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Reproduced with permission from 8 Journal of Law and Commerce (1988) 53-108

excerpt from

Remedies Under the New International Sales Convention: The Perspective from Article 2 of the U.C.C.

Harry M. Flechtner [*]

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Articles 49(1) and 64(1) of the Convention state the prerequisites to avoidance of contract. These provisions allow avoidance if the other party has committed a fundamental breach,[80] which is defined elsewhere as a form of material breach.[81] If the other party's breach is not fundamental, the only path to avoidance is through the Nachfrist procedure in Articles 47 and 63.[82] These provisions permit an aggrieved party to "fix an additional period of time of reasonable length for performance" by the other side.[83] If the breaching party fails to perform its basic contractual obligations (for sellers, delivery of the goods; for buyers, taking delivery or paying the price) within the period fixed in a Nachfrist notice, or if the breaching party declares that it will not perform those obligations within that period, the aggrieved party can avoid the contract.[84]

The Nachfrist procedure, therefore, makes performance of basic contractual obligations within the period fixed in the notice "of the essence" of the contract.[85] It makes non-performance within the time so fixed the equivalent of a fundamental breach of contract and thus allows a party awaiting performance to eliminate uncertainty concerning the amount of delay that is serious enough to justify avoiding the contract.[86] In formulating the Nachfrist provisions, however, the drafters of the Convention failed to make distinctions based on the materiality of the performance that is delayed. The failure could undermine the fundamental breach standard at the heart of the Convention's avoidance provisions.

Suppose, for example, that the buyer is late in paying and the market value of the goods has risen substantially above the contract price. If the seller sends a Nachfrist notice requiring full payment and the buyer pays all but a trivial portion of the price within a reasonable period fixed by the seller's notice, can the seller avoid the contract, refund the buyer's payments and recover the goods? Can a seller avoid if the buyer pays all but a small portion of the price in a timely fashion, and then fails to pay the trivial balance within the time fixed in a Nachfrist notice? Article 64(1)(b) permits the seller to avoid if the buyer fails "to pay the price" within the period fixed by a Nachfrist notice -- a standard that could be construed to permit the seller to avoid the contract on either set of facts.

During the Vienna diplomatic conference at which the Convention was adopted, Canada introduced an amendment that would have prevented Nachfrist avoidance by a buyer that has received delivery of all but an immaterial portion of the goods.[87] Unfortunately, the issue of the materiality of the seller's delayed performance was confused with the question whether Nachfrist avoidance should be permitted as to breaches other than late performance, and discussion of the Canadian proposal foundered.[88] One reason that the conferees failed to focus on the materiality issue is that another provision appears to solve the problem with respect to aggrieved buyers. Under Art. 51(2), a buyer that has received a partial delivery can avoid the contract in its entirety "only if the failure to make delivery completely . . . amounts to a fundamental breach of contract." Thus a buyer that has received delivery of less than the required amount of goods cannot use the Nachfrist procedure to avoid the entire contract.[89] There are two problems with this solution. First, it applies only to buyers. The question whether a seller can avoid on the basis of a buyer's failure to pay an immaterial portion of the price within the period specified in a Nachfrist notice remains open. Second, the "solution" in Article 51(2) creates an equally serious problem: as will be discussed hereafter, Article 51(2) deprives buyers of the Nachfrist procedure in situations where its use would be appropriate.[90]

Despite the drafters' failure to provide clear guidance, the Nachfrist provisions of the Convention can and should be interpreted in a manner that does not undermine the fundamental breach standard for avoidance. Under Article 7(2), questions not expressly settled in the Convention must be answered "in conformity with the general principles upon which it is based." One such principle is that avoidance of the contract is proper only where the other side has committed a serious breach. Article 7(1), furthermore, requires that the Convention be interpreted "to promote . . . observance of good faith in international trade." In light of these considerations, Articles 49(1)(b) and 64(1)(b) should be construed to permit avoidance only where there has been a failure to perform a material portion of the specified obligations within the time fixed in a Nachfrist notice.[91]

In short the Convention, properly construed, permits avoidance only if there has been a breach that substantially deprived the aggrieved party of its bargain (fundamental breach), or involved a delay in performing certain material obligations beyond the time made "of the essence of the contract" through the Nachfrist procedure. Article 2 of the U.C.C., in contrast, may or may not condition avoidance-type remedies on the materiality of a breach, depending on the type of contract, the party in breach, the kind of breach, and whether the goods have been accepted.

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FOOTNOTES

* Assistant Professor, University of Pittsburgh School of Law. A.B. 1973, Harvard College; A.M. 1975, Harvard University; J.D. 1981, Harvard University School of Law. . . .

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80. See Sales Convention, supra note 1, art’s. 49(1)(a), 61(1)(a). A breaching seller, however, may be able to cure its default. Under Article 37, a seller who has made an early delivery of goods can, up to the date for performance specified in the contract, "deliver any missing part or make up any deficiency in the quantity of the goods delivered, or deliver goods in replacement of any non-conforming goods delivered or remedy any lack of conformity in the goods delivered." Article 34 gives the seller similar rights to cure in the case of early delivery of non-conforming documents. Under Article 48(1), a seller can cure even after the date for delivery if it can do so without "unreasonable delay." The Convention’s cure provisions resemble those in U.C.C. § 2-508(1) (cure until time for performance) and § 2-508(2) (cure after date for performance) with several exceptions. Unlike U.C.C. Article 2, the Convention explicitly restricts cure to situations where it will not cause the buyer unreasonable inconvenience, expense or uncertainty in recovering reimbursable expenses, but it does not explicitly require notice of intention to cure. In addition, U.C.C. § 2-508(2) permits cure after the date for performance only if the seller "had reasonable grounds to believe" that its tender "would be acceptable with or without money allowance" – a limitation not found in CISG.

The most important question concerning the Convention’s cure provision is whether Article 48(1) permits the seller to cure after the buyer has avoided the contract. See generally Honnold, supra note 25, at 311-12; Ziegel, The Remedial Provisions in the Vienna Sales Convention: Some Common Law Perspectives, in International Sales: The United Nations Convention on Contracts for the International Sale of Goods (1984) § 9.03[3] at 9-21 to 9-23. A similar issue has arisen under Article 2. Although an Article 2 buyer’s right to reject goods is subject to the seller’s right to cure, it has been held that a seller does not have a right to cure after the buyer revokes acceptance. Pavesi v. Ford Motor Co., 155 N.J. Super. 373, 382 A.2d 954, 956 (N.J. Super. Ct. Ch. Div. 1978).

81. See Sales Convention, supra note 1, art. 25; infra notes 100, 101 and accompanying text.

82. The procedures in Article 47 and 63 is associated with the term "Nachfrist" because it is based on the German law doctrine of that name. See Honnold, supra note 25, at 307.

83. See Sales Convention, supra note 1, arts. 47(1), 63(1). During the period fixed by the notice, the aggrieved party may not "resort to any remedy for breach of contract" unless the other side gives notice that it "will not perform within the period so fixed." Id. art’s. 47(2), 63(2).

84. Id. art’s. 49(1)(b), 64(1)(b). For observations on the contents of an effective Nachfrist notice see Honnold, supra note 25, at 305-06, 361. The aggrieved party can employ the procedure described in Articles 47 and 63 with respect to any contractual duty, but Nachfrist is useful only when applied to basic contractual obligations. The only consequence to the breaching party of failing to perform within the period fixed in the Nachfrist notice is to give the aggrieved party an option to avoid under Articles 49(1)(b) or 64(1)(b). Avoidance is available, however, only if seller fails to deliver or if buyer fails to take delivery or pay the price with the period fixed. See Honnold, supra note 25, at 304-05, 360-61. Using Nachfrist to fix a time for performing anything but these duties merely prevents the aggrieved party from resorting to a remedy during the period fixed. See Sales Convention, supra note 1, arts. 47(2), 63(2).

85. See Honnold, supra note 25, at 319

86. See Commentary on the Draft Convention on Contracts for the International Sale of Goods, Prepared by the Secretariat, art. 43, ¶ 2, U.N. Doc. A/CONF.97/5 (1979) [hereinafter Draft Commentary], reprinted in Official Records, supra note 71, at 14, 39.

87. During the First Committee’s deliberations at the Vienna diplomatic conference, both the Netherlands and Canada introduced amendments that would have permitted a buyer to avoid if the seller failed to perform any obligation within the time fixed in a Nachfrist notice. The Canadian proposal, however, would have allowed avoidance only if the seller’s default consisted of non-delivery or failure to perform another "material obligation." For the amendments submitted by the Netherlands and Canada, see U.N. Docs. A/CONF.97/C.1/L.165 and A/CONF.97/C.1/L/150 (1980), reprinted in Report of the First Committee to the United Nations Conference on Contracts for the International Sale of Goods, art. 45, U.N. Doc. A/CONF.97/11 (1980) [hereinafter "First Committee Report"], reprinted in Official Records, supra note 71, at 82, 116. After discussion in which the participants expressed concern that the proposed amendments would undermine the fundamental breach standard for avoidance, the Canadian and Dutch representatives agreed to a joint proposal that would have permitted avoidance if the seller failed to perform any "material" obligation within the time fixed in a Nachfrist notice. Summary Records of the Twenty-Second Meeting of the First Committee, U.N. Doc. A/CONF.97/C.1/SR.22 (1980), reprinted in Official Records, supra note 71, at 351, 354-56.

88. See Summary Records of the Twenty-second Meeting of the First Committee, U.N. Doc. A/CON.97/C.1/SR.22, reprinted in Official Records, supra note 71, at 351, 354-56.

89. Draft Commentary, supra note 86, art. 47, ¶ 4, reprinted in Official Records, supra note 71, at 14, 44; Honnold, supra note 25, at 330.

90. See infra notes 167-68 and accompanying text.

91. For further discussion relevant to the proposed construction of Art. 49(1)(b) and 64(1)(b), see infra notes 168, 182.

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Pace Law School Institute of International Commercial Law - Last updated August 16, 1999
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