Excerpt from John O. Honnold, Uniform Law for International Sales under the 1980 United Nations Convention, 3rd ed. (1999), pages 343-346. Reproduced with permission of the publisher, Kluwer Law International, The Hague.
The problems addressed by Article 51 can be exposed by a simple illustration:
Example 51A. A sales contract calls for the delivery of 100 bales of cotton. On delivery, 10 of the 100 bales prove to be so seriously defective that they cannot be used.
There are two distinct problems: (1) May the buyer reject the 10 defective bales and accept the rest? (In legal language—May the buyer "avoid the contract" as to only some units?) (2) May the buyer reject the delivery of 100 ("avoid" the entire contract) when only 10 units are defective? (Similar problems arise when the seller delivers only 90 bales instead of 100.)
"(1) If the seller delivers only a part of the goods or if only a part of the goods delivered is in conformity with the contract, articles 46 to 50 apply in respect of the part which is missing or which does not conform.
"(2) The buyer may declare the contract avoided in its entirety only if the failure to make delivery completely or in conformity with the contract amounts to a fundamental breach of the contract."
Paragraph (1) of Article 51 addresses the first question that was stated under Example 51A: May the buyer reject only the defective goods? Paragraph (2) addresses the second question: May the buyer reject all of the goods when only a part of the goods are defective? It may help to apply these provisions in the light of the reasons for Article 51.
§ 315 A. Rules About "Goods" v. "Avoidance" of Contract
Attempts to answer the two problems posed by Example 51A have been encumbered by using overly-abstract concepts such as "rescission" or "avoidance" of the contract. Merchants ordinarily do not think in [page 343] terms of avoiding a contract; they think about what they may do with particular goods. It is no compliment to legal science to discover that the merchants’ mode of thought is more precise. The concept of "avoidance" is misleading: "avoidance" does not destroy the contract: the party whose breach leads to "avoidance" remains contractually liable to compensate the aggrieved party for its loss. (See Art. 81(1), infra at §439.)
In most parts of the Convention the necessity to draft in terms that could be translated and understood in different linguistic and legal settings produced down-to-earth language that was clearer than that of the traditional domestic codes; here tradition was too strong to permit a fresh start. Article 49, supra at §302, provides that a buyer who encounters serious non-performance "may declare the contract avoided." When the seller’s breach involves only part of the goods this broad rule has to be refined; this is done in Article 51.
The first question raised by Example 51A is this: What may Buyer do with respect to the 10 defective bales? Article 51(1) provides that the battery of remedies set forth in Articles 46 to 50 may be applied to the "part" of the delivery that fails to conform to the contract. Consequently, Article 51(1) gives Buyer these options—he may (i) require the seller to deliver substitute goods (Art. 46(2)), or (ii) "avoid the contract" (i.e., reject) with respect to the defective units (Art. 49(1)(a)), or (iii) accept the defective goods and reduce their price (Art. 50) or claim damages (Art. 74). Article 51(1) also assures Seller of the right to cure under Article 48 (§§292-300, supra) with respect to the 10 defective bales.
Assume that in this contract for 100 bales Seller delivered only 90 bales, all of which conformed to the contract. If Buyer fixes "an additional period of time of reasonable length" for delivery of the 10 bales (Art. 47(1)) and Seller fails to comply with this demand, or if any delay in delivering the missing bales constitutes a fundamental breach, Buyer may "declare the contract avoided" with respect to the 10 missing bales (Art. 49(1)(a) & (b).); in other words, Buyer’s duty to accept the remaining units has come to an end.
Decision: Avoidance of Part. (1) ARB. ICC (Paris), 8128 (1995). In a contract for chemical fertilizer to be delivered in installments,[page 344] S was unable to assure B that a conforming first installment would be delivered by the time for B’s resale of the materials. Avoidance by B for this installment was sustained pursuant to Articles 53(1) and 73(1) (contracts for delivery by installments); see Art. 73, infra. UNILEX D. 1995-34. (2) ARB. ICC (Paris), 7660/JK, 23 August 1994. In a contract for delivery of 3 pieces of assembly-line machinery, B declared avoidance of one piece that was defective. B’s avoidance was sustained since the lack of conformity related to an independent part of the delivery, and was replaceable without prejudice to the working of the other machines. UNILEX D. 1994-20. (3) GER. LG Berlin, 52 S 247/94, 15 September 1995. Non-conforming part of delivery of tiles made the entire shipment unusable. Avoidance of the entire shipment was granted. CLOUT 50, UNILEX D. 1991–7. See: Schlechtriem, Com. (1998) 445–448.
One of the purposes of paragraph (2) of Article 51 is to make clear that paragraph (1) does not force the buyer to sort out the non-conforming goods for separate handling. The buyer may "avoid" (reject) as to the entire delivery if the breach as to part causes detriment that is so substantial as to constitute a "fundamental breach" of the contract as a whole. The definition of "fundamental breach" in Article 25, supra at §181, calls for close examination of the facts of the case in relation to the policies served by avoidance. One factor of special significance with respect to a partial avoidance is whether the nonconformity of some of the goods interferes with the use or salability of the remainder.
Subsection (2) makes an additional point in stating that avoidance of the entire contract may "only" be based on fundamental breach. Let us suppose that in Example 51A, above, only 90 bales were delivered and the buyer makes a Nachfrist demand that the seller deliver missing units within a fixed additional period (Art. 47(1), supra at §287) and the seller fails to comply. As we saw at §316, the seller’s failure to comply with the notice empowers the buyer to avoid as to the missing units; the buyer need not show that the breach was fundamental (Art. 49(1)(b)). However, the buyer may not base avoidance of the entire contract on the failure to [page 345] comply with the Nachfrist notice, but must show that the breach was fundamental as to the entire contract (Arts. 49(1)(a), 51(2)).
To sum up with respect to Buyer’s right to avoid the entire contract: Under Article 51(2) Buyer may "declare the contract avoided in its entirety" (all 100 bales) only if the breach was "fundamental" with respect to the contract as a whole. Factors that bear on this issue include: (1) A timely offer by Seller to "cure" (Arts. 37, 48) by replacing the 10 defective bales; (2) The feasibility of separate action with respect to the 10 defective bales; (3) If separate avoidance of the 10 bales is not feasible, does acceptance of the entire shipment and redisposition of the 10 defective bales (subject to a claim for damages for the deficiency) (Art. 25) "substantially...deprive [the buyer] of what he is entitled to expect under the contract..."? As has been noted under Article 25, at §185, supra, Buyer probably needs the remedy of total avoidance if Seller demands the full price in exchange for the delivery; Buyer’s need for avoidance would be reduced if Seller offers to reduce the sum Buyer must pay by an amount adequate to compensate Buyer for the reduced value of the 10 bales and any other loss (Art. 74) resulting from the breach of contract.[page 346]
FOOTNOTES: Chapter on Article 51
1. This article is the same as Art. 47 of the 1978 Draft Convention and Art. 45 of the ULIS. See generally Flechtner, Pittsburgh Symposium 86–88.
2. Under (U.S.A.) UCC 2-601(c) and 2-608(1) remedies may be applied to commercial units that fail to conform.
3. (U.S.A.) UCC 2-601(c) provides that on a defective delivery the buyer may "accept any commercial unit or units and reject the rest." "Commercial unit" is defines (2–105(6)) as a unit the "division of which materially impairs its character or value on the market or in use." This concept serves to bar rejection of part of such a unit, and also to permit rejection of an entire unit when part is defective.
4. Accord: Flechtner in Pittsburgh Symposium 53, 72–73. The approach of Art. 51 is applied to installment contracts in Art. 73, infra at §399. But cf. §400, n. 3.