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Cite as Knapp, in Bianca-Bonell Commentary on the International Sales Law, Giuffrè: Milan (1987) 465-474. Reproduced with permission of Dott. A Giuffrè Editore, S.p.A.

Article 64

Victor Knapp

1. History of the provision
2. Meaning and purpose of the provision
3. Problems concerning the provision

ARTICLE 64

(1) The seller may declare the contract avoided:
(a) if the failure by the buyer to perform any of his obligations under the contract or this Convention amounts to a fundamental breach of contract; or
(b) if the buyer does not, within the additional period of time fixed by the seller in accordance with paragraph (1) of article 63, perform his obligation to pay the price or take delivery of the goods, or if he declares that he will not do so within the period so fixed.

(2) However, in cases where the buyer has paid the price, the seller loses the right to declare the contract avoided unless he does so:
(a) in respect of late performance by the buyer, before the seller has become aware the performance has been rendered; or
(b) in respect of any breach other than late performance by the buyer, within a reasonable time:
(i) after the seller knew or ought to have known of the breach; or
(ii) after the expiration of any additional period of time fixed by the seller in accordance with paragraph (1) of article 63, or after the buyer has declared that he will not perform his obligations within such an additional period.

1. History of the provision

     1.1. - Mere breach of contract by the buyer does not in itself cause avoidance of the contract, unless otherwise agreed in the contract (see Article 6). In this respect the Convention narrows the rule of Articles 61 and 62 ULIS, which provided for an automatic or ipso facto avoidance in certain circumstances, in addition to avoidance by declaration of the seller. Automatic or ipso facto [page 465] avoidance was not included in the remedial system of this Convention because it led to uncertainty as to whether the contract was still in force or whether it has been ipso facto avoided. Under Article 64 of this Convention the contract is still in force unless the seller has affirmatively declared it avoided (see commentary on Article 62, supra, §§ 2.1. et seq.).

     1.2. - The UNCITRAL Draft Convention text (then Article 60) was adopted with some stylistic amendments only.

     1.3. - The antecedents of Article 64(1) of the Convention are to be found in Articles 62, 66(1) and 70 of ULIS (for the text of Articles 62 and 66(2) of ULIS, see the commentaries on Articles 62 and 63, supra). Article 66(1) of ULIS read as follows:

Where the buyer's failure to take delivery of the goods in accordance with the contract amounts to a fundamental breach of the contract or gives the seller good grounds for fearing that the buyer will not pay the price, the seller may declare the contract avoided.

Article 70 of ULIS read as follows:

(1) If the buyer fails to perform any obligation other than those referred to in Sections I and II of this Chapter, the seller may: (a) where, such failure amounts to a fundamental breach of the contract, declare the contract avoided, provided that he does so promptly, and claim damages in accordance with Articles 84 to 87; or (b) in any other case, claim damages in accordance with Article 82(2), The seller may also require performance by the buyer of his obligations, unless the contract is avoided.

There was no antecedent to Article 64(2) of the Convention.

2. Meaning and purpose of the provision

     2.1. - If the conditions of Article 64 are met, the seller is authorized (but not obliged) to declare the contract avoided. He may even in this case require the buyer to perform his obligation and sue him for performance (Article 62), or invite him to perform his obligation within an additional period of time under [page 466] Article 63. By doing so he, of course, does not lose his right to declare the contract avoided under Article 64.

     2.2. - The seller may not declare the contract avoided because of the breach by the buyer unless the additional conditions of Article 64(1)(a)(b) are satisfied. These conditions relate to the obligations the buyer failed to perform, the quality of the breach, and the time of avoidance.

     2.3. - The declaration by the seller of avoidance of the contract under Article 64(1)(a) requires that:

(a) the buyer fails to perform any obligation under the contract or this Convention, and (b) the buyer's failure to perform amounts to a fundamental breach of contract (c) under conditions in which the seller's right to declare the contract avoided becomes effective immediately after the fundamental breach (see § 2.5., infra).

     2.4. - The declaration by the seller of avoidance of the contract under Article 64(1)(b) requires that:

(a) the buyer fails to perform either his obligation to pay the price or his obligation to take over the goods but none other, and

(b) he fails to perform one of the said obligations within the additional period of time fixed by the seller under Article 63 or he informs the seller that he will not perform his . obligation within the period of time so fixed;

(c) it is, however, not relevant, whether the buyer's failure to pay the price or to take over the goods constitutes a fundamental breach of contract.

     2.5. - Provided that the buyer has not performed his obligation, the seller is authorized to declare the contract avoided

(a) in a case under Article 64(1)(a), from the day following the fundamental breach of contract, that is, the day following the day the obligation became due or any day thereafter;

(b) in cases under Article 64(1)(b), from the day (i) following the last day of the additional period of time fixed by the seller under Article 63, i.e., from the day after the expiration of the additional period so fixed; or, as the case may be, (ii) as soon as the declaration of non-performance by the buyer reaches the seller. [page 467]

     2.6. - The declaration of avoidance of the contract by the seller is effective only if made by notice to the buyer (see commentary on Article 26, supra), which means that it must be, addressed to the buyer. In order to avoid any uncertainty as to whether the contract is still in force the declaration of avoidance should be explicit. That is, it should be worded to make clear that the contract has been declared avoided.

     2.7. - The declaration of avoidance under Article 64(1) is not unilaterally revocable. It is effective from the very moment it reaches the buyer (see Article 24), so that a subsequent revocation of it by the seller would not reinstate the obligations of the buyer which expired on avoidance of the contract (see Article 81). However, the declaration of avoidance should not be effective if revocation of the declaration reaches the buyer earlier than or simultaneously with the declaration of avoidance itself (see Articles 15(2) and 22).

     2.8. - The effects of avoidance by the seller are described in Articles 81 and 84. The most significant consequence of avoidance for the seller is that he is no longer required to deliver the goods. If they have already been delivered, he may claim their return.

Avoidance of the contract does not terminate either the buyer's obligation to pay for any damages caused by his failure to perform or any provisions in the contract for the settlement of disputes (Article 84(1)). Such a provision is important because in many legal systems avoidance of the contract eliminated all rights and obligations which arose out of the existence of the contract. Under such a view once a contract has been avoided, there can be no claim for damages for its breach and contract clauses relating to the. settlement of disputes (usually arbitration clauses) terminate with the rest of the contract. No such effects are produced by the seller's avoidance of the contract under Article 64.

3. Problems concerning the provision

     3.1. - If there is a fundamental breach of contract, the seller has an immediate right to declare the contract avoided. He need [page 468] not give the buyer any prior notice of his intention to declare the contract avoided. It may be questioned, however, how often the buyer's failure to pay the price, take delivery of the goods, or perform any of his obligations under the contract and this Convention would immediately constitute a fundamental breach of contract when not performed on the date due. It would seem that in most cases the buyer's failure to perform his obligation will immediately constitute a fundamental breach of contract. For instance, the parties to the contract may expressly agree that the seller will have no further interest in the contract if the buyer does not take delivery at the date specified in the contract.

     3.2. - Under Article 54 the buyer is obliged to take such steps and comply with such formalities as may be required under the contract or any laws and regulations to enable payment to be made in due time (see commentary on Article 54, supra). If the buyer is in delay in performing these preparations, the seller is authorized to invite the buyer to comply with his obligation within an additional period of time fixed in accordance with Article 63(1). If the period of time so fixed expires before the buyer pays the price and the buyer has not undertaken the preparations required by Article 54 within the additional period, the buyer's failure to perform could potentially be considered a breach under Article 64(1)(b) or as an anticipatory breach under Articles 71 et seq. Both of these alternatives presume that the buyer's failure to make the necessary preparations for payment does not itself constitute a fundamental breach of contract.

     3.3. - When it becomes apparent that the buyer will not pay the price in due time because of his failure to make preparations to perform, an essential obligation, the obligation to pay, will be violated. Therefore, the failure to perform the obligation under Article 54 within the additional period of time fixed by the seller constitutes an anticipatory breach of the contract by the buyer under Article 71(1)(b).

     3.4. - As to the question of whether the buyer's failure to prepare as required by Article 54 also constitutes a breach of contract under Article 64(1)(b), it should be reiterated that Article 64(1)(b) concerns expressly only two obligations of the buyer, [page 469] that of paying the price and that of taking delivery of the goods (see § 2.4., supra). Still, it should be taken into consideration that Article 54 expressly states that «the buyer's obligation to pay the price includes taking such steps...». Hence it maybe concluded that the obligation to prepare under Article 54 is part of the obligation to pay the price and that, therefore, the buyer's failure to perform his obligations under Article 54 within the additional period of time fixed by the seller would be a failure to perform the obligation to pay the price. Although this interpretation may seem forced, it does follow from the Secretariat's Commentary to the UNCITRAL Draft Convention that this interpretation corresponds to the ratio legis (Official Records, I, 50).

     3.5. - This conclusion implies that the buyer's failure to perform his obligation under Article 54 within the period of time fixed for this purpose by the seller, or notice by the buyer to the seller that he will not comply with his obligation within that period of time, may be considered as a failure to perform under Article 64(1)(b) and therefore as justification for avoidance of the contract. Accordingly, the seller will have the choice of proceeding either according to Article 64(1)(b) or Articles 71 et seq.

     3.6. - The seller's right to declare the contract avoided under Article 64(1) is limited if the buyer has paid the price before the seller declares the contract avoided. In such a case, the seller may declare the contract avoided only within a period of time provided in Article 64(2). It means that the seller retains the right to avoid the contract without regard to these time limits only as long as the price remains unpaid.

     3.7. - A question arises as to what should be understood as payment of the price by the buyer under Article 64(2). It can be assumed that the only payment of the price effective under Article 64(2) is payment of the total price, whereas partial payment will not bring the provision into play (for a similar view, see Secretariat's Commentary, Official Records, I, 50).

     3.8. - As far as instalment contracts are concerned, only payment of all instalments fallen due can deprive the seller of his right to declare the contract avoided. It is, however, necessary to [page 470] point out that this is not the case for a declaration by the seller of avoidance concerning only one instalment under Article 73(1) Certainly in that case payment of the instalment deprives the seller of the right to declare avoidance of the contract with respect to that instalment (the seller's right to declare the contract avoided in respect of future instalments is governed by Article 73(2)).

     3.9. - As to the loss of the seller's right to declare the contract avoided after the buyer has paid the price, Article 64(2) distinguishes between two different situations, namely (a) late performance by the buyer of any of his obligations, and (b) any breach other than late performance by the buyer. In both cases the seller's right is conditioned on the breach being such as to justify avoidance of the contract by the seller.

In case of breach other than late performance by the buyer, Article 64(2)(b) distinguishes between two kinds, one specific, one general. The specific one is provided in Article 64(2)(ii), namely the non-performance by the buyer within any additional period of time or his declaration that he will not perform within such an additional period of time. Any other breach (other than the non-performance by the buyer) will be considered under the general case of the breach of contract other than late performance by the buyer provided in Article 64(2)(b)(i).

     3.10. - As to Article 64(2)(b) and its distinction from Article 64(2)(a), the interpretation of «late performance» by the buyer under Article 64(2) is important. Late performance, as normally understood, means that the obligation: (a) has not been performed at the time it was due; or (b) acceptance of the performance has been refused because of lack of conformity of the performance with the contract, as, for example, if the obligation were performed at a place other than that specified in the contract or in the law; or (c) the performance was deficient, in that the obligation was only partially performed, unless partial performance was allowed by the contract.

     3.11. - On the other hand, a performance which is late in respect of the additional period of time fixed by the seller under [page 471] Article 63 is not considered by the Convention as late performance but as a breach other than late performance (compare Article 64(2)(a), (2)(b)(ii)).

     3.12. - If the fundamental breach on which the seller relies in declaring the contract avoided is the late performance of an obligation, Article 64(2)(a) provides that where the price has been paid, the seller loses his right to declare the contract avoided at the time he becomes aware that the performance has been rendered. Since the late performance in question will most often be in respect of the payment of the price, in most cases the seller loses the right to declare the contract avoided under Article 64(2)(a) at the time he becomes aware the price has been paid.

     3.13. - The late performance need not concern only the payment of the price, but may also concern any other obligation of the buyer. This question was. thoroughly discussed at the Vienna Conference and the corresponding provision of the UNCITRAL Draft Convention (Article 60) was criticized because of its ambiguity (Official Records, II, 371 et seq.). It was objected that the term «late performance» as used in Article 64(2) does not distinguish between paying the price and taking delivery. Consequently, Article 64(2) was open to two interpretations. One was that each delay was to be treated independently of other aspects of performance. The other interpretation was that the seller's right to avoid the contract was kept open until the buyer had completed performance in all respects both with respect to payment and taking delivery. For this reason a modification of the provision was proposed. However, the proposal was rejected (Official Records, II, 412-413).

     3.14. - There is no problem if the buyer is late in respect of only one of his obligations (as to his delay in paying the price, see § 3.12., supra). If, however, the buyer is in delay in taking over the goods to be delivered but has duly paid the price for them, the seller loses his right to avoid the contract unless he declares it avoided before he becomes aware that the buyer had taken over the goods.

     3.15. - There remains the question of how to resolve under the present wording of Article 64(2)(a) the situation in which the [page 472] buyer is late both in paying the price and in taking over the goods. In this case, if the seller becomes aware of the payment of the price by the buyer, he loses the right to avoid the contract on the ground of the buyer's failure to make timely payment. The right to declare the contract avoided as a result of the buyer's failure to take timely delivery of the goods will however remain open to the seller until he becomes aware that the buyer has taken delivery of the goods. An analogous solution would be reached in the inverse situation.

     3.16. - Under Article 64(2)(b)(ii) the seller loses his right to declare the contract avoided when he has fixed an additional period of time for performance under Article 63(1). If the buyer did not perform within the additional period pursuant to Article 63(1) or has declared that he will not perform within the period so fixed or if the buyer has performed after the additional period of time under Article 63(1) has expired or after his declaration of non-performance has reached the seller, the seller loses the right to declare the contract avoided unless he does so within a reasonable time after the expiration of the additional period of time fixed under Article 63(1), or after the buyer's declaration that he will not perform within this period of time reaches him. The reasonableness of the time in question will be interpreted with regard to all circumstances of the given case.

     3.17. - Finally, in respect of any other breach of contract by the buyer, the seller will lose his right to declare the contract avoided unless he does so within a reasonable time after he knew or ought to have known of the breach. The «ought to have known» should be interpreted in the usual way, as disregarding a possibility to have informed himself of the breach. Also, it should be questioned whether the expressions «has become aware» in sub-paragraph (2)(a) and «knew or ought to have known» in sub-paragraph (2)(b)(i) are intentionally different or whether they are only different wordings of the concept. It flows from the general principles of law and from the practical aim of the provision in question that the expression «has become aware» can in no way be interpreted subjectively. Thus, it can be assumed that this expression does not mean anything else than «knew or ought to have known », so that the wording of the said rules [page 473] suffers from a certain lack of elegance but the conditions concerning the knowledge of the seller laid down in paragraph (2)(a) and (2)(b) are, regardless of their wording, identical (see commentary on Article 65, infra, § 2.9.). [page 474]


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