UNCITRAL Digest of Article 73 case law

DIGEST OF ARTICLE 73 CASE LAW

1. This article provides special rules for instalment contracts. These rules set out when a seller or a buyer is entitled to declare the contract avoided with respect to a single instalment, future instalments, or the contract as a whole.[1] In accordance with article 26 a declaration of avoidance is effective only if the aggrieved party gives notice to the other party.

2. Article 73 does not preclude application of other articles of the Convention. When a party fails to deliver the goods or to pay for an instalment, the aggrieved party is entitled under article 47 or 64 to give the breaching party an additional period of time and to avoid the instalment when that party fails to perform within the additional time.[2] When some but not all instalments are delivered article 51 on partial delivery and article 73 may be applicable.[3] An aggrieved party may have the right to suspend its performance under article 71(1) or to avoid the contract as to future instalments under article 73(2).[4] An aggrieved party may be able to avoid its contractual obligations to make further deliveries under either article 72 or article 73.[5]

What constitutes an instalment contract

3. An instalment contract is one that provides for delivery of goods in separate lots.[6] The goods do not have to be fungible so that an instalment contract may cover delivery of different kinds of goods in each instalment (e.g., men's lambskin coats and women's lambskin coats).[7] One decision states that an instalment contract need not determine the quantity of individual instalments under article 73 as precisely as partial deliveries under article 51.[8]

4. Several decisions have characterized separate contracts between parties that have an on-going relationship as an instalment contract governed by article 73[9] or have concluded that the aggrieved party might act under either article 73 or another article, such as article 71[10] or 72.[11] One decision also applies article 73 to separate yearly supply contracts between same parties for the supply of aluminium.[12] Another decision, however, distinguishes an instalment contract from a distribution or framework agreement, which may provide for non-sales matters such as exclusive representation in a geographical area or an agreement without any determinable quantity.[13]

Avoidance of a single instalment

5. Paragraph (1) entitles a party to declare a contract avoided as to a single instalment if the other party commits a fundamental breach (see art. 25) with respect to that instalment. The same standards for determining whether a party commits a fundamental breach apply both to a contract that requires a single delivery and to a contract that requires delivery by instalments. The aggrieved party was found to be entitled to avoid the instalment in the following cases: when the seller failed to deliver the promised goods;[14] when the seller conditioned delivery of an instalment on satisfaction of new demands.[15] On the other hand, the aggrieved party was found not to be entitled to avoid the instalment where the buyer had not paid the price for an instalment.[16]

Avoidance of contract as to future instalments

6. Paragraph (2) of article 73 entitles an aggrieved party to avoid the contract as to future instalments if the party has good grounds to conclude that the other party will commit a fundamental breach (see art. 25) of contract with respect to future instalments.

7. An aggrieved buyer was found to be entitled to avoid the contract as to future instalments in the following cases: the seller made no delivery despite taking payment;[17] the seller failed to deliver first instalment;[18] when the seller stated that it would not make further deliveries;[19] when the seller refused to deliver further cherries because of dramatic increase in market price for the cherries;[20] late delivery of three instalments caused disruption of buyer's production;[21] delivery of poor quality goods;[22] the buyer had good grounds to believe that seller would be unable to deliver peppers that satisfied food safety regulations.[23]

8. In the following cases it was found that the seller had good grounds to avoid the contract: failure to open letter of credit gave good grounds to conclude that the buyer would not pay;[24] the buyer would continue to breach a contract term that prohibited the buyer from reselling the goods in specified markets.[25]

9. If a party declares the contract avoided as to future instalments under paragraph (2), it must notify the other party of the avoidance within a reasonable time. A buyer who was entitled to avoid the contract as to future instalments effectively avoided the contract when it gave notice to the seller within 48 hours of the third late delivery.[26]

Avoidance of contract as a whole

10. Paragraph (3) sets out rules for the avoidance of past or future instalments when the instalments are so interdependent that the purpose contemplated by the parties at the time the contract was concluded is frustrated. A party may avoid the contract as to these instalments only if it has avoided the contract as to a present instalment under paragraph (1). If a party avoids the contract as to these instalments under paragraph (3), it must notify the other party at the same time as it notifies the party of the avoidance of the present instalment. There are no reported cases applying this paragraph.

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. See also [ICC International Court of Arbitration case No. 8740 of October 1996, available online at <http://cisgw3.law.pace.edu/cases/968740i1.html>] (buyer duly avoided last instalment when total delivery of coal was less than contract amount).

2. [AUSTRIA Arbitration Award case No. S-2/97, Schiedsgericht der Börse für Landwirtschaftlicher Produkte - Wien 10 December 1997, available online at <http://cisgw3.law.pace.edu/cases/971210a3.html>]; CLOUT case No. 214 [SWITZERLAND Handelsgericht [Commercial Court] Zürich 5 February 1997, available online at <http://cisgw3.law.pace.edu/cases/970205s1.html>]; [SWITZERLAND Arbitration Award case No. 273/95, Zürich Handelskammer 31 May 1996, available online at <http://cisgw3.law.pace.edu/cases/960531s1.html>] (buyer's failure to pay for instalment); [GERMANY Landgericht [District Court] Ellwangen 21 August 1995, available online at <http://cisgw3.law.pace.edu/cases/950821g2.html>] (seller's failure to deliver to third party as agreed).

3. [ICC International Court of Arbitration case No. 9448 of July 1999, available online at <http://cisgw3.law.pace.edu/cases/999448i1.html >] (both arts. 51 and 73 applicable but buyer did not establish right to withhold payments); [ICC International Court of Arbitration case No. 8128 of 1995, available online at <http://cisgw3.law.pace.edu/cases/958128i1.html>].

4. [UNITED STATES Shuttle Packaging Systems v. Tsonakis, Federal District Court (Western Dist. Michigan) 17 December 2001, available online at <http://cisgw3.law.pace.edu/cases/011217u1.html>] (citing arts. 71-73 for remedies available in instalment transaction); [ICC International Court of Arbitration case No. 9448 of July 1999, available online at <http://cisgw3.law.pace.edu/cases/999448i1.html>] (buyer not entitled to suspend because had taken partial delivery of goods); CLOUT case No. 238 [AUSTRIA Oberster Gerichtshof [Supreme Court] 12 February 1998, available online at <http://cisgw3.law.pace.edu/cases/980212a3.html>] (in addition to right to avoid instalments under art. 73, seller has right to suspend under art. 71(1) but seller failed to establish its right in this case).

5. EP S.A. v. FP Oy [FINLAND Helsingfors hovrätt [Appellate Court] Helsinki 30 June 1998, available online at <http://cisgw3.law.pace.edu/cases/980630f5.html>] (where two separate orders for skincare ointment made from same mixture the aggrieved buyer could avoid second contract under either article 72 or under article 73(2)); [SWITZERLAND Arbitration Award case No. 273/95, Zürich Handelskammer 31 May 1996, available online at <http://cisgw3.law.pace.edu/cases/960531s1.html>] (fundamental breach as to future instalments is covered by both articles 72 and 73).

6. [ICC International Court of Arbitration case No. 9887 of August 1999, available online at <http://cisgw3.law.pace.edu/cases/999887i1.html>] (chemical substance); CLOUT case No. 251 [SWITZERLAND Handelsgericht [Commercial Court] Zürich 30 November 1998, available online at <http://cisgw3.law.pace.edu/cases/981130s1.html>] (lambskin coats); CLOUT case No. 293 [GERMANY Arbitration Award, Schiedsgericht der Hamburger freundschlaftlichen 29 December 1998, available online at <http://cisgw3.law.pace.edu/cases/981229g1.html> (cheese); CLOUT case No. 238 [AUSTRIA Oberster Gerichtshof [Supreme Court] 12 February 1998, available online at <http://cisgw3.law.pace.edu/cases/980212a3.html>] (umbrellas); CLOUT case No. 246 [SPAIN Audiencia Provincial [Appellate Court] Barcelona 3 November 1997, available online at <http://cisgw3.law.pace.edu/cases/971103s4.html>] (manufactured springs); CLOUT case No. 214 [SWITZERLAND Handelsgericht [Commercial Court] Zürich 5 February 1997, available online at <http://cisgw3.law.pace.edu/cases/970205s1.html>] (sunflower oil); 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>] (jeans); [HUNGARY Budapest Arbitration Award case No. Vb 94124 of 17 November 1995, available online at <http://cisgw3.law.pace.edu/cases/951117h1.html>] (mushrooms); [CHINA Skandinaviska v. Hunan Co., Chansha Intermediate People's Court 18 September 1995, available online at <http://cisgw3.law.pace.edu/cases/950918c1.html>] (molybdenum iron alloy); [GERMANY Landgericht [District Court] Ellwangen 21 August 1995, available online at <http://cisgw3.law.pace.edu/cases/950821g2.html>] (peppers); [ICC International Court of Arbitration case No. 8128 of 1995, available online at <http://cisgw3.law.pace.edu/cases/958128i1.html>] (chemical fertilizer).

7. CLOUT case No. 251 [SWITZERLAND Handelsgericht [Commercial Court] Zürich 30 November 1998, available online at <http://cisgw3.law.pace.edu/cases/981130s1.html>] (see full text of the decision).

8. CLOUT case No. 166 [GERMANY Arbitration Award, Schiedsgericht der Handedlskammer Hamburg 21 March / 21 June 1996, available online at <http://cisgw3.law.pace.edu/cases/960321g1.html> / <http://cisgw3.law.pace.edu/cases/960621g1.html>] (see full text of the decision).

9. [AUSTRIA Arbitration Award, Schiedsgericht der Börse für Landwirtschaftliche Produkte - Wein 10 December 1997, available online at <http://cisgw3.law.pace.edu/cases/971210a3.html>] (from economic perspective two instalment contracts for barley concluded same day to be delivered during same time period are part of same transaction and therefore governed by art.73).

10. CLOUT case No. 238 [AUSTRIA Oberster Gerichtshof [Supreme Court] 12 February 1998, available online at <http://cisgw3.law.pace.edu/cases/980212a3.html> (attempted suspension under art. 73 rather than art. 71).

11. EP S.A. v. FP Oy [FINLAND Helsingfors hovrätt [Appellate Court] Helsinki 30 June 1998, available online at <http://cisgw3.law.pace.edu/cases/980630f5.html>] (where two separate orders for skincare ointment made from same mixture the aggrieved buyer could avoid second contract under either article 72 or under article 73(2)); [SWITZERLAND Arbitration Award case No. 273/95 Zürich Handelskammer 31 May 1996, available online at <http://cisgw3.law.pace.edu/cases/960531s1.html>] (fundamental breach as to future instalments is covered by both articles 72 and 73).

12. [SWITZERLAND Arbitration Award case No. 273/95 Zürich Handelskammer 31 May 1996, available online at <http://cisgw3.law.pace.edu/cases/960531s1.html>] (fundamental breach as to future instalments is covered by both articles 72 and 73).

13. CLOUT case No. 166 [GERMANY Arbitration Award, Schiedsgericht der Handelskammer Hamburg 21 March / 21 June 1996, available online at <http://cisgw3.law.pace.edu/cases/960321g1.html> / <http://cisgw3.law.pace.edu/cases/960621g1.html>] (leaving open whether contract in case before the court is an instalment contract) (see full text of the decision).

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

15. CLOUT case No. 293 [GERMANY Arbitration Award, Schiedsgericht der Hamburger freundschaftlichen Arbitrage 29 December 1998, available online at <http://cisgw3.law.pace.edu/cases/981229g1.html>].

16. [SWITZERLAND Arbitration Award case No. 273/95 Zürich Handelskammer 31 May 1996, available online at <http://cisgw3.law.pace.edu/cases/960531s1.html>].

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

18. [SWITZERLAND Arbitration Award case 273/95 Zürich Handelskammer 31 May 1996, available online at <http://cisgw3.law.pace.edu/cases/960531s1.html>] (failure to deliver first instalment good grounds for concluding later instalments would not be delivered).

19. CLOUT case No. 293 [GERMANY Arbitration Award, Schiedsgericht der Hamburger 5 February 1997, available online at <http://cisgw3.law.pace.edu/cases/970205g1.html>].

20. CLOUT case No. 265 [HUNGARY Budapest Arbitration Award case No. Vb 99142 of 25 May 1999, available online at <http://cisgw3.law.pace.edu/cases/970525h1.html>

21. CLOUT case No. 246 [SPAIN Audiencia Provincial [Appellate Court] Barcelona 3 November 1997, available online at <http://cisgw3.law.pace.edu/cases/971103s4.html>].

22. [ICC International Court of Arbitration case No. 9887 of August 1999, available online at <http://cisgw3.law.pace.edu/cases/999887i1.html>].

23. [GERMANY Landgericht [District Court] Ellwangen 21 August 1995, available online at <http://cisgw3.law.pace.edu/cases/950821g2.html>].

24. [HUNGARY Budapest Arbitration Award case No. Vb 99142 of 25 May 1999, available online at <http://cisgw3.law.pace.edu/cases/990525h1.html>].

25. 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>] (resale of jeans in Africa and South America; also citing art. 64(1)).

26. CLOUT case No. 246 [SPAIN Audiencia Provincial [Appellate Court] Barcelona 3 November 1997, available online at <http://cisgw3.law.pace.edu/cases/971103s4.html>].