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Article 25. Definition of Fundamental Breach

TEXT OF ARTICLE 25

A breach of contract committed by one of the parties is fundamental if it results in such detriment to the other party as substantially to deprive him of what he is entitled to expect under the contract, unless the party in breach did not foresee and a reasonable person of the same kind in the same circumstances would not have foreseen such a result.


CROSS-REFERENCES

For other Articles of the Convention that specifically refer to "fundamental breach", go to

Most of these provisions pertain to avoidance. A fundamental breach can also give rise the right to require delivery of substitute goods.


OUTLINE OF ISSUES

Reproduced with permission of UNCITRAL

25A Effect of a fundamental breach

25A1 Avoidance of contract (see arts. 49(1)(a) and 64(1)(a))

25B Definition: Substantial deprivation of expectation, etc.

25B1 Exception: Foreseeability test (see art. 25)

25C Other issues concerning definition


DESCRIPTORS

Fundamental breach ; Avoidance


CASE ANNOTATIONS: UNCITRAL DIGEST CASES PLUS ADDED CASES

UNCITRAL has identified relevant cases in Digests containing case annotations for each article of the CISG. UNCITRAL cites 31 cases in its Digest of Art. 25 case law:

Australia   2         Germany 11         Russian Federation     1
Austria 1 ICC   2 Switzerland   3
France 6 Italy   3 United States   2        TOTAL          31

Presented below is a composite list of Art. 25 cases reporting UNCITRAL Digest cases and other Art. 25 cases. All cases are listed in chronological sequence, commencing with the most recent. Asterisks identify the UNCITRAL Digest cases, commencing with the 13 December 2001 citation reported below. Cases are coded to the UNCITRAL Thesaurus.

English texts and full-text English translations of cases are provided as indicated. In most instances researchers can also access UNCITRAL abstracts and link to Unilex abstracts and full-text original-language case texts sourced from Internet websites and other data, including commentaries by scholars to the extent available.

For a case annotated analysis of issues associated with The Buyer's Right to Avoid the Contract in Case of Non-Conforming Goods or Documents, go to CISG-AC Opinion No. 5, dated 7 May 2005. Rapporteur: Professor Dr. Ingeborg Schwenzer, University of Basel. Analysis endorsed by Jan Ramberg, Chair; Eric E. Bergsten, Michael Joachim Bonell, Alejandro M. Garro, Roy M. Goode, Sergei N. Lebedev, Pilar Perales Viscasillas, Peter Schlechtriem, Ingeborg Schwenzer, Hiroo Sono, Claude Witz, Members; Loukas A. Mistelis, Secretary.

There are scholars who believe that there are circumstances in which the UNIDROIT Principles of International Commercial Contracts may be used to interpret or supplement this Article of the CISG. See match-up of this Article with counterpart provisions of the Principles and commentary on this subject. To the extent this reasoning fits, cases on the counterpart provisions of the UNIDROIT Principles may be relevant. To the extent available, such cases may be found on the Unilex website.
 

Netherlands 29 July 2009 Rechtbank [District Court] Arnhem (___ v. Omnibus Trading B.V.)

United States 29 May 2009 Federal District Court [New York] (Doolim Corp. v. R Doll LLC et al.) 25B

Switzerland 18 May 2009 Bundesgerichtshof [Federal Supreme Court] (Packaging machine case)

United States 26 March 2009 U.S. District Court [Ohio] (Miami Valley Paper, LLC v. Lebbing Engineering & Consulting GmbH) 25B

Netherlands 3 February 2009 Gerechtshof [Appellate Court] Leeuwarden (JPB Industrial Services B.V. v. Buchen Industrial Services N.V.) 25B [translation available]
 

Italy 11 December 2008 Tribunale di Forli [District Court] (Mitias v. Solidea S.r.l.) 25B [translation available]

Germany 18 November 2008 Oberlandesgericht [Appellate Court] Brandenburg (Beer case) 25B [translation available]

Netherlands 7 October 2008 Gerechtshof [Appellate Court] Arnhem (Arens Sondermachinen GmbH v. Smit Draad / Draad Nijmegen B.V.) 25B [abstract available]

Switzerland 26 September 2008 Appellationsgericht [Appellate Court] Basel-Stadt (Packaging machine case)

Switzerland 12 September 2008 Amtsgericht [District Court] Sursee (Second-hand tractor case)

United States 20 August 2008 U.S. District Court [New York] (Hilaturas Miel, S.L. v. Republic of Iraq)

United States 16 April 2008 U.S. District Court [New York] (Macromex Srl. v. Globex International, Inc.) 25B

Germany 25 January 2008 Oberlandesgericht [Appellate Court] Hamburg (Café inventory case) 25B [translation available]

Spain 17 January 2008 Supreme Court (Used automobiles case) 25B [translation available]
 

Spain 27 December 2007 Audiencia Provincial [Appellate Court] Navarra (Case involving machine to repair bricks) 25B [translation available]

Germany 27 November 2007 Bundesgerichtshof [Federal Supreme Court] (Glass bottles case) 25B [translation available]

Germany 21 November 2007 Oberlandesgericht [Appellate Court] Koblenz (Shoes case) 25B [translation available]

Switzerland 13 November 2007 Bundesgericht [Supreme Court]

Slovak Republic 25 October 2007 Regional Court [District Court] Zilina (Elastic fitness clothing case) 25B [translation available]

American Arbitration Association 23 October 2007 [Interim Award] (Macromex Srl. v. Globex International Inc.) 25B

Serbia 1 October 2007 Foreign Trade Court of Arbitration, Serbian Chamber of Commerce (Timber case) 25B [translation available]

Switzerland 30 August 2007 Kantonsgericht [District Court] Zug (GMS modular case) 25B [translation available]

Switzerland 26 July 2007 Tribunal cantonal [Appellate Court] Jena (Industrial furnace case)

Netherlands 18 July 2007 Rechtsbank [District Court] Utrecht (Prodema S.A. v. Michon B.V.) 25B [translation available]

Austria 4 July 2007 Oberster Gerichtshof [Supreme Court] (Auto case) [translation available]

China 30 June 2007 CIETAC Arbitration Award [CISG 2007/04] (Color concrete block production line case) 25B [translation available]

Slovak Republic 27 June 2007 Supreme Court Zilina (Elastic fitness clothing case) 25B [translation available]

Slovak Republic 28 May 2007 Regional Court [Appellate Court] in Kosice (Mitsubishi automobile case) 25B [translation available]

Poland 11 May 2007 Supreme Court (Shoe leather case) 25B [translation available]

Switzerland 27 April 2007 Tribunal cantonal [Appellate Court] Valais (Oven case) 25B [translation available]

Switzerland 19 April 2007 Pretore del Distretto [District Court] Lugano (Spring toys case)

Stockholm Chamber of Commerce 5 April 2007 (Pressure sensors case) 25B [English text]

Spain 22 March 2007 Audiencia Provincial [Appellate Court] Madrid

Spain 20 February 2007 Audiencia Provincial [Appellate Court] Madrid (Sunprojuice DK, Als v. San Sebastian, S.c.A.) 25B [translation available]

Germany 12 January 2007 Oberlandesgericht [Appellate Court] Köln [translation available]
 

Spain 21 December 2006 Appellate Court Islas Huesca

China December 2006 CIETAC Arbitration Award [CISG 2006/05] (Rabbit skin case) 25A [translation available]

China December 2006 CIETAC Arbitration Award [CISG 2006/03] (Automobile case) 25B [translation available]

Spain 9 November 2006 Appellate Court Islas Baleares

Switzerland 8 November 2006 Zivilgericht [Civil Court] Basel-Stadt (Packaging machine case)

Spain 31 October 2006 Supreme Court

Germany 19 October 2006 Oberlandesgericht [Appellate Court] München (Auto case) 25B [translation available]

Germany 31 August 2006 Oberlandesgericht [Appellate Court] Köln (Chlorine tablets case) 25B [translation available]

China 3 August 2006 CIETAC Arbitration Award [CISG 2006/15] (Water pump case) 25B [translation available]

China August 2006 CIETAC Arbitration Award [CISG 2006/13] (Chilling press case) 25B [translation available]

Spain 20 July 2006 Supreme Court 25B

Russia 30 June 2006 Arbitration Award 81/2005

Netherlands 28 June 2006 Rechtbank [District Court] Arnhem (Silicon Biomedical Instruments B.V. v. Erich Jaeger GmbH) 25B [translation available]

Germany 21 June 2006 Amtsgericht [Lower Court] Landsberg (Dust ventilator case) 25B [translation available]

Belgium 24 April 2006 Hof van Beroep [Appellate Court] Antwerpen (GmbH Lothringer Gunther Grosshandelsgesellschaft für Bauelemente und Holzwerkstoffe v. NV Fepco International) 25A1 [translation available]

Belgium 19 April 2006 Rechtbank van Koophandel [Commercial Court] Hasselt (Bruggen Deuren BVBA v. Top Deuren VOF) [translation available]

Russia 13 April 2006 Arbitration Award 105/2005 25B [translation available]

Spain 5 April 2006 Supreme Court

United States 4 April 2006 Federal District Court [New Jersey] (Valero Marketing v. Green Oy) 25B

Spain 21 March 2006 Appellate Court Castellón (case on apparatus for the reduction of consumption of gasoline) 25B

China February 2006 CIETAC Arbitration Award [CISG 2006/16] (Fluorite case) 25B [translation available]

Austria 23 January 2006 Oberlandesgericht [Appellate Court] Linz (Auto case) 25B [translation available]

Russia 20 January 2006 Arbitration Award 84/2005 [translation in process]
 

China 26 December 2005 CIETAC Arbitration Award [CISG 2005/21] (Heating system device case) 25B [translation available]

Slovenia 14 December 2005 Higher Court [Appellate Court] Lujubljana (Door and door jamb case) 25B [translation available]

China December 2005 CIETAC Arbitration Award [CISG 2005/23] (Heat transfer oil furnace case) 25B [translation available]

Russia 30 November 2005 Arbitration Award 76/2005

Germany 29 November 2005 Landgericht [District Court] München (Frozen vegetables case) 25B [translation available]

Russia 18 October 2005 Arbitration Award 21/2005 (Varnish and paint machine case) 25B [translation available]

Spain 26 September 2005 Audiencia Provincial [Appellate Court] Palencia (Printing machine case) 25B [translation available]

Belgium 14 September 2005 Rechtbank van Koophandel [District Court] Hasselt (Drukkerij Baillien en Maris NV v. Hunterskil Howard BV)

China 12 September 2005 CIETAC Arbitration Award [CISG 2005/18] (Hydraulic pressure geologic equipment case) [translation available]

Netherlands 31 August 2005 Gerechtshof [Appellate Court] Leeuwarden (Auto-Moto Styl S.R.O. v. Pedro Boat B.V.) 25B [translation available]

China 22 August 2005 CIETAC Arbitration Award [CISG 2005/13] (Valve case) 25B [translation available]

Ukraine 5 July 2005 Arbitration Award (Medical equipment case) 25B [translation available]

Austria 21 June 2005 Oberster Gerichtshof [Supreme Court] (Software case) 25B ; 25B1 [translation available]

United States 15 June 2005 Federal District Court [New Jersey] (Valero Marketing v. Greeni Oy)

Russia 27 May 2005 Arbitration Award 95/2004 25B [translation available]

China 10 May 2005 CIETAC Arbitration Award No. G20010386 (Hat case) 25B [translation available]

Germany 11 April 2005 Landgericht [District Court] Frankfurt 25B [translation available]

China 7 April 2005 CIETAC Arbitration Award [CISG/2005/01] (Cotton gin motes case) 25B [translation available]

Spain 29 March 2005 Juzgado de Primera Instancia [Court of First Instance] Tudela 25B [translation available]

China 24 February 2005 CIETAC Arbitration Award [CISG 2005/07] (Pork case) 25B [translation available]

China 24 February 2005 CIETAC Arbitration Award [CISG 2005/08] (Second pork case) 25B [translation available]

Switzerland 21 February 2005 Kantonsgericht [Appellate Court] Valais (CNC machine case) 25B [translation available]

Austria 1 February 2005 Oberlandesgericht [Appellate Court] Innsbruck (Powdered tantalum case) [translation available]

Spain 31 January 2005 Audiencia Provincial [Appellate Court] Cuenca (Live calves case) [translation available]

Italy 11 January 2005 Tribunale [District Court] Padova (Rabbit case) 25B [translation available]
 

Russia 21 December 2004 Arbitration Award 39/2003 25A [translation available]

Russia 2 November 2004 Arbitration Award 188/2003 25B ; 25B1 [translation available]

Belgium 20 October 2004 Hof van Beroep [Appellate Court] Gent 25B [translation available]

Germany 15 September 2004 Oberlandesgericht [Appellate Court] Köln [detailed abstract available]

China September 2004 CIETAC Arbitration Award [CISG 2004/07] (Steel products case) 25A1 [English text]

Austria 29 July 2004 Oberlandesgericht [Appellate Court] Graz (Construction equipment case) 25B [translation available]

Germany 22 July 2004 Oberlandesgericht [Appellate Court] Düsseldorf [translation available]

China 13 July 2004 CIETAC Arbitration Award [CISG 2004/03] (Liquid filling production line case)

Belgium 30 June 2004 Hof van Beroep [Appellate Court] Ghent (Van Oers BV v. NV Turbo's Hoet Truckcenter Productie) 25B [translation available]

Russia 25 June 2004 Arbitration Award 120/2003 25B [translation available]

Belgium 4 June 2004 Rechtbank van Koophandel [District Court] Kortrijk 25B [translation available]

France 4 June 2004 Cour d'appel [Appellate Court] Paris 25B [translation available]

Germany 1 June 2004 Landgericht [District Court] Saarbrücken (Pallets case) [translation available]

United States 21 May 2004 U.S. District Court [Illinois] (Chicago Prime Packers v. Norham)

Canada 4 May 2004 Court of Appeal of Manitoba (Brown & Root v. Aerotech)

Spain 28 April 2004 Audiencia Provincial [Appellate Court] Barcelona 25B [translation available]

Germany 21 April 2004 Oberlandesgericht [Appellate Court] Düsseldorf [15 U 88/03] 25B [translation available]

Italy 31 March 2004 Tribunale [District Court] Padova [translation available]

Italy 25 February 2004 Tribunale [District Court] Padova [translation available]

Switzerland 27 January 2004 Kantonsgericht [District Court] Schaffhausen 25B [translation available]

Germany 23 January 2004 Oberlandesgericht [Appellate Court] Düsseldorf 25B [translation available]

China 14 January 2004 CIETAC Arbitration Award [CISG/2004/01] (Printing machine case) 25B [translation available]
 

Austria 17 December 2003 Oberster Gerichtshof [Supreme Court]

Netherlands 12 November 2003 Rechtbank [District Court] Maastricht

Switzerland 24 October 2003 Handelsgericht [Commercial Court] Zürich 25B [translation available]

Canada 6 October 2003 Ontario Supreme Court (Diversitel v. Glacier) 25A ; 25B

Switzerland 22 August 2003 Appellationsgericht [Appellate Court] Basel 25B [translation available]

Germany 25 July 2003 Oberlandesgericht [Appellate Court] Düsseldorf [translation available]

China 26 June 2003 CIETAC Arbitration Award [CISG 2003/10] (Alumina case) 25B [translation available]

Netherlands 23 April 2003 Gerechtshof [Appellate Court] 's-Gravenhage 25B [translation available]

China 18 April 2003 CIETAC Arbitration Award [CISG 2003/05] (Desulfurization reagent case) 29A [English text]

Netherlands 29 January 2003 Rechtbank [District Court] Zwolle

Netherlands 22 January 2003 Rechtbank [District Court] Zwolle

ICC 2003 International Court of Arbitration, Case 11849 (Fashion products case) 25B [English text]
 

China 27 December 2002 CIETAC Arbitration Award [CISG 2002/29] (Medicine manufacturing equipment case) 25A [translation available]

Switzerland 12 December 2002 Kantonsgericht [District Court] Zug 25B [translation available]

China 27 November 2002 Higher People’s Court of Ningxia Hui Autonomous Region 25B [translation available]

Ukraine 25 November 2002 Arbitration Award 25A [translation available]

China 11 November 2002 CIETAC Arbitration Award [CISG 2002/26] (Platform case) 25B [translation available]

China 6 November 2002 CIETAC Arbitration Award [CISG 2002/25] (Pipe equipment case) 25B [translation available]

Switzerland 5 November 2002 Handelsgericht [Commercial Court] Aargau 25A [translation available]

China 4 November 2002 CIETAC Arbitration Award [CISG 2002/08] (Beech log case) 25B [translation available]

Germany 14 October 2002 Oberlandesgericht [Appellate Court] Köln 25B [translation available]

China 9 October 2002 CIETAC Arbitration Award [CISG 2002/13] (Elevator case) 25B [translation available]

Canada 20 September 2002 Manitoba Court of Queen's Bench (Brown & Root v. Aerotech) 25A ; 25B

China 9 September 2002 CIETAC Arbitration Award [CISG 2002/22] (Elevator case) 25B [translation available]

China 9 August 2002 CIETAC Arbitration Award [CISG 2002/21] (Yellow phosphorus case) 25B [translation available]

China 15 July 2002 CIETAC Arbitration Award [CISG 2002/19] (Coating equipment case) 25B [translation available]

Germany 2 July 2002 Landgericht [District Court] Saarbrücken [translation available]

Germany 1 July 2002 Oberlandesgericht [Appellate Court] München 25B [translation available]

China 28 May 2002 CIETAC Arbitration Award [CISG 2002/31] (Headware case) [translation available]

Serbia 10 May 2002 Foreign Trade Court of Arbitration, Yugoslav Chamber of Commerce (Zinc coated tin case) 25B [abstract available]

Switzerland 11 April 2002 Tribunal Cantonal [Appellate Court] Vaud

Switzerland 1 March 2002 Zivilgericht [Civil Court] Basel 25B [translation available]

Germany 27 February 2002 Landgericht [District Court] München [translation available]

Switzerland 25 February 2002 Kantonsgericht [District Court] Schaffhausen [translation available]

Germany 20 February 2002 Landgericht [District Court] München 25B [translation available]

Spain 12 February 2002 Audiencia Provincial [Appellate Court] Barcelona 25A [translation available]

China 4 February 2002 CIETAC Arbitration Award [CISG/2002/03] (Styrene monomer case) 25B [translation available]

China 4 February 2002 CIETAC Arbitration Award [CISG 2002/17] (Steel bar case) 25B [translation available]

China 2002 Shanghai Yangpu District People's Court (China Xhanghai Dongda Import & Export Corp. v. Germany Laubholz – Meyer Corp) 25B [translation available]
 

United States 17 December 2001 U.S. District Court [Michigan] (Shuttle Packaging v. Tsonakis) 25B

* Italy 13 December 2001 Tribunale [District Court] Busto Arsizio 25A

Germany 12 November 2001 Oberlandesgericht [Appellate Court] Hamm (Memory module case) 25B [translation available]

Australia 12 October 2001 Supreme Court of Queensland, Court of Appeal (Downs Investments v. Perwaja Steel) 25A ; 25B

Austria 5 July 2001 Oberster Gerichtshof [Supreme Court] (Pentium computer parts case) 25A [translation available]

China 22 March 2001 CIETAC Arbitration Award [CISG/2001/02] (Mung bean case) 25B [translation available]

Germany 12 March 2001 Oberlandesgericht [Appellate Court] Stuttgart 25B [translation available]

Belgium 14 February 2001 Hof van Beroep [Appellate Court] Gent (NV Van Heygen Staal v. GmbH Stahl- und Metalhandel Klockner)
 

Australia 17 November 2000 Supreme Court of Queensland (Downs Investment v. Perwaja Steel) 25A ; 25B

France 12 October 2000 Cour d'appel [Appellate Court] Paris

Germany 12 October 2000 Landgericht [District Court] Stendal 25B [translation available]

China 29 September 2000 CIETAC Arbitration Award [CISG 2000/15] (Cushion case) 25B [translation available]

Austria 28 September 2000 Oberlandesgericht [Appellate Court] Graz (Computer phone board case) 25B [translation available]

Switzerland 15 September 2000 Bundesgericht [Federal Supreme Court] [4C.105/2000] 25B [translation available]

Russia 24 August 2000 Arbitation Court [Appellate Court] for the Moscow Region [translation available]

China 10 August 2000 CIETAC Arbitration award 25B [translation available]

China 27 July 2000 CIETAC Arbitration award 25B [translation available]

Mexico 14 July 2000 Juzgado de Primera Instancia [Court of First Instance] Tijuana [translation available]

Russia 13 June 2000 Arbitration Award No. 280/1999 [translation available]

* Austria 13 April 2000 Oberster Gerichtshof [Supreme Court] [translation available]

Germany 6 April 2000 Landgericht [District Court] München 25B [translation available]

China 11 February 2000 CIETAC Arbitration award 25B [translation available]

Russia 11 February 2000 Arbitration Award No. 226/1999 [translation available]

China 1 February 2000 CIETAC Arbitration award 25A [translation available]

China 31 January 2000 CIETAC Arbitration Award [CISG/2000/09] (Clothes case) 25B [translation available]

China 2000 CIETAC Arbitration Award [CISG 2000/17] (Souvenir coins case) 25B [translation available]
 

China 31 December 1999 CIETAC Arbitration Award [CISG/1999/32] (Steel coil case) 25B [translation available]

ICC 20 December 1999 International Court of Arbitration (Copper cable case) 25B [translation available]

United States 7 December 1999 Federal District Court [Illinois] (Magellan International v. Salzgitter Handel) 25A

Germany 26 November 1999 Oberlandesgericht [Appellate Court] Hamburg 25A [translation available]

Denmark 10 November 1999 Veste Landsret [Western High Court] 25A [translation available]

Russia 27 October 1999 Arbitration award 269/1998 [translation available]

* France 21 October 1999 Cour d'appel [Appellate Court] Grenoble 25A [translation available]

China 10 August 1999 CIETAC Arbitration Award [CISG 1999/35] (Raincoat case) 25B [translation available]

ICC August 1999 International Court of Arbitration, Case 9887 [English text]

Russia 7 June 1999 Arbitration award 238/1998 25B [translation available]

China 4 June 1999 CIETAC Arbitration Award [CISG/1999/28] (Industrial raw material case) 25B [translation available]

China June 1999 PRC Arbitration award 25B [translation available]

ICC June 1999 International Court of Arbitration, Case 9187 [English text]

* France 26 May 1999 Cour de Cassation [Supreme Court] (Schreiber v. Thermo Dynamique) [translation available]

* United States 17 May 1999 U.S. District Court [Louisiana] (Medical Marketing v. Internazionale Medico Scientifica) 25B

China 12 April 1999 CIETAC Arbitration Award [CISG/1999/22] (Bud rice dregs case) 25A1 ; 25B [translation available]

China 8 April 1999 CIETAC Arbitration Award [CISG/1999/21] (New Zealand raw wool case) 25B [translation available]

Austria 11 March 1999 Oberster Gerichtshof [Supreme Court] [translation available]

China 1 March 1999 CIETAC Arbitration Award [CISG/1999/12] (Canned mandarin oranges case) 25A [translation available]

ICC March 1999 International Court of Arbitration, Case 9978 [English text]

China 12 February 1999 CIETAC Arbitration Award [CISG/1999/08] (Chrome plating production line equipment case) 25B [translation available]

* France 4 February 1999 Cour d'appel [Appellate Court] Grenoble 25B [translation available]

China 6 January 1999 CIETAC Arbitration Award [CISG/1999/04] (Australian raw wool) 25B [translation available]

ICC 1999 International Court of Arbitration, Case 10274 25B [English text]
 

Germany 29 December 1998 Hamburg Arbitration award [translation available]

Mexico 30 November 1998 Compromex Arbitration award 25B [translation available]

Switzerland 30 November 1998 Handelsgericht [Commercial Court] Zürich 25B [translation available]

Russia 24 November 1998 Arbitration award 96/1998 25B [translation available]

Denmark 4 November 1998 Randers Byret [County Court] (Christmas tree case) 25B [translation available]

* Switzerland 28 October 1998 Bundesgericht [Federal Supreme Court] (Meat case) 25B [translation available]

Russia 22 October 1998 Arbitration award 196/1997 [translation available]

Russia 5 October 1998 Arbitration award 53/1997 25B [translation available]

China 25 September 1998 CIETAC Arbitration Award [CISG 1998/12] (Health supplement case) 25B [translation available]

Germany 22 September 1998 Oberlandesgericht [Appellate Court] Oldenburg 25A [translation available]

Finland 30 June 1998 Helsingin hovioikeus [Appellate Court] Helsinki 25A [translation available]

Switzerland 24 March 1998 Obergericht [Appellate Court] Zug

* Italy 20 March 1998 Corte di Appello [Appellate Court] Milano 25B [translation available]

China 23 January 1998 CIETAC Arbitration Award [CISG 1998/13] (Kidney bean case) [translation available]
 

China 19 December 1997 CIETAC Arbitration Award [CISG/1997/36] (Steel case) 25A [translation available]

China 16 December 1997 CIETAC Arbitration Award [CISG/1997/35] (Hot-dipped galvanized steel coils case) 25B [translation available]

Austria 10 December 1997 Vienna Arbitration award S 2/97 25A1 [translation available]

ICC December 1997 International Court of Arbitration, Case 8817 [translation available]

Spain 3 November 1997 Audiencia Provincial [Appellate Court] Barcelona 25B

China 8 October 1997 CIETAC Arbitration Award [CISG/1997/29] (Industrial tallow case) 25A [translation available]

* Switzerland 26 September 1997 Handelsgericht [Commercial Court] Aargau (Cutlery case) 25B [translation available]

Germany 15 September 1997 Landgericht [District Court] Heilbronn 25A [translation available]

China 8 September 1997 CIETAC Arbitration Award [CISG/1997/27] (BOPP film case) 25B [translation available]

China 18 August 1997 CIETAC Arbitration Award [CISG/1997/26] (Vitamin C case) 25A [translation available]

China 5 August 1997 CIETAC Arbitration Award [CISG/1997/25] (Cold-rolled coils case) 25B [translation available]

China 21 July 1997 CIETAC Arbitration Award [CISG/1997/22] (Yam-dyed fabric case) 25B [translation available]

China 7 July 1997 CIETAC Arbitration Award [CISG/1997/20] (Isobutanol case) 25B [translation available]

Hungary 1 July 1997 Fovárosi Bíróság [Metropolitan Court] [translation available]

China 27 June 1997 CIETAC Arbitration Award [CISG/1997/18] (Kidney beans case) 25B [translation available]

China 26 June 1997 CIETAC Arbitration Award [CISG/1997/17] (Monohydrate zinc sulphate case) 25A [translation available]

China 25 June 1997 CIETAC Arbitration Award [CISG/1997/16] (Art paper case) 25B [translation available]

Russia 13 May 1997 Arbitration award 3/1996 25B [translation available]

Russia 11 May 1997 Arbitration award 2/1995 25B [translation available]

* Germany 24 April 1997 Oberlandesgericht [Appellate Court] Düsseldorf 25B [translation available]

China 4 April 1997 CIETAC Arbitration Award [CISG/1997/04] (Black melon seeds case) [translation available]

* Russia 4 April 1997 Arbitration award 387/1995 25B [translation available]

* Germany 28 February 1997 Oberlandesgericht [Appellate Court] Hamburg 25B [translation available]

Finland 18 February 1997 Turun hovioikeus [Appellate Court] Turku 25A [translation available]

China 6 February 1997 CIETAC Arbitration Award [CISG/1997/38] (Silicon-carbide case) 25B [translation available]

* Switzerland 5 February 1997 Handelsgericht [Commercial Court] Zürich [translation available]

* Germany 31 January 1997 Oberlandesgericht [Appellate Court] Koblenz 25B [translation available]

Germany 8 January 1997 Oberlandesgericht [Appellate Court] Köln 25B [translation available]

* ICC January 1997 International Court of Arbitration, Case 8786 25B [English text]

ICC 1997 International Court of Arbitration, Case 8782 25A [English text]
 

China 23 December 1996 CIETAC Arbitration Award [CISG/1996/57]

France 9 December 1996 Tribunal de commerce [District Court] Poitiers

China 28 November 1996 CIETAC Arbitration Award [CISG/1996/54] (Moly-oxide case) [translation available]

China 10 October 1996 CIETAC Arbitration Award [CISG/1996/45] (Petroleum coke case) [translation available]

China 18 September 1996 CIETAC Arbitration Award 25B [translation available]

ICC September 1996 International Court of Arbitration, Case 8574 25B [English text]

China 16 August 1996 CIETAC Arbitration Award [CISG/1996/39] (Dioctyl phthalate case) 25B [translation available]

China 8 August 1996 CIETAC Arbitration Award [CISG/1996/36] (Diaper machine case) 25B [translation available]

China 30 July 1996 CIETAC Arbitration Award [CISG/1996/33] (Ferro-molybdenum alloy case) 25A [translation available]

China 31 May 1996 CIETAC Arbitration Award [CISG/1996/27] (Children's jackets case) [translation available]

Switzerland 31 May 1996 Zürich Chamber of Commerce, Arbitration ZHK 273/1995 25A [English text]

China 22 May 1996 CIETAC Arbitration Award [CISG/1996/25] (Broadcasting equipment case) 25B [translation available]

China 17 April 1996 CIETAC Arbitration Award [CISG/1996/19] (Air purifier case) 25B [translation available]

* Germany 3 April 1996 Bundesgerichtshof [Federal Supreme Court] 25B [translation available]

Germany 27 March 1996 Landgericht [District Court] Oldenburg 25B

Germany 21 March 1996 Hamburg Arbitration award [translation available]

China 8 March 1996 CIETAC Arbitration Award [CISG/1996/13] (Horsebean case) 25B [translation available]

China 15 February 1996 CIETAC Arbitration Award [CISG/1996/10] (Hot-rolled plates case) 25B [translation available]

Austria 6 February 1996 Oberster Gerichtshof [Supreme Court] [translation available]

China 5 February 1996 CIETAC Arbitration Award [CISG/1996/07] (Antimony ingot case) 25B [translation available]

China 30 January 1996 CIETAC Arbitration Award [CISG/1996/05] (Compound fertilizer case) 25B [translation available]

* France 23 January 1996 Cour de Cassation [Supreme Court] [translation available]
 

Russia 19 December 1995 Arbitration award 133/1994 25B [translation available]

China 15 December 1995 CIETAC Arbitration Award [CISG 1995/12] (Used re-rolling rails case ) [translation available]

* United States 6 December 1995 Federal Appellate Court [2nd Circuit] (Delchi Carrier v. Rotorex) 25A

Russia 1 December 1995 Arbitration award 22/1995 25B [translation available]

Switzerland 30 November 1995 Kantonsgericht [District Court] Zug

* Germany 12 October 1995 Landgericht [District Court] Trier [translation available]

Germany 2 October 1995 Landgericht [District Court] Hamburg

Germany 21 September 1995 Landgericht [District Court] Kassel 25B [translation available]

Germany 21 August 1995 Landgericht [District Court] Ellwangen 25B [translation available]

* Germany 24 May 1995 Oberlandesgericht [Appellate Court] Celle [translation available]

Germany 2 May 1995 Amtsgericht [Lower Court] Bayreuth 25B [translation available]

* Australia 28 April 1995 Federal District Court, Adelaide (Roder v. Rosedown) 25B

* France 26 April 1995 Cour d'appel [Appellate Court] Grenoble (Marques Roque v. Manin Riviére) 25B [translation available]

* Switzerland 26 April 1995 Handelsgericht [Commercial Court] Zürich 25C [translation available]

Russia 25 April 1995 Arbitration award 161/1995 25B [translation available]

Russia 25 April 1995 Arbitration award 200/1994 25B [translation available]

China 23 April 1995 CIETAC Arbitration Award [CISG/1995/07] (Australian raw wool case) 25B [translation available]

* Germany 5 April 1995 Landgericht [District Court] Landshut 25B [translation available]

China 22 March 1995 CIETAC Arbitration Award [CISG/1995/05] (Down jacket and winter coat case) 25B [translation available]

* Germany 8 March 1995 Bundesgerichtshof [Federal Supreme Court] [translation available]

ICC March 1995 International Court of Arbitration, Case 7645 25B [English text]

* France 22 February 1995 Cour d'appel [Appellate Court] Grenoble 25B [translation available]

Germany 8 February 1995 Oberlandesgericht [Appellate Court] München [7 U 1720/94] 25B [translation available]

Germany 1 February 1995 Oberlandesgericht [Appellate Court] Oldenburg [translation available]

ICC January 1995 International Court of Arbitration, Case 7754 [English text]

ICC 1995 International Court of Arbitration, Case 8128 25B [translation available]
 

Germany 14 December 1994 Oberlandesgericht [Appellate Court] Hamburg

China 25 October 1994 CIETAC Arbitration Award [CISG/1994/13] (High tensile steel bars case) 25B [translation available]

Germany 15 September 1994 Landgericht [District Court] Berlin [translation available]

United States 9 September 1994 Federal District Court [Northern Dist. NY] (Delchi Carrier v. Rotorex) 25A

China 5 September 1994 CIETAC Arbitration Award [CISG/1994/10] (Weaving machines, tools and accessories case) 25B [translation available]

Germany 25 August 1994 Landgericht [District Court] Düsseldorf

Germany 6 July 1994 Landgericht [District Court] Oldenburg

* Austria 1 July 1994 Oberlandesgericht [Appellate Court] Innsbruck [translation available]

Germany 4 May 1994 Amtsgericht [Lower Court] Charlottenburg 25A [translation available]

Germany 20 April 1994 Oberlandesgericht [Appellate Court] Frankfurt 25B

China 6 April 1994 CIETAC Arbitration Award [CISG/1994/05] (Printing machine case) 25B [translation available]

Germany 2 March 1994 Oberlandesgericht [Appellate Court] München 25B [translation available]

Germany 10 February 1994 Oberlandesgericht [Appellate Court] Düsseldorf [6 U 119/93] [translation available]

* Germany 18 January 1994 Oberlandesgericht [Appellate Court] Frankfurt 25B [translation available]

* Germany 14 January 1994 Oberlandesgericht [Appellate Court] Düsseldorf 25B [translation available]

ICC 1994 International Court of Arbitration, Case 7531 25B [English text]
 

Germany 18 November 1993 Oberlandesgericht [Appellate Court] Düsseldorf 25B

China 26 October 1993 CIETAC Arbitration Award [CISG/1993/12] (Frozen beef case) 25B [translation available]

China 20 July 1993 CIETAC Arbitration Award [CISG/1993/10] (Shaping machine case) 25B [translation available]

Germany 12 March 1993 Oberlandesgericht [Appellate Court] Düsseldorf [translation available]

China 25 February 1993 CIETAC Arbitration Award [CISG/1993/05] (Terylene texturing machine case) 25B [translation available]

China Post-1992 CIETAC Arbitration Award [CISG/1993/14] (White cardboard scrap paper case) [translation available]
 

Germany 22 December 1992 Landgericht [District Court] Darmstadt

Germany 14 October 1992 Amtsgericht [Lower Court] Zweibrücken (Shoes case) [translation available]

Germany 30 September 1992 Landgericht [District Court] Berlin 25B [translation available]

Germany 22 September 1992 Oberlandesgericht [Appellate Court] Hamm (Frozen bacon case) 25B [translation available]

Germany 3 July 1992 Landgericht [District Court] Heidelberg 25B [translation available]

* ICC 1992 International Court of Arbitration, Case 7585 25B [English text]
 

China 30 October 1991 CIETAC Arbitration award 25B [translation available]

* Germany 17 September 1991 Oberlandesgericht [Appellate Court] Frankfurt 25B [translation available]

Germany 16 September 1991 Landgericht [District Court] Frankfurt 25B [translation available]

Germany 14 August 1991 Landgericht [District Court] Baden-Baden [translation available]

Germany 13 August 1991 Landgericht [District Court] Stuttgart (Women's clothes case) 25B [translation available]
 

Germany 21 December 1990 Amtsgericht [Lower Court] Ludwigsburg 25B [translation available]
 

* Italy 24 November 1989 Pretura circondariale [District Court] Parma 25A1 [translation available]


CASE DIGEST AND ANALYSIS
-   UNCITRAL's case law digest; and
-   An analysis of CISG jurisprudence

The UNCITRAL Digest of case law on the United
Nations Convention on the International Sale of Goods
[*]

A/CN.9/SER.C/DIGEST/CISG/25 [8 June 2004]
Reproduced with the permission of UNCITRAL

[Text of Article 25
Digest of Article 25 case law
-    Purpose of the provision
-    Definition of fundamental breach
-    Specific situations of fundamental breach
-    Burden of proof]
ARTICLE 25

     A breach of contract committed by one of the parties is fundamental if it results in such detriment to the other party as substantially to deprive him of what he is entitled to expect under the contract, unless the party in breach did not foresee and a reasonable person of the same kind in the same circumstances would not have foreseen such a result.

DIGEST OF ARTICLE 25 CASE LAW

Purpose of the Provision

1. Article 25 defines the notion of fundamental breach as used in various provisions of the Convention. A fundamental breach in this specific sense is a prerequisite for certain remedies under the Convention, such as the party’s right to terminate the contract (articles 49(1)(a) and 64(1)(a); but see also articles 51(2), 72(1), 73(1) and (2)), the right to require delivery of substitute goods presupposes a fundamental breach (article 46(2)). A fundamental breach also has some bearing under the risk provisions of the Convention (article 70). In general article 25 defines the boarder line between the "normal" remedies for breach of contract -- like damages and price reduction -- and incisive remedies like termination and specific performance.

Definition of fundamental breach

2. A fundamental breach requires first, that one party has committed a breach of contract. The breach of any obligation under the contract suffices irrespective whether the duty had been specifically contracted for or followed from the provisions of the Convention. Even the breach of any collateral duty can amount to a fundamental breach. For example, a manufacturer’s duty to deliver goods under a certain trademark exclusively to the buyer has been held to have been fundamentally violated when the manufacturer displayed those goods at a fair for sale and kept them there despite a warning by the buyer.[1]

3. In order to rank as fundamental a breach must be of a certain nature and weight. The aggrieved party must have suffered such detriment as to substantially deprive it of what it was entitled to expect under the contract. The breach must therefore nullify or essentially depreciate the aggrieved party’s justified contract expectations. What expectations are justified depends on the specific contract and the risk allocation envisaged by the contract provisions, on customary usages and on the additional provisions of the Convention. For example, buyers cannot normally expect that delivered goods comply with regulations and official standards in the buyer’s country.[2] Therefore, e.g., the delivery of cadmium-contaminated mussels has not been regarded as a fundamental breach since the buyer could not have expected that the seller met the contamination-standards in the buyer’s country and since the consumption of the mussels in small portions as such did not endanger a consumer’s health.[3]

4. Article 25 requires further that the violating party must have foreseen the result of the breach of the contract. However, the provision does not mention at which time the consequences of the breach must have been foreseeable.  One court has decided that the time of conclusion of contract is the relevant time.[4]

Specific situations of fundamental breach

5. Courts have decided whether certain typical fact patterns constitute fundamental breaches.  It has been determined on various occasions that the failure to perform a contractual duty constitutes a fundamental breach of contract unless the party has a justifying reason to withhold its performance. This has been decided in the case of final non-delivery [5] as well as in the case of final non-payment.[6] However, if only a minor part of the contract is finally not performed, e.g., one delivery out of several deliveries is not supplied, this remains a simple, non-fundamental breach of contract.[7] On the other hand a final and unjustified announcement of the intention not to fulfil one’s own contractual obligations has been found to constitute a fundamental breach.[8] Likewise, the insolvency and placement of the buyer under administration has been held to constitute a fundamental breach under article 64 since it deprives the unpaid seller of what it was entitled to expect under the contract, namely payment of the full price.[9] It has also been determined that non-delivery of the first instalment in an instalment sale gives the buyer reason to believe that further instalments will not be delivered and therefore a fundamental breach of contract was to be expected (art. 73(2)).[10]

6. As a rule late performance – be it late delivery of the goods or late payment of the price – does not constitute in itself fundamental breach of contract.[11] Only when the time for performance is of essential importance either if it is so contracted [12] or if it is due to evident circumstances (e.g., seasonal goods)[13] then delay as such can amount to a fundamental breach.[14] But even if there is no fundamental breach, the Convention allows the aggrieved party to fix an additional period of time for performance; if the party in breach fails to perform during that period, the aggrieved party thereupon may declare the contract avoided (arts. 49(1)(b) and  64(1)(b)).[15] Therefore in case of a delay in the performance, but only in that case, the lapse of that additional period turns a non-fundamental breach into a fundamental one.

7. If defective goods are delivered, the buyer can terminate the contract when the non-conformity of the goods is to be regarded as a fundamental breach (art. 49 par. 1 (a)). It therefore becomes essential to know under what conditions delivery of non-conforming goods constitutes a fundamental breach of contract. Court decisions on this point have found that any non-conformity concerning quality remains a mere, non-fundamental breach of contract as long as the buyer – without unreasonable inconvenience – can use the goods or resell them even with a rebate.[16] For example, the delivery of frozen meat which was too fat and too wet and consequently worth 25.5% less than meat of the contracted quality according to an expert opinion was not regarded as a fundamental breach of contract since the buyer had the opportunity to resell the meat at a lower price or to otherwise process it.[17] On the contrary, if the non-conforming goods cannot be used or resold with reasonable effort this constitutes a fundamental breach and entitles the buyer to declare the contract avoided.[18] This has been held to be the case as well where the goods suffered from a serious and irreparable defect although they were still useable to some extent (e.g. flowers which were supposed to flourish the whole summer but did so only for part of it).[19] Courts have considered a breach to be fundamental without reference to possible alternative uses or resale by the buyer when the goods had major defects and the buyer needed the goods for manufacture.[20] The same conclusion had been reached where the non-conformity of the goods resulted from added substances the addition of which was illegal both in the country of the seller and the buyer.[21]

8. Special problems arise when the goods are defective but repairable. Some courts have held that easy reparability excludes any fundamentality of the breach.[22] Courts are reluctant to consider a breach to be fundamental when the seller offers and effects speedy repair without any inconvenience to the buyer.[23]

9. The violation of other contractual obligations can also amount to a fundamental breach. It is, however, necessary that the breach deprives the aggrieved party of the main benefit of the contract and that this result could have been foreseen by the other party. Thus, a court stated that there is no fundamental breach in case of delivery of the wrong certificates pertaining to the goods if either the goods were nevertheless merchantable or if the buyer itself could – at seller’s expense – easily get the correct certificates.[24] The unjustified denial of contract rights of the other party – e.g. the validity of a retention of title clause and the seller’s right to possession of the goods [25] or the unjustified denial of a valid contract after having taken possession of samples of the goods [26] – can amount to a fundamental breach of contract. The same is true when resale restrictions have been substantially violated.[27]

10. A special case is the delayed acceptance of the goods. A delay in accepting the goods will generally not constitute a fundamental breach, particularly when there is only a few days of delay.[28]

11. The cumulated violation of several contractual obligations makes a fundamental breach more probable but does not automatically constitute a fundamental breach.[29] Whether a fundamental breach exists depends on the circumstances of the case as well as on whether the breach resulted in the aggrieved party losing the main benefit of, and the interest in, the contract.[30]

Burden of proof

12. Article 25 regulates also to some extent the burden of proof. As far as foreseeability is concerned the burden lies on the party in breach.[31] This party has to prove that it did not foresee the detrimental effect of its breach and that a reasonable person of the same kind in the same circumstances would not have foreseen such an effect. The aggrieved party on the other hand has to prove that the breach deprived it substantially of what it was entitled to expect under the contract.[32]


FOOTNOTES

* The present text was prepared using the full text of the decisions cited in the Case Law on UNCITRAL Texts (CLOUT) abstracts and other citations listed in the footnotes. The abstracts are intended to serve only as summaries of the underlying decisions and may not reflect all the points made in the digest. Readers are advised to consult the full texts of the listed court and arbitral decisions rather than relying solely on the CLOUT abstracts.

[Citations to cisgw3 case presentations have been substituted [in brackets] for the case citations provided in the UNCITRAL Digest. This substitution has been made to facilitate online access to CLOUT abstracts, original texts of court and arbitral decisions, and full text English translations of these texts (available in most but not all cases). For citations UNCITRAL had used, go to <http://www.uncitral.org/english/clout/digest_cisg_e.htm>.]

1. CLOUT case No. 2 [GERMANY Oberlandesgericht [Appellate Court] Frankfurt 17 September 1991, available online at <http://cisgw3.law.pace.edu/cases/910917g1.html>]; see also CLOUT case No. 217 [SWITZERLAND Handelsgericht [Commercial Court] Aargau 26 September 1997, available online at <http://cisgw3.law.pace.edu/cases/970926s1.html>] .

2. CLOUT case No. 123 [GERMANY Bundesgerichtshof [Supreme Court] 8 March 1995, available online at <http://cisgw3.law.pace.edu/cases/950308g3.html>]; see CLOUT case No. 418 [UNITED STATES Medical Marketing v. Internazionale Medico Scientifica Federal District Court [Louisiana] 17 May 1999 available online at <http://cisgw3.law.pace.edu/cases/990517u1.html>] (in the same sense and relying on CLOUT case No. 123 [GERMANY Bundesgerichtshof [Supreme Court] 8 March 1995, available online at <http://cisgw3.law.pace.edu/cases/950308g3.html>]; [AUSTRIA Oberster Gerichtshof [Supreme Court] 13 April 2000, available online at <http://cisgw3.law.pace.edu/cases/000413a3.html>].

3. CLOUT case No. 123 [GERMANY Bundesgerichtshof [Supreme Court] 8 March 1995, available online at <http://cisgw3.law.pace.edu/cases/950308g3.html>].

4. CLOUT case No. 275 [GERMANY Oberlandesgericht [Appellate Court] Düsseldorf 24 April 1997, available online at <http://cisgw3.law.pace.edu/cases/970424g1.html>] (see full text of the decision).

5. CLOUT case No. 90 [ITALY Pretura circondariale [Court of First Instance] Parma 24 November 1989, available online at <http://cisgw3.law.pace.edu/cases/891124i3.html>] (only partial and very late delivery); CLOUT case No. 136 [GERMANY Oberlandesgericht [Appellate Court] Celle 24 May 1995, available online at <http://cisgw3.law.pace.edu/cases/950524g1.html>] (see full text of the decision).

6. CLOUT case No. 130 [GERMANY Oberlandesgericht [Appellate Court] Düsseldorf 14 January 1994, available online at <http://cisgw3.law.pace.edu/cases/940114g1.html>].

7. CLOUT case No. 275 GERMANY Oberlandesgericht [Appellate Court] Düsseldorf 24 April 1997, available online at <http://cisgw3.law.pace.edu/cases/970424g1.html>].

8. See CLOUT case No. 136 [GERMANY Oberlandesgericht [Appellate Court] Celle 24 May 1995, available online at <http://cisgw3.law.pace.edu/cases/950524g1.html>]. In that case the seller had given notice that he had sold the specified good to another buyer. See also [RUSSIA Arbitration Award case No. 387/1995 of 4 April 1997; available at <http://cisgw3.law.pace.edu/cases/970404r1.html>] (final refusal to pay the price).

9. CLOUT case No. 308 [AUSTRALIA Roder v. Rosedown [Federal Court] 28 April 1995, available online at <http://cisgw3.law.pace.edu/cases/950428a2.html>].

10. CLOUT case No. 214 [SWITZERLAND Handelsgericht [Commercial Court] Zürich 5 February 1997, available online at <http://cisgw3.law.pace.edu/cases/970205s1.html>].

11. [ITALY Corte di Appello [Appellate Court] Milano 20 March 1998, available online at <http://cisgw3.law.pace.edu/cases/980320i3.html>] (late delivery); CLOUT case No. 275 [GERMANY Oberlandesgericht [Appellate Court] Düsseldorf 24 April 1997, available online at <http://cisgw3.law.pace.edu/cases/970424g1.html>] (late delivery); CLOUT case No. 301 [ICC Court of Arbitration case No. 7585 of 1992, available online at <http://cisgw3.law.pace.edu/cases/927585i1.html>] (late payment).

12. CLOUT case No. 277 [GERMANY Oberlandesgericht [Appellate Court] Hamburg 28 February 1997, available online at <http://cisgw3.law.pace.edu/cases/970228g1.html>] (the late delivery under a CIF sale was held to be a fundamental breach of contract).

13. [ITALY Corte di Appello [Appellate Court] Milano 20 March 1998, available online at <http://cisgw3.law.pace.edu/cases/980320i3.html>] (in that case the buyer had ordered seasonal knitted goods and pointed to the essential importance of delivery at the fixed date although only after conclusion of the contract); [ICC Court of Arbitration case No. 8786 of January 1997, available online at <http://cisgw3.law.pace.edu/cases/978786i1.html>].

14. CLOUT case No. 275 [GERMANY Oberlandesgericht [Appellate Court] Düsseldorf 24 April 1997, available online at <http://cisgw3.law.pace.edu/cases/970424g1.html>]; (late delivery constitutes a fundamental breach when the buyer would prefer non-delivery instead and the seller could have been aware of this).

15. See, e.g. CLOUT case No. 301 [ICC Court of Arbitration case No. 7585 of 1992, available online at <http://cisgw3.law.pace.edu/cases/927585i1.html>].

16. CLOUT case No. 171 [GERMANY Bundesgerichtshof [Supreme Court] 3 April 1996, available online at <http://cisgw3.law.pace.edu/cases/960403g1.html>]; CLOUT case No. 248 [SWITZERLAND Bundesgericht [Supreme Court] 28 October 1998, available online at <http://cisgw3.law.pace.edu/cases/981028s1.html>].

17. CLOUT case No. 248 [SWITZERLAND Bundesgericht [Supreme Court] 28 October 1998, available online at <http://cisgw3.law.pace.edu/cases/981028s1.html>].

18. CLOUT case No. 150 [FRANCE Cour de Cassation [Supreme Court] 23 January 1996, available online at <http://cisgw3.law.pace.edu/cases/960123f1.html>] (artificially sugared wine); CLOUT case No. 79 [GERMANY Oberlandesgericht [Appellate Court] Frankfurt 18 January 1994, available online at <http://cisgw3.law.pace.edu/cases/940118g1.html>] (shoes with splits in the leather) (see full text of the decision); [GERMANY Landgericht [District Court] Landshut 5 April 1995, available online at <http://cisgw3.law.pace.edu/cases/950405g1.html>] (T-shirts which shrink by two sizes after first washing).

19. CLOUT case No. 107 [AUSTRIA Oberlandesgericht [Appellate Court] Innsbruck 1 July 1994, available online at <http://cisgw3.law.pace.edu/cases/940701a3.html>].

20. See CLOUT case No. 138 [UNITED STATES BP Oil International v. Empresa Estatal Petroleos de Ecuador, [Federal Appellate Court] [2nd Circuit] 6 December 1995, available online at <http://cisgw3.law.pace.edu/cases/991207u1.html>] (lower cooling capacity and higher power consumption than contracted of compressors delivered for the manufacture of air conditioners); CLOUT case No. 150 [FRANCE Cour de Cassation [Supreme Court] 23 January 1996, available online at <http://cisgw3.law.pace.edu/cases/960123f1.html>] (artificially sugared wine) (see full text of the decision); CLOUT case No. 315 [FRANCE Cour de Cassation [Supreme Court] 26 May 1999, available online at <http://cisgw3.law.pace.edu/cases/990526f1.html>] (metal sheets absolutely unfit for the foreseen kind of manufacture by the buyer's subbuyer) (see full text of the decision); see also [ITALY Tribunale [District Court] Busto Arsizio 13 December 2001, available online at <http://cisgw3.law.pace.edu/cases/011213i3.html>] published in Rivista di Diritto Internazionale Privato e Processuale, 2003, 150-155, also available on Unilex (delivery of a machine totally unfit for the particular use which was made known to the seller and which was incapible of reaching the promised production level represented a "serious and fundamental" breach of the contract, since the promised production level had been an essential condition for the conclusion of the contract, and therefore forming the basis for termination).

21. Compare CLOUT case No. 150 [FRANCE Cour de Cassation [Supreme Court] 23 January 1996, available online at <http://cisgw3.law.pace.edu/cases/960123f1.html>] (artificially sugared wine which is forbidden under EU-law and national laws) (see full text of the decision); CLOUT case No. 170 [GERMANY Landgericht [District Court] Trier 12 October 1995, available online at <http://cisgw3.law.pace.edu/cases/951012g1.html>] (watered wine) (see full text of the decision).

22. [SWITZERLAND Handelsgericht [Court] Zürich 26 April 1995, available online at <http://cisgw3.law.pace.edu/cases/950426s1.html>].

23. CLOUT case No. 152 [FRANCE Cour d'appel [Appellate Court] Grenoble 26 April 1995, available online at <http://cisgw3.law.pace.edu/cases/950426f2.html>]; CLOUT case No. 282 [GERMANY Oberlandesgericht [Appellate Court] Koblenz 31 January 1997, available online at <http://cisgw3.law.pace.edu/cases/970131g1.html>].

24. CLOUT case No. 171 [GERMANY Bundesgerichtshof [Supreme Court] 3 April 1996, available online at <http://cisgw3.law.pace.edu/cases/960403g1.html>].

25. CLOUT case No. 308 [AUSTRALIA Roder v. Rosedown [Federal Court] 28 April 1995, available online at <http://cisgw3.law.pace.edu/cases/950428a2.html>].

26. CLOUT case No. 313 [FRANCE Cour d'appel [Appellate Court] Grenoble 21 October 1999, available online at <http://cisgw3.law.pace.edu/cases/991021f1.html>] (see full text of the decision).

27. CLOUT case No. 2 [GERMANY Oberlandesgericht [Appellate Court] Frankfurt 17 September 1991, available online at <http://cisgw3.law.pace.edu/cases/910917g1.html>]; CLOUT case No. 154 [FRANCE Cour d'appel [Appellate Court] Grenoble 22 February 1995, available online at <http://cisgw3.law.pace.edu/cases/950222f1.html>]; CLOUT case No. 82 [GERMANY Oberlandesgericht [Appellate Court] Düsseldorf 10 February 1994, available online at <http://cisgw3.law.pace.edu/cases/940210g2.html>] (see full text of the decision); CLOUT case No. 217 [SWITZERLAND Handelsgericht [Commercial Court] Aargau 26 September 1997, available online at <http://cisgw3.law.pace.edu/cases/970926s1.html>].

28. CLOUT case No. 243 [FRANCE Cour d'appel [Appellate Court] Grenoble 4 February 1999, available online at <http://cisgw3.law.pace.edu/cases/990204f1.html>].

29. CLOUT case No. 171 [GERMANY Bundesgerichtshof [Supreme Court] 3 April 1996, available online at <http://cisgw3.law.pace.edu/cases/960403g1.html>] (see full text of the decision).

30. Id.  (see full text of the decision).

31. Id. (see full text of the decision).

32. Id. (see full text of the decision).


ANALYSIS OF CISG CASE LAW

Reprinted by special permission of Northwestern University School of Law. 34 Northwestern Journal of International Law and Business (Winter 2004) 299-440.[*]

excerpt from

The Interpretive Turn in International Sales Law:
An Analysis of Fifteen Years of CISG Jurisprudence

Larry A. DiMatteo, Lucien Dhooge, Stephanie Greene,
Virginia Maurer and Marisa Pagnattaro

[...]

B. Fundamental ... Breach

Essential to a determination of the liability of buyers and sellers is whether there has been a fundamental breach or anticipatory breach of contract. Under Article 25, a fundamental breach of contract occurs when an act by one of the parties results in the other party being substantially deprived of what it expected under the contract.[683] However, the detriment caused by the breach must have been foreseeable. If the breaching party did not foresee, and a reasonable person in the same circumstances would not have foreseen such a result, there is no fundamental breach. [684] A fundamental breach gives the non-breaching party the right to avoid the contract or to require the delivery of substitute goods.[685] If the breach is [page 410] considered non-material, the aggrieved party is entitled to damages, but not the remedy of avoidance.[686]

[...]

1. Fundamental Breach: Article 25

The concept of fundamental breach under Article 25 is very restrictive. A breach must concern the essential content of the contract in order for it to be considered fundamental.[699] Courts and arbitral decisions have focused on three types of breaches as potentially fundamental -- late delivery, deficiencies in the goods, and failure to uphold specific contractual terms.

First, late delivery does not generally constitute a fundamental breach. [700] Similarly, there cannot be a fundamental breach for failure to deliver where the parties have not agreed on a precise date of delivery.[701] A buyer's refusal to take delivery of goods may also not be considered a fundamental breach under certain circumstances. In one case involving staggered deliveries from May to December, the parties agreed that in return for a price reduction, the September delivery would take place in late August.[702] At the time of delivery, the buyer refused the goods and demanded the delivery be postponed until September. A French court [page 412] determined that the buyer did not commit a fundamental breach, because the buyer was entitled to regard the bringing forward of the delivery date to late August as merely a reciprocal concession for a financial advantage.[703] As such, it could not be expected to have understood that a few days' delay in taking delivery would constitute a fundamental breach on its part. Accordingly, the seller should have granted the buyer additional time in which to take delivery.

However, a delay in delivery can rise to a level of a fundamental breach when a timely delivery is in the special interest of the buyer.[704] The importance of the delivery date must be foreseeable at the time of the conclusion of the contract.[705] Depending on the circumstances of the transaction, such as the need to honor obligations to downstream purchasers, the delivery time may be considered a material term.

Second, a common type of breach is the delivery of deficient or defective goods or documents. In a German case of non-conformity of documents, a buyer made alternative arguments of non-conforming delivery amounting to fundamental breach and non-conforming delivery amounting to a non-delivery.[706] This case, popularly known as the "blue cobalt" case, involved a contract that required the goods to be of British origin and accompanied by a certificate of origin. The seller delivered the goods to a warehouse in Antwerp, as required by the contract, and sent certificates of origin to the buyer. The certificates of origin indicated that the goods were of South African origin. The buyer declared the contract avoided on the grounds that the non-conforming certificate constituted a fundamental breach and that because of the defective document there was no true delivery. The court rejected the buyer's Article 49(1)(b) (non-delivery) claim that the non-conforming delivery was a non-delivery. The court reasoned that under the CISG, non-conforming delivery still constitutes delivery, making Article 49(1)(b) not available to the buyer. The court also rejected the buyer's avoidance claim under Article 49(1)(a) (fundamental breach) holding that it failed to prove a fundamental breach. It asserted that the buyer failed to present evidence that South African cobalt could not be sold or that the seller could not obtain conforming documents of origin. The later assertion seems fanciful since the cobalt was clearly not of British origin. This case demonstrates that the concept of fundamental breach is narrowly construed under the CISG.[707] [page 413]

Third, defects are considered fundamental only when the buyer is substantially deprived of what he was entitled to under the contract.[708] For example, tiles sold as "impermeable" which turned out to be easily stained by household items, such as juice, constituted a fundamental breach of the contract.[709] A shipment of jeans that contained the wrong quantity and were incorrectly labeled with the wrong sizes fundamentally breached the contract.[710] In Delchi Carrier S.p.A. v. Rotorex Corp., the Court of Appeals for the Second Circuit held that a fundamental breach of contract occurred when air compressors did not conform to the sample model and the accompanying specifications regarding cooling capacity and energy consumption.[711] However, the burden remains on the buyer to prove that due to the non-conformity, the goods provided were substantially below what was stipulated in the contract.[712]

Fundamental breach under Article 25 is not confined to untimely delivery or delivery of non-conforming goods. Under certain circumstances, any provision in a contract can be considered material and the breach would be considered fundamental. For example, a French seller of jeans negotiated a contract with an American buyer that specified that the ultimate destination of the goods was to be either South America or Africa.[713] During the performance of the contract, the buyer repeatedly ignored the seller's demand for proof of destination. Subsequently, the seller learned that a shipment of the jeans was delivered in Spain. A French court found that the buyer disregarded the seller's destination requirement and that this "attitude" constituted a fundamental breach of the contract.[714]

Failure to abide by exclusivity provisions can also give rise to a fundamental breach under Article 25. In one case, an Italian manufacturer agreed to produce shoes according to a German buyer's specifications. At a trade fair, the seller displayed some of the shoes produced under the [page 414] specifications, bearing a trademark of which the buyer was the licensee.[715] After the seller refused to remove the shoes, the buyer avoided the contract. The court held that the seller's breach of the ancillary duty of preserving exclusivity constituted a fundamental breach of the contract. [716]

[...]


FOOTNOTES

* For a subsequent text on this subject by these authors, see Larry A. DiMatteo, Lucien Dhooge, Stephanie Greene, Virginia Maurer & Marisa Pagnattaro, "International Sales Law: A Critical Analysis of CISG Jurisprudence", Cambridge University Press (2005) 241 p.

[...]

683. CISG, supra note 4, at art. 25. See, e.g., Med. Mktg. Int'l, Inc. v. Internazionale Medico Scientifica, S.r.l., No. 99-0380-5(1), 1999 WL 311945.

684. Id. at art. 25. See generally, Koch, supra note 620 (discussing the concept of fundamental breach under the CISG); Clemens Pauly, The Concept of Fundamental Breach as an International Principle to Create Uniformity of Commercial Law, 19 J.L. & Com. 221, 229-32 (2000) (discussion includes German concepts related to fundamental breach, including the fact that German sales law does not distinguish between general and fundamental breach).

685. See CISG, supra note 4, at arts. 46, 49, 51, 64, 70, and 72 (referring specifically to the concept of a "fundamental breach" to determine liability).

686. See id. at arts. 49(1)(a), 51(2), 64(1)(a), 72(1), and 73.

[...]

699. See, e.g., FCF S.A. v. Adriafil Commerciale S.r.l., BGE 4C.105/2000, supra note 646 (breach must concern the essential content of the contract, the goods, or the payment of the price concerned, and it must lead to serious consequences to the economic goal pursued by the parties).

700. OLG München 10 O 5423/01, July 1, 2002, supra note 647.

701. OLG München 7 U 1720/94, Feb. 8, 1995 (F.R.G.), available at <http://cisgw3.law.pace.edu/cases/950208g1.html> [English translation by Stefan Kuhm, translation edited by Camilla Baasch Andersen].

702. SARL Ego Fruits v. La Verja, RG 98/02700, Feb. 4, 1999, supra note 504.

703. Id.

704. OLG Hamburg 1 U 167/95, Feb. 28, 1997 (F.R.G.), CLOUT Case No. 277, available at [<http://cisgw3.law.pace.edu/cases/970228g1.html>].

705. For example, the use of the Incoterm "CIF" by definition determines the contract to be a transaction for delivery by a fixed date. Id.

706. BGHZ VIII ZR 51/95, Apr. 3, 1996, supra note 576.

707. Id.

708. International Chamber of Commerce Arbitral Award 1994, ICC International Court of Arbitration Bulletin Vol. 6, No. 2, 67, CLOUT Case No. 304, available at [<http://cisgw3.law.pace.edu/cases/947531i1.html>] [English text].

709. LG Saarbrücken 8 O 49/02, July 2, 2002 (F.R.G.), available at <http://cisgw3.law.pace.edu/cases/020702g1.html> [English translation by Julian Waiblinger, translation edited by Camilla Baasch Andersen].

710. OLG Hamburg 1 U 31/99 (Nov. 26, 1999 Germany) available at <http://cisgw3.law.pace.edu/cases/991126g1.html> [English translation by Annemieke Romein, translation edited by Dr. Loukas Mistelis].

711. 71 F.3d 1024, 1027-29 (2d Cir. 1995).

712. See, e.g., BGHZ VIII ZR 51/95, supra note 576 (buyer was unable to demonstrate that the quality of the goods it received was inferior to what was agreed upon).

713. S.A.R.L. Bri Prod. "Bonaventure" v. Société Pan Africa Export, Feb. 22, 1995 (Fr.), CLOUT Case No. 154, available at [<http://cisgw3.law.pace.edu/cases/950222f1.html>] [English translation by Gary F. Bell]. In another case, it was determined that a buyer's failure to pay large sums due as "performance payments" was a fundamental breach of contract. Shuttle Packaging Sys., L.L.C. v. Jacob Tsonakis, Ina S.A., 01-CV-691, 2001 WL 34046276 (W.D. Mich. Dec. 17, 2001).

714. S.A.R.L. Bri Prod. "Bonaventure," supra note 713.

715. OLG Frankfurt 5 U 164/90, Sept. 17, 1991, supra note 651.

716. Id. Compare FCF S.A. v. Adriafil Commerciale S.r.l., BGE, Sept. 15, 2000 (Switz.), available at <http://cisgw3.law.pace.edu/cases/000915s2.html> [English translation by Alban Renaud, translation edited by Claude Witz and Julia Eisengräber]. That case involved a buyer who purchased shoes through a commercial agent. After the buyer learned that identical shoes made by an Italian manufacturer were being offered for sale by a competing retailer at a considerably lower price, the buyer attempted to avoid the contract. Holding that the buyer was not entitled to avoid the contract, the court stated that there was no fundamental breach because the manufacturer had no knowledge about the branches of its business partners. Ultimately, the two cases can be reconciled under the principle that an ancillary obligation can only be a basis for a fundamental breach when it goes to the principle performance under the contract. See, e.g., LG Frankfurt 3/11 O 3/91, Sept. 16, 1991, supra note 651.

[...]

Go to complete text of Analysis of Fifteen Years of CISG Jurisprudence


ANNOTATED COMPARATIVES
-  UNIDROIT Principles
-  PECL comparative

Remarks on Whether the UNIDROIT Principles of International Commercial
Contracts May Be Used to Interpret or Supplement Article 25 CISG

Robert Koch [*]
November 2004

I. Introduction
II. Elements Constituting Fundamental Breach
      1. Detriment
      2. Substantial deprivation
      3. Foreseeability
          a. Function of this requirement
          b. Reasonable person test
          c. Relevant point in time
III. The Concept of Fundamental Non-Performance under the UNIDROIT Principles
      1. Article 7.3.1(2) of the UNIDROIT Principles
      2. Article 7.1.4 of the UNIDROIT Principles
IV. Permissibility of Using the Criteria Employed by Article 7.3.1(2) and Article 7.1.4(1) of the
      UNIDROIT Principles in Determining Fundamental Breach
      1. Identical underlying purpose of the fundamental breach/fundamental non-performance requirement
      2. Conformity of the UNIDROIT criteria with the CISG's rules on interpretation?
          a. Strict compliance and no-reliance
          b. Intentional or reckless non-performance
          c. Disproportionate loss for the party in breach as negative requirement
     3. Curability of the breach
          a. Relationship between cure and avoidance for fundamental breach
          b. Wording of Article 50 CISG
          c. Doctrinal reasons against consideration of curability
          d. Overriding purpose of the fundamental breach requirement

I. INTRODUCTION

The concept of fundamental breach under Article 25 CISG plays a crucial role within the remedial system of the CISG because it determines the availability of the avoidance remedy in respect of any breach other than late performance (Articles 49(1)(a), 64(1)(a), 72(1) and 73(1) CISG), and of the substitute delivery remedy (Article 46(2) CISG). Fundamental breach is also important for the transfer of risk (Article 70 CISG). Its UNIDROIT Principles counterpart, fundamental non-performance, is defined in in Article 7.3.1(2) of the UNIDROIT Principles. Unlike Article 25 CISG, its scope is limited to the termination of a contract. Before addressing the issue of whether or not Article 7.3.1(2) of the UNIDROIT Principles may be used to interpret or supplement Article 25 CISG, it is necessary to first take a closer look at the elements constituting fundamental breach, since recourse to the UNIDROIT Principles is only admissible where the language of the CISG provision gives rise to doubts as to the precise meaning of its content.[1]

II. ELEMENTS CONSTITUTING FUNDAMENTAL BREACH

Article 25 provides that a breach is fundamental if

"... it results in such detriment to the other party as substantially to deprive him of what he is entitled to expect under the contract, unless the party in breach did not foresee and a reasonable person of the same kind in the same circumstances would not have foreseen such result."

Article 25 CISG attempts to define fundamental breach in terms of "detriment," "substantial deprivation," and "foreseeability". There is no reference to examples of events that transform a simple breach of contract into a fundamental breach.[2]

1. Detriment

The CISG does not contain any definition for the term "detriment." It is thus unclear whether the detriment requires actual injury, damage or loss, and whether it refers only to material losses or to intangible losses as well. It is also unclear whether a legal detriment, as distinguished from a detriment in fact, is required.[3] Neither the French, Spanish or Russian versions of detriment,[4] nor the Secretariat Commentary on the 1978 Draft Convention, provides any greater assistance in this respect. The latter states that: "The determination whether the injury is substantial must be made in the light of the circumstances of each case, e.g., the monetary value of the contract, the monetary harm caused by the breach, or the extent to which the breach interferes with other activities of the injured party."[5] It seems that the detriment element serves as mere filter for those cases in which breach of a fundamental obligation occurred but has caused no injury. For example, where the seller fails in his duty to package or insure the goods but they arrive safely, there is no detriment. If, on the other hand, the buyer lost a customer or the opportunity to resell the goods, there would be a detriment.[6]

2. Substantial deprivation

A breach must cause a detriment that "substantially deprives" the aggrieved party of what he is "entitled to expect under the contract" in order for it to be fundamental. The reference to the expectation under the contract makes clear that the yardstick for breach of contract is first and foremost to be found in the express and implied terms of the contract itself. This reference leaves open the question of whether other circumstances of the case, including the negotiations, trade practices established between the parties, usages, and any subsequent conduct of the parties should also be taken into account. Moreover, it is unclear when a breach substantially deprives the aggrieved party of his expectations. Is a party, for instance, substantially deprived when he has completely lost his interest in the performance? Or does substantial deprivation require that the aggrieved party's purpose in entering the contract be "frustrated" or the benefit of the bargain be lost due to the breach? Is the monetary injury or harm suffered by the non-breaching party decisive? Literal interpretation does not provide answers to any of these questions.[7]

3. Foreseeability

a. Function of this requirement

From the wording of the conditional clause "unless the party in breach did not foresee and a reasonable person of the same kind in the same circumstances would not have foreseen such result", one may infer that there is a requirement of foreseeability of the consequences of the breach. It thus confirms the opinion of many scholars that foreseeability is not only a burden of proof rule, but it also requires taking into account the breaching party's knowledge or foreseeability of the harsh consequences of the breach in determining whether or not it is fundamental.[8] On the other hand, the foreseeability requirement under Article 25 CISG has a similar effect as the foreseeability requirement under the general rule for calculation of damages in Article 74 CISG, since it limits the rights of the aggrieved party in the event the other party did not foresee the far-reaching consequences and helps determine the severity of the breach.[9] It therefore seems plausible to conclude that only the detriment/substantial deprivation component is what makes a breach "fundamental," and that the foreseeability element serves solely to exempt the breaching party from his liability for breach of the contract.[10]

b. Reasonable person test

Another ambiguity results from the phrase "and a reasonable person of the same kind in the same circumstances."[12] In order to determine "foreseeability," the subjective and objective perspective of the party in breach must be considered. Additionally, the objective perspective of the reasonable merchant in the breaching party's position is relevant.[12] In other words, the party in breach is considered to have been able to foresee the consequences of the breach if, when objectively viewed, it is determined that he could or should have known them. But what happens when the breaching party had special knowledge and thus could have foreseen more than the average merchant? The conjunction "and," makes it possible to conclude that such special knowledge cannot be taken into account, allowing the breaching party to escape a finding of fundamental breach by hiding behind the paradigm of the reasonable person of the same kind in the same circumstances.[14]

c. Relevant point in time

Finally, the text of Article 25 CISG does not expressly address the point in time at which the foreseeability standard is to be applied. The use of the present tense "[a] breach of contract committed ... is fundamental if it results" in depriving the other party "of what he is entitled to expect under the contract" makes it possible to conclude that a judge should place himself at the time the breach of contract has occurred.[14] Likewise, where Article 25 CISG states "unless the party in breach did not foresee ... such a result" it would appear that one should be placed at the time of the breach.[15] The French, Spanish and Russian text of Article 25 CISG, however, give rise to a different conclusion. The use of the past tense "était" instead of "est," "tenia" instead of "tiene," and "byla" instead of "yest" in the French, Spanish and Russian texts, respectively, conveys the impression that the formation of the contract is the relevant point in time to determine foreseeability.[16] This view is confirmed by the reference to the rights which the aggrieved party was entitled to expect under the contract.[17]

III. CONCEPT OF FUNDAMENTAL NON-PERFORMANCE UNDER UNIDROIT PRINCIPLES

1. Article 7.3.1(2) of the UNIDROIT Principles

The concept of fundamental non-performance is laid down in Article 7.3.1(2) of the UNIDROIT Principles. According to this provision "[a] party may terminate the contract where the failure of the other party to perform an obligation under the contract amounts to a fundamental non-performance." With regard to the detriment/substantial deprivation requirement, the UNIDROIT Principles provide a more express guideline than does Article 25 CISG as to which factors are relevant in determining fundamental non-performance. In addition to the general criterion laid down in Article 25 CISG (i.e., the fact that the non-performance must substantially deprive the aggrieved party of what it was entitled to expect under the contract, provided the other party could not reasonably have foreseen such a result), paragraph (2) of Article 7.3.1 of the UNIDROIT Principles indicates as further factors to be taken into account in each single case, whether:

"[...]

(b) strict compliance with the obligation which has not been performed is of essence under the contract;
(c) the non-performance is intentional or reckless;
(d) the non-performance gives the aggrieved party reason to believe that it cannot rely on the other party's future performance;
(e) the non-performing party will suffer disproportionate loss as a result of the preparation or performance if the contract is terminated."[18]

2. Article 7.1.4 of the UNIDROIT Principles

Another relevant factor results from Article 7.1.4(1) of the UNIDROIT Principles. According to this provision, the buyer's right to terminate is suspended provided that the seller,

(a) without undue delay, gives notice indicating the proposed manner and timing of the cure;
(b) cure is appropriate in the circumstances;
(c) the aggrieved party has no legitimate interest in refusing cure; and
(d) cure is effected promptly.

Moreover, according to Article 7.1.4(2) of the UNIDROIT Principles, the seller's right to cure is not precluded by notice of termination. In other words, the buyer cannot exercise his right of termination for the purpose of denying the seller an opportunity to cure. Under the UNIDROIT Principles, therefore, curability is, de facto, a relevant criterion in determining whether or not non-performance is fundamental.[19]

IV. PERMISSIBILITY OF USING THE CRITERIA EMPLOYED BY ARTICLES 7.3.1(2) AND 7.1.4(1) OF THE UNIDROIT PRINCIPLES IN DETERMINING FUNDAMENTAL BREACH

According to Article 7(1) CISG, "[i]n the interpretation of this Convention regard is to be had to its international character and to the need to promote uniformity in its application [...]". Since the UNIDROIT Principles are also of international character, it seems permissible to make use of them as a means of interpreting the CISG, provided that the relevant provisions of the UNIDROIT Principles serve the same purpose as their corresponding provisions in the CISG and that they are in conformity with the rules of interpretation under the CISG.[20] These rules, which can also be regarded as general principles in terms of Article 7(2) CISG, require first and foremost taking account of the plain text of a provision.[21] If the wording is vague, as with Article 25 CISG, the literal interpretation must be supported by other methods of interpretation, namely looking at the provision's legislative history, its context within the CISGs remedial system, its objectives and underlying policies.[22]

1. Identical underlying purpose of Article 25 CISG and Article 7.3.1 of the UNIDROIT Principles

By allowing avoidance/termination of the contract only when the breach/non-performance qualifies as "fundamental", Article 25 CISG and Article 7.3.1 of the UNIDROIT Principles follow the same policy, namely to preserve the enforceability of the contract whenever feasible.[23] The first condition for making use of the criteria set forth by the UNIDROIT Principles is thus fulfilled.

2. Conformity of the criteria with the CISG's rules on interpretation?

With regard to the second condition, a differentiation between the various factors to be considered in determining the fundamental nature of a non-performance is necessary.

a. Strict compliance and no-reliance

The reference in Article 25 CISG to the expectations under the contract allows resorting to the criteria focusing on the nature of the contractual obligation (Art. 7.3.1(2)(b) of the UNIDROIT Principles)[24] and the reliance on one party's future performance (Art. 7.3.1(2)(d) of the UNIDROIT Principles)[25] in determining fundamental breach.[26]

b. Intentional or reckless non-performance

No use can be made of the factor focusing on whether the breach was committed intentionally or recklessly (Art. 7.3.1(2)(d) of the UNIDROIT Principles). While it is true that the wording of Article 25 CISG does not prevent the determination of the fundamental nature of a breach by taking into account the breaching party's intent or conduct, it should be noted that under the CISG, "fault" is not generally a prerequisite to a finding of contractual liability and that this principle is as true with respect to the right to avoid the contract as it is to the right to require substitute delivery or to claim damages. Neither remedy depends on "fault" in the sense of deliberate or negligent wrongdoing. In light of the CISG's remedial system, it therefore seems to be more plausible not to automatically qualify any intentional or reckless breach as fundamental in terms of Article 25 CISG.[27] The intention of the breach can be only taken into account where the willful or reckless conduct creates uncertainty as to the breaching party's future performance.[28]

c. Disproportionate loss for the party in breach as negative requirement

The approach, which focuses on whether the breaching party will suffer disproportionate loss as a result of the preparation for performance if the contract is avoided (Art. 7.3.1(2)(e) of the UNIDROIT Principles), is not applicable under the CISG. First, the language of Article 25 CISG does not allow consideration of the consequences for the breaching party when the breach is treated as fundamental. Second, it is not clear under which circumstances a breaching party's loss becomes significant. Any determination of fundamental breach would therefore be arbitrary and cause uncertainty. Third, the UNIDROIT factor is aimed at limiting the exercise of the right of avoidance, not at determining fundamental breach. In other words, it limits the availability of the avoidance remedy in spite of the existence of a fundamental breach but it does not prevent a breach from being fundamental.[29]

3. Curability of the breach

With regard to this factor, it is to be noted that in industry practices and the various manufacturing, export and importing, retailing trades, the right to cure defective goods is almost invariably reserved by the seller in the case of manufactured goods of substantial value, e.g., machinery, motor vehicles, and other hard goods.[30] In these cases, no recourse to the UNIDROIT principles is necessary. In the absence of such clauses, consideration of curability 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. Recent case law confirms that view.[31] With regard to the buyer's right to avoidance, such an interpretation, though plausible, seems hard to reconcile with the CISG's remedial provisions, in particular with the text of Article 48(1).

a. Relationship between cure and avoidance for fundamental breach

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.[32] 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.[33]

b. Wording of Article 50 CISG

Another argument against the determination of fundamental breach in light of an offer to cure can be found in the text of Article 50 CISG, 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 CISG.[34]

c. Doctrinal reasons against consideration of curability

Furthermore, the employment of an offer to cure as a relevant factor in determining fundamental breach would cause both theoretical and practical problems.[35] The notion of an offer retrospectively frustrating the buyer's existing right of avoidance is difficult to justify in theory. 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.[36] 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.[37]

d. Overriding purpose of the fundamental breach requirement

Notwithstanding such doctrinal concerns, it cannot be disputed that the ratio legis of Article 25 CISG clearly supports the consideration of curability for determining fundamental breach.[38] The concerns, expressed by the present writer against giving the teological interpretation overriding effect where other interpretive techniques lead to different results, still apply.[39] It seems to be contrary to the principle of uniform application to disregard the plain wording in order to give effect to what it deems the overriding purpose of a single provision.[40] In the context of the seller's right to cure a defect and the buyer's right to avoid the contract, however, it is to be noted that giving account for curability is not excluded by the wording of Article 25 CISG. It would therefore seem reasonable to make use of the criteria recited in Article 7.1.4(1) of the UNIDROIT Principles to deny fundamental breach where the requirements of this provision are met. In order to avoid the aforementioned theoretical and practical problems for the seller, the right to cure should be precluded by the notice of avoidance, as is the case with Article 7.1.4(2) of the UNIDROIT Principles.


FOOTNOTES

* Professor in Commercial Law, Corporate Law and International Trade Law, Institute of Business Law, Nürtingen University (Germany).

1. See infra Section IV.

2. See Graffi, "Case Law on the Concept of "Fundamental Breach" in the Vienna Sales Convention", International Business Law Journal (2003) No. 3, at 338 (stating that the CISG simply provides general interpretive guidelines); available online at <http://cisgw3.law.pace.edu/cisg/biblio/graffi.html>; Bonell, "The UNIDROIT Principles of International Commercial Contracts and the Vienna Sales Convention (CISG) - Alternatives of Complementary Instruments?", in Uniform L. Rev. (1996) 26, at 28 (stating that the language of Article 25 CISG is "vague and ambiguous"); available online at <http://cisgw3.law.pace.edu/cisg/biblio/ulr96.html>.

3. See van der Velden, "The Law of international Sales: The Hague Conventions 1964 and the UNCITRAL Uniform Sales Code 1980 -- Some Main Items Compared", in: Voskuil & Wade eds., Hague-Zagreb Essays 4 (The Hague: Asser Instituut/Martinus Nijhoff, 1983), at 64-65 (suggesting the employment of the detriment definition given by the Corpus Iuris Secundum, according to which "the detriment need not be real and involve actual loss, nor does it necessarily refer to material disadvantage to the party suffering it, but means a legal detriment as distinguished from a detriment in fact. It has also been defined as giving up something which one had the right to keep, or doing something which one had the right to do.")

4. The French version uses the word "préjudice," the Spanish "perjuicio" and the Russian "bpeg." The English, French, Russian and Spanish versions are available online at <http://www.uncitral.org/en-index.htm>.

5. See Commentary on the Draft Convention on Contracts for the International Sale of Goods prepared by the Secretariat, Document A/CONF.97/5 (Secretariat Commentary), at Comment 3, art. 23 of the 1978 Draft Convention [which became CISG Article 25]. Available online at <http://cisgw3.law.pace.edu/cisg/text/secomm/secomm-25.html>.

6. See Will, "Art. 25", Comment 2.1.1.2, in: Bianca & Bonell eds., Commentary on the International Sales Law, The 1980 Vienna Sales Convention (Milan: Giuffrè 1987); for a similar notion, see Liu, "Remedies for Non-Performance: Perspectives from CISG, UNIDROIT & PCL, at 7.2 and 8.2.2.1", available online at <http://cisgw3.law.pace.edu/cisg/biblio/chengwei.html#07-2> and <http://cisgw3.law.pace.edu/cisg/biblio/chengwei.html#08-1>; Gonzalez, "Remedies Under the U.N. Convention for the International Sale of Goods", 2 Int'l Tax & Bus. Law. (1984) 79, at 86 (stating that the "Convention's definition of fundamental breach makes it possible to reconcile the interests of the parties in cases where an insignificant deviation from the contract produces surprising and serious consequences"); Mark L. Ziontz, "A New Uniform Law for the International Sale of Goods: Is It Compatible with American Interests?", NW. J. Int'l. L. & Bus. (1980) 129, at 173 (stating that "[a]voidance of an international sales contract is a remedy reserved for serious breaches by one of the parties").

7. See Koch, "The Concept of Fundamental Breach of Contract under the United Nations Convention on Contracts for the International Sale of Goods (CISG)", Pace Review of the Convention on Contracts for the International Sale of Goods (CISG) 1998, Kluwer Law International (1999), at 263-264; also available online at <http://cisgw3.law.pace.edu/cisg/biblio/koch.html>.

8. See, e.g., Schlechtriem, "Art. 25", Comment 11, in: Schlechtriem ed., Commentary on the U.N. Convention on the International Sale of Goods (Clarendon Press: Oxford 1998), (stating that knowledge or foreseeability of the aggrieved party's expectations are relevant for interpreting and assessing the importance of the obligation breached and its significance for the aggrieved party); see also Enderlein & Maskow, International Sales Law (N. Y.: Oceana 1992), "Art. 25", Comment 4.1.

9. See Enderlein & Maskow, supra note 8, at 4.1 (emphasizing that the special circumstances make up the severity of the breach).

10. For this conclusion, see Babiak, "Defining "Fundamental Breach" under the United Nations Convention on Contracts for the International Sale of Goods", 6 Temple Int'l & Comp. L.J. (1992) 113, at 118; Graffi, supra note 2, at 340; for a different conclusion, see Liu, supra note 5, at 8.2.3.1.

11. Emphasis added.

12. For the same conclusion see Babiak, supra note 10, at 118; Grigera Naón, "The U.N. Convention on Contracts for the International Sale of Goods", in: Horn/Schmitthoff eds., The Transnational Law of International Commercial Transactions: Studies in Transnational Economic Law (Deventer: Kluwer 1982), 89, at 105 (stating that the decisive test can only be an objective one and that the judge will therefore have to analyze objectively the position of the non-performing party); Will, supra note 6, Art. 25, Comment 2.2.2.2.4; Enderlein & Maskow, supra note 8, Art. 25, Comment 4.2.

13. For a similar conclusion, see Chengwei Liu, supra note 6, at 8.2.3.2; for a different conclusion, see Enderlein & Maskow, supra note 8, Art. 25, Comment 4.2; Will, supra note 6, Art. 25, Comment 2.2.2.2.4 (stating that "an overly astute merchant [who] in fact knew and foresaw more than his peers should not be allowed to hide behind the reasonable person of the same kind in the same circumstances").

14. This point has been emphasized by Levasseur, "The Civil Code of Quebec and the Vienna Convention on International Contracts for the Sale of Goods: Some Comments", in: Canadian Institute for Advanced Legal Studies ed., Nouveau Code Civile (Cowansville, Québec:Yvon Blais 1992), 269, at 282.

15. See Levasseur, supra note 14, at 282.

16. With regard to the French text of Article 25, this point has been emphasized by Levasseur, supra note 14, at 282.

17. For the same conclusion, see, e.g., Schlechtriem, Uniform Sales Law: the UN Convention on Contracts for the International Sale of Goods (Vienna: Manz 1986), at 60. For a different conclusion, see Flechtner, "Remedies under the New International Sales Convention: The Perspective from Article 2 of the U.C.C.", 8 J.L. & Com., pp. 53 - 108, fn. 114 (1988), also available online at <http://cisgw3.law.pace.edu/cisg/biblio/flecht.html>. He argues that if, after the formation of the contract, it becomes clear that a failure to perform will cause substantial detriment, nothing in the text of Art. 25 CISG prevents such failure to perform up to this expectation from being a fundamental breach. See also Graffi, supra note 2, at 340 (relying on the general principle of good faith); Liu, supra note 6, at 8.2.3.3.

18. To date no cases have been reported where tribunals have applied Article 7.1.3(2) of the UNIDROIT Principles.

19. See Koch, supra note 7, at 232.

20. See Felemegas, "The United Nations Convention on Contracts for the International Sale of Goods: Article 7 and Uniform Interpretation", in Pace Review of the Convention on Contracts for the International Sale of Goods (CISG), Kluwer Law International (2000-2001) 115 - 265, at Chapter 4, 6(b), also available online at <http://cisgw3.law.pace.edu/cisg/biblio/felemegas.html#ch4>; Garro, "The Gap Filling Role of the UNIDROIT Principles in International Sales Law: Some Comments on the Interplay between the Principles and the CISG", 69 Tul.L.Rev. (1995) 1149, at 1157 and 1185 (stating that "the UNIDROIT principles may be resorted to in order to determine whether or not there has been a fundamental breach of contract"); Perillo, "UNIDROIT Principles of International Commercial Contracts: The Black Letter Text and a Review", 63 Fordham L. Rev. (1994) 281, at 308-309; Bonell, supra note 2 (suggesting that the criteria laid down in article 7.3.1 of the UNIDROIT Principles may be used for a better understanding of art. 25).

21. See Koch, supra note 7, at 194; Enderlein, "Uniform Law and its Application by Judges and Arbitrators", in: UNIDROIT ed., International Uniform Law Practice (New York: Oceana 1988) 329 - 353, at 331; van der Velden, supra note 3, at 24; and Diedrich, "Maintaining Uniformity in International Uniform Law via Autonomous Interpretation: Software Contracts and the CISG", 8 Pace Int'l L. Rev. (1996) 303, at 328, also available at <http://cisgw3.law.pace.edu/cisg/biblio/Diedrich.html>.

22. See Honnold, Uniform Law for International Sales Under the 1980 United Nations Convention (3rd ed., Kluwer 1999), at § 103.2; Koch, supra note 7, at 192 et seq.

23. See Koch, supra note 7, at 334; Hillman, "Applying the United Nations Convention on Contracts for the International Sale of Goods: The Elusive Goal of Uniformity", in Review of the CISG, Cornell Law Review (1995) 21-49 C.1 (stating that the Convention's goal of saving deals promotes important international values pertinent to the contracting process), online available at <http://cisgw3.law.pace.edu/cisg/biblio/hillman1.html>; Audit, "The Vienna Sales Convention and the Lex Mercatoria", in: Lex Mercatoria and Arbitration (Carbonneau ed., 1990), 173, at 183; the reprint of the 1990 edition of this text is also available online at <http://cisgw3.law.pace.edu/cisg/biblio/audit.html>; Dubé, "The Civil Code of Quebe and the Vienna Convention on International Contracts for the Sale of Goods", in: Canadian Institute for Advanced Legal Studies ed., Nouveau Code Civile (Cowansville, Québec: Yvon Blais 1992) 205, at 219; and Magnus, "The General Principles of the CISG", 3 Int'l Trade & Bus. L.A. (1997) 33-56, at Comment 9 (concluding from the fact that the Convention allows contract avoidance only under narrow conditions and as a last resort, that the favor contractus rule is one of the Convention's general principle), also available online at <http://cisgw3.law.pace.edu/cisg/biblio/magnus.html>.

24. For further references to cases where the courts found for fundamental breach where strict performance was of the essence of the contract, see Koch, supra note 7, at 236 et seq.

25. For further references to cases where the courts found for fundamental breach because a party legitimately lost his faith and confidence in the other party's future performance see Koch, supra note 7, at 246-247.

26. See Koch, supra note 7, at 266-267; for a similar conclusion, see Liu, supra note 6, at 8.3.1. and 8.3.3.

27.. See Koch, supra note 7, at 298; for a similar conclusion, see Liu, supra note 6, at 8.3.2.

28. See Koch, supra note 7, at 267; for a similar conclusion, see Liu, supra note 6, at 8.3.2.; for a comparative analysis of Art. 25 CISG and the counterpart provisions in the Principles of European Contract Law, see Hossam El-Saghir, "Fundamental breach: Remarks on the manner in which the Principles of European Contract Law may be used to interpret or supplement Article 25 CISG" (2000); available online at <http://cisgw3.law.pace.edu/cisg/text/peclcomp25.html#er>.

29. See Koch, supra note 7, at 266; for a similar conclusion, see Liu, supra note 6, at 8.3.4.

30. See Ziegel, Commentary on 'Party Autonomy and Statutory Regulation: Sale of Goods, 6 Journal of Contract Law, North Ryde NSW, Australia (1993) 123, at 125-126 (referring to a Report on Sale of Goods, conducted by the Ontario Law Reform Commission which examined several dozen standard forms supplied by members of the Canadian Manufacturers' Association), available online at <http://www.cisg.law.pace.edu/cisg/biblio/ziegel4.html>.

31. See relevant case law:

   -    Germany 14 October 2002 Oberlandesgericht [Appellate Court] Köln, case presentation including English translation available online at <http://cisgw3.law.pace.edu/cases/021014g1.html> (stating that "not only the weight of the defect, but also the preparedness of the seller to cure the defect without unacceptable delay and burden to the buyer is of importance");
   -    Switzerland 5 November 2002 Handelsgericht [Commercial Court] des Kantons Aargau, case presentation including English translation available online at <http://cisgw3.law.pace.edu/cases/021105s1.html> (stating with regard to the preservation of contract objective of the fundamental breach requirement that "as long as and so far as (even) a fundamental defect can still be removed by remedy or replacement, the fulfillment of the contract by the seller is still possible and the buyer's essential interest in the performance is not yet definitively at risk");
   -    Germany 27 February 2002 Landgericht [District Court] Mnchen, case presentation including English translation available online at <http://cisgw3.law.pace.edu/cases/020227g1.html> (denying fundamental breach because "this kind of defect and lack of compliance is in principle remediable through the removal of the defective motors").

32. For a similar conclusion, see Ziegel, "The Remedial Provisions in the Vienna Sales Convention: Some Common Law Prespectives", in: Galston/Smit eds., International Sales (New York: Matthew Bender 1984) ch. 9, at 22; Schnyder & Straub, in: Honsell ed., Kommentar zum UN-Kaufrecht [CISG commentary](Berlin/Heidelberg/New York: Springer 1997), Art. 48, Comment 29; Graffi, supra note 2, at 343; Williams, "Forecasting the Potential Impact of the Vienna Sales Convention on International Sales Law in the United Kingdom", Pace Review of the Convention on Contracts for the International Sale of Goods (CISG), Kluwer Law International (2000-2001), 9, at IV.C.3, also available online at <http://cisgw3.law.pace.edu/cisg/biblio/williams.html>.

Honnold, supra note 22, 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)."

33. See United Nations Conference on Contracts for the International Sale of Goods, Official Records, UN Document No. A/CONF.97/19, (Vienna, 10 March-11 April 1980), at 341-43; Honnold, "The Studies, Deliberations and Decisions that led to the 1980 United Nations Convention with Introductions and Explanations", in Documentary History of the Uniform Law for International Sales (Deventer: Kluwer Law International 1989), at 562-64.

34. See Koch, supra note 7, at 323.

35. See Karollus, UN-Kaufrecht: Vertragsaufhebung und Nacherfllungsrecht bei Lieferung mangelhafter Ware, ZIP 1993, 490, at 495; and Huber, in Schlechtriem (ed.), supra note 8, Art. 46, Comment 18 (both Karollus and Huber criticize 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 6, Art. 48, Comment 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."

36. This point is rightly emphasized by Schnyder & Straub, supra note 32, Art. 49 Comment 26; and Karollus, supra note 35, at 495; for a different view, see Mullis, "Avoidance for Breach under the Vienna Convention; A Critical Analysis of Some of the Early Cases", in Anglo-Swedish Studies in Law (Andreas & Jarborg eds.), Lustus Forlag (1998), pp. 326 - 355, at 343, also available online at <http://cisgw3.law.pace.edu/cisg/biblio/mullis1.html>.

37. For the same criticism, see Karollus, supra note 35, at 495.

38. See supporting case law:

   -    Switzerland 5 November 2002 Handelsgericht [Commercial Court] des Kantons Aargau, case presentation including English translation available at <http://cisgw3.law.pace.edu/cases/021105s1.html> (stating that "an objective fundamental defect does not mean a fundamental breach of contract when the defect is removable and the seller agrees to remedy this defect without creating unreasonable delay or burden on the buyer");
 
   -    Germany 14 October 2002 Oberlandesgericht [Appellate Court] Köln, case presentation including English translation available online at <http://cisgw3.law.pace.edu/cases/021014g1.html> (stating that
"[t]he remedy of avoidance shall only be available to the seller as the last resort to react to a breach of contract by the other party, which is so fundamental that it essentially deprives him of his positive interest");
 
   -    Germany 31 January 1997 Oberlandesgericht [Appellate Court] Koblenz; case presentation available at <http://cisgw3.law.pace.edu/cases/970131g1.html>.

39. See Koch, supra note 7, at 204-205.

40. For a similar reasoning and conclusion, see Magnus, "UN-Kaufrecht" [UN-Sales Law, article by article commentary - in German], in: Staudinger, Julius von Staudingers Kommentar zum Bürgerlichen Gesetzbuch mit Einführungsgesetz und Nebengesetzen (13th ed., Berlin: Sellier/de Gruyter 1995), Art. 7, Comment 32; for a somewhat different conclusion, see Bonell, in: Bianca & Bonell, supra note 6, Art. 7, Comment 2.2.1 (stating that courts are expected to look whenever it is possible to the underlying purposes and policies of individual provisions as well as the Convention as a whole instead of sticking to their grammatical meaning).


PECL COMPARATIVE

Remarks on whether the PECL may be used
to interpret or supplement Article 25 CISG

Hossam El-Saghir [*]
July 2000

  1. Significance of a breach being fundamental
  2. Defining fundamental breach
    (a) Substantial detriment
    (b) Foreseeability
  3. Comparison of PECL Article 8:103 with CISG Article 25
  4. Conclusion

1. Significance of a breach being fundamental

The CISG uses the term "fundamental breach" in various settings. The concept of "fundamental breach" is a milestone in its remedial provisions. Its most important role is that it constitutes the usual precondition for the contract to be avoided. (CISG Art. 49(1)(a); Art. 51; Art. 64(1)(a); Art. 72(1); Art. 73).

In addition, where the goods do not conform with the contract, A fundamental breach can give rise to a requirement to deliver substitute goods. (CISG Art. 46(2)). Furthermore, a fundamental breach of contract by the seller leaves the buyer with all of his remedies intact, despite the risk having passed to him [1] (CISG Art. 70).

2. Defining fundamental breach

Article 25 attempts to define "fundamental breach" in terms of (foreseeable) "substantial detriment".[2] The present editorial remarks will focus on the meaning of (a) substantial detriment and (b) foreseeabilty, as understood by Article 25.

(a) Substantial detriment

Under the CISG, the basic criterion for a breach to be fundamental is that "it results in substantial detriment to the injured party".[3] The substantial detriment test is one of the innovations of the Convention as compared with ULIS.[4] The CISG does not define its term "detriment". It is the view of Van der Velden that "A paraphrase of detriment, acceptable for international use could . . . be the one given by the Corpus Juris Secundum, namely: ". . . in its technical use it has been said that the detriment need not be real and need not involve actual loss, [n]or does it necessarily refer to material disadvantage to the party suffering it, but means a legal detriment as distinguished from a detriment in fact and has been defined as giving up something which one had the right to keep, or doing something which he had the right not to do [C.J.S., Volume 26a, p. 984]."[5] However, the international origin of the CISG and the fact that the "international legislator" attempted to find autonomous, original terms without using a single system of laws or legal terminology, [6] and the need to promote uniformity in its application, [7] make an autonomous method of interpretation necessary. This means, above all, not to proceed to interpret it from national juridical constructions and terms.[8] Therefore, the term detriment should be autonomously interpreted in the light of the Convention's legislative history, as well as its intended purpose.[9] The Secretariat Commentary to Article 23 (former draft of Article 25) might shed the light on the meaning of "substantial detriment". It states that "the determination whether the injury is substantial must be made in the light of the circumstances of each case, e.g., the monetary value of the contract, the monetary harm caused by the breach, or the extent to which the breach interferes with other activities of the injured party".[10] From this comment it is possible to conclude that the drafters simply and naturally intended the word "detriment" to be synonymous with monetary injury or harm, or with a consequential harm, and that the determination of a fundamental breach was to be made on a case-by-case basis.[11]

One must consider that the Secretariat Commentary was written prior to the introduction of the refined expectation interest of Article 25. For the breach to be fundamental under Article 25, the aggrieved party must suffer a detriment which must be such as to "substantially to deprive him of what he is entitled to expect under the contract." From the history of Article 25 it is clear that -- unlike the drafts -- it does not refer to the extent of the damage, but instead to the importance of the interests which the contract and its individual obligations actually create for the promisee.[12]

To determine the degree of a given detriment, to draw the line between substantial and insubstantial, is no longer left to the judges' sole and sovereign appreciation, but tied to the expectation of the injured party, while those expectations, in turn, are not left to the party's inner feelings but instead tied to the terms of the existing contract.[13] This means that there is a fundamental breach of contract, if the injured party has no further interest in the performance of the contract after the particular breach.[14] This suggests not merely a substantial or material breach of contract, or one which substantially impairs the value of the contract to the injured party, but a breach which goes "to the root" of the contract.[15]

In a judgment of a German court regarding a contract concluded for the sale of a stock of women shoes, the court applied the CISG and stated that the lack of conformity entitles the buyer to declare the contract avoided only when it amounts to a fundamental breach of the contract (Art. 49(1)(a) CISG). In the opinion of the court this requirement is not met, for instance, when the defects do not prevent the buyer from making reasonable use of the goods. In the case at hand, the buyer had only alleged that the shoes had "defects" and that they had been made with a material different from the material agreed upon by the parties; the buyer, however, had not proved that the shoes could not be reasonably used otherwise because of their defects. Therefore, the court decided that the buyer is not entitled to avoid the contract and granted the seller the right to payment of the balance of the price as well as interest.[16]

In 1995 a Swiss court, ruling on the sale and installation of a fitness device (an isolation tank containing water with high salt concentration), applied the same strict standard for avoidance, and held that the leak of water did not amount to a fundamental breach as it could easily be repaired.[17]

(b) Foreseeability

According to the second part of Article 25, a breach of contract causing material prejudice is not fundamental if the party in breach "did not foresee and a reasonable person of the same kind in the same circumstances would not have foreseen such a result." This means that the party in breach must have foreseen the injury, as well as a reasonable person of the same kind in the same circumstances. Therefore, the fundamentality of a breach is made dependant not only on its consequences, but also on its foreseeability by the breaching party.[18]

It is the responsibility of the aggrieved party to prove that he suffered a detriment that substantially deprived him of what he is entitled to expect under the contract. Where such detriment and substantial deprivation are established, the burden of proof is said to shift to the party in breach.[19] To successfully invoke unforeseeability, the party in breach should prove two points: first, that he himself in no way anticipated the substantial detriment caused by the breach; and second, that a reasonable person in his place would not have done so.[20] If the party in breach can prove that he did not foresee the substantial loss of expectation interest that the breach caused the non-breaching party, and can prove that a reasonable person similarly situated, facing the same market conditions, would not have foreseen that the breach would cause a substantial loss of expectation interests, there is no fundamental breach.[21]

3. Comparison of PECL Article 8:103 with CISG Article 25

Unlike the CISG which is a uniform sales law adopted by countries that account for over two-thirds of all world trade in goods, the PECL are a set of principles whose objective is to provide general rules of contract law in the European Union, and will apply when the parties have agreed to incorporate them into their contract or that their contract is to be governed by them.[22]

Non-performance" is the PECL term analogous to "breach" as used in the CISG. The PECL, as well as the CISG distinguish between fundamental non-performance of the contract and non-performance which is not of a serious nature. The concept of fundamental non-performance referred to in PECL Article 8:103 corresponds generally to the concept of fundamental breach referred to in CISG Article 25. The main significance of the fundamental non-performance, in both systems, is to empower the aggrieved party to terminate the contract.

PECL Article 8:103(a), (b) and (c) identifies three situations in which non-performance of an obligation is fundamental to the contract.

Although CISG Article 25 has no express provision like PECL Article 8:103(a), the expectation interests in both Articles are tied entirely to the terms of the contract. Therefore, if a contract governed by the CISG requires strict compliance with an obligation of buyer or seller, for example, where the contract contains a clause providing that "time is of the essence", a minor deviation from the defined standard of performance would amount to a fundamental breach of contract.

The similarity between PECL Article 8:103(b) and CISG Article 25 is obvious. However, they have subtle differences. Under PECL Article 8:103(b) the basic criterion for a fundamental non-performance is that it substantially deprives the aggrieved party of what he is entitled to expect under the contract. The main difference between the language of this provision and CISG Article 25 is that on the part of the aggrieved party, under the CISG, there must be substantial detriment; whereas under PECL Article 8:103(b), a detriment is not a precondition of a fundamental non-performance of the contract. However, in both systems the fundamentality of a non-performance is made dependent on its consequences (substantial deprivation), as well as its foreseeability by the breaching party.

The CISG has no provision similar to PECL Article 8:103(c), which is confined to intentional non-performance. Under this provision even if the non-performance in itself is minor and its consequences do not substantially deprive the aggrieved party of what he is entitled to expect under the contract, it might be treated as fundamental if there is indication of intentionality that gives the aggrieved party reason to believe that he cannot rely on the other party's future performance. Unlike PECL, the CISG does not interfere with special rights and remedies that domestic law gives to persons who have been induced to enter into contract by fraud.[23]

4. Conclusion

From the above, we notice that PECL Article 8:103 generally follows CISG Article 25, though the terms and content sometimes differ. Both Articles distinguish between fundamental breach /non-performance and breach / non-performance which is not of a serious nature. The distinction is of great importance, because the concept of fundamental breach/ non-performance plays a central role, in both systems, with regard to remedial provisions. It can, mainly, determine the life or death of the contract.[24]

The need for uniformity and harmony in international trade can be expected to lead to growth of international transactions subject to the CISG, UNIDROIT Principles, and PECL. As a consequence, it is important that the Bar and bench are aware of their content, similarities and differences. It is hoped that the present editorial remarks will provide guidance to improve understanding between persons of different countries and cultures in this respect.


FOOTNOTES

* Associate Professor of Law & Associate Dean for Higher Studies, Menoufia University Faculty of Law, Egypt.

A match-up of CISG Article 25 and PECL Article 8:103 [Fundamental non-performance] is available at <http://cisgw3.law.pace.edu/cisg/text/peclcomp25.html>. The match-up is accompanied by:

-   Comments on PECL 8:103 authored by the European Commission describing and illustrating the manner in which it is to be applied; and
-   Notes that compare this provision with continental and common law domestic rules, doctrine and jurisprudence.

1. Peter SCHLECHTRIEM, "Commentary on the UN Convention on the International Sale of Goods (CISG)", Clarendon Press, Oxford (1998) at 176.

2. Joseph LOOKOFSKY, "Understanding the CISG in the USA", Kluwer Law International (1995) at 70.

3. Commentary on the Draft Convention on Contracts for the International Sale of Goods, prepared by the UNCITRAL Secretariat (Doc. A/ CONF. 97/5), Official Records, 26

4. M. WILL, in Bianca-Bonell, "Commentary on the International Sales Law", Giuffrè:Milan (1987) at 210.

5. "The Law of International Sales: The Hague Conventions 1964 and UNCITRAL Uniform Sales Code 1980 - Some Main Items Compared", Hague-Zagreb Essays 4 on the Law of International Trade, Voskuil & Wades eds. (Nijoff: The Hague, 1983, pp. 64-65), as quoted by Albert KRITZER, in: "Guide to Practical Applications of the United Nations Convention on Contracts for the International Sale of Goods, Vol. I, 211.

6. Frank DEIDRICH, "Maintaining Uniformity in International Uniform Law Via Autonomous Interpretation: Software Contracts and the CISG", 8 Pace International L. Rev. (1996) 303-308, "http://www.cisg.law.pace.edu/cisg/ biblio/Diedrich.html".

7. CISG Art. 7 (1).

8. Fritz ENDERLEIN & Dietrich MASKOW, "International Sales Law, United Nations Convention on Contracts for the International Sale of Goods", Oceana Publication (1992) at 55.

9. Will, supra note 4 at 211.

10. Official Records, supra note 3, 26.

11. Andrew BABIAK, "Defining "Fundamental Breach" under the United Nations Convention on Contracts for the International Sale of Goods," 6 Temple International and Comparative Law Journal, 120 (1992).

12. Schlechtriem, supra note 1 at 177.

13. Will, supra note 4, at 215.

14. Schlechtriem, "Uniform Sales Law: The UN-Convention on Contracts for the International Sale of Goods, 59 (1986).

15. Jacob S. ZIEGEL, "The Remedial Provisions in the Vienna Convention: Some Common Law Perspectives", in: Galson/ Smit (ed.), International Sales: The United Nations Convention on Contracts for the International Sale of Goods, (1984) ch.9 at 9-14.

16. Oberlandesgericht Frankfurt am Main of 18 January 1994 [5U 15/93], UNILEX, D. 1994-2 at 183.

17. Handelsgericht Zürich of 26 April 1995 [HG920670], UNILEX, D. 1995 - 15.1 at 280.1

18. Enderlein & Maskow, supra note 8, at.115.

19. Krtizer, supra note 5 at 210.

20. Will, supra note 4 at 216-217.

21. Babiak, supra note 11 at 123.

22. PECL Art. 1:101(1) and (2).

23. John HONNOLD, Uniform Law for International Sales under the 1980 United Nations Convention, third edition, (1999) at 67.

24. Will, supra note 4, at 205.


Pace Law School Institute of International Commercial Law - Last updated September 14, 2009
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