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

Evaluation of Article 46

It may be asked whether art. 46 is worth the difflculty it seems to have caused. Would it not be better to follow the suggestion raised on several occasions in the past and transform reduction of price into a set-off provision?  63 

Such an alternative is not open. Reduction of price is too well known to Civil law jurists as the ordinary form of monetary relief available to a buyer who has received non-conforming goods for there to be any question of deleting it from the Draft Convention.  64 

Furthermore, international contracts of sale of generic goods frequently provide for reduction of price in cases of non-conforming goods,  65  and art. 46 could be seen to reflect this commercial practice.  66  In point of fact, however, art. 46 will serve only a secondary but somewhat useful function in the total scheme of remedies available to a buyer under the Draft Convention.  67 

Certainly, it is useful to have some procedure which relieves the buyer from paying the full contract price when the reason that the seller failed to deliver all of the goods or delivered them, or some of them, in a defective condition was the existence of an "impediment" which was beyond the seller's control and which met the other requirements of art. 65. The buyer cannot get monetary relief by claiming damages, since art. 65 exempts the seller from liability for damages in such a case. It is true that in cases of partial nondelivery art. 47 enables the buyer to get the same relief offered by art. 46 by declaring the avoidance of that portion of the contract which has not been performed. However, partial avoidance of the contract under art. 47 is not useful when there is a non-conformity of quality which does not justify even partial avoidance or when the buyer does not wish to avoid any portion of the contract. In such cases only art. 46 can give the needed monetary relief. In essence, art 46 gives the same result in most of these situations as would be reached under UCC 2-613 and 2-615,  68  but perhaps not always the same result as would be reached under the Sale of Goods Act 1893.  69 

As noted above, the most important aspect of art. 46 is the impact of the different method of calculating the buyer's monetary relief compared with damages. In this regard it should be said that reduction of price does not have the same justification in the Draft Convention as it does in some Civil law systems. The justification for a reduction of price for defect in quality is a reformation of the original contract which retains the relative balance of the bargain made by the parties.  70  If the buyer made a bad bargain, in that he contracted to pay more than the value of the goods or the price went down between the conclusion of the contract and the delivery date the buyer has just as bad a bargain in percentage terms after the price has been reduced. If the buyer made a good bargain, after reduction of the price he has just as good a bargain in percentage terms as at the time of the original contract. Where the buyer made a good bargain and therefore would recover more in damages than by reducing the price, the Civil law allows him to claim the higher amount of damages, thereby breaking the original balance of bargain, only if he can show that the seller was at fault.  71  However, since the buyer does not need to show any fault on the part of the seller in order to claim damages under the Draft Convention, reduction of price loses one of its primary theoretical justifications and becomes an alternative form of monetary relief to the buyer.

It is a form of monetary relief which the buyer will not seek very often since the only occasion when it is to his advantage to reduce the price is when he has made a bad bargain. But these are the occasions when the seller, having made a good bargain, will strive with more than normal diligence to perform the contract.

Nevertheless, sellers do breach profitable contracts and it might be asked whether in these circumstances the buyer should be able to receive by way of reduction of price more than he would in damages. It would also be possible to ask the opposite question: should the Draft Convention permit a buyer who has made a good bargain to claim damages for his direct losses of an amount greater than he would receive from reduction of price even though there was no fault on the part of the seller. The question however must be asked by those who are more committed to fault as a prerequisite to a claim for damages than are the authors of this article.

Certainly, to allow the buyer to reduce the price where he has made a bad bargain would put him in a better position than he would be in if the seller were to perform the contract, a situation which cannot be justified by the usual explanation of the function of damages. Nor can this result be explained as a reformation of the original contract which maintains the balance of the bargain, the explanation often given by Civil law jurists for reduction of price,  72  unless the buyer is limited to reduction of price when he has made a good bargain.

Nevertheless, reduction of price as it functions in art. 46 is justified if it is seen as a partial avoidance of the contract, a role which it shares in some situations under the Draft Convention with art. 47. When viewed this way, the monetary relief given under art. 46 can be compared not only with damages, but also with the monetary relief given the buyer when he declares the entire contract avoided. As seen in example C,  73  where the buyer has made an unfavorable contract, reduction of price gives the buyer more than he would get from claiming damages and less than he would get from declaring the entire contract avoided.

There is a practical side to this justification. Where the buyer has made a bad bargain, he is encouraged by the traditional measure of damages to seek avoidance of the entire contract in order to be able to purchase substitute goods at the lower prevailing price. Courts tend to be suspicious of the buyer's evaluation of the seriousness of the defect of the goods in such a situation, and well they might. Reduction of price goes part way towards meeting the buyer's desire to get out of the entire contract. By doing so it may cause some buyers to keep goods which they might otherwise reject, a policy greatly to be favored when it is remembered that the rejected goods in a case falling under the Draft Convention will be in a country other than that of the seller. To this extent art. 46 reinforces the policy which lies behind the rule in the Draft Convention that a party can declare the contract avoided only if the breach is fundamental.

 63. See text supra at n.2 and 59.

 64. The Report of the Working Group?s fourth session notes that "most representatives who spoke on the issue agreed that the uniform law should provide for the remedy of reduction of the price because it was widely used, especially in civil law countries" A/CN.9/75, para. 119, IV Yearbook 71.

 65. See Report of the Secretary-General on the feasibility of developing general conditions of sale embracing a wide scope of commodities, A/CN.9/78, paras. 154-160, IV Yearbook 94.

 66. For judicial consideration of such provisions see, for example, R. Pagnan and Fratell v. Corbisa Industrial Agropacuaria Limitada, [1971] I W.L.R. 1306. See also judgment of Lord Denning M.R. in the Hansa Nord, supra n. 19 at p. 63.

 67. See Godenhielm, "Some views on the System of Remedies in the Uniform Law on International Sales," 10 Scand. Stud. L. 29-30 (1966).

 68. It is interesting to note that UCC 2-613(b) gives a limited but clear example of reduction of price for an excused defect in quality. 2-613(b) and 2-615 also give clear examples of reduction of price, or partial avoidance of contract, for an excused partial non-delivery.

 69. S.30(1) of the Sale of Goods Act provides that 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. See Behrend and Co. v. Produce Brokers Ltd., [1920] 3 K.B. 530; Ebrahim Dawood Ltd. v. Heath (est. 1927) Ltd., [1961] 2 Ll. L.R. 512. In H.R. and S. Sainsbury v. Street [1972] 1 W.L.R. 834, seller agreed to sell about 275 tons of barley to be grown on his farm. Events beyond the seller?s control resulted in the production of only 140 tons which were sold to a third party at a higher price. The Court held that although seller was excused from failure to deliver the 135 tons because that part of the contract was frustrated, it was implicit in the contract that he was under an obligation to deliver the rest at the contract rate (at 835-6 and 839). In cases where the quality of goods has been affected the normal remedy is damages. If the contract has been frustrated by the "impediment," the incidence of losses will depend upon whether apportioning legislation such as the Law Reform (Frustrated Contracts) Act 1943 applies. See Chitty on Contracts(24th ed., 1977) at paras. 1448-1463; Sutton, supra n. 3, ch. 5; Benjamin?s Sale of Goods(1974) at paras. 442-446; McElroy, Impossibility of Performance (1941).

 70. See supra n. 21.

 71. See text supra at n. 11.

 72. See text supra at n. 21.

 73. Text supra at n.19.

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