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Reproduced with permission from 23 International Lawyer (1989) 443-483

excerpt from

Reconciliation of Legal Traditions in the U.N. Convention on Contracts for the International Sale of Goods

Alejandro M. Garro [*]


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Suspension of Performance

Article 62 of the Draft Convention provided for a party's right to suspend performance when he had "good grounds to conclude" that the other party would not perform a substantial part of his obligations. A long debate followed on the test to be adopted for determining when the right to suspend performance was justified. Some delegates from developing countries were fearful of abuses of the power to suspend performance. They thought that a party's feeling of insecurity about the other party's willingness or ability to perform was too subjective. Accordingly, they pleaded for limiting suspension of performance to situations where difficulties arose beyond doubt, e.g, where the other party went bankrupt. Delegates from Western, developed countries, in contrast, wanted to decrease the risk of performance and advocated that the probability of troubles should suffice.[132] A long debate over this issue resulted, again, in a compromise. The wording of article 62 of the Draft Convention was changed when this provision was finally incorporated into article 71 of the Convention. According to article 71, a party may suspend performance if "it becomes apparent" that the other might not perform, for example, due to an impending insolvency or based upon performance to date.[133]

Professor Date-Bah fears that the right to suspend performance under article 71 may be used against the weaker party "not on the basis of facts, but on the basis of mere appearances."[134] Although a party intending to suspend performance must give notice to the other in order to permit him to provide adequate assurance of performance, such assurance may significantly increase the cost of trading for those who can hardly afford it.[135] In spite of its shortcomings, however, it is clear that under article 71 the suspending party cannot invoke the suspension right on mere hunches on the probability of non-performance. Not being restricted to the bankruptcy of the other party, the test for suspension is not entirely objective, but it is a great deal less subjective than in article 62 of the Draft Convention and the Uniform Commercial Code.[136]

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FOOTNOTES

* Alejandro M. Garro, Lecturer in Law, Columbia University. This paper was submitted to the 81st Annual Meeting of the American Association of Law Libraries, June 26-29, 1988.

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132. Eörsi, supra note 4, at 351 (noting that the debate over this issue lasted four sessions); see also Ziegel, supra note 72, at 9-34 ("The drafting history of the art. [art. 71] is a good example of how the Vienna Conference intermittently became bogged down in what must seem to an outside observer to have been a minor issue.")

133. Article 71 (3) of the Convention, supra note 3, provides that the party suspending performance must immediately give notice of the suspension to the other party, who may restore performance by giving "adequate assurance of his performance" to the other party. Article 71 does not specify, however, the consequences of the other party's failure to provide adequate assurance. In contrast, under 2-609(4) of the U.C.C., a party's failure to provide adequate assurance entitles the other party to treat the contract as repudiated after thirty days have elapsed. Professor Honnold believes that under the Convention failure to provide adequate assurance of performance also entitles the other party to invoke the provisions on anticipatory repudiation in art. 72(1). See J. Honnold, Uniform Law, supra note 13, 394, but Professor Ziegel rightly notes that anticipatory repudiation only comes into play when "it is clear" that one of the parties will commit a fundamental breach of the contract, and a party's failure to provide adequate assurance "is surely not unequivocal evidence of his unwillingness to perform, particularly when he may question the validity of the requesting party's feeling of insecurity to begin with." Ziegel, supra note 72, at 9-35. Professor Date-Bah agrees with Ziegel's opinion in that anticipatory breach under art. 72(1) "requires proof by the person seeking to avoid the contract of facts from which a conclusion can logically and rationally be reached by induction that the other party is likely to commit a fundamental breach. Mere appearances are not good enough." Date-Bah, supra note 88, at 34.

134. Date-Bah, supra note 88, at 34 ("appearances can be very deceptive and to give the right to one party to suspend performance of his obligations . . . is tantamount to imperilling the contract rights of smaller and financially weaker business units which may not exude quite the same air of financial reliability as the bigger units").

135. Date-Bah, supra note 88, at 34-35:

"Providing such an assurance will often involve bank services produced at a fee. The cumulative effect of suspensions by several sellers may in fact therefore represent such an increased cost of trading for the financially weaker buyer as to drive it under. Thus the exercise of art. 71 by several of a buyer's sellers may constitute a self-fulfilling prophecy, since by their joint action they may succeed in bankrupting a marginally solvent buyer. Thus a buyer who in fact is solvent but appears to several of his buyers to be insolvent can be rendered insolvent through the action permitted by art. 71 to his sellers, unless he is operating with a large margin of solvency. This loads the dice against small business units which trade internationally."

136. The standard for invoking the suspension right under the Convention is more subjective than under German and English law, whose touchstone is, respectively, a "significant deterioration [in the financial position]" and "insolvency." See German Civil Code art. 321; Sale of Goods Act, art. 41(1)(c) (United Kingdom). The Convention's test is not broader than the one provided by 2-609(1) of the U.C.C. which merely requires reasonable grounds for "insecurity" to trigger the creditor's right to suspend performance. See J. Honnold, Uniform Law, supra note 13, at 389; Ziegel, supra note 72, at 9-35; Zwart, The New International Law of Sales, supra note 25, at 120 ("Thus, suspension cannot be made on mere hunches, but requires a high degree of probability of nonperformance.").

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