Published by Manz, Vienna: 1986. Reproduced with their permission.
Univ. Prof. Dr. Peter Schlechtriem [*]
1. Suspension of Performance Due to Deterioration in the Other Party's Situation (Article 71)
Compared to Article 62 of the 1978 Draft Convention, the remedy available in Article 71 was improved in Vienna. The deliberations concerning the provision were unusually lengthy and controversial; they provide a good example of the problems and obstacles that can confront an effort to achieve a uniform law. The aim of the proposal that led to the present formulation was to permit a suspension of performance even when the circumstances that made the obligor's performance doubtful had existed before, but had not become apparent until after the conclusion of the contract. The proposal differed from § 321 of the German Civil Code but corresponded to ULIS Article 73(1). The new formulation, which was proposed only as a clarification, should prevent the party experiencing difficulties from insisting on performance by the other side with the argument that his situation did not deteriorate after the conclusion of the contract but was already unsatisfactory before that date since he had previously failed to perform his obligations to third parties.
This solution was resisted on two grounds. First, under the proposed rule, parties that, because of their size or other economic factors, often operate under strained conditions would rarely be able to require advance performance from contract partners. Second, certain domestic laws already make provision for cases where performance was endangered before the conclusion of the contract, and some delegates wanted the applicability of these domestic provisions to be preserved. They argued that changed circumstances should yield corrective measures only - if at all - where those changes occur after the conclusion of the contract. Whether one party's ability to perform is recognizable to the other and the extent to which that factor influenced the parties' will to conclude the contract are questions of mistake which, it was argued, lay outside the reach of the Uniform Law for International Sales. [page 92]
But the proposal was meant specifically to exclude the thc diverse domestic rules on avoidance based on a mistake about the other party's ability to perform and to allow suspension of performance - and only the suspension governed by the Uniform Law for International Sales - in the event that a contracting party could establish that he had contracted under a false impression of the other side's ability to perform.
Finally, the opposition was also nourished by misunderstandings: Suspension of performance and avoidance based on an anticipated breach (Article 72) were perceived as a single remedy that was too severe, especially for parties in developing countries; moreover, the proposed rule seemed to permit too great a latitude to subjective appreciation of the other party's condition. An Egyptian proposal combining suspension of performance with anticipatory breach  revived the debate and led to the establishment of a working group which produced the present text of Articles 71 and 72. As it now stands, Article 71 corresponds to the 1978 Draft Convention as completed by the German proposal. As described in Article 71(1)(a) and (b), a party may suspend performance even when the deterioration already existed before the conclusion of the contract but was not apparent until afterwards. The decisive factor is when the inability to perform "becomes apparent". If it was already apparent at the conclusion of the contract that one party would not be able to perform, the other party may not suspend performance. In my opinion, domestic law on avoidance due to mistake is not applicable except in the case of fraudulent deception.
"Suspension" refers not only to (advance) performance, but also to the preparation of performance: If the seller of a machine still to be constructed learns of the buyer's impending insolvency, for example, he may stop construction of the machine. Moreover, the delivery time may also be prolonged: If the buyer unexpectedly offers payment or adequate assurances of performance according to Article 71(3), the seller who cannot meet the initial delivery date because of his justified suspension is not in default. He is therefore not liable for late performance to the extent the delay corresponds to the suspension of preparations.[383a]
The expected breach of contract must concern a substantial part of the obligor's duties. As in the context of Article 25, the right to suspend depends on how important the obligation is to the party relying on them; the other party's performance of "relatively minor" (cf. 320(2) German Civil Code) obligations may not be forced by suspending one's own performance. Even though, in practice, the difference between an (expected) violation of a "substantial part of [the] obligations" (Article 71(1)) and a "fundamental breach" (see Articles 72(1) and 73(2)) will hardly be distinguishable, it must be assumed that such a differentiation is, in principle, possible: For one, the Egyptian motion  to make the expectation of a "fundamental breach" the prerequisite for suspending performance under Article [page 93] 71(1) was rejected. Above all the difference in remedies under Articles 71(1) and 72(2) may justify including less important breaches under Article 71(1). However, as with Article 25, the importance of the jeopardized obligation to the obligee's contract expectations must be recognizable to the obligor at the conclusion of the contract: Since Article 71(1) releases the obligee from meeting deadlines, it can be the de facto equivalent of an avoidance.
Common sense suggests that "becomes apparent" means that the obligor's situation could not remain hidden to an objective participant in the branch of international trade in question. In my opinion, knowledge that family members, home banks, or internal contracting partners of the obligor had or could have had before the conclusion of the contract may not be considered. At the same time, the apparent inability to perform must not only induce subjective fears with regard to the performance of the contract but must also enable objective observers to foresee non-performance. The standard for this prognosis is again the judgement of a reasonable person. Yet it must be remembered that the cases in which it can be stated with absolute certainty that a particular "deficit" will lead to an inability to perform are very infrequent. The example discussed in Vienna of a totally insolvent obligor who against all odds, obtains credit or liquid assets, will, in my opinion, not impair the practicability of the solution.
In the event the seller dispatches the goods before the buyer's inability to perform becomes evident, the seller may stop the goods in transit, even if the buyer is already the owner of the goods or the holder of documents enabling him to obtain them from carriers or warehouses (Article 71(2) sentence 1). Of course, this right operates only as against the buyer. Whether the carrier or warehouse keeper must follow the seller's order depends on the freight or warehouse contract, hence, on domestic law. As regards third parties, such as the buyer's creditors who have seized the goods, the seller may exercise his right only if domestic rules on secured transactions permit it (Article 71(2) sentence 2).
The party that has suspended performance must immediately notify the other party (the notice is effective upon dispatch (Article 71(3)). If the other party gives adequate assurance of performance, then the right to suspend performance ends (Article 71(3)). Adequate assurance includes not only a guarantee of performance (such as a commitment by a third party) but also security for damage claims in case of non-performance. If the party suspending performance neglects to send notice, the other party may have the right to claim damages or avoid the contract if he can show that, had he been promptly notified, he would have produced adequate assurance. The suspension is no longer justified, from the moment the [page 94] assurance would have barred the right to suspend performance, and, from that moment, constitutes a breach of contract.
* The author of this book participated at the Conference as a member of the delegation from the Federal Republic of Germany. The views expressed here are personal to the author and do not necessarily represent the position of the F.R.G. or its delegation.(...)
378. See A/Conf. 97/C.1/L.187 (= O.R. 129) (proposal by the F.R.G.).
379. See A/Conf. 97/C.1/SR.26 at 6 § 41 (= O.R. 374).
380. Delegates from Italy and France commented that middlesized businesses deeply involved in exports often find themselves in a difficult liquidity situation; the argument by the Mexican delegate was similar. See A/Conf. 97/C.1/SR.26 at 8 § 54 (= O.R. 375). The fears expressed in conjunction with the Egyptian motion (A/Conf. 97/C.1/L.249, L.250= O.R. 129), which led to the reopening of the deliberations, were along the same lines, namely that such extensive consideration of the other party's ability to perform would be especially disadvantageous to parties in developing countries. See infra in the text.
381. See A/Conf. 97/C.1/R.26 at 9 § 61 (= O.R. 376) (French position); A/Conf. 97/C.1/SR.26 at 10 § 66 (= O.R. 376) (Mexican position); A/Conf. 97/C.1/SR.26 at 7 § 46 (= O.R. 376) (Italian position). The minutes of the Conference, which do not reproduce the discussions literally, do not sufficiently reflect the fact that many believed that domestic rules on avoidance for mistake should be applicable in such cases, but I frequently heard this argument in the unofficial discussions.
382. A/Conf. 97/C.1/L.249, L.250 (= O.R. 129).
383. Cf. A/Conf. 97/C.1/SR.35 at 2 et seq. (= O.R. 420 et seq.); id. SR. 37 at 11 et seq. (= O.R. 429); id. SR.38 at 2 (= O.R. 433). The F.R.G. was represented in this working group.
383a. I am indebted for this insight to Honnold's convincing arguments. See Honnold, Commentary § 393.
384. A/Conf. 97/C.1/L.249 (= O.R. 129).
385. See infra at VI.E. 2.
386. The formulation in the 1978 Draft Convention Article 62(1) - whereby the deterioration must give "good grounds to conclude" that the other party will not perform - was perceived as being too subjective. However, the present formulation should not indicate a restriction to only those cases in which non-performance is absolutely certain. Cf. A/Conf. 97/C.1/SR.37 at 11 § 95 (= O.R. 431). In the opinion of the Canadian delegate, there is not even an appreciable difference between the formulation "it becomes apparent" and "good grounds to conclude that the other party will not perform". See A/Conf. 97/C.1/SR.38 at 2 § 8 (= O.R. 433); see also A/Conf. 97/C.1/SR.37 at 12 § 104 (= O.R. 432) (U.S. interpretation); infra at E.3.
387. See Secretariat's Commentary at 162 §13.
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