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Reproduced with the permission of Oceana Publications

excerpt from

INTERNATIONAL SALES LAW

United Nations Convention on Contracts for the International Sale of Goods

Convention on the Limitation Period in the International Sale of Goods

Commentary by
Prof. Dr. jur. Dr. sc. oec. Fritz Enderlein
Prof. Dr. jur. Dr. sc. oec. Dietrich Maskow

Oceana Publications, 1992

Article 49 [Buyer's right to avoid contract]

[TEXT OF THE UNIFORM LAW]

(1) The buyer may declare [2] the contract avoided [1]:

(a) if the failure by the seller to perform any of his obligations under the contract or this Convention amounts to a fundamental breach of contract [3]; or
(b) in case of non-delivery [4], if the seller does not deliver the goods within the additional period of time fixed by the buyer in accordance with paragraph (1) of article 47 or declares that he will not deliver [5] within the period so fixed.

(2) However, in cases where the seller has delivered the goods, the buyer loses the right to declare the contract avoided [6] unless he does so:

(a) in respect of late delivery [8] , within a reasonable time [7] after he has become aware that delivery has been made;
(b) in respect of any breach other than late delivery [9], within a reasonable time [7]:

(i) after he knew or ought to have known of the breach [10];
(ii) after the expiration of any additional period of time [11] fixed by the buyer in accordance with paragraph (1) of article 47, or after the seller has declared that he will not perform his obligations [12] within such an additional period; or
(iii) after the expiration of any additional period of time indicated by the seller in accordance with paragraph (2) of article 48, or after the buyer has declared [13] that he will not accept performance.

[WORDS AND PHRASES, CONCEPTS

1. buyer's right to avoid
2. buyer must declare avoidance
3. avoidance for fundamental breach
4. avoidance for non-compliance with Nachfrist
5. no need for Nachfrist avoidance-delay where seller declares that he will not deliver within the period so fixed
6. avoidance time limits
7. declaration must be within a reasonable time
8. late delivery: avoidance for either fundamental breach or non-compliance with Nachfrist
9. avoidance for breach of contract other than late delivery
10. - buyer must declare avoidance within a reasonable time after he knew or ought to have known of the breach
11. - buyer must declare avoidance within a reasonable time after expiration of any additional period of time fixed by the buyer
12. seller has declared that he will not perform his obligations within such an additional period
13. buyer must declare avoidance within a reasonable time after the buyer has declared that he will not accept performance ]

[COMMENTARY]

[1] [buyer's right to avoid]

The effects of avoidance are regulated under Article 81. The buyer has the right to avoid a contract only under specific conditions. If these conditions are given, he can, but does not have to, declare a contract avoided. He can also insist on performance (Article 46). There is the possibility to avoid parts of a contract (Article 51), and a contract can be avoided prior to the date of performance (Article 72). The specific case of avoiding a contract for delivery by instalments is provided for in Article 73. (Here the avoidance of a contract has the effect of a denunciation of contract. The contract can be avoided in respect of deliveries already made or of future deliveries.)

The buyer has the right to avoid a contract provided two conditions are fulfilled: (a) the seller must have committed a fundamental breach of contract, or (b) the additional period for performance set by the buyer in the case of non-delivery must have expired.

The buyer has no right to avoid the contract if he is not able to make restitution of the goods (c. Article 82), or if he has lost that right under Article 48, paras. 2 and 3, or if he fails to give notice in the case of non-conformity or of third party rights or claims (c. Articles 39 and 43). [page 190]

The buyer may lose his right to avoidance also under the conditions of paragraph 2.

[2] [buyer must declare avoidance]

A contract is not avoided automatically; the buyer must declare avoidance. We are dealing here with a right which the buyer may share as he wishes. The buyer himself brings about the success without a court having to become active, as is required under Article 1184 Code civil (Leser/Freiburg, 232).

ULIS, however, provided for two forms of avoiding the contract, an avoidance wanted and declared by the buyer and the so-called ipso facto avoidance under Articles 25 and 26, i.e. automatic avoidance as of law. This structure entailed some uncertainty over the fate of the contract and was, therefore, frequently criticized and not included in the CISG. (With regard to criticism of the ipso facto avoidance and the question to what extent such criticism is justified, see J. Hellner, "Ipso facto avoidance", in: Privatautonomie, Eigentum und Verantwortung, Festschrift für Hermann Weitnauer zum 70. Geburtstag, Berlin (West), 1980, p. 85 fol).

The declaration of avoidance must be forwarded to the seller (c. Article 26); dispatch is sufficient (c. Article 27). Also in this case, the risk of transmission is born by the party which committed the breach of contract.

[problems involved in avoidance declarations and notices]

There are three problems involved in contractual declarations, notices and avoidance of contract: effectiveness in respect to the decisive moment, including keeping to the time; the moment when the sender is bound; and the distribution of the risk of transportation. If a communication has to reach the addressee, these three aspects fall together. It is questionable, however, whether these three aspects also fall together in the case of dispatch (Article 27). The wording of the Article only points to the rise of transportation. It seems that receipt is necessary as to the timeliness and the binding effect (so Leser/Freiburg, 237). The declaration is unilateral, does not permit conditions and cannot be revoked. It becomes effective ex nunc (Leser/Freiburg, 233).

There is no time limit for the declaration (but c. note 6). However, the seller may put an end to uncertainty by making an offer under Article 48 (Welser/Doralt, 121).

[3] [avoidance for fundamental breach]

As to a fundamental breach of contract compare Article 25. Delivery of an aliud regularly constitutes a fundamental breach of contract and also the failure to hand over negotiable, traditional, documents (Schlechtriem, 69; differently Huber, 509). Non-observance of fixed dates are also fundamental breaches (Wesler/Doralt, 120). A decision [page 191] is more difficult to take in the case of a delay where there is no fixed-term contract. To clarify the situation, the buyer may set a Nachfrist (Farnsworth/Lausanne, 86). In the case of goods which have a stock market or market price, non-timely delivery certainly constitutes a fundamental breach of contract (Huber, 413; in agreement Schlechtriem, 48). Later, however, his own view seems to Huber (Freiburg, 202) "increasingly doubtful". No Nachfrist is required according to Honnold (319), when the prices for goods are subject to sharp fluctuations.

When there is a fundamental breach of contract -- of any obligation, not only the obligation to deliver -- the buyer can immediately declare the contract avoided. He is not obligated to grant to seller a Nachfrist pursuant to Article 47 nor must this be done by a court or arbitral tribunal (Article 45, paragraph 3).

Since every avoidance of contract can entail additional expenses and risks, the ceiling for exercising this right should be raised high (Schlechtriem/Doralt, 139). Concerning the right to avoid a contract in the case of performance offered by the seller, compare Article 48, note 10.

Where the failure to meet a deadline in itself does not constitute a fundamental breach, in other words, when time is not of the essence, the seller's cure within a reasonable time after the due date, in the view of Schlechtriem (69), will normally prevent the delay from constituting a "fundamental breach of contract". Welser (Doralt, 125) believes here that the term "non-conformity" would be overstretched if the ways and means of the debtor to remedy such non-conformity were taken into consideration to qualify it. According to the Convention, however, it should obviously matter in this context how grave a disturbance it is in itself and not what could be done to remedy it. Critical remarks also on the part of v. Hoffmann (Freiburg, 299): a right to delivery of substitute goods is given when grossly non-conform[ing] goods are delivered and does not depend on whether or not there is a second tender.

Honnold (312) believes, however, that an offer to cure defects prevents the breach from being fundamental. Hence it is not the time of delivery that is regarded as decisive in judging whether or not a breach is fundamental; and/or the seller's declaration retroactively removes a fundamental breach. [page 192]

[4] [avoidance for non-compliance with Nachfrist]

Pursuant to Article 47, paragraph 1 the buyer can set the seller a reasonable Nachfrist in regard to any obligation the latter may have. Here the rule is limited to the event of non-delivery. Only in the event of non-delivery does the expiry without performance of the Nachfrist entail the right of the buyer to avoid the contract. A delay during the Nachfrist can turn the original delay into a fundamental breach; but this is a consequence of the expiry of time limits and not of the setting of a Nachfrist (Schlechtriem, 68; differently Beinert, 89). We believe that it is an academic dispute to find out whether it is the setting of a Nachfrist in itself during which there is no performance of obligations, or the expiry of the time limit which turns the breach of contract into a fundamental one. It would seem reasonable to apply this rule analogously to the expiry of a Nachfrist where there was no performance, in the case of curing a non-conformity. But this was rejected repeatedly and for good reasons at the diplomatic conference (O.R. 116, 335; Article 46, note 5).

[5] [no need for Nachfrist avoidance-delay where seller declares that he will not deliver within the period so fixed]

In the case of such a declaration there will be no need for the buyer to wait until the additional period of time he has fixed has expired (c. also Article 72).

[6] [avoidance time limits]

Paragraph 2 of Article 49 should contain the most complicated rule of the entire Convention.

There is in general no time limit for the buyer to declare the contract avoided. This creates a phase of uncertainty for the seller which he cannot shorten, not even by refusing to perform prior to (Article 72) or after the expiry of the time for performance (Article 47, paragraph 2) (Leser/Freiburg, 235). The situation changes once delivery is made before the buyer has declared the contract avoided as he had the right to do. Now he must promptly exercise his right to avoidance, if not it will be forfeited.

The buyer's right to avoid the contract is lost "if the buyer waits too long after delivery to declare his intent to avoid" (Schlechtriem, 70).

[7] [declaration must be within a reasonable time]

A reasonable time in this case more or less means immediately. The time limit for clarifying always has to be a short one because otherwise additional costs and risks would be incurred (so Honnold, 319 fol, referring to the UCC and the Sale of Goods Act).

For the declaration of avoidance there will always be a period of exclusion because of the risk of speculation involved. This is, according to Leser (Freiburg, 234), a necessary correlative to the unilateral power of the formal right. This period, however, presupposes a delivery. In the case of paragraph 2, subpara. (a), the time begins to run when the buyer has learned that delivery has been performed. [page 193] (Honnold, 320, contrary to the wording of the rule, considers delivery as the beginning of that time.) In the case of paragraph 2, sub-para. (b) it is stipulated in detail and subtly differentiated under (i), (ii) and (iii) when this time commences. A comparison with Articles 38 and 39 is recommended with regard to case (i).

[8] [late delivery: avoidance for either fundamental breach or non-compliance with Nachfrist]

In the event of late delivery there must be a fundamental breach of contract, as in the case of a fixed-term contract, or a delivery after the Nachfrist set by the buyer has expired. Concerning late delivery in regard to instalment contracts, compare Article 73.

[9] [avoidance for breach of contract other than late delivery]

Other breaches could be, for instance, a breach of third party rights under Article 41 and 42 or the delivery of non-conforming goods under Article 35.

Any other breach always needs to be a fundamental breach of contract if the buyer is to have the right to avoid the contract.

[10] [ - buyer must declare avoidance within a reasonable time after he knew or ought to have known of the breach]

Hence, failure to examine the goods is detrimental to the buyer. The period of avoidance does not begin to run as long as the buyer requires performance, e.g. requests delivery of substitute goods under Article 46, paragraph 2.

[11] [ - buyer must declare avoidance within a reasonable time after any additional period of time fixed by the buyer]

This refers to when the buyer, for instance, has set a time limit for the delivery of substitute goods. This applies also to a Nachfrist in the case of repair if there was a fundamental breach of contract and the buyer did not decide in favour of substitute goods but rather preferred repair. If no fundamental breach was committed and the buyer has set a Nachfrist for repair, he has no right, neither before nor after the expiration of that period, to avoid the contract.

According to Leser (Freiburg, 236), notice can turn into a dangerous instrument because the buyer is still bound to the additional period of time he has set. To begin with, the setting of an additional period of time obstructs the rights of the buyer (c. Article 47, note 5), and furthermore it restricts the period for avoidance later.

Instead of declaring the contract avoided upon the expiration of the first Nachfrist, the buyer could set a second Nachfrist without losing the right to avoidance (c. also Will/BB, 365).

According to Will (ibid) the cases given under (ii) and (iii) are superfluous since they are contained already in Articles 47 and 48.

[12] [seller has declared that he will not perform his obligations within such an additional period]

Here it is of no importance whether the seller does not want to perform his obligations or whether he cannot do so (c. also note 5). [page 194]

[13] [buyer must declare avoidance within a reasonable time after the buyer has declared that he will not accept performance]

When the buyer has declared that he will not accept performance it hardly seems understandable why he would need an additional reasonable period of time to declare the contract avoided. If he fails to set that period he loses the right to avoidance, and performance by the seller is excluded. Whether this stalemate was intended is not quite clear. But the structure of the Article shows that rule (iii) does not follow from Article 48, as Will (BB, 365) concludes.

It was, therefore, assumed in the 1985 CISG Commentary that the buyer's declaration of non-acceptance of performance by the seller was to be treated as equivalent to a declaration of avoidance of a contract.

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Pace Law School Institute of International Commercial Law - Last updated August 14, 2002
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