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Reproduced with permission from Pace ed., Review of the Convention on Contracts for the International Sale of Goods (CISG) 1998, Kluwer Law International (1999) 177 - 354.

excerpt from

The Concept of Fundamental Breach of Contract under the United Nations
Convention on Contracts for the International Sale of Goods (CISG)

Robert Koch [*]

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Limitations on the Concept of Fundamental Breach . . . Seller’s Right to Cure: Article 48

Consideration of an offer to cure is not expressly required in the determination of fundamental breach, and an American proposal to include such language in article 25 was not adopted by UNCITRAL.[526] Thus, consideration of an offer to cure as a limiting factor in determining fundamental breach, in view of its present definition, is only permissible if one argues that, where cure of a breach is feasible and the breaching party is willing to cure, the aggrieved party is not substantially deprived of his expectations under the contract. With regard to the buyer’s right to avoidance, such an interpretation, though plausible,[527] cannot be justified by the Convention’s legislative history of the concept of fundamental breach, as illustrated above.[528] It is also incompatible with the text of article 48(1).[529]

The opening words of article 48(1) make the seller’s right to cure “[s]ubject to article 49.” Giving these words their ordinary and plain meaning, it appears that the buyer’s right to declare the contract avoided in accordance with article 49(1)(a) prevails over the seller’s right to cure.[530] The determination of fundamental breach in the light of any offer to cure, however, would enable the seller to prevent the buyer from avoiding the contract and would, therefore, actually allow the seller’s right to cure to prevail over the buyer’s right to avoid. Even if one argues that the opening words do not clarify their exact relationship, the position that the right to cure is paramount ignores the fact that the majority of the delegations at the Vienna Diplomatic Conference took the exact opposite view.[531] [page 323]

Another argument against the determination of fundamental breach in light of an offer to cure can be found in the text of article 50, where it is expressly stated that the seller’s right to cure prevails over the buyer’s right to reduce the price. In view of such clear wording, it is plausible to conclude that if the delegates to the Diplomatic Conference had really wanted the right to cure to prevail over the right to declare the contract avoided, they would have used similar words either in article 48 or 49.

Furthermore, the employment of an offer to cure as a relevant factor in determining fundamental breach would cause both theoretical and practical problems. The notion of an offer retrospectively frustrating the buyer’s existing right of avoidance is difficult to justify in theory.[532] As a practical matter, this approach gives rise to the question of whether the seller must make his offer to cure before the buyer makes his notice of avoidance. If priority were decisive, one would provoke a competition between buyer and seller and produce purely arbitrary results.[533] Ignoring that such competition in exercising a remedy should not be a consideration under law, it would also leave the seller in limbo as long as he does not know of the defect.[534]

The only way to avoid such consequences (and to protect the seller’s interests) would be either to impose on the buyer the duty to notify the seller of the breach and to give the seller the opportunity to invalidate the declaration of avoidance retroactively through an offer to cure, or to not treat his right to cure as precluded by the notice of avoidance. The latter way has been adopted by the UNIDROIT Principles [535] but, at least as a general [page 324] rule, there is no room for it under the Convention. According to the Official Records of the Convention it was not even discussed during the preparatory work for the Convention.

Both approaches seem difficult to reconcile with the character of the avoidance remedy, which initially releases both parties from their obligations after notice of avoidance has been given. To make the fundamental nature of the breach dependent on an offer to cure would give the seller the opportunity to reinstate the buyer’s obligations. Consequently, the buyer would be retroactively burdened with the duty to mitigate the loss resulting from the breach. This result does not seem fair to the buyer since he already bears the risk of evaluating the gravity of the breach.[536]

For all these reasons, it is this writer’s view that consideration of an offer to cure as a decisive factor in the determination of fundamental breach is not permissible. It would result in more uncertainty and, as one author rightfully points out, indeed “contribute to the further weakening of the notion of fundamental breach.”[537] Although it has been argued, it is untrue that the seller’s right to cure would be frustrated through an unqualified application of the buyer’s right to avoidance. The right to cure is simply limited to those cases where the breach is not fundamental or where the buyer decides not to avoid the contract despite the occurrence of a fundamental breach.[page 325]

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FOOTNOTES

* Dr. jur., Georg-August University Göttingen (Germany), 1994; associate in the law firm Graf von Westphalen, Fritze & Modest, Cologne (Germany); LL.M. (Dean’s Honor List) McGill University, Montréal (Canada), 1996/97; Visiting Lecturer at Ural State Law Academy in Yekaterinburg (Russian Federation) 1997/98.

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526. See supra Part III, B.2.b.(1)(a)(ii), note 400.

527. See Huber, supra note 106, at Art. 46, n.23 (stating that where the cure of a breach is feasible the aggrieved party is not generally substantially deprived of its expectations under the contract) and Schlechtriem, supra note 45, at 78 (stating that when time is not of the essence of the contract, the seller’s cure within a reasonable time after the due date will normally prevent the delay from constituting a fundamental breach).

528. See supra Part III, B. 3.

529. For the text of art. 48(1), see supra note 256.

530. For a similar conclusion, see Ziegel, supra note 115, at 9-22; Schnyder & Straub, supra note 105, at Art. 48, n.29. Honnold, supra note 20, at § 296, takes a very different position. He argues, with reference to the legislative history, that the amendment to art 48(1) “leaves little room for doubt” that the right to cure is the paramount provision and that the cure provision of art. 48(1) could be frustrated “by an unqualified application of article 49(1).” Id.

531. See supra Part III, B.2.b.(1)(a)(ii), note 395.

532. See Karollus, supra note 143, at 495; Huber, supra note 106, at Art. 46, n.18 (both criticizing the curability approach on the grounds it enables the seller retrospectively to frustrate the buyer’s right of avoidance); see also the critical comments by Will, supra note 106, at Art. 48, 3.2.2, where the author asks the question of whether there is any “need to resort to so unconvincing a construction” to protect the seller’s right to cure by giving the following illustration:

"Suppose that yesterday [the buyer] concluded that a certain breach was fundamental; today he is awaiting the seller’s offer to cure — the very breach has changed its nature and become a non-fundamental one; and if tomorrow all hope vanishes — the breach is automatically re-converted into a fundamental breach. Fundamental — non-fundamental — from day to day does not allow for any legal certainty in international transactions."

533. This point is rightly emphasized by Schnyder & Straub, supra note 105, at Art. 49, n.22 and Karollus, supra note 143, at 495.

534. For the same criticism, see Karollus, supra note 143, at 495.

535. See supra note 194.

536. See Will, supra note 16, at Art. 48, 2.1.1.1.1 (stating that “the buyer who has already suffered the seller’s fundamental breach of contract should not, in addition, be burdened with the entire range of uncertainties as to the same seller’s ability and willingness to cure”).

537. For this statement, see id. at Art. 48, 3.2.2 , where the author criticizes the “offer-to-cure” approach for not being very precise.

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Pace Law School Institute of International Commercial Law - Last updated March 22, 2001
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