Cite as Bennett, in Bianca-Bonell Commentary on the International Sales Law, Giuffrè: Milan (1987) 525-530. Reproduced with permission of Dott. A Giuffrè Editore, S.p.A.
1. History of the provision
2. Meaning and purpose of the provision
3. Problems concerning the provision
(1) If prior to the date for performance of the contract it is clear that one of the parties will commit a fundamental breach of contract, the other party may declare the contract avoided.
(2) If time allows, the party intending to declare the contract avoided must give reasonable notice to the other party in order to permit him to provide adequate assurance of his performance.
(3) The requirements of the preceding paragraph do not apply if the other party has declared that he will not perform his obligations.
1. History of the provision
1.1. - This article provides for a contract to be avoided for an anticipatory breach. It complements the suspension of performance provisions in Article 71 and the provisions in Articles 49 and 64 enabling the buyer and the seller to avoid the contract for breaches which have actually occurred.
1.2. - The article is derived from Article 76 of ULIS ,which provided:
Where prior to the date fixed for performance of the contract it is clear that one of the parties will commit a fundamental breach of the contract, the other party shall have the right to declare the contract avoided.
1.3. - The need for a provision that would enable a contract to be avoided for an anticipatory breach was not questioned in any of the discussions which preceded the adoption of the Convention. The only issues of substance raised in those discussions related to whether the anticipated breach should have to be inferred from the conduct of the party and to whether there should be [page 525] a requirement to give a prior notification of intention to avoid the contract.
1.4. - In regard to the first of these issues, the delegate from the United States pointed out at the Working Group in 1974 (Yearbook, V (1974), 68) that the common law doctrine of anticipatory breach is limited to the conduct of the party. He expressed concern that a provision dispensing with that limitation might lead to an unjust result. Thus, it may seem clear from events other than a party's conduct that the party will not be able to perform but he himself may maintain that he is able to perform in spite of those events and when the time for performance comes he may in fact be able and willing to do so. With these considerations in mind the United States delegate argued that it would be preferable to revert to the language of a 1956 draft 6f the ULIS provision, which was; «when ... either party so conducts himself as to disclose an intention to commit a fundamental breach of the contract».
1.5. - In support of the wider language of the proposed article it was argued that when it is clear that the seller will commit a fundamental breach a buyer should not have to wait until the date fixed for performance has elapsed. The question was posed -- why does he not have to wait if the breach is due to a conduct of the seller but must do so if the breach is a result of some other cause, such as the destruction of the seller's plant by fire or the imposition of an embargo or monetary controls which will render impossible future performance.
1.6. - The Working Group did not amend the ULIS provision in this respect. It did, however, delete the word «fixed» to remove the possibility of it being read as limiting the application of the article to contracts in which a date is expressly stated.
1.7. - It was not until the Vienna Conference that paragraphs (2) and (3) were added to the article. The right to avoid a contract for anticipatory breach was then discussed in conjunction with the right of a party to suspend his performance for such a breach. An Egyptian proposal, suggested by a number of delegations from developing countries, provided for the two [page 526] provisions to be amalgamated into a single article. One objective of this proposal was to make the criteria for the application of the provisions for suspension of performance more objective and more certain; the other objective was to require a notification to be given to the other party before avoidance of a contract. In support of this latter objective it was contended that avoidance without prior notification was too drastic -- that even if the other party had already been declared bankrupt, his creditors might still be prepared to fulfil the contract.
1.8. - As a result of the vote on this proposal for amalgamating the two provisions, the proposal failed. In view, however, of the considerable interest in the issue that had been raised by the proposal, a working group was established to draft a new text of the two articles (see Official Records, II, 422).
1.9. - This Working Group decided unanimously that the declaration of avoidance of the contract should be made subject to the other party being given notice in advance and this was provided for in proposed Article 72(2), (3), which was subsequently adopted. A proposal was submitted for the deletion of the words «[i]f time allows» at the beginning of paragraph (2) but this was rejected (see Official Records, II, 433).
2. Meaning and purpose of the provision
2.1. - In international trade it is inevitable that from time to time circumstances will arise which will give rise to problems in the performance by a party of his contractual obligations. While it is undesirable that the emergence of such problems should lead precipitately to the contract being avoided when it might be possible, given time, to find ways of overcoming the problems, it is also undesirable that the contract should have to remain in force when it is clear that a fundamental breach is going to occur.
Article 72 enables the contract to be avoided in such circumstances and is a useful provision. It may not be sufficient in some circumstances for a party to suspend the performance of his obligations. There may, for example, be a need to avoid the existing contract so that another one can be expeditiously entered [page 527] into, or so that uncertainty with respect to financial commitments can be removed. When the contract has been avoided action will be possible for the recovery of damages (Articles 74 to 76).
2.2. - The article recognizes that the remedy of avoiding the contract based on an anticipated breach rather than one which has actually occurred needs to be tightly circumscribed. It requires that it be «clear» that the breach will be committed, and in this respect arguably requires a greater certainty than is required for the application of Article 71. Another difference from Article 71 is that there is no requirement that the anticipated breach be clear as a result of any particular conduct or circumstances. It is sufficient that it is clear whatever the clarity results from. As in the case of avoidance for an actual breach, Article 72 requires an anticipated breach to be of fundamental character (as to which see Article 25).
2.3. - The party avoiding the contract will need in his own interest to ensure that it is clear that the breach is going to occur; otherwise his action may be invalid and lead to the result that his own subsequent non-performance amounts to a breach and possible liability for damages. Difficulties in this regard are unlikely to arise when the other party has made a statement repudiating the contract, but care will be needed when no such statement has been made and the avoidance is to be based on objective facts from which the anticipated breach is to be inferred. The notification procedure in paragraph (2) could be helpful in this regard to the party proposing to avoid the contract. The absence of an assurance of performance in response to a notice under that paragraph would normally tend to make it clear that a breach is going to occur. On the other hand, if the notice results in the provision of an assurance of performance, the party proposing to avoid the contract will have an opportunity to assess the adequacy of that assurance.
2.4. - One other consideration that needs to be kept in mind is the possible relationship between Articles 72 and 77. Article 77 requires a party who relies on a breach of contract to take measures to mitigate the loss resulting from the breach. It is [page 528] arguable, for example, that if it is clear that a non-delivery of goods amounting to a fundamental breach is going to occur and that the amount of the losses expected to result from the breach will be greater if prompt action is not taken to make alternative arrangements for the supply of the goods, the obligation to mitigate losses requires avoidance action under Article 71 even before the breach has occurred.
3. Problems concerning the provision
3.1. - The co-existence of two remedies for anticipatory breaches -- suspension of performance under Article 71 and avoidance of the contract under Article 72 -- will mean that in practice a party wishing to take some action in respect of such a breach may need to consider whether he should invoke one of the provisions, the other or both.
3.2. - In many cases it is likely that both provisions will be applicable, for example, where the anticipated breach is of a fundamental character. Suspension of performance is the less drastic remedy and it has the advantage that it can be effected without delay because prior notification of intention to the other party is not required. However, a notice to the other party is required immediately after performance has been suspended, and if both the articles are applicable, it might be desirable that the notice comply with the requirements of both -- by informing the other party that performance by the party giving the notice has been suspended and that he intends to declare the contract avoided. If the other party responds by providing adequate assurance of performance, the party giving the notice will, of course, have to continue his performance and refrain from declaring the contract avoided.
3.3. - The circumstances in which time would not allow for reasonable notice to be given under Article 72(2) seem unlikely to arise frequently. With the means of communication that are now available it is difficult to imagine circumstances in which some prior notice could not be given. It has to be kept in mind, however, that to comply with the paragraph the notice must be [page 529] «reasonable» in order to permit the other party time to provide adequate assurance of his performance.
It is conceivable that reasonable notice for that purpose might involve a delay which would be prejudicial to the interests of the party giving the notice, and in that event it may be possible to place reliance on the words «if time allows». Generally, however, the giving of notice under paragraph (2) will be in the interests of the party proposing to declare the contract avoided because its effect will be to establish whether it is in fact «clear» that the fundamental breach will be committed, thereby removing the risk of liability arising in consequence of an invalid declaration. [page 530]