Excerpt from John O. Honnold, Uniform Law for International Sales under the 1980 United Nations Convention, 3rd ed. (1999), pages 441-444. Reproduced with permission of the publisher, Kluwer Law International, The Hague.
§399 A sales contract calls for deliveries in January, February, and March. Article 73, in three paragraphs, addresses seriatim the following three questions: (1) The January delivery is seriously defective—may the buyer refuse to accept that delivery? (2) As in (1), the January delivery is seriously defective—May the buyer not only refuse that delivery but also the deliveries scheduled for February and March? (3) The buyer receives and accepts the January delivery, but the February delivery is seriously defective—May the buyer not only refuse the February delivery but also return the goods that he received in January and refuse the delivery scheduled for March?
Paragraphs (1) and (2) of Article 73 apply to breach of contract by either the seller or the buyer; examples (1) and (2), above, could be rephrased in terms of failure by the buyer to pay for an instalment.
"(1) In the case of a contract for delivery of goods by instalments, if the failure of one party to perform any of his obligations in respect of any instalment constitutes a fundamental breach of contract with respect to that instalment, the other party may declare the contract avoided with respect to that instalment.
"(2) If one party’s failure to perform any of his obligations in respect of any instalment gives the other party good grounds to conclude that a fundamental breach of contract will occur with respect to future instalments, he may declare the contract avoided for the future, provided that he does so within a reasonable time.
"(3) A buyer who declares the contract avoided in respect of any delivery may, at the same time, declare it avoided in respect of deliveries already made or of future deliveries if, by reason of their interdependence,[page 441] those deliveries could not be used for the purpose contemplated by the parties at the time of the conclusion of the contract."
§ 400 A. Refusal of the Defective Instalment
As was indicated above, paragraph (1) is directed to the problems that are presented when either party fails to perform his obligations with respect to one instalment of a larger contract. In example (1) described in §399, when the goods delivered in January are defective, may the buyer reject the January delivery? Or if the buyer fails to provide for paying for the January delivery, may the seller refuse to tender the January instalment?
The approach established by paragraph (1) makes the rules on avoidance for fundamental breach (Arts. 25, 49 and 64) applicable separately to each instalment. The crucial question is this: Was there "a fundamental breach with respect to that instalment?" If so, Article 73(1) states that "the other party may declare the contract avoided with respect to that instalment."
The approach of Article 73(1) is thus similar to that established in Article 51 when "the seller delivers only a part of the goods or if only a part of the goods delivered is in conformity with the contract." In those situations, Article 51 provides that the remedies for breach (including the right to avoid the contract) apply "in respect of the part that is missing or which does not conform." As has been noted (Art. 51, supra at §315) such explicit provisions are useful to avoid misunderstanding that can result from the concept "avoidance of the contract"; when a buyer refuses to receive only a part of the goods covered by the contract he does not avoid all of "the contract." Articles 51 and 73 adapt the general concept of "avoidance of the contract" to a narrower issue: What may the aggrieved party do with respect to a specific delivery or a specific payment? Once the issue has been made specific and concrete, the Convention’s general rules on avoidance for fundamental breach (Arts. 25, 49 and 64) may be applied without added difficulty. Cf. (U.S.A.) UCC 2–612(2). [page 442] The policy that underlies both Articles 51 and 73 is to avoid unnecessarily drastic consequences from the failure to perform a separable part of the contract. Those circumstances in which breach with respect to a part invoke more drastic remedies with respect to the rest of the contract are defined in paragraphs (2) and (3) of Article 73.
§401 B. Refusal of Future Instalments
Paragraph (2) provides that seriously defective performance of one part of the contract may empower the aggrieved party to avoid the contract with respect to future performance. The test is whether the initial breach gives "the other party good grounds to conclude that a fundamental breach of contract will occur with respect to future instalments"—a standard that is less strict and more subjective than grounds for suspension under Article 71 or for avoidance under Article 72. This may be explained by the fact that in the setting of Article 73(2) (unlike the situations invoking Arts. 71 and 72) a breach of contract has already occurred. Under this more flexible standard a series of breaches, none of which would justify avoidance, taken together may give the other party good grounds to conclude that a "fundamental breach" of the remainder of the contract will occur. Secretariat Commentary on draft Art. 64(2), para. 6, O.R. 54, Docy. Hist. 444.
Decisions: (1) FR. CA Grenoble, RG/3275, 22 February 1995. Sarl v. Pan Af.. B assured S that B would resell in So. America, but sold the first instalment in Spain, interfering with S’s marketing there. Held: Fundamental breach by B justified S in avoiding the contract for future instalments. CLOUT 154, UNILEX D.1995-7. (2) GER. LG Ellwangen, 1 KfH O 32/95, 21 August 1995. In an instalment contract for paprica, future instalments were avoided because of S’s failure to meet standards in B’s [page 443] country. UNILEX D.1995–20. (3) Cf. Switz. Hg. K. Zürich, HG 950357 (5 Feb. 1997). CLOUT 214. (Cf. cases at Articles 71 & 72, supra.) See: Schlechtriem, Com. (1998) 543–551.
§ 402 C. Avoidance of Instalments Based on Interdependence with a Defective Instalment
The situation envisaged by paragraph (3) may be illustrated as follows:
Example 73A. A sales contract called for Seller to deliver one machine in January, a second in February, and a third in March. The three were designed to perform a series of interrelated production operations; none of the machines was compatible with machines made by other manufacturers. In January, Seller delivered a machine that conformed with the contract but the machine delivered in February was so defective that the Seller could not cure the defect. Replacement with a second machine was not possible.
We may assume that, pursuant to paragraph (1), Buyer may return ("avoid the contract" with respect to) the machine delivered in February. Pursuant to paragraph (3), Buyer may return ("avoid the contract" with respect to) the machine delivered in January and also may refuse to accept the machine to be delivered in March, since "by reason of their interdependence, those deliveries could not be used for the purposes contemplated by the parties at the time of the conclusion of the contract." "Could not be used..." is even a stricter standard than for fundamental breach (Art. 26) and reflects the fact that here avoidance extends to goods that are free from defect and can apply to goods (e.g. the machine delivered in January) that have been received without objection. In short, avoidance with respect to the January and March instalments is based solely on their interdependence with the defective machine delivered in February.
The (U.S.A.) Uniform Commercial Code achieves a similar result by providing (§2–608) for the revocation of acceptance of a "commercial unit," which is defined (§2–105(6)) as a unit which "by commercial usage is a single whole for purposes of sale and division of which materially impairs its character or value on the market or in use." [page 444]
FOOTNOTES: Chapter on Article 73
1. Art. 73 is the same as Art. 64 of the 1978 Draft Convention. See O.R. 54 (Sec. Com. on Art. 64), Docy. Hist. 444. No objections were raised at the Diplomatic Conference. ULIS 75 also dealt with breach in instalment contracts but was substantially redrafted by the Working Group. W/G 5 paras. 1 16–127, V YB 29, 40–41, Docy. Hist. 186–187. Further refinements were made in the Commission’s 1977 review. VIII YB 55, Docy. Hist. 348. See Bennett, B-B Commentary 532–533. For a careful comparison of CISG 73 with (U.S.A.) UCC 2–612 see Flechtner, Pittsburgh Symposium 88–92.
2. Huber, 43 Rabels Z 413, 506 (1979) (comment on Art. 64 of 1978 Draft).
3. As we have seen in connection with Arts. 47 and 49(1)(b), and the similar provisions in Arts. 63 and 64(1)(b), in some situations avoidance may be based on the failure of the other party to perform in compliance with a notice "fixing an additional period of time of reasonable length"—the Nachfrist notice; in these situations the aggrieved party need not show that the breach was "fundamental." However, each paragraph of Art. 73 states that avoidance must be based on "a fundamental breach of contract." The Nachfrist avoidance remedy is intrinsically inapplicable to the problems of future performance covered by Art. 73(2) and (3) (cf. Art. 72(1)), and also to Art. 73(1) in so far as it applies to the delivery of defective goods. See supra at §§288, 305. It is not so clear that Art. 73(1) excludes the Nachfrist notice when (e.g.) delivery of an instalment or the establishment of a letter of credit is overdue. Compare the distinction between Art. 51(1) and (2), discussed supra at §317; an analogy to Art. 51(1) suggests that a Nachfrist notice should be effective with respect to overdue performance. But cf. Flechtner, supra n. 1, at 91–92, n. 182.
4. A similar rule appears in (U.S.A.) UCC 2–612(3). Cf. (U.K.) SGA 31(2), which applies where the goods are "to be delivered by stated installments, which are to be separately paid for" (a restriction not found in the Convention or in UCC); the test is "whether the breach of contract is a repudiation of the whole contract or whether it is a severable breach..." For trenchant criticism of this provision see Ont. L. Ret. Com., II Sales 541–549, and materials there cited, including Williams, Partial Performance of Entire Contracts, 57 L.Q. Rev. 373, 490 (1941).
5. For examples in which interdependence among deliveries may result from economic factors contemplated by the parties see Schlechtriem, 1986 Commentary 96 n.392, and O.R. 54, Docy. Hist. 444 (Sec. Comm. on draft Art. 64(3), paragraph 8).
6. Cf. UCC 2–601(c). On rules influenced by (U.K.) SGA (1893), see Ont. L. Ref. Com., II Sales 549–550; Atiyah 383–388, Benjamin §§629–645.