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GUIDE TO CISG ARTICLE 64

Secretariat Commentary (closest counterpart to an Official Commentary)


Guide to the use of this commentary

The Secretariat Commentary is on the 1978 Draft of the CISG, not the Official Text, which re-numbered most of the articles of the 1978 Draft. The Secretariat Commentary on article 60 of the 1978 Draft is quoted below with the article references contained in this commentary conformed to the numerical sequence of the Official Text, e.g., article 60 [draft counterpart of CISG article 64].

To the extent it is relevant to the Official Text, the Secretariat Commentary on the 1978 Draft is perhaps the most authoritative source one can cite. It is the closest counterpart to an Official Commentary on the CISG. A match-up of this article of the 1978 Draft with the version adopted for the Official Text is necessary to document the relevancy of the Secretariat Commentary on this article. See the match-up for this article for a validation of citations to this Secretariat Commentary. This match-up indicates that article 60 of the 1978 Draft and CISG article 64 are substantively identical.


Text of Secretariat Commentary on article 60 of the 1978 Draft
[draft counterpart of CISG article 64]   [Seller's right to avoid contract]

PRIOR UNIFORM LAW

ULIS, Articles 61(2), 62, 66 and 70.

COMMENTARY

1. Article 60 [draft counterpart of CISG article 64] describes the seller's right to declare the contract avoided. The buyer's right to declare the contract avoided is described in article 45 [draft counterpart of CISG article 49].

[See also Article 71(1) which authorizes seller to "suspend the performance of his obligations if, after the conclusion of the contract, it becomes apparent that the [buyer] will not perform a substantial part of his obligations as a result of: (a) a serious deficiency in his ability to perform or in his credit-worthiness; or (b) his conduct in preparing to perform or in performing the contract."]

Declaration of Avoidance

2. The contract is avoided as a result of the buyer's breach only if " the seller . . . declare[s] the contract avoided". This narrows the rule from that found in articles 61 and 62 of ULIS which provided for an automatic or ipso facto avoidance in certain circumstances in addition to avoidance by declaration of the seller. Automatic or ipso facto avoidance was deleted from the remedial system in this Convention because it led to uncertainty as to whether the contract was still in force or whether it had been ipso facto avoided. Under article 60 [draft counterpart of CISG article 64] of this Convention the contract is still in force unless the buyer [sic] has affirmatively declared it avoided. Of course, uncertainty may still exist as to whether the conditions had been met authorizing the buyer [sic] to declare the contract avoided. [The intent of the last two sentences of this Commentary is, of course, "Under article 60 [article 64] . .. the contract is still in force unless the seller has affirmatively declared it avoided" and " . . . uncertainty may still exist as to whether conditions have been met authorizing the seller to declare the contract avoided."]

3. Article 24 [draft counterpart of CISG article 26] provides that "a declaration of avoidance of the contract is effective only if made by notice to the other party". The consequences which follow if a notice of avoidance fails to arrive in time or if its contents have been inaccurately transmitted are governed by article 25 [draft counterpart of CISG article 27].

Fundamental Breach, Subparagraph (1)(a)

4. The typical situation in which the seller may declare the contract avoided is where the failure by the buyer to perform any of his obligations amounts to a fundamental breach. The concept of fundamental breach is defined in article 23 [draft counterpart of CISG article 25].

5. If there is a fundamental breach of contract, the seller has an immediate right to declare the contract avoided. He need not give the buyer any prior notice of his intention to declare the contract avoided. It may be questioned, however, how often the buyer's failure to pay the price, take delivery of the goods or perform any of his other obligations under the contract and this Convention would immediately constitute a fundamental breach of contract if they were not performed on the date they were due. It would seem that in most cases the buyer's failure would amount to a fundamental breach as it is defined in article 23 [draft counterpart of CISG article 25] only after the passage of some period of time.

Buyer's Delay in Performance, Subparagraph (1)(b)

6. Subparagraph (1)(b) further authorizes the seller to declare the contract avoided in one restricted case. If the buyer has not paid the price or taken delivery of the goods [does not pay the price or take delivery of the goods] and the seller requests him to do so under article 59 [draft counterpart of CISG article 63], the seller can avoid the contract "if the buyer has not [does not], within the additional period of time fixed by the seller in accordance with paragraph (1) of article 59 [draft counterpart of CISG article 63], performed [perform] his obligation to pay the price or taken [take] delivery of the goods, or if he has declared [declares] that he will not do so within the period so fixed."

[Buyer's obligation to pay the price is set forth in Article 53. Article 54 identifies enabling steps that are a part of this obligation. In the course of its development of subparagraph (1)(b) of Article 64, UNCITRAL debated whether it was necessary to specifically refer here to enabling steps as well as payment of the price. The apparent conclusion was that a reference to the latter encompassed the former. UNCITRAL Yearbook VIII, A/CN.9/ SER.A/1977, p. 52, para. 383. This is the position articulated in the following paragraph of the Secretariat Commentary. See also the Secretariat Commentary on Article 61 [draft counterpart of CISG Article 65] which appears to treat buyer's failure to provide specifications as a breach of his obligation to take delivery.]

7. The buyer's obligation to pay the price includes taking such steps and complying with such formalities which may be required by the contract and by any relevant laws and regulations [by any laws and regulations] to enable payment to be made, such as registering the contract with a government office or with a bank, procuring the necessary foreign exchange, as well as applying for a letter of credit or a bank guarantee to facilitate the payment of the price [see footnote 1]. Therefore, the buyer's failure to take any of these steps within an additional period of time fixed by the seller in accordance with article 59 [draft counterpart of CISG article 63] would authorize the seller to declare the contract avoided under article 60(1)(b) [draft counterpart of article 64(1)(b)]. The seller would not be required to use the procedures of either article 60(1)(a) [draft counterpart of CISG article 64(1)(a)] on fundamental breach or article 63 [draft counterpart of CISG article 72] on anticipatory breach.

[Paragraph 7 cites buyer's failure to "apply" for a letter of credit as a circumstance that would fall within the scope of Article 60 [draft counterpart of CISG Article 64]. Elsewhere, in the Commentary on Article 50 [draft counterpart of CISG Article 54] (Enabling Steps), the Secretariat distinguishes between applying for and obtaining a letter of credit, stating that Article 50 [draft counterpart of CISG Article 54] does not require the buyer to obtain a letter of credit. OFFICIAL RECORDS, p. 45. For disagreement with this interpretation of Article 54, see commentators cited in the Annotated Text of CISG Article 54, supra. Seller's best response is a Terms of Payment clause which obligates the buyer to obtain the requisite letter of credit and also states that non-compliance with any of the provisions of this clause shall be regarded as a fundamental breach of contract.]

Loss or Suspension of Right to Avoid, Paragraph (2)

8. Article 60(2) [draft counterpart of CISG article 64(2)] provides that where the buyer has paid the price, the seller will lose the right to declare the contract avoided if he does not declare the contract avoided within a specified period of time. The seller does not lose his right to declare the contract avoided until the total price has been paid.

9. If the fundamental breach on which the seller relies to declare the contract avoided is the late performance of an obligation, paragraph (2)(a) provides that where the price has been paid, the seller loses his right to declare the contract avoided at the time he becomes aware that the performance has been rendered. Since the late performance in question will most often be in respect of the payment of the price, in most cases the seller will lose the right to declare the contract avoided under article 60(1)(a) [draft counterpart of CISG article 64(1)(a)] at the time he becomes aware that the price has been paid.

10. If the buyer has paid the price but there is a fundamental breach of the contract in respect of some obligation other than late performance by the buyer, paragraph (2)(b) provides that the seller loses the right to declare the contract avoided if the seller does not declare the contract avoided within a reasonable amount of time after he knew or ought to have known of such a breach.

11. Article 60(2)(b) [draft counterpart of CISG article 64 (2)(b)] may also take away the right of the seller to declare the contract avoided in cases where he has fixed an additional period for performance under article 59(1) [draft counterpart of CISG article 63(1)]. If the buyer performs after the additional period fixed pursuant to article 59(1) [draft counterpart of CISG article 63(1)] or after he has declared that he will not perform within that additional period of time, the seller loses the right to declare the contract avoided if he does not do so within a reasonable time after the expiration of the additional period or within a reasonable time after the buyer has declared that he will not perform within that additional period of time.

12. Since the seller does not lose his right to declare the contract avoided under article 60(2) [draft counterpart of CISG article 64(2)] until the total price is paid, under this provision all the instalments in an instalment contract must be paid before the seller loses the right to declare the contract avoided. However, under article 64(2) [draft counterpart of CISG article 73(2)] the seller's right to declare the contract avoided in respect of future instalments must be exercised "within a reasonable time" after that failure to perform by the buyer which justifies the declaration of avoidance.

[Honnold also cites Article 7 as a possible basis for the loss of the right to avoid. He states "avoiding a contract after a market change ... that could permit a party to speculate at the other's expense ... may well be inconsistent with the Convention's provisions governing [this remedy] when they are construed in the light of the principle of good faith." John O. Honnold, "Uniform Law for International Sales under the 1980 United Nations Convention, 2d ed., Kluwer Law International (1991), p. 148.]

Right to Avoid Prior to the Date for Performance

13. For the seller's right to avoid prior to the contract date of performance, see articles 63 and 64 [draft counterpart of CISG articles 72 and 73] and the commentaries thereon.

Effects of Avoidance

14. The effects of avoidance by the seller are described in articles 66 and 69 [draft counterpart of CISG articles 81 and 84]. The most significant consequence of avoidance for the seller is that he is no longer required to deliver the goods and he may claim their return if they have already been delivered.

[Sevón states: "Under the Convention the contract may be declared avoided for delay in payment irrespective of whether or not the buyer has already taken delivery of the goods. This rule, which runs contrary to [a number of domestic laws], may cause concern to other creditors of the buyer who may see assets vanish on which they have based their decision to grant credits to the buyer. This may, in particular, be the case as the Convention does not require the seller to declare the contract avoided within any specific period of time. He may obviously resort to this remedy as long as payment is not made." Lief Sevón, in Sarcevic & Volken ed., "The Vienna Sales Convention: History and Perspectives", Oceana (1986), p. 227. See also Ziegel who states: "Under Art. 64 the seller's rights are wholly severed from questions of title. One of the important consequences of this severance is that, semble, the seller will be entitled to avoid the contract even after the goods have been delivered to the buyer and title has passed to him under the applicable law. See Art. 81(2) ... This would not be possible under [Canadian] law in the absence of special circumstances such as fraud on the buyer's part or the retention of a security interest in the goods by the seller. However, the practical effect of Art. 64 will not be as dramatic as might appear at first sight because CISG does not purport to determine property rights. See Art. 4(b). Presumably this means that the seller's right of avoidance and right to reclaim the goods will be subject to the provisions of the applicable national law on the property effects of the contract and rights in the goods acquired by third parties dealing with the buyer or otherwise. However, the proper harmonization of Art. 64 and the applicable national law may present difficulties. ..." Jacob S. Ziegel, "Report to the Uniform Law Conference of Canada on Convention on Contracts for the International Sale of Goods" (July 1981), p. 130. See Annotated Text of CISG Article 81, infra, for citations to further information on this subject.]

15. Avoidance of the contract does not terminate either the buyer's obligation to any damages caused by his failure to perform or any provisions in the contract for the settlement of disputes [see footnote 2]. Such a provision is important because in many legal systems avoidance of the contract eliminates all rights and obligations which arose out of the existence of the contract. In such a view once a contract has been avoided, there can be no claim for damages for its breach and contract clauses relating to the settlement of disputes, which usually means arbitration clauses, terminate with the rest of the contract (OFFICIAL RECORDS, pp. 50-51).


FOOTNOTES

1. See article 50 [draft counterpart of CISG article 54] and the commentary thereto.

2. Article 66(1) [draft counterpart of CISG article 81(1)].

[The structure of Article 64 (Seller's Right to Avoid) is somewhat similar to that of Article 49 (Buyer's Right to Avoid), but there are differences in the manner in which these provisions operate. One of the most significant is that the buyer who wishes to avoid for non-conformity of the goods or due to third-party claims must also comply with the notice regime recited in Article 39 or Article 43. Seller's right to avoid under Article 64 does not carry with it any such separate filter to avoidance.]


Pace Law School Institute of International Commercial Law - Last updated August 30, 2006
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