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CISG number

Art. 71

398. The text of article 47, as adopted by the Working Group on the International Sale of Goods, is as follows:

Proposal for deletion of article 47

399. The Committee considered a proposal to delete article 47.

400. In support of this proposal, it was stated that the right given to one party to suspend his contractual obligations, and later to avoid the contract, gave too much power to that party because the exercise of that right was primarily dependent on [page 53] his own subjective assessment of the other party's future course of conduct. Such a right was stated to be too easy of abuse, particularly by those representatives who considered that a party's assessment as to whether the other party would not perform a substantial part of his obligations was not subject to judicial review.

401. In opposition to this proposal it was stated that article 41 served a useful purpose in international trade. It reflected the normal business concern that the other party would in fact perform his obligations at the time they were due. If there were serious grounds to conclude, that the other party would not perform a substantial part of those obligations, it was appropriate to be allowed to suspend one's own obligations until given adequate assurances that the other party would perform. If the other party would be able to perform as he was obligated to do, it should not be difficult for him to provide the necessary assurances.

402. Most representatives were of the opinion that a decision to suspend performance under article 41 was subject to judicial review as were all cases where the draft Convention gave one party the right to make a determination which affected the contractual relationship. Accordingly, a suggestion to state this principle specifically in article 41 was not retained. It was also noted that should the suspension be unjustified the other party would have recourse to all remedies under the contract and Convention for the suspending party's failure to perform.

403. The Committee, after deliberation, decided to retain article 47.

Paragraph (1)

404. The Committee considered a proposal that article 41(1) operate only if "it is clear" that the other party would not perform a substantial part of his obligations.

405. In support of this proposal it was stated that the right to suspend a contract should be given only when there was no doubt that a substantial part of the other party's obligations would not be performed.

406. However, under another view it was desirable to have a less rigorous test for suspending performance than the determination that it be "clear" that the other party would not perform a substantial part of his obligations. If it was "clear" that the other party would commit a fundamental breach of contract, the contract could be avoided under article 49.

401. The Committee, after deliberation, decided not to retain this proposal.

Paragraph (2)

408. The Committee considered the following proposals in respect of paragraph (2):

(a) Proposal for deletion of paragraph (2)

409. The proposal to delete paragraph (2) was based on the view that the provision gave an unfair advantage to the seller because the buyer did not have a similar right. Furthermore, it was considered that if the buyer had title to, or property in, the goods the seller should not be able to prevent the buyer from obtaining possession of them.

410. However, it was pointed out that the right of "stoppage in transit" of the goods, as set out in paragraph (2), appears in many legal systems.

411. The Committee decided not to retain the proposal to delete article 41(2).

(b) Proposals for extension of principle contained in paragraph (2) to the buyer

412. The Committee considered a proposal that paragraph (2) be amended to read as follows (italicized words indicate proposed addition to present text):

413. In support of this proposal, it was stated that it was equitable to extend to the buyer a right to prevent the payment of the money to the seller parallel to the right of the seller to prevent the handing over of the goods to the buyer. It was further stated that, although paragraph (2) could not affect the rights and obligations of third parties, it would enable a party who had sought to prevent the handing over of the goods, or sought to prevent payment of the price, to obtain restitution of those goods or the price. It was noted that this could have important consequences in bankruptcy proceedings.

414. In opposition to this proposal it was stated that article 47(1) already gave the buyer power to withhold payment of the price or to stop transfer of funds. However, this right should not extend to cases of irrevocable letters of credit or of bills or exchange which had been accepted by the buyer as this would seriously disrupt commercial practice, particularly in relation to documentary sales. It was noted that as a bank has an obligation to pay under an irrevocable letter of credit, the proposed article, which dealt with the rights of only the buyer and the seller, would have no effect but that it might cause confusion in commercial circles. It was also observed that in some countries the stopping of payment of a cheque was a criminal offence. Acceptance of the proposal would make ratification of the Convention difficult in those countries.

415. The Committee, after deliberation, decided not to retain the proposal. It also did not retain a suggestion, designed to overcome the difficulties in relation to letters of credit, that a new paragraph be added to the effect that article 47(2), "applies to payment provided the goods or part of them have not yet been sent to the buyer when the grounds mentioned, in paragraph (1) became evident."

Paragraph (3)

416. The Committee considered a proposal to delete the second sentence of paragraph (3) so that article 47 would be limited to the right to suspend performance. The right to avoid the contract prior to the date for performance would be dealt with under article 49.

417. Support for this proposal was based on the consideration that there may be justifiable differences of opinion" on what constitutes "adequate assurance" in a particular case. While this question could, in relation to suspension, be left to the parties, and if necessary to the courts, it was desirable to have a clear rule in relation to the right to declare the contract avoided. This right should not flow automatically from a failure to give "adequate assurance" but should only occur if the conditions of article 49 are satisfied, i.e. if "it is clear that one of the parties will commit a fundamental breach."

418. Opposition to this proposal was based on the view that it was important to be able to terminate the contract if adequate assurance was not given. Any problems as to the meaning of "adequate assurance" could be solved by alternate forms of drafting.

419. The Committee decided to adopt the proposal.

Decision

420. The Committee concludes that the second sentence of paragraph (3) should be deleted so that the right of a party to avoid the contract prior to the date for performance would, be governed by article 49. It therefore recommends that the Commission should adopt the following text, now renumbered as article 48: [page 54]

"Article 48

"(1) A party may suspend the performance of his obligations if it is reasonable to do so because after the conclusion of the contract, a serious deterioration in the ability to perform or in the creditworthiness of the other party or his conduct in preparing to perform or in actually performing the contract gives good grounds to conclude that the other party will not perform a substantial part of his obligations.
"(2) If the seller has already dispatched the goods before the grounds described in paragraph (1) of this article become evident, he may prevent the handing over of the goods to the buyer even though the buyer holds a document which entitles him to obtain them. This paragraph relates only to the rights in the goods as between the buyer and the seller.
"(3) A party suspending performance, whether before or after dispatch of the goods, must immediately give notice to the other party thereof and must continue with performance if the other party provides adequate assurance of his performance."

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