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Reproduced with the permission of Oceana Publications

excerpt from

INTERNATIONAL SALES LAW

United Nations Convention on Contracts for the International Sale of Goods

Convention on the Limitation Period in the International Sale of Goods

Commentary by
Prof. Dr. jur. Dr. sc. oec. Fritz Enderlein
Prof. Dr. jur. Dr. sc. oec. Dietrich Maskow

Oceana Publications, 1992

Article 63 [Fixing of additional period for performance] [1]

[TEXT OF THE UNIFORM LAW]

(1) The seller may fix an additional period of time [4] of reasonable [3] length for performance by the buyer of his obligations [2].

(2) Unless the seller has received notice from the buyer [6] that he will not perform within the period so fixed [7], the seller may not, during that period, resort to any remedy for breach of contract [5]. However, the seller is not deprived thereby of any right he may have to claim damages for delay in performance [8].

[WORDS AND PHRASES, CONCEPTS

1. right to set a Nachfrist: main consequences
2. seller may fix an additional period of time for performance by the buyer of his obligations
3. an additional period of time of reasonable length
4. fixing the additional period of time
5. 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
6. form of the Nachfrist notice
7. unless the seller has received notice from the buyer that he will not perform within the period so fixed
8. however, the seller is not deprived thereby of any right he may have to claim damages for delay in performance

[COMMENTARY]

[1] [right to set a Nachfrist: main consequences]

Article 63 grants the possibility to set a Nachfrist having the main consequence that the seller, during that period, in general has to stick to the contract while retaining his rights to claim damages. After that Nachfrist has elapsed fruitlessly, he has the right to avoid the contract when the most important obligations are violated. [page 236]

[2] [seller may fix an additional period of time of reasonable length for performance by the buyer of his obligations]

      [2.1] When the buyer does not fulfil according to his obligations under the contract, a practical occasion arises for the seller to relate to it. He can do so by abstractly, hence without setting a Nachfrist, insisting on performance. Also he can immediately upon the obligations becoming due resort to the deciding organs, which is done relatively seldom. The seller can, however, ascertain his right to obtain performance also in setting a Nachfrist of reasonable length. He can, at any time, give up in the event of the first-mentioned ways of ascertaining his right to obtain performance and can proceed to another right, which may even be inconsistent with it, insofar as the conditions for it are given, hence, in particular to avoidance of contract (c. Article 64, paragraph 1, subpara. (a)). But he is blocked in his movement in the latter case for the duration of the Nachfrist (paragraph 2, sentence 1). He has the advantage, however, that after the expiry of the Nachfrist without performance on the part of the buyer, the right to [avoid] the contract becomes applicable anyway in regard to the right to payment of the price or also to taking delivery of the goods, i.e. even if the delay, which occurred first, in performance did not constitute a fundamental breach of contract (Article 64, paragraph 1, subpara. (b)). The setting of a Nachfrist, therefore, causes doubts as to the fundamentality of the breach of contract [to become] irrelevant. The effect is not the same in regard to other rights with respect to performance (note 5). Finally, the setting of a Nachfrist may result in that a right to avoidance of contract, which would have to be asserted within the period set under Article 64, paragraph 2, subpara. (b) (i), would then have to be ascertained only within the time limit under (b) (ii). In practice this will, however, only refer to exceptional cases (Article 64, note 13).

      [2.2] The setting of a Nachfrist is governed by the general rule of Article 27, i.e. the seller can rely on a Nachfrist, even if the relevant communication is received belatedly, contains errors or is not received at all. The opposite view held by Knapp (BB, 460) is understandable, however not tenable in our view. The rule under Article 27 is problematic. But since it has been adopted, certain cases, which clearly come under its scope of application, cannot be excluded for substantive considerations. Leser (Freiburg, 237 fol) tries to find an intermediary solution dissecting and analyzing the effects of dispatch. But this leads to further complicated distinctions for which reliable clues cannot be deduced from the text of the Convention.

      [2.3] By contrast to Knapp (BB, 459), we believe that a Nachfrist can be set before there is a delay (see also the comparable case of Article 88, paragraph l and note 3 thereto), e.g. when it can be anticipated and the buyer signals difficulties. This is not a one-sided modification of the contract, as Knapp believes. The buyer can still deliver at [page 237] the time for delivery, and the reasonable time is to be counted starting at the end of the time for performance.

      [2.3] Like Knapp (BB, 461) and differing from Honnold (361 in connection with 306) and Sevón (Dubrovnik, 224), we hold that the Nachfrist must not be considered as final and/or the buyer must not be warned by the seller that he will declare the contract avoided. A formulation like "We set an additional period of time for payment on your part until May 31 ... "is in our view sufficient. Accordingly, we also are of the opinion that the Nachfrist can be extended, and upon its expiry a new one may be granted. The setting of a Nachfrist for performance of the most important obligations -- in regard to the others the problem is uninteresting anyway -- gives the seller an option to either stick to the contract, e.g. when non-payment is caused by foreseeable temporary difficulties of transfer, or make it [subject to avoidance]. The seller would be forced into too strict a scheme if in setting a Nachfrist he had to threaten the buyer with avoidance of the contract. The authors [who] spoke up in favour of this left open what would happen if the seller does not carry out his threat. One should not get too near again to the scheme of the ipso facto avoidance. However, the seller in setting the Nachfrist may declare the contract at the same time avoided in case it is not kept to by the buyer.

[3] [an additional period of time of reasonable length]

The vague term of reasonableness leaves some room to act at one's own discretion which can be used by the party who is entitled to set the Nachfrist, i.e. in this case the seller. If he fixes too short a period, the competent deciding body could determine the minimum Nachfrist.

In calculating the additional period, factors have to be taken into account which concern both parties. On the seller's part, these are: possibilities and costs for storage of the goods (compare also Article 88, paragraph 2) and price developments, e.g. the Nachfrist will be shortened in the event of a rapid decline in prices because the proceeds from a substitute transaction under Article 75, which presupposes an avoidance of the contract, would be reduced as a result. On the buyer's part, it is the difficulties which he is confronted with during performance that are of relevance, e.g. when he needs more time than expected for complying with the so-called formalities in preparing the payment (Article 54) or also in importing the goods. The seller can take such factors into consideration only when the buyer informs him thereof. [page 238]

In the setting of a Nachfrist, the postal handling time needed for the information to reach the buyer has to be considered because the latter must have time to undertake the relevant activities during that Nachfrist. In the light of the fact that there is a breach of contract by the buyer here, we believe that the interests of the seller should be decisive. The reasonable period of time should in general be rather short in such cases. Sevón (Dubrovnik, 225) stresses this, in particular in regard to the obligation to pay the price.

In interpreting the term of a reasonable Nachfrist, conformity should be established with the interpretation of the formulation "unreasonable delay" in Article 88, paragraph 1 (see also note 2 of that article), namely in such a way that an unreasonable delay is given when the reasonable Nachfrist has expired. Such conformity is required because the right to resell the goods under Article 88 will produce results that are similar to those of a substitute transaction under Article 75, so that the conditions in both cases will have to be aligned so as not to create unfounded alternatives. A substitute transaction presupposes avoidance of the contract and the latter again presupposes frequently the setting of an additional period of time for performance.

[4] [fixing the additional period of time]

This time will have to be fixed or be fixable according to the calendar (O.R., 49). The mere invitation to deliver ''as soon as possible", "promptly", "immediately" or within a similarly vaguely defined period of time is not sufficient because that would merely have to be considered as abstract reliance on the right to obtain performance under Article 62 (so believes also Honnold, 361 in connection with 306; Sevón/Dubrovnik, 224; Knapp/BB, 460 fol).

[5] [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]

Among the rights granted by the CISG itself this refers to the right to avoid the contract under Article 64 and the right to resell the goods under Article 88, paragraph 1, from which another reason can be inferred to interpret the regulation concerning the periods of time in both articles in the same way. These are, therefore, rights to early termination of the contract and/or such which practically amount to it. But this does not refer to the emergency transaction under Article 88, paragraph 2, which has to be carried out as an obligation of the party obliged to preserve the goods. However, it is rarely of relevance in cases where an additional period of time was granted.

It is nevertheless indeed problematic when the seller must not exercise other rights ensuing from a breach of contract either, but rather has to wait and see whether the buyer performs within the Nachfrist. Hence, the seller can within the additional period of time not require the buyer to perform under Article 62 (so believes also [page 239] Plantard/Lausanne, 116). This is acceptable because the right to require performance and the right to set an additional period of time for performance are basically variants of the right to obtain performance between which the seller can choose from the outset. Also specification made by the seller himself as a specific legal consequence of the non-fulfilment of the obligation of the buyer for specification under Article 65 cannot be made during the additional period of time (more in detail Article 65, note 4).

It is thus the rights to compensation which constitute the real problem. Only the right to claim damages is expressly not blocked. The same should apply to the right to reimbursement of expenses under Article 85. Since the rights because of breach of contract are excluded in their entirety, but the right to compensation of expenses is granted specifically under Article 85, it has to be regarded as still existent when a Nachfrist is set. Apart from this formal deduction, there is also a functional interpretation which is orientated towards the objective of the rule. It would be absurd not to grant the seller the right to reimbursement of expenses in commercial practice -- preservation of the goods may even be a condition for the setting of an additional period of time. This would also contradict the basic idea recognizable in the retention of the rights to claim damages that losses in the property of the seller should be compensated by the buyer also when a Nachfrist is set. Finally, with certain modifications, expenses can be considered as a specific form of damage in the meaning of Article 74.

For similar substantive and formal reasons we believe that the entitlement to interests under Article 78 is also not excluded when a Nachfrist is set. In this case, it also has to be considered that otherwise reimbursement of the damage exceeding the interests could be required, but that there would be no entitlement to the interests themselves. And finally, we hold that a right to penalty/liquidated damages, e.g. because of late performance of participatory obligations in the manufacture of the goods, provided that there is no provision to the contrary in the contract, would not be excluded by setting an additional period of time. The considerations made so far also speak in favour of this, with one modification: depending on the agreement or the applicable law, the penalty liquidated damages constitute(s) either a standard damage or a standard minimum damage, less frequently a standard maximum damage. Hence, penalty liquidated damages do(es) in any case constitute a form of damages for which the same exemptions apply. Therefore, there seems to be a clear possibility of subsumption under sentence 2. [page 240]

Expenses, interests and penalties/liquidated damages can often be claimed as damages, but not in all cases and sometimes only under additional conditions. But why should the seller be penalized in such a way when he accommodates the buyer by setting a Nachfrist.

Specific discounts that would be granted for advance payment, immediate payment or similar reasons should certainly be lost in case of setting a Nachfrist.

It becomes evident as a result of this discussion that only comparable rights and comparable claims are excluded, not however claims for compensation. But the rule is not formulated very fortunately anyway.

When a Nachfrist is set for the fulfilment of a specific obligation under the contract, e.g. taking delivery of the goods, avoidance of the contract is not excluded during that Nachfrist because of another fundamental breach of contract, e.g. the cheque handed over for payment is not honoured (Sevón/Dubrovnik, 226).

The option to rely on a failure caused by the other party under Article 80 is not excluded by the setting of an additional period of time either. This may assume practical relevance among others when a Nachfrist is set for the fulfilment of obligations to participate in the manufacture of the goods or for the procurement of guarantees for payment.

[6] [form of the Nachfrist notice]

No form is prescribed for the notice; it can be oral or in writing but, according to its character of a notice, it cannot be given by other conduct, i.e. conduct implying an intent. As to its substance, the notice must be clear without having to include the formulations of the Convention (Knapp/BB, 463 fol). A so-called cancellation of the contract should be sufficient. Decisive is that the notice reaches the addressee so that the general rule of Article 27 is not applied.

[7] [unless the seller has received notice from the buyer that he will not perform within the period so fixed]

      [7.1] Since the notice has to refer to that there will be no performance also during the Nachfrist it can only be given after the Nachfrist has been set and the buyer has received the respective information. When the buyer has named before a date of performance later than the expiry of the Nachfrist, the seller cannot rely on it because it is very well possible that the setting of an additional period of time inspires the buyer to make exceptional efforts to keep to the period granted. The situation is different when performance is rejected definitely and once and for all. [page 241]

      [7.2] It is not sufficient in this case (by contrast to Article 71, paragraph 1, and/or Article 72, paragraph 1) that it becomes apparent or is clear that the buyer will not keep to the Nachfrist. If, however, the notice is given, the contract can be avoided at once, even when the delay does not yet constitute a fundamental breach of contract (Sevón/Dubrovnik, 226).

[8] [however, the seller is not deprived thereby of any right he may have to claim damages for delay in performance]

Compare note 5.

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Pace Law School Institute of International Commercial Law - Last updated September 25, 2002
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