for Albert H. Kritzer CISG Database

of the Institute of International Commercial Law

at Pace University Law School

[ document manifest ]

toc next >>

The Remedy of Reduction of Price
Eric E. Bergsten and Anthony J. Miller

[The Remedy of Reduction of Price]

Nature of Remedy of Price Reduction Article 46[of the 1978 Draft]
Civil law origins
Under the Draft Convention
Example A
Example B
Example C
Example D
Example E
Example F

[This is a commentary on the remedy of reduction of price under Article 46 of the 1978 Draft Convention. For comparison of Article 46 of the 1978 Draft with CISG Article 50, see ‹› the match-up of CISG Article 50 and Article 46 of the 1978 Draft.]

Among the provisions in the Draft Convention on Contracts for the International Sale of Goods which were the most difficult to formulate and are among the most likely to generate controversy are those dealing with the remedies of buyer and seller for breach of contract by the other party. Many aspects of the law of sales reflect merchant practice, and to the extent that this practice is standardized in international sales transactions, the problems in formulating the text of the Draft Convention were reduced. However the provisions in respect of breach of contract do not reflect merchant practice. They reflect the efforts of lawyers from many legal systems to reconcile their views on the appropriate actions to be taken by the parties and by a tribunal in case of breach. The result has been a series of provisions which, in our view, are in general harmony with one another but which will often be unfamiliar to lawyers from any given legal system.

Among the provisions which will be unfamiliar for most Common lawyers is art. 46 [of the 1978 Draft], which provides the buyer with the right to reduce the price under certain circumstances. Because the remedy of reduction of price is similar to the remedy of damages in that both grant relief to the buyer measured in money, it is easy to confuse the two. Indeed at several stages of the drafting history of the provision, Common law participants saw the provision as a type of set-off whereby the buyer was authorized to deduct damages from the price.  1  Furthermore, in a recent article on the Draft Convention, one Common law scholar has recommended that the article be redrafted "so as to provide that a buyer may deduct all or any part of the damages resulting from breach from any part of the price due under the contract."  2  On the other side of the doctrinal fence, one Civil law commentator treated the American and English law rule which allows the buyer to set-off against the price any damages arising out of a breach of the contract of sale  3  in conjunction with the Civil law remedy of reduction of price.  4 

Nevertheless, reduction of the price is a remedy separate from that of damages, both under the Civil law and the Draft Convention, and should not be confused with the right to set-off. This article (a) explains the nature of the remedy and how it operates, (b) sets forth its drafting history, (c) evaluates the remedy of reduction of price and (d) comments on procedures for the unification of law.

Nature of Remedy of Price Reduction Article 46[of the 1978 Draft]

"If the goods do not conform with the contract and whether or not the price has already been paid, the buyer may declare the price to be reduced in the same proportion as the value that the goods actually delivered would have had at the time of the conclusion of the contract bears to the value that conforming goods would have had at that time. However, if the seller remedies any failure to perform his obligations in accordance with article 44 or if he is not allowed by the buyer to remedy that failure in accordance with that article, the buyer's declaration of reduction of the price is of no effect.

Civil law origins

The remedy of reduction of price for the purchaser of defective goods derives from the actio quanti minoris in Roman Law. At the risk of considerable over-simplification, this action originated from an Edict of the Aediles which sought to "repress the sharp practices of sellers of slaves and cattle in the City markets."  5  If a buyer became aware, after delivery, of certain specified defects which the vendor did not declare and which, had the buyer been aware of them at the time of sale would have led him to pay a lesser price, he could bring an action for reduction of price or for recission of contract.  6  Defects which were evident at the time of conclusion of the contract were excluded from this remedy since the buyer should have taken them into account when calculating the price he was willing to pay.  7 

The Roman law origins of the remedy are reflected in contemporary provisions in Civil law countries. For example, if the goods contain hidden defects, art. 1644 of the French Civil Code enables a buyer to recover part of the purchase price, the amount to be determined by experts, or to rescind the contract and recover the total purchase price.  8  In the Federal Republic of Germany, § 459 BGB provides that if the goods lack promised qualities or contain defects which diminish the ordinary use of the goods or the use provided for in the contract, the buyer has the option of rescinding the contract or of reducing the price according to a formula set out in § 472.  9 

It has been pointed out that in the Civil law, rescission and reduction of price are the normal remedies for a buyer who has been delivered non-conforming goods, and damages are, in principle, the exception.  10  In large measure this is because damages can be recovered in the Civil law only if the non-performing party was at fault. Contractual fault can, of course, be understood in ways that lead to a blurring of the distinction between fault and no-fault liability.  11  However, to the extent that contractual fault requires more than the mere showing that the goods delivered were non-conforming, reduction of price provides a remedy by way of monetary relief even though damages are not available for that non-conformity.

The Civil law also offers a remedy similar in effect, though not in theory, to reduction of price for delivery of an insufficient quantity of goods. The theory is that there has been a partial non-execution of the contractual obligation to deliver.  12  Therefore, if the price has not been paid and the buyer is faced with a partial non-delivery, he can rely upon the exceptio non adimpleti contractus to withhold that part of the purchase price related to the non-performance.  13  This remedy also finds a place in art. 46.

Under the Draft Convention

The buyer can reduce the price under art. 46 "if the goods do not conform with the contract." As would be expected, under art. 33 the goods do not conform with the contract if they are not of the quality or description required by the contract. However, in addition art. 33 provides that the goods do not conform if they are not of the requisite quantity or are not contained or packaged in the manner required by the contract. On the other hand, the fact that the goods are subject to a right or claim of a third party, including a right or claim based on industrial or intellectual property, does not make them non-conforming goods as that term is used in the Draft Convention.  14 

The remedies of reduction of price and of damages overlap to a greater extent under the Draft Convention than they do in the Civil law because the Draft Convention accepts the Common law rule that damages are available for any defective performance even if the non-performing party was not at fault.  15  The two remedies differ in several specifics, however. The most important distinction is that the date at which the buyer's monetary relief is calculated and the means by which it is calculated are different.

In comparing the time at which and the means by which the monetary relief is calculated under the two remedies, we are referring only to the direct damages which the buyer could recover for delivery of non-conforming goods. Under art. 41(2), exercise of the right to reduce the price does not preclude the buyer from claiming any further damages he has suffered which would not be compensated by a reduction of price, such as extra expenses in preparing for the goods or losses caused by spoilage of other goods caused by delivery of the non-conforming goods.

The differences in calculating the monetary compensation under the two remedies can be summarized as follows: damages are measured as of the time of delivery;  16  reduction of price is measured as of the time of conclusion of the contract. Damages are calculated as the absolute sum of money necessary to reimburse the loss suffered by the buyer; reduction of price is calculated in terms of an amount proportional to the difference in value of the goods as contracted and the goods delivered.

In illustrating the differences between damages and reduction of price it is helpful first to compare reduction of the price with the effect of a partial or complete avoidance of the contract. Art. 47 provides that if the seller delivers only part of the goods or if only part of the goods is in conformity with the contract, all of the remedies of the buyer, including the right to declare the contract avoided, apply to the part which is missing or which does not conform. As a result, in case of partial non-delivery of the goods, reduction of price under art. 46 and partial avoidance of contract under art. 47 would lead to the same measure of monetary relief for the buyer.  17 

Thus, if the seller fails to deliver 10% of the goods called for under the contract, the buyer could either declare the price reduced by 10% under art. 46 or he could declare 10% of the contract avoided. Furthermore, if the partial non-delivery was so serious as to constitute a fundamental breach of the entire contract, the buyer could declare the whole contract avoided and, in effect, reduce the price by 100%. The same relationship exists between avoidance of contract and reduction of price where the non-conformity relates to the quality of the goods rather than quantity. If the non-conformity is so serious as to constitute a fundamental breach of the entire contract, the buyer can declare the contract avoided, and, in effect, reduce the price by 100%. If the non-conformity renders 10% of the goods worthless, the buyer could reduce the price by 10% or declare that portion of the contract avoided. Similarly, if the non-conformity as to quality existed in all the goods and reduced their value by 10%, the buyer could reduce the price by that amount.

If the contract price is equal to the value of the goods at the time of conclusion of the contract and there is no price change between that time and the time of delivery (and no "consequential" damages such as a plant shut-down), there would be no difference in the amount of monetary relief to the buyer whether he reduced the price or claimed damages. However, if there has been a change in the price of the goods, the amount of monetary relief would be different. These differences can be illustrated by the following examples:  18 

Example A

Seller contracted to deliver 10 tons of first quality corn at the market price of $200 a ton for a total of $2,000. Seller delivered 10 tons of second quality corn, the market price of which at the time of contracting was $150 a ton. Therefore, if Buyer declared a reduction of price, the price would be $1,500. Buyer would in effect receive monetary relief of $500.

However, if the market price had fallen by half by the time of delivery of the non-conforming goods so that first quality corn sold for $100 and second quality for $75, Buyer's damages would be only $25 a ton or $250. In this case it would be more advantageous for Buyer to reduce the price than to claim damages.

Example B

If the reverse were to happen so that at the time of delivery of the non-conforming goods the market price of first quality corn had doubled to $400 a ton and second quality to $300, Buyer's damages would be $100 a ton or $1,000. In this case it would be more advantageous to Buyer to claim damages than to reduce the price.

Example C

If the delivery of second quality corn in Example A amounted to a fundamental breach of contract and Buyer avoided the contract, he could purchase in replacement 10 tons of first quality corn for $1,000, i.e., for an amount $1,000 less than the contract price, or purchase 10 tons of second quality corn for $750. If he chose to do the latter, which might be unlikely from a commercial point of view,  19  he would acquire second quality corn for $1,250 less than the contract price in comparison to the $250 he could receive in damages or the $500 by which he could reduce the price.

The preceding examples were based on three assumptions that will not always be present. One assumption was that the goods ordered were a fungible commodity for which substitute goods were freely available, making it feasible for the buyer to avoid the contract and purchase replacement goods, thereby providing a ready market price as a means of measuring value, and reducing the likelihood of any additional damages by way of lost profits or otherwise. If there is no such ready market for the goods, the problems of evaluation are more difficult, but the mechanism by which reduction of the price operates does not change.

A second assumption was that the proportionate relationship between the value of the goods as actually delivered and the goods as ordered was the same at the time of contracting and at the time of delivery. That is, it was assumed that second quality corn was always worth 75 per cent of first quality corn. This may not be the case of course. What must be remembered therefore is that the price could be reduced under art. 46 by an amount proportionate to the difference in value between the corn at the time of contracting, even though damages would be calculated as of the time of delivery.

Example D

If the price of first quality corn had doubled to $400 a ton, as in Example B, but the price of second quality corn had more than doubled to $360 a ton, damages would amount to only $400, not $1,000 as in Example B, but the price could still be reduced by $500, as in Example A.

A third and important assumption was that the contract price was equal to the value of the goods at the time of contracting. This will normally be the case where the sale is a commercial sale of goods, such as commodities which have a recognized market price. However it is less likely to be the case where the sale is not commercial -- a situation which does not normally arise under the Draft Convention  20  -- or where the goods do not have a recognized market price.

Nevertheless, the price in a commercial contract is not always equal to the value of the goods at the time of contracting. The advantage of reducing price rather than awarding damages is that it preserves the balance of the bargain struck between the two parties.  21  As this point was illustrated at one stage of the drafting history.  22 

Example E

"If . . . the ordinary value of the goods in a non-defective condition is £100 at the time the contract is concluded and if the ordinary value [at that time] of the defective goods delivered is £50, the agreed sale price of £80 may be reduced to £40," whereas a claim for damages would in effect reduce the price to £30, by allowing £50 in damages to be subtracted from the sale price of £80.

Given this illustration, it is easy to see the significance of the traditional Civil law rule that the buyer could claim damages only when the non-conformity of the goods was due to the seller's fault; it was only when the seller was at fault that the buyer could disturb the balance of the bargain by claiming damages.

On the other hand, where fault is established by the mere fact of delivery of non-conforming goods by a commercial seller or, as in the Draft Convention, damages can be claimed without demonstrating fault, reduction of price is not the buyer's exclusive remedy by way of monetary allowance. In Example E where reduction of price would give a smaller measure of monetary relief than would damages, the buyer can claim damages under the Draft Convention and the balance of the bargain will not be maintained. Where the buyer has made a bad bargain, reduction of the price gives the buyer a larger measure of monetary relief than does a claim for damages.

Example F

The facts are the same as in Example E except that the contract price was £120 for goods worth £100 at the time of contracting. Since the defective goods as delivered would have been worth £50 at the time of contracting, the buyer can reduce the price by one half or £60.

 1. See "Drafting History," text infra at n.33.

 2. Sutton, "The Draft Convention on the International Sale of Goods," 4 Australian Bus. L. Rev. 269 (1976) and 5 Australian Bus. L. Rev. 28 and 92 at 100 (1977).

 3. UCC 2-717 and United Kingdom, Sale of Goods Act 1893, s. 53(1)(a). The Sale of Goods Act is the basis of numerous Sale of Goods Acts in the Common law world. See Sutton, The Law of Sale of Goods in Australia and New Zealand 3 (2d ed. 1974).

 4. Amaudruz, La garantie des défauts de la chose vendue et al non-conformité de la chose vendue 131-132 (1968). A little later the author notes that this price reduction is in reality an action for damages exercised as a defence (at 134). However the point is that the remedy was not analyzed under damages but under price reduction to make it more familiar to Civil law readers.

 5. de Zulueta, The Roman Law of Sale 50 (1957). For an account of the evolution and operation of this edict in Roman Law and its role in modern Roman Dutch Law see Honoré, "The History of the Aedilitian Actions from Roman to Roman Dutch Law," in Daube, Studies in the Roman Law of Sale 132-159 (1959). For an excellent brief overview of the remedy and its impact on the Civil law see Morrow, "Warranty of Quality: A Comparative Survey," 14 Tul. L. Rev. 327 and 529 at 354-360 (1940). See also Bernini, "The Uniform Laws on International Sales, The Hague Conventions of 1964," 3 J. World Trade L. 689 (1969).

 6. The manner in which reduction of the price was calculated under Roman Law is a matter of some controversy. See and contrast the views of Mulligan, "Quanti Minoris Than What?" 70 So. Af. L.J. 132 (1953) with those of Honoré, supra n.5 at 150-157. However, for the purposes of the present article it is only necessary to note that price reduction was a separate remedy for a specific problem. The Draft Convention supplies a formula for the calculation of the amount of the price reduction.

 7. De Zulueta, supra n. 5.

 8. See Répertoire de Droit Civil (Dalloz, 1976) vol. 7, Vente (obligations du vendeur) paras. 459-573 (hereafter "Répertoire"). Although the buyer has the option to rescind the contract, case law has established that the courts may, at their discretion, reduce the price (la réfraction de la vente) if the difference in quality does not surpass that recognized by usage and does not make the goods unfit for their contract use (see Répertoire, para. 31). See also Kahn, La vente commerciale internationale 148-155 (1961).

 9. See Daniels, "The German Law of Sales," 6 Am. J. Comp. L. 489-495 (1957); Zweigert, "Aspects of the German Law of Sale," Int. and Comp. L.Q., Supp. Pub. No. 9 (1964) at 2-4; Amaudruz, supra n. 4 at 132-133; Rabel, "The Hague Conference on the Unification of Sales Law," 1 Am. J. Comp. L. 66 (1952) noted that the "old action, quanti minoris, for reduction of the price is presented in its best form under ?relative calculation?."

 10. Szakats, "The Influence of Common Law Principles on the Uniform Law on the International Sale of Good," 15 Int. and Comp. L.Q. 762-763 (1966).

 11. See e.g., Riegert, "The West German Civil Code, Its Origins and Its Contractual Provisions," 45 Tul. L. Rev. 75-78 (1970); Lawson, "Fault and Contract -- A Few Comparisons," 49 Tul. L. Rev. 295 (1975); Nicholas, "Rules and Terms -- Civil Law and Common Law," 48 Tul. L. Rev. 952-954 (1974); Rabel noted that "the Roman sources led civil law to the conception that, as warranty does not require fault as normal liabilities do, it also does not include damages. Yet the practice in France, Germany, and other countries has riddled this idea with exceptions." Supra n. 9 at 65-66.

 12. See Amaudruz, supra n. 4 at 38-40. The distinction becomes ill-defined in the operation of these rules in particular legal systems. E.g., in principle in French Law if the seller delivers only a portion of the goods art. 1184 and 1220 of the Civil Code would indicate the right to rescind the contract and claim damages. However case law has clearly established that it is for the trial judge (juge de fond) to decide whether to permit avoidance or to simply reduce the price, if the missing quantity is not essential (Répertoire, paras. 162-163). For a comparative analysis of the situation in French and German law see Treitel, "Remedies for Breach of Contract," in VII Int. Encyc. Comp. L. Ch. 16, para. 175 (1976).

 13. See Weill and Terré, Droit Civil, les obligations, paras. 465-477 (2nd ed., 1975). The authors note that the French Civil Code, unlike the German, does not contain a general provision setting out this principle but merely contains provisions which are specific applications of it. Case law has however extended the principle to all bilateral contracts (paras. 470-473). As the exception reflects the idea that obligations in bilateral contracts must be performed reciprocally, it operates as a temporary form of self-help which does not require judicial intervention. Partial avoidance of the contract would require judicial intervention (paras. 475-6).

 14. Arts. 39 and 40.

 15. For an exception, see art. 65 and Nicholas, "Force Majeure," supra at II-B.

 16. Art. 70, which sets out the formula for measurement of damages where the contract has not been avoided, does not specify the date as of when damages are to be measured. However, for the purposes of comparing damages with reduction of price, it is sufficient to state that the damages are measured as of the time of delivery. Cf. UCC 2-714(2), "time and place of acceptance" and United Kingdom, Sale of Goods Act, s. 53(3), "time of delivery."

 17. The most important difference between arts. 46 and 47 in this example is that if the contract has been partially avoided under art. 47, the seller loses his right to remedy the non-conformity whereas reduction of price under art. 46 does not terminate the seller?s right to remedy the non-conformity.

 18. These examples are slight modifications of Examples 31E, 31F and 31G in the Commentary on the Draft Convention (A/CN.9/116, Annex II), VII Yearbook 117. These examples will appear in the Commentary to the UNCITRAL Draft Convention.

 19. If the buyer were to purchase second quality corn in replacement, it might also show that the delivery of this corn rather than first quality corn did not amount to a fundamental breach of contract. Cf. Cehave N.V. v. Bremer Handelgesellschaft mbH; The Hansa Nord, [1976] Q.B. 44.

 20. Art. 2(a) provides that the Convention does not apply to sales "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."

 21. Amaudruz, supra n. 4 at 132. See also Draft of a Uniform Law on International Sale of Goods (Corporeal movables) and Report, U.P.L. 1939 - - Draft I(2) (UNIDROIT, 1951) at 80, hereafter, "1939 UNIDROIT Report."

 22. Infra n. 40. The German example assumed no price change between the time of contracting and the time of breach.

[ document manifest ]

toc next >>