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Excerpt from John O. Honnold, Uniform Law for International Sales under the 1980 United Nations Convention, 3rd ed. (1999), pages 325-334. Reproduced with permission of the publisher, Kluwer Law International, The Hague.

Article 49

Buyer's Right to Avoid the Contract

A. The Problem of Avoidance in Domestic Law Avoidance of Contract
B. The Convention's Rules on Avoidance for Breach
      (1) Grounds for Avoidance
            (a) Avoidance for Fundamental Breach of Contract
                  (i) Avoidance as to Part of the Goods
                  (b) Non-Delivery within Time Fixed by Nachfrist Notice
      (2) Limits on Time for Avoidance
            (a) Reasons for Limiting the Time: Domestic Law
            (b) The Convention's Rule on Time
                  (i) Non-Delivery
                  (ii) Delivery of Non-Conforming Goods
                  (iii) Effect of Seller's Knowledge of Defect
      (3) Avoidance Against Party Exempt from Damages

§301 A. The Problem of Avoidance in Domestic Law Avoidance of Contract

When does a breach of contract by one party release the other party from its contractual obligations? Attempts to answer this question have produced rules of domestic law of unusual technicality and uncertainty.

The common law initially found it difficult to release a party (Party A) from its promise because of breach by the other party (B), unless the promises of the two parties were linked by some verbal formula such as: " A promises in exchange for B’s delivery of first-quality hemp, to pay..." Late in the eighteenth century this technical approach was relaxed by the judicial creation of rules that performance by B could be an implied "condition" of A’s duty of performance; under some of the case law, whether B’s breach released A depended on questions of degree such as the seriousness of the breach.[1]

However, some of the more technical case law was frozen into statutory form in the (U.K.) Sale of Goods Act. These technicalities were criticized by the Ontario Law Reform Commission, which proposed that the question whether the buyer had the right to reject should be answered in terms of one general standard: Was the seller’s breach "substantial?"[2]

The (U.S.A.) Uniform Commercial Code created a somewhat different set of distinctions. In an earlier study, this writer found these provisions to be casuistic and unresponsive to commercial practice and the significant interests of the parties.[3][page 325]

§302 B. The Convention’s Rules on Avoidance for Breach

We have encountered the Convention’s rules on avoidance of the contract in connection with several provisions—the definition of "fundamental breach" (Art. 25); the rule that a declaration of avoidance is effective "only if made by notice to the other party" (Art. 26), an approach that rejected the ULIS system of ipso facto avoidance (§187 et seq., supra); the right of the seller to cure defects in performance (Arts. 37 and 48); and the buyer’s power to fix an additional final period for performance (the Nachfrist notice; Art. 47). All of these provisions relate to the following general basic rules on avoidance of the contract:

Article 49

"(1) The buyer may declare the contract avoided:

(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; or

(b) in case of non-delivery, 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 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 unless he does so:

(a) in respect of late delivery, within a reasonable time after he has become aware that delivery has been made;

(b) in respect of any breach other than late delivery, within a reasonable time:

(i) after he knew or ought to have known of the breach;

(ii) after the expiration of any additional period of time 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 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 that he will not accept performance."[page 326]

§303 (1) Grounds for Avoidance

Paragraph (1) of Article 49 states two grounds on which buyers may avoid the contract; (a) when a failure by the seller to perform "any of his obligations" amounts to a "fundamental breach of contract"; and (b) "in case of non-delivery, if the seller does not deliver the goods" within an additional period of time fixed by a Nachfrist notice under Article 47.

The aggrieved party need not apply to a court for relief from the obligation of the contract. Avoidance is effected by a "declaration" which (Art. 26) is made "by notice to the other party." Of course, the attempt to avoid is ineffective if it is not authorized by the Convention. The essential point is that the transfer of responsibility is not delayed pending litigation—a process that could be particularly awkward in international transactions.

§304 (a) Avoidance for Fundamental Breach of Contract

The Convention avoids the distinction that the (U.K.) Sale of Goods Act (1893) made between conditions and warranties—a distinction that is softened by the broad scope given to "conditions" and by modern case-law.[4] One general rule applies to non-performance by the seller of "any of his obligations." The buyer may avoid the contract if the seller’s breach is "fundamental." The application of this rule was explored in discussing the Convention’s definition of "fundamental breach" (Art. 25, supra at §183).[5]

In brief, a breach of contract by one party (A) is "fundamental" if it results in such "detriment" to the other party (B) as to "substantially" deprive B of what B is entitled to expect under the contract. The framing of this text was based on the conclusion that international contracts usually are of a complexity and importance to the parties that avoidance should not be available for trivial departures that may readily be redressed by damages (Art. 74).

The rejection of trivial grounds for avoidance necessarily led to a test that is based on degree. Application of this test requires attention to the aggrieved party’s need for this remedy in the light of all the facts. Situations that were discussed under the definition in Article 25 included the [page 327] effect of an offer to cure (§184, supra ) and the adequacy and assured availability of an adjustment of the price or other compensation (§185).

Decisions on Avoidance for Fundamental Breach.  (1) FR., C. de Cass. (Sup.Ct.) 173 P/B 93-16.542, 23 January 1996. S’s wine was adulterated by excess sugar, increasing the degree of alcohol. B’s avoidance by lower court was affirmed. UNILEX D. 1966-2.  (2) IT. Pr. di Parma-Fidenza, 77/87, 24 November 1987. S did not deliver goods by the contract date. B repeatedly requested delivery, without response. B’s cancellation of order and avoidance: sustained. UNILEX D.1987–7, CLOUT 90.  (3) GER. OLG. Frankfurt a M., 5 U 164/90, 17 September 1991. S exhibited shoes with restricted trade-mark, contrary to contract. Avoidance sustained. CLOUT 2, UNILEX D.1991–9.  (4) Strict Standard: GER. BGH (Sup.Ct.) VIII ZR 51/95, 3 April 1996. Cobalt sulphate, contracted to be of British origin, did not meet specifications and originated in South Africa. Avoidance of contract denied: B failed to show that the material was substantially different from what was contracted; B can resell in Germany or abroad, or use the material. CLOUT 171, UNILEX D. 1996–4.

Comments: Speidel, R.E., B’s Rights of Rejection and Cancellation, CISG & UCC, 6 J. Contract L., 91–140 (1993); Miniter, F.A., B’s Right of Rejection, 13 Georgia L. R. 805–898 (1997); Reitz, J.C., "Cut-off Rules", History & CISG, 36 Am. J. Comp. L. 437–472 (1998); Schlechtriem, Com. (1998) 416–421.

§ 304.1 (i) Avoidance as to Part of the Goods

The buyer’s remedy of avoidance is made more flexible by Article 51, §§314–317, infra. Article 51(1) states that if "the seller delivers only a part of the goods" or if only "a part of the goods" conforms to the contract, "articles 46 to 50" (note the inclusion of Article 49) "apply in respect of the part which is missing or which does not conform ". See §§314–316 infra.

Example 49A. In a contract for 1,000 computers 980 conformed with the contract but 20 were seriously defective. The defects of the 20 did not suggest that similar problems might develop with the other computers. Arrangements for payment, the circumstances of use or resale or other factors with respect to the buyer’s needs did not require that all 1,000 computers be handled as a unit; as a consequence we may assume that the defects in the 20 did not constitute a fundamental breach of the contract as a whole (Arts. 25, 51(2)).

Under these circumstances Buyer may avoid as to the 20 defective computers (Art. 51(1)) and, of course, also recover damages (Arts 45,[page 328] 74–76, 81(1)). Article 51 opens up other remedies. For example, on these facts the breach with respect to the defective computers was "fundamental"; under Article 46(2) the buyer "may require delivery of substitute goods" to replace the defective computers. (Combining (A) avoidance (Art. 49) and (B) requiring delivery of substitute goods (Art. 46(2), was examined at §282.1.)

§ 305 (b) Non-delivery within Time Fixed by Nachfrist Notice

This second ground for avoidance has been examined in the setting of Article 47(1), which authorized the buyer to "fix an additional period of time of reasonable length for the performance by the seller of his obligations" (§287). This " Nachfrist " notice provides a basis for avoidance without proof that delay beyond the "additional period" fixed in the notice constitutes a "fundamental breach." The point that deserves emphasis here is that the seller’s failure to comply with this notice is a basis for avoidance only when the seller has failed to deliver the goods. This point was reemphasized at the diplomatic conference by adding at the outset of Article 49(1)(b) the words "in case of non-delivery." When buyer sets an additional final period "of reasonable length" this (in common law parlance) makes this period of time "of the essence." Of course, if the circumstances make any delay in delivery a fundamental breach (as when prices for the goods are subject to sharp fluctuations) the buyer may avoid the contract under paragraph (1)(a) without giving additional time to the seller. The reasons for limiting avoidance under paragraph (1)(b) to late delivery were explained in the debates at the Diplomatic Conference. O.R. 354–356, Docy. Hist. 575–577. See also UNCITRAL (1977) VII Y.B. 46, Docy. Hist. 339. These debates showed adherence to UNCITRAL’s decision that the special circumstances of international trade (the importance of the typical contract and the waste resulting from reshipment and redisposition after shipment abroad) called for limiting avoidance of the contract to substantial breach. See also Article 51, infra, and Example 46B, §283, supra.

Decision on Nachfrist and Avoidance. GER. OLG Celle, 20 U 76/94, 24 May 1995. Seller failed to deliver part of the printing machinery called for in the contract. B notified S that the missing machinery must be delivered within eleven days. On S’s failure to comply with B’s notice, B declared the contract avoided. Held: B’s notice was effective; the contract was avoided. UNILEX D.1995-16, CLOUT 130. See: Schlechtriem, Com. (1998) 421–426 (Huber).[page 329]

§306 (2) Limits on Time for Avoidance

(a) Reasons for Limiting the Time; Domestic Law

Avoidance of the contract has important practical consequences with respect to responsibility for the care and redisposition of the goods. Assume that a buyer learns that the goods have arrived at their destination in a nearby seaport or rail siding and proposes to avoid the contract: If the buyer delays its declaration of avoidance, demurrage and warehouse costs will accrue, the goods will be subject to unnecessary risks of damage or loss, and the market price may fall. In the alternative, assume that the buyer receives the goods and proposes to avoid the contract because of non-conformity of the goods (Arts. 35, 49(1)(a)). A delay in the buyer’s declaration of avoidance will delay the seller’s opportunity to repair or redispose of the goods and will enhance expense and risk.

Because of these problems, domestic law limits the time within which the buyer may avoid the contract. Under the (U.S.A.) Uniform Commercial Code (§2-602(1)) rejection of goods must take place "within a reasonable time after their delivery or tender" and is "ineffective unless the buyer seasonably notifies the seller." Similarly, under UCC 2-608(2) "revocation of acceptance must occur with a reasonable time after the buyer discovers or should have discovered the ground for it."

§ 307 (b) The Convention’s Rule on Time

(i) Non-Delivery

Under Article 49(2) the time for avoidance begins to run only when "the seller has delivered the goods." A buyer who is awaiting a delayed delivery need not try to estimate when the delay is sufficient to constitute a "fundamental breach" and thereupon notify the seller that the contract is avoided. The buyer may await delivery; after the buyer "has become aware that delivery has been made" (para. (1)(a)) he may decide to accept the goods or (if the delay is a fundamental breach or if the seller has failed to comply with a Nachfrist notice under Article 47(1)) the buyer may reject the goods by a declaration of avoidance.

The fact that the buyer may defer avoidance for late delivery until after delivery (Art. 49(2)(a)) does not, of course, prevent a waiting buyer from avoiding more promptly. When the delay constitutes a fundamental breach the buyer may thereupon declare the contract avoided (Art. 49(1)(a)). If the buyer is uncertain as to whether the breach is fundamental, or if the buyer wishes to give the seller a last chance to deliver, the buyer may give the seller a Nachfrist notice under Article 47(1); if the [page 330] seller fails to deliver within the reasonable additional period set in the buyer’s notice the buyer may thereupon declare avoidance under Article 49(1)(b) (§305, supra).

A seller who finds that his delivery will be late may need to know whether to lay out funds for packing and shipping. Uncertainty over whether the buyer will accept usually can be removed by communications between the parties. And any danger that the buyer would refuse to clarify his position until the goods have arrived is met by Article 48(2)-(3), supra at §292, which gives the buyer a duty to reply to a request that he "make known whether he will accept performance" within a specified time; if the buyer fails to respond "the seller may perform within the time indicated in the request."

§308 (ii) Delivery of Non-Conforming Goods

Paragraph (2)(b) of Article 49 applies "in respect of any breach other than late delivery"—typically the arrival of goods that fail to conform to the contract. The basic rule is that avoidance must occur "within a reasonable time (i) after [the buyer] knew or ought to have known of the breach." The time when the buyer ought to know of the breach would be influenced by Article 38, supra at §249, which governs the period within which the buyer "must examine the goods." The length of a "reasonable time" for declaring an avoidance is necessarily determined by a wide variety of circumstances such as whether the goods are perishable or are subject to price fluctuations.

The remainder of Article 49, perhaps unnecessarily, spells out the effect of certain important communications between the parties. For example, let us assume that a buyer, pursuant to Article 47(1), informs the seller that the goods are defective but that within one month the seller may cure the defect by replacement or repair. Article 49(2)(b)(ii) provides that the buyer’s time for declaring avoidance does not start to run until the one-month period expires. Paragraph (2)(b)(iii) gives similar effect to a seller’s request under Article 48(2) that the buyer "make known" whether he will accept a cure of a defect in the goods.[6][page 331]

Decision: Time Limits for Avoidance. (1) SWITZ. HG Zürich, HG 920670, 26 April 1995. Four weeks after delivery of tank, B discovered leaks, and four weeks later declared the contract avoided. Held, both avoidance and damage claim (Art. 39(1)) were too late. UNILEX D.1995-15.1 [See cases on delay at §§256, 257261, supra.] See: Schlechtriem, Com. (1998) 426–435 (Huber).

§308.1 (iii) Effect of Seller’s Knowledge of Defect

Interesting questions arise concerning the extent to which the Convention’s requirements that a buyer notify the seller (e.g.) of defects in the goods apply to the buyer’s right to avoid the contract.

As we have seen, notice requirements are imposed in two settings.  (1) Article 39(1) provides that the buyer "loses the right to rely on a lack of conformity of the goods" if the buyer does not give the seller notice of the lack of conformity within a specified period. See the combined discussion of Articles 39, 40 and 44, §§254261, supra.   (2) In a different setting, Article 43(1) provides that the buyer "loses the right to rely on the provisions of Article 41 or 42" protecting the buyer against third-party claims if the buyer fails to give the seller notice of the claim within a specified period (§271, supra ). Both of these drastic rules nullifying the buyer’s substantive rights are subject to exceptions, one of which is that a seller may not rely on these provisions if the seller knew of the defect of which the buyer was otherwise required to give notice.

Suppose that a seller knows of the defect of which the buyer would otherwise be required to give notice: Does the seller’s knowledge excuse the buyer from the provisions of Article 49(2) that the buyer "loses the right to declare the contract avoided: unless the buyer avoids the contract within "a reasonable time"? Professor Will, in his excellent analysis of Article 49, suggested that the seller’s knowledge of the non-conformity or the third-party claim removes the time limits with respect to avoidance of the contract. Although the exemptions based on the seller’s knowledge (Articles 40 and 43(2)) refer only to the requirement that the buyer notify the seller of the non-conformity (as contrasted with the decision to avoid the contract), it was suggested that it would be "absurd" to permit such a seller to invoke the limits on avoidance stated in Article 49(2), supra.[7]

The present writer has some hesitation about this conclusion. The problem is complex and may not arise often. However, the question may [page 332] be worth discussing to explore the differences between the two distinct remedies—damages and avoidance. As was noted (§255 supra) the seller needs to know of a claim of defects in the goods so he can take samples or inspect the goods to ascertain the facts before the evidence is lost; the seller also needs prompt notice of a claim in order to exercise his rights to cure the defect (Arts. 37, 48). However, Articles 40 and 43(2) recognize that it would be monstrous to apply these drastic sanctions (loss of all substantive rights) because a buyer fails to give the seller facts that the seller already knew.

Requiring a buyer to communicate its decision to avoid the contract within "a reasonable time" is based on different reasons than requiring notice of defects. As has been noted (§306, supra), undue delay in declaring avoidance of the goods creates risks of needless cost and risk with respect to the care and return of the goods and, when the goods are subject to market fluctuations, may give the buyer a chance to speculate at the seller’s risk. Unless the "reasonable time" limit of Article 49(2) is preserved a buyer presumably could delay a decision on avoidance for the full limits of the period of limitation (prescription) which, under some domestic system can be a decade or more and under the 1974 U.N. Convention on the Limitation Period in the International Sale of Goods is four years.

The rules on notice of defects differ from the rules on time for avoidance (Art. 49(2) in yet another respect; a buyer who waits beyond a "reasonable time" in declaring avoidance is not deprived of other remedies, such as the right to damages (Arts. 45(2), 81(1); a buyer who fails to give the required notice of defects, unless excused (Arts. 40, 43(2), 44), loses all substantive and procedural rights. The Convention recognizes this difference: Article 44 provides that a buyer who has "a reasonable excuse for failing to give" the notice of defects required by Articles 39(1) and 43(1) can still reduce the price (Art. 50) or claim damages (Art. 74); Article 44 does not extend this excuse to restrictions on avoidance of the contract.

In sum, it seems difficult to conclude that the seller’s knowledge of a defect in the goods removes the "reasonable time" limit on avoidance set forth in Article 59(2).

§ 308.2 (3) Avoidance Against Party Exempt from Damages

Article 49 bases the right to avoid the contract on a failure by the other party "to perform " its "obligations under the contract"; avoidance does not depend on liability to pay damages for breach. As we shall see, Article [page 333] 79 in specified circumstances (cf. force majeure ) provides that a party is exempt from damages for "failure to perform" its obligations and adds (paragraph (5)): "Nothing in this article prevents either party from exercising any right other than to claim damages under this Convention". In other words, exempting a party from damages does not prejudice the other party’s right to avoid the contract. The underlying reason is compelling: a buyer is not required to pay for goods the seller can not deliver. Indeed, when Article 79 exempts a party from damages for failure to perform, the appropriate remedy is usually avoidance of the contract. See §423 infra.[page 334]

FOOTNOTES: Chapter on Article 49

1. An important contribution to this development was made by Lord Mansfield in Kingston v. Preston, 99 Eng. Rep 437 (K.B. 1773). See 8 Holdsworth, History of English Law 70–88 (2d ed. 1973); Corbin, Conditions in the Law of Contract, 28 Yale L.J. 739 (1919), reprinted in Selected Essays in the Law of Contracts 871 (1939); Patterson, Constructive Conditions in Contracts, 42 Colum. L. Rev. 903 (1942).

2. Ont. L. Ref. Com. II Sales 444–461. This report notes that a similar recommendation was made by Law Reform Commission, New South Wales, Working Paper on Sales of Goods (1975) para. 13.17 Cf. (U.K.) SGA (1979) §11(3) (Whether a stipulation is a "condition" depends "on the construction of the contract"); §11(4) (modified rule on effect of acceptance; reference to passage of property deleted); §13 ("by description"); §30(1) & (2) (deviations as to quantity).

3. Honnold, Buyer’s Right of Rejection—A Study in the Impact of Codification on a Commercial Problem, 97 U. Pa. L. Rev. 457 (1949). See also: Priest, Breach and Remedy for the Tender of Non-conforming Goods under the UCC: An Economic Approach, 91 Harv. L. Rev. 960 (1978) (includes economic analysis of UCC decisions).

4. The Hansa Nord [1976] Q.B. 44 (applied general contract principles on discharge for substantial breach). Benjamin §§745, 747, 872–878, 1724–1733.

5. See Rabel, The Hague Conference on the Unification of Sales Law, 1 Am. J. Comp. L. 58, 65 (1952).

6. As we saw in examining Art. 47(1), supra at §288, avoidance may be based on failure to comply with a Nachfrist notice only in cases of non-delivery. When non-conforming goods are delivered (as in the case just put in the text) the buyer’s notice inviting cure empowers the seller to make the requested cure and extends the buyer’s time for avoidance but does not establish a basis for avoidance; in this setting avoidance must be based on fundamental breach (Arts. 25, 49(1)(a)).

7. Will, B-B Commentary 366. In this discussion Professor Will refers only to the Article 43(2) exemption from notice of third-party claims; his comments, however, seem to apply also to the Article 40 exemption with respect to notice of non-conformity of the goods.

Pace Law School Institute of International Commercial Law - Last updated February 25, 2005
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