Excerpt from John O. Honnold, Uniform Law for International Sales under the 1980 United Nations Convention, 3rd ed. (1999), pages 386-390. Reproduced with permission of the publisher, Kluwer Law International, The Hague.
§353 A. The Significance of Avoidance of Contract
Avoidance by the seller is usually based on delay by the buyer in paying the price. The seller normally may delay handing over the goods until the buyer pays (Arts. 58(1), 71) but avoidance has more far-reaching consequences—a seller who avoids the contract need not ever deliver the goods. Article 49, supra at §302, defined the buyer’s right to avoid the contract; the present Article on the seller’s right to avoidance is a mirror image of Article 49.
"(1) The seller may declare the contract avoided:
(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; 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, or if he declares that he will not do so within the period so fixed.
"(2) However, in cases where the buyer has paid the price, the seller loses the right to declare the contract avoided unless he does so:
(a) in respect of late performance by the buyer, before the seller has become aware that performance has been rendered; or
(b) in respect of any breach other than late performance by the buyer, within a reasonable time:
(i) after the seller knew or ought to have known of the breach; 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 declared that he will not perform his obligations within such an additional period."[page 386]
§354 B. Means and Grounds for Avoidance
Avoidance by the seller, like avoidance by the buyer (Art. 49), is made by a "declaration" which (Art. 26) "is effective only if made by notice to the other party". If the notice is dispatched by "means appropriate to the circumstances" the notice is effective in spite of "delay or error" in transmission (Art. 27, §§188–190, supra).
Paragraph (1) of Article 64 (like Article 49(1)) states two alternative grounds for seller’s avoidance: (a) Fundamental breach of contract by the buyer; and (b) Failure by the buyer "to pay the price or take delivery" within an additional final period fixed by the seller under Article 63(1)—the Nachfrist notice. The first ground for avoidance was explored in connection with the definition of "fundamental breach" (Art. 25 at §184). The second ground, based on a Nachfrist notice, was introduced under Article 63, but one point bears emphasis: failure to comply with the Nachfrist notice provides a basis for avoidance only when the notice calls for performance of the buyer’s basic obligations "to pay the price or to take delivery of the goods" (Art. 64(1)(b)). However, the buyer’s "obligation to pay the price" includes the required steps "to enable payment to be made" (Art. 54, supra at §323); for example, the notice-avoidance remedy (Arts. 63(1), 64(1)(b)) may be employed if the buyer fails to comply with his obligation to establish a letter of credit.
As we have seen, avoidance by the buyer based on the seller’s failure to comply with a Nachfrist notice (as contrasted with establishing "fundamental breach" under Art. 49(1)(a)) is limited to "non-delivery" (Art. 49(1)(b)). Avoidance based on a Nachfrist-notice is restricted to the seller’s failure to perform its basic obligation to deliver the goods, to avoid erosion of the general principle that contracts should not be destroyed on trivial grounds. See §288, supra.
A problem of consistency with this principle is presented by Article 64(1)(b), whereby, the seller may avoid the contract based on a buyer’s failure to comply with a Nachfrist notice "to pay the price or take delivery of the goods". Avoidance based on a failure to comply with a Nachfrist notice to pay the price (or to pay the price and take delivery) would be consistent with the approach of Article 49(1)(b); the problem of consistency arises when the buyer has paid the price, if avoidance could be based solely on failure to comply with a notice to take delivery within a fixed period.
A seller who has been paid is not likely to avoid the contract since a seller who avoids the contract must repay the price (Art. 81(2)). Moreover, a buyer who has paid for the goods will make every effort to take [page 387] delivery within the additional period fixed by the seller. However, it is conceivable that a sharp increase in the value of the goods might tempt a seller to try to escape from the contract by sending the buyer a Nachfrist notice fixing a short, final period for taking delivery.
The Convention is not without resources to deal with this problem. Article 63(1) (like Article 47(1)) requires that the Nachfrist notice fix "an additional period of time of reasonable length...". As was suggested at §351, supra, the reasonableness of the period set in the notice should be decided in conformity with the Convention’s general policy against the avoidance of the contract on insubstantial grounds. A seller who has received the price would seldom face irreparable loss from the buyer’s delay in taking delivery. The buyer would be responsible for the seller’s expenses, such as storage, and the seller (Article 85, §454, infra) "is entitled to retain [the goods] until he has been reimbursed his reasonable expenses by the buyer". Moreover, in situations where there is danger of abuse, the requirement that the period fixed by the seller be of "reasonable length" (Art. 63(1)) should be construed (Article 7(1)) "to promote...the observance of good faith in international trade." See §§94–95, supra.
§355 C. Limits on Time for Avoidance
Paragraph (2) sets time limits for avoidance. Practical considerations that bar excessive delay by the buyer were considered under Article 49, supra at §306; some of these considerations apply to late avoidance by the seller.
The time limits set by paragraph (2) apply only to avoidance by the seller "in cases where the buyer has paid the price." Getting paid is usually the seller’s principal concern; after the buyer has paid a seller would rarely seek (or have adequate grounds) to avoid the contract. At §354 we considered the narrow circumstances in which a Nachfrist notice calling on the buyer to take delivery might provide a basis for avoidance. Conceivably, avoidance for fundamental breach might be based on the buyer’s unexcused failure to obtain an import license or by a failure to comply with obligations to establish a distributorship and develop a program for promoting sale of the goods. In any event, a seller who has been [page 388] paid and who seeks to avoid the contract must comply with the strict time limits of paragraph (2).
Article 64 does not state a time limit for avoidance when the buyer has not paid the price. This may seem anomalous unless one considers the awkward position of the seller as he waits for the buyer to pay. If a time limit on avoidance is running, the seller is in danger of declaring avoidance either (a) too early—on the ground that the delay is not yet a "fundamental" breach, or (b) too late—on the ground that he waited too long after that indefinite point was reached. Article 64(2) relieves the aggrieved seller of such hazardous navigation between Scylla and Charybdis.
If the buyer has not received the goods and the price is due only in exchange for delivery (Art. 58(1)), the seller may choose to take advantage of the opportunity that Article 64 affords for delaying a decision about avoidance while the buyer solves its "cash-flow" problem; while the seller delays this decision the buyer, of course, has the right to pay for and receive the goods.
If the seller wishes to avoid the contract and is in doubt over whether the buyer’s delay constitutes a "fundamental breach" (Arts. 25, 64(1)(a)), the seller can clarify the situation by giving the buyer a Nachfrist notice (Art. 63(1)) prior to declaring avoidance (Art. 64(1)(b)).
If the buyer has received the goods and fails to pay the price when it is due, the seller would be well advised to avoid the contract only under unusual circumstances. Avoidance will nullify the seller’s right to recover the price (Art. 81(1)). True, Article [page 389] 81(2) states that the seller "may claim restitution from the [buyer] of whatever [the seller] has supplied...". However, when the buyer fails to pay this seller, other creditors may have levied execution on the goods; whether the seller’s right under Article 81(2) to reclaim the goods from the buyer is effective against third persons will be determined by domestic law. See Art. 4(a), §70, supra and Art. 81(2), §444, infra. Moreover, the goods may have been used or damaged, and their value may deteriorate during the period required for reclamation.
A seller who has not avoided the contract may exercise legal remedies to collect the full price (Art. 62) plus damages and interest for delay (Arts. 74 and 84, §§403–404, 420–422, infra). In addition, since the goods have been received (and presumably accepted) by the buyer, the common law restrictions on "specific performance" do not apply (Art. 28; Art. 62, §§347–349, supra).
Additional provisions on avoidance, applicable to both buyer and seller, appear in Articles 72 (anticipatory breach), 73 (delivery by installments) and 81–82 (effects of avoidance).
Decisions: (1) AUSTRALIA, Fed. Ct. S. Aus. Dist., Adelaide, 57 FC R216, 28 April 1995, Roder Zelt v. Rosedown Pk. S, a German manufacturer, sold and delivered aluminum tents and related material to B (Australian). B fell behind in paying installments on the price, and was placed in administration. Held: S had effectively avoided the contract. On S’s right to recover the goods, under CISG and a Romalpa clause in the contract, see Art. 81, infra. UNILEX D.1995–15.1.1. (2) GER. OLG Düsseldorf, 17 U 146/93, 14 January 1994. S, a shoe manufacturer, notified B that if B did not pay for shoes B had received, S would avoid the contract and resell shoes S had produced for B. On B’s failure to respond, S effectively avoided the entire contract and recovered damages. UNILEX D.1994-1.
Comments: Haddad, H.A., Unpaid S’s Avoidance, Amman L. & Arb. Center, 128–214 (1985); Kirnon, G., (Commonwealth Caribbean Trade Law), 38 McGill L.J. 1120 (1992–1993); Schlechtriem, Com. (1998) 490–495. On Chinese statutory (FECL) rules on avoidance, see Tanner, 16 JCL (Pitt.) (1996).[page 390]
FOOTNOTES: Chapter on Article 64
1. The effects of avoidance are dealt with in Ch. V, Sec. V (Arts. 81–84). Under Art. 81(1), one who avoids a contract retains his right to damages (Arts. 74–76) but loses the right to compel performance (Arts. 46, 62).
2. The opening phrase of paragraph (2)(b)—"in respect of any breach other than late performance by the buyer" is awkwardly drafted. The context shows that paragraph (2)(b) was designed to deal with situations not covered by paragraph (2)(a): "late performance by the buyer". Paragraph (2)(b) might have been expressed more clearly by replacing the italicized words with "any obligation that the buyer has failed to perform" or "any other failure to performance". See the Secretariat Commentary on draft article 60(2)(b), at para. 10. O.R. 50, Docy, Hist. 440.
3. Similar considerations underlie the rule of Art. 49(2) that the buyer’s time for avoidance does not begin to run until the seller "has delivered" the goods. See Art. 49, supra at §308.