II. Remedy of Renouncement in the Polish Civil Code

III. The Buyer's Right to Avoid the Contract

IV. The Seller's Right to Avoid the Contract

V. Effect of Avoidance

VI. Conclusions

VII. The General Provisions of the CISG and the Remedy of Avoidance

ABBREVIATIONS

Introduction

"Pacta sunt servanda" is one of the commonly accepted principles in international trade. Parties are obliged to perform a contract in a way that complies to its terms, even if the performance becomes unfavourable for one of the parties or excessively difficult. This is a basic rule of "lex mercatoria". It ensures the safety of the trade turnover. Another principle, which results from "pacta sunt servanda" substantiates that the characteristic performance under the contract should be rendered "in natura". Thus, the debtor cannot -- without the consent of the creditor -- perform something different, from that which was agreed to under the contract. He also cannot unilaterally terminate the contract or render substitute performance by payment of a given sum of money. This principle has been recognized in both the continental and common law and it contributes to the safety and certainty of trade turnover. Nowadays, the above principles do not have an absolute character. Their scope is limited by exceptions, which are provided for by law; for example, legal or physical impossibility of performance and unjust enrichment. The right of a party to withdraw from the contract is contradictory to the principle of sanctity of contracts. The foremost interest of the parties, at the time the contract is concluded, is that it must be honored. However, it may happen that despite the good faith with which the parties had upon entering into the contract, it is nevertheless performed defectively or, in some instances not performed at all. In such a situation, the party aggrieved by non-performance is equipped in law with a battery of remedies. The most drastic remedy, which reflects the gravity of the negative effects of non-performance or performance not complying with the terms of contract, is avoidance.

The right to avoidance functions as a far-reaching sanction for non-performance under the 1980 United Nations Convention on Contracts for the International Sale of Goods,[1] as well as under Polish law. It signals the breakdown of the sales contract and excludes belated approximate performance. The advantages of early avoidance are clearly justified under [page 81] the Convention. Avoidance makes it possible for the aggrieved party to clarify his situation by reselling or repurchasing the goods required by the initial contract. The aggrieved party may not mind in such a detrimental situation, whether the non-performing party changes his mind and fulfils the contract. The aggrieved party is entitled to exercise the right vested in him and claim damages if the compensation for damages provide adequate protection.

Under Polish Law, the remedy vested in the party to a synallagmatic contract is justified by the need for stronger protection of the aggrieved party, by the character of this type of contract, and by the purpose of such contracts - to stimulate economic turnover. The party who withdraws from the contract with an unreliable trader may, by concluding another contract, attain his purpose without forcing the party in default to perform by commencing a legal action in a court or arbitral tribunal.

In the present dissertation I compare the remedy of avoidance under the 1980 United Nations Convention on Contracts for the International Sale of Goods with its counterpart remedy in the Polish Civil Code. The purpose of the comparison is to ascertain possible concurrences and differences in the regulation of the remedy of avoidance under a sale contract which include the norms created as a result of international legislation with the regulation which is contained in the norms of Polish national law.

Regarding terminology, I have had a little doubt about the choice of the proper term denoting the Polish law counterpart of the remedy of avoidance that is regulated under the Convention. I hesitated between the terms "rescission" and "termination," as the meanings of the terms in the English language do not reflect the real nature of the remedy under the Polish law. "Rescission" of the contract ab initio is in principle retrospective, "termination" is not retrospective and may be exercised when the party is guilty of breach of contract.[2] Under Polish law, the discussed remedy has a retrospective effect and is, in principle, available when the party in breach is liable for the circumstances which caused the non-performance or defective performance of the contract. On the basis of the reasons mentioned above, I have chosen a third alternative: for the purposes of this dissertation, I have adopted the term "renouncement of the contract."

I focus attention on the questions: What are the legal grounds giving rise to the right to avoidance? Is liability for breach of contract a necessary [page 82] element? When and in what form can the right be exercised? What are the restrictions imposed on the entitled right holder to limit the exercise of his right? What situation will appear after the sale contract has been avoided?

The formal limits imposed on the dissertation have not allowed discussion of other interesting problems inherently connected with the remedy of avoidance, such as obligations of the parties to preserve the goods after the right has been exercised or the methods for measuring damages in the case of avoidance.

The dissertation commences with an overview of the regulation of avoidance under the 1964 Hague Convention relating to a Uniform Law on International Sale [3] and the 1978 Draft Convention on Contracts for the International Sale of Goods.[4] This background allows us to ascertain changes that took place with regard to the remedy of avoidance during its legislative history. The final part of the work focuses on the influence of the general provisions of the 1980 United Nations Convention on Contracts for the International Sale of Goods on the remedy of avoidance of the sales contract as regulated in the Convention's specific provisions.

I. Legislative History of Avoidance in International Sale of Goods

A. Problems concerning terminology

Starting with the considerations on avoidance it is necessary to describe the concept and the terminology most often used in relation to it. Avoidance is the legal remedy under contract law, which takes effect in situations when a party to a contract aggrieved as a result of not obtaining the performance for which he bargained, wishes to put an end to further [page 83] performance of the contract and to put matters into the position, as far as it is possible, in which they were before performance by the other party had begun.[5]

Generally speaking, there are three courses of actions open to a party that suffers from the other party's failure to perform a contract. Other remedies, such as the claim for specific relief, that is, actual performance of the defaulting party's undertaking, and a claim for substitutionary relief, usually meaning monetary compensation for not having received the promised performance are also available to an aggrieved party.[6] These forms of relief are recognized by all legal systems.[7] They can be combined in various ways and the form of monetary relief can be given in conjunction with either a requirement of performance of the contract or its avoidance.

The effect of avoidance may be reached by different mechanisms in various legal systems. The consequence of this is a different terminology used. Common law uses the terms "rescission of a contract," "repudiation," "cancellation," "termination" and "rejection of the goods."[8] The Polish Civil Code [9] uses the term "to renounce a contract."[10] The 1964 Hague Convention relating to a Uniform Law on International Sale [11] and the 1980 United Nations Convention on Contracts for the International Sale of Goods [12] adopts the term "to avoid a contract." "Avoidance" under the Vienna Convention denotes an early end to the contract [13] and comprises national [page 84] concepts of rescission as well as termination.[14] "Avoidance of the contract" is an example of a term used in the Convention whose wording or expression in other languages does not always have the same definite legal significance attributed to it.[15] Such terms are non-technical in a legal sense and become legal terms by the Convention only. The question of terminology, is closely connected to the problem of which interpretation should be applied under the Convention. The interpretation of the terminology used should be based on its contents, having regard to the international character of the Convention,[16] without referring to the meaning of the terms in national legal systems.[17] The precise and detailed legal significance of terms such as "avoidance" will be defined autonomously [18] in the process of the application [page 85] under the Convention, taking into account the context and function they have. Such a compromise [19] on terminology accepted by the legislators during the Vienna Conference,[20] including the term "avoidance", emphasizes a very special function of the Convention and a goal to be achieved through its provisions -- to replace diverse domestic rules with uniform international law.

B. Avoidance under the 1964 Convention on the International Sale of Goods

The remedy of avoidance was already contained in the 1964 Hague Convention relating to a Uniform Law on International Sales (ULIS). The ULIS provisions on avoidance are spread among many articles.[21] The system adopted in the 1964 Hague Convention differs from the 1980 Vienna Convention.

Avoidance under the ULIS was in principle justified for a fundamental breach of contract.[22] The regulation provided for two forms of avoiding the contract: 1) avoidance declared by the buyer; and 2) ipso facto avoidance.[page 86] The right to declare a contract avoided could be exercised by the aggrieved party when the breach of the contract was fundamental [23] as well as when it was not fundamental.[24] It depended on the will of the injured party.

Ipso facto avoidance was automatic by virtue of law.[25] It followed a fundamental breach of the contract when:[26]

In these cases ipso facto avoidance took place without any preliminary formal steps and it was not at the option of the aggrieved party. As opposed to the provisions under the ULIS for the instances wherein the defaulting party did not perform at all, the provisions which concerned cases in which the seller performed defectively, (late delivery [31] or delivery of non-conforming goods)[32] authorized the aggrieved party to avoid the contract by a declaration.

When the breach was not fundamental, the aggrieved party could give a notice requiring performance and stating an additional period of time.[page 87] Failure to perform at the end of the period so fixed might result in: (a) ipso facto avoidance if the seller did not perform at all;[33] or (b) avoidance by declaration of the aggrieved party if it was a seller performing defectively [34] or a buyer failing to pay the price.[35] The prerequisite to avoidance in the case of delivery of non-conforming goods under the ULIS was an obligation imposed on the buyer to give a notice of non-conformity.[36]

In cases of partial default in which the performance was rendered not in accordance with the contract as to the required quantity or quality of goods, ULIS allowed partial avoidance.[37] Avoidance of the whole contract could take place when the defect in performance constituted a fundamental breach of the contract as a whole.[38]

The meaning of avoidance under the ULIS was defined under article 78, that stated its effect. In principle, neither party could claim performance from the other [39] however, the right to claim damages still remained at the aggrieved party's disposal. Moreover, each party might require the other party to return whatever he had supplied or paid prior to the avoidance of the contract. In addition, the buyer had to account to the seller for all benefits derived from the goods and the seller had to pay interest on the price.[40]

The function of the institution of ipso facto avoidance, as it was underlined in the legal doctrine,[41] was to fix at an early date the time with reference to which damages were to be assessed - usually occurred at the [page 88] time of avoidance under ULIS.[42] Ipso facto avoidance also functioned as a means to force or encourage the buyer to make an election between two remedies,[43] accessible to him by virtue of the ULIS article 26(1), and to exclude, in this way, the buyer's claim for specific performance when he did not inform the seller of his decision as to which of the remedies he had chosen. This protected the defaulting party against the burden of being ordered to make specific performance after a long delay, especially when the prices of the goods fluctuated.[44] Such a regulation could thus place the defaulting party in a better position in cases of fundamental rather than of non-fundamental breach.[45]

Fault was not mentioned in the ULIS as a requirement of the remedy of avoidance.[46] However, in cases of excused non-performance [47] although the provisions of the ULIS protected the party who has not performed from liability for damages, they did not take away from the aggrieved party the possibility to avoid the contract if other provisions of ULIS gave grounds for it.[48]

The regulation of avoidance contained in the ULIS was frequently criticized in legal literature as evincing complexity [49] and entailing some uncertainty [50] over the fate of the contract. This was particularly true when the contract was avoided,[51] thereby creating the danger that the party could be [page 89] unaware that certain conduct of the other (or lack of conduct) party justifies avoidance of the contract by law. This could, for example, make salvaging and re-disposing of rejected goods complicated for the seller when the goods have left his custody, thus contributing to the waste of resources.

ULIS adopted a rule that avoidance in case of non-conformity and non-delivery at the date fixed was allowed only if such a defect in performance constituted a fundamental breach of the contract. In all other situations of non-performance of the seller's obligations, the buyer had to fix an additional period of time and wait for the remedy of automatic avoidance after the additional time expired. As immediate avoidance was an exception under this rule, the remedy seemed to be a slow remedy.[52]

Ipso facto avoidance under the ULIS was broad in its scope. First, under article 25, (the right to require specific performance),[53] where the contract would be automatically avoided for a fundamental or even a non-fundamental breach, if it was in conformity with customary trade usage and it was reasonably possible for the buyer to purchase goods to replace those to which the contract related, since this option was often taken by traders.[54] Second, the buyer could transform any insignificant breach of contract into a fundamental breach by fixing an additional period of time for performance and thereafter release himself from the contract, especially when the prices on the market fell.[55] Ipso facto avoidance under ULIS was a remedy of a subsidiary character for a fundamental breach of the contract (with the exception of article 25 and article 61). This character evinced in cases where the injured party failed to choose from remedies available to [page 90] him upon other party's fundamental breach within a reasonable time [56] or failed to comply promptly with the request of the breaching party to inform about the choice of the remedy despite the fact that such request was made.[57]

The concept of ipso facto avoidance was abstract and very controversial,[58] arousing debate [59] over the question if the effect of this remedy could be achieved through regulation, which would adopt avoidance based only on an explicit declaration by the party, according to his wish and specific interest.

C. Avoidance under the 1978 Draft Convention on Contracts for the International Sale of Goods

The 1964 Hague Convention relating to a Uniform Law on the International Sale of Goods together with the second 1964 Hague Convention relating to a Uniform Law on the Formation of Contracts for the International Sale of Goods, did not receive widespread acceptance. There were many different reasons for this.[60] One reason was the fact that ULIS contained abstract and complex concepts, which could constitute a basis for ambiguity and error and could be easily misunderstood by traders. Ipso facto avoidance is a prime example.[61] The result of works undertaken by the United Nations Commission on International Trade Law was the Draft Convention on Contracts for International Sale of Goods.[62] It was [page 91] unanimously approved on 16 June 1978 by UNCITRAL. The text of the 1978 Draft Convention involved structural changes for clarity, simplicity and practicality in order to win approval of the States.

Under the 1978 Draft Convention avoidance occurred only by declaration. The concept of ipso facto avoidance was eliminated. The formulation that a declaration of avoidance must be communicated by "notice to the other party" in order to become effective in all cases of avoidance, was inserted in a general provision of article 24 of the 1978 Draft.

Under the 1978 Draft, as under ULIS, a party might declare the contract avoided if the other party committed a fundamental breach of contract or failed to fulfill his obligations within a reasonable time.[63] The definition of fundamental breach however was changed under the Draft.[64] Additionally, the provision that failure to deliver the goods at the date fixed is a fundamental breach if the price of the goods is quoted on a market, where the buyer can obtain them, was not included in the Draft, although present under ULIS.[65]

As far as effects of avoidance are concerned, the principles expressed in ULIS were maintained in the 1978 Draft.[66] Avoidance of the contract released the parties from their obligations under the contract, subject to any damages that might be due. However, it was stressed in the 1978 Draft [67] that avoidance did not affect any provisions of the contract regarding settlement of disputes or the rights and obligations of the parties if the contract was avoided. This provision did not exist in ULIS. The Draft [68] and ULIS [69] stated the same reason that could justify the loss of the buyer's right to avoidance: where it was impossible for him to make restitution of the goods in the condition in which he received them. However, even in such a situation, the buyer could still exercise his right in the cases enumerated in both regulations.[70] Although both regulations were concurrent on that point, ULIS did [page 92] not give the buyer a possibility to require delivery of substitute goods while the Draft did.[71] Provisions in both regulations [72] clearly stated that even if the right to declare the contract avoided was lost by the buyer, he still retained all other remedies at his disposal. Provisions of the 1978 Draft [73] as well as ULIS [74] laid down the rule that when restitution was to be made, the party had to return that which was received in course of performance of the contract and to account to the other party for all benefits.

In general, the provisions of the 1978 Draft Convention dealing with the remedy of avoidance correspond to the concept of ULIS, however they took into account practical needs of trade.[75] The Draft Convention formed the basis of the 1980 UN Sales Convention. The provisions of the Draft on avoidance were in their majority substantively identical to the final version of the regulation on avoidance adopted during the Vienna Conference in 1980. The difference occurred in wording of some provisions and in numbering of the articles. Some minor, legislative changes took place.

II. Remedy of Renouncement in the Polish Civil Code

The remedy of renouncement in the Polish Civil Code is one of the remedies available to the aggrieved party under the regime of contractual liability of a party for non-performance of the contract. Provisions concerning renouncement are included in the several articles of Book III on obligations, in its Title VII regulating the performance of obligations and effects of their non-performance. The right is referred to mainly in section II on effects of non-performance of obligations in article 477, and in section III dealing with performance and effects of non-performance of obligations in [page 93] synallagmatic contracts in articles 491-495. Particular regulations on renouncement are also included as one of the named agreements in special provisions relating to a contract of sale, which concern warranty and guarantee liability of a seller in articles 560, 562, and 566.

Performance of synallagmatic contracts,[76] because of their special character in relation to the performance of contracts in general, are regulated in a particular way. Provisions in which renouncement is included constitute lex specialis towards provisions concerning the performance of contracts in general. However, article 487, paragraph 1 states that questions not answered in lex specialis should be solved in accordance with the latter. The right to renounce a contract is an exception to the principle of "pacta sunt servanda," according to which parties who have concluded a contract are bound by it and cannot cease to perform without consent of the other [77] under Polish legal doctrine.[78] A legally binding contract cannot be terminated by a unilateral decision of a party via renouncement, unless this right is vested in him by the law.

As a statutory right, it is allowed in the rare cases mentioned above, when the defect in performance is due to the delay caused by the party, or in the cases of impossibility of performance. In addition, as provided in article 395, paragraph 1, the parties may stipulate at the moment of the conclusion of the contract, or after its conclusion, that one or both of them may be entitled to unilateral renouncement of the contract within a defined period of time.[79] Insertion of such a stipulation in the contract impairs the legal relationship resulting from it and introduces doubt as to whether the contract will be maintained. The limitation on these disadvantageous [page 94] consequences is the period of time the parties have to define during which the right can be exercised.

The right to stipulate in the contract that either of the parties may unilaterally renounce a contract by paying a given amount of money is the special type of the contractual right to renouncement provided for in article 396 CC. Such a clause decreases to some extent, the impairment of the legal relationship ensuing from the plain stipulation of renouncement, because it imposes on the party availing himself of this right the duty to pay the money at the moment of renouncement.[80] The money paid is considered to be compensation for the contract not having materialized.[81]

Parties are also allowed to take advantage of the lex commissoria and stipulate in the contract that a party may renounce the contract if the other party does not perform or performs improperly. This right is usually foreseen in cases of non-performance of the contract at the date fixed,[82] however, it can be a remedy for all cases of non-performance or defective performance irrespective of the reason causing it.[83] The right to renouncement provided for in the CC, as well as the right stipulated in the agreement must always be exercised in the form of a declaration communicated to the other party.

Having written this brief summary of the remedy of renouncement adopted in the Polish CC, I will discuss the regulation in more detail while making analysis of the provisions on avoidance included in the Vienna Convention on the International Sale of Goods.

III. The Buyer's Right to Avoid the Contract

The remedy of avoidance is one of the listed remedies available to the buyer when the seller breaches the contract under article 45 of the Vienna Convention.[page 95]

A. Grounds for avoidance by the buyer

1. Grounds for avoidance under the Vienna Convention

The grounds for avoidance are provided in article 49(1) of the Vienna Convention. The buyer may exercise his right in two different situations; (a) when the seller fails to perform any of his obligations under the contract and the Convention, and the failure constitutes a fundamental breach of the contract; or (b) in the case of non-delivery, if the seller does not deliver the goods within an additional period of time fixed by a buyer's notice made in compliance with article 47 of the Convention or where the seller declares that he will not deliver within the fixed period. These are the specific conditions under which the buyer has the right to avoid a contract. If they are fulfilled, the buyer can declare the contract avoided, however, he does not have to do this. He may wish to insist on performance of the contract as provided for in article 46 of the Convention.

Article 49 refers to situations where the failure to perform by the seller concerns the contract as a whole. However, when in performance of the contract, the seller delivers only a part of the goods or it appears that only part of the goods are in conformity with the contract, the buyer may, if the conditions included in article 49 are met, avoid the contract with respect to that missing or non-conforming part. This principle is stated in article 51(1) of the Convention.[84] Paragraph 2 of this article clearly provides that in cases of partial performance, the buyer may declare the contract avoided in its entirety, only if the seller, by making incomplete delivery or by delivering goods that do not conform with the contract, commits a fundamental breach which causes a substantial detriment to the buyer with respect to [page 96] the whole contract. Paragraph 2 of article 51 constitutes an exception to the general rule included in paragraph 1 of this article.[85] Such a function can be induced from the use of the word "only" in the provision. If the delivery of goods in excessive quantity, foreseen by the Convention in article 52(2) constitutes substantial burden for the buyer, this amounts to a fundamental breach of contract and may entitle him to avoid the whole contract.[86] Thus, article 52(2) makes it legally possible for the buyer to reject the goods delivered in excessive quantity.

2. Other situations

The Convention, under article 72, provides the buyer with the possibility to avoid the contract if it is clear, prior to the date of performance, that the seller will commit a fundamental breach of contract. The buyer can declare avoidance before the performance is due; however, he should refrain from exercising this right, if the seller gives adequate assurance of his performance, unless the seller declares that he will not perform. A high degree of certainty about occurrence of the breach and its fundamental character is required. This certainty will arise when the seller resells to a third party the goods he was to deliver to the buyer, or when he sells machines necessary for the production of goods contracted for by the buyer,[87] or in the case of seller's insolvency and initiation of bankruptcy proceeding.[88] When a deficiency in the seller's ability to perform, usually a deficiency in his creditworthiness, becomes so serious that it is clear that a fundamental breach of contract will be committed, the buyer also will have grounds for avoidance.[89] The buyer is not required to be absolutely certain about the grounds for avoidance because adequate assurance of the performance may be given by the seller. However, the buyer should act prudently in this situation under article 72 since his avoidance without the ground for his action[page 97] may result in his fundamental breach of the contract committed subsequently.[90] The notice of the buyer demanding that the seller provide adequate assurance of the performance, as article 72(2) allows in such a case, seems to be the best solution to relieve the buyer from doubts about occurrence of the seller's breach and reduces the risk the buyer would otherwise be taking. Legal doctrine however, differs on the question if the refusal of the party to provide assurance makes it clear that the breach will occur.[91] Despite the absence of the uniform treatment of this question, the seller's adequate assurance of performance will be the signal for the buyer that he has to proceed with his own performance.

When the contract provides for the delivery of goods by installments, the Vienna Convention makes it possible for the buyer, according to article 73:

As mentioned above, the Convention entitles the buyer to avoid the contract when it provides for the installment of goods which are usable or resalable independently of the other installments and when individual installments constitute an integrated entirety.

Article 73 enables the buyer to avoid a given installment. However, it may under certain circumstances, lead to avoidance of a contract as a whole,[94] especially when under the principle in paragraph (3), the breach affects only a part of the contract directly, but has an impact on the performance of the entire contract.[95]

The goods for delivery by installments do not have to be similar in every installment [96] to make avoidance possible. The contract may provide for deliveries of different goods or partial deliveries [97] in a given installment. The contract also does not have to provide for fixed dates of deliveries; what is more, agreement may be reached on deliveries called for when they are necessary.

Application of article 73 may concur with article 51 (read in conjunction with article 49) which provides a buyer with a right to avoid a part of a contract and such a part could be an installment. Then the buyer has a choice between article 51 and article 73 of the Convention.[98] The provision included in article 73 is intended specifically for installment deliveries and [page 99] for avoidance not only of the installment with respect to which a breach has occurred but also future and interdependent installments. However, under article 73(1) the breach must be fundamental as far as the failed installment is concerned; whereas under article 51, the buyer is allowed to fix an additional period of time to enable the seller to perform his obligations.[99] If the seller does not effect such a partial delivery within the period so set, the buyer is free to avoid the contract as regards this installment, irrespective of whether the failure constitutes a fundamental breach of the part of the contract in question. So, by acting under article 51 the buyer will not have to ascertain if the breach has been fundamental.

The buyer is not deprived of the right to avoidance of the contract where the risk of accidental loss or damage to the goods during transport has passed to him in a manner regulated under articles 67, 68, and 69 of the CISG.[100] Article 70 of the Convention does not exclude such avoidance when the seller has committed a fundamental breach. When non-conforming goods are delivered and the non-conformity constitutes a fundamental deficiency, the buyer can require the avoidance of the whole contract, even when the defective goods accidentally perished or are damaged after passage of the risk.[101]

In light of article 70, the contract can be avoided if the delay constitutes a fundamental breach of contract, as it is provided in article 49(1)(a), after the goods have been delivered. The destruction or damage of the goods after the passing of the risk does not exclude the buyer's right to avoidance. When the seller delivers only after the expiration of an additional period set by the buyer, according to article 49(1)(b), the contract can be avoided without a fundamental breach of contract having been committed.[102] The possibility given by the Convention to avoid the contract where the goods perished or are damaged by accident after the passing of the risk may stongly tempt the buyer to avail himself of this remedy. However, to prevent the abuse of his right, it will have to be carefully examined, [page 100] if a fundamental breach of contract already existed before the event took place, in order to ascertain whether he could have claimed avoidance at that moment.[103]

Pursuant to article 79(5), the claim to avoid the contract is not eliminated [104] in situations which are regulated in the Convention under the section titled "Exemptions," if other provisions of the Convention give rise to it. When the failure to perform was due to an impediment beyond the seller's control and he could not reasonably be expected to have taken the impediment into account at the time of conclusion of the contract or to have avoided or overcome it or its consequences after the conclusion of the contract, he is not liable for damages. However, the exemption from liability is confined only to damages and the right to avoidance remains unimpaired, justified above all when there is a fundamental breach ascribed to the seller. Under this regulation the objective character of breach of contract is not affected by the presence of impediments which exempt the breaching party from only certain legal consequences, leaving others untouched.[105]

3. Grounds for renouncement in Polish Law

The remedy of renouncement may be exercised when one of the parties is in delay due to the circumstances for which the party is liable.[106] This [page 101] is one of the particular cases of non-performance or defective performance of synallagmatic contracts regulated within the general regime of contractual liability for non-performance or defective performance of obligations.

The case where the performance was not fulfilled at the time it was due falls under performance not complying to the contractual requirements concerning the time for it. The performance is assumed to be possible, but not rendered on time when it was expected under the terms of the contract. The aggrieved party may, according to article 491, paragraph 1 CC, renounce the contract after setting additional, adequate time for the party in delay along with a stipulation that after the inefficient expiration of this time, he will be authorized to renounce the contract. However, pursuant to article 492, second sentence, the aggrieved party may renounce the contract without setting an additional period of time when performance after the original time set in the contract does not have any significance for the aggrieved party, either because of the nature of the obligation or the intended purpose of the contract which was known to the party who delayed.[107] The same applies when, under the contract, the performance is to be made at a date fixed and the parties stipulated the remedy of renouncement in a case of non-performance.[108] [page 102]

Article 491, paragraph 2 CC regulates the remedy of renouncement when the party fulfills his obligations only in part, or the performance of both parties under the contract is divisible. When one of the parties is in delay to part of the performance, the other party has an option. He may, according to his choice, renounce the contract with respect to this relevant part of the contract, or to this part as well as the part that is to be performed in the future. The aggrieved party may renounce the whole contract only when the partial performance does not have any significance for him due to the nature of the obligation or the intended purpose of the contract, which was known to the party in delay. The rules for setting an additional period of time with the exceptions mentioned above, as provided in article 492, are applicable in this case.

Another situation, where the grounds for renouncement may arise, is impossibility of performance.[109] Besides delay this is another case of non-performance, which is regulated in detail in the CC. The impossibility must be permanent, otherwise when it ceases to exist and the performance can be made, the situation is treated as delay in performance.[110] When the impossibility is caused by circumstances for which one of the parties is liable, the aggrieved party may under article 493 CC, at his choice, either renounce the contract or claim damages based upon general contract liability principles. The claim may also be accompanied by a demand for a substitute performance. If he chooses renouncement, he may also assert a claim for damages which he suffered with regard to the non-performance of contract. This applies even if the performance of the part of the contract cannot be rendered with regard to that part on grounds of the impossibility. However, if performance of another part does not have any significance to the aggrieved party because of the nature of the obligation or its purpose, which was known to the party in breach, the aggrieved party may renounce the whole contract.[page 103]

Under the regulation of article 495, paragraph 1 CC, the impossibility of performance by one party, in circumstances where neither the parties is liable has an impact on the situation of both parties.They are released from obligation to perform. If the performance of one party has already been rendered, he may claim restitution of what he has performed in accordance with the provisions on unjust enrichment. Then the whole contract is terminated. However, the aggrieved party may demand substitute performance from the party whose performance has become impossible. When the performance is only partially impossible, the rule in article 495, paragraph 2, allows for the reduction of reciprocal performance. The aggrieved party may, nonetheless, renounce the whole contract, if partial performance is of no significance to him due to the nature of the obligation or the intended purpose of the contract, known to the party whose performance has become partially impossible.

Additionally, other grounds concerning exclusively the buyer's right to renounce the contract are provided in the regulation of the sales contract in the CC. Under the CC, the buyer's right to renouncement results from the seller's warranty liability for physical [111] and legal defects [112] of goods. Under article 560 CC, the buyer may renounce the contract if the goods have defects and the seller does not exchange, without delay, these goods for conforming goods, or does not remove the defects. The buyer is authorized by article 561, paragraph 2 CC to exercise his remedy of renouncement if the contract of sale concerns specific goods and the seller who is a producer of the goods, has not repaired them within the additional time set by the buyer for repair. However, the buyer is free to renounce the contract without setting additional time for repair.[113] The seller on his part, may refuse to repair [page 104] if it involves high costs.[114] If the goods, according to the sales contract, are to be delivered in parts and the seller has not delivered conforming goods due to the buyer's demand, the buyer may under article 562 renounce the contract with regard also to the parts which are to be delivered in future.

B. Fundamental breach of contract

1. Regulation under the Vienna Convention

As mentioned, fundamental breach of contract is one of the decisive prerequisites for the buyer's right to avoidance. It is indispensable to get closer to the meaning of the term in order to understand properly the mechanism of avoidance under the Vienna Convention.

The notion of breach of contract under the CISG comprises any non-fulfillment of contractual obligations originating in the contract between the parties, in the Convention, established practices and usages. A breach of contract constitutes an objective fact irrespective of whether the party who commits the breach is at fault or not.[115] Fault is not mentioned as a requirement of any remedy in the Convention,[116] including the remedy of avoidance. This is true whether avoidance is as a result of non-payment, non-delivery of generic goods, or if the goods are defective. Furthermore, as for the defects themselves, the Convention does not distinguish between liability for breach of contract and guarantee liability. On the other hand, the party may be exempted from certain consequences of failure to perform his obligations, if, for example he has not been able to prevent the breach, and the breach is caused by the conduct of the other party. The objective character of the breach of contract is visible in cases of anticipatory breach when avoidance may be exercised, irrespective of whether the performance is prevented by objective circumstances [117] or whether anticipated non-performance by the seller is intentional.[118] [page 105]

The Convention distinguishes between fundamental breach of contract and other breaches of contract in article 25 and links a fundamental breach with more severe consequences than those associated with an ordinary breach of contract. Article 25 of the Convention defines fundamental breach as one that results in such detriment to the other party so as to substantially 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. The fundamental breach is characterized by reference to the results of the breach.

An important element in the definition is the degree of seriousness of the detriment resulting from the breach; it must be such as to deprive the buyer of what the contract entitles him to expect.[119] It should be considered as having quantitative as well as qualitative meaning.[120] The substantiality of the detriment will be considered in each case on the basis of such circumstances as the monetary value of the contract, the monetary harm caused by the breach, or the extent to which the breach influences other activities of the injured party.[121]

The aim of defining the term "fundamental breach" is to classify the situation wherein the injured party, the buyer, has no further interest in the performance of the contract because the purpose for the contract no longer exists,[122] and to allow the buyer to take advantage of avoidance (among [page 106] other remedies) put at his disposal by the Convention.[123] The interest of the buyer will be defined according to the terms of the given contract, which may state that the time of delivery, the conformity of goods, the packaging or insurance of the goods, is of special interest to the buyer.[124]

Representatives of the legal doctrine of avoidance consider other cases where the breach may appear to be fundamental. For instance, in cases where the delivered goods are non-conforming, that is, they are not fit for their intended use [125] and are not reparable; or the goods are not free from claims of a third party; or claims based upon industrial or other intellectual property, if these claims are not removed and impede buyer's use of the goods.[126]

According to article 49(1)(a), the fundamental breach is the test for immediate avoidance of the contract in all cases, irrespective of when it [page 107] takes place,[127] before or after the acceptance of the goods by the buyer.[128] However, in order to give basis for avoidance, it must be undoubtful. Sometimes, a fundamental breach of contract may become obvious when it persists. Then, time may constitute a decisive element as its lapse may convert a non-fundamental (simple) breach of contract into a fundamental breach. For example, in the case of a delivery of non-conforming goods which have a reparable lack of conformity. If the time for delivery has been essential in a contract, such a reparable lack of conformity will be considered a fundamental breach of contract. If this is not the case, a non-conforming delivery can become a fundamental breach when the lack of conformity is not repaired. Delivery of an aliud may entail a right to require performance and if such a further delivery is a violation of the time for performance, it can be characterized as a fundamental breach.[129] In the case of partial delivery of the goods, a fundamental breach is necessary to avoid the contract as to the part of the goods that do not conform to the contract. However, if such a failure in delivery causes a substantial detriment to the buyer and it concerns the entire contract, he may, according to article 51, avoid the whole contract. A close examination of the facts of the case in relation to the function of the remedy of avoidance is necessary in order to justify its exercise in this situation.[130] [page 108]

The estimation whether the failure to perform a part of an installment contract constitutes a fundamental breach of contract will have to take place with respect to a given installment first. On the basis of the contractual terms, as a whole conclusions can be drawn for future and earlier installments.[131]

The onus of proof is vested in the party in breach, the seller. If he shows that he did not foresee and that a reasonable person in the same circumstances would not have foreseen such a detrimental result, he can relieve himself from the serious consequences of his breach. These two premises: lack of anticipation by the seller of the substantial detriment caused and lack of anticipation by a reasonable person in the same circumstances, must be proved at the same time. The test of a reasonable person is an objective [132] element in the definition of a fundamental breach. The time in which the seller should have foreseen the detrimental consequences to the buyer is not indicated in the definition provided in article 25. Legal doctrine asserts that it is the moment of the conclusion of the contract [133] or the time until the moment of the breach.[134]

2. Regulation in Polish Law

The remedy of renouncement based on the grounds indicated in the Polish CC may be available to the aggrieved party both if the non-performance has resulted from the circumstances for which the party in breach is liable, and circumstances for which he is not liable. The remedy is also available within the scope of the warranty liability of the seller.

According to the general principle provided for in article 471 CC, the debtor is obliged to redress damages resulting from non-performance or defective performance under the contract, unless the non-performance or defective performance results from circumstances for which he is not liable.[page 109] The Code does not define the meaning of "circumstances for which the party is liable" but it is accepted [135] that the notion embraces:

The onus of proof, according to the general evidence rule [139] under article 471, is placed upon the creditor, who must prove the existence and extent of damage; the fact that the damage resulted from non-performance or defective performance by the debtor; and the causal nexus between the non-performance and the damage. The creditor is not obliged to prove anything more. In particular, he is not obliged to prove that the non-performance or defective performance resulted from circumstances for [page 110] which the debtor is liable.[140] The legal presumption adopted from the provision of article 471, is that the non-performance or defective performance is just the effect of these circumstances.[141] The debtor should prove the opposite. If he does not indicate the reasons releasing him from the liability, he will have to pay damages.

The adoption of such a presumption is based on the needs of turnover. The creditor usually does not know, and often cannot know, what were the reasons that caused the non-complying performance. Those reasons must or, at least, should be known to the debtor. The practical effect of this is that if the cause of non-performance remains unascertained, the debtor will have to redress the damage incurred by the creditor.

The warranty liability of the seller for physical or legal defects of the goods foreseen under the Polish law is stricter than the liability based on general principles of article 471 CC. The warranty liability is absolute in its character. It does not depend on the fault of the seller or on an indication of a loss resulting from the delivery of defective goods.[142] Moreover, the liability exists irrespective of the seller's knowledge of the defect, because deceitful concealment of the defect by the seller increases his liability. The warranty liability of the seller can be expanded, limited or excluded by the will of the parties in a contract. Nonetheless, the exclusion or limitation of this liability is ineffective if the seller has concealed the defect deceitfully.[143]

C. The seller's delay in performance

1. The seller's delay in performance under the Vienna Convention

When the seller is late with the performance of the contract [144] and the contract does not have the character of a fixed-time contract, the buyer is not entitled to declare it avoided immediately. First, he must proceed pursuant to the provisions of article 47(1). He should send the seller a notice in [page 111] which he fixes an additional period of time of reasonable length for performance by the seller of his obligations.[145] Such a notice is termed Nachfrist, for it is related to a concept originating in the German legal system.[146] It constitutes, on one hand, an assurance of the buyer's continuous interest in the fulfillment of the contract [147] and, on the other hand, it is a warning about the possibility of its avoidance after lapse of the time set. The notice must state clearly a given date or period of time, otherwise it is not sufficient.[148]

The determination of the length of the period for performance has been left to the discretion of the buyer, the aggrieved party, with the indication that the time must be reasonable. It should be appropriate to the interests of the buyer in the performance of the contract and the possibilities of the seller in realization of the delivery. The notice may be communicated orally or in writing to the seller. According to article 27 of the CISG, risk of its transmission is placed with the seller. Thus the buyer may avail himself of his right after inefficient expiration of the Nachfrist, even when the seller has not received the notice.[149]

The expiration of the additional period of time without delivery being effected gives the buyer the right to declare the contract avoided even if the breach is not fundamental.[150] However, he remains free to set a second or [page 112] further additional period of time for performance, if he has a purpose to save the contract. The buyer may also follow the described procedure if the delay constitutes a fundamental breach, as he may have reasons to obtain performance. Moreover, he may apply the Nachfrist when he is uncertain whether the non-delivery amounts to a fundamental breach in order not to risk his right.

A notice setting an additional period of time may be sent to the seller in case of partial non-performance if some parts are missing in a delivery. According to the provision of article 51, the seller's non-delivery of the missing part within this additional period of time entitles the buyer to avoid the contract with respect to this part of the goods.[151] A Nachfrist notice can be useful when the buyer is not sure, as in an installment contract, whether a breach which occurred, is in fact fundamental. He may, like under article 51, set an additional time and if the seller does not perform with its expiration, the buyer may avoid the contract.[152]

2. The delay in performance in Polish Law

The delay is assumed to be a non-performance of a temporary character. However, it may transform into total non-performance. The party who does not perform at the time due may still objectively perform and if he does, his obligations will be fulfilled, although not in a proper way.[153] The legal effect connected with the delay arises when the performance has not been rendered at the time which has been indicated in the contract or which resulted from the nature of the obligation or, if the two cases are not applicable, immediately after the performance has been called for. The Code treats differently obligations which are to be performed at the date fixed and "simple" obligations to be performed in due time,[154]where the aggrieved party is not deprived of his interest in receiving the performance after the delay.[page 113]

If the performance under the contract is to be made on a fixed date, or if performance after the delay does not have any significance to the aggrieved party due to the special nature of the obligations and the intended purpose of the contract, which was known to the party in breach, then the aggrieved party may renounce the contract without setting an additional period of time.[155] In the event of delay in performance of simple obligations to be fulfilled in due time, the aggrieved party may renounce the contract but only after adequate additional time, set by the buyer, for the other party to perform, has expired inefficiently.

The setting of a Nachfrist means, under the Polish law, a unilateral postponement of the original time set in the contract for performance.[156] It also constitutes a necessary warning for the party in delay.[157] The additional time required by the CC regulation should be adequate. That is, it should be long enough to give the party in breach real possibility to perform. What time is adequate will be considered on the basis of all the circumstances of the case, the nature of the performance and the particular obligations arising under the contract.

The CC does not provide for the form in which setting of the Nachfrist should take place; therefore, it may be oral or written. It is effective according to article 61 CC, when the notice setting the Nachfrist has reached the other party in such a way that he could have known its content; the receipt principle is applied.[158] As the party sending the notice is burdened with the risk of its transmission, he should take the proper care in choosing the means of its communication.

The Code does not regulate the cases when the initial delay turns into impossibility. The provisions on renouncement in case of delay are not concurrent with those applicable to renouncement in the case of impossibility. In such a case, the provisions concerning the remedies for delay in [page 114] performance are said to be applicable until the moment of impossibility.[159] The remedies accessible in a situation of impossibility become available after the moment the impossibility occurred. So, the effects of the remedies available for delay in performance, which had been exercised until the moment of impossibility, will have to be respected.[160]

D. Declaration of avoidance

1. Declaration of avoidance under the Vienna Convention

A declaration of avoidance is a right of the buyer, which can be exercised by him under the authorization of the provisions of the Vienna Convention or under the terms of the contract agreed to by the parties. It is a unilateral right. Article 26 of the Convention requires it to be done in the form of a notice [161] sent to the other party. The notice can be oral or in writing but it should state clearly an intent of avoidance.[162] Other conduct implying an intent to avoid a contract is not recognized under the Convention's regulation [163] (for example, the goods are sent back to [page 115] the seller).[164] The declaration of avoidance is subject to the provisions of article 27 of the Convention. It should be made with the means appropriate under the circumstances, as the dispatch is decisive.[165] Particular care will have to be taken when choosing the means for communication of such an important decision like avoidance.[166] The buyer may rely on the notice, although it is not necessary that the communication reach the seller. It may happen that he will continue performance of the avoided contract, not having received the notice.[167] In such a situation it is a question of good faith [168] or mitigation of loss [169] for the buyer to draw the seller's attention in the content of the notice if the buyer becomes aware from the conduct of the seller that he did not receive the communication.[170] [page 116]

On the other hand, one may admit that the transmission risk in communication of a notice of avoidance should be borne by the seller, if he caused the notice to be sent in a manner not fitting to the contract terms.[171] Such an approach however, would not be justified in situations exempted under the Convention, such as when the avoidance does not result from defective performance attributable to the seller. The declaration of avoidance cannot be conditional, nor can it be revoked unilaterally.[172]

2. Declaration of renouncement in Polish Law

The right to renouncement in cases of delay in performance, impossibility and in other situations provided for in the CC is required to be exercised by a declaration.[173]

This conclusion might be drawn from article 61 CC, which refers generally to declarations made to the other party and that the transmission risk in communication of the declaration of renouncement is borne by the aggrieved party. The aggrieved party becomes bound by the declaration upon its formal receipt. The declaration of renouncement is the prerequisite of the effectiveness of the exercise of the right.[174] It cannot be revoked without the consent of the other party unless the revocation has reached the addressee at the same moment as the formal receipt of the declaration of renouncement or before this moment; nor can the declaration of renouncement be conditional.[175] The form in which it should be exercised is not defined, so it may be oral or written. However, if the contract has been made in a written form, the declaration of renouncement should be in the same form.[176] [page 117]

E. Time for exercising the right to avoidance by the buyer

1. Time for avoidance under the Vienna Convention

Generally speaking, there is no provision in the Convention that precisely defines the time for the buyer to declare the contract avoided. Under article 49(1)(a), when there is a fundamental breach of any obligation, not only the obligation to deliver, the buyer can avoid the contract immediately [177] without referring the matter to the court or arbitral tribunal.[178]

When the buyer has set a Nachfrist in the case of non-delivery, according to article 49(1)(b), he has to wait until the fixed period inefficiently expires and cannot declare the contract avoided before that moment, because it is not possible to require performance and at the same time to avoid the contract.[179] Only when the seller has declared that he will not perform within the additional period of time does the buyer not have to wait until the expiration of the Nachfrist period. Such a seller's declaration ends uncertainty on the buyer's part about whether the seller will perform or not within the additional period of time. However, when the buyer anticipates a fundamental breach of contract will be committed by the seller prior to the date performance is due, the buyer may avoid the contract at any time before the period for the performance expires because article 72 prescribes no time limit for such a declaration.[180] Nonetheless, the two cases can be distinguished in order to define the time for exercising the right to avoidance under this article:[page 118]

As far as installment contracts are concerned, there are no time limits for making the avoidance declaration under article 73(1), referring to avoidance of a given installment, and 73(3), which allows avoidance of future installments and installments already made. Nonetheless, under article 73(3), the buyer wishing to avoid the contract with regard to the latest as well as earlier and future installments, has to do it at the same time. However, the requirement to declare the contract avoided within a reasonable time is imposed on the buyer under the provision of article 73(2), if he has good grounds to conclude on the basis of the seller's failure to perform his obligations under any installment, that a fundamental breach will occur with respect to future installments. What time is reasonable in the installment contract depends, among other things, on the length of the interval between the latest and the next installment and its reception and payment.[183] The time runs since the occurrence of the failure.

Avoidance of the contract has significant results as far as care and disposition of the goods are concerned. Delay in declaring the contract avoided by the buyer may contribute to higher demurrage and warehouse costs, it may expose the goods to additional unnecessary risks of damage or loss, and, in the meantime, market prices may change. Deferring the declaration of avoidance creates expenses and risk for both parties to the contract. [page 119] In order to protect them against the undesirable effects of the postponement of the buyer's right, the Convention lays down, under article 49(2), rules setting a time limit for the hesitant buyer.

The regulation included in article 49(2)(a) refers to cases where the seller has delivered the goods following delay in delivery, not only when it constitutes a fundamental breach, but also when the late delivery is effected after the deadline set in a Nachfrist. In such a situation the buyer has to avail himself of his right within a reasonable time which begins to run when he has become aware that the delivery has been made.[184] The term "a reasonable time" is not defined under the provision. Such a formulation of the time limit within the exercise of the right to avoidance enables a flexible application of the provision to many different international sales contracts. The time limit will vary with respect to the nature of the goods according to the market conditions in which the transaction will be pursued or other factors such as, usages developed within a trade, or a course of dealing between parties to a contract.[185] So, the time limit would have to be evaluated pursuant to the circumstances of a given case.[186]

All cases of non-performance, other than the late delivery of the goods provided that a fundamental breach of the contract occurs, are regulated under article 49(2)(b). It embraces delivery of non-conforming goods as well as delivery of goods not free from claims of a third party. The general rule is that the buyer has to exercise his right within a reasonable time. The time may differ in particular situations. It starts to run:[page 120]

The period for declaring avoidance does not begin to run as long as the buyer requests delivery of substitute goods under article 46(2).

The rules of the Convention governing the time for avoidance have a very significant role. First, in the case of delay under article 49(2)(a), the aggrieved buyer does not have to take the risk of deciding how much delay will amount to a fundamental breach, but may wait to declare avoidance until the delayed performance is made.[190] Second, their most important function is to provide a sanction for contravening the time limits laid down to declare the contract avoided, namely, under article 49(2), the loss of the right to declare avoidance, notwithstanding the presence of substantive grounds for it.

In addition to the rules on the time limits for avoidance, the Convention clearly states in article 45(3) that no period of grace can be granted by a State court or arbitral tribunal. This rule applies to the remedy of avoidance.[191] As the Convention does not foresee any procedure for applying to a court for avoidance of the contract, such an additional period cannot be maintained in the Convention's regulation. Such a procedure would be inappropriate in international trade as it could be expensive and take time for a judge to decide to allow immediate avoidance or to grant a period of grace. The situation is different when the buyer is equipped with the right to grant the seller a reasonable additional period. It would be highly undesirable to leave the matter to judicial discretion. In the case of a fundamental breach of contract, the right of the buyer to avoid the contract arises immediately at the time of the breach (or in case of an anticipatory breach even before), and it cannot be deferred by any court or arbitral tribunal.[page 122]

2. Time for renouncement in Polish Law

According to the regulation in the Polish CC, if a Nachfrist has been set for delayed performance, the aggrieved party has to wait to exercise his right until the expiration of the Nachfrist. Then, he is entitled to renounce the contract starting from the day following the last day of the additional period of time fixed (if there are still grounds for it). Immediate renouncement in the case of delay, may take place without setting a Nachfrist according to the provisions of article 492 CC when: (a) performance after the time due would not have any significance for the aggrieved party because of the nature of the obligation or the intended purpose of the contract, known to the party in delay; or when, (b) the right to immediate renouncement has been stipulated in the contract for performance at the date fixed (lex commissoria). Immediate renouncement means that the right can be exercised starting from the day following the day the performance became due.

In cases of renouncement for physical defects, the buyer may renounce the contract: (a) after he notifies the seller of the defects and the seller does not, without delay, either exchange the defective goods for non-defective goods, or remove the defects;[192] or (b) after inefficient expiration of a Nachfrist which the buyer set for the seller (a producer) to remove the defects, or after the seller's refusal to fulfil the buyer's demand, before the Nachfrist expires.[193] The notification requirement will be observed for the time purpose if the buyer sends the notice by registered mail as soon as possible after the defect has been ascertained.[194] Thus, the dispatch principle is effective.

Regarding legal defects, the buyer will be entitled to exercise the right to renouncement after he has become aware of the defect. He may learn about the defect due to a third party's initiation of judicial proceedings against the buyer or in another way.[195] The notification requirement is not explicitly stipulated in the Code's provisions as a prerequisite to exercise the right in case of legal defects with one exception. Under article 573, when the [page 123] third party claims his rights against the buyer, the buyer is obliged to notify the seller about it.[196]

The Code does not precisely define the time for renouncement of the contract if impossibility constitutes the legal ground for it. This question is also not answered in the publications. However, it may be assumed that the buyer can exercise his right immediately after he knows about impossibility of performance. I will consider the question of time limits imposed on the exercise of the buyer's right to renouncement under the Polish law in the section on loss and suspension of the remedy.

F. Loss or suspension of the buyer's right to avoid the contract

1. Loss or suspension of the right to avoidance under the Vienna Convention

The provisions of the Convention directly or indirectly restrict the exercise of the remedy of avoidance by the buyer although he would otherwise have grounds to take advantage of his right. The purpose of the restrictions, which primarily serve the interests of the seller, is to prevent the buyer from abusing his right. One of the limitations imposed on the buyer's right to exercise the remedy of avoidance is provided in the provisions governing the time for avoidance under article 49(2), discussed above. Suffice it to add here that under these provisions the buyer does not lose his right to declare the contract avoided until all the goods have been delivered, irrespective of the type of the breach giving grounds for the avoidance. Under these provisions all the installments in an installment contract must be delivered before the buyer loses the right to declare the contract avoided.

The restrictions upon the remedy of avoidance result not only from the second paragraph of article 49 but also from other articles scattered through the text of the Convention. The buyer loses his right to declare the [page 124] contract avoided under article 39 on the basis of non-conformity of the goods amounting to fundamental breach of contract, if he has failed to give timely notice to the seller, specifying the nature of the lack of conformity.[197] Such a notice must be given by the buyer within a reasonable time after he has discovered the lack of conformity or ought to have discovered it, at the latest within two years from the date of the physical handing over of the goods (unless the period of the guarantee is longer). The time limits set in article 39 are said [198] to prevail over those indicated in article 49(2)(b), although they both begin to run simultaneously: at the moment the buyer discovered (knew) or ought to have discovered (have known) of the defect. However, the buyer retains his right to avoidance devolving from a lack of conformity of the goods, even if he fails to examine the goods delivered and fails to give notice, if the lack of conformity relates to facts of which the seller knew or could not have been unaware and which he did not disclose to the buyer.[199] This exception laid down in article 40 of the Convention applies also to the maximum period of two years.[200] [page 125]

The buyer also forfeits his right to avoid the contract on the ground that the goods received are not free from claims of a third party (including claims based on industrial or intellectual property rights) when it amounts to a fundamental breach, if, according to article 43, the buyer has not notified the seller about the defect specifying the nature of the third-party right or claim. The buyer is obliged to send the notice within a reasonable time after he has become aware or ought to have become aware of the right or claim. The buyer will retain his right in spite of his failure to give the notice if, pursuant to article 43(2), the seller knew of the third-party right or claim and the nature of it at the time of delivery.[201] The buyer will also retain this right with regard to third-party claims based on industrial or intellectual property where the seller knew of it at time of the conclusion of the contract.[202]

Where the seller knew of the facts, the Convention creates a favourable situation for the buyer. He may still exercise his right to avoidance, under the regulation of articles 40 and 43, even if he has failed, having an excuse, to give the notice of non-conformity of the goods, based also on the third-party claims.

Article 82 of the Convention provides another restriction on the buyer's right to avoid the contract. The remedy is lost if it is impossible for [page 126] the buyer to make restitution of the goods substantially in the condition in which he received them, and he cannot rely on three exceptions stated in paragraph (2) of this article:

These restrictions on the exercise of the existing buyer's right to avoidance apply when the restitution of the goods is impossible before the buyer has declared the contract avoided,[203] as well as when the restitution becomes impossible after the declaration.[204] There is an opinion that the realization of the buyer's right to avoidance is blocked when concurrent restitution cannot be made, that is, when the price cannot be refunded.[205] The buyer may also be prevented from making restitution because of foreign trade rules.[206] [page 127]

The above mentioned restrictions imposed on the buyer's right to avoidance do not entirely impair his position because he may still claim damages resulting from the seller's breach of contract.[207]

The buyer, who has not received performance because he contributed to the seller's failure by his own act or omission, cannot, under article 80, retain the right to avoidance.[208] Moreover, under article 79 such buyer's conduct may constitute an exemption for damage claims against the seller. This solution is justified, because the buyer cannot have rights based on his wrongful action.

The suspension of the buyer's remedy of avoidance is provided in articles 46, 47 and 48 of the Convention. If the buyer chooses to require performance under article 46, he cannot exercise the avoidance remedy, which immediately releases the seller from his further obligations. The right to require performance, however, does not hinder the buyer from resorting to a claim for avoidance later on, if there are still grounds for it. This refers also to the case in which the buyer requires the delivery of substitute goods, if the lack of conformity constitutes a fundamental breach of contract.[209] It seems also to apply to a right to claim delivery of substitute goods free from third party rights [210] and to remedy the lack of conformity by repair.[211]

Under article 47(2), the buyer's resort to the remedy of avoidance for breach of contract is restricted if he fixed an additional period of time for performance of the seller's obligation. The buyer cannot avoid within this [page 128] period, even if non-fulfillment of an obligation was from the outset a fundamental breach of contract.

The suspension of the remedy of avoidance takes place also in a situation where the buyer could avoid the contract after the date for delivery, having good grounds for it under article 49, but has not yet done so, and the seller has offered to cure the defect as article 48 allows him. If the buyer does not respond to the seller's request whether the performance will be accepted, the avoidance cannot be exercised before the date indicated in the seller's request by which he intends to fulfil his duties. The relationship between article 49 giving the buyer the right to avoid the contract and article 48 referring to the seller's right to cure the defects of performance, remains controversial among scholars. On one hand, it is said that the right to avoidance prevails over the seller's right to cure [212] and the seller has no right to remedy his failure to perform if the buyer avoids the contract. On the other hand, it is said that the offer to cure prevents the breach from being fundamental and takes priority over the right to avoidance.[213] This opinion is strengthen by the argument that in international sales, preservation of the contract is preferred over avoidance; upon breach by the seller he should be required to or encouraged to cure.[214] In practice, however, to answer this question each case will have to be considered on the basis of all the circumstances.[215] The right to avoid, which could cancel the right to cure, may only be exercised if the breach is fundamental -- which may appear only after ascertainment whether the breach can be cured according to article 48 laying down the limits for it.[216]

In any event, the exercise of the remedy of avoidance is inconsistent with other remedies. Thus, the suspension of the buyer's remedy of avoidance protects the maintenance of the contract and realization of the principle [page 129] "pacta sunt servanda."[217] Since every avoidance of contract entails additional expenses and risks for the parties, the ceiling for exercising this right should be high.

2. Loss or suspension of the right to renounce the contract in Polish Law

When a contract is governed by the CISG, the periods of limitation are those contained in the gap-filling law applicable by virtue of the rules of private international law. Under the general rule included in article 117 of the Polish CC,[218] claims are subject to a period of limitation. This period, according to article 118, amounts to three years for claims connected with the professional activity of the parties.[219] This rule is exclusively applicable to claims whereby the entitled party has the right to demand defined conduct from the party obliged to perform.[220] The right to renouncement is not classified as a claim in the Polish legal system. According to legal doctrine, it is called "a shaping right," which means that the party entitled to the right has a competence to change or to end an existing legal relation due to a unilateral legal action.[221] Thus, the right does not fall within the scope of articles dealing with limitation periods and is not limited in time.[222] [page 130]

The above consideration refers to the remedy of renouncement on the grounds of delay or impossibility. It cannot be said, however, that the aggrieved creditor, in this case the buyer, will be completely free to delay the avoidance and to exercise his right at the moment he wishes whenever the market situation is favourable for him. It is accepted in the legal literature that, despite the fact that the exercise of some rights is not limited by the legislator in the Polish CC with respect to time, a legal relation as a whole related to this right may require such a time limitation considering justified interests of other persons.[223] Therefore, if someone exercises his right with excessive delay to the detriment of another party, he abuses his right and thereby he does not deserve legal protection.[224] The source of such a limitation of the right is the provision of article 5 CC, according to which one cannot exercise his right in a way that would be inconsistent with the socio-economic purpose of the right or principles of social coexistence.[225] Such an act or omission of the entitled rightholder is not considered as an exercise of the right and is not legally protected.[226]

Apart from this indirect limitation imposed on the right to avoidance, there is also a period of limitation applicable to mutual claims of the parties for restitution of what has been performed.[227] The obligations of parties to return the performance are stipulated in article 494 CC. They arise after the [page 131] right is exercised and they constitute the effect of avoidance of the contract.[228] Claims to return the performance are subject to periods of limitation foreseen in the Code. The period of limitation with respect to the restitution claim of the buyer (the creditor) commences on the day the right to avoidance might have been exercised by him at the earliest possible time (due to the grounds that have arisen).[229] Having this in mind, the buyer will be restrained to delay the avoidance, at least intentionally.

If the right to renounce the contract is based on warranty liability of the seller for physical or legal defects of the goods, the Polish CC provides for different restrictions imposed on exercise of the buyer's right. According to article 563 paragraph 2, which concerns sales in professional activity of the parties, the buyer loses his right to renounce the contract if he has not examined the goods within the time and in the way adopted in the trade usage established for goods of that kind, and he fails to notify the seller immediately about the defects. When the defect has been revealed later, the right is lost, if he has not notified the seller immediately after that.

The notice can be oral or written, and the time will be observed if, before its expiration, the buyer sends the notice by registered mail, so the dispatch principle is effective.[230] However, the right of the buyer to renounce the contract in the case of physical defects, expires definitively one year after the goods were handed over [231] to him and, in the case of legal defects, after one [page 132] year once he was aware of the defect. If the buyer first learned of the legal defect due to the legal action of a third party, the period of one year is counted starting from the day on which the court order became legally valid.[232]

The purpose of the time restrictions imposed on the buyer is not to excessively extend the warranty liability of the seller, which is stricter than the liability, based on the general principles of article 471 CC. The buyer is released from the obligation to observe the above time limits and his right will be still preserved if the seller has concealed the defect deceitfully.[233]

The loss of the buyer's right occurs also when the seller is exempted from the warranty liability. If the buyer knew about the defects at the moment of the conclusion of the contract, and, in a case of goods in kind, at the moment the goods were handed over to him. Pursuant to article 559, the seller is not liable for physical defects which occurred after the risk of loss had passed to the buyer, unless the defects resulted from a cause existing then in the goods sold.

The Polish CC regulates the relation between the remedy of renouncement and other remedies available to the aggrieved party in the provisions on performance of synallagmatic contracts and in provisions concerning renouncement in the light of the warranty liability of the seller. Under article 493, paragraph 1, the remedy of renouncement is excluded if, in a case of impossibility due to the circumstances for which the party is liable, the aggrieved party chooses the right to claim damages for non-performance or requires substitute performance (in this case he is obliged to proceed with his own performance).[234] The renouncement is also excluded under article 491, paragraph 1, if in a case of delay, the buyer chooses the right to [page 133] require performance and claims for damages after expiration of a Nachfrist instead of resorting to renouncement. However, the Code does not solve the question, if the aggrieved party, opting for a remedy other than renouncement in the above mentioned cases, may still exercise his right provided the required performance is not rendered. If the answer to this question is positive, as the case seems to be, the remedy of renouncement will only be suspended but not completely excluded.

According to the provisions on warranty liability of the seller, the right to require the reduction of price in article 560, paragraph 1, or the right to require delivery of conforming goods under article 561, paragraph 1, excludes the remedy of renouncement. Moreover, the Code states clearly that the right is excluded if the seller exchanges the defective goods for conforming goods or repairs them without delay.[235] However, under article 561, paragraph 2, (discussed in the section dealing with grounds for avoidance under the CC), the buyer should suspend his right to renounce until the inefficient expiration of the additional time he set for repair, even if he is entitled to exercise his right without fixing the Nachfrist.[236] Only the persistent refusal of the seller to repair defective goods or to reduce the price or to deliver conforming goods seems to restore the buyer's freedom to exercise his remedy of renouncement.

IV. The Seller's Right to Avoid the Contract

The remedy of avoidance is indexed as one of remedies available to the seller for a breach of contract by the buyer under article 61 of the Vienna Convention.

A. Grounds for avoidance by the seller

1. Grounds for avoidance under the Vienna Convention

The grounds for avoidance by the seller are provided in article 64(1) of the Vienna Convention. According to it, he may exercise his right:[page 134]

Under article 72 the seller may avoid the contract if prior to the date for performance of the contract it is clear that the buyer will commit a fundamental breach of contract, unless the buyer provides adequate assurance of his performance. Suffice it to say that the serious worsening of creditworthiness of the buyer to such an extent that a fundamental breach of contract will be committed may play a role if he is the one to perform first (for example, in the case of advance payment or if it is clear that the buyer will not be in a position at the time of delivery to open a letter of credit).[237] [page 135]

The seller may avoid the contract in a case of an installment contract, according to article 73, because the buyer may breach a contract with respect to a particular installment, either by not taking delivery of the goods [238] or not paying for them if prior payment for that installment is required.[239] The provisions of article 73(1) and (2) are said to apply to the buyer directly, [240] although, according to another opinion, by analogy;[241] in situations in which the buyer has the right to pay in installments for one delivery, the provisions of article 73 should not be applied, because if the buyer does not fulfil his obligations to pay in installments, the seller may exercise the right to avoid the contract under article 64 or article 72 of the Convention.[242]

Under article 79(5), the remedy of avoidance may be exercised, even if the situation, described in preceding paragraphs of the article, justifies exemption of the buyer for damage claims. The provision applies indifferently to either party to the contract. Even though the failure to perform is attributable to an impediment which was beyond the buyer's control, it is possible that this failure to perform will constitute a fundamental breach of contract, and the seller's right to avoid the contract will not be precluded.

3. Regulation in Polish Law

The provisions in the Polish CC regulating the grounds for renouncement of the contract due to delay and impossibility, which I considered in the previous chapter, are applicable to the buyer and seller with the exceptions to those grounds which are characteristic only of the buyer's [page 136] right to renouncement resulting from the seller's warranty liability. The remarks concerning other elements, like the liability of the party for non-performance, time for exercising the remedy of renouncement, the declaration of renouncement and grounds justifying the loss of the remedy are fully valid with regard to the seller's right [243] and I will refrain from repeating them in this chapter.

In addition to the grounds for renouncement applicable to both parties, the Polish CC gives the seller other possibilities that are included in the regulation concerning exclusively the contract of sale. According to article 552, if the buyer is late [244] with the payment for a part of the goods sold, or, if due to his financial standing it is doubtful whether the payment for the goods which are to be delivered in the future will take place in time, the seller is authorized to suspend the delivery of the next parts of the goods, setting the buyer an adequate additional time for the assurance of the payment. The seller may renounce the whole contract after the time has expired inefficiently.

When the price is to be paid in installments under an installment contract, the seller may, pursuant to article 586 CC, renounce the contract because of non-payment only when the buyer is in delay [245] with the payment of two installments and their joint sum exceeds one fifth of the total price. However, in this case the seller should fix an additional time for the payment with the stipulation that after its inefficient expiration, he is entitled to renounce the contract.

B. Fundamental breach by the buyer

The legal character of fundamental breach of contract under the Vienna Convention, discussed under the previous chapter referring to the buyer's remedy of avoidance, is applicable also to the seller's right. Taking this into account, I would like to consider the fundamental breach of [page 137] contract committed by the buyer in the particular aspect of his obligations under the contract.

As far as the most important obligations of the buyer are concerned, for example, payment of the price and taking delivery, the possibility of avoidance by the seller can be reached by using the Nachfrist procedure provided in article 64(1)(b). In the event of other buyer obligations under the contract or the Convention, avoidance is possible only when, according to article 64(1)(a), the non-fulfillment is a fundamental breach. To what extent a non-fulfillment of an obligation is a fundamental breach will depend on the purpose of the contract for the achievement of which the given obligation is relevant.[246] A non-fulfillment can be ascertained in many cases only after the awaiting for fulfillment of obligations.

If payment is to be made at the fixed date or taking the delivery should occur at the date specified in the contract, and where time is of the essence, non-performance at the time indicated for performance will constitute a fundamental breach of contract. In other cases the late payment can amount to a fundamental breach of contract if there is a rapid decline in currency,[247] and taking late delivery can be a fundamental breach of contract when the goods cannot be stored.[248] The longer the delay in payment or in taking the delivery, the more a breach becomes fundamental, so that the seller will always be entitled to avail himself of a right to avoid the contract in the event of non-payment [249] or not taking [page 138] delivery.[250] Cases where the fundamental breach takes place can also include non-supply by the buyer of agreed drawings or of part of the materials.[251]

The requirement of a fundamental breach of contract as a basis for avoidance is less formal and thus less clear than avoidance after the expiration of a Nachfrist. Therefore, it is better for the seller, having a doubt as to whether the buyer's delay in making payment or taking delivery constitutes a fundamental breach, to fix an additional period of time for the buyer to perform. When the buyer continues not to pay the price or take the delivery of the goods, the seller, by fixing a Nachfrist, always has the option to avoid the contract, as a non-performance of these essential obligations also within the Nachfrist is said to constitute a fundamental breach of contract.[252] In case of other obligations whose non-performance becomes fundamental when the time passes (for example, the obligation to participate in the manufacture of the goods) setting a Nachfrist also may be helpful for the seller. However, it will not be sufficient for the avoidance of the contract to prove that the Nachfrist expired and performance was not made. The seller will have to show that a breach of a fundamental character exists. Otherwise, the contract is avoided without justification and the seller's non-performance resulting from it will be considered a breach of contract.[page 139]

C. The buyer's delay in performance

The typical breach by the buyer of an obligation under the contract is a delay. In a case of a delay in payment or in taking the delivery, the seller is entitled to decide how long he intends to wait. This is the advantage of lack of strict prescription of the period during which the right to avoidance must be exercised. However, the seller will not be allowed to speculate at the cost of the buyer, because he would have to make up his mind within a reasonable time, at least at the inquiry of the buyer.[253]

If the seller wishes to avoid the contract when the buyer breaches his obligations to pay the price or to take the delivery and the breach is not fundamental, he may declare the contract avoided after following the procedure described in article 64(1)(b). He should fix an additional time of reasonable length for the buyer to pay the price or, as the case may be, to take delivery.

The nature of a Nachfrist set by the seller is the same as in the case of the buyer's right to avoidance. The fixing of an additional period of time must be done by a written or oral notice addressed to the buyer. Its transmission which may be done by any means is subject to article 27 and the seller can rely on the dispatched notice.[254] Determination of the additional time is left to the reasonable discretion of the seller, according to his commercial needs. However, he is expected to state it unequivocally by indicating the date by which performance must be made or a period of time.

The expiration of the Nachfrist without expected performance from the buyer, entitles the seller to resort to the remedy of avoidance. However, the first Nachfrist is not final and the seller can set another one, as the expiration of the Nachfrist gives the seller an option to stick to the contract or to avoid it.[255] Moreover, the seller is entitled to take advantage of his right to [page 140] avoidance without waiting for the expiration of the Nachfrist, if he receives the buyer's declaration that he will not pay or he will not take the goods within the additional time.[256]

The seller is allowed under the Convention to avoid the contract for delay in payment irrespective of whether the buyer has already taken the delivery of the goods.[257] The obligation to pay the price includes steps and formalities required under article 54 of the Convention. In case of the buyer's delay to take such steps, the procedure of a Nachfrist provided in article 64(1) is applicable,[258] unless the failure to make the necessary preparations for payment in itself constitutes a fundamental breach of contract.[259]

Apart from non-payment and not taking delivery, the procedure of fixing an additional period of time may be applied by the seller in cases of delay in performance of the buyer's other obligations (for example: delay in examination of the goods). However, the fixing of an additional period of time for performance of obligations other than payment and taking delivery, mentioned in article 64(1)(b), has only the consequences provided in article 63(2), sentence 1, namely, that the seller cannot resort to the remedy of avoidance for the breach during the fixed period. It would be inconsistent with the requirement to perform. Only when the passing of time makes the delay in performance a fundamental breach of contract can the seller exercise his right to avoidance.

D. Declaration of avoidance

As in the chapter dealing with the buyer's remedy of avoidance, it should be stated that the declaration of avoidance is a unilateral right vested in the seller if the conditions provided under the Convention are satisfied. [page 141] The declaration of avoidance should be made by a written or oral notice, which according to article 26, has to be communicated to the other party.[260] The wording of the declaration should be unequivocal. Conduct of the seller implying an intent is not sufficient to constitute a declaration of avoidance.[261] Prior notice of the seller's intention to declare the contract avoided in the case of a fundamental breach is not necessary. Pursuant to article 27, the declaration of avoidance is effective after dispatch. Accordingly, the seller may rely on the notice even if it does not reach the buyer.[262]

E. Time for exercising the right to avoidance by the seller

The Convention does not include strict rules prescribing the moment for exercising the right to avoidance by the seller, similar to the case of the buyer. This may result from the assumption that the exercise of the right to avoidance, even if there are grounds for it, is left to the decision of the aggrieved seller. The seller should not be forced by strict rules on time, to avoid the contract. On the other hand, the Convention does not leave the choice of time for avoidance completely to the discretion of the seller.

The seller is entitled to avoid the contract immediately for a fundamental breach of the contract. The rule of article 64(1)(a) assumes that the breach is committed under the conditions in which the seller's right is effective at once, starting from the day the non-fulfilled obligation became due. Immediate avoidance is also at the seller's option when the buyer [page 142] declares that he will not pay the price or take delivery of the goods within the additional period of time set by the seller according to article 64(1)(b),[264] or if the seller otherwise receives a notice from the buyer that he will not perform, even if the delay in performance has not amounted to a fundamental breach of contract. When the seller has set a Nachfrist in the case of non-payment or not taking delivery by the buyer, as provided in article 64(1)(b), he may avoid the contract after inefficient expiration of the additional time.

Time for avoidance in the event of anticipatory breach of contract or in case of an installment contract has been discussed under the previous chapter on the right to avoidance by the buyer. The same remarks are relevant for the time of the seller's avoidance in these situations, however, one should take into consideration the specific obligations of the buyer.

The time when the seller exercises his right to avoidance is significant for the buyer, a party in breach. The situation when the seller waits and watches the market developments before making his decision to avoid the contract, would constitute an abuse of the seller's right and he should be prevented from speculating at the buyer's cost. Once the buyer has paid the price (in full), the seller must exercise his right to avoidance within the time limits set by the Convention.

The seller may, according to article 64(2)(a), avoid the contract with respect to the late buyer's performance, before the seller has become aware that the performance has been rendered. The late performance under this rule covers late payment and/or late performance of other obligations.[264] This will embrace situations where the performance was not performed at the time it was due or it was refused due to lack of conformity with the contract (place of performance was different than that stipulated in the contract or in the law) or performance was partially performed, where this was not allowed by the contract.

In the case of breaches other than late performance, if the breach gives grounds for avoidance according to the Convention, the seller may exercise [page 143] his right, under the rule in article 64(2)(b), within a reasonable time and the time begins to run: (a) after the seller knew or ought to have known of the breach; [265] or (b) after expiration of any additional period of time set under the Convention for performance, or after the buyer has declared that he will not perform within this period.[266] The "reasonable time" limit is not defined under the Convention; it will depend on all circumstances of a case.[267] The rule refers to cases like sub-supply of defective materials, breaches of the prohibition to re-export goods, pledging of goods which were not sold under a reservation of title.[268] The time limits imposed on the seller have a disciplining character. In the event he exceeds them, he loses his right to declare the contract avoided.

The Convention provides in article 61(3) (similar to article 45(3)) that no period of grace may be granted to the buyer by a court or arbitral tribunal when the seller resorts to a remedy for breach of contract. This includes the remedy of avoidance. The seller's right to avoidance cannot be deferred by any judge or arbitral tribunal either before, at the same time as, or after the seller has resorted to the remedy for breach of contract by the buyer.

F. Loss or suspension of the seller's right to avoid the contract

The rules of the Convention governing the right to avoid the contract by the seller also provide for restrictions upon its exercise even if there are substantive grounds authorizing its existence. The main purpose is not to allow the seller to abuse his right to the disadvantage of the buyer. The restrictions on the seller's right to exercise the remedy of avoidance are regulated in the provisions governing the time limits for avoidance under article 64(2), discussed above. It is worth remembering that under paragraph 2(a) of this article, the seller's right to avoid the contract lapses when the obligation on whose breach it is based has been fulfilled and the seller has known about its fulfillment.[269] Under paragraph (2)(b) of article 64 the right is lost [page 144] when the seller has not exercised his right within a reasonable time, which has run from the moment indicated in the provision for its commencement.

The Convention does not describe in detail the relation between the remedy of avoidance and other remedies available to the seller. The relation is not as complex and controversial as in the cases of the buyer's remedy of avoidance for a breach of contract by the seller. Generally speaking, the seller cannot exercise the remedy of avoidance when he resorted to other remedies inconsistent with it, namely the remedy to require performance.

Under article 63(2), if the seller fixes an additional period of time for performance of the buyer's obligations, the breach of which is already fundamental, he cannot resort to his remedy of avoidance, which is suspended during this period. However, if the seller has fixed an additional period of time for payment, avoidance is not excluded during this period, because of the occurrence of another fundamental breach, for example, not taking the delivery.[270] In addition, if the seller has set a Nachfrist in accordance with article 64(1)(b), avoidance of the contract is suspended under article 63(2) as long as the Nachfrist runs and the performance is not refused. To reassure the seller that his right to avoidance is retained after the inefficient expiration of that period, he is granted an additional reasonable time [271] for its exercise.

The realization of the seller's right to avoidance is said to be blocked when concurrent restitution cannot be made (when the price cannot be refunded or goods returned, because of the party's bankruptcy).[272] The seller may also be prevented from making restitution because of foreign trade rules,[273] that may result in the suspension of avoidance.

If the seller has not received performance because he contributed to the buyer's failure by his own act or omission, he has, under article 80, no right to avoidance.[274] Moreover, under article 79, such conduct may constitute [page 145] an exemption for the buyer for damage claims. This solution is justified, because the seller cannot have rights based on his wrongful action.

V. Effect of Avoidance

A. Effect of avoidance under the Vienna Convention

The consequences of avoidance are governed by article 81 and following it other articles of the Convention. According to article 81, avoidance of the contract releases both parties from their obligations under it subject to any damages which may be due. The most important obligations are generally: a) the obligations of the seller to deliver the goods, to transfer title to the goods and to hand over the documents; and b) the obligations of the buyer to pay the price and to take delivery of the goods. If the obligations have not been fulfilled by the moment of the avoidance of the contract, the parties do not have to fulfill them later. Apart from the avoidance of the contract, claims for damages which have arisen in connection with the non-performance of the obligations can be asserted by the aggrieved party.

Avoidance, pursuant to article 81, does not affect any provision of the contract for the settlement of disputes. It also does not influence any other provision of the contract governing the rights and obligations of the parties that arise due to the avoidance of the contract. This concerns rights and obligations which are ancillary to the avoidance of the contract, for example, penalty provisions, but also provisions for the purpose of helping to resolve a conflict between the parties (especially in a situation in which the contract is avoided),[275] such as arbitration and renegotiation clauses and forum selection clauses. Other rights and obligations not affected by avoidance are the obligation of the party to preserve the goods,[276] and rights based on the provisions governing the amount of damages.[277]

Under the provisions of article 81, a party who has performed the contract either entirely or in part may claim restitution from the other party of whatever the first party has supplied or paid under the contract. Thus, the parties are free to claim restitution as they may wish to leave what has been [page 146] supplied or paid with the other party.[278] In the case of a contract for delivery and payment of goods by installment, they may agree to retain what they received prior to the avoidance.[279] Usually, the avoidance of the contract is at the same time accompanied by a claim to return that which has been supplied or paid.[280] The buyer, however, will be freed from his obligation to return the goods when the contract is avoided insofar as such restitution is made impossible because of an event for which he already bears the risk,[281] such as avoidance, under the provision of article 70, which does not influence the rules on passage of risk.[282]

If both parties are bound to make restitution, they must do so concurrently.[283] Moreover, the non-performing party may be required by the other party to cover all costs incurred to return that which has been supplied or paid. This rule, although not provided in the Convention, is acknowledged by the doctrine.[284] If the contract is partially avoided, the rules governing its effects are relevant to that part of the contract, which has been avoided.

The Convention, under article 84, provides for additional rules requiring restitution of benefits received by the parties. If the seller is obliged to refund the price, he is accountable for interest on it which he will have to reimburse from the date on which the price was paid.[285] This obligation is [page 147] irrespective of the grounds for the avoidance and is based on the assumption that the seller has acquired a benefit from the price since it was at his disposal. The buyer, if he is expected to make restitution of the goods or part of them or if it is impossible for him to make restitution of the goods at all or substantially in the condition in which he received them (because the goods were destroyed), must account to the seller for all benefits he has derived from the goods or part of them (also those which accrued before the goods were destroyed).[286] The benefits gained by the use of the goods usually will be returned in money. This will enable the parties to set off against each other the claims they might have under this article.[287]

It should be concluded that the contract is not nullified upon the exercise of the remedy of avoidance.[288] Some obligations of the parties are terminated and some remain in existence. The specific obligations characteristic of the sales contract end or performance already made in fulfilling these obligations has to be returned in goods or in price so that a situation is achieved as from before the conclusion of the contract. However, the contract remains in force as long as there are still claims of the parties under it, including claims for returning the goods or the price.[289]

On these grounds, the contract cannot be considered as terminated either ex nunc or ex tunc,[290], although legal doctrine does not adopt unified opinion on that question.[291] The discussion, whether the avoidance operates retrospectively or prospectively is said [292] to be of little help as [page 148] avoidance always releases the parties from future characteristic obligations and, at the same time, imposes on the parties reciprocal duties of restoration having retrospective effect. The buyer who avoids the contract because of non-conformity of the goods is released from the obligation to pay the price but, if he has already paid, he is entitled to restitution.

Avoidance does not have the effect of termination. The right to avoid the contract is narrower in its scope than the right to terminate the contract [293] because avoidance does not release a party whose breach leads to avoidance from his contractual obligation to compensate the aggrieved party for the loss.[294] In the case of a contract for delivery by installment the avoidance might be said to have the effect of a termination of the contract.[295]

B. Effect of renouncement in Polish Law

The exercise of the remedy of renouncement in all cases of defective performance or non-performance of the contract provided by the CC (i.e., delay, impossibility of performance due to the circumstances for which the party is liable, impossibility of partial performance due to the circumstances for which the party is not liable, and physical or legal defects of the goods) has the same effect as if the contract has never been concluded.[296] This is the special status, which arises after contract renouncement. The renouncement results ex tunc.[297] The parties are released from their obligations to perform and they are entitled to claim restitution of whatever has been performed under the contract.[298] If parties are bound to make restitution, each of them may, pursuant to article 496, suspend restitution until the other party offers the received performance. The provision confirms the [page 149] principle that the restitution should be made concurrently. In this way, the CC protects the interests of the aggrieved party against insolvency or dishonesty of the other.

The parties are bound by the provisions on preservation of the goods.[299] The party who is obliged to return the goods should indemnify the other party for the use of the goods which cannot be returned in kind.[300] However, the buyer who has renounced the contract due to physical defects of the goods is not obliged to indemnify the seller for usual wear of the goods which took place in the course of their normal use up to the moment of renouncement. He is obliged, however, to indemnify the seller if the impairment of the value of the goods results from the circumstances the buyer is liable for, or if the goods are used after the declaration of renouncement has been made.[301]

The party renouncing the contract may, under article 494, claim damages resulting from non-performance of the contract.[302] The damages cannot be claimed when the right to renounce the contract has been exercised on the grounds of impossibility to perform a part of the contract by the party in circumstances for which he is not liable [303] if the performance of the remaining part has lost any significance to the aggrieved party.[page 150]

The contract, after renouncement under the Polish CC is not void, but is considered as if it has never been concluded. This is the special status with the effect ex tunc. It differentiates the unilateral renouncement of a synallagmatic contract because of non-performance or defective performance from the termination of the contract by the parties who are always free to decide the ex nunc or ex tunc effect of the termination depending on the reasons causing it.[304]

VI. Conclusions

The remedy of avoidance regulated under the provisions of the 1980 Vienna Convention and the remedy of renouncement, which is its counterpart in the Polish civil law are remedies of a particular character. They may be defined as last resort remedies, due to the drastic effects, which result from their exercise. The substantive grounds constituting the basis of their existence under both regulations prove that situations that arise under the contract between the parties must be exceptionally