UNCITRAL Digest of Article 49 case law

DIGEST OF ARTICLE 49 CASE LAW

Meaning and purpose of the provision

1. Article 49 specifies the conditions under which the buyer is entitled to declare the contract avoided. Avoidance under article 49 is available if either the seller's failure to perform its contractual obligations amounts to a fundamental breach (art. 49(1)(a)) or non-delivery of the goods within the additional period of time fixed (art. 49(1)(b)).

2. Avoidance of the contract is a remedy that serves as a means of last resort (ultima ratio) which applies when the buyer can no longer be expected to continue the contract,[1] and only terminates the contract when the buyer provides notice of avoidance (art. 26). Provided that all prerequisites for termination of the contract by the buyer are met, the buyer is entitled to terminate the contract at any time. However, if the seller has delivered the goods the buyer loses the right to avoid the contract if the buyer does not exercise it within a reasonable time (art. 49(2)).

General remarks

3. The buyer must declare the contract avoided by means of a notice (art. 26). No specific form is prescribed for that notice, unless the reservation under articles 12 and 96 applies. The notice must clearly express that the buyer now treats the contract as terminated. A mere announcement of future termination, statement urging delivery, or the return of the goods without comment does not suffice.[2]

4. Avoidance for delivery of non-conforming goods or of goods with third party rights requires -- in addition to the fact that the breach must constitute a fundamental breach of contract -- that the buyer has given notice of the lack of conformity or of the third-party claim in accordance with articles 39 and 43. Failure to comply with the notice requirement prevents the buyer from being able to declare the contract avoided.[3]

Avoidance for fundamental breach (Article 49(1)(a))

5. Under article 49(1)(a) any fundamental breach as defined in article 25 justifies the avoidance of the contract. The seller's non-performance of any of its obligations must therefore substantially deprive the buyer of what he was objectively entitled to expect under the contract. If that is the case the consequence of the seller's non-performance has to be determined in the light of all of the circumstances of the case.

6. A fundamental breach requires firstly that the seller has violated a duty it was obliged to perform either under the contract, under trade usages, practices established between the parties or under the Convention. The non-performance of an additionally- agreed duty suffices as well, for instance, the violation of duties under an exclusive sales contract.[4] The breach of the additionally-agreed duty entitles the buyer to avoid the contract if the breach is fundamental, i.e. when it deprives the buyer of the main benefit of the contract. The breach must frustrate or essentially deprive the buyer of its justified contract expectations; what expectations are justified depends on the specific contract and the risk allocation envisaged by the contract provisions, on usages, where they exist, and on the additional provisions of the Convention. Buyers can, for instance, normally not expect that delivered goods comply with regulations and official standards in their country.[5] Unless otherwise agreed upon it is generally the standard in the seller's country that determine whether the goods are fit for their ordinary purpose (art. 35(2)(a)).[6] Therefore, e.g., the delivery of cadmium-contaminated mussels has not been regarded as a breach, let alone 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 did not endanger a consumer'shealth.[7]

7. A fundamental breach further requires that the party in breach has foreseen the result of the breach of contract (art. 25). Even if the seller did not foresee that the breach would deprive the buyer of most or all of the benefit of the contract the breach remains fundamental when a reasonable person in the same conditions would have foreseen such a result. Article 25 does not state at what time the result of the breach should be foreseeable. Courts have decided that the time of conclusion of contract is the relevant time.[8]

Specific instances of fundamental breach

8. Case law has to some extent developed guidelines that may help to determine in similar cases whether or not a breach of contract qualifies as fundamental. It has been found on various occasions that the final non-delivery by the seller constitutes a fundamental breach of contract unless the seller has a justifying reason to withhold its performance.[9] However, if only a minor part of the contract is finally not performed, e.g., one of several instalments is not supplied, the breach is not fundamental unless the delivered part by itself is of no use to the buyer.[10] On the other hand, the serious, final and unjustified refusal of the seller to fulfil its contractual obligations amounts to a fundamental breach.[11] It has been also held that the final non-delivery of the first instalment in an instalment sale gives the buyer reason to believe that further instalments will not be delivered and that therefore a fundamental breach of contract was to be expected.[12]

9. As a rule, late performance does not constitute by itself a fundamental breach of contract.[13] Only when the time for performance is of essential importance -- either because it is so stipulated between the parties[14] or because it results from the circumstances (e.g., seasonal goods)[15] -- can the delay amount to a fundamental breach.

10. The same result has been reached where the delay in the performance came close to non-performance, for instance when the agreed delivery date was one week and the seller had delivered only one third of the goods after two months.[16] But even if there is no fundamental breach, the Convention allows the buyer to fix an additional period of time after the unsuccessful lapse of which the buyer may declare the contract avoided.[17] Therefore in case of delay of performance, the lapse of an additional period for performance turns a non-fundamental breach into a fundamental one.

11. The greatest problems arise in respect of the delivery of defective goods. Court decisions on this point have concluded 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.[18] Thus, e.g., the delivery of frozen meat which was too fat and too wet and therefore according to expert opinion worth 25.5% less than meat of the contracted quality 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.[19] 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.[20] The buyer can avoid the contract also where the goods suffered from a serious defect than cannot be repaired, even though they were still useable to some extent (e.g. flowers which should bloom the whole summer but did so only for part of it).[21] Eventually, a fundamental breach has been found without any reference to alternative possibilities of the buyer to use the goods otherwise or to resell them when the goods had major defects and the buyer needed the goods for manufacture.[22] The same solution was reached where the non-conformity of the goods resulted from the seller adding substances to the goods, the addition of which was illegal both in the country of the seller and the buyer.[23] The rules concerning the delivery of defective goods apply as well if wrong goods are delivered.[24]

12. Special problems arise when the goods are defective, even seriously defective, but reparable. Some courts have held that easy reparability excludes that there can be a fundamental breach.[25] At least when the seller offers and effects speedy repair or replacement without any inconvenience to the buyer courts deny a fundamental breach.[26] This is in line with seller's right to cure as provided for in article 48 of the Convention. But if repair is delayed or causes the buyer unreasonable inconvenience an otherwise fundamental breach remains fundamental. However, the fundamentality of a breach cannot be denied only because the buyer did not first request the seller to cure any defective performance.[27]

13. Defects in the documents constitute a fundamental breach if they essentially impair the buyer's possibility to negotiate the goods.[28] If the buyer itself can easily cure any defects in the documents, e.g. by requesting new documents, the breach will not be considered fundamental.[29]

14. The violation of contractual obligations other than the aforementioned ones can also amount to a fundamental breach. The breach is fundamental if it deprives the buyer of the main benefit of the contract and that that result could have been foreseen by the seller. Thus, a court decided that the delivery of false certificates did not constitute a fundamental breach of contract if either the goods were nevertheless merchantable or if the buyer itself could -- at seller -- expense -- easily get the correct certificates.[30] Likewise, 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[31] or the unjustified denial of a valid contract after having taken possession of the goods[32] -- can amount to a fundamental breach of contract. The same is true when resale restrictions have been substantially violated.[33]

Avoidance for non-delivery during additional period of time (Article 49(1)(b))

15. Article 49(1)(b) states a second ground for avoidance which applies only in case of non-delivery: that the seller who has not delivered does not do so within the additional period of time the buyer has fixed under article 47(1). If the seller does not use the time extension for delivery the buyer is entitled to avoid the contract. The same effect is reached if the seller declares that it will not deliver within the fixed time.

Period of time for declaration of avoidance of delivered goods (Article 49(2))

16. Generally the buyer is not bound to declare the contract avoided during a certain period of time; he can do so at any time if a ground for avoidance exists.[34] This principle is, however, subject to a qualification under article 49(2) if the goods have been delivered. In that case, the buyer must declare avoidance within a reasonable time. As far as the time when the reasonable period starts running is concerned, article 49(2) distinguishes between late delivery and other kinds of breaches of contract. In case of late delivery the period starts when the buyer has become aware of delivery (art. 49(2)(a)). In case of other breaches the reasonable period of time for declaring the contract avoided starts running when the buyer became aware of the breach or ought to have been aware of it or after a period has expired set in accordance with article 47(1) or with article 48(2). A period of five months after being informed of the breach has been found not to constitute a reasonable period for declaring avoidance under article 49(2)(b);[35] neither has a declaration made eight weeks after becoming aware of the breach.[36] On the other hand, five weeks were regarded as a reasonable period of time to declare the contract avoided under article 49(2)(b).[37] A declaration of avoidance after several time extensions had been granted was found to be timely as well[38], as was a declaration within 48 hours.[39] Also a declaration three weeks after notice of lack of conformity was considered to be timely.[40]

Burden of proof

17. It has been observed that the burden is on the buyer to prove that the seller's breach of contract was fundamental and did substantially deprive the buyer of what it was entitled to expect under the contract.[41]

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. In this sense see, e.g., CLOUT case No. 171 [GERMANY Bundesgerichtshof [Federal Supreme Court] 3 April 1996, available online at <http://cisgw3.law.pace.edu/cases/960403g1.html>] (see full text of the decision); [AUSTRIA Oberster Gerichtshof [Supreme Court] 7 September 2000, available online at <http://cisgw3.law.pace.edu/cases/000907a3.html>]; see also [ITALY Tribunale [District Court] Busto Arsizio 13 December 2001, available online at <http://cisgw3.law.pace.edu/cases/011213i3.html>].

2. CLOUT case No. 6 [GERMANY Landgericht [District Court] Frankfurt 16 September 1991, available online at <http://cisgw3.law.pace.edu/cases/910916g1.html>]; CLOUT case No. 282 [GERMANY Oberlandesgericht [Appellate Court] Koblenz 31 January 1997, available online at <http://cisgw3.law.pace.edu/cases/970131g1.html>].

3. See, e.g., CLOUT case No. 196 [SWITZERLAND Handelsgericht [Commercial Court] Zürich 26 April 1995, available online at <http://cisgw3.law.pace.edu/cases/950426s1.html>].

4. See, e.g., 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. 282 [GERMANY Oberlandesgericht [Appellate Court] Koblenz 31 January 1997, available online at <http://cisgw3.law.pace.edu/cases/970131g1.html>]; CLOUT case No. 217 [SWITZERLAND Handelsgericht [Commercial Court] Aargau 26 September 1997, available online at <http://cisgw3.law.pace.edu/cases/970926s1.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>] (failure to disclose destination of goods sold).

5. CLOUT case No. 123 [GERMANY Bundesgerichtshof [Supreme Court] 8 March 1995, available online at <http://cisgw3.law.pace.edu/cases/950308g3.html>]; in the same sense (and citing CLOUT case No. 123), 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>]; [AUSTRIA Oberster Gerichtshof [Supreme Court] 13 April 2000, available online at <http://cisgw3.law.pace.edu/cases/000413a3.html>].

6. See the decisions cited in footnote 3.

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

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

9. 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 delayed delivery); CLOUT case No. 136 [GERMANY Oberlandesgericht [Appellate Court] Celle 24 May 1995, available online at <http://cisgw3.law.pace.edu/cases/950524g1.html>].

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

11. See 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). 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 online at <http://cisgw3.law.pace.edu/cases/970404r1.html>](final refusal to pay the price).

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

13. [GERMANY Landgericht [District Court] Oldenburg 27 March 1996, available online at <http://cisgw3.law.pace.edu/cases/960327g1.html>] (one day delay in dispatch of seasonal goods no fundamental breach); [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).

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

15. [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>].

16. 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>].

17. See, e.g., CLOUT case No. 82 [GERMANY Oberlandesgericht [Appellate Court] Düsseldorf 10 February 1994, available online at <http://cisgw3.law.pace.edu/cases/940210g2.html>].

18. CLOUT case No. 171 [GERMANY Bundesgerichtshof [Federal 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>].

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

20. 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 fissures in leather); [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).

21. CLOUT case No. 107 [AUSTRIA Oberlandesgericht [Appellate Court] Innsbruck 1 July 1994, available online at <http://cisgw3.law.pace.edu/cases/940701a3.html>]; see also [ITALY Tribunale [District Court] Busto Arsizio 13 December 2001, available online at <http://cisgw3.law.pace.edu/cases/011213i3.html>] (declaration of avoidance before waiting for result of seller's attempt to cure would be contrary to good faith).

22. See CLOUT case No. 138 [UNITED STATES Delchi Carrier v. Rotorex, [Federal Appellate Court] [2nd Circuit] 6 December 1995, available online at <http://cisgw3.law.pace.edu/cases/951206u1.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); 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 sub-buyer); see also [ITALY Tribunale [District Court] Busto Arsizio 13 December 2001, available online at <http://cisgw3.law.pace.edu/cases/011213i3.html>] (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).

23. In result 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); CLOUT case No. 170 [GERMANY Landgericht [District Court] Trier 12 October 1995, available online at <http://cisgw3.law.pace.edu/cases/951012g1.html>] (also artificially sugared wine).

24. [AUSTRIA Oberster Gerichtshof [Supreme Court] 29 June 1999, available online at <http://cisgw3.law.pace.edu/cases/990629a3.html>].

25. CLOUT case No. 196 [SWITZERLAND Handelsgericht [Commercial Court] Zürich 26 April 1995, available online at <http://cisgw3.law.pace.edu/cases/950426s1.html>].

26. 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>].

27. See Digest, article 48.

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

29. Id.

30. Id.

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

32. 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>] (seller retained pattern samples) (see full text of the decision).

33. 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. 282 [GERMANY Oberlandesgericht [Appellate Court] Koblenz 31 January 1997, available online at <http://cisgw3.law.pace.edu/cases/970131g1.html>]; CLOUT case No. 217 [SWITZERLAND Handelsgreicht [Commercial Court] Aargau 26 September 1997, available online at <http://cisgw3.law.pace.edu/cases/970926s1.html>].

34. But see also CLOUT case No. 133 [GERMANY Oberlandesgericht [Appellate Court] München 8 February 1995, available online at <http://cisgw3.law.pace.edu/cases/950208g1.html>] where the court denied the buyer's right to declare the contract avoided after 2 1/2 years although the goods were not delivered basing the decision on the principle of good faith.

35. CLOUT case No. 124 [GERMANY Bundesgerichtshof [Supreme Court] 15 February 1995, available online at <http://cisgw3.law.pace.edu/cases/950215g1.html>]; see also CLOUT case No. 83 [GERMANY Oberlandesgericht [Appellate Court] München 2 March 1994, available online at <http://cisgw3.law.pace.edu/cases/940302g1.html>].

36. CLOUT case No. 282 [GERMANY Oberlandesgericht [Appellate Court] Koblenz 31 January 1997, available online at <http://cisgw3.law.pace.edu/cases/970131g1.html>].

37. CLOUT case No. 165 [GERMANY Oberlandesgericht [Appellate Court] Oldenburg 1 February 1995, available online at <http://cisgw3.law.pace.edu/cases/950201g1.html>].

38. CLOUT case No. 225 [FRANCE Cour d'appel [Appellate Court] Versailles 29 January 1998, available online at <http://cisgw3.law.pace.edu/cases/980129f1.html>].

39. CLOUT case No. 246 [SPAIN Audiencia Provincial [Appellate Court] Barcelona 3 November 1997, available online at <http://cisgw3.law.pace.edu/cases/971103s4.html>] (delayed shipments in an installment contract).

40. CLOUT case No. 348 [GERMANY Oberlandesgericht [Appellate Court] Hamburg 26 November 1999, available online at <http://cisgw3.law.pace.edu/cases/991126g1.html>] (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>], ( easonable time for art. 49 purposes differs from "reasonable time" for art. 39 purposes both in starting point and duration. Whereas the non-conformity must be notified as soon as it is discovered (or ought to have been discovered), avoidance can only be declared after it appears that the non-conformity amounts to a fundamental breach that cannot be otherwise remedied).

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