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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 64 [Seller's right to avoid contract] [1]

[TEXT OF THE UNIFORM LAW]

(1) The seller may declare the contract avoided [2]:
(a) if the failure by the buyer to perform any of his obligations under the contract or this Convention amounts to a fundamental breach of contract [3]; or
(b) if the buyer does not, within the additional period of time fixed by the seller in accordance with paragraph (1) of Article 63, perform his obligation to pay the price or take delivery of the goods [4], or if he declares that he will not do so within the period so fixed [5].

(2) However, in cases where the buyer has paid the price, the seller loses the right to declare the contract avoided [6] unless he does so:
(a) in respect of late performance [7] by the buyer, before the seller his become aware [9] the performance has been rendered [8]; or
(b) in respect of any breach other than late performance [10] by the buyer, within a reasonable time [11]:
(i) after the seller knew or ought to have known of the breach [12]; or
(ii) after the expiration of any additional period of time fixed by the seller in accordance with paragraph (1) of Article 63, or after the buyer has declare that he will not perform his obligations within such an additional period [13].

[WORDS AND PHRASES, CONCEPTS

1. conditions governing seller's right to avoid the contract; restrictions upon exercise of this right
2. how the seller may declare the contract avoided
3. seller's right to avoid for fundamental breach of contract
4. seller's right after fixing a Nachfrist
5. seller right to avoid after a Nachfrist if [buyer] declares that he will not [pay the price or take the goods] within the period fixed
6. seller's right to avoid when buyer has paid the price
7. seller's right to avoid for late performance by the buyer…
8. however, in cases where the buyer has paid the price, the seller loses the right to declare the contract avoided unless he does so …
9. … before the seller has become aware …
10. seller's right to avoid for any breach other than late performance …
11. seller loses the right to declare the contract avoided unless he does so in respect of any breach other than late performance within a reasonable time …
12. … after the seller knew or ought to have known of the breach
13. avoidance after expiration of Nachfrist

[COMMENTARY]

[1] [conditions governing seller's right to avoid the contract; restrictions upon exercise of this right]

      [1.1] This article provides for the conditions to govern the right to avoid the contract and for the restrictions existing for its exercise. The effects of avoidance, however, are included in Article 81 fol.

      [1.2] Apart from the right provided for here, there is also the right to avoid the contract under Article 72, paragraph 1, and Article 73, paragraphs 1 and 2.

[2] [how seller may declare the contract avoided]

      [2.1] Avoidance is made by a written or oral declaration which has to be communicated to the other party (Article 26). Conduct implying an intent, e.g. sending back of the not accepted goods is, therefore, not sufficient. For the seller to rely on the notice it is not necessary that the latter reaches the other party (Article 27). But Knapp (BB, 468) seems to be right explaining that the avoidance becomes effective and irrevocable when the notice reaches the buyer (compare also note 3.1., Article 26). In view of the relevance of this decision, it should be clear that its wording must be unequivocal; in the case of doubt, it should, in our view, be interpreted as a mere threat of avoidance.

      [2.2] An exclusion period during which this right to avoidance must be exercised is not prescribed so that it comes under the general limitation period (e.g. Article 12, paragraph 1 of the Limitation Convention). There is nothing to complain about here because in the case of a delay in payment, the seller must be considered as entitled to decide how long he intends to wait. On the other hand, he shall not be allowed to speculate at the cost of the buyer, so that he will have to bring himself to take a decision within a reasonable time, at least at the inquiry of the buyer. Leser (Freiburg, 235 fol) wants to invoke Article 48, paragraph 2, and Article 77 in this context, which seems to us quite bold because there are only rather distant structural analogies. We prefer a deduction from the principle of good faith (Article 7 and note 10.1. thereto), even if it is very vague, insofar as one does not want to relate to the subsidiary statute, the relevant national law.

      [2.3] When the buyer disputes the justification of the avoidance of contract, the seller has to prove that the conditions required for it are given. This will in general be easier in regard to the conditions of paragraph 1, subpara. (b) because of their more formal and thus clearer character, than in regard to those of subpara. (a). It is recommendable for the seller, therefore, to fix an additional period of [page 243] time. When it becomes evident that the contract was avoided without foundation, a non-performance by the seller that eventually follows from it is to be regarded as a breach of contract. Given the far-reaching consequences it entails, it is necessary to create clarity as speedily as possible on whether the buyer wants to dispute the avoidance. We, therefore, believe that he should be considered as being obliged to dispute the avoidance in one form or another, e.g. by reminding performance where the seller avoided the contract because of an overdue advance payment, within a reasonable time after he received the relevant declaration. Insofar only the receipt can be decisive. This follows from the principle of good faith (Article 7). If he does not do so, later contradiction in connection with other acts may be excluded also because of the prohibition of the venire contra factum proprium (Article 7, note 10.1.).

[3] [seller's right to avoid for fundamental breach of contract]

As regards the definition of a fundamental breach of contract compare Article 25 and comments thereon.

Since with respect to the obligations of the buyer, deficiency in quality and the violation of third party rights or claims are hardly of any relevance, the typical breach by the buyer of an obligation under the contract is a delay, i.e. non-keeping to the period for performance. Since the time for performance of the buyer's obligations is in general not conceived in a way that time is of the essence, the mere non-performance at the time for performance will constitute a fundamental breach of contract only in rare instances. (The Secretariat's Commentary, too, O.R. 50, proceeds on the assumption that this will be the case only after the expiration of yet another period.) Such a situation is, however, imaginable. The time for performance can, for instance, in regard to fulfilment of the obligation to participate in the manufacture of goods, supply of drawings or sub-supply of material, be agreed as an essential date for the goods cannot be finished at another time because of different use of the facilities, planned changes in production, shutting-down of plant, etc. Likewise, the late procurement of securities for payment can be a fundamental breach of contract because the seller needs those securities to secure the procurement on his part of the required materials and because at a later date he can procure the materials no longer and/or not anymore to the calculated conditions. Hellner (Dubrovnik, 353) even believes, somewhat exaggerated as we think, that the seller should always be allowed to declare the contract avoided if the buyer does not open a credit within a fixed time. Generally, late payment will constitute a fundamental breach of contract in the case of a rapid decline in currency. The late taking delivery will also be a fundamental breach of contract when the goods cannot be stored (similar view held by Schlechtriem/Freiburg, 76). [page 244]

A longer delay in payment, or in taking delivery, should in general be reason for a fundamental breach of contract so that there will finally always be a right to avoid the contract in the event of non-payment, or also non-taking delivery.

[4] [avoidance right to avoid after fixing a Nachfrist]

      [4.1] By fixing a Nachfrist the seller will have the option to always avoid the contract when the buyer continues not to perform his obligation to pay the price or take delivery of the goods. This is interpreted partly in such a way that a non-performance of this most essential obligation by the buyer, also within the Nachfrist, and/or a respective declaration regularly constitute a fundamental breach of contract (Leser/Freiburg, 236). That this is indeed so does not only not have to be proved, but is irrelevant.

This does in no way preclude that a breach of other obligations, whose non-performance does not yet constitute a fundamental breach of contract at the time for performance, becomes such as more time passes. This may be emphasized by fixing a Nachfrist. In this event, it will not suffice to prove that a Nachfrist of reasonable length was fixed and performance was not made nevertheless, but it must be proved that the conditions for the existence of a fundamental breach of contract are given. This is true, for instance, of the fixing of a Nachfrist for the performance of the obligation to participate in the manufacture of the goods, which we do not consider as being part of the obligation to take delivery of the goods (Article 60, note 6.2.).

      [4.2] The obligation to pay the price pursuant to Article 54 includes the steps and formalities required for it. Therefore, the rule applies also when agreed securities for payment are procured belatedly (e.g. a letter of credit, Honnold, 363); hence when preparatory measures which have a direct effect on the seller are not fulfilled in time. The Secretariat's Commentary (O.R., 50; similarly, even though hesitating, Knapp/BB, 469 fol) goes even farther including such preparatory steps which are not taken directly vis-à-vis the seller, such as procurement of foreign currency, registration of contracts. We have our reservations here because the buyer insofar is granted several options and he cannot be forced by the seller to choose one. Furthermore, not even a general date is fixed in regard to most of these steps vis-à-vis the seller so that there is neither a connecting point for the setting of a Nachfrist. To put it briefly, the relevant obligations of the buyer are not feasible enough so that such a far-reaching interpretation of the obligation to pay the price could lead to abuse by the seller. [page 245]

[5] [seller's right to avoid after a Nachfrist if buyer declares that he will not [pay the price or take the goods] within the period fixed]

Article 63, paragraph 2, is alluded to herewith where, however, a different wording is used and, in particular, the receipt principle is fixed. This one is decisive (notes 6 and 7 of Article 63).

[6] [seller's avoidance right when buyer has paid the price]

Paragraph 2 presupposes that there has been a right to avoid the contract. This right lapses in certain cases when the price has been paid, and in full, if due; partial payment is not sufficient (Secretariat's Commentary, O.R., 50; Knapp/BB, 470). The details, however, are not regulated convincingly, neither in language nor in substance.

From the reverse conclusion it follows that the right to avoid the contract (subject to limitation) does not lapse as long as the price is not paid (note 2.2.).

[7] [seller's right to avoid for late performance by the buyer …]

At the diplomatic conference, several efforts were made to clarify what is meant in this case by "performance". The respective proposal submitted by a working group was to make clear above all that the seller could avoid the contract when the buyer did not take delivery of the goods, but had already paid (O.R., 412). This was rejected in the end by one voice more against (O.R., 125). The conclusion could be drawn now that performance is meant to be mainly the late payment which already the Secretariat's Commentary (O.R., 50) on the finally adopted version points to. Since the proposed amendment was to serve as clarification (O.R., 371), the rejection can also be interpreted as regarding the wording as clear enough. Its literal interpretation speaks in favour of the term "late performance" including both the late payment and the late performance by the buyer of his other obligations (Knapp/BB, 472).

[8] [however, in cases where the buyer has paid the price, the seller loses the right to declare the contract avoided unless he does so …]

In the event of payment, when such payment has already been made, e.g. at the place of business of the buyer being the place of payment, but the seller does not know of it yet, the latter may avoid the contract until he becomes aware of the payment. Even if the seller has got to know that the payment was made, he can avoid the contract so long as he has no knowledge of the taking delivery of the goods. In interpreting the wording in this way, it was assumed at the diplomatic conference that the seller could have an urgent interest in taking delivery because he might need his storage facilities for other purposes and that his interests would not be served either having the option to resell the goods under Article 88 when there is an advantageous offer, i.e. when prices rise, because he would have to account to the other party (O.R., 371). It will, nevertheless, happen only in exceptional cases that the seller avoids the contract even though he has received the price. [page 246] The right to avoid the contract lapses thus when the obligation on whose breach it is based has been fulfilled and the seller has got to know it.

[9] [… before the seller has become aware …]

Unlike in many others, it is relevant in this case that there is positive knowledge. "Ought to have known" is not sufficient. Knapp (BB, 473 fol) believes differently; he wants to leave out of consideration that the wordings are different in paragraph 2, subparas. (a) and (b), (i). It is indeed hard to find reasons for it, but the text is clear and can, therefore, not be interpreted.

[10] [seller's right to avoid for any breach other than late performance …]

Since late performance constitutes the main case of a breach of obligation by the buyer, other breaches (all the more so since they have to be fundamental to substantiate a right to avoid the contract) will be of relatively little practical relevance. Cases to which that right could possibly be applied would be, for instance, sub-supply of defective materials, breaches of the prohibition to re-export goods, insofar as this can effectively be countered by avoiding the contract, and pledging of goods which were sold under the reservation of title (see also the examples given by Huber, 516). These will above all be non-conform[ing] activities by the buyer which are not specifically covered by the CISG.

[11] [seller loses the right to declare the contract avoided unless he does so in respect of any breach other than late performance within a reasonable time …]

To what the extent the room left by the Convention at the parties' discretion is used depends on the seller. In fixing the time, it has to be taken into account what time would be needed to take a decision. This time commences upon the expiration of the periods mentioned under (i) and (ii) so that the overall period is fixed in two stages.

[12] [… after the seller knew or ought to have known of the breach]

      [12.1] Unlike in the event of late performance (2.3.), there is a time limit for the exercise of the right to avoidance of the contract in the case of breaches of other obligations.

      [12.2] Since the right to avoid the contract emerges all the more when there is a fundamental breach of contract, the reasonable period can start to run only at the time when that degree of breach is reached. Where breaches become fundamental only by way of quantitative accumulation such as intensity or repetition, the degree of vagueness of the fixing of time is increased by the vagueness in determining its beginning. Activities which do not conform with the contract (note 10) may in several instances be considered, however, as fundamental breaches of contract already when they are committed. [page 247]

[13] [avoidance after expiration of Nachfrist]

The expiration of the Nachfrist under Article 63, paragraph 1, without performance being made and/or the refusal by the buyer to perform within that additional period of time is not a ground per se for granting the right to avoid the contract, but only when they come under the cases of Article 64, paragraph 1, subpara. (b). But these do not fall under the rule of paragraph 2, subpara. (b).

This rule addresses such cases where a Nachfrist was fixed for the performance of another obligation, whose breach is or becomes fundamental. As long as the Nachfrist continues to run and/or performance is not refused, an avoidance of the contract under Article 63, paragraph 2, sentence 1, is possible. To ensure that the buyer retains his right to avoid the contract, since he must not avoid the contract during the period under Article 64, paragraph 2, subpara. (b), (i), he is granted this additional period of time.

It shall be assumed that the price for the goods is paid and the seller becomes aware that the buyer resells the goods, technical consumer goods in large quantities, to a third country thus fundamentally breaching a contractually agreed export prohibition. He fixes a Nachfrist for the buyer to stop doing it. When that additional period expires without anything happening or when the buyer contradicts from the beginning, the possibility to avoid the contract is retained even though the seller has been aware of the breach of contract for some time already. [page 248]

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