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Reproduced with permission of 71 Rabels Zeitschrist für ausländisches und internationales Privatrecht (January 2007) 13-34 [Presentation at seminar: "The Convention on the International Sale of Goods. The 25th Anniversary: Its Impact in the Past; Its Role in The Future", German Society of Comparative Law, Private Law Division, Conference 2005 (22-24 September 2005) Wurzburg]

CISG -- The Structure of Remedies

Peter Huber [*]

      Introduction

  1. Outline of the Buyer's Remedies under CISG
    1. Performance
    2. Avoidance of the contract
    3. Reduction of the purchase price
    4. Damages
  2. The Fundamental Objective: Saving the Contract and Avoiding Restitution
    1. The decline of termination: from a readily available remedy under Roman law to a remedy of last resort in modern instruments and CISG
      1. Termination as a readily available remedy in the Roman-law-based legal systems
      2. The modern trend to restrain the scope of termination
    2. Policy considerations for restraining termination as a remedy
    3. Instruments for restraining termination as a remedy
      1. The "Nachfrist"-mechanism
      2. The seller's right to cure
      3. Doctrine of fundamental breach
           a)    Comparative background
           b)    Definition of fundamental breach
           c)    Fundamental breach and delivery of non-conforming goods
    4. The objective to save the contract and its consequences for other remedies
      1. Performance
      2. Price reduction
      3. Damages
  3. Critical Assessment of the Structure of Remedies
    1. The overall picture
    2. The need for immediate termination in specific situations
    3. The seller's right to cure
    4. Further requirements?

INTRODUCTION

The purpose of this paper is to present a short introduction to the system of remedies provided by the Convention on Contracts for the International Sale of Goods (CISG). It will focus on the remedies of the buyer and not deal with the remedies of the seller. Thee are two reasons for this approach: the first is that the area of the buyer's remedies is probably the most characteristic part of any law of sales; the second reason is that, with regard to the systematic structure of CISG, the rules regulating the remedies of the seller are very similar to those concerning the buyer's remedies.

The first part will briefly outline the buyer's remedies (A). The second part will deal with the most defining feature of this system of remedies, namely, the fundamental objective to save the contract and to avoid restitution (B). The paper will conclude with a critical assessment of the structure of remedies contained within CISG (C).

A. OUTLINE OF THE BUYER'S REMEDIES UNDER CISG

The starting point for an assessment of the buyer's remedies under CISG is Art. 45 which provides: "If the seller fails to perform any of his obligations under the contract or this Convention, the buyer may: (a) exercise the rights provided in Arts. 46 to 52; (b) claim damages as provided in Arts. 74 to 77." This means that the buyer can resort to the following remedies: performance, including substitute delivery and repair; avoidance of the contract; reduction of the purchase price; damages.

There are several specific provisions for instalment contracts (Art. 73) and for anticipatory breach of contract (Art. 72) which, rather than creating new remedies, modify the existing ones. This paper will not deal with them in more detail. [page 14]

I. Performance

Article 46 governs the buyer's right to claim performance from the seller. Article 46(1) deals with the general claim for performance, while Art. 46(2) and (3) provide specific rules for substitute delivery or repair in cases where the seller has delivered goods that do not conform to the specifications of the contract.

According to Art. 46(3) the buyer has the right to require the seller to remedy the lack of conformity by repair, unless this is unreasonable having regard to the circumstances. This provision is not particularly noteworthy, and seems to be in line with the respective rules in the European Consumer Sales Directive [1] and the German position in BGB §439.

The provision on substitute delivery (Art. 46(2)), by contrast, is more interesting: The buyer can only claim delivery of substitute goods if the lack of conformity constitutes a "fundamental breach of contract" in the sense of Art. 25. The requirement of a fundamental breach places a severe restriction on the claim for substitute performance, and in this form is unknown to both the Consumer Sales Directive and German law. It is in line, however, with one of the basic principles of CISG. We shall return to this issue later.[2]

All claims for performance are subject to certain restrictions. Most of these restrictions (e.g. impossibility,[3] buyer's responsibility for the seller's breach,[4] buyer exercising a remedy inconsistent with the claim for performance [5]) are, broadly speaking, unsurprising and exist in most other legal systems in some or other form, although there are still some doctrinal differences on how to reach the agreed result.

There is, however, one further restriction that is special to CISG, namely, the possibility for a court to refuse an order for specific performance if it would do so under its national law (Art. 28). As the practical relevance of the provision is limited.[6] it will not be discussed further here. [page 15]

II. Avoidance of the contract

The buyer's right to avoid the contract is governed by Art. 49. Paragraph (1) names the two grounds for avoidance, while paragraph (2) subjects the remedy of avoidance to a complicated regime of time limits. The effects of avoidance are dealt with in Arts. 81 to 84.

In principle, avoidance is limited to cases of fundamental breach. The only exception to this rule is Art. 49(1)(b) which allows the buyer to "upgrade" a non-fundamental breach to one which justifies avoidance by using the "Nachfrist"-procedure set out in Art. 47. This possibility, however, is limited to cases of non-delivery.[7] In cases not involving non-delivery, the buyer has no recourse to the "Nachfrist"-procedure.[8]

III. Reduction of the purchase price

Article 50 affords the buyer the right to reduce the contract price if the goods do not conform to contract specifications. This provision, however, explicitly provides that the seller's right to cure takes priority over the buyer's right to reduce the price.

The remedy of price reduction will not be particularly familiar to common lawyers. It has its origins in Roman law.[9] and is still widely known in civil law countries,[10] It had also been part of the Uniform Law of International Sales (see Art. 46). De lege ferenda there is, of course, room for debate about whether one actually needs a right to reduce the purchase price or whether a claim for damages would be sufficient to serve the buyer's legitimate interests.[11] [page 16]

IV. Damages

Any breach of contract by the seller will give the buyer a right to claim damages. The basis for the claim is Art. 45(1)(b), while the measure and calculation of damages are governed by the general rules in Arts. 74 to 77.[12]

Damages are not fault-based in CISG.[13] In principle, liability is strict, but there are certain grounds for exemption in Arts. 79 and 80 (i.e. impediments beyond the seller's control; failure caused by the buyer himself) .The CISG thus follows the English example [14] which regards the contract as a guarantee of the promised result so that any non-performance in principle leads to a claim for damages.[15]

It is doubtful today whether the fault-based system and the guarantee-based system will lead to considerably different results in practice. In fact, both approaches are not applied in their pure form, but are considerably modified so that both seem to move towards a common middle ground. On the one hand, the guarantee-based model is subjected to a number of exemptions from liability (e.g. Arts. 79 and 80) which can be explained by the assumption that the guarantee entailed by the contractual promise typically does not cover all conceivable risks.[16] On the other hand, the fault-based system usually features several devices which make it difficult for the debtor to escape liability. German law is a good example of this. First, the burden of proof is on the debtor.[17] Second, the debtor's liability is not limited to negligence and intentional breach, but a stricter type of liability may be inferred from the content of the contract (for instance, the assumption of the risk to be able to procure the object in question if it is a sale of generic goods).[18] Finally, liability for negligence has been extended by the development of objective duties of care which, in the last resort, are based on the question of how to allocate risks between the parties.[19] It is probably fair to say, therefore, that the approach of both systems will boil down to a question of allocation of risk, answered according to largely similar standards. [page 17]

Article 74 contains a further limitation, i.e., the famous foreseeability rule: damages may not exceed the loss which the party in breach could have foreseen as a possible consequence of the breach. In the practice of the courts, there do not seem to be too many cases in which the damages actually claimed were held to be unforeseeable.[20]

B. THE FUNDAMENTAL OBJECTIVE: SAVING THE CONTRACT AND AVOIDING RESTITUTION

The most characteristic feature of the system of remedies under CISG is that it aims to keep the contract alive, and thus to avoid the necessity of unwinding it, as long as possible. The prime consequence of this is that termination of the contract will be available only as a remedy of last resort.[21] It may also have repercussions on other remedies, such as claims for performance, claims for damages and the right to reduce the contract price. In analysing this fundamental objective I will primarily refer to the situation where the seller delivers to the buyer goods that do not conform to the contract's specifications.

I. The decline of termination: from a readily available remedy under Roman law to a remedy of last resort in modern instruments and CISG

Most legal systems will at some point or other allow the buyer to terminate the contract if the seller has delivered non-conforming goods. The interesting question, therefore, is not whether there is a right to terminate the contract, but rather when it will be available to the buyer. A comparative analysis, in this respect, reveals a number of differences and developments. Originally, at least those legal systems that were based on Roman law regarded termination of the contract as an easily available remedy (see B.I.1. below). Nowadays, however, there is a clear international trend towards a more restrictive approach which regards termination as a last resort within the system of remedies. The [page 18] CISG clearly is part of that international trend and in fact has considerably influenced it (see B.I.2.).

1. Termination as a readily available remedy in the Roman-law-based legal systems

In the aedilitian system of remedies and in the legal systems following the Roman model, termination was easily available to the buyer, who was entitled to cancel the contract for almost every non-conformity.[22] Termination and price reduction were the standard remedies for non-conformity. There was -- at least in contracts for the sale of specific goods -- no claim for substitute delivery or for repair, and the buyer was not required to resort to any of those remedies before being entitled to cancel the contract. This was, for instance, the situation in German law before the reform of 2002.[23]

2. The modern trend to restrain the scope of termination

During the twentieth century, however, a clear trend away from the ready availability of termination emerged. Several modern sales laws (such as the new German [24] and Scandinavian [25] rules) and international instruments (such as the CISG,[26] the UNIDROIT Principles [27] and the Principles of European Contract Law [28]) regard the termination of the contract as a remedy of last resort which should be granted only if other remedies (e.g. performance, price reduction or damages) would not lead to an acceptable result.

II. Policy considerations for restraining termination as a remedy

There are at least three policy reasons in favour of restricting the availability of termination. The first reason is reflected in the old principle, pacta sunt servanda: The agreement which the parties have reached by their free will ought to be honoured and enforced by the law as long as this is possible, or sensible.[29] [page 19]

The second reason for restricting termination as a remedy is an economic one. Contract termination for defective delivery leads to a restitution of the goods originally delivered and possibly to a restitution of money paid by the buyer. Restitution of the goods, in particular, may lead to considerable costs and risks which could be avoided if the contract was not terminated and if the buyer's interest in getting conforming goods was remedied by either repair or a claim for damages.[30] From an economic perspective, therefore, termination may prove to be a very expensive remedy.

A third reason arises from an analysis of the legitimate interests of the parties. On the one hand, in many cases the seller may fairly claim that the efforts he has made to effect proper performance should not be frustrated by a minor defect that could easily be cured at his expense. The buyer, on the other hand, faces a difficult task if he wishes to refuse the seller's offer of cure, provided that he receives damages for any loss suffered until the cure has been effected and that he does not have to bear the costs of such cure. Of course, there may be situations where the buyer is justified in rejecting an offer of cure: for instance, if the specified time and manner of delivery were "of the essence" of the contract. Often, however, this is not the case and the buyer, who strictly insists on termination, will have to face up to the question whether his complaint of non-conformity merely disguises an alternative motive for cancellation, such as a fall in market prices for the goods, etc.

III. Instruments for restraining termination as a remedy

A comparative analysis of the modern rules reveals three instruments which can -- on their own or combined with one other -- serve to restrain the scope of termination as a remedy: the doctrine of fundamental breach, the "Nachfrist"-procedure and the seller's right to cure.

1. The "Nachfrist"-mechanism

The first instrument is the so-called "Nachfrist"-mechanism, which in principle requires the buyer to fix an additional period of time for performance (i.e. for repair or substitute delivery). Termination of the contract will only be available for the buyer if the "Nachfrist" has expired to no avail -- i.e., without the seller having performed properly. This mechanism therefore gives the seller an effective right to cure -- a second chance to perform -- before the buyer is entitled to terminate the contract. From the buyer's perspective, this means that defective delivery by the seller as such does not usually [page 20] entitle him to terminate the contract, but that he has the chance to "upgrade" the seller's breach by fixing the additional period of time and waiting for its fruitless expiry.

The "Nachfrist"-mechanism is the centre-piece of the new German sales law (see BGB §437 No. 2, §323).[31] The buyer may only terminate the contract after an adequate additional period of time has been fixed and has expired. There are, of course, exceptions to this rule, for instance if it appears from the contract that timely and conforming delivery was of prime importance for the buyer [32] or if cure by the seller would be inadequate or impossible.[33] The basic rule, however, is that the buyer has to give the seller a 'second chance' by fixing the additional period of time.

It has also found its way into the UNIDROIT Principles of International Commercial Contracts.[34] and the Principles of European Contract law.[35] These instruments limit it to cases of non-delivery or late delivery, whereas in German law it also extends to defective delivery.

Under CISG, the position is more or less the same as that under the Principles: the "Nachfrist"-mechanism, in its strict sense, is only available in cases of non-delivery (Art. 49(1)(b)).[36] Of course, it is also true that Art. 47 allows the buyer to set a Nachfrist for any breach by the seller, including the cases of non-conformity. Nevertheless, the fruitless expiry of the "Nachfrist" does not automatically entitle the buyer to terminate the contract.[37]

2. The seller's right to cure

The second mechanism can be labelled "the seller's right to cure". This approach, although closely related to the "Nachfrist"-mechanism, approaches the problem from a different angle: If the buyer complains about the nonconformity of the goods and announces that he wishes to terminate the contract, the seller has the right to prevent termination by performing properly (by way of repair or substitute delivery) within a reasonable period of time and under adequate circumstances. The difference to the "Nachfrist"-technique lies in the fact that, here, the initiative that triggers the cure mechanism lies not with the buyer (who would have to set the "Nachfrist"), but rather with the seller, who may offer substitute performance if he wishes to keep the contract alive. [page 21]

A good example for the cure-mechanism can be found in Art. 7.1.4 of the UNIDROIT Principles, which provides: "The non-performing party may, at its own expense, cure any non-performance, provided that: (a) without undue delay, it gives notice indicating the proposed manner and timing of the cure, (b) cure is appropriate in the circumstances, (c) the aggrieved party has no legitimate interest in refusing cure and (d) cure is effected promptly." The provision further states that the right to cure is not precluded by notice of termination and that upon effective notice of cure, those rights of the aggrieved party that are inconsistent with performance are suspended until the time for cure has expired.

The seller's right to cure is also provided for in Art. 8:104 of the Principles of European Contract Law which confers on the debtor (in our example, the seller) the right to make a new and conforming tender where the time for performance has not yet arrived or the delay would not be such as to constitute a fundamental non-performance.

The seller's right to cure also plays an important role in United States law; thus, §2-508 (2) of the Uniform Commercial Code (UCC) in its draft 2003 version [38] enables the seller to cure the defect (even after the agreed time for performance has expired), provided (inter alia) that the seller has performed in good faith, that he gave reasonable notice to the buyer of his intention to cure, and that cure is appropriate and timely under the circumstances. If the seller manages to cure the defect, the buyer's right to reject the goods (which comes close to a termination of the contract [39]) is excluded.[40] Under the draft 2003 version of the UCC, the same is true with regard to the buyer's revocation of acceptance (an issue that was disputed under earlier versions of the UCC [41]) . The details are not of relevance in the present context. Suffice it to say that, in principle, the buyer's right to cancel the contract due to a non-conforming delivery is to a considerable extent subservient to the seller's right to cure.

The question whether CISG recognises a seller's right to cure is a difficult one and has created considerable controversy since the enactment of CISG. Under certain circumstances, Art. 48(1) gives to the seller a right to remedy (at his own expense) a failure to perform his obligations. However, this right to cure is "subject to Art. 49" -- i.e., subject to the buyer's right to avoid the contract. A proposal not to insert any reservation in favour of Art. 49 (thus strengthening the seller's right to cure) was rejected at the Vienna [page 22] Conference.[42] This, however, only allows the conclusion that, in principle, the right of avoidance, if it exists, shall not be impaired by the cure provision. It does not necessarily mean that the possibility to cure the defect is irrelevant when it comes to examining the preconditions of the right to avoid -- i.e., the concept of fundamental breach (Art. 49(1)(a)).

The reservation therefore merely shifts the problem onto the concept of fundamental breach. The crucial question then is: Does the fact that the breach could be cured by the seller make that breach non-fundamental? In other words, should the curability of the breach be taken into account when deciding whether or not it is "fundamental"?

Almost every conceivable answer to this question has been suggested. In the meantime, though, a predominant opinion seems to have emerged which reaches reasonable results and which should be followed.[43] According to this opinion, the curability of the defect should, in principle, be taken into account when deciding on whether or not the breach is fundamental. Matters are different, however, if the buyer has a particular and legitimate interest in being allowed to avoid the contract immediately. Such a legitimate interest exists, for example, where the breach was so serious that the basis of trust between the parties has been destroyed.[44] Another example is where the contract strictly requires performance by a fixed date or where late performance will be of no interest to the buyer [45] -- in short, where time is "of the essence". If one follows the predominant view outlined here, CISG can be understood [page 23] as recognising a seller's right to cure which can override the buyer's right to terminate the contract.

Both the "Nachfrist"-mechanism and the right to cure serve at least two of the three policy requirements mentioned above. They uphold the pacta sunt servanda principle in that the contract will not be set aside simply on the ground of a defective delivery. They are also consistent with the legitimate interests of the parties, provided that there are exceptions for cases in which immediate conforming delivery was essential to the buyer, or in which cure by the seller would be inappropriate or impossible.

With regard to the economic argument for restraining the scope of termination, the situation is more complex. In cases of defective delivery, the economic objective mentioned above will only be reached if the seller cures the defect by repair and not by substitute delivery. The reason for this is that substitute delivery will result in the need to transport the defective goods from the buyer to the seller and the new goods from the seller to the buyer. In fact, substitute delivery leads to the same results as termination with regard to the defective goods which had been originally delivered.

3.Doctrine of fundamental breach

a) Comparative background

The third technique which is used in order to restrict the scope of termination as a remedy for defective performance is the doctrine of fundamental breach. This doctrine restricts the buyer's right to terminate the contract for defective delivery to cases in which the breach is so serious as to be "fundamental". It is the guiding principle of CISG,[46] of the UNIDROIT Principles [47] and the Principles of European Contract Law.[48] Today, the doctrine of fundamental breach is also part of the Scandinavian sales law [49] and of those legal systems which have taken their inspiration from CISG, such as the new Estonian law of obligations.[50]

It is often said that the fundamental breach doctrine has its origins in English law.[51] At first sight, this is a correct assumption. In fact, both the distinction between conditions and warranties and the doctrine of intermediate [page 24] terms are based on similar criteria as the fundamental breach concept of the international texts. Regarding cases of defective delivery by the seller, however, a caveat should be noted: Many of those breaches are classified by the Sale of Goods Act (sections 13 and following) as conditions and may therefore lead to a right to terminate the contract.[52]

b) Definition of fundamental breach

Both the appeal and the problems of the fundamental breach doctrine are immediately apparent. On the one hand, it is sensible to permit the most drastic remedy only in cases of particularly "serious" breach. On the other hand, there will be considerable difficulties in drawing the exact line between those breaches which are fundamental and those which are not.

According to Art. 25, a breach is fundamental "if it results in such detriment to the other party as substantially to deprive him of what he is entitled to expect under the contract, unless the party in breach did not foresee, and a reasonable person of the same kind in the same circumstances would not have foreseen such a result". Although this definition may sound perfectly acceptable in the abstract, it will not, on its own, enable judges and practitioners to draw the exact line between fundamental breaches and other breaches. In fact, most of the debate will simply be shifted onto the question whether the detriment caused by the breach substantially deprived the other party of what he was entitled to expect under the contract.

c) Fundamental breach and delivery of non-conforming goods

The delivery of non-conforming goods is the most difficult area within which to apply the fundamental breach doctrine. It is no surprise that a great number of court decisions have been rendered in this area. Of course, it is not possible to attempt to give a complete picture here. Even so, a certain structure of thought has developed over the years. It is submitted that there are four criteria which can be taken into account when deciding on the fundamental character of the non-conforming delivery. These will be analysed in turn.

The first criterion is self-evident and generally accepted: The parties may define in their contract which of its terms shall be fundamental in the sense that their breach will lead to a right of avoidance.[53] It is indeed highly desirable for the parties to do so, but it does not seem to happen too frequently in practice, at least not in those cases which lead to litigation. [page 25]

The second criterion is the seriousness of the breach.[54] How far away from the agreed standard are the goods which have been delivered? How serious are the consequences for the buyer? What are the costs of repair?

The fact that the seriousness of the breach should be taken into account is probably beyond dispute. How much weight should be attached to it is an altogether different question. To put it differently: does a serious non-conformity in itself justify avoidance? The answer probably is no. There are two other factors which may be relevant, and thus prevent a "serious" breach from being fundamental, i.e., the issue of the seller's right to cure and the reasonable-use criterion.

As outlined above, the predominant opinion effectively gives the seller a right to cure the defect unless the buyer has a legitimate interest in immediate avoidance of the contract. As a consequence, even a serious breach, as a rule, will not be fundamental if the seller offers to cure it in terms of Art. 48.

The fourth and most disputed factor is the reasonable-use test. Both the German [55] and the Swiss [56] Supreme Courts tend to attach considerable weight to the question whether the buyer can make some other reasonable use of the non-conforming goods. They will refuse to grant the right to terminate the contract if it is possible and reasonable for the buyer to resell the goods in the ordinary course of business, albeit for a lower price.

The leading decision is the cobalt-sulphate case, handed down by the German Federal Supreme Court (Bundesgerichtshof; BGH) in April 1996,[57] Here, the seller had sold various quantities of cobalt sulphate to the buyer, a German company. It was agreed that the goods should be of British origin,[58] The buyer tried to avoid the contract on several grounds, one of which was that the cobalt sulphate originated in South Africa. This, so it was argued, caused the buyer serious difficulties, as he "primarily" exported to India and South East Asia where an embargo on South African products was in place. The buyer did not succeed with this line of argument. According to the Federal Supreme Court, the buyer had neither been able to name potential buyers or adduce evidence of earlier sales in those countries, nor had he even alleged that it would have been impossible or unreasonable to make another use of the goods in Germany, or to export them to another country. The actual [page 26] decision of the case is therefore based on procedural reasons, namely, the lack of proof by the buyer.[59]

It is interesting to consider what the Court would have decided had the buyer proved that he was unable to resell the goods in a considerable number of countries. In my understanding of the case, the Court would have instructed the buyer to sell the goods in a country where there was no embargo, and then claim damages for any losses incurred thereby.

Although the reasonable-use criterion seems to be widely accepted in Germany and in Switzerland, it is by no means certain that it will find world-wide support. There are judgments which regard the breach as fundamental without discussing the reasonable-use criterion. The most prominent [60] one is the American case of Delchi v. Rotorex.[61] Here, the parties had contracted for the sale of air conditioner compressors. Those delivered by the seller were less efficient than the sample model; they had a lower cooling capacity and consumed more energy than the contractual specifications indicated. The U.S. Court of Appeals for the Second Circuit held that there was a fundamental breach by the seller because "the cooling power and energy consumption of an air conditioner compressor are important determinants of the product's value".[62] The Court did not take into account whether the buyer could have reasonably expected to resell the defective goods or make any other use of them and claim damages or price reduction.

Such cases do not necessarily imply that the reasonable-use criterion ought not to be applied at all. Their compatibility with this criterion may be established by showing that, on their respective facts, there simply were no other reasonable uses to which the defective goods could have been put, and thus there was no need for the courts to have addressed this issue. In the end, however, we cannot yet be certain whether the reasonable-use criterion will find general acceptance or not. [page 27]

IV: The objective to save the contract and its consequences for other remedies

The objective to save the contract and to avoid restitution primarily affects the rules on termination. It does not stop there, however. In fact, every other remedy is, or may be, affected by this objective. This is best shown by comparing these remedies under CISG with their counterparts in German law.

1. Performance

If one compares CISG rules on supplementary performance -- i.e., substitute delivery and repair (Arts. 46(2) and (3)) -- to the respective German provision (BGB §439), one will recognise one striking difference. While German law treats repair and substitute delivery alike (submitting both to a proportionality test), CISG treats the two forms of performance differently -- repair is based on the proportionality requirement, while substitute delivery requires a fundamental breach of contract. The fundamental breach doctrine is thus applied to substitute delivery in the same way as to the remedy of termination. Viewed from an economic perspective, this is understandable. Substitute delivery leads to the restitution of the originally tendered goods and to the delivery of the substitute goods, causing additional cost and risk to the parties.[63] Dealing with substitute delivery in the way that Art. 46(2) does is therefore in line with the basic principles of the Convention.

2. Price reduction

In German law, price reduction stands more or less on the same level as termination of the contract. Price reduction in German law accordingly requires that the buyer has embarked on the "Nachfrist"-procedure to no avail. The major tool that German law uses to restrain the availability of termination therefore also applies to the remedy of price reduction. The only difference between price reduction and termination is that the former will also be available for minor defects whereas termination will not (BGB §323(5)).

The position under CISG is similar, but not identical. Article 50 expressly states that the seller has a right to cure. But the fundamental breach doctrine is not applied to price reduction. CISG therefore does not submit price reduction to the full array of restrictions it uses to limit the remedy of termination. This is in line with the basic principles underlying the Convention. Any partial restitution that may result from the use of price reduction will in fact be [page 28] limited to the payment transaction which is normally not as cost-intensive and risky as a restitution of the goods. This justifies the more lenient approach towards price reduction, as opposed to termination.

This view is supported by a recent decision of the Austrian Supreme Court,[64] in which it was held that if the goods are completely worthless, the price can be reduced to zero under Art. 50, irrespective of whether the requirements for ail avoidance under Art. 49 are met. The Court argued inter alia that the remedy of price reduction does not lead to a restitution of the goods delivered.

3. Damages

The CISG rules on damages and those on termination are connected to each other on two levels -- one obvious, the other hidden. The obvious connection concerns the two specific forms of measuring damages contained in Arts. 75 and 76, which require that the contract has been avoided.

In the present context, it is the hidden connection which seems to be more interesting. There is some debate over whether the buyer can claim so-called "damages for non-performance" under Art. 74 without terminating the contract under Art. 49. There is case law [65] and legal writing [66] which argues that he cannot do so because to allow a claim in such circumstances would undermine the specific policy considerations underlying the rules concerning termination. This is certainly true in respect of the fundamental breach requirement, but it is also true regarding the time limits laid down by Arts. 49(2) and 64(2). A further argument arises from the very existence of Arts. 75 and 76, which envisage just that type of situation and require an avoidance of the contract. This shows that CISG is based on the assumption that one cannot claim the entire performance interest without terminating the contract.

This issue can lead to tricky questions which cannot be covered in detail here. In principle, however, I would agree with the predominant opinion and suggest the following formula to distinguish the relevant types of breach: If the damages are calculated on the assumption that the buyer rejects the non-conforming goods, an avoidance is necessary; alternatively, if the damages are calculated on the assumption that the buyer keeps the non-conforming goods, Art. 74 is available even without an avoidance of the contract. [page 29]

Schlechtriem, however, has recently suggested a more subtle approach to this issue.[67] Although a detailed analysis is impossible in the present context, a brief discussion of the issue is necessary. Let us assume that a seller delivers defective raw materials. The breach is not fundamental (for example, on the basis of the reasonable-use requirement) .The buyer urgently needs conforming material in order to be able to produce the items he sells on the market. He concludes a cover purchase and claims from the initial seller the extra costs thereby incurred as damages.

In Schlechtriem's view the buyer should be able to conclude the cover purchase and to claim its costs as damages. However, this would not preclude the seller from effecting performance; in other words, it would not entitle the buyer to reject the goods and refuse to pay the contract price. The exact amount of damages suffered by the buyer would therefore be the costs of the cover purchase, less the value of the (non-conforming) goods. There may be further complicated questions of mitigation of loss in terms of Art. 77.

The predominant opinion seems to run into difficulties in such cases. In fact, it seems reasonable to allow the buyer to conclude a cover purchase (thus enabling him to get on with his business and fulfil his obligations towards his buyers). The problem is that the costs of the cover purchase may seem, at first sight, to be a typical example of damages for non-performance and as such -- according to the predominant view -- can only be claimed if the contract has been validly terminated.

In my view, however, there is a solution which would reconcile the need to allow the cover purchase with the need to avoid undermining the fundamental breach requirement in terms of Art. 49. One should not adhere too closely to the well-known labels of "damages for non-performance" or "damages in lieu of performance" here. Instead, the crucial question is to identify which types of damage require an avoidance of the contract, and which types do not. I believe that the Austrian Supreme Court [68] has provided the correct answer to this question: If the damages are calculated on the assumption that the buyer rejects the non-conforming goods, an avoidance is necessary; If the damages are calculated on the assumption that the buyer keeps the non-conforming goods, Art. 74 is available even without an avoidance of the contract. In the present case, this implies that the buyer can recover the costs of the cover purchase under Art. 74, provided they are reduced by the value of the non-conforming goods that he has to keep. The predominant opinion is therefore capable of achieving the result [page 30] Schlechtriem advocates, if it uses the correct definition of those types of damages which require an avoidance.

Even if one adopts a wider definition of the avoidance-based types of damages, one might reach reasonable results: the buyer could calculate his damages not on the basis of the cover purchase, but on the basis of his loss of resale profit which arises out of the defects in the goods delivered to him. If, however, a cover purchase could have reduced this loss of profit, one would probably cut his claim for damages under Art. 77 (which concerns mitigation of loss) to the amount that would have been the extra cost of a cover purchase. Arguably, therefore, this result would be the same as if the solution suggested by Schlechtriem were adopted.

C. CRITICAL ASSESSMENT OF THE STRUCTURE OF REMEDIES

I. The overall picture

It is convenient to assess the structure of remedies under CISG by comparing its central element -- the restriction of contract termination as a remedy -- to the relevant parts of the new German law of obligations. Both instruments share the objective to keep the contract alive and avoid restitution. To achieve this goal, however, they use different techniques.

The central tool in German law is the "Nachfrist"-procedure, which generally leads to the seller's right to cure. The seriousness of the breach as such only serves as a de minimis rule, excluding from the sphere of termination those breaches which are almost negligible.[69] The idea behind this system is that any breach which is not negligible and which cannot be repaired, is grave enough to justify termination.

CISG relies primarily on the fundamental breach doctrine, according to which the major criteria to be taken into account are the seriousness of the breach, the seller's right to cure, and -- possibly -- reasonable use. This leads to the following picture: [page 31]

CISG
BGB
Sufficient degree
of seriousness
Not minimal
Seller's right to cure
Nachfrist
Reasonable use (?)
(--)

II. The need for immediate termination in specific situations

Sometimes it is argued that the fundamental breach doctrine leads to inadequate results because it creates uncertainty where the commercial background of the transaction requires clearly understandable criteria for the decision on whether to terminate the contract. Examples given are documentary sales or contracts where the time of performance and quality of the goods are of the essence.

In my view, this line of criticism is not justified. CISG can easily accommodate those cases without endangering the principle of legal certainty.[70] If it appears from the commercial background of the contract that time and quality are of the essence, then any breach of these requirements will certainly be "fundamental".[71] There will be no right to cure (because the buyer has a legitimate interest in immediate avoidance), there is no reasonable alternative use, and the necessary degree of seriousness is always reached. As regards doctrinal construction, there are two ways to reach this result: Either one derives from the commercial background an implied agreement between the parties that any breach qualifies as fundamental, or one constructs an argument, on the basis of this background, that establishes both the inadequacy of a cure and the unreasonableness of any other use. The same is true for German law where the "Nachfrist"-requirement would be waived, in such cases, in terms of one of the exceptions provided for by the BGB.[72]

The crucial question, of course, remains unsolved: When is the commercial background of the transaction such that time and quality are of the essence? The answer to this question, however, remains an issue that cannot be pre-determined in detail by statute. It can only develop from commercial practice. The task of the statute is limited to providing a framework within which such commercial needs can easily be accommodated.

III. The seller's right to cure

In general, it is reasonable to give the seller a right to cure the defect, provided that it is qualified by the necessary exceptions which I have just outlined. It is therefore to be welcomed that both CISG and the BGB provide for such a right to cure. [page 32]

It is, however, a different matter which technique one uses to implement the seller's right to cure. In this respect, it seems preferable to use the German "Nachfrist"-mechanism, rather than the concept of fundamental breach and thus to rely on the seller offering cure, as provided by Art. 48. The German approach enables the buyer to create legal certainty rather quickly, by fixing an additional period for performance and waiting for its expiry.

IV. Further requirements?

The most controversial issue is whether or not the right to terminate the contract should be made dependant on further criteria, such as the seriousness of the breach or the reasonable-use test.

If cure is not possible or has failed, German law allows the buyer to terminate the contract, whereas according to CISG the seriousness requirement and the reasonable-use criterion have to be considered. If the buyer were able to put the defective goods to some reasonable use (for example, sell them at a discount price), he would be held to the contract and allowed to claim damages for loss of profit. Thus, in sum, the seriousness-requirement and reasonable-use test render contract termination more difficult under CISG than in German law.

If one considers the buyer's perspective, the German solution undoubtedly has advantages. It is relatively easy for the buyer to be certain about whether he is entitled to terminate the contract or not. All he need do is fix a "Nachfrist" and wait (or hope) for its fruitless expiry, which will automatically afford him the right to terminate the contract. Under CISG the buyer must also respect the seller's right to cure but has no mechanism which will give him certainty about his right to terminate. There are two reasons for this. First, the only "Nachfrist"-procedure which gives rise to an automatic right to terminate is limited to cases of non-delivery and therefore does not apply to defective deliveries. It is true that the buyer may fix a "Nachfrist" and that the fruitless expiry of the "Nachfrist" may be an indication of the fundamental character of the breach, but the buyer cannot be certain about this. Second, and more importantly, the buyer must still fear the possibility that the court may apply the reasonable-use doctrine or the seriousness requirement and thus prevent him from terminating the contract even where the breach is serious and incurable.

Thus, under CISG there is a considerable uncertainty for the buyer who has received non-conforming goods. Of course, the uncertainty decreases in view of the growing body of case law and development of rules of interpretation;[73] yet, the basic problem will remain: The buyer must predict outcomes [page 33] on the basis of rather flexible concepts such as seriousness and reasonable use. This will work as a powerful deterrent against the exercise of the right to terminate the contract.

In short, under German law, the advice to the buyer would be: "Fix a Nachfrist!" Under CISG: "Keep the goods and go for damages!"

Both solutions seem to be justifiable. In fact, they may simply express different accentuations within the general tendency to restrain the availability of termination: German law is primarily concerned with bringing about performance of the contract and, in particular, giving the seller the right to cure. This goal is achieved efficiently by way of the "Nachfrist"-technique. CISG seems primarily concerned with avoiding restitution of the goods. This explains why the main focus is not on the seller's right to cure, but on the very restrictive concept of fundamental breach. The more restricted and uncertain the right to terminate, the rarer actual cases of termination will become.

This difference in perspective also shines through when one looks at other remedies. If a legal system is primarily concerned about performance of the contract and about the seller's right to cure, it is logical to grant both repair and substitute performance rather easily, as German law does. If, however, a legal system focuses on avoiding restitution of the goods, substitute delivery is not a particularly appropriate remedy and should be limited to fundamental breaches. Price reduction, on the other hand, is far more desirable and thus need not be limited by the same requirements as termination. This is the position under CISG.

Which solution is the better one? Which one should be followed in future enactments? Of course, the answer to these questions is not easy to give. In my view, both approaches have their merits. Perhaps the more restrictive approach of CISG is better suited to international sales, because it is typically more burdensome to unwind international sales than domestic ones, given that the costs and risks of transport will be higher in an international context. However, while this observation may explain and justify the discrepancy between German law and the CISG regime, it is an entirely different matter whether it is of any help when drafting a common European law of sales. It seems doubtful whether a split solution should be accepted that provides different regimes for national and for international sales. At some stage in the unification process, one will have to make a choice. The future will reveal which of the two models will be chosen. [page 34]


FOOTNOTES

* Literature cited in abbreviated form: Commentary on the UN-Convention on the International Sale of Goods (CISG), ed. by P. Schlechtriem/I. Schwenzer (2005) 2. (English) ed. (cited: Schlechtriem/Schwenzer [-author]); J. Honnold, Uniform Law for International Sales under the 1980 United Nations Convention [3] (1999); Münchener Kommentar zum Bürgerlichen Gesetzbuch [4] (2004) (cited: Münch. Komm. BGB [-author]); The 1980 Uniform Sales Law, Old Issues Revisited in the Light of Recent Experiences, Verona Conference, ed. by F. Ferrari (2003) (cited: Ferrari [-author]); J. v. Staudinger (-U Magnus), Kommentar zum Bürgerlichen Gesetzbuch mit Einführungsgesetz und Nebengesetzen (Wiener UN-Kaufrecht [CISG]) (Neubearb. 2005).

1. Directive 1999/44/EC of the European Parliament and of the Council of 25 May 1999 on certain aspects of the sale of consumer goods and associated guarantees, O.J.L 171/ 12.

2. Below II.

3. There is some dispute, however, as to the dogmatic construction one should use in dealing with impossibility. In my opinion, the relevant rules can be discerned as general principles (Art. 7(2)) from the rules contained in Arts. 79 and 80, cf. Münch. Komm. BGB (-P. Huber) Art. 46, Rz. 18. For more detail, see I. Bach/C. Stieber, Die Unmöglichkeit der Leistung im CISG: Internationales Handelsrecht (IHR) 6 (2006) 59.

4. Art. 80.

5. Art. 46(1).

6. Cf. Schlechtriem/Schwenzer (-Müller-Chen) Art. 28 paras. 1ff.; Honnold para. 199; C. Bianca/M. Bonell (-Lando), Commentary on the International Sales Law (1987) Art. 28, para. 1.3.1. (cited: Bianca/Bonell [-author]).

7. Cf. (German) Oberlandesgericht (OLG) Frankfurt am Main 18. 1. 1994, CISG-online No. 123 = NJW 1994, 1013; Münch. Komm. BGB (-Huber) Art, 49, Rz. 48; Honnold para. 305; Schlechtriem/Schwenzer(-Müller-Chen) Art, 49, para. 15. There is some debate as to whether the delivery of an aliud should amount to a non-delivery in the sense of Art. 49(1)(b). The predominant opinion, however, does regard the delivery of an aliud as the delivery of non-conforming goods so that the right to avoid can only flow from Art. 49(1)(a); cf. (German) Bundesgerichtshof(BGH) 3.4.1996, CISG-online No. 135 = BGHZ 132, 290; Münch. Komm. BGB (-Huber) Art. 49, Rz. 48; but see for differing opinions, K. Neumayer, Offene Fragen zur Anwendung des Abkommens der Vereinten Nationen über den internationalen Warenkauf RIW 1994, 105; (German) OLG Düsseldorf 10.2. 1994, CISG-online No. 115.

8. The special rules on anticipatory breach (Art. 72) and instalment contracts (Art. 73) also require a fundamental breach.

9. The so-called actio quanti minoris, cf. R. Zimmermann, The Law of Obligations: Roman Foundations of the Civilian Tradition (1990) 318ff. (cited: Law of Obligations).

10. Cf. for instance, §462 BGB; Art. 1644 Code civil.

11. See Schlechtriem/Schwenzer (-Müller-Chen) Art. 50, paras. 1, 18.

12. Schlechtriem/Schwenzer (-Stoll/Gruber) Art. 74, para. 1; Bianca/Bonell (Will) (supra n. 6) Art. 45, para. 2.1.1.

13. Schlechtriem/Schwenzer (-Müller-Chen) Art. 45, para. 23; Honnold para. 276; Bianca/Bonell (Will) (supra n. 6) Art. 45, para. 2.1.2.

14. Sale of Goods, ed. by E. McKendrick (2000) §10-012.

15. Schlechtriem/Schwenzer (-Müller-Chen) Art. 45, para. 23; Honnold para. 276, Staudinger (-Magnus) Art. 45, Rz. 18.

16. Schlechtriem/Schwenzer (-Stoll/Gruber) Art. 79, para. 1; Staudinger(-Magnus) Art. 79, Rz. 1.

17. §280 I 2 BGB; cf. O. Palandt (-Heinrichs), Bürgerliches Gesetzbuch [65] (2006) §280, Rz. 40.

18. Cf. R. Zimmermann, The New German Law of Obligations, Historical and Comparative Perspectives (2005) 50ff. (cited: German Law).

19. Cf. Münch. Komm. BGB (-Grundmann) §276 BGB, Rz. 110ff.

20. Cf. Münch. Komm. BGB (-Huber) Art. 74, Rz. 34ff.

21. (German) BGH 3.4. 1996 (supra n. 7), CISG-online No. 135 ("... last possibility for the creditor ..."); (Swiss) Bundesgericht 28.10.1998, CISG-online No. 413 = TranspR-IHR (lnternationales Handelsrecht, Beilage zu Transportrecht 2000, 14, (Austrian) Oberster Gerichtshof (OGH) 7.9.2000, CISG-online No. 642 = IHR 1 (2001) 42; Schlechtriem/ Schwenzer (-Müller-Chen) Art. 49, para. 2; Schlechtriem/Schwenzer (-Schlechtriem) Art. 25, para. 21a; P. Huber/S. Kröll, Deutsche Rechtsprechung zum UN-Kaufrecht in den Jahren 2001/2002: IPRax 2003, 309, 313; C. Fountoulakis, Das Verhältnis yon Nacherfüllungsrecht des Verkäufers und Vertragsaufhebungsrecht des Käufers im UN-Kaufrecht: IHR 3 (2003) 160, 161.

22. This was disputed, however, under the ius commune; see Zimmermann, Law of Obligations (supra n. 9) 325f., 329.

23. §§459ff. BGB (old version).

24. §323 BGB.

25. Cf. Ferrari(-Lookofsky) 95, 113.

26. Art. 49(1).

27. Art. 7.3.1. of the UNIDROIT Principles of International Commercial Contracts.

28. Art. 9:310 of the Principles of European Contract Law.

29. Cf. M. Bonell, An International Restatement of Contract Law (1997) 76ff.; H. Beale, Remedies: Termination, in: Towards a European Civil Code[2], ed. by Hartkamp/Hesselink/ Hondius et al. (1998) 348, 350.

30. Bianca/Bonell (-Will) (supra n. 6) Art. 49, para. 2.1.2.; Staudinger (-Magnus) Art. 49, Rz. 4; Schlechtriem/Schwenzer (-Schlechtriem) Art. 25, para. 21a.

31. For more detail on these rules, see Zimmermann, German Law (supra n. 18) 66ff.

32. §323(2) BGB.

33. §326(5) BGB.

34. Arts. 7.3.1.(3), 7.1.5 of the UNIDROIT Principles of International Commercial Contracts.

35. Arts. 9:301(2), 8:106(3) of the Principles of Europe an Contract Law.

36. Cf. note 7 above.

37. Staudinger (-Magnus) Art. 49, Rz. 27; Schlechtriem/Schwenzer (-Müller-Chen) Art. 47, para. 1.

38. The wording of the pre-2003 version of §2-508(2) UCC differs from the present provision in several respects. In general, however, subject to possible modifications in detail, the seller's right to cure even after expiry of the agreed time for performance was also recognised; cf. J. White/R. Summers, Uniform Commercial Code (2000) 334ff.

39. Cf. §2-710 UCC 2003; White/Summers (previous note) 305ff.

40. Cf. Official Comment No. 1 to §2-711 UCC 2003.

41. Cf. White/Summers (supra n. 38) 332ff.

42. Official Records, 115, 343, in: J. Honnold, Documentary History of the Uniform Law for International Sales (1989) 687, 564 (cited: Documentary History).

43. Münch. Komm. BGB (-Huber) Art. 49, Rz. 28ff.; Münch. Komm. BGB (-Gruber) Art. 25, Rz. 25; Honnold para. 296; Schlechtriem/Schwenzer (-Schlechtriem) Art. 25, para. 20; Schlechtriem/Schwenzer (-Müller-Chen) Art. 48, para. 15; F. Ferrari/H. Flechtner/R. Brand (-Magnus), The Draft UNCITRAL Digest and Beyond: Cases, Analysis and Unresolved Issues in the U.N. Sales Convention (2004) 323f. (cited: Ferrari/Flechtner/Brand [-author]); Ferrari/Flechtner/Brand (-Garro) 366; Münchener Kommentar zum Handelsgesetzbuch (-Benicke) (2004) Art. 25 CISG Nr.28; Fountoulakis (supra n. 21) 168; T. Plate, The Buyer's Remedy of Avoidance under the CISG: Acceptable from a Common Law Perspective?: Vindobona J. Int. Com. L. Arbitr. 6 (2002) 57, 80. There is also case law which seems to go in this direction: (German) OLG Köln 14.10.2002, CISG-online No. 709 = IHR 3 (2003) 15; (German) OLG Koblenz 31.1.1997, CISG-online No. 256 = IHR 3 (2003) 172; (Swiss) Handelsgericht (HG) Kanton Aargau 5.11.2002, CISG-online No. 715 = IHR 4 (2003) 178, 179ff. But see for differing views, Karl H. Neumayer, Offene Fragen zur Anwendung des Abkommens der Vereinten Nationen über den internationalen Warenkauf: RIW 1994,99, 106; F. Enderlein/D. Maskow/H. Strohbach, Internationales Kaufrecht: Kaufrechtskonvention, Verjährungskonvention, Vertretungskonvention, Rechtsanwendungskonvention (1991) Art. 48, Rz. 10.

44. Staudinger (-Magnus) Art. 48, Rz. 30; (Dutch) Hof's Gravenhage 23.4.2003, CISG-online No. 903 = IHR 4 (2004) 119.

45. Cf. Staudinger (-Magnus) Art. 48, Rz. 30; Münch. Komm. BGB (-Gruber) Art. 25, Rz. 26; (Swiss) HG Kanton Aargau 5.11.2002 (supra n.43) 180.

46. Art. 49(1)(a).

47. Art. 7.3.1(1) of the UNIDROIT Principles of International Commercial Contracts.

48. Art. 9:301(1) of the Principles of European Contract Law.

49. Cf. Ferrari (-Lookofsky) 95, 113.

50. Cf. P. Varul, CISG: A Source of Inspiration for the Estonian Law of Obligations: Unif. L. Rev. 2003, 209.

51. See, for instance, Comments to Art. 8:103 Principles of European Contract Law, in: The Principles of European Contract Law, ed. by O. Lando/H. Beale Parts I/II (1999) 364ff.

52. See in more detail, G. Treitel, Remedies for Breach of Contract (1991) para. 267.

53. (German) BGH 3.4. 1996 (supra n. 7), BGHZ 132, 290, 297 f.; Münch. Komm. BGB (-Huber) Art. 49, Rz. 36; Schlechtriem/Schwenzer (-Schlechtriem) Art. 25, para. 21a.

54. See OLG München 2.3.1994, CISG-online No. 108 = RIW 1994, 595, 596; U.S. Court of Appeals (2nd Cir.) 6.12.1995 (Delchi Carrier S.p.A. v. Rotorex Carp.), 71 F3d 1024 = CISG-online No. 140.

55. (German) BGH 3.4. 1996 (supra n. 7), BGHZ 132, 290, 297 f.; cf. also (German) OLG Köln 14.10.2002 (supra n.43), IHR 3 (2003) 115, 116; (German) OLG Frankfurt am Main 18.1.1994 (supra N. 7), NJW 1994, 1013, 1014.

56. (Swiss) BG 28.10.1998 (supra n. 21).

57. (German) BGH 3.4.1996 (supra n. 7).

58. The seller was also obliged to supply certificates of origin and of quality. The consequences of the breach of his documentary obligations are not discussed here.

59. The situation was the same in the case of (German) OLG Frankfurt am Main 18.1.1994 (supra N.7), NJW 1994, 1013, 1014: A stock of shoes had been sold from Italy to Germany. The buyer refused to pay on the ground that he had avoided the contract, because the goods did not conform to the contract. The Court found against the buyer on the ground that he had not alleged and proved to a sufficiently detailed extent both that the goods were defective and that it would have been unreasonable to make some other use of them.

60. Another case is (German) OLG Hamburg 26.11.1999, CISG-online No. 515 = IHR 1 (2001) 19, 21. The position of the French courts is not clear yet: cf. (French) Cour de Cassation (Cass.) 23.1.1996, CISG-online No. 159, where artificially sugared wine was regarded as a fundamental breach without examining the question of whether it could have been resold (for instance for industrial purposes); but on the other hand the court stated that the wine was not suited for consumption thus virtually excluding the very use wine is made for; (French) Cass. 26.5.1999, CISG-online No. 487 , where the Court may have been indirectly influenced by the fact that the goods were not usable.

61. Delchi Carrier S.p.A. v. Rotorex Corp. (supra n. 54).

62. Delchi Carrier S.p.A. v. Rotorex Corp. (supra n. 54).

63. Official Records, 337 and 112, in: Honnold, Documentary History (supra n. 42) 558; Schlechtriem/Schwenzer (-Müller-Chen) Art. 46, para. 4; Münch. Komm. BGB (-Huber) Art. 46, Rz. 24; Staudinger (-Magnus) Art. 46, Rz. 38.

64. (Austrian) OGH 23.5.2005, CISG-online No. 1041 = IHR 5 (2005) 165.

65. (Austrian) OGH 6.2. 1996, CISG-online No. 224 = Zeitschrift für Rechtsvergleichung, lnternationales Privatrecht und Europarecht (ZfRV) 37 (1996) 248, 253; (Austrian) OGH 14.1.2002, CISG-online No. 643 = IHR 2 (2002) 76,81.

66. Cf. Münch. Komm. BGB (-Huber) Art. 74, Rz. 9ff.; Schlechtriem/Schwenzer (-Müller-Chen) Art. 45, para. 27; Staudinger (-Magnus) Art. 45, Rz. 22.

67. Schlechtriem, Schadensersatz und Erfüllungsinteresse, in: Festschrift (FS) Apostolos Georgiades (2005) 383ff.

68. (Austrian) OGH 6.2.1996, ZRV37 (1996) 248, 253; 14.1.2002, IHR 2 (2002) 76, 81 (both supra n. 65).

69. BGB §323(5)(2).

70. Cf. Opinion 5 of the CISG Advisory Council, available online at: <http://www.cisg.law.pace.edu/cisg/CISG-AC-op5.html#1>. What is more, the reasonable-use doctrine is flexible enough to accommodate different factual settings, for instance a distinction between a buyer who needs the goods for his own use (e.g. in production) and a buyer in the resale business; cf. idem.

71. See above II. C. 2.

72. BGB §323(2) No. 2 or 3.

73. Both the UNIDROIT Principles (Art. 7.3.1) and the European Principles (Art. 8:103) provide a more detailed definition of the notion of fundamental breach.


Pace Law School Institute of International Commercial Law - Last updated June 19, 2007
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