentional or reckless; (d) the non-performance gives the aggrieved party reason to believe that it cannot rely on the other party's future performance; (e) the non-performing party will suffer disproportionate loss as a result of the preparation or performance if the contract is terminated. (3) In the case of delay the aggrieved party may also terminate the contract if the other party fails to perform before the time allowed it under Article 7.1.5 has expired.

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Article 7.3.2 (Notice of termination) (1) The right of a party to terminate the contract is exercised by notice to the other party. (2) If performance has been offered late or otherwise does not conform to the contract the aggrieved party will lose its right to terminate the contract unless it gives notice to the other party within a reasonable time after it has or ought to have become aware of the offer or of the non-conforming performance. Article 7.3.3 (Anticipatory non-performance) Where prior to the date for performance by one of the parties it is clear that there will be a fundamental non-performance by that party, the other party may terminate the contract. Article 7.3.4 (Adequate assurance of due performance) A party who reasonably believes that there will be a fundamental nonperformance by the other party may demand adequate assurance of due performance and may meanwhile withhold its own performance. Where this assurance is not provided within a reasonable time the party demanding it may terminate the contract. Article 7.3.5 (Effects of termination in general) (1) Termination of the contract releases both parties from their obligation to effect and to receive future performance. (2) Termination does not preclude a claim for damages for nonperformance. (3) Termination does not affect any provision in the contract for the settlement of disputes or any other term of the contract which is to operate even after termination. Article 7.3.6 (Restitution with respect to contracts to be performed at one time) (1) On termination of a contract to be performed at one time either party may claim restitution of whatever it has supplied under the contract, provided that such party concurrently makes restitution of whatever it has received under the contract.

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(2) If restitution in kind is not possible or appropriate, an allowance has to be made in money whenever reasonable. (3) The recipient of the performance does not have to make an allowance in money if the impossibility to make restitution in kind is attributable to the other party. (4) Compensation may be claimed for expenses reasonably required to preserve or maintain the performance received. Article 7.3.7 (Restitution with respect to long-term contracts) (1) On termination of a long-term contract restitution can only be claimed for the period after termination has taken effect, provided the contract is divisble. (2) As far as restitution has to be made, the provisions of Article 7.3.6 apply. Section 4: Damages Article 7.4.1 (Right to damages) Any non-performance gives the aggrieved party a right to damages either exclusively or in conjunction with any other remedies except where the non-performance is excused under these Principles. Article 7.4.2 (Full compensation) (1) The aggrieved party is entitled to full compensation for harm sustained as a result of the non-performance. Such harm includes both any loss which it suffered and any gain of which it was deprived, taking into account any gain to the aggrieved party resulting from its avoidance of cost or harm. (2) Such harm may be non-pecuniary and includes, for instance, physical suffering or emotional distress. Article 7.4.3 (Certainty of harm) (1) Compensation is due only for harm, including future harm, that is established with a reasonable degree of certainty. (2) Compensation may be due for the loss of a chance in proportion to the probability of its occurrence.

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(3) Where the amount of damages cannot be established with a sufficient degree of certainty, the assessment is at the discretion of the court. Article 7.4.4 (Foreseeability of harm) The non-performing party is liable only for harm which it foresaw or could reasonably have foreseen at the time of the conclusion of the contract as being likely to result from its non-performance. Article 7.4.5 (Proof of harm in case of replacement transaction) Where the aggrieved party has terminated the contract and has made a replacement transaction within a reasonable time and in a reasonable manner it may recover the difference between the contract price and the price of the replacement transaction as well as damages for any further harm. Article 7.4.6 (Proof of harm by current price) (1) Where the aggrieved party has terminated the contract and has not made a replacement transaction but there is a current price for the performance contracted for, it may recover the difference between the contract price and the price current at the time the contract is terminated as well as damages for any further harm. (2) Current price is the price generally charged for goods delivered or services rendered in comparable circumstances at the place where the contract should have been performed or, if there is no current price at that place, the current price at such other place that appears reasonable to take as a reference. Article 7.4.7 (Harm due in part to aggrieved party) Where the harm is due in part to an act or omission of the aggrieved party or to another event as to which that party bears the risk, the amount of damages shall be reduced to the extent that these factors have contributed to the harm, having regard to the conduct of each of the parties.

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Article 7.4.8 (Mitigation of harm) (1) The non-performing party is not liable for harm suffered by the aggrieved party to the extent that the harm could have been reduced by the latter party's taking reasonable steps. (2) The aggrieved party is entitled to recover any expenses reasonably incurred in attempting to reduce the harm. Article 7.4.9 (Interest for failure to pay money) (1) If a party does not pay a sum of money when it falls due the aggrieved party is entitled to interest upon that sum from the time when payment is due to the time of payment whether or not the non-payment is excused. (2) The rate of interest shall be the average bank short-term lending rate to prime borrowers prevailing for the currency of payment at the place for payment, or where no such rate exists at that place, then the same rate in the State of the currency of payment. In the absence of such a rate at either place the rate of interest shall be the appropriate rate fixed by the law of the State of the currency of payment. (3) The aggrieved party is entitled to additional damages if the nonpayment caused it a greater harm. Article 7.4.10 (Interest on damages) Unless otherwise agreed, interest on damages for non-performance of non-monetary obligations accrues as from the time of non-performance. Article 7.4.11 (Manner of monetary redress) (1) Damages are to be paid in a lump sum. However, they may be payable in instalments where the nature of the harm makes this appropriate. (2) Damages to be paid in instalments may be indexed. Article 7.4.12 (Currency in which to access damages) Damages are to be assessed either in the currency in which the monetary obligation was expressed or in the currency in which the harm was suffered, whichever is more appropriate.

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Article 7.4.13 (Agreed payment for non-performance) (1) Where the contract provides that a party who does not perform is to pay a specified sum to the aggrieved party for such non-performance, the aggrieved party is entitled to that sum irrespective of its actual harm. (2) However, notwithstanding any agreement to the contrary, the specified sum may be reduced to a reasonable amount where it is grossly excessive in relation to the harm resulting from the non-performance and to the other circumstances. Chapter 8 - Set-Off Article 8.1 (Conditions of set-off) (1) Where two parties owe each other money or other performances of the same kind, either of them ("the first party") may set off its obligation against that of its obligee ("the other party") if at the time of set-off, (a) the first party is entitled to perform its obligation; (b) the other party's obligation is ascertained as to its existence and amount and performance is due. (2) If the obligations of both parties arise from the same contract, the first party may also set off its obligation against an obligation of the other party which is not ascertained as to its existence or to its amount. Article 8.2 (Foreign currency set-off) Where the obligations are to pay money in different currencies, the right of set-off may be exercised, provided that both currencies are freely convertible and the parties have not agreed that the first party shall pay only in a specified currency. Article 8.3 (Set-off by notice) The right of set-off is exercised by notice to the other party. Article 8.4 (Content of notice) (1) The notice must specify the obligations to which it relates. (2) If the notice does not specify the obligation against which set-off is exercised, the other party may, within a reasonable time, declare to the first

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party the obligation to which set-off relates. If no such declaration is made, the set-off will relate to all the obligations proportionally. Article 8.5 (Effect of set-off) (1) Set-off discharges the obligations. (2) If obligations differ in amount, set-off discharges the obligations up to the amount of the lesser obligation. (3) Set-off takes effect as from the time of notice. Chapter 9 - Assignment of rights, transfer of obligations, assignment of contracts Section 1: Assignment of rights Article 9.1.1 (Definitions) "Assignment of a right” means the transfer by agreement from one person (the "assignor”) to another person (the "assignee”), including transfer by way of security, of the assignor's right to payment of a monetary sum or other performance from a third person ("the obligor”). Article 9.1.2 (Exclusions) This Section does not apply to transfers made under the special rules governing the transfers: (a) of instruments such as negotiable instruments, documents of title or financial instruments, or (b) of rights in the course of transferring a business. Article 9.1.3 (Assignability of non-monetary rights) A right to non-monetary performance may be assigned only if the assignment does not render the obligation significantly more burdensome.

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Article 9.1.4 (Partial assignment) (1) A right to the payment of a monetary sum may be assigned partially. (2) A right to other performance may be assigned partially only if it is divisible, and the assignment does not render the obligation significantly more burdensome. Article 9.1.5 (Future rights) A future right is deemed to be transferred at the time of the agreement, provided the right, when it comes into existence, can be identified as the right to which the assignment relates. Article 9.1.6 (Rights assigned without individual specification) A number of rights may be assigned without individual specification, provided such rights can be identified as rights to which the assignment relates at the time of the assignment or when they come into existence. Article 9.1.7 (Agreement between assignor and assignee sufficient) (1) A right is assigned by mere agreement between the assignor and the assignee, without notice to the obligor. (2) The consent of the obligor is not required unless the obligation in the circumstances is of an essentially personal character. Article 9.1.8 (Obligor‘s additional costs) The obligor has a right to be compensated by the assignor or the assignee for any additional costs caused by the assignment. Article 9.1.9 (Non-assignment clauses) (1) The assignment of a right to the payment of a monetary sum is effective notwithstanding an agreement between the assignor and the obligor limiting or prohibiting such an assignment. However, the assignor may be liable to the obligor for breach of contract. (2) The assignment of a right to other performance is ineffective if it is contrary to an agreement between the assignor and the obligor limiting or prohibiting the assignment. Nevertheless, the assignment is effective if the assignee, at the time of the assignment, neither knew nor ought to have

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known of the agreement. The assignor may then be liable to the obligor for breach of contract. Article 9.1.10 (Notice to the obligor) (1) Until the obligor receives a notice of the assignment from either the assignor or the assignee, it is discharged by paying the assignor. (2) After the obligor receives such a notice, it is discharged only by paying the assignee. Article 9.1.11 (Successive assignment) If the same right has been assigned by the same assignor to two or more successive assignees, the obligor is discharged by paying according to the order in which the notices were received Article 9.1.12 (Adequate proof of assignment) (1) If notice of the assignment is given by the assignee, the obligor may request the assignee to provide within a reasonable time adequate proof that the assignment has been made. (2) Until adequate proof is provided, the obligor may withhold payment. (3) Unless adequate proof is provided, notice is not effective. (4) Adequate proof includes, but is not limited to, any writing emanating from the assignor and indicating that the assignment has taken place. Article 9.1.13 (Defences and rights of set-off) (1) The obligor may assert against the assignee all defences that the obligor could assert against the assignor. (2) The obligor may exercise against the assignee any right of set-off available to the obligor against the assignor up to the time notice of assignment was received. Article 9.1.14 (Rights related to the right assigned) The assignment of a right transfers to the assignee: (a) all the assignor’s rights to payment or other performance under the contract in respect of the right assigned, and (b) all rights securing performance of the right assigned.

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Article 9.1.15 (Undertakings of the assignor) The assignor undertakes towards the assignee, except as otherwise disclosed to the assignee, that: (a) the assigned right exists at the time of the assignment, unless the right is a future right; (b) the assignor is entitled to assign the right; (c) the right has not been previously assigned to another assignee, and it is free from any right or claim from a third party; (d) the obligor does not have any defences; (e) neither the obligor nor the assignor has given notice of set-off concerning the assigned right and will not give any such notice; (f) the assignor will reimburse the assignee for any payment received from the obligor before notice of the assignment was given. Section 2: Transfer of obligations Article 9.2.1 (Modes of transfer) An obligation to pay money or render other performance may be transferred from one person (the "original obligor”) to another person (the "new obligor”) either (a) by an agreement between the original obligor and the new obligor subject to Article 9.2.3, or (b) by an agreement between the obligee and the new obligor, by which the new obligor assumes the obligation. Article 9.2.2 (Exclusion) This Section does not apply to transfers of obligations made under the special rules governing transfers of obligations in the course of transferring a business. Article 9.2.3 (Requirement of obligee‘s consent to transfer) The transfer of an obligation by an agreement between the original obligor and the new obligor requires the consent of the obligee.

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Article 9.2.4 (Advance consent of obligee) (1) The obligee may give its consent in advance. (2) If the obligee has given its consent in advance, the transfer of the obligation becomes effective when a notice of the transfer is given to the obligee or when the obligee acknowledges it. Article 9.2.5 (Discharge of original obligor) (1) The obligee may discharge the original obligor. (2) The obligee may also retain the original obligor as an obligor in case the new obligor does not perform properly. (3) Otherwise the original obligor and the new obligor are jointly and severally liable. Article 9.2.6 (Third party performance) (1) Without the obligee’s consent, the obligor may contract with another person that this person will perform the obligation in place of the obligor, unless the obligation in the circumstances has an essentially personal character. (2) The obligee retains its claim against the obligor. Article 9.2.7 (Defences and rights of set-off) (1) The new obligor may assert against the obligee all defences which the original obligor could assert against the obligee. (2) The new obligor may not exercise against the obligee any right of set-off available to the original obligor against the obligee. Article 9.2.8 (Rights related to the obligation transferred) (1) The obligee may assert against the new obligor all its rights to payment or other performance under the contract in respect of the obligation transferred. (2) If the original obligor is discharged under Article 9.2.5(1), a security granted by any person other than the new obligor for the performance of the obligation is discharged, unless that other person agrees that it should continue to be available to the obligee. (3) Discharge of the original obligor also extends to any security of the original obligor given to the obligee for the performance of the obligation,

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unless the security is over an asset which is transferred as part of a transaction between the original obligor and the new obligor. Section 3: Assignment of contracts Article 9.3.1 (Definitions) "Assignment of a contract” means the transfer by agreement from one person (the "assignor”) to another person (the "assignee”) of the assignor’s rights and obligations arising out of a contract with another person (the "other party”). Article 9.3.2 (Exclusion) This Section does not apply to the assignment of contracts made under the special rules governing transfers of contracts in the course of transferring a business. Article 9.3.3 (Requirement of consent of the other party) The assignment of a contract requires the consent of the other party. Article 9.3.4 (Advance consent of the other party) (1) The other party may give its consent in advance. (2) If the other party has given its consent in advance, the assignment of the contract becomes effective when a notice of the assignment is given to the other party or when the other party acknowledges it. Article 9.3.5 (Discharge of the assignor) (1) The other party may discharge the assignor. (2) The other party may also retain the assignor as an obligor in case the assignee does not perform properly. (3) Otherwise the assignor and the assignee are jointly and severally liable. Article 9.3.6 (Defences and rights of set-off) (1) To the extent that the assignment of a contract involves an assignment of rights, Article 9.1.13 applies accordingly.

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(2) To the extent that the assignment of a contract involves a transfer of obligations, Article 9.2.7 applies accordingly. Article 9.3.7 (Rights transferred with the contract) (1) To the extent that the assignment of a contract involves an assignment of rights, Article 9.1.14 applies accordingly. (2) To the extent that the assignment of a contract involves a transfer of obligations, Article 9.2.8 applies accordingly. Chapter 10 - Limitation periods Article 10.1 (Scope of the Chapter) (1) The exercise of rights governed by these Principles is barred by the expiration of a period of time, referred to as "limitation period”, according to the rules of this Chapter. (2) This Chapter does not govern the time within which one party is required under these Principles, as a condition for the acquisition or exercise of its right, to give notice to the other party or to perform any act other than the institution of legal proceedings. Article 10.2 (Limitation periods) (1) The general limitation period is three years beginning on the day after the day the obligee knows or ought to know the facts as a result of which the obligee’s right can be exercised. (2) In any event, the maximum limitation period is ten years beginning on the day after the day the right can be exercised. Article 10.3 (Modification of limitation periods by the parties) (1) The parties may modify the limitation periods. (2) However they may not (a) shorten the general limitation period to less than one year; (b) shorten the maximum limitation period to less than four years; (c) extend the maximum limitation period to more than fifteen years.

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Article 10.4 (New limitation period by acknowledgement) (1) Where the obligor before the expiration of the general limitation period acknowledges the right of the obligee, a new general limitation period begins on the day after the day of the acknowledgement. (2) The maximum limitation period does not begin to run again, but may be exceeded by the beginning of a new general limitation period under Art. 10.2(1). Article 10.5 (Suspension by judicial proceedings) (1) The running of the limitation period is suspended (a) when the obligee performs any act, by commencing judicial proceedings or in judicial proceedings already instituted, that is recognised by the law of the court as asserting the obligee’s right against the obligor; (b) in the case of the obligor’s insolvency when the obligee has asserted its rights in the insolvency proceedings; or (c) in the case of proceedings for dissolution of the entity which is the obligor when the obligee has asserted its rights in the dissolution proceedings. (2) Suspension lasts until a final decision has been issued or until the proceedings have been otherwise terminated. Article 10.6 (Suspension by arbitral proceedings) (1) The running of the limitation period is suspended when the obligee performs any act, by commencing arbitral proceedings or in arbitral proceedings already instituted, that is recognised by the law of the arbitral tribunal as asserting the obligee’s right against the obligor. In the absence of regulations for arbitral proceedings or provisions determining the exact date of the commencement of arbitral proceedings, the proceedings are deemed to commence on the date on which a request that the right in dispute should be adjudicated reaches the obligor. (2) Suspension lasts until a binding decision has been issued or until the proceedings have been otherwise terminated.

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Article 10.7 (Alternative dispute resolution) The provisions of Articles 10.5 and 10.6 apply with appropriate modifications to other proceedings whereby the parties request a third person to assist them in their attempt to reach an amicable settlement of their dispute. Article 10.8 (Suspension in case of force majeure, death or incapacity) (1) Where the obligee has been prevented by an impediment that is beyond its control and that it could neither avoid nor overcome, from causing a limitation period to cease to run under the preceding articles, the general limitation period is suspended so as not to expire before one year after the relevant impediment has ceased to exist. (2) Where the impediment consists of the incapacity or death of the obligee or obligor, suspension ceases when a representative for the incapacitated or deceased party or its estate has been appointed or a successor has inherited the respective party’s position. The additional oneyear period under paragraph (1) applies accordingly. Article 10.9 (The effects of expiration of limitation period) (1) The expiration of the limitation period does not extinguish the right. (2) For the expiration of the limitation period to have effect, the obligor must assert it as a defence. (3) A right may still be relied on as a defence even though the expiration of the limitation period for that right has been asserted. Article 10.10 (Right of set-off) The obligee may exercise the right of set-off until the obligor has asserted the expiration of the limitation period. Article 10.11 (Restitution) Where there has been performance in order to discharge an obligation, there is no right of restitution merely because the limitation period has expired.

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Chapter 11 - Plurality of obligors and of obligees Section 1: Plurality of obligors Article 11.1.1 (Definitions) When several obligors are bound by the same obligation toward an obligee: (a) the obligations are joint and several when each obligor is bound for the whole obligation; (b) the obligations are separate when each obligor is bound only for its share. Article 11.1.2 (Presumption of joint and several obligations) When several obligors are bound by the same obligation towards an obligee, they are presumed to be jointly and severally bound, unless the circumstances indicate otherwise. Article 11.1.3 (Obligee’s rights against joint and several obligors) When obligors are jointly and severally bound, the obligee may require performance from any one of them, until full performance has been received. Article 11.1.4 (Availability of defences and rights of set-off) A joint and several obligor against whom a claim is made by the obligee may assert all the defences and rights of set-off that are personal to it or that are common to all the co-obligors, but may not assert defences or rights of set-off that are personal to one or several of the other co- obligors. Article 11.1.5 (Effect of performance or set-off) Performance or set-off by a joint and several obligor or set-off by the obligee against one joint and several obligor discharges the other obligors in relation to the obligee to the extent of the performance or set-off. Article 11.1.6 (Effect of release or settlement) (1) Release of one joint and several obligor, or settlement with one joint and several obligor, discharges all the other obligors for the share of the released or settling obligor, unless the circumstances indicate otherwise. (2) When the other obligors are dis- charged for the share of the released obligor, they no longer have a contributory claim against the released obligor under Article 11.1.10.

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Article 11.1.7 (Effect of expiration or suspension of limitation period) (1) Expiration of the limitation period of the obligee’s rights against one joint and several obligor does not affect: (a) the obligations to the obligee of the other joint and several obligors; or (b) the rights of recourse between the joint and several obligors under Article 11.1.10. (2) If the obligee initiates proceedings under Articles 10.5, 10.6 or 10.7 against one joint and several obligor, the running of the limitation period is also suspended against the other joint and several obligors. Article 11.1.8 (Effect of judgment) (1) A decision by a court as to the liability to the obligee of one joint and several obligor does not affect: (a) the obligations to the obligee of the other joint and several obligors; or (b) the rights of recourse between the joint and several obligors under Article 11.1.10. (2) However, the other joint and several obligors may rely on such a decision, except if it was based on grounds personal to the obligor concerned. In such a case, the rights of recourse between the joint and several obligors under Article 11.1.10 are affected accordingly. Article 11.1.9 (Apportionment among joint and several obligors) As among themselves, joint and several obligors are bound in equal shares, unless the circumstances indicate otherwise. Article 11.1.10 (Extent of contributory claim) A joint and several obligor who has performed more than its share may claim the excess from any of the other obligors to the extent of each obligor's unperformed share. Article 11.1.11 (Rights of the obligee) (1) A joint and several obligor to whom Article 11.1.10 applies may also exercise the rights of the obligee, including all rights securing their performance, to recover the excess from all or any of the other obligors to the extent of each obligor’s unperformed share. (2) An obligee who has not received full performance retains its rights against the co- obligors to the extent of the unperformed part, with precedence over co-obligors exercising contributory claims.

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Article 11.1.12 (Defences in contributory claims) A joint and several obligor against whom a claim is made by the coobligor who has performed the obligation: (a) may raise any common defences and rights of set-off that were available to be asserted by the co-obligor against the obligee; (b) may assert defences which are personal to itself ; (c) may not assert defences and rights of set-off which are personal to one or several of the other co-obligors. Article 11.1.13 (Inability to recover) If a joint and several obligor who has performed more than that obligor’s share is unable, despite all reasonable efforts, to recover contribution from another joint and several obligor, the share of the others, including the one who has performed, is increased proportionally. Section 2: Plurality of obligees Article 11.2.1 (Definitions) When several obligees can claim perform- ance of the same obligation from an obligor: (a) the claims are separate when each obligee can only claim its share; (b) the claims are joint and several when each obligee can claim the whole performance; (c) the claims are joint when all obligees have to claim performance together. Article 11.2.2 (Effects of joint and several claims) Full performance of an obligation in favour of one of the joint and several obligees discharges the obligor towards the other obligees. Article 11.2.3 (Availability of defences against joint and several obligees) (1) The obligor may assert against any of the joint and several obligees all the defences and rights of set-off that are personal to its relationship to that obligee or that it can assert against all the co-obligees, but may not assert defences and rights of set-off that are personal to its relationship to one or several of the other co- obligees. (2) The provisions of Articles 11.1.5, 11.1.6, 11.1.7 and 11.1.8 apply, with appropriate adaptations, to joint and several claims.

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Article 11.2.4 (Allocation between joint and several obligees) (1) As among themselves, joint and several obligees are entitled to equal shares, unless the circumstances indicate otherwise. (2) An obligee who has received more than its share must transfer the excess to the other obligees to the extent of their respective shares.

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ANNEX 2: SALE OF GOODS ACT (1979) An Act to consolidate the law relating to the sale of goods.[6th December 1979] PART I CONTRACTS TO WHICH ACT APPLIES 1 Contracts to which Act applies. 1) This Act applies to contracts of sale of goods made on or after (but not to those made before) 1 January 1894. 2) In relation to contracts made on certain dates, this Act applies subject to the modification of certain of its sections as mentioned in Schedule 1 below. 3) Any such modification is indicated in the section concerned by a reference to Schedule 1 below. 4) Accordingly, where a section does not contain such a reference, this Act applies in relation to the contract concerned without such modification of the section. 5) Certain sections or subsections of this Act do not apply to a contract to which Chapter 2 of Part 1 of the Consumer Rights Act 2015 applies. 6) Where that is the case it is indicated in the section concerned. PART II FORMATION OF THE CONTRACT Contract of sale 2 Contract of sale. 1) A contract of sale of goods is a contract by which the seller transfers or agrees to transfer the property in goods to the buyer for a money consideration, called the price. 2) There may be a contract of sale between one part-owner and another. 3) A contract of sale may be absolute or conditional. 4) Where under a contract of sale the property in the goods is transferred from the seller to the buyer the contract is called a sale. 5) Where under a contract of sale the transfer of the property in the goods is to take place at a future time or subject to some

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condition later to be fulfilled the contract is called an agreement to sell. An agreement to sell becomes a sale when the time elapses or the conditions are fulfilled subject to which the property in the goods is to be transferred. 3 Capacity to buy and sell. 1) Capacity to buy and sell is regulated by the general law concerning capacity to contract and to transfer and acquire property. 2) Where necessaries are sold and delivered to a minor or to a person who by reason of mental incapacity or drunkenness is incompetent to contract, he must pay a reasonable price for them. 3) In subsection (2) above “necessaries” means goods suitable to the condition in life of the minor or other person concerned and to his actual requirements at the time of the sale and delivery. Formalities of contract. 4 How contract of sale is made. 1) Subject to this and any other Act, a contract of sale may be made in writing (either with or without seal), or by word of mouth, or partly in writing and partly by word of mouth, or may be implied from the conduct of the parties. 2) Nothing in this section affects the law relating to corporations. Subject matter of contract 5 Existing or future goods. 1) The goods which form the subject of a contract of sale may be either existing goods, owned or possessed by the seller, or goods to be manufactured or acquired by him after the making of the contract of sale, in this Act called future goods. 2) There may be a contract for the sale of goods, the acquisition of which by the seller depends on a contingency which may or may not happen. 3) Where by a contract of sale the seller purports to effect a present sale of future goods, the contract operates as an agreement to sell the goods.

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6 Goods which have perished. Where there is a contract for the sale of specific goods, and the goods without the knowledge of the seller have perished at the time when the contract is made, the contract is void. 7 Goods perishing before sale but after agreement to sell. Where there is an agreement to sell specific goods and subsequently the goods, without any fault on the part of the seller or buyer, perish before the risk passes to the buyer, the agreement is avoided. The price 8 Ascertainment of price. 1) The price in a contract of sale may be fixed by the contract, or may be left to be fixed in a manner agreed by the contract, or may be determined by the course of dealing between the parties. 2) Where the price is not determined, as mentioned in subsection (1) above the buyer must pay a reasonable price. 3) What is a reasonable price is a question of fact dependent on the circumstances of each particular case. 9 Agreement to sell at valuation. 1) Where there is an agreement to sell goods on the terms that the price is to be fixed by the valuation of a third party, and he cannot or does not make the valuation, the agreement is avoided; but if the goods or any part of them have been delivered to and appropriated by the buyer he must pay a reasonable price for them. 2) Where the third party is prevented from making the valuation by the fault of the seller or buyer, the party not at fault may maintain an action for damages against the party at fault.

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10 Stipulations about time. 1) Unless a different intention appears from the terms of the contract, stipulations as to time of payment are not of the essence of a contract of sale. 2) Whether any other stipulation as to time is or is not of the essence of the contract depends on the terms of the contract. 3) In a contract of sale “month” prima facie means calendar month. 11 When condition to be treated as warranty. 1) This section does not apply to Scotland. 2) Where a contract of sale is subject to a condition to be fulfilled by the seller, the buyer may waive the condition, or may elect to treat the breach of the condition as a breach of warranty and not as a ground for treating the contract as repudiated. 3) Whether a stipulation in a contract of sale is a condition, the breach of which may give rise to a right to treat the contract as repudiated, or a warranty, the breach of which may give rise to a claim for damages but not to a right to reject the goods and treat the contract as repudiated, depends in each case on the construction of the contract; and a stipulation may be a condition, though called a warranty in the contract. 4) Subject to section 35A below. Where a contract of sale is not severable, and the buyer has accepted the goods or part of them, the breach of a condition to be fulfilled by the seller can only be treated as a breach of warranty, and not as a ground for rejecting the goods and treating the contract as repudiated, unless there is an express or implied term of the contract to that effect. 4A) Subsection (4) does not apply to a contract to which Chapter 2 of Part 1 of the Consumer Rights Act 2015 applies (but see the provision made about such contracts in sections 19 to 22 of that Act). 5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6) Nothing in this section affects a condition or warranty whose fulfilment is excused by law by reason of impossibility or otherwise. 7) Paragraph 2 of Schedule 1 below applies in relation to a contract made before 22 April 1967 or (in the application of this Act to Northern Ireland) 28 July 1967.

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12 Implied terms about title, etc. 1) In a contract of sale, other than one to which subsection (3) below applies, there is an implied term on the part of the seller that in the case of a sale he has a right to sell the goods, and in the case of an agreement to sell he will have such a right at the time when the property is to pass. 2) In a contract of sale, other than one to which subsection (3) below applies, there is also an implied term that— a) the goods are free, and will remain free until the time when the property is to pass, from any charge or encumbrance not disclosed or known to the buyer before the contract is made, and b) the buyer will enjoy quiet possession of the goods except so far as it may be disturbed by the owner or other person entitled to the benefit of any charge or encumbrance so disclosed or known. 3) This subsection applies to a contract of sale in the case of which there appears from the contract or is to be inferred from its circumstances an intention that the seller should transfer only such title as he or a third person may have. 4) In a contract to which subsection (3) above applies there is an implied term that all charges or encumbrances known to the seller and not known to the buyer have been disclosed to the buyer before the contract is made. 5) In a contract to which subsection (3) above applies there is also an implied term that none of the following will disturb the buyer’s quiet possession of the goods, namely— a) the seller; b) in a case where the parties to the contract intend that the seller should transfer only such title as a third person may have, that person; c) anyone claiming through or under the seller or that third person otherwise than under a charge or encumbrance disclosed or known to the buyer before the contract is made. 5A) As regards England and Wales and Northern Ireland, the term implied by subsection (1) above is a condition and the terms implied by subsections (2), (4) and (5) above are warranties. 6) Paragraph 3 of Schedule 1 below applies in relation to a contract made before 18 May 1973.

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7) This section does not apply to a contract to which Chapter 2 of Part 1 of the Consumer Rights Act 2015 applies (but see the provision made about such contracts in section 17 of that Act). 13 Sale by description. 1) Where there is a contract for the sale of goods by description, there is an implied term that the goods will correspond with the description. 1A) As regards England and Wales and Northern Ireland, the term implied by subsection (1) above is a condition. 2) If the sale is by sample as well as by description, it is not sufficient that the bulk of the goods corresponds with the sample if the goods do not also correspond with the description. 3) A sale of goods is not prevented from being a sale by description by reason only that, being exposed for sale or hire, they are selected by the buyer. 4) Paragraph 4 of Schedule 1 below applies in relation to a contract made before 18 May 1973. 5) This section does not apply to a contract to which Chapter 2 of Part 1 of the Consumer Rights Act 2015 applies (but see the provision made about such contracts in section 11 of that Act). 14 Implied terms about quality or fitness. 1) Except as provided by this section and section 15 below and subject to any other enactment, there is no implied term about the quality or fitness for any particular purpose of goods supplied under a contract of sale. 2) Where the seller sells goods in the course of a business, there is an implied term that the goods supplied under the contract are of satisfactory quality. 2A) For the purposes of this Act, goods are of satisfactory quality if they meet the standard that a reasonable person would regard as satisfactory, taking account of any description of the goods, the price (if relevant) and all the other relevant circumstances. 2B) For the purposes of this Act, the quality of goods includes their state and condition, and the following (among others) are in appropriate cases aspects of the quality of goods—

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a) fitness for all the purposes for which goods of the kind in question are commonly supplied, b) appearance and finish. c) freedom from minor defects, d) safety, and. e) Durability. 2C) The term implied by subsection (2) above does not extend to any matter making the quality of goods unsatisfactory— a) which is specifically drawn to the buyer’s attention before the contract is made. b) where the buyer examines the goods before the contract is made, which that examination ought to reveal, or c) in the case of a contract for sale by sample, which would have been apparent on a reasonable examination of the sample 2D) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2E) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2F) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3) Where the seller sells goods in the course of a business and the buyer, expressly or by implication, makes known a) to the seller, or b) where the purchase price or part of it is payable by instalments and the goods were previously sold by a credit-broker to the seller, to that credit-broker, any particular purpose for which the goods are being bought, there is an implied term that the goods supplied under the contract are reasonably fit for that purpose, whether or not that is a purpose for which such goods are commonly supplied, except where the circumstances show that the buyer does not rely, or that it is unreasonable for him to rely, on the skill or judgment of the seller or credit-broker. 4) An implied term about quality or fitness for a particular purpose may be annexed to a contract of sale by usage. 5) The preceding provisions of this section apply to a sale by a person who in the course of a business is acting as agent for another as they apply to a sale by a principal in the course of a business, except where that other is not selling in the course of a business and either the buyer knows that fact or reasonable steps are taken to bring it to the notice of the buyer before the contract is made.

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6) As regards England and Wales and Northern Ireland, the terms implied by subsections (2) and (3) above are conditions. 7) Paragraph 5 of Schedule 1 below applies in relation to a contract made on or after 18 May 1973 and before the appointed day, and paragraph 6 in relation to one made before 18 May 1973. 8) n subsection (7) above and paragraph 5 of Schedule 1 below references to the appointed day are to the day appointed for the purposes of those provisions by an order of the Secretary of State made by statutory instrument. 9) This section does not apply to a contract to which Chapter 2 of Part 1 of the Consumer Rights Act 2015 applies (but see the provision made about such contracts in sections 9, 10 and 18 of that Act). Sale by sample 15 Sale by sample. 1) A contract of sale is a contract for sale by sample where there is an express or implied term to that effect in the contract. 2) In the case of a contract for sale by sample, there is an implied term a) that the bulk will correspond with the sample in quality; b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . c) that the goods will be free from any defect, making their quality unsatisfactory, which would not be apparent on reasonable examination of the sample. 3) As regards England and Wales and Northern Ireland, the term implied by subsection (2) above is a condition. 4) Paragraph 7 of Schedule 1 below applies in relation to a contract made before 18 May 1973. 5) This section does not apply to a contract to which Chapter 2 of Part 1 of the Consumer Rights Act 2015 applies (but see the provision made about such contracts in sections 13 and 18 of that Act).

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Miscellaneous 15A Modification of remedies for breach of condition in nonconsumer cases. 1) Where in the case of a contract of sale a) the buyer would, apart from this subsection, have the right to reject goods by reason of a breach on the part of the seller of a term implied by section 13, 14 or 15 above, but b) the breach is so slight that it would be unreasonable for him to reject them, ... the breach is not to be treated as a breach of condition but may be treated as a breach of warranty 2) This section applies unless a contrary intention appears in, or is to be implied from, the contract. 3) It is for the seller to show that a breach fell within subsection (1)(b) above. 4) This section does not apply to Scotland. 15B Remedies for breach of contract as respects Scotland. 1) Where in a contract of sale the seller is in breach of any term of the contract (express or implied), the buyer shall be entitled a) to claim damages, and b) if the breach is material, to reject any goods delivered under the contract and treat it as repudiated. 1A) Subsection (1) does not apply to a contract to which Chapter 2 of Part 1 of the Consumer Rights Act 2015 applies (but see the provision made about such contracts in sections 19 to 22 of that Act). 2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3) This section applies to Scotland only.

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PART III EFFECTS OF THE CONTRACT Transfer of property as between seller and buyer 16 Goods must be ascertained. Subject to section 20A below. Where there is a contract for the sale of unascertained goods, no property in the goods is transferred to the buyer unless and until the goods are ascertained. 17 Property passes when intended to pass. 1) Where there is a contract for the sale of specific or ascertained goods, the property in them is transferred to the buyer at such time as the parties to the contract intend it to be transferred. 2) For the purpose of ascertaining the intention of the parties regard shall be had to the terms of the contract, the conduct of the parties, and the circumstances of the case. 18 Rules for ascertaining intention. Unless a different intention appears, the following are rules for ascertaining the intention of the parties as to the time at which the property in the goods is to pass to the buyer. Rule 1. —Where there is an unconditional contract for the sale of specific goods in a deliverable state the property in the goods passes to the buyer when the contract is made, and it is immaterial whether the time of payment or the time of delivery, or both, be postponed. Rule 2. —Where there is a contract for the sale of specific goods and the seller is bound to do something to the goods for the purpose of putting them into a deliverable state, the property does not pass until the thing is done and the buyer has notice that it has been done. Rule 3. —Where there is a contract for the sale of specific goods in a deliverable state but the seller is bound to weigh, measure, test, or do some other act or thing with reference to the goods for the purpose of ascertaining the price, the property does not pass until the act or thing is done, and the buyer has notice that it has been done.

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Rule 4. —When goods are delivered to the buyer on approval or on sale or return or other similar terms the property in the goods passes to the buyer:— a) when he signifies his approval or acceptance to the seller or does any other act adopting the transaction; b) if he does not signify his approval or acceptance to the seller but retains the goods without giving notice of rejection, then, if a time has been fixed for the return of the goods, on the expiration of that time, and, if no time has been fixed, on the expiration of a reasonable time. Rule 5 1) Where there is a contract for the sale of unascertained or future goods by description, and goods of that description and in a deliverable state are unconditionally appropriated to the contract, either by the seller with the assent of the buyer or by the buyer with the assent of the seller, the property in the goods then passes to the buyer; and the assent may be express or implied, and may be given either before or after the appropriation is made. 2) Where, in pursuance of the contract, the seller delivers the goods to the buyer or to a carrier or other bailee or custodier (whether named by the buyer or not) for the purpose of transmission to the buyer, and does not reserve the right of disposal, he is to be taken to have unconditionally appropriated the goods to the contract. 3) Where there is a contract for the sale of a specified quantity of unascertained goods in a deliverable state forming part of a bulk which is identified either in the contract or by subsequent agreement between the parties and the bulk is reduced to (or to less than) that quantity, then, if the buyer under that contract is the only buyer to whom goods are then due out of the bulk— a) the remaining goods are to be taken as appropriated to that contract at the time when the bulk is so reduced; and b) the property in those goods then passes to that buyer.

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4) Paragraph (3) above applies also (with the necessary modifications) where a bulk is reduced to (or to less than) the aggregate of the quantities due to a single buyer under separate contracts relating to that bulk, and he is the only buyer to whom goods are then due out of that bulk. 19 Reservation of right of disposal. 1) Where there is a contract for the sale of specific goods or where goods are subsequently appropriated to the contract, the seller may, by the terms of the contract or appropriation, reserve the right of disposal of the goods until certain conditions are fulfilled; and in such a case, notwithstanding the delivery of the goods to the buyer, or to a carrier or other bailee or custodier for the purpose of transmission to the buyer, the property in the goods does not pass to the buyer until the conditions imposed by the seller are fulfilled. 2) Where goods are shipped, and by the bill of lading the goods are deliverable to the order of the seller or his agent, the seller is prima facie to be taken to reserve the right of disposal. 3) Where the seller of goods draws on the buyer for the price, and transmits the bill of exchange and bill of lading to the buyer together to secure acceptance or payment of the bill of exchange, the buyer is bound to return the bill of lading if he does not honour the bill of exchange, and if he wrongfully retains the bill of lading the property in the goods does not pass to him. 20 Passing of risk. 1) Unless otherwise agreed, the goods remain at the seller’s risk until the property in them is transferred to the buyer, but when the property in them is transferred to the buyer the goods are at the buyer’s risk whether delivery has been made or not 2) But where delivery has been delayed through the fault of either buyer or seller the goods are at the risk of the party at fault as regards any loss which might not have occurred but for such fault 3) Nothing in this section affects the duties or liabilities of either seller or buyer as a bailee or custodier of the goods of the other party.

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4) This section does not apply to a contract to which Chapter 2 of Part 1 of the Consumer Rights Act 2015 applies (but see the provision made about such contracts in section 29 of that Act). 20A Undivided shares in goods forming part of a bulk. 1) This section applies to a contract for the sale of a specified quantity of unascertained goods if the following conditions are met a) the goods or some of them form part of a bulk which is identified either in the contract or by subsequent agreement between the parties; and b) the buyer has paid the price for some or all of the goods which are the subject of the contract and which form part of the bulk. 2) Where this section applies, then (unless the parties agree otherwise), as soon as the conditions specified in paragraphs (a) and (b) of subsection (1) above are met or at such later time as the parties may agree a) property in an undivided share in the bulk is transferred to the buyer, and b) the buyer becomes an owner in common of the bulk. 3) Subject to subsection (4) below, for the purposes of this section, the undivided share of a buyer in a bulk at any time shall be such share as the quantity of goods paid for and due to the buyer out of the bulk bears to the quantity of goods in the bulk at that time. 4) Where the aggregate of the undivided shares of buyers in a bulk determined under subsection (3) above would at any time exceed the whole of the bulk at that time, the undivided share in the bulk of each buyer shall be reduced proportionately so that the aggregate of the undivided shares is equal to the whole bulk. 5) Where a buyer has paid the price for only some of the goods due to him out of a bulk, any delivery to the buyer out of the bulk shall, for the purposes of this section, be ascribed in the first place to the goods in respect of which payment has been made. 6) For the purposes of this section payment of part of the price for any goods shall be treated as payment for a corresponding part of the goods.

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20B Deemed consent by co-owner to dealings in bulk goods. 1) A person who has become an owner in common of a bulk by virtue of section 20A above shall be deemed to have consented to a) any delivery of goods out of the bulk to any other owner in common of the bulk, being goods which are due to him under his contract; b) any dealing with or removal, delivery or disposal of goods in the bulk by any other person who is an owner in common of the bulk in so far as the goods fall within that co-owner’s undivided share in the bulk at the time of the dealing, removal, delivery or disposal. 2) No cause of action shall accrue to anyone against a person by reason of that person having acted in accordance with paragraph (a) or (b) of subsection (1) above in reliance on any consent deemed to have been given under that subsection. 3) Nothing in this section or section 20A above shall a) impose an obligation on a buyer of goods out of a bulk to compensate any other buyer of goods out of that bulk for any shortfall in the goods received by that other buyer; b) affect any contractual arrangement between buyers of goods out of a bulk for adjustments between themselves; or c) affect the rights of any buyer under his contract. Transfer of title 21 Sale by person, not the owner. 1) Subject to this Act, where goods are sold by a person who is not their owner, and who does not sell them under the authority or with the consent of the owner, the buyer acquires no better title to the goods than the seller had, unless the owner of the goods is by his conduct precluded from denying the seller’s authority to sell. 2) Nothing in this Act affects a) the provisions of the Factors Acts or any enactment enabling the apparent owner of goods to dispose of them as if he were their true owner;

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b) the validity of any contract of sale under any special common law or statutory power of sale or under the order of a court of competent jurisdiction 22 Market overt. 1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2) This section does not apply to Scotland. 3) Paragraph 8 of Schedule 1 below applies in relation to a contract under which goods were sold before 1 January 1968 or (in the application of this Act to Northern Ireland) 29 August 1967. 23 Sale under voidable title. When the seller of goods has a voidable title to them, but his title has not been avoided at the time of the sale, the buyer acquires a good title to the goods, provided he buys them in good faith and without notice of the seller’s defect of title. 24 Seller in possession after sale. Where a person having sold goods continues or is in possession of the goods, or of the documents of title to the goods, the delivery or transfer by that person, or by a mercantile agent acting for him, of the goods or documents of title under any sale, pledge, or other disposition thereof, to any person receiving the same in good faith and without notice of the previous sale, has the same effect as if the person making the delivery or transfer were expressly authorized by the owner of the goods to make the same. 25 Buyer in possession after sale. 1) Where a person having bought or agreed to buy goods obtains, with the consent of the seller, possession of the goods or the documents of title to the goods, the delivery or transfer by that person, or by a mercantile agent acting for him, of the goods or documents of title, under any sale, pledge, or other disposition thereof, to any person receiving the same in good faith and without notice of any lien or other right of the original seller in respect of the goods, has the same effect as if the person making the delivery or transfer were a mercantile agent in possession of the goods or documents of title with the consent of the owner.

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2)

For the purposes of subsection (1) above a) the buyer under a conditional sale agreement is to be taken not to be a person who has bought or agreed to buy goods, and b) “conditional sale agreement” means an agreement for the sale of goods which is a consumer credit agreement within the meaning of the Consumer Credit Act 1974 under which the purchase price or part of it is payable by instalments, and the property in the goods is to remain in the seller (notwithstanding that the buyer is to be in possession of the goods) until such conditions as to the payment of instalments or otherwise as may be specified in the agreement are fulfilled. 3) Paragraph 9 of Schedule 1 below applies in relation to a contract under which a person buys or agrees to buy goods and which is made before the appointed day. 4) In subsection (3) above and paragraph 9 of Schedule 1 below references to the appointed day are to the day appointed for the purposes of those provisions by an order of the Secretary of State made by statutory instrument. 26 Supplementary to sections 24 and 25. In sections 24 and 25 above “mercantile agent” means a mercantile agent having in the customary course of his business as such agent authority either— a) to sell goods, or b) to consign goods for the purpose of sale, or c) to buy goods, or d) to raise money on the security of goods. PART IV PERFORMANCE OF THE CONTRACT 27 Duties of seller and buyer. It is the duty of the seller to deliver the goods, and of the buyer to accept and pay for them, in accordance with the terms of the contract of sale.

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28 Payment and delivery are concurrent conditions. Unless otherwise agreed, delivery of the goods and payment of the price are concurrent conditions, that is to say, the seller must be ready and willing to give possession of the goods to the buyer in exchange for the price and the buyer must be ready and willing to pay the price in exchange for possession of the goods. 29 Rules about delivery. 1) Whether it is for the buyer to take possession of the goods or for the seller to send them to the buyer is a question depending in each case on the contract, express or implied, between the parties. 2) Apart from any such contract, express or implied, the place of delivery is the seller’s place of business if he has one, and if not, his residence; except that, if the contract is for the sale of specific goods, which to the knowledge of the parties when the contract is made are in some other place, then that place is the place of delivery. 3) Where under the contract of sale the seller is bound to send the goods to the buyer, but no time for sending them is fixed, the seller is bound to send them within a reasonable time. 3A) Subsection (3) does not apply to a contract to which Chapter 2 of Part 1 of the Consumer Rights Act 2015 applies (but see the provision made about such contracts in section 28 of that Act). 4) Where the goods at the time of sale are in the possession of a third person, there is no delivery by seller to buyer unless and until the third person acknowledges to the buyer that he holds the goods on his behalf; but nothing in this section affects the operation of the issue or transfer of any document of title to goods. 5) Demand or tender of delivery may be treated as ineffectual unless made at a reasonable hour, and what is a reasonable hour is a question of fact. 6) Unless otherwise agreed, the expenses of and incidental to putting the goods into a deliverable state must be borne by the seller.

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30 Delivery of wrong quantity. 1) Where the seller delivers to the buyer a quantity of goods less than he contracted to sell, the buyer may reject them, but if the buyer accepts the goods so delivered he must pay for them at the contract rate. 2) Where the seller delivers to the buyer a quantity of goods larger than he contracted to sell, the buyer may accept the goods included in the contract and reject the rest, or he may reject the whole. 2A) A buyer may not a) where the seller delivers a quantity of goods less than he contracted to sell, reject the goods under subsection (1) above, or b) where the seller delivers a quantity of goods larger than he contracted to sell, reject the whole under subsection (2) above, if the shortfall or, as the case may be, excess is so slight that it would be unreasonable for him to do so. 2B) It is for the seller to show that a shortfall or excess fell within subsection (2A) above. 2C) Subsections (2A) and (2B) above do not apply to Scotland. 2D) Where the seller delivers a quantity of goods a) less than he contracted to sell, the buyer shall not be entitled to reject the goods under subsection (1) above, b) larger than he contracted to sell, the buyer shall not be entitled to reject the whole under subsection (2) above, unless the shortfall or excess is material. 2E) Subsection (2D) above applies to Scotland only. 3) Where the seller delivers to the buyer a quantity of goods larger than he contracted to sell and the buyer accepts the whole of the goods so delivered he must pay for them at the contract rate. 4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5) This section is subject to any usage of trade, special agreement, or course of dealing between the parties. 6) This section does not apply to a contract to which Chapter 2 of Part 1 of the Consumer Rights Act 2015 applies (but see the provision made about such contracts in section 25 of that Act).

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31 Instalment deliveries. 1) Unless otherwise agreed, the buyer of goods is not bound to accept delivery of them by instalments. 2) Where there is a contract for the sale of goods to be delivered by stated instalments, which are to be separately paid for, and the seller makes defective deliveries in respect of one or more instalments, or the buyer neglects or refuses to take delivery of or pay for one or more instalments, it is a question in each case depending on the terms of the contract and the circumstances of the case whether the breach of contract is a repudiation of the whole contract or whether it is a severable breach giving rise to a claim for compensation but not to a right to treat the whole contract as repudiated. 3) This section does not apply to a contract to which Chapter 2 of Part 1 of the Consumer Rights Act 2015 applies (but see the provision made about such contracts in section 26 of that Act). 32 Delivery to carrier. 1) Where, in pursuance of a contract of sale, the seller is authorised or required to send the goods to the buyer, 2) delivery of the goods to a carrier (whether named by the buyer or not) for the purpose of transmission to the buyer is prima facie deemed to be a delivery of the goods to the buyer. 3) Unless otherwise authorised by the buyer, the seller must make such contract with the carrier on behalf of the buyer as may be reasonable having regard to the nature of the goods and the other circumstances of the case; and if the seller omits to do so, and the goods are lost or damaged in course of transit, the buyer may decline to treat the delivery to the carrier as a delivery to himself or may hold the seller responsible in damages. 4) Unless otherwise agreed, where goods are sent by the seller to the buyer by a route involving sea transit, under circumstances in which it is usual to insure, the seller must give such notice to the buyer as may enable him to insure them during their sea transit; and if the seller fails to do so, the goods are at his risk during such sea transit. 5) This section does not apply to a contract to which Chapter 2 of Part 1 of the Consumer Rights Act 2015 applies (but see the provision made about such contracts in section 29 of that Act).

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33 Risk where goods are delivered at distant place. 1) Where the seller of goods agrees to deliver them at his own risk at a place other than that where they are when sold, the buyer must nevertheless (unless otherwise agreed) take any risk of deterioration in the goods necessarily incident to the course of transit. 2) This section does not apply to a contract to which Chapter 2 of Part 1 of the Consumer Rights Act 2015 applies (but see the provision made about such contracts in section 29 of that Act). 34 Buyer’s right of examining the goods. 1) Unless otherwise agreed, when the seller tenders delivery of goods to the buyer, he is bound on request to afford the buyer a reasonable opportunity of examining the goods for the purpose of ascertaining whether they are in conformity with the contract and, in the case of a contract for sale by sample, of comparing the bulk with the sample. 2) Nothing in this section affects the operation of section 22 (time limit for short-term right to reject) of the Consumer Rights Act 2015. 35 Acceptance. 1) The buyer is deemed to have accepted the goods subject to subsection (2) below a) when he intimates to the seller that he has accepted them, or b) when the goods have been delivered to him, and he does any act in relation to them, which is inconsistent with the ownership of the seller. 2) Where goods are delivered to the buyer, and he has not previously examined them, he is not deemed to have accepted them under subsection (1) above until he has had a reasonable opportunity of examining them for the purpose a) of ascertaining whether they are in conformity with the contract, and b) in the case of a contract for sale by sample, of comparing the bulk with the sample. 3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4) The buyer is also deemed to have accepted the goods when after the lapse of a reasonable time, he retains the goods without intimating to the seller that he has rejected them.

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5) The questions that are material in determining for the purposes of subsection (4) above whether a reasonable time has elapsed include whether the buyer has had a reasonable opportunity of examining the goods for the purpose mentioned in subsection (2) above. 6) The buyer is not by virtue of this section deemed to have accepted the goods merely because— a) he asks for, or agrees to, their repair by or under an arrangement with the seller, or b) the goods are delivered to another under a subsale or other disposition. 7) Where the contract is for the sale of goods making one or more commercial units, a buyer accepting any goods included in a unit is deemed to have accepted all the goods making the unit; and in this subsection “commercial unit ” means a unit division of which would materially impair the value of the goods or the character of the unit. 8) Paragraph 10 of Schedule 1 below applies in relation to a contract made before 22 April 1967 or (in the application of this Act to Northern Ireland) 28 July 1967. 9) This section does not apply to a contract to which Chapter 2 of Part 1 of the Consumer Rights Act 2015 applies (but see the provision made about such contracts in section 21 of that Act). 35A Right of partial rejection. 1) If the buyera) has the right to reject the goods by reason of a breach on the part of the seller that affects some or all of them, but b) accepts some of the goods, including, where there are any goods unaffected by the breach, all such goods, he does not by accepting them lose his right to reject the rest. 2) In the case of a buyer having the right to reject an instalment of goods, subsection (1) above applies as if references to the goods were references to the goods comprised in the instalment. 3) For the purposes of subsection (1) above, goods are affected by a breach if by reason of the breach, they are not in conformity with the contract.

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4) This section applies unless a contrary intention appears in, or is to be implied from, the contract. 5) This section does not apply to a contract to which Chapter 2 of Part 1 of the Consumer Rights Act 2015 applies (but see the provision made about such contracts in section 21 of that Act). 36 Buyer not bound to return rejected goods. 1) Unless otherwise agreed, where goods are delivered to the buyer, and he refuses to accept them, having the right to do so, he is not bound to return them to the seller, but it is sufficient if he intimates to the seller that he refuses to accept them. 2) This section does not apply to a contract to which Chapter 2 of Part 1 of the Consumer Rights Act 2015 applies (but see the provision made about such contracts in section 20 of that Act). 37 Buyer’s liability for not taking delivery of goods. 1) When the seller is ready and willing to deliver the goods, and requests the buyer to take delivery, and the buyer does not within a reasonable time after such request take delivery of the goods, he is liable to the seller for any loss occasioned by his neglect or refusal to take delivery, and also for a reasonable charge for the care and custody of the goods. 2) Nothing in this section affects the rights of the seller where the neglect or refusal of the buyer to take delivery amounts to a repudiation of the contract.

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PART V RIGHTS OF UNPAID SELLER AGAINST THE GOODS Preliminary 38 Unpaid seller defined. 1) The seller of goods is an unpaid seller within the meaning of this Act— a) when the whole of the price has not been paid or tendered; b) when a bill of exchange or other negotiable instrument has been received as conditional payment, and the condition on which it was received has not been fulfilled by reason of the dishonour of the instrument or otherwise. 2) In this Part of this Act “seller” includes any person who is in the position of a seller, as, for instance, an agent of the seller to whom the bill of lading has been indorsed, or a consignor or agent who has himself paid (or is directly responsible for) the price. 39 Unpaid seller's rights. 1) Subject to this and any other Act, notwithstanding that the property in the goods may have passed to the buyer, the unpaid seller of goods, as such, has by implication of law a) a lien on the goods or right to retain them for the price while he is in possession of them; b) in case of the insolvency of the buyer, a right of stopping the goods in transit after he has parted with the possession of them; c) a right of re-sale as limited by this Act. 2) Where the property in goods has not passed to the buyer, the unpaid seller has (in addition to his other remedies) a right of withholding delivery similar to and co-extensive with his rights of lien or retention and stoppage in transit where the property has passed to the buyer. 40 Attachment by seller in Scotland. In Scotland, a seller of goods may attach them while in his own hands or possession by arrestment or poinding, and such arrestment or poinding shall have the same operation and effect in a competition or otherwise as an arrestment or poinding by a third party.

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41 Seller's lien. 1) Subject to this Act, the unpaid seller of goods who is in possession of them is entitled to retain possession of them until payment or tender of the price in the following cases: a) where the goods have been sold without any stipulation as to credit; b) where the goods have been sold on credit but the term of credit has expired; c) where the buyer becomes insolvent. 2) The seller may exercise his lien or right of retention, notwithstanding that he is in possession of the goods as agent or bailee or custodier for the buyer. 42 Part delivery. Where an unpaid seller has made part delivery of the goods, he may exercise his lien or right of retention on the remainder, unless such part delivery has been made under such circumstances as to show an agreement to waive the lien or right of retention. 43 Termination of lien. 1) The unpaid seller of goods loses his lien or right of retention in respect of them a) when he delivers the goods to a carrier or other bailee or custodier for the purpose of transmission to the buyer without reserving the right of disposal of the goods; b) when the buyer or his agent lawfully obtains possession of the goods; c) by waiver of the lien or right of retention. 2) An unpaid seller of goods who has a lien or right of retention in respect of them does not lose his lien or right of retention by reason only that he has obtained judgment or decree for the price of the goods.

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Stoppage in transit 44 Right of stoppage in transit. Subject to this Act, when the buyer of goods becomes insolvent the unpaid seller who has parted with the possession of the goods has the right of stopping them in transit, that is to say, he may resume possession of the goods as long as they are in course of transit, and may retain them until payment or tender of the price. 45 Duration of transit. 1) Goods are deemed to be in course of transit from the time when they are delivered to a carrier or other bailee or custodier for the purpose of transmission to the buyer, until the buyer or his agent in that behalf takes delivery of them from the carrier or other bailee or custodier. 2) If the buyer or his agent in that behalf obtains delivery of the goods before their arrival at the appointed destination, the transit is at an end. 3) If, after the arrival of the goods at the appointed destination, the carrier or other bailee or custodier acknowledges to the buyer or his agent that he holds the goods on his behalf and continues in possession of them as bailee or custodier for the buyer or his agent, the transit is at an end, and it is immaterial that a further destination for the goods may have been indicated by the buyer. 4) If the goods are rejected by the buyer, and the carrier or other bailee or custodier continues in possession of them, the transit is not deemed to be at an end, even if the seller has refused to receive them back. 5) When goods are delivered to a ship chartered by the buyer, it is a question depending on the circumstances of the particular case whether they are in the possession of the master as a carrier or as agent to the buyer. 6) Where the carrier or other bailee or custodier wrongfully refuses to deliver the goods to the buyer or his agent in that behalf, the transit is deemed to be at an end. 7) Where part delivery of the goods has been made to the buyer or his agent in that behalf, the remainder of the goods may be stopped in transit, unless such part delivery has been made under such circumstances as to show an agreement to give up possession of the whole of the goods.

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46 How stoppage in transit is effected. 1) The unpaid seller may exercise his right of stoppage in transit either by taking actual possession of the goods or by giving notice of his claim to the carrier or other bailee or custodier in whose possession the goods are. 2) The notice may be given either to the person in actual possession of the goods or to his principal. 3) If given to the principal, the notice is ineffective unless given at such time and under such circumstances that the principal, by the exercise of reasonable diligence, may communicate it to his servant or agent in time to prevent a delivery to the buyer. 4) When notice of stoppage in transit is given by the seller to the carrier or other bailee or custodier in possession of the goods, he must re-deliver the goods to, or according to the directions of, the seller; and the expenses of the re-delivery must be borne by the seller. Re-sale etc. by buyer 47 Effect of sub-sale etc. by buyer. 1) Subject to this Act, the unpaid seller’s right of lien or retention or stoppage in transit is not affected by any sale or other disposition of the goods which the buyer may have made, unless the seller has assented to it. 2) Where a document of title to goods has been lawfully transferred to any person as buyer or owner of the goods, and that person transfers the document to a person who take it in good faith and for valuable consideration, then a) if the last-mentioned transfer was by way of sale the unpaid seller’s right of lien or retention or stoppage in transit is defeated; and b) if the last-mentioned transfer was made by way of pledge or other disposition for value, the unpaid seller’s right of lien or retention or stoppage in transit can only be exercised subject to the rights of the transferee. Rescission: and re-sale by seller

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48 Rescission: and re-sale by seller. 1) Subject to this section, a contract of sale is not rescinded by the mere exercise by an unpaid seller of his right of lien or retention or stoppage in transit. 2) Where an unpaid seller who has exercised his right of lien or retention or stoppage in transit re-sells the goods, the buyer acquires a good title to them as against the original buyer. 3) Where the goods are of a perishable nature, or where the unpaid seller gives notice to the buyer of his intention to re-sell, and the buyer does not within a reasonable time pay or tender the price, the unpaid seller may re-sell the goods and recover from the original buyer damages for any loss occasioned by his breach of contract. 4) Where the seller expressly reserves the right of re-sale in case, the buyer should make default, and on the buyer making default re-sells the goods, the original contract of sale is rescinded, but without prejudice, to any claim, the seller may have for damages.

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PART 5A ADDITIONAL RIGHTS OF BUYER IN CONSUMER CASES. 48A Introductory. ………………………… 48BRepair or replacement of the goods. ………………………… 48CReduction of purchase price or rescission of contract. ………………………… 48DRelation to other remedies etc. ………………………… 48EPowers of the court. ………………………… 48FConformity with the contract. …………………………

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PART VI ACTIONS FOR BREACH OF THE CONTRACT Seller's remedies 49 Action for price. 1) Where, under a contract of sale, the property in the goods has passed to the buyer, and he wrongfully neglects or refuses to pay for the goods according to the terms of the contract, the seller may maintain an action against him for the price of the goods. 2) Where, under a contract of sale, the price is payable on a day certain irrespective of delivery, and the buyer wrongfully neglects or refuses to pay such price, the seller may maintain an action for the price, although the property in the goods has not passed, and the goods have not been appropriated to the contract. 3) Nothing in this section prejudices the right of the seller in Scotland to recover interest on the price from the date of tender of the goods, or from the date on which the price was payable, as the case may be. 50 Damagesfor non-acceptance. 1) Where the buyer wrongfully neglects or refuses to accept and pay for the goods, the seller may maintain an action against him for damages for non-acceptance. 2) The measure of damages is the estimated loss directly and naturally resulting, in the ordinary course of events, from the buyer’s breach of contract. 3) Where there is an available market for the goods in question the measure of damages is prima facie to be ascertained by the difference between the contract price and the market or current price at the time or times when the goods ought to have been accepted or (if no time was fixed for acceptance) at the time of the refusal to accept. Buyer's remedies 51 Damagesfor non-delivery. 1) Where the seller wrongfully neglects or refuses to deliver the goods to the buyer, the buyer may maintain an action against the seller for damages for non-delivery.

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2) The measure of damages is the estimated loss directly and naturally resulting, in the ordinary course of events, from the seller’s breach of contract. 3) Where there is an available market for the goods in question the measure of damages is prima facie to be ascertained by the difference between the contract price and the market or current price of the goods at the time or times when they ought to have been delivered or (if no time was fixed) at the time of the refusal to deliver. 4) This section does not apply to a contract to which Chapter 2 of Part 1 of the Consumer Rights Act 2015 applies (but see the provision made about such contracts in section 19 of that Act). 52 Specific performance. 1) In any action for breach of contract to deliver specific or ascertained goods the court may, if it thinks fit, on the plaintiff’s application, by its judgment or decree direct that the contract shall be performed specifically, without giving the defendant the option of retaining the goods on payment of damages. 2) The plaintiff’s application may be made at any time before judgment or decree. 3) The judgment or decree may be unconditional, or on such terms and conditions as to damages, payment of the price and otherwise as seem just to the court. 4) The provisions of this section shall be deemed to be supplementary to, and not in derogation of, the right of specific implement in Scotland. 5) This section does not apply to a contract to which Chapter 2 of Part 1 of the Consumer Rights Act 2015 applies (but see the provision made about such contracts in section 19 of that Act). 53 Remedy for breach of warranty. 1) Where there is a breach of warranty by the seller, or where the buyer elects (or is compelled) to treat any breach of a condition on the part of the seller as a breach of warranty, the buyer is not by reason only of such breach of warranty entitled to reject the goods; but he may a) set up against the seller the breach of warranty in diminution or extinction of the price, or b) maintain an action against the seller for damages for the breach of warranty.

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2) The measure of damages for breach of warranty is the estimated loss directly and naturally resulting, in the ordinary course of events, from the breach of warranty. 3) In the case of breach of warranty of quality, such loss is prima facie the difference between the value of the goods at the time of delivery to the buyer and the value they would have had if they had fulfilled the warranty. 4) The fact that the buyer has set up the breach of warranty in diminution or extinction of the price does not prevent him from maintaining an action for the same breach of warranty if he has suffered further damage. 4A) This section does not apply to a contract to which Chapter 2 of Part 1 of the Consumer Rights Act 2015 applies (but see the provision made about such contracts in section 19 of that Act). 5) This section does not apply to Scotland. 53A Measure of damages as respects Scotland. 1) The measure of damages for the seller’s breach of contract is the estimated loss directly and naturally resulting, in the ordinary course of events, from the breach. 2) Where the seller’s breach consists of the delivery of goods which are not of the quality required by the contract and the buyer retains the goods, such loss as aforesaid is prima facie the difference between the value of the goods at the time of delivery to the buyer and the value they would have had if they had fulfilled the contract. 2A) This section does not apply to a contract to which Chapter 2 of Part 1 of the Consumer Rights Act 2015 applies (but see the provision made about such contracts in section 19 of that Act). 3) This section applies to Scotland only.

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Interest, etc. 54 Interest, etc. 1) Nothing in this Act affects the right of the buyer or the seller to recover interest or special damages in any case where by law interest or special damages may be recoverable, or to recover money paid where the consideration for the payment of it has failed. 2) This section does not apply to a contract to which Chapter 2 of Part 1 of the Consumer Rights Act 2015 applies (but see the provision made about such contracts in section 19 of that Act). PART VII SUPPLEMENTARY 55 Exclusion of implied terms. 1) Where a right, duty or liability would arise under a contract of sale of goods by implication of law, it may (subject to the Unfair Contract Terms Act 1977) be negatived or varied by express agreement, or by the course of dealing between the parties, or by such usage as binds both parties to the contract. 1A) Subsection (1) does not apply to a contract to which Chapter 2 of Part 1 of the Consumer Rights Act 2015 applies (but see the provision made about such contracts in section 31 of that Act). 2) An express term does not negative a term implied by this Act unless inconsistent with it. 3) Paragraph 11 of Schedule 1 below applies in relation to a contract made on or after 18 May 1973 and before 1 February 1978, and paragraph 12 in relation to one made before 18 May 1973. 56 Conflict of laws. Paragraph 13 of Schedule 1 below applies in relation to a contract made on or after 18 May 1973 and before 1 February 1978, so as to make provision about conflict of laws in relation to such a contract.

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57 Auction sales. 1) Where goods are put up for sale by auction in lots, each lot is prima facie deemed to be the subject of a separate contract of sale. 2) A sale by auction is complete when the auctioneer announces its completion by the fall of the hammer, or in other customary manner; and until the announcement is made any bidder may retract his bid. 3) A sale by auction may be notified to be subject to a reserve or upset price, and a right to bid may also be reserved expressly by or on behalf of the seller. 4) Where a sale by auction is not notified to be subject to a right to bid by or on behalf of the seller, it is not lawful for the seller to bid himself or to employ any person to bid at the sale, or for the auctioneer knowingly to take any bid from the seller or any such person. 5) A sale contravening subsection (4) above may be treated as fraudulent by the buyer. 6) Where, in respect of a sale by auction, a right to bid is expressly reserved (but not otherwise) the seller or any one person on his behalf may bid at the auction. 58 Payment into court in Scotland. 1) In Scotland where a buyer has elected to accept goods which he might have rejected, and to treat a breach of contract as only giving rise to a claim for damages, he may, in an action by the seller for the price, be required, in the discretion of the court before which the action depends, to consign or pay into court the price of the goods, or part of the price, or to give other reasonable security for its due payment. 2) This section does not apply to a contract to which Chapter 2 of Part 1 of the Consumer Rights Act 2015 applies (but see the provision made about such contracts in section 27 of that Act) 59 Reasonable time a question of fact. Where a reference is made in this Act to a reasonable time the question what is a reasonable time is a question of fact.

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Rights etc. enforceable by action. Where a right, duty or liability is declared by this Act, it may (unless otherwise provided by this Act) be enforced by action.

61 Interpretation. 1) In this Act, unless the context or subject matter otherwise requires, “action” includes counterclaim and set-off, and in Scotland condescendence and claim and compensation; “ bulk ” means a mass or collection of goods of the same kind which a) is contained in a defined space or area; and b) is such that any goods in the bulk are interchangeable with any other goods therein of the same number or quantity; “business” includes a profession and the activities of any government department (including a Northern Ireland department) or local or public authority; “buyer” means a person who buys or agrees to buy goods; “contract of sale” includes an agreement to sell as well as a sale; “credit-broker” means a person acting in the course of a business of credit brokerage carried on by him, that is a business of effecting introductions of individuals desiring to obtain credit— a) to persons carrying on any business so far as it relates to the provision of credit, or b) to other persons engaged in credit brokerage; “defendant” includes in Scotland defender, respondent, and claimant in a multiplepoinding; “delivery” means voluntary transfer of possession from one person to another; except that in relation to sections 20A and 20B above it includes such appropriation of goods to the contract as results in property in the goods being transferred to the buyer; “document of title to goods” has the same meaning as it has in the Factors Acts;

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“Factors Acts” means the Factors Act 1889, the Factors (Scotland) 1890, and any enactment amending or substituted for the same; “fault” means wrongful act or default; “future goods” means goods to be manufactured or acquired by the seller after the making of the contract of sale; “goods” includes all personal chattels other than things in action and money, and in Scotland all corporeal moveables except money; and in particular “goods” includes emblements, industrial growing crops, and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale; and includes an undivided share in goods; “plaintiff” includes pursuer, complainer, claimant in a multiplepoinding and defendant or defender counter-claiming; “property” means the general property in goods, and not merely a special property; “sale” includes a bargain and sale as well as a sale and delivery; “seller” means a person who sells or agrees to sell goods; “specific goods” means goods identified and agreed on at the time a contract of sale is made and includes an undivided share, specified as a fraction or percentage, of goods identified and agreed on as aforesaid; “warranty” (as regards England and Wales and Northern Ireland) means an agreement with reference to goods which are the subject of a contract of sale, but collateral to the main purpose of such contract, the breach of which gives rise to a claim for damages, but not to a right to reject the goods and treat the contract as repudiated. 2) ………………………… 3) A thing is deemed to be done in good faith within the meaning of this Act when it is, in fact done honestly, whether it is done negligently or not. 4) A person is deemed to be insolvent within the meaning of this Act if he has either ceased to pay his debts in the ordinary course of business or he cannot pay his debts as they become due, whether he has committed an act of bankruptcy or not, and whether he has become a notour bankrupt or not. 5) Goods are in a deliverable state within the meaning of this Act when they are in such a state that the buyer would under the contract be bound to take delivery of them.

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5A) ………………………… 6) As regards the definition of “business” in subsection (1) above, paragraph 14 of Schedule 1 below applies in relation to a contract made on or after 18 May 1973 and before 1 February 1978, and paragraph 15 in relation to one made before 18 May 1973. 62 Savings: rules of law etc. 1) The rules in bankruptcy relating to contracts of sale apply to those contracts, notwithstanding anything in this Act. 2) The rules of the common law, including the law merchant, except in so far as they are inconsistent with the provisions of legislation including this Act and the Consumer Rights Act 2015, and in particular the rules relating to the law of principal and agent and the effect of fraud, misrepresentation, duress or coercion, mistake, or other invalidating cause, apply to contracts for the sale of goods. 3) Nothing in this Act or the Sale of Goods 1893 affects the enactments relating to bills of sale, or any enactment relating to the sale of goods which is not expressly repealed or amended by this Act or that. 4) The provisions of this Act about contracts of sale do not apply to a transaction in the form of a contract of sale which is intended to operate by way of mortgage, pledge, charge, or other security. 5) Nothing in this Act prejudices or affects the landlord’s right of hypothec . . . in Scotland. 63 Consequential amendments, repeals, and savings. 1) Without prejudice to section 17 of the Interpretation Act 1978 (repeal and re-enactment), the enactments mentioned in Schedule 2 below have effect subject to the amendments there specified (being amendments consequential on this Act). 2) The enactments mentioned in Schedule 3 below are repealed to the extent specified in column 3, but subject to the savings in Schedule 4 below. 3) The savings in Schedule 4 below have effect. 64 Short title and commencement. 1) This Act may be cited as the Sale of Goods Act 1979. 2) This Act comes into force on 1 January 1980.

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SCHEDULES Section 1 SCHEDULE 1 MODIFICATION OF ACT FOR CERTAIN CONTRACTS Preliminary 1. 1) This Schedule modifies this Act as it applies to contracts of sale of goods made on certain dates. 2) In this Schedule references to sections are to those of this Act and references to contracts are to contracts of sale of goods. 3) Nothing in this Schedule affects a contract made before 1 January 1894. Section 11: condition treated as warranty 2. In relation to a contract made before 22 April 1967 or (in the application of this Act to Northern Ireland) 28 July 1967, in section 11(4) after “or part of them,” insert “ or where the contract is for specific goods, the property in which has passed to the buyer, ”. Section 12: implied terms about title etc. 3. In relation to a contract made before 18 May 1973 substitute the following for section 12: “12Implied terms about title, etc. In a contract of sale, unless the circumstances of the contract are such as to show a different intention, there is— a) an implied condition on the part of the seller that in the case of a sale he has a right to sell the goods, and in the case of an agreement to sell he will have such a right at the time when the property is to pass; b) an implied warranty that the buyer will have and enjoy quiet possession of the goods; c) an implied warranty that the goods will be free from any charge or encumbrance in favour of any third party, not declared or known to the buyer before or at the time when the contract is made.”

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Section 13: sale by description 4. In relation to a contract made before 18 May 1973, omit section 13(3). Section 14: quality or fitness (i) 5. In relation to a contract made on or after 18 May 1973 and before the appointed day, substitute the following for section 14: “14Implied terms about quality or fitness. 1) Except as provided by this section and section 15 below and subject to any other enactment, there is no implied condition or warranty about the quality or fitness for any particular purpose of goods supplied under a contract of sale. 2) Where the seller sells goods in the course of a business, there is an implied condition that the goods supplied under the contract are of merchantable quality, except that there is no such condition a) as regards defects specifically drawn to the buyer’s attention before the contract is made; or b) if the buyer examines the goods before the contract is made, as regards defects which that examination ought to reveal. 3) Where the seller sells goods in the course of a business and the buyer, expressly or by implication, makes known to the seller any particular purpose for which the goods are being bought, there is an implied condition that the goods supplied under the contract are reasonably fit for that purpose, whether or not that is a purpose for which such goods are commonly supplied, except where the circumstances show that the buyer does not rely, or that it is unreasonable for him to rely, on the seller’s skill or judgment. 4) An implied condition or warranty about quality or fitness for a particular purpose may be annexed to a contract of sale by usage. 5) The preceding provisions of this section apply to a sale by a person who in the course of a business is acting

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as agent for another as they apply to a sale by a principal in the course of a business, except where that other is not selling in the course of a business and either the buyer knows that fact or reasonable steps are taken to bring it to the notice of the buyer before the contract is made. 6) Goods of any kind are of merchantable quality within the meaning of subsection (2) above if they are as fit for the purpose or purposes for which goods of that kind are commonly bought as it is reasonable to expect having regard to any description applied to them, the price (if relevant) and all the other relevant circumstances. 7) In the application of subsection (3) above to an agreement for the sale of goods under which the purchase price or part of it is payable by instalments any reference to the seller includes a reference to the person by whom any antecedent negotiations are conducted; and section 58(3) and (5) of the Hire-Purchase Act 1965, section 54(3) and (5) of the Hire-Purchase (Scotland) Act 1965 and section 65(3) and (5) of the Hire-Purchase Act (Northern Ireland) 1966 (meaning of antecedent negotiations and related expressions) apply in relation to this subsection as in relation to each of those Acts, but as if a reference to any such agreement were included in the references in subsection (3) of each of those sections to the agreements there mentioned.” Section 14: quality or fitness (ii) 6. In relation to a contract made before 18 May 1973 substitute the following for section 14: “14Implied terms about quality or fitness. 1) Subject to this and any other Act, there is no implied condition or warranty about the quality or fitness for any particular purpose of goods supplied under a contract of sale. 2) Where the buyer, expressly or by implication, makes known to the seller the particular purpose for which the goods are required, so as to show that the buyer relies on the seller’s skill or judgment, and the goods are of a description which it is in the course of the seller’s business to supply (whether he is the manufacturer or

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not), there is an implied condition that the goods will be reasonably fit for such purpose, except that in the case of a contract for the sale of a specified article under its patent or other trade name there is no implied condition as to its fitness for any particular purpose. 3) Where goods are bought by description from a seller who deals in goods of that description (whether he is the manufacturer or not), there is an implied condition that the goods will be of merchantable quality; but if the buyer has examined the goods, there is no implied condition as regards defects which such examination ought to have revealed. 4) An implied condition or warranty about quality or fitness for a particular purpose may be annexed by the usage of trade. 5) An express condition or warranty does not negative a condition or warranty implied by this Act unless inconsistent with it.” Section 15: sale by sample 7. In relation to a contract made before 18 May 1973, omit section 15(3). Section 22: market overt 8. In relation to a contract under which goods were sold before 1 January 1968 or (in the application of this Act to Northern Ireland) 29 August 1967, add the following paragraph at the end of section 22(1):— “Nothing in this subsection affects the law relating to the sale of horses.” Section 25: buyer in possession 9. In relation to a contract under which a person buys or agrees to buy goods and which is made before the appointed day, omit section 25(2). Section 35: acceptance 10.

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In relation to a contract made before 22 April 1967 or (in the application of this Act to Northern Ireland) 28 July 1967, in section 35(1) omit “(except where section 34 above otherwise provides)”. Section 55: exclusion of implied terms (i) 11. In relation to a contract made on or after 18 May 1973 and before 1 February 1978 substitute the following for section 55: “55Exclusion of implied terms. 1) Where a right, duty or liability would arise under a contract of sale of goods by implication of law, it may be negatived or varied by express agreement, or by the course of dealing between the parties, or by such usage as binds both parties to the contract, but the preceding provision has effect subject to the following provisions of this section. 2) An express condition or warranty does not negative a condition or warranty implied by this Act unless inconsistent with it. 3) In the case of a contract of sale of goods, any term of that or any other contract exempting from all or any of the provisions of section 12 above is void. 4) In the case of a contract of sale of goods, any term of that or any other contract exempting from all or any of the provisions of section 13, 14 or 15 above is void in the case of a consumer sale and is, in any other case, not enforceable to the extent that it is shown that it would not be fair or reasonable to allow reliance on the term. 5) In determining for the purposes of subsection (4) above whether or not reliance on any such term would be fair or reasonable regard shall be had to all the circumstances of the case and in particular to the following matters a) the strength of the bargaining positions of the seller and buyer relative to each other, taking into account, among other things, the availability of suitable alternative products and sources of supply; b) whether the buyer received an inducement to agree to the term or in accepting

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it had an opportunity of buying the goods or suitable alternatives without it from any source of supply; c) whether the buyer knew or ought reasonably to have known of the existence and extent of the term (having regard, among other things, to any custom of the trade and any previous course of dealing between the parties); d) where the term exempts from all or any of the provisions of section 13, 14 or 15 above if some condition is not complied with, whether it was reasonable at the time of the contract to expect that compliance with that condition would be practicable; e) whether the goods were manufactured, processed, or adapted to the special order of the buyer. 6) Subsection (5) above does not prevent the court from holding, in accordance with any rule of law, that a term which purports to exclude or restrict any of the provisions of section 13, 14 or 15 above is not a term of the contract. 7) In this section “consumer sale” means a sale of goods (other than a sale by auction or by competitive tender) by a seller in the course of a business where the goods— a) are of a type ordinarily bought for private use or consumption; and b) are sold to a person who does not buy or hold himself out as buying them in the course of a business. 8) The onus of proving that a sale falls to be treated for the purposes of this section as not being a consumer sale lies on the party so contending. 9) Any reference in this section to a term exempting from all or any of the provisions of any section of this Act is a reference to a term which purports to exclude or restrict, or has the effect of excluding or restricting, the operation of all or any of the provisions of that section, or the exercise of a right conferred by any provision of that section, or any liability of the seller for breach of a

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condition or warranty implied by any provision of that section. 10) It is hereby declared that any reference in this section to a term of a contract includes a reference to a term which although not contained in a contract is incorporated in the contract by another term of the contract. 11) Nothing in this section prevents the parties to a contract for the international sale of goods from negativing or varying any right, duty or liability which would otherwise arise by implication of law under sections 12 to 15 above. 12) In subsection (11) above “contract for the international sale of goods” means a contract of sale of goods made by parties whose places of business (or, if they have none, habitual residences) are in the territories of different States (the Channel Islands and the Isle of Man being treated for this purpose as different States from the United Kingdom) and in the case of which one of the following conditions is satisfied: a) the contract involves the sale of goods which are at the time of the conclusion of the contract in the course of carriage or will be carried from the territory of one State to the territory of another; or b) the acts constituting the offer and acceptance have been effected in the territories of different States; or c) delivery of the goods is to be made in the territory of a State other than that within whose territory the acts constituting the offer and the acceptance have been effected.” Section 55: exclusion of implied terms (ii) 12. In relation to a contract made before 18 May 1973 substitute the following for section 55: “55Exclusion of implied terms. Where a right, duty or liability would arise under a contract of sale by implication of law, it may be negatived or varied by express

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agreement, or by the course of dealing between the parties, or by such usage as binds both parties to the contract.” Section 56: conflict of laws 13. 1) In relation to a contract made on or after 18 May 1973 and before 1 February 1978 substitute for section 56 the section set out in sub-paragraph (3) below. 2) In relation to a contract made otherwise than as mentioned in sub-paragraph (1) above, ignore section 56 and this paragraph. 3) The section mentioned in sub-paragraph (1) above is as follows: “56Conflict of laws. 1) Where the proper law of a contract for the sale of goods would, apart from a term that it should be the law of some other country or a term to the like effect, be the law of any part of the United Kingdom, or where any such contract contains a term which purports to substitute, or has the effect of substituting, provisions of the law of some other country for all or any of the provisions of sections 12 to 15 and 55 above, those sections shall, notwithstanding that term but subject to subsection (2) below, apply to the contract. 2) Nothing in subsection (1) above prevents the parties to a contract for the international sale of goods from negativing or varying any right, duty or liability which would otherwise arise by implication of law under sections 12 to 15 above. 3) In subsection (2) above “contract for the international sale of goods” means a contract of sale of goods made by parties whose places of business (or, if they have none, habitual residences) are in the territories of different States (the Channel Islands and the Isle of Man being treated for this purpose as different States from the United Kingdom) and in the case of which one of the following conditions is satisfied: a) the contract involves the sale of goods which are at the time of the conclusion of the contract in the course of carriage or will be carried from the territory of one State to the territory of another; or

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b) the acts constituting the offer and acceptance have been effected in the territories of different States; or c) delivery of the goods is to be made in the territory of a State other than that within whose territory the acts constituting the offer and the acceptance have been effected.” Section 61(1): definition of “business” (i) 14. In relation to a contract made on or after 18 May 1973 and before 1 February 1978, in the definition of “business” in section 61(1) for “or local or public authority” substitute “, local authority or statutory undertaker ”. Section 61(1): definition of “business” (ii) 15. In relation to a contract made before 18 May 1973 omit the definition of “business” in section 61(1).

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Section 63. SCHEDULE 2 CONSEQUENTIAL AMENDMENTS 1. ………………………… Law Reform (Frustrated Contracts) Act 1943 (6 & 7 Geo. 6 c. 40) 2. In section 2(5)(c) of the Law Reform (Frustrated Contracts) Act 1943 for “section seven of the Sale of Goods Act 1893” substitute “ section 7 of the Sale of Goods Act 1979 ”. Frustrated Contracts Act (Northern Ireland) 1947 (c. 2) 3. In section 2(5)(c) of the Frustrated Contracts Act (Northern Ireland) 1947 for “section seven of the Sale of Goods Act 1893” substitute “ section 7 of the Sale of Goods Act 1979”. Hire-Purchase Act 1964 (c. 53) 4. In section 27(5) of the Hire-Purchase Act 1964 (as originally enacted and as substituted by Schedule 4 to the Consumer Credit Act 1974) a) in paragraph (a) for “section 21 of the Sale of Goods Act 1893” substitute “ section 21 of the Sale of Goods Act 1979 ”; b) in paragraph (b) for “section 62(1) of the said Act 0f 1893” substitute “ section 61(1) of the said Act of 1979 ”. Hire-Purchase Act 1965 (c. 66) 5. In section 20 of the Hire-Purchase Act 1965 a) in subsection (1) for “Section 11(1)(c) of the Sale of Goods Act 1893” substitute “ Section 11(4) of the Sale of Goods Act 1979 ”; b) in subsection (3) for “sections 12 to 15 of the Sale of Goods Act 1893” substitute “ sections 12 to 15 of the Sale of Goods Act 1979 ”

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6. In section 54 of the Hire-Purchase At 1965 for “section 25(2) of the Sale of Goods Act 1893” substitute “ section 25(1) of the Sale of Goods Act 1979 ”. 7. In section 58(1) of the Hire-Purchase Act 1965 for “the Sale of Goods Act 1893” substitute “ the Sale of Goods Act 1979 ”. Hire-Purchase (Scotland) Act 1965 (c. 67) 8. In section 20 of the Hire-Purchase (Scotland) Act 1965 for “1893” substitute “ 1979 ”. 9. In section 50 of the Hire-Purchase (Scotland) Act 1965 for “section 25(2) of the Sale of Goods Act 1893” substitute “ section 25(1) of the Sale of Goods Act 1979 ”. 10. In section 54(1) of the Hire-Purchase (Scotland) Act 1965 for “the Sale of Goods Act 1893” substitute “ the Sale of Goods Act 1979 ”. Hire-Purchase Act (Northern Ireland) 1966 (c. 42) 11. In section 20 of the Hire-Purchase Act (Northern Ireland) 1966 a) in subsection (1) for “Section 11(1)(c) of the Sale of Goods Act 1893” substitute “Section 11(4) of the Sale of Goods Act 1979 ”; b) in subsection (3) for "1893" substitute " 1979 ". 12. In section 54 of the Hire-Purchase Act (Northern Ireland) 1966 for “section 25(2) of the Sale of Goods Act 1893” substitute “ section 25(1) of the Sale of Goods Act 1979 ”.

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13. In section 62(5) of the Hire-Purchase Act (Northern Ireland) 1966 (as originally enacted and as substituted by Schedule 4 to the Consumer Credit Act 1974) a) in paragraph (a) for "1893" substitute " 1979 "; b) in paragraph (b) for “section 62(1) of the said Act of 1893” substitute “ section 61(1) of the said Act of 1979 ”. 14. In section 65(1) of the Hire-Purchase Act (Northern Ireland) 1966 for “the Sale of Goods Act 1893” substitute “ the Sale of Goods Act 1979 ”. Uniform Laws on International Sales Act 1967 (c. 45) 15. For section 1(4) of the Uniform Laws on International Sales Act 1967 substitute the following: “(4)In determining the extent of the application of the Uniform Law on Sales by virtue of Article 4 thereof (choice of parties) a) in relation to a contract made before 18 May 1973, no provision of the law of any part of the United Kingdom shall be regarded as a mandatory provision within the meaning of that Article; b) in relation to a contract made on or after 18 May 1973 and before 1 February 1978, no provision of that law shall be so regarded except sections 12 to 15, 55 and 56 of the Sale of Goods Act 1979; c) in relation to a contract made on or after 1 February 1978, no provision of that law shall be so regarded except sections 12 to 15 of the Sale of Goods Act 1979”. Supply of Goods (Implied Terms) Act 1973 (c. 13) 16. In section 14(1) of the Supply of Goods (Implied Terms) Act 1973 (as originally enacted and as substituted by Schedule 4 to the Consumer Credit Act 1974) for “Section 11(1)(c) of the principal Act” substitute “ Section 11(4) of the Sale of Goods Act 1979 ”.

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17. For the definition of “consumer sale” in section 15(1) of the Supply of Goods (Implied Terms) Act 1973 substitute “consumer sale” has the same meaning as in section 55 of the Sale of Goods Act 1979 (as set out in paragraph 11 of Schedule 1 to that Act). Consumer Credit Act 1974 (c. 39) 18. In section 189(1) of the Consumer Credit Act 1974, in the definition of “goods”, for “section 62(1) of the Sale of Goods Act 1893” substitute “ section 61(1) of the Sale of Goods Act 1979 ”. Unfair Contract Terms Act 1977 (c. 50) 19. In section 6 of the Unfair Contract Terms Act 1977 a) in subsection (1)(a) for “section 12 of the Sale of Goods Act 1893” substitute “section 12 of the Sale of Goods Act 1979 ”; b) ………………………… 20. In section 14 of the Unfair Contract Terms Act 1977, in the definition of “goods”, for “the Sale of Goods Act 1893” substitute “ the Sale of Goods Act 1979 ”. 21. In section 20(1)(a) ... of the Unfair Contract Terms Act 1977 for “1893” substitute ... “1979 ”. 22. In section 25(1) of the Unfair Contract Terms Act 1977, in the definition of “goods”, for “the Sale of Goods Act 1893” substitute “ the Sale of Goods Act 1979 ”.

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Section 63 SCHEDULE 3 REPEALS Chapter 56 & 57 Vict. c. 71. 1967 c. 7.

Short title Sale of Goods Act 1893.

Misrepresentation Act 1967.

Extent of repeal The whole Act except section 26. Section 4. In section 6(3) the words “except section 4(2),”.

1967 c. 14 (N.I.)

Misrepresentation Act (Northern Ireland) 1967.

Section 4.

1973 c. 13.

Supply of Goods (Implied Terms) Act 1973.

Sections 1 to 7 Section 18(2)

1974 c. 39.

Consumer Credit Act 1974.

In Schedule 4, paragraphs 3 and 4.

1977 c. 50.

Unfair Contract Terms Act 1977.

In Schedule 3, the entries relating to the Sale of Goods Act 1893.

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Section 63. SCHEDULE 4 SAVINGS Preliminary 1. In this Schedule references to the 1893 Act are to the Sale of Goods Act 1893. Orders 2. An order under section 14(8) or 25(4) above may make provision that it is to have effect only as provided by the order (being provision corresponding to that which could, apart from this Act, have been made by an order under section 192(4) of the Consumer Credit Act 1974 bringing into operation an amendment or repeal making a change corresponding to that made by the order under section 14(8) or 25(4) above). Offences 3. Where an offence was committed in relation to goods before 1 January 1969 or (in the application of this Act to Northern Ireland) 1 August 1969, the effect of a conviction in respect of the offence is not affected by the repeal by this Act of section 24 of the 1893 Act. 1893 Act, section 26 4. The repeal by this Act of provisions of the 1893 Act does not extend to the following provisions of that Act in so far as they are needed to give effect to or interpret section 26 of that Act, namely, the definitions of “goods” and “property” in section 62(1), section 62(2) and section 63 (which was repealed subject to savings by the Statute Law Revision Act 1908).

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Things done before 1 January 1894 5. The repeal by this Act of section 60 of and the Schedule to the 1893 Act (which effected repeals and which were themselves repealed subject to savings by the Statute Law Revision Act 1908) does not affect those savings, and accordingly does not affect things done or acquired before 1 January 1894. 6. In so far as the 1893 Act applied (immediately before the operation of the repeals made by this Act) to contracts made before 1 January 1894 (when the 1893 Act came into operation), the 1893 Act shall continue so to apply notwithstanding this Act.

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ANNEX 3 : Vienna Convention on Contracts for the International Sale of Goods (1980) PREAMBLE THE STATES PARTIES TO THIS CONVENTION, BEARING IN MIND the broad objectives in the resolutions adopted by the sixth special session of the General Assembly of the United Nations on the establishment of a New International Economic Order, CONSIDERING that the development of international trade on the basis of equality and mutual benefit is an important element in promoting friendly relations among States, BEING OF THE OPINION that the adoption of uniform rules which govern contracts for the international sale of goods and take into account the different social, economic and legal systems would contribute to the removal of legal barriers in international trade and promote the development of international trade, HAVE AGREED as follows: PART I SPHERE OF APPLICATION AND GENERAL PROVISIONS Chapter I SPHERE OF APPLICATION Article 1 (1) This Convention applies to contracts of sale of goods between parties whose places of business are in different States: (a) when the States are Contracting States; or (b) when the rules of private international law lead to the application of the law of a Contracting State. (2) The fact that the parties have their places of business in different States is to be disregarded whenever this fact does not appear either from the contract or from any dealings between, or from information disclosed by, the parties at any time before or at the conclusion of the contract. (3) Neither the nationality of the parties nor the civil or commercial character of the parties or of the contract is to be taken into consideration in determining the application of this Convention. Article 2 This Convention does not apply to sales: (a) of goods bought for personal, family or household use, unless the seller, at any time before or at the conclusion of the contract, neither knew nor ought to have known that the goods were bought for any such use;

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(b) by auction; (c) on execution or otherwise by authority of law; (d) of stocks, shares, investment securities, negotiable instruments or money; (e) of ships, vessels, hovercraft or aircraft; (f) of electricity. Article 3 (1) Contracts for the supply of goods to be manufactured or produced are to be considered sales unless the party who orders the goods undertakes to supply a substantial part of the materials necessary for such manufacture or production. (2) This Convention does not apply to contracts in which the preponderant part of the obligations of the party who furnishes the goods consists in the supply of labour or other services. Article 4 This Convention governs only the formation of the contract of sale and the rights and obligations of the seller and the buyer arising from such a contract. In particular, except as otherwise expressly provided in this Convention, it is not concerned with: (a) the validity of the contract or of any of its provisions or of any usage; (b) the effect which the contract may have on the property in the goods sold. Article 5 This Convention does not apply to the liability of the seller for death or personal injury caused by the goods to any person. Article 6 The parties may exclude the application of this Convention or, subject to article 12, derogate from or vary the effect of any of its provisions. Chapter II GENERAL PROVISIONS Article 7 (1) In the interpretation of this Convention, regard is to be had to its international character and to the need to promote uniformity in its application and the observance of good faith in international trade. (2) Questions concerning matters governed by this Convention which are not expressly settled in it are to be settled in conformity with the general principles on which it is based or, in the absence of such principles, in conformity with the law applicable by virtue of the rules of private international law.

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Article 8 (1) For the purposes of this Convention statements made by and other conduct of a party are to be interpreted according to his intent where the other party knew or could not have been unaware what that intent was. (2) If the preceding paragraph is not applicable, statements made by and other conduct of a party are to be interpreted according to the understanding that a reasonable person of the same kind as the other party would have had in the same circumstances. (3) In determining the intent of a party or the understanding a reasonable person would have had, due consideration is to be given to all relevant circumstances of the case including the negotiations, any practices which the parties have established between themselves, usages and any subsequent conduct of the parties. Article 9 (1) The parties are bound by any usage to which they have agreed and by any practices which they have established between themselves. (2) The parties are considered, unless otherwise agreed, to have impliedly made applicable to their contract or its formation a usage of which the parties knew or ought to have known and which in international trade is widely known to, and regularly observed by, parties to contracts of the type involved in the particular trade concerned. Article 10 For the purposes of this Convention: (a) if a party has more than one place of business, the place of business is that which has the closest relationship to the contract and its performance, having regard to the circumstances known to or contemplated by the parties at any time before or at the conclusion of the contract; (b) if a party does not have a place of business, reference is to be made to his habitual residence. Article 11 A contract of sale need not be concluded in or evidenced by writing and is not subject to any other requirement as to form. It may be proved by any means, including witnesses. Article 12 Any provision of article 11, article 29 or Part II of this Convention that allows a contract of sale or its modification or termination by agreement or any offer, acceptance or other indication of intention to be made in any form other than in writing does not apply where any party has his place of business in a Contracting State which has made a declaration under article

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96 of this Convention. The parties may not derogate from or vary the effect or this article. Article 13 For the purposes of this Convention "writing" includes telegram and telex. PART II FORMATION OF THE CONTRACT Article 14 (1) A proposal for concluding a contract addressed to one or more specific persons constitutes an offer if it is sufficiently definite and indicates the intention of the offeror to be bound in case of acceptance. A proposal is sufficiently definite if it indicates the goods and expressly or implicitly fixes or makes provision for determining the quantity and the price. (2) A proposal other than one addressed to one or more specific persons is to be considered merely as an invitation to make offers, unless the contrary is clearly indicated by the person making the proposal. Article 15 (1) An offer becomes effective when it reaches the offeree. (2) An offer, even if it is irrevocable, may be withdrawn if the withdrawal reaches the offeree before or at the same time as the offer. Article 16 (1) Until a contract is concluded an offer may be revoked if the revocation reaches the offeree before he has dispatched an acceptance. (2) However, an offer cannot be revoked: (a) if it indicates, whether by stating a fixed time for acceptance or otherwise, that it is irrevocable; or (b) if it was reasonable for the offeree to rely on the offer as being irrevocable and the offeree has acted in reliance on the offer. Article 17 An offer, even if it is irrevocable, is terminated when a rejection reaches the offeror. Article 18 (1) A statement made by or other conduct of the offeree indicating assent to an offer is an acceptance. Silence or inactivity does not in itself amount to acceptance. (2) An acceptance of an offer becomes effective at the moment the indication of assent reaches the offeror. An acceptance is not effective if the indication of assent does not reach the offeror within the time he has fixed or, if no time is fixed, within a reasonable time, due account being taken of the circumstances of the transaction, including the rapidity of the means of

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communication employed by the offeror. An oral offer must be accepted immediately unless the circumstances indicate otherwise. (3) However, if, by virtue of the offer or as a result of practices which the parties have established between themselves or of usage, the offeree may indicate assent by performing an act, such as one relating to the dispatch of the goods or payment of the price, without notice to the offeror, the acceptance is effective at the moment the act is performed, provided that the act is performed within the period of time laid down in the preceding paragraph. Article 19 (1) A reply to an offer which purports to be an acceptance but contains additions, limitations or other modifications is a rejection of the offer and constitutes a counter-offer. (2) However, a reply to an offer which purports to be an acceptance but contains additional or different terms which do not materially alter the terms of the offer constitutes an acceptance, unless the offeror, without undue delay, objects orally to the discrepancy or dispatches a notice to that effect. If he does not so object, the terms of the contract are the terms of the offer with the modifications contained in the acceptance. (3) Additional or different terms relating, among other things, to the price, payment, quality and quantity of the goods, place and time of delivery, extent of one party's liability to the other or the settlement of disputes are considered to alter the terms of the offer materially. Article 20 (1) A period of time for acceptance fixed by the offeror in a telegram or a letter begins to run from the moment the telegram is handed in for dispatch or from the date shown on the letter or, if no such date is shown, from the date shown on the envelope. A period of time for acceptance fixed by the offeror by telephone, telex or other means of instantaneous communication, begins to run from the moment that the offer reaches the offeree. (2) Official holidays or non-business days occurring during the period for acceptance are included in calculating the period. However, if a notice of acceptance cannot be delivered at the address of the offeror on the last day of the period because that day falls on an official holiday or a nonbusiness day at the place of business of the offeror, the period is extended until the first business day which follows. Article 21 (1) A late acceptance is nevertheless effective as an acceptance if without delay the offeror orally so informs the offeree or dispatches a notice to that effect.

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(2) If a letter or other writing containing a late acceptance shows that it has been sent in such circumstances that if its transmission had been normal it would have reached the offeror in due time, the late acceptance is effective as an acceptance unless, without delay, the offeror orally informs the offeree that he considers his offer as having lapsed or dispatches a notice to that effect. Article 22 An acceptance may be withdrawn if the withdrawal reaches the offeror before or at the same time as the acceptance would have become effective. Article 23 A contract is concluded at the moment when an acceptance of an offer becomes effective in accordance with the provisions of this Convention. Article 24 For the purposes of this Part of the Convention, an offer, declaration of acceptance or any other indication of intention "reaches" the addressee when it is made orally to him or delivered by any other means to him personally, to his place of business or mailing address or, if he does not have a place of business or mailing address, to his habitual residence. PART III SALE OF GOODS Chapter I GENERAL PROVISIONS Article 25 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. Article 26 A declaration of avoidance of the contract is effective only if made by notice to the other party. Article 27 Unless otherwise expressly provided in this Part of the Convention, if any notice, request or other communication is given or made by a party in accordance with this Part and by means appropriate in the circumstances, a delay or error in the transmission of the communication or its failure to arrive does not deprive that party of the right to rely on the communication.

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Article 28 If, in accordance with the provisions of this Convention, one party is entitled to require performance of any obligation by the other party, a court is not bound to enter a judgement for specific performance unless the court would do so under its own law in respect of similar contracts of sale not governed by this Convention. Article 29 (1) A contract may be modified or terminated by the mere agreement of the parties. (2) A contract in writing which contains a provision requiring any modification or termination by agreement to be in writing may not be otherwise modified or terminated by agreement. However, a party may be precluded by his conduct from asserting such a provision to the extent that the other party has relied on that conduct. Chapter II OBLIGATIONS OF THE SELLER Article 30 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. Section I. Delivery of the goods and handing over of documents Article 31 If the seller is not bound to deliver the goods at any other particular place, his obligation to deliver consists: (a) if the contract of sale involves carriage of the goods - in handing the goods over to the first carrier for transmission to the buyer; (b) if, in cases not within the preceding subparagraph, the contract relates to specific goods, or unidentified goods to be drawn from a specific stock or to be manufactured or produced, and at the time of the conclusion of the contract the parties knew that the goods were at, or were to be manufactured or produced at, a particular place - in placing the goods at the buyer's disposal at that place; (c) in other cases - in placing the goods at the buyer's disposal at the place where the seller had his place of business at the time of the conclusion of the contract. Article 32 (1) If the seller, in accordance with the contract or this Convention, hands the goods over to a carrier and if the goods are not clearly identified to the contract by markings on the goods, by shipping documents or

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otherwise, the seller must give the buyer notice of the consignment specifying the goods. (2) If the seller is bound to arrange for carriage of the goods, he must make such contracts as are necessary for carriage to the place fixed by means of transportation appropriate in the circumstances and according to the usual terms for such transportation. (3) If the seller is not bound to effect insurance in respect of the carriage of the goods, he must, at the buyer's request, provide him with all available information necessary to enable him to effect such insurance. Article 33 The seller must deliver the goods: (a) if a date is fixed by or determinable from the contract, on that date; (b) if a period of time is fixed by or determinable from the contract, at any time within that period unless circumstances indicate that the buyer is to choose a date; or (c) in any other case, within a reasonable time after the conclusion of the contract. Article 34 If the seller is bound to hand over documents relating to the goods, he must hand them over at the time and place and in the form required by the contract. If the seller has handed over documents before that time, he may, up to that time, cure any lack of conformity in the documents, if the exercise of this right does not cause the buyer unreasonable inconvenience or unreasonable expense. However, the buyer retains any right to claim damages as provided for in this Convention. Section II. Conformity of the goods and third party claims Article 35 (1) The seller must deliver goods which are of the quantity, quality and description required by the contract and which are contained or packaged in the manner required by the contract. (2) Except where the parties have agreed otherwise, the goods do not conform with the contract unless they: (a) are fit for the purposes 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;

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(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. (3) 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. Article 36 (1) The seller is liable in accordance with the contract and this Convention for any lack of conformity which exists at the time when the risk passes to the buyer, even though the lack of conformity becomes apparent only after that time. (2) The seller is also liable for any lack of conformity which occurs after the time indicated in the preceding paragraph and which is due to a breach of any of his obligations, including a breach of any guarantee that for a period of time the goods will remain fit for their ordinary purpose or for some particular purpose or will retain specified qualities or characteristics. Article 37 If the seller has delivered goods before the date for delivery, he may, up to that date, deliver any missing part or make up any deficiency in the quantity of the goods delivered, or deliver goods in replacement of any nonconforming goods delivered or remedy any lack of conformity in the goods delivered, provided that the exercise of this right does not cause the buyer unreasonable inconvenience or unreasonable expense. However, the buyer retains any right to claim damages as provided for in this Convention. Article 38 (1) The buyer must examine the goods, or cause them to be examined, within as short a period as is practicable in the circumstances. (2) If the contract involves carriage of the goods, examination may be deferred until after the goods have arrived at their destination. (3) If the goods are redirected in transit or redispatched by the buyer without a reasonable opportunity for examination by him and at the time of the conclusion of the contract the seller knew or ought to have known of the possibility of such redirection or redispatch, examination may be deferred until after the goods have arrived at the new destination. Article 39 (1) 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.

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(2) 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. Article 40 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. Article 41 The seller must deliver goods which are free from any right or claim of a third party, unless the buyer agreed to take the goods subject to that right or claim. However, if such right or claim is based on industrial property or other intellectual property, the seller's obligation is governed by article 42. Article 42 (1) The seller must deliver goods which are free from any right or claim of a third party based on industrial property or other intellectual property, of which at the time of the conclusion of the contract the seller knew or could not have been unaware, provided that the right or claim is based on industrial property or other intellectual property: (a) under the law of the State where the goods will be resold or otherwise used, if it was contemplated by the parties at the time of the conclusion of the contract that the goods would be resold or otherwise used in that State; or (b) in any other case, under the law of the State where the buyer has his place of business. (2) The obligation of the seller under the preceding paragraph does not extend to cases where: (a) at the time of the conclusion of the contract the buyer knew or could not have been unaware of the right or claim; or (b) the right or claim results from the seller's compliance with technical drawings, designs, formulae or other such specifications furnished by the buyer. Article 43 (1) The buyer loses the right to rely on the provisions of article 41 or article 42 if he does not give notice to the seller specifying the nature of the right or claim of the third party within a reasonable time after he has become aware or ought to have become aware of the right or claim. (2) The seller is not entitled to rely on the provisions of the preceding paragraph if he knew of the right or claim of the third party and the nature of it.

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Article 44 Notwithstanding the provisions of paragraph (1) of article 39 and paragraph (1) of article 43, the buyer may reduce the price in accordance with article 50 or claim damages, except for loss of profit, if he has a reasonable excuse for his failure to give the required notice. Section III. Remedies for breach of contract by the seller Article 45 (1) 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. (2) The buyer is not deprived of any right he may have to claim damages by exercising his right to other remedies. (3) 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. Article 46 (1) The buyer may require performance by the seller of his obligations unless the buyer has resorted to a remedy which is inconsistent with this requirement. (2) If the goods do not conform with the contract, the buyer may require delivery of substitute goods only if the lack of conformity constitutes a fundamental breach of contract and a request for substitute goods is made either in conjunction with notice given under article 39 or within a reasonable time thereafter. (3) If the goods do not conform with the contract, the buyer may require the seller to remedy the lack of conformity by repair, unless this is unreasonable having regard to all the circumstances. A request for repair must be made either in conjunction with notice given under article 39 or within a reasonable time thereafter. Article 47 (1) The buyer may fix an additional period of time of reasonable length for performance by the seller of his obligations. (2) Unless the buyer has received notice from the seller that he will not perform within the period so fixed, the buyer may not, during that period, resort to any remedy for breach of contract. However, the buyer is not deprived thereby of any right he may have to claim damages for delay in performance. Article 48 (1) Subject to article 49, the seller may, even after the date for delivery, remedy at his own expense any failure to perform his obligations, if he can do so without unreasonable delay and without causing the buyer

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unreasonable inconvenience or uncertainty of reimbursement by the seller of expenses advanced by the buyer. However, the buyer retains any right to claim damages as provided for in this Convention. (2) If the seller requests the buyer to make known whether he will accept performance and the buyer does not comply with the request within a reasonable time, the seller may perform within the time indicated in his request. The buyer may not, during that period of time, resort to any remedy which is inconsistent with performance by the seller. (3) A notice by the seller that he will perform within a specified period of time is assumed to include a request, under the preceding paragraph, that the buyer make known his decision. (4) A request or notice by the seller under paragraph (2) or (3) of this article is not effective unless received by the buyer. Article 49 (1) 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. (2) 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 he will not perform his obligations within such an additional period; or (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 performance. Article 50 If the goods do not conform with the contract and whether or not the price has already been paid, the buyer may reduce the price in the same proportion as the value that the goods actually delivered had at the time of the delivery bears to the value that conforming goods would have had at that time. However, if the seller remedies any failure to perform his obligations

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in accordance with article 37 or article 48 or if the buyer refuses to accept performance by the seller in accordance with those articles, the buyer may not reduce the price. Article 51 (1) If the seller delivers only a part of the goods or if only a part of the goods delivered is in conformity with the contract, articles 46 to 50 apply in respect of the part which is missing or which does not conform. (2) The buyer may declare the contract avoided in its entirety only if the failure to make delivery completely or in conformity with the contract amounts to a fundamental breach of the contract. Article 52 (1) If the seller delivers the goods before the date fixed, the buyer may take delivery or refuse to take delivery. (2) If the seller delivers a quantity of goods greater than that provided for in the contract, the buyer may take delivery or refuse to take delivery of the excess quantity. If the buyer takes delivery of all or part of the excess quantity, he must pay for it at the contract rate. Chapter III OBLIGATIONS OF THE BUYER Article 53 The buyer must pay the price for the goods and take delivery of them as required by the contract and this Convention. Section I. Payment of the price Article 54 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. Article 55 Where a contract has been validly concluded but does not expressly or implicitly fix or make provision for determining the price, the parties are considered, in the absence of any indication to the contrary, to have impliedly made reference to the price generally charged at the time of the conclusion of the contract for such goods sold under comparable circumstances in the trade concerned. Article 56 If the price is fixed according to the weight of the goods, in case of doubt it is to be determined by the net weight. Article 57 (1) If the buyer is not bound to pay the price at any other particular place, he must pay it to the seller: (a) at the seller's place of business; or

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(b) if the payment is to be made against the handing over of the goods or of documents, at the place where the handing over takes place. (2) The seller must bear any increases in the expenses incidental to payment which is caused by a change in his place of business subsequent to the conclusion of the contract. Article 58 (1) If the buyer is not bound to pay the price at any other specific time, he must pay it when the seller places either the goods or documents controlling their disposition at the buyer's disposal in accordance with the contract and this Convention. The seller may make such payment a condition for handing over the goods or documents. (2) If the contract involves carriage of the goods, the seller may dispatch the goods on terms whereby the goods, or documents controlling their disposition, will not be handed over to the buyer except against payment of the price. (3) The buyer is not bound to pay the price until he has had an opportunity to examine the goods, unless the procedures for delivery or payment agreed upon by the parties are inconsistent with his having such an opportunity. Article 59 The buyer must pay the price on the date fixed by or determinable from the contract and this Convention without the need for any request or compliance with any formality on the part of the seller. Section II. Taking delivery Article 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. Section III. Remedies for breach of contract by the buyer Article 61 (1) If the buyer fails to perform any of his obligations under the contract or this Convention, the seller may: (a) exercise the rights provided in articles 62 to 65; (b) claim damages as provided in articles 74 to 77. (2) The seller is not deprived of any right he may have to claim damages by exercising his right to other remedies. (3) No period of grace may be granted to the buyer by a court or arbitral tribunal when the seller resorts to a remedy for breach of contract.

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Article 62 The seller may require the buyer to pay the price, take delivery or perform his other obligations, unless the seller has resorted to a remedy which is inconsistent with this requirement. Article 63 (1) The seller may fix an additional period of time of reasonable length for performance by the buyer of his obligations. (2) Unless the seller has received notice from the buyer that he will not perform within the period so fixed, the seller may not, during that period, resort to any remedy for breach of contract. However, the seller is not deprived thereby of any right he may have to claim damages for delay in performance. Article 64 (1) The seller may declare the contract avoided: (a) if the failure by the buyer to perform any of his obligations under the contract or this Convention amounts to a fundamental breach of contract; or (b) if the buyer does not, within the additional period of time fixed by the seller in accordance with paragraph (1) of article 63, perform his obligation to pay the price or take delivery of the goods, or if he declares that he will not do so within the period so fixed. (2) However, in cases where the buyer has paid the price, the seller loses the right to declare the contract avoided unless he does so: (a) in respect of late performance by the buyer, before the seller has become aware that performance has been rendered; or (b) in respect of any breach other than late performance by the buyer, within a reasonable time: (i) after the seller knew or ought to have known of the breach; or (ii) after the expiration of any additional period of time fixed by the seller in accordance with paragraph (1) of article 63, or after the buyer has declared that he will not perform his obligations within such an additional period. Article 65 (1) If under the contract the buyer is to specify the form, measurement or other features of the goods and he fails to make such specification either on the date agreed upon or within a reasonable time after receipt of a request from the seller, the seller may, without prejudice to any other rights he may have, make the specification himself in accordance with the requirements of the buyer that may be known to him. (2) If the seller makes the specification himself, he must inform the buyer of the details thereof and must fix a reasonable time within which the buyer may make a different specification. If, after receipt of such a

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communication, the buyer fails to do so within the time so fixed, the specification made by the seller is binding. Chapter IV PASSING OF RISK Article 66 Loss of or damage to the goods after the risk has passed to the buyer does not discharge him from his obligation to pay the price, unless the loss or damage is due to an act or omission of the seller. Article 67 (1) If the contract of sale involves carriage of the goods and the seller is not bound to hand them over at a particular place, the risk passes to the buyer when the goods are handed over to the first carrier for transmission to the buyer in accordance with the contract of sale. If the seller is bound to hand the goods over to a carrier at a particular place, the risk does not pass to the buyer until the goods are handed over to the carrier at that place. The fact that the seller is authorized to retain documents controlling the disposition of the goods does not affect the passage of the risk. (2) Nevertheless, the risk does not pass to the buyer until the goods are clearly identified to the contract, whether by markings on the goods, by shipping documents, by notice given to the buyer or otherwise. Article 68 The risk in respect of goods sold in transit passes to the buyer from the time of the conclusion of the contract. However, if the circumstances so indicate, the risk is assumed by the buyer from the time the goods were handed over to the carrier who issued the documents embodying the contract of carriage. Nevertheless, if at the time of the conclusion of the contract of sale the seller knew or ought to have known that the goods had been lost or damaged and did not disclose this to the buyer, the loss or damage is at the risk of the seller. Article 69 (1) In cases not within articles 67 and 68, the risk passes to the buyer when he takes over the goods or, if he does not do so in due time, from the time when the goods are placed at his disposal and he commits a breach of contract by failing to take delivery. (2) However, if the buyer is bound to take over the goods at a place other than a place of business of the seller, the risk passes when delivery is due and the buyer is aware of the fact that the goods are placed at his disposal at that place. (3) If the contract relates to goods not then identified, the goods are considered not to be placed at the disposal of the buyer until they are clearly identified to the contract.

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Article 70 If the seller has committed a fundamental breach of contract, articles 67, 68 and 69 do not impair the remedies available to the buyer on account of the breach. Chapter V PROVISIONS COMMON TO THE OBLIGATIONS OF THE SELLER AND OF THE BUYER Section I. Anticipatory breach and instalment contracts Article 71 (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. (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. (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. Article 72 (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. Article 73 (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. (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

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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. (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. Section II. Damages Article 74 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 the 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. Article 75 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. Article 76 (1) 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. (2) 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. Article 77 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

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in breach may claim a reduction in the damages in the amount by which the loss should have been mitigated. Section III. Interest Article 78 If a party fails to pay the price or any other sum that is in arrears, the other party is entitled to interest on it, without prejudice to any claim for damages recoverable under article 74. Section IV. Exemptions Article 79 (1) A party is not liable for a failure to perform any of his obligations if he proves that the failure was due to 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 it or its consequences. (2) 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 under 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. (3) The exemption provided by this article has effect for the period during which the impediment exists. (4) 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. (5) Nothing in this article prevents either party from exercising any right other than to claim damages under this Convention. Article 80 A party may not rely on a failure of the other party to perform, to the extent that such failure was caused by the first party's act or omission. Section V. Effects of avoidance Article 81 (1) Avoidance of the contract releases both parties from their obligations under it, subject to any damages which may be due. Avoidance does not affect any provision of the contract for the settlement of disputes or any other provision of the contract governing the rights and obligations of the parties consequent upon the avoidance of the contract. (2) A party who has performed the contract either wholly or in part may claim restitution from the other party of whatever the first party has supplied

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or paid under the contract. If both parties are bound to make restitution, they must do so concurrently. Article 82 (1) The buyer loses the right to declare the contract avoided or to require the seller to deliver substitute goods if it is impossible for him to make restitution of the goods substantially in the condition in which he received them. (2) The preceding paragraph does not apply: (a) if the impossibility of making restitution of the goods or of making restitution of the goods substantially in the condition in which the buyer received them is not due to his act or omission; (b) if the goods or part of the goods have perished or deteriorated as a result of the examination provided for in article 38; or (c) if the goods or part of the goods have been sold in the normal course of business or have been consumed or transformed by the buyer in the course of normal use before he discovered or ought to have discovered the lack of conformity. Article 83 A buyer who has lost the right to declare the contract avoided or to require the seller to deliver substitute goods in accordance with article 82 retains all other remedies under the contract and this Convention. Article 84 (1) If the seller is bound to refund the price, he must also pay interest on it, from the date on which the price was paid. (2) The buyer must account to the seller for all benefits which he has derived from the goods or part of them: (a) if he must make restitution of the goods or part of them; or (b) if it is impossible for him to make restitution of all or part of the goods or to make restitution of all or part of the goods substantially in the condition in which he received them, but he has nevertheless declared the contract avoided or required the seller to deliver substitute goods. Section VI. Preservation of the goods Article 85 If the buyer is in delay in taking delivery of the goods or, where payment of the price and delivery of the goods are to be made concurrently, if he fails to pay the price, and the seller is either in possession of the goods or otherwise able to control their disposition, the seller must take such steps as are reasonable in the circumstances to preserve them. He is entitled to retain them until he has been reimbursed his reasonable expenses by the buyer.

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Article 86 (1) If the buyer has received the goods and intends to exercise any right under the contract or this Convention to reject them, he must take such steps to preserve them as are reasonable in the circumstances. He is entitled to retain them until he has been reimbursed his reasonable expenses by the seller. (2) If goods dispatched to the buyer have been placed at his disposal at their destination and he exercises the right to reject them, he must take possession of them on behalf of the seller, provided that this can be done without payment of the price and without unreasonable inconvenience or unreasonable expense. This provision does not apply if the seller or a person authorized to take charge of the goods on his behalf is present at the destination. If the buyer takes possession of the goods under this paragraph, his rights and obligations are governed by the preceding paragraph. Article 87 A party who is bound to take steps to preserve the goods may deposit them in a warehouse of a third person at the expense of the other party provided that the expense incurred is not unreasonable. Article 88 (1) A party who is bound to preserve the goods in accordance with article 85 or 86 may sell them by any appropriate means if there has been an unreasonable delay by the other party in taking possession of the goods or in taking them back or in paying the price or the cost of preservation, provided that reasonable notice of the intention to sell has been given to the other party. (2) If the goods are subject to rapid deterioration or their preservation would involve unreasonable expense, a party who is bound to preserve the goods in accordance with article 85 or 86 must take reasonable measures to sell them. To the extent possible he must give notice to the other party of his intention to sell. (3) A party selling the goods has the right to retain out of the proceeds of sale an amount equal to the reasonable expenses of preserving the goods and of selling them. He must account to the other party for the balance. PART IV FINAL PROVISIONS Article 89 The Secretary-General of the United Nations is hereby designated as the depositary for this Convention. Article 90 This Convention does not prevail over any international agreement which has already been or may be entered into and which contains

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provisions concerning the matters governed by this Convention, provided that the parties have their places of business in States parties to such agreement. Article 91 (1) This Convention is open for signature at the concluding meeting of the United Nations Conference on Contracts for the International Sale of Goods and will remain open for signature by all States at the Headquarters of the United Nations, New York until 30 September 1981. (2) This Convention is subject to ratification, acceptance or approval by the signatory States. (3) This Convention is open for accession by all States which are not signatory States as from the date it is open for signature. (4) Instruments of ratification, acceptance, approval and accession are to be deposited with the Secretary-General of the United Nations. Article 92 (1) A Contracting State may declare at the time of signature, ratification, acceptance, approval or accession that it will not be bound by Part II of this Convention or that it will not be bound by Part III of this Convention. (2) A Contracting State which makes a declaration in accordance with the preceding paragraph in respect of Part II or Part III of this Convention is not to be considered a Contracting State within paragraph (1) of article 1 of this Convention in respect of matters governed by the Part to which the declaration applies. Article 93 (1) If a Contracting State has two or more territorial units in which, according to its constitution, different systems of law are applicable in relation to the matters dealt with in this Convention, it may, at the time of signature, ratification, acceptance, approval or accession, declare that this Convention is to extend to all its territorial units or only to one or more of them, and may amend its declaration by submitting another declaration at any time. (2) These declarations are to be notified to the depositary and are to state expressly the territorial units to which the Convention extends. (3) If, by virtue of a declaration under this article, this Convention extends to one or more but not all of the territorial units of a Contracting State, and if the place of business of a party is located in that State, this place of business, for the purposes of this Convention, is considered not to be in a Contracting State, unless it is in a territorial unit to which the Convention extends. (4) If a Contracting State makes no declaration under paragraph (1) of this article, the Convention is to extend to all territorial units of that State.

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Article 94 (1) Two or more Contracting States which have the same or closely related legal rules on matters governed by this Convention may at any time declare that the Convention is not to apply to contracts of sale or to their formation where the parties have their places of business in those States. Such declarations may be made jointly or by reciprocal unilateral declarations. (2) A Contracting State which has the same or closely related legal rules on matters governed by this Convention as one or more non-Contracting States may at any time declare that the Convention is not to apply to contracts of sale or to their formation where the parties have their places of business in those States. (3) If a State which is the object of a declaration under the preceding paragraph subsequently becomes a Contracting State, the declaration made will, as from the date on which the Convention enters into force in respect of the new Contracting State, have the effect of a declaration made under paragraph (1), provided that the new Contracting State joins in such declaration or makes a reciprocal unilateral declaration. Article 95 Any State may declare at the time of the deposit of its instrument of ratification, acceptance, approval or accession that it will not be bound by subparagraph (1)(b) of article 1 of this Convention. Article 96 A Contracting State whose legislation requires contracts of sale to be concluded in or evidenced by writing may at any time make a declaration in accordance with article 12 that any provision of article 11, article 29, or Part II of this Convention, that allows a contract of sale or its modification or termination by agreement or any offer, acceptance, or other indication of intention to be made in any form other than in writing, does not apply where any party has his place of business in that State. Article 97 (1) Declarations made under this Convention at the time of signature are subject to confirmation upon ratification, acceptance or approval. (2) Declarations and confirmations of declarations are to be in writing and be formally notified to the depositary. (3) A declaration takes effect simultaneously with the entry into force of this Convention in respect of the State concerned. However, a declaration of which the depositary receives formal notification after such entry into force takes effect on the first day of the month following the expiration of six months after the date of its receipt by the depositary. Reciprocal unilateral declarations under article 94 take effect on the first day of the

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month following the expiration of six months after the receipt of the latest declaration by the depositary. (4) Any State which makes a declaration under this Convention may withdraw it at any time by a formal notification in writing addressed to the depositary. Such withdrawal is to take effect on the first day of the month following the expiration of six months after the date of the receipt of the notification by the depositary. (5) A withdrawal of a declaration made under article 94 renders inoperative, as from the date on which the withdrawal takes effect, any reciprocal declaration made by another State under that article. Article 98 No reservations are permitted except those expressly authorized in this Convention. Article 99 (1) This Convention enters into force, subject to the provisions of paragraph (6) of this article, on the first day of the month following the expiration of twelve months after the date of deposit of the tenth instrument of ratification, acceptance, approval or accession, including an instrument which contains a declaration made under article 92. (2) When a State ratifies, accepts, approves or accedes to this Convention after the deposit of the tenth instrument of ratification, acceptance, approval or accession, this Convention, with the exception of the Part excluded, enters into force in respect of that State, subject to the provisions of paragraph (6) of this article, on the first day of the month following the expiration of twelve months after the date of the deposit of its instrument of ratification, acceptance, approval or accession. (3) A State which ratifies, accepts, approves or accedes to this Convention and is a party to either or both the Convention relating to a Uniform Law on the Formation of Contracts for the International Sale of Goods done at The Hague on 1 July 1964 (1964 Hague Formation Convention) and the Convention relating to a Uniform Law on the International Sale of Goods done at The Hague on 1 July 1964 (1964 Hague Sales Convention) shall at the same time denounce, as the case may be, either or both the 1964 Hague Sales Convention and the 1964 Hague Formation Convention by notifying the Government of the Netherlands to that effect. (4) A State party to the 1964 Hague Sales Convention which ratifies, accepts, approves or accedes to the present Convention and declares or has declared under article 52 that it will not be bound by Part II of this Convention shall at the time of ratification, acceptance, approval or

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accession denounce the 1964 Hague Sales Convention by notifying the Government of the Netherlands to that effect. (5) A State party to the 1964 Hague Formation Convention which ratifies, accepts, approves or accedes to the present Convention and declares or has declared under article 92 that it will not be bound by Part III of this Convention shall at the time of ratification, acceptance, approval or accession denounce the 1964 Hague Formation Convention by notifying the Government of the Netherlands to that effect. (6) For the purpose of this article, ratifications, acceptances, approvals and accessions in respect of this Convention by States parties to the 1964 Hague Formation Convention or to the 1964 Hague Sales Convention shall not be effective until such denunciations as may be required on the part of those States in respect of the latter two Conventions have themselves become effective. The depositary of this Convention shall consult with the Government of the Netherlands, as the depositary of the 1964 Conventions, so as to ensure necessary co-ordination in this respect. Article 100 (1) This Convention applies to the formation of a contract only when the proposal for concluding the contract is made on or after the date when the Convention enters into force in respect of the Contracting States referred to in subparagraph (1)(a) or the Contracting State referred to in subparagraph (1)(b) of article 1. (2) This Convention applies only to contracts concluded on or after the date when the Convention enters into force in respect of the Contracting States referred to in subparagraph (1)(a) or the Contracting State referred to in subparagraph (1)(b) of article 1. Article 101 (1) A Contracting State may denounce this Convention, or Part II or Part III of the Convention, by a formal notification in writing addressed to the depositary. (2) The denunciation takes effect on the first day of the month following the expiration of twelve months after the notification is received by the depositary. Where a longer period for the denunciation to take effect is specified in the notification, the denunciation takes effect upon the expiration of such longer period after the notification is received by the depositary. DONE at Vienna, this day of eleventh day of April, one thousand nine hundred and eighty, in a single original, of which the Arabic, Chinese, English, French, Russian and Spanish texts are equally authentic. IN WITNESS WHEREOF the undersigned plenipotentiaries, being duly authorized by their respective Governments, have signed this Convention.