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

Other Aspects of Price Reduction

Although the most obvious difference between damages and reduction of price is the time at which and the means by which the monetary allowance will be calculated for defective performance, there are a number of other differences between the two.

One difference (more formalistic than substantive) is that, under the Draft Convention, the remedy of price reduction is effectuated by the unilateral declaration of the buyer. No further action by the seller, such as acquiescing to the reduction of price, or by a tribunal in confirming the reduction, is necessary. This can be compared with the remedy of damages in which the buyer may "claim" the damages from the seller but his claim is not liquidated until the seller or a tribunal has agreed to it. Interestingly enough, this aspect of the remedy appears to be unique to the Draft Convention since in at least French and German law something more than the unilateral declaration of the buyer is necessary to change the juridical situation.  23 

Although the only other remedy under the Draft Convention which is effectuated by the unilateral act of a party, i.e., a declaration of avoidance of contract, is required to be made by notice to the other party,  24  no such requirement is placed on the declaration of reduction of price. Presumably it must be done by means appropriate in the circumstances,  25  but it may well be that one such means would be the statement of claim or defense in a law suit.

From the point of view of the final adjustment of the financial obligations of the parties, it is of no consequence that the price is reduced by the buyer's unilateral declaration. If the price has not yet been paid, he will offer to discharge his obligation by paying the reduced sum. If the price has been paid he will claim the amount of the reduction back from the seller. However the same result would occur if the buyer were to make a claim for damages. And in either case, if the seller disagrees with the buyer as to the existence of a non-conformity in the goods -- or other failure of performance -- or as to the monetary consequences of that non-conformity, the issue must ultimately be settled in court.  26 

On the other hand, some consequences may attach to the fact that the price is reduced by the unilateral act of the buyer. A declaration would probably constitute a binding election of remedies. It may affect the running of a period of limitation  27  and it may have procedural consequences under the law of the forum.  28  None of these matters, however, is governed by the Draft Convention itself.

Three rules which restrict the amount of damages that can be awarded do not apply to reduction of price. Similar to the Common law rule in Hadley v. Baxendale,  29  damages are limited by art. 70 to those which were foreseen or ought to have been foreseen by the party in breach. They are further limited by the requirement in art. 73 that the party not in breach mitigate the loss. Finally, the party in breach may be discharged from damages in accordance with the Draft Convention's version of relief for impossibility of performance or force majeure as found in art. 65.

It may be doubted whether it is of great significance that the remedy of reduction of price is not subject to the test of foreseeability. It would always appear to be foreseeable that non-conformity in respect of quantity or quality would lead to a reduction in value of the goods, although the amount of that reduction might not be foreseeable. This assumption is so strong that under the UCC the requirement that the loss be foreseeable explicitly applies only to the buyer's consequential damages, but not to his direct or incidental damages.  30 

Although the mitigation principle of art. 73 does not apply to reduction of price, the same result is achieved by art. 46 itself. According to the second sentence of art. 46, even if the buyer has already declared the price reduced, if the buyer does not permit the seller to remedy the non-conformity of the goods in accordance with art. 44, e.g., by sending the missing goods, by repairing the defect or by sending replacement goods, his declaration of reduction of price will be of no effect.  31 

On the other hand, the fact that "exemption" from damages under Art. 65 is not applicable to reduction of price  32  has real consequences in the overall remedy scheme of the Draft Convention. Art. 65 provides that if the seller was impeded from performing any of his obligations, including the obligation to deliver all of the goods and to deliver them in the required condition, by an "impediment beyond his control . . . that he could not reasonably be expected to have taken . . . into account at the time of the conclusion of the contract or to have avoided or overcome it or its consequences," the seller is exempted from damages.

As a result, if the seller is unable to deliver all of the required goods or to deliver them in the required condition because of an impediment which meets the requirements of art. 65, he would nevertheless have to stand ready to deliver all that he could in the best possible condition. The buyer would have a choice whether to accept the goods offered or, if the extent of the non-delivery or the non-conformity as to quality was great enough, to avoid the contract. If the buyer accepted the goods delivered by the seller, he would be liable to pay for them at the contract price as reduced under art. 46. However the buyer could not claim damages, whether direct, incidental or consequential, as a result of the missing or non-conforming goods.

In some of the cases in which the buyer could reduce the price, but not claim damages because of "exemption" under art. 65, he could achieve the same result by declaring a portion of the contract avoided under art. 47. He could do so in case of a partial non-delivery of the goods or if some of the goods were so non-conforming in quality as to amount to a fundamental breach of the contract as to those goods. However if the defect in the goods did not amount to a fundamental breach even as to the individual goods that were defective, or if the buyer wished to keep the defective goods at an appropriately reduced price, art. 46 is the only provision under the Draft Convention by which this could be achieved.

 23. Art. 1644 of the French Civil Code provides that the amount of price reduction in cases of hidden defects is to be determined by experts. In cases of "réfaction," the Court will determine the amount of the price reduction. ? 472 BGB provides a formula for reducing the price in the proportion that the value of conforming goods at the time of the sale bears to the value of the defective goods as of that time. Daniels, supra n. 9 at 491, notes that "if the parties cannot agree on the actual market value of the defective goods such value will be fixed by the Court."

 24. The right of the buyer to declare the contract avoided is set out in art. 45, that of the seller is set out in art. 60. The requirement that the declaration be by notice to the other party is in art. 24.

 25. Art. 25.

 26. See UNCITRAL, Report on Tenth Session (1977) A/32/17, Annex I, paras. 301-302; VIII Yearbook 46-47.

 27. Art. 20 of the Convention on the Limitation Period in the International Sale of Goods, U.N. doc. A/CONF.63/15, reprinted in 23 Am. J. Comp. L. 356 (1975), has the effect of making a new limitation period of four years run from the date of a written acknowledgement to a creditor or from partial performance of an obligation by the debtor if it can reasonably be inferred from that performance that the debtor acknowledges that obligation. Should seller challenge the amount of the price reduction, a Court might treat the buyer?s act of declaring a reduction in price as an acknowledgment that starts a new limitation period of four years for the buyer?s obligation.

 28. Some Common law jurisdictions offer certain procedural advantages to claims for the recovery of liquidated debts as opposed to claims for damages. Thus if the buyer has paid the price and then declares it reduced and this reduction is judged reasonable, it might be treated as a claim for a liquidated debt just as claims based on quantum meruit or quantum valebant counts are treated as claims for a debt or a liquidated demand for money. For an extensive discussion of these matters see Alexander v. Ajax Insurance Co. Ltd., [1956] Vict.L.R. 436; also Lombard Australia Ltd. v. Smeaton, [1966] Vict. R. 272.

 29. (1854) 9 Exch. 341.

 30. Compare UCC 2-712, 2-713, 2-714 and 2-715(1) with 2-715(2).

 31. According to art. 44(1), the buyer need not allow the seller to remedy the non-conformity unless "he can do so without such delay as will amount to a fundamental breach of contract and without causing the buyer unreasonable inconvenience or uncertainty of reimbursement by the seller of expenses advanced by the buyer." He also need not allow the seller to remedy the non-conformity if he has declared the contract avoided.

 32. See Nicholas, "Force Majeure and Frustration," II-B supra.

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