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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 72 [Avoidance prior to the date for performance]

[TEXT OF THE UNIFORM LAW]

(1) If prior to the date for performance of the contract it is clear [1] that one of the parties will commit a fundamental breach of contract [2], the other party may declare [4] the contract avoided [3].

(2) If time allows [5], the party intending to declare the contract avoided must give reasonable [6] notice [7] to the other party in order to permit him to provide adequate assurance [8] of his performance.

(3) The requirements of the preceding paragraph do not apply if the other party has declared that he will not perform his obligations [9].

[WORDS AND PHRASES, CONCEPTS

1. if prior to the date for performance of the contract it is clear that
2. one of the parties will commit a fundamental breach of contract
3. declaring the contract avoided
4. the declaration of avoidance
5. if time allows
6. the party intending to declare the contract avoided must give reasonable notice
7. the notice
8. reasonable notice to the other party in order to permit him to provide adequate assurance of his performance
9. the requirements of the preceding paragraph do not apply if the other party has declared that he will not perform his obligations ]

[COMMENTARY]

[1] [if prior to the date for performance it is clear that ]

As already explained in note 2 of Article 71, a greater certainty than in Article 71 regarding the right to suspend performance of obligations is required here. It is clear that a fundamental breach of contract will be committed when the other party declares that he will not perform his obligations (c. paragraph 3). There is the same clarity when the other party denies the very existence of a sales contract (c. the ruling of the Corte d' Apello di Milano concerning ULIS of March 1, 1976, Schlechtriem/Magnus, 399). It is also clear that a fundamental breach of contract will be committed when the seller resells to a third party the goods that he had contracted to deliver to the buyer, or when he sells the machines with which he had agreed to produce the goods for the buyer (Honnold, 402).

A breach of contract is also clear in the case of insolvency and the initiation of bankruptcy proceedings (Schlechtriem/Magnus, 399). The circumstances mentioned in notes 4 and 5 of Article 71 can be so serious that it is clear that a fundamental breach of contract will be committed. There need not, however, be absolute certainty. Since paragraph 2 envisages the possibility that adequate assurance be provided and the contract be performed in the end, there need not be a fundamental breach of contract.

If a party declares the contract avoided without a fundamental breach of contract by the other party being anticipated, the former commits a fundamental breach of contract (Bennett/BB, 528).

[2] [ one of the parties will commit a fundamental breach of contract ]

As to the fundamental breach of contract, compare Article 25. An example that is given quite often is bankruptcy (see also Vilus/Dubrovnik, 244). We believe, however, that a distinction has to be made of whether it is the seller or the buyer who goes bankrupt since, depending on the circumstances, his receiver may still perform the contract. An anticipatory, fundamental breach of contract is, except when there is an express statement by the obligor, a presumption which is based on objective factors. Article 72 thus combines in one rule the refusal to perform and an anticipated objective impossibility to perform. Stoll criticizes such combination because, in his view, different conclusions have to be drawn when it comes to the right of the entitled party to claim damages. Hence there would be an immediate right to claim damages in the case of a refusal to perform, whereas in other cases there would not be such a claim before the performance is due and/or there would be no such claim at all if the obligor is not liable under Articles 79 or 80 (H. Stoll, "Zur Haftung bei Erfüllungsverweigerung im Einheitlichen Kaufrecht", RabelsZ, 1988/3-4, p. 618 fol). This consequence is in our view not covered by the wording of the CISG (note 3). [page 291]

[3] [declaring the contract avoided]

Whereas a contract can usually be avoided only after a fundamental breach of contract under Articles 49 and 64, a party may, under the prerequisites of Article 72, already declare the contract avoided before. He may, however, under Article 71 also suspend performance of his obligations and wait until the time for performance has expired. But in this context, Article 77 should be taken into consideration. A contract should definitely be avoided where an immediate avoidance would mitigate the losses (Bennett/BB, 528 fol). But even if there is no obligation to mitigate losses, clarity can be obtained by avoiding contract and the way could be opened up for new contracts (Bennett/BB, 527). When a contract has been declared avoided, the entitled party can immediately claim damages, the amount of which is fixed by resale or repurchase (Honnold, 403; Bennett/BB, 528).

[4] [the declaration of avoidance]

There is no time limit for such a declaration. If the entitled party first decided to wait, he may avoid the contract at any time before the period for performance expires. This is advisable also when there are still doubts as to the seriousness of the conditions impeding performance. The declaration is subject to Article 27. In general, a declaration will be preceded by a notice under paragraph 2 (note 7).

The declaration leads to prompt avoidance of the contract; no further steps are required, neither agreement by the other party nor assistance by the courts (c. also Article 49). Therefore, a declaration cannot be withdrawn once it has become effective.

[5] [if time allows ]

Paragraphs 2 and 3 were added to the draft Convention at the diplomatic conference because the developing countries were concerned that the right to suspend performance could be abused (Honnold, 403; Vilus/Dubrovnik, 245).

Given the sophisticated means of communication, it is hardly imaginable that time would not allow to give notice to the other party of the intended avoidance of the contract. (Compare also the obligation to give notice under Article 88.) This is also in the interests of the party who considers himself entitled in order to preclude unjustified avoidance of contract (Honnold, 403; Bennett/BB, 529).

Time also relates to the time-span between the giving of notice and the expiration of the time for performance. The other party must have sufficient time to provide assurance. [page 292]

[6] [ the party intending to declare the contract avoided must give reasonable notice ]

In the very interest of the obligee, it should be reasonable in most cases to give notice of an avoidance of contract. This is contradicted by circumstances only where there is absolute certainty of future fundamental breaches of contract (c. also paragraph 3). Even in the event of the other party's bankruptcy, his receiver could prefer fulfillment to avoidance of a contract (Bennett/BB, 527). A notice is reasonable whenever there is a chance that the other party will provide assurance of performance.

[7] [the notice]

This notice, too, is subject to Article 27. If it is lost, the party entitled to avoid the contract does not lose that right. But he should in his own interest make sure that the notice reaches the other party.

In practice, the notice of an intended avoidance of contract is frequently linked with the notice of the suspension of performance (Article 71, note 9) (Bennett/BB, 529).

[8] [ reasonable notice to the other party in order to permit him to provide adequate assurance of his performance]

As to what adequate assurance is, compare Article 71, note 10. The way in which such adequate assurance is to be provided depends on the expected fundamental breach of contract. The simplest means is to provide assurance by way of paying a sum, e.g. banker's guarantee. If there is serious doubt as to the seller's performing of his obligations, he could also provide a guarantee of performance. He could also explain in which way he can and will deliver the goods in time, in the agreed quality and free from third party rights or claims (e.g. use of sub-contractors, increase in the production capacity, cancellation of other obligations to deliver, acquisition of licenses, etc.).

[9] [the requirements of the preceding paragraph do not apply if the other party has declared that he will not perform his obligations]

Thus there is no need to give notice in advance of the intention to avoid the contract. But also in this case, the other party has a right and no obligation (except in regard to mitigation of losses, note 3) to declare the contract avoided. If the entitled party does not avoid the contract, and if the obligor changes his mind, the latter may still fulfil the contract. On the other hand, the obligee does not have to wait and see whether the obligor changes his mind; he can avoid the contract immediately. In such a case, the declaration of an intended non-performance of the contract is irrevocable (Honnold, 402). [page 293]

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