Cite as Bennett, in Bianca-Bonell Commentary on the International Sales Law, Giuffrè: Milan (1987) 531-537. Reproduced with permission of Dott. A Giuffrè Editore, S.p.A.
1. History of the provision
2. Meaning and purpose of the provision
3. Problems concerning the provision
(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 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.
1. History of the provision
1.1. - This article makes specific provision for breaches of contracts for delivery of goods by instalments. Paragraph (1) introduces a right (not recognized in some legal system) to avoid a contract, not in its entirety, but with respect to a particular instalment only. Paragraph (2) deals with the case where a failure to perform obligations in respect of one instalment gives grounds to conclude that a fundamental breach will occur with respect to future instalments, and paragraph (3) provides for instalments which are interdependent.
1.2. - The article is derived from Article 75 of ULIS, which read: [page 531]
(1) Where, in the case of contracts for delivery of goods by instalments, by reason of any failure by one party to perform any of his obligations under the contract in respect of any instalment, the other party has good reason to fear failure of performance in respect of future instalments, he may declare the contract avoided for the future, provided he does so promptly.
(2) The buyer may also, provided that he does so promptly, declare the contract avoided in respect of future deliveries or in respect of deliveries already made or both, if by reason of their interdependence such deliveries would be worthless to him.
1.3. - The Working Group in 1974 made several changes to the language of these paragraphs (see Yearbook, V (1974), 40-41). In the first paragraph, with a view to achieving conformity with other articles, the expression «failure of performance» was changed to «a fundamental breach», and the word" «promptly» was changed to «within a reasonable time».
The second paragraph was re-drafted so as to
|-||change the proviso that the buyer act «promptly» to one that he act «at the time»;|
|-||confine its operation to deliveries already made (on the basis that future deliveries were already provided for in the first paragraph); and|
|-||change the requirement that the deliveries be «worthless to» the buyer (which was thought to be too subjective) to one that the deliveries «could not be used for the purpose contemplated by the parties in entering the contract».|
1.4. - Article 73(1) was inserted by the Commission in 1977. It was then noted that there was no provision enabling the seller to avoid a part of the contract equivalent to the provision in what is now Article 51, which allowed the buyer to do so. It was considered that such a provision would be useful since, if the buyer's performance is seriously deficient with respect to one instalment, the seller should be permitted to refuse his counter-performance in respect of that instalment even though the failure in respect of that instalment did not give him good reason to fear a fundamental breach in respect of future instalments (see Yearbook, VIII (1977), 54).
1.5. - Other changes were made by the Commission. In paragraph (2) (previously paragraph (1)) the expression «good [page 532] reason to fear» was changed into «good grounds to conclude» (which at the time brought it into conformity with the language of the article providing for suspension of performance, although that language was subsequently changed at the Vienna Conference); paragraph (3) (previously paragraph (2)) was changed so that the initial avoidance action on which its operation depends need not be in respect of future deliveries, but may be in respect of «any» delivery, which will include the last delivery that has been made; paragraph (3) was also changed so that the power conferred by it to take avoidance action on the ground of interdependence of deliveries applies in respect of «deliveries already made or of future deliveries» (thus reverting in this respect to the language of the provision in ULIS).
1.6. - Article 73 was not amended at the Vienna Conference.
2. Meaning and purpose of the provision
2.1. - Apart from this provision a buyer has a right under Article 51 to partially avoid a contract, but a seller has no corresponding right. Article 51 is not specifically directed to contracts which provide for deliveries of goods by instalments, that is, in separate lots. Article 73 is specifically directed to such contracts and, with the exception of paragraph (3), it confers rights on both the buyer and seller.
2.2. - Paragraph (1) is the basic provision in the article introducing as it does the concept of avoidance of a contract with respect to a particular instalment in relation to which a breach of contract has occurred. The right is dependent upon the breach being a fundamental one with respect to the instalment in question.
2.3. - There is no requirement in paragraph (1) to give the other party prior notice of the proposed avoidance, and no opportunity for the other party to give an assurance of performance (see Article 72).
2.4. - Thus, a contract may call for the delivery of 1,000 tons of No. 1 grade corn in 10 separate instalments. When the fifth instalment is delivered, it may be unfit for human consumption. Even [page 533] if in the context of that contract one such delivery would not constitute a fundamental breach of the entire contract, the buyer could avoid the contract in respect of the fifth instalment. As a result the contract would in effect be modified to a contract for the delivery of 900 tons at a proportionately reduced price (see Yearbook, VII (1976), 129).
2.5. - There should be no particular difficulties in determining whether a breach is fundamental where each instalment consists, as in the above example, of goods that are usable or resaleable independently of the other instalments. However, it may be more difficult where the individual instalments are part of an integrated whole. This would be the case, for example; where the sale is of a large machine which is delivered in segments to be assembled at the buyer's place of business. In such a case the determination as to whether the breach in respect of that instalment was fundamental should be made in the light of the detriment suffered by the buyer in respect of the entire contract, including the ease with which the failure in respect of the individual instalment can be remedied by repair or replacement.
2.6. - Looked at from a seller's point of view, paragraph (1) may entitle him to avoid a contract with respect to a particular instalment where the buyer failed to make prior payment for that instalment as required by the contract.
2.7. - Paragraph (2) provides for the contract to be avoided «for the future», i.e., with respect to future instalments. Avoidance in respect of those instalments is dependent on an anticipatory breach of contract the occurrence of which is not required to be «clear» as it is in Article 72. What is required by Article 73 is that there must have already been a failure by the other party to perform one of his obligations in respect of an instalment and that failure must give the party proposing to take the avoidance action «good grounds to conclude that a fundamental breach of contract will occur with respect to future instalments». The action must also be taken «within a reasonable time» from the occurrence of the failure. It should be noted that the failure itself is not required to constitute a fundamental breach. A breach which is not by itself fundamental may in its [page 534] context, for example, a series of such breaches over a period, provide the necessary ground for concluding that a fundamental breach will occur. Nor is it a condition precedent to the applicability of the paragraph that avoidance action has been taken for the instalment in which the failure occurred. Indeed, if that failure did not constitute a fundamental breach of the instalment, it would not give rise to a right to take action under paragraph (1).
2.8. - Paragraph (3) provides for cases where one instalment is avoided and it has an interdependence with other deliveries, past or future. If that interdependence is such that the other deliveries could not be used for the purpose contemplated by the parties at the time of the conclusion of the contract, the contract can be avoided in respect of the other deliveries, provided this is done «at the same time». No breach or anticipated breach is necessary in relation to them; the right to avoid the contract in relation to them rests upon their interdependence with the delivery that is the subject of the primary avoidance.
2.9. - Thus, in the case of a contract for the supply of a specially-designed machine by three instalments of separate parts capable of integration on assembly by the buyer, the first instalment might comply with the contract but be followed by a second which is defective, unusable and not replaceable by any available substitute. In those circumstances the buyer would have a right under paragraph (1) to declare the contract avoided with respect to the second instalment (fundamental breach) and would then have a right under paragraph (3) to declare the contract avoided in respect of the first and third deliveries (interdependence). His action in relation to the first and third deliveries would, of course, have to be taken at the same time as his declaration in respect of the second delivery.
3. Problems concerning the provision
3.1. - The interrelationship of Article 73 with other articles, particularly Articles 51 and 72, could give rise to some problems. [page 535]
3.2. - Article 51 (in conjunction with Article 49) also provides a buyer with a right to avoid a part of a contract and such a part could, but need not, be an instalment. The buyer may therefore have to decide whether to proceed under Article 51 or Article 73. Advantages of Article 73 are that it provides specifically for instalment deliveries and for avoidance of not only the instalment in respect of which a breach has occurred but of future and interdependent instalments. It should also be noted that there is no express requirement in Article 73(1), to act «within a reasonable time» as there is for action under Article 51. On the other hand, under Article 73(1) a non-performance must constitute a fundamental breach with respect to the instalment in question, whereas Article 51 attracts the provision in Article 47 for the fixing of an additional period for the seller to perform his obligations and the related provision in Article 49(1)(b) for avoidance on the ground that delivery is not effected within that time, irrespective of whether this constitutes a fundamental breach of the relevant part of the contract. If, as could often be the case, the buyer fixes such an additional period for delivery of an instalment and the instalment then is not delivered within that additional time, he can avoid any question as to whether there has been a fundamental breach by acting under Article 51.
3.3. - There is also considerable overlap between Article 72 and Article 73(2). Both are concerned with anticipatory breaches. In their wording the former provision provides for avoidance of the entire contract whereas the latter provides for the contract to be avoided «for the future». However, the practical effects of these two types of avoidance will often be much the same. The applicability of the two provisions depends on different grounds. Under Article 72 it must be «clear» that a fundamental breach of contract will be committed; under Article 73(2) the test is less stringent, i.e., it is sufficient that there be «good grounds to conclude that a fundamental breach of contract will occur», but those grounds must have been preceded by, and indeed derived from, an actual failure to perform obligations. It is doubtful whether the grounds can derive from, say, the bankruptcy of the other party or a statement by him that he does not intend to perform his obligations with respect to future instalments. In such a [page 536] case the appropriate course would be to proceed under Article 72, if it is otherwise applicable.
3.4. - A declaration of avoidance under Article 73(2) does not have to be preceded by a notice of intention to the other party as is required under Article 72. However, the declaration must be made «within a reasonable time », a requirement which is not included in Article 72 at least in express terms.
3.5. - Under Article 73(2) questions are bound to arise as to whether deliveries are interdependent. In this regard it should be noted that the paragraph refers to the purpose contemplated by «the parties». In many cases it is likely that the purpose for which the deliveries were to be used would have been within the contemplation of the buyer only. In that event the paragraph would, it seems, be inapplicable. To guard against this possibility, a buyer of interdependent instalment deliveries may be wise to inform the seller, at the time of contracting, of the purpose for which the goods are to be used. [page 537]