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Commentary on Whether the UNIDROIT Principles
of International Commercial Contracts May Be
Used to Interpret or Supplement Article 25 CISG

Robert Koch [*]
November 2004

I. Introduction
II. Elements Constituting Fundamental Breach
      1. Detriment
      2. Substantial deprivation
      3. Foreseeability
          a. Function of this requirement
          b. Reasonable person test
          c. Relevant point in time
III. The Concept of Fundamental Non-Performance under the UNIDROIT Principles
      1. Article 7.3.1(2) of the UNIDROIT Principles
      2. Article 7.1.4 of the UNIDROIT Principles
IV. Permissibility of Using the Criteria Employed by Article 7.3.1(2) and Article 7.1.4(1) of the
      UNIDROIT Principles in Determining Fundamental Breach
      1. Identical underlying purpose of the fundamental breach/fundamental non-performance requirement
      2. Conformity of the UNIDROIT criteria with the CISG's rules on interpretation?
          a. Strict compliance and no-reliance
          b. Intentional or reckless non-performance
          c. Disproportionate loss for the party in breach as negative requirement
     3. Curability of the breach
          a. Relationship between cure and avoidance for fundamental breach
          b. Wording of Article 50 CISG
          c. Doctrinal reasons against consideration of curability
          d. Overriding purpose of the fundamental breach requirement

I. INTRODUCTION

The concept of fundamental breach under Article 25 CISG plays a crucial role within the remedial system of the CISG because it determines the availability of the avoidance remedy in respect of any breach other than late performance (Articles 49(1)(a), 64(1)(a), 72(1) and 73(1) CISG), and of the substitute delivery remedy (Article 46(2) CISG). Fundamental breach is also important for the transfer of risk (Article 70 CISG). Its UNIDROIT Principles counterpart, fundamental non-performance, is defined in in Article 7.3.1(2) of the UNIDROIT Principles. Unlike Article 25 CISG, its scope is limited to the termination of a contract. Before addressing the issue of whether or not Article 7.3.1(2) of the UNIDROIT Principles may be used to interpret or supplement Article 25 CISG, it is necessary to first take a closer look at the elements constituting fundamental breach, since recourse to the UNIDROIT Principles is only admissible where the language of the CISG provision gives rise to doubts as to the precise meaning of its content.[1]

II. ELEMENTS CONSTITUTING FUNDAMENTAL BREACH

Article 25 provides that a breach is fundamental if

"... it results in such detriment to the other party as substantially to deprive him of what he is entitled to expect under the contract, unless the party in breach did not foresee and a reasonable person of the same kind in the same circumstances would not have foreseen such result."

Article 25 CISG attempts to define fundamental breach in terms of "detriment," "substantial deprivation," and "foreseeability". There is no reference to examples of events that transform a simple breach of contract into a fundamental breach.[2]

1. Detriment

The CISG does not contain any definition for the term "detriment." It is thus unclear whether the detriment requires actual injury, damage or loss, and whether it refers only to material losses or to intangible losses as well. It is also unclear whether a legal detriment, as distinguished from a detriment in fact, is required.[3] Neither the French, Spanish or Russian versions of detriment,[4] nor the Secretariat Commentary on the 1978 Draft Convention, provides any greater assistance in this respect. The latter states that: "The determination whether the injury is substantial must be made in the light of the circumstances of each case, e.g., the monetary value of the contract, the monetary harm caused by the breach, or the extent to which the breach interferes with other activities of the injured party."[5] It seems that the detriment element serves as mere filter for those cases in which breach of a fundamental obligation occurred but has caused no injury. For example, where the seller fails in his duty to package or insure the goods but they arrive safely, there is no detriment. If, on the other hand, the buyer lost a customer or the opportunity to resell the goods, there would be a detriment.[6]

2. Substantial deprivation

A breach must cause a detriment that "substantially deprives" the aggrieved party of what he is "entitled to expect under the contract" in order for it to be fundamental. The reference to the expectation under the contract makes clear that the yardstick for breach of contract is first and foremost to be found in the express and implied terms of the contract itself. This reference leaves open the question of whether other circumstances of the case, including the negotiations, trade practices established between the parties, usages, and any subsequent conduct of the parties should also be taken into account. Moreover, it is unclear when a breach substantially deprives the aggrieved party of his expectations. Is a party, for instance, substantially deprived when he has completely lost his interest in the performance? Or does substantial deprivation require that the aggrieved party's purpose in entering the contract be "frustrated" or the benefit of the bargain be lost due to the breach? Is the monetary injury or harm suffered by the non-breaching party decisive? Literal interpretation does not provide answers to any of these questions.[7]

3. Foreseeability

a. Function of this requirement

From the wording of the conditional clause "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 result", one may infer that there is a requirement of foreseeability of the consequences of the breach. It thus confirms the opinion of many scholars that foreseeability is not only a burden of proof rule, but it also requires taking into account the breaching party's knowledge or foreseeability of the harsh consequences of the breach in determining whether or not it is fundamental.[8] On the other hand, the foreseeability requirement under Article 25 CISG has a similar effect as the foreseeability requirement under the general rule for calculation of damages in Article 74 CISG, since it limits the rights of the aggrieved party in the event the other party did not foresee the far-reaching consequences and helps determine the severity of the breach.[9] It therefore seems plausible to conclude that only the detriment/substantial deprivation component is what makes a breach "fundamental," and that the foreseeability element serves solely to exempt the breaching party from his liability for breach of the contract.[10]

b. Reasonable person test

Another ambiguity results from the phrase "and a reasonable person of the same kind in the same circumstances."[12] In order to determine "foreseeability," the subjective and objective perspective of the party in breach must be considered. Additionally, the objective perspective of the reasonable merchant in the breaching party's position is relevant.[12] In other words, the party in breach is considered to have been able to foresee the consequences of the breach if, when objectively viewed, it is determined that he could or should have known them. But what happens when the breaching party had special knowledge and thus could have foreseen more than the average merchant? The conjunction "and," makes it possible to conclude that such special knowledge cannot be taken into account, allowing the breaching party to escape a finding of fundamental breach by hiding behind the paradigm of the reasonable person of the same kind in the same circumstances.[14]

c. Relevant point in time

Finally, the text of Article 25 CISG does not expressly address the point in time at which the foreseeability standard is to be applied. The use of the present tense "[a] breach of contract committed ... is fundamental if it results" in depriving the other party "of what he is entitled to expect under the contract" makes it possible to conclude that a judge should place himself at the time the breach of contract has occurred.[14] Likewise, where Article 25 CISG states "unless the party in breach did not foresee ... such a result" it would appear that one should be placed at the time of the breach.[15] The French, Spanish and Russian text of Article 25 CISG, however, give rise to a different conclusion. The use of the past tense "était" instead of "est," "tenia" instead of "tiene," and "byla" instead of "yest" in the French, Spanish and Russian texts, respectively, conveys the impression that the formation of the contract is the relevant point in time to determine foreseeability.[16] This view is confirmed by the reference to the rights which the aggrieved party was entitled to expect under the contract.[17]

III. CONCEPT OF FUNDAMENTAL NON-PERFORMANCE UNDER UNIDROIT PRINCIPLES

1. Article 7.3.1(2) of the UNIDROIT Principles

The concept of fundamental non-performance is laid down in Article 7.3.1(2) of the UNIDROIT Principles. According to this provision "[a] party may terminate the contract where the failure of the other party to perform an obligation under the contract amounts to a fundamental non-performance." With regard to the detriment/substantial deprivation requirement, the UNIDROIT Principles provide a more express guideline than does Article 25 CISG as to which factors are relevant in determining fundamental non-performance. In addition to the general criterion laid down in Article 25 CISG (i.e., the fact that the non-performance must substantially deprive the aggrieved party of what it was entitled to expect under the contract, provided the other party could not reasonably have foreseen such a result), paragraph (2) of Article 7.3.1 of the UNIDROIT Principles indicates as further factors to be taken into account in each single case, whether:

"[...]

(b) strict compliance with the obligation which has not been performed is of essence under the contract;
(c) the non-performance is intentional or reckless;
(d) the non-performance gives the aggrieved party reason to believe that it cannot rely on the other party's future performance;
(e) the non-performing party will suffer disproportionate loss as a result of the preparation or performance if the contract is terminated."[18]

2. Article 7.1.4 of the UNIDROIT Principles

Another relevant factor results from Article 7.1.4(1) of the UNIDROIT Principles. According to this provision, the buyer's right to terminate is suspended provided that the seller,

(a) without undue delay, gives notice indicating the proposed manner and timing of the cure;
(b) cure is appropriate in the circumstances;
(c) the aggrieved party has no legitimate interest in refusing cure; and
(d) cure is effected promptly.

Moreover, according to Article 7.1.4(2) of the UNIDROIT Principles, the seller's right to cure is not precluded by notice of termination. In other words, the buyer cannot exercise his right of termination for the purpose of denying the seller an opportunity to cure. Under the UNIDROIT Principles, therefore, curability is, de facto, a relevant criterion in determining whether or not non-performance is fundamental.[19]

IV. PERMISSIBILITY OF USING THE CRITERIA EMPLOYED BY ARTICLES 7.3.1(2) AND 7.1.4(1) OF THE UNIDROIT PRINCIPLES IN DETERMINING FUNDAMENTAL BREACH

According to Article 7(1) CISG, "[i]n the interpretation of this Convention regard is to be had to its international character and to the need to promote uniformity in its application [...]". Since the UNIDROIT Principles are also of international character, it seems permissible to make use of them as a means of interpreting the CISG, provided that the relevant provisions of the UNIDROIT Principles serve the same purpose as their corresponding provisions in the CISG and that they are in conformity with the rules of interpretation under the CISG.[20] These rules, which can also be regarded as general principles in terms of Article 7(2) CISG, require first and foremost taking account of the plain text of a provision.[21] If the wording is vague, as with Article 25 CISG, the literal interpretation must be supported by other methods of interpretation, namely looking at the provision's legislative history, its context within the CISGs remedial system, its objectives and underlying policies.[22]

1. Identical underlying purpose of Article 25 CISG and Article 7.3.1 of the UNIDROIT Principles

By allowing avoidance/termination of the contract only when the breach/non-performance qualifies as "fundamental", Article 25 CISG and Article 7.3.1 of the UNIDROIT Principles follow the same policy, namely to preserve the enforceability of the contract whenever feasible.[23] The first condition for making use of the criteria set forth by the UNIDROIT Principles is thus fulfilled.

2. Conformity of the criteria with the CISG's rules on interpretation?

With regard to the second condition, a differentiation between the various factors to be considered in determining the fundamental nature of a non-performance is necessary.

a. Strict compliance and no-reliance

The reference in Article 25 CISG to the expectations under the contract allows resorting to the criteria focusing on the nature of the contractual obligation (Art. 7.3.1(2)(b) of the UNIDROIT Principles)[24] and the reliance on one party's future performance (Art. 7.3.1(2)(d) of the UNIDROIT Principles)[25] in determining fundamental breach.[26]

b. Intentional or reckless non-performance

No use can be made of the factor focusing on whether the breach was committed intentionally or recklessly (Art. 7.3.1(2)(d) of the UNIDROIT Principles). While it is true that the wording of Article 25 CISG does not prevent the determination of the fundamental nature of a breach by taking into account the breaching party's intent or conduct, it should be noted that under the CISG, "fault" is not generally a prerequisite to a finding of contractual liability and that this principle is as true with respect to the right to avoid the contract as it is to the right to require substitute delivery or to claim damages. Neither remedy depends on "fault" in the sense of deliberate or negligent wrongdoing. In light of the CISG's remedial system, it therefore seems to be more plausible not to automatically qualify any intentional or reckless breach as fundamental in terms of Article 25 CISG.[27] The intention of the breach can be only taken into account where the willful or reckless conduct creates uncertainty as to the breaching party's future performance.[28]

c. Disproportionate loss for the party in breach as negative requirement

The approach, which focuses on whether the breaching party will suffer disproportionate loss as a result of the preparation for performance if the contract is avoided (Art. 7.3.1(2)(e) of the UNIDROIT Principles), is not applicable under the CISG. First, the language of Article 25 CISG does not allow consideration of the consequences for the breaching party when the breach is treated as fundamental. Second, it is not clear under which circumstances a breaching party's loss becomes significant. Any determination of fundamental breach would therefore be arbitrary and cause uncertainty. Third, the UNIDROIT factor is aimed at limiting the exercise of the right of avoidance, not at determining fundamental breach. In other words, it limits the availability of the avoidance remedy in spite of the existence of a fundamental breach but it does not prevent a breach from being fundamental.[29]

3. Curability of the breach

With regard to this factor, it is to be noted that in industry practices and the various manufacturing, export and importing, retailing trades, the right to cure defective goods is almost invariably reserved by the seller in the case of manufactured goods of substantial value, e.g., machinery, motor vehicles, and other hard goods.[30] In these cases, no recourse to the UNIDROIT principles is necessary. In the absence of such clauses, consideration of curability as a limiting factor in determining fundamental breach, in view of its present definition, is only permissible if one argues that, where cure of a breach is feasible and the breaching party is willing to cure, the aggrieved party is not substantially deprived of his expectations under the contract. Recent case law confirms that view.[31] With regard to the buyer's right to avoidance, such an interpretation, though plausible, seems hard to reconcile with the CISG's remedial provisions, in particular with the text of Article 48(1).

a. Relationship between cure and avoidance for fundamental breach

The opening words of Article 48(1) make the seller's right to cure "[s]ubject to Article 49." Giving these words their ordinary and plain meaning, it appears that the buyer's right to declare the contract avoided in accordance with article 49(1)(a) prevails over the seller's right to cure.[32] The determination of fundamental breach in the light of any offer to cure, however, would enable the seller to prevent the buyer from avoiding the contract and would, therefore, actually allow the seller's right to cure to prevail over the buyer's right to avoid. Even if one argues that the opening words do not clarify their exact relationship, the position that the right to cure is paramount ignores the fact that the majority of the delegations at the Vienna Diplomatic Conference took the exact opposite view.[33]

b. Wording of Article 50 CISG

Another argument against the determination of fundamental breach in light of an offer to cure can be found in the text of Article 50 CISG, where it is expressly stated that the seller's right to cure prevails over the buyer's right to reduce the price. In view of such clear wording, it is plausible to conclude that if the delegates to the Diplomatic Conference had really wanted the right to cure to prevail over the right to declare the contract avoided, they would have used similar words either in Article 48 or 49 CISG.[34]

c. Doctrinal reasons against consideration of curability

Furthermore, the employment of an offer to cure as a relevant factor in determining fundamental breach would cause both theoretical and practical problems.[35] The notion of an offer retrospectively frustrating the buyer's existing right of avoidance is difficult to justify in theory. As a practical matter, this approach gives rise to the question of whether the seller must make his offer to cure before the buyer makes his notice of avoidance. If priority were decisive, one would provoke a competition between buyer and seller and produce purely arbitrary results.[36] Ignoring that such competition in exercising a remedy should not be a consideration under law, it would also leave the seller in limbo as long as he does not know of the defect.[37]

d. Overriding purpose of the fundamental breach requirement

Notwithstanding such doctrinal concerns, it cannot be disputed that the ratio legis of Article 25 CISG clearly supports the consideration of curability for determining fundamental breach.[38] The concerns, expressed by the present writer against giving the teological interpretation overriding effect where other interpretive techniques lead to different results, still apply.[39] It seems to be contrary to the principle of uniform application to disregard the plain wording in order to give effect to what it deems the overriding purpose of a single provision.[40] In the context of the seller's right to cure a defect and the buyer's right to avoid the contract, however, it is to be noted that giving account for curability is not excluded by the wording of Article 25 CISG. It would therefore seem reasonable to make use of the criteria recited in Article 7.1.4(1) of the UNIDROIT Principles to deny fundamental breach where the requirements of this provision are met. In order to avoid the aforementioned theoretical and practical problems for the seller, the right to cure should be precluded by the notice of avoidance, as is the case with Article 7.1.4(2) of the UNIDROIT Principles.

[See also commentary by the author on this subject in: John Felemegas ed., An International Approach to the Interpretation of the United Nations Convention on Contracts for the International Sale of Goods (1980) as Uniform Sales Law, Cambridge University Press (2006) 124-133]


FOOTNOTES

* Professor in Commercial Law, Corporate Law and International Trade Law, Institute of Business Law, Nürtingen University (Germany).

1. See infra Section IV.

2. See Graffi, "Case Law on the Concept of "Fundamental Breach" in the Vienna Sales Convention", International Business Law Journal (2003) No. 3, at 338 (stating that the CISG simply provides general interpretive guidelines); available online at <http://cisgw3.law.pace.edu/cisg/biblio/graffi.html>; Bonell, "The UNIDROIT Principles of International Commercial Contracts and the Vienna Sales Convention (CISG) - Alternatives of Complementary Instruments?", in Uniform L. Rev. (1996) 26, at 28 (stating that the language of Article 25 CISG is "vague and ambiguous"); available online at <http://cisgw3.law.pace.edu/cisg/biblio/ulr96.html>.

3. See van der Velden, "The Law of international Sales: The Hague Conventions 1964 and the UNCITRAL Uniform Sales Code 1980 -- Some Main Items Compared", in: Voskuil & Wade eds., Hague-Zagreb Essays 4 (The Hague: Asser Instituut/Martinus Nijhoff, 1983), at 64-65 (suggesting the employment of the detriment definition given by the Corpus Iuris Secundum, according to which "the detriment need not be real and involve actual loss, nor does it necessarily refer to material disadvantage to the party suffering it, but means a legal detriment as distinguished from a detriment in fact. It has also been defined as giving up something which one had the right to keep, or doing something which one had the right to do.")

4. The French version uses the word "préjudice," the Spanish "perjuicio" and the Russian "bpeg." The English, French, Russian and Spanish versions are available online at <http://www.uncitral.org/en-index.htm>.

5. See Commentary on the Draft Convention on Contracts for the International Sale of Goods prepared by the Secretariat, Document A/CONF.97/5 (Secretariat Commentary), at Comment 3, art. 23 of the 1978 Draft Convention [which became CISG Article 25]. Available online at <http://cisgw3.law.pace.edu/cisg/text/secomm/secomm-25.html>.

6. See Will, "Art. 25", Comment 2.1.1.2, in: Bianca & Bonell eds., Commentary on the International Sales Law, The 1980 Vienna Sales Convention (Milan: Giuffrè 1987); for a similar notion, see Liu, "Remedies for Non-Performance: Perspectives from CISG, UNIDROIT & PCL, at 7.2 and 8.2.2.1", available online at <http://cisgw3.law.pace.edu/cisg/biblio/chengwei.html#07-2> and <http://cisgw3.law.pace.edu/cisg/biblio/chengwei.html#08-1>; Gonzalez, "Remedies Under the U.N. Convention for the International Sale of Goods", 2 Int'l Tax & Bus. Law. (1984) 79, at 86 (stating that the "Convention's definition of fundamental breach makes it possible to reconcile the interests of the parties in cases where an insignificant deviation from the contract produces surprising and serious consequences"); Mark L. Ziontz, "A New Uniform Law for the International Sale of Goods: Is It Compatible with American Interests?", NW. J. Int'l. L. & Bus. (1980) 129, at 173 (stating that "[a]voidance of an international sales contract is a remedy reserved for serious breaches by one of the parties").

7. See Koch, "The Concept of Fundamental Breach of Contract under the United Nations Convention on Contracts for the International Sale of Goods (CISG)", Pace Review of the Convention on Contracts for the International Sale of Goods (CISG) 1998, Kluwer Law International (1999), at 263-264; also available online at <http://cisgw3.law.pace.edu/cisg/biblio/koch.html>.

8. See, e.g., Schlechtriem, "Art. 25", Comment 11, in: Schlechtriem ed., Commentary on the U.N. Convention on the International Sale of Goods (Clarendon Press: Oxford 1998), (stating that knowledge or foreseeability of the aggrieved party's expectations are relevant for interpreting and assessing the importance of the obligation breached and its significance for the aggrieved party); see also Enderlein & Maskow, International Sales Law (N. Y.: Oceana 1992), "Art. 25", Comment 4.1.

9. See Enderlein & Maskow, supra note 8, at 4.1 (emphasizing that the special circumstances make up the severity of the breach).

10. For this conclusion, see Babiak, "Defining "Fundamental Breach" under the United Nations Convention on Contracts for the International Sale of Goods", 6 Temple Int'l & Comp. L.J. (1992) 113, at 118; Graffi, supra note 2, at 340; for a different conclusion, see Liu, supra note 5, at 8.2.3.1.

11. Emphasis added.

12. For the same conclusion see Babiak, supra note 10, at 118; Grigera Naón, "The U.N. Convention on Contracts for the International Sale of Goods", in: Horn/Schmitthoff eds., The Transnational Law of International Commercial Transactions: Studies in Transnational Economic Law (Deventer: Kluwer 1982), 89, at 105 (stating that the decisive test can only be an objective one and that the judge will therefore have to analyze objectively the position of the non-performing party); Will, supra note 6, Art. 25, Comment 2.2.2.2.4; Enderlein & Maskow, supra note 8, Art. 25, Comment 4.2.

13. For a similar conclusion, see Chengwei Liu, supra note 6, at 8.2.3.2; for a different conclusion, see Enderlein & Maskow, supra note 8, Art. 25, Comment 4.2; Will, supra note 6, Art. 25, Comment 2.2.2.2.4 (stating that "an overly astute merchant [who] in fact knew and foresaw more than his peers should not be allowed to hide behind the reasonable person of the same kind in the same circumstances").

14. This point has been emphasized by Levasseur, "The Civil Code of Quebec and the Vienna Convention on International Contracts for the Sale of Goods: Some Comments", in: Canadian Institute for Advanced Legal Studies ed., Nouveau Code Civile (Cowansville, Québec:Yvon Blais 1992), 269, at 282.

15. See Levasseur, supra note 14, at 282.

16. With regard to the French text of Article 25, this point has been emphasized by Levasseur, supra note 14, at 282.

17. For the same conclusion, see, e.g., Schlechtriem, Uniform Sales Law: the UN Convention on Contracts for the International Sale of Goods (Vienna: Manz 1986), at 60. For a different conclusion, see Flechtner, "Remedies under the New International Sales Convention: The Perspective from Article 2 of the U.C.C.", 8 J.L. & Com., pp. 53 - 108, fn. 114 (1988), also available online at <http://cisgw3.law.pace.edu/cisg/biblio/flecht.html>. He argues that if, after the formation of the contract, it becomes clear that a failure to perform will cause substantial detriment, nothing in the text of Art. 25 CISG prevents such failure to perform up to this expectation from being a fundamental breach. See also Graffi, supra note 2, at 340 (relying on the general principle of good faith); Liu, supra note 6, at 8.2.3.3.

18. To date no cases have been reported where tribunals have applied Article 7.1.3(2) of the UNIDROIT Principles.

19. See Koch, supra note 7, at 232.

20. See Felemegas, "The United Nations Convention on Contracts for the International Sale of Goods: Article 7 and Uniform Interpretation", in Pace Review of the Convention on Contracts for the International Sale of Goods (CISG), Kluwer Law International (2000-2001) 115 - 265, at Chapter 4, 6(b), also available online at <http://cisgw3.law.pace.edu/cisg/biblio/felemegas.html#ch4>; Garro, "The Gap Filling Role of the UNIDROIT Principles in International Sales Law: Some Comments on the Interplay between the Principles and the CISG", 69 Tul.L.Rev. (1995) 1149, at 1157 and 1185 (stating that "the UNIDROIT principles may be resorted to in order to determine whether or not there has been a fundamental breach of contract"); Perillo, "UNIDROIT Principles of International Commercial Contracts: The Black Letter Text and a Review", 63 Fordham L. Rev. (1994) 281, at 308-309; Bonell, supra note 2 (suggesting that the criteria laid down in article 7.3.1 of the UNIDROIT Principles may be used for a better understanding of art. 25).

21. See Koch, supra note 7, at 194; Enderlein, "Uniform Law and its Application by Judges and Arbitrators", in: UNIDROIT ed., International Uniform Law Practice (New York: Oceana 1988) 329 - 353, at 331; van der Velden, supra note 3, at 24; and Diedrich, "Maintaining Uniformity in International Uniform Law via Autonomous Interpretation: Software Contracts and the CISG", 8 Pace Int'l L. Rev. (1996) 303, at 328, also available at <http://cisgw3.law.pace.edu/cisg/biblio/Diedrich.html>.

22. See Honnold, Uniform Law for International Sales Under the 1980 United Nations Convention (3rd ed., Kluwer 1999), at § 103.2; Koch, supra note 7, at 192 et seq.

23. See Koch, supra note 7, at 334; Hillman, "Applying the United Nations Convention on Contracts for the International Sale of Goods: The Elusive Goal of Uniformity", in Review of the CISG, Cornell Law Review (1995) 21-49 C.1 (stating that the Convention's goal of saving deals promotes important international values pertinent to the contracting process), online available at <http://cisgw3.law.pace.edu/cisg/biblio/hillman1.html>; Audit, "The Vienna Sales Convention and the Lex Mercatoria", in: Lex Mercatoria and Arbitration (Carbonneau ed., 1990), 173, at 183; the reprint of the 1990 edition of this text is also available online at <http://cisgw3.law.pace.edu/cisg/biblio/audit.html>; Dubé, "The Civil Code of Quebe and the Vienna Convention on International Contracts for the Sale of Goods", in: Canadian Institute for Advanced Legal Studies ed., Nouveau Code Civile (Cowansville, Québec: Yvon Blais 1992) 205, at 219; and Magnus, "The General Principles of the CISG", 3 Int'l Trade & Bus. L.A. (1997) 33-56, at Comment 9 (concluding from the fact that the Convention allows contract avoidance only under narrow conditions and as a last resort, that the favor contractus rule is one of the Convention's general principle), also available online at <http://cisgw3.law.pace.edu/cisg/biblio/magnus.html>.

24. For further references to cases where the courts found for fundamental breach where strict performance was of the essence of the contract, see Koch, supra note 7, at 236 et seq.

25. For further references to cases where the courts found for fundamental breach because a party legitimately lost his faith and confidence in the other party's future performance see Koch, supra note 7, at 246-247.

26. See Koch, supra note 7, at 266-267; for a similar conclusion, see Liu, supra note 6, at 8.3.1. and 8.3.3.

27.. See Koch, supra note 7, at 298; for a similar conclusion, see Liu, supra note 6, at 8.3.2.

28. See Koch, supra note 7, at 267; for a similar conclusion, see Liu, supra note 6, at 8.3.2.; for a comparative analysis of Art. 25 CISG and the counterpart provisions in the Principles of European Contract Law, see Hossam El-Saghir, "Fundamental breach: Remarks on the manner in which the Principles of European Contract Law may be used to interpret or supplement Article 25 CISG" (2000); available online at <http://cisgw3.law.pace.edu/cisg/text/peclcomp25.html#er>.

29. See Koch, supra note 7, at 266; for a similar conclusion, see Liu, supra note 6, at 8.3.4.

30. See Ziegel, Commentary on 'Party Autonomy and Statutory Regulation: Sale of Goods, 6 Journal of Contract Law, North Ryde NSW, Australia (1993) 123, at 125-126 (referring to a Report on Sale of Goods, conducted by the Ontario Law Reform Commission which examined several dozen standard forms supplied by members of the Canadian Manufacturers' Association), available online at <http://www.cisg.law.pace.edu/cisg/biblio/ziegel4.html>.

31. See relevant case law:

   -    Germany 14 October 2002 Oberlandesgericht [Appellate Court] Köln, case presentation including English translation available online at <http://cisgw3.law.pace.edu/cases/021014g1.html> (stating that "not only the weight of the defect, but also the preparedness of the seller to cure the defect without unacceptable delay and burden to the buyer is of importance");
   -    Switzerland 5 November 2002 Handelsgericht [Commercial Court] des Kantons Aargau, case presentation including English translation available online at <http://cisgw3.law.pace.edu/cases/021105s1.html> (stating with regard to the preservation of contract objective of the fundamental breach requirement that "as long as and so far as (even) a fundamental defect can still be removed by remedy or replacement, the fulfillment of the contract by the seller is still possible and the buyer's essential interest in the performance is not yet definitively at risk");
   -    Germany 27 February 2002 Landgericht [District Court] Mnchen, case presentation including English translation available online at <http://cisgw3.law.pace.edu/cases/020227g1.html> (denying fundamental breach because "this kind of defect and lack of compliance is in principle remediable through the removal of the defective motors").

32. For a similar conclusion, see Ziegel, "The Remedial Provisions in the Vienna Sales Convention: Some Common Law Prespectives", in: Galston/Smit eds., International Sales (New York: Matthew Bender 1984) ch. 9, at 22; Schnyder & Straub, in: Honsell ed., Kommentar zum UN-Kaufrecht [CISG commentary](Berlin/Heidelberg/New York: Springer 1997), Art. 48, Comment 29; Graffi, supra note 2, at 343; Williams, "Forecasting the Potential Impact of the Vienna Sales Convention on International Sales Law in the United Kingdom", Pace Review of the Convention on Contracts for the International Sale of Goods (CISG), Kluwer Law International (2000-2001), 9, at IV.C.3, also available online at <http://cisgw3.law.pace.edu/cisg/biblio/williams.html>.

Honnold, supra note 22, at § 296, takes a very different position. He argues, with reference to the legislative history, that the amendment to art 48(1) "leaves little room for doubt" that the right to cure is the paramount provision and that the cure provision of art. 48(1) could be frustrated "by an unqualified application of article 49(1)."

33. See United Nations Conference on Contracts for the International Sale of Goods, Official Records, UN Document No. A/CONF.97/19, (Vienna, 10 March-11 April 1980), at 341-43; Honnold, "The Studies, Deliberations and Decisions that led to the 1980 United Nations Convention with Introductions and Explanations", in Documentary History of the Uniform Law for International Sales (Deventer: Kluwer Law International 1989), at 562-64.

34. See Koch, supra note 7, at 323.

35. See Karollus, UN-Kaufrecht: Vertragsaufhebung und Nacherfllungsrecht bei Lieferung mangelhafter Ware, ZIP 1993, 490, at 495; and Huber, in Schlechtriem (ed.), supra note 8, Art. 46, Comment 18 (both Karollus and Huber criticize the curability approach on the grounds it enables the seller retrospectively to frustrate the buyer's right of avoidance); see also the critical comments by Will, supra note 6, Art. 48, Comment 3.2.2, where the author asks the question of whether there is any "need to resort to so unconvincing a construction" to protect the seller's right to cure by giving the following illustration: "Suppose that yesterday [the buyer] concluded that a certain breach was fundamental; today he is awaiting the seller's offer to cure - the very breach has changed its nature and become a non-fundamental one; and if tomorrow all hope vanishes - the breach is automatically re-converted into a fundamental breach. Fundamental - non-fundamental - from day to day does not allow for any legal certainty in international transactions."

36. This point is rightly emphasized by Schnyder & Straub, supra note 32, Art. 49 Comment 26; and Karollus, supra note 35, at 495; for a different view, see Mullis, "Avoidance for Breach under the Vienna Convention; A Critical Analysis of Some of the Early Cases", in Anglo-Swedish Studies in Law (Andreas & Jarborg eds.), Lustus Forlag (1998), pp. 326 - 355, at 343, also available online at <http://cisgw3.law.pace.edu/cisg/biblio/mullis1.html>.

37. For the same criticism, see Karollus, supra note 35, at 495.

38. See supporting case law:

   -    Switzerland 5 November 2002 Handelsgericht [Commercial Court] des Kantons Aargau, case presentation including English translation available at <http://cisgw3.law.pace.edu/cases/021105s1.html> (stating that "an objective fundamental defect does not mean a fundamental breach of contract when the defect is removable and the seller agrees to remedy this defect without creating unreasonable delay or burden on the buyer");
 
   -    Germany 14 October 2002 Oberlandesgericht [Appellate Court] Köln, case presentation including English translation available online at <http://cisgw3.law.pace.edu/cases/021014g1.html> (stating that
"[t]he remedy of avoidance shall only be available to the seller as the last resort to react to a breach of contract by the other party, which is so fundamental that it essentially deprives him of his positive interest");
 
   -    Germany 31 January 1997 Oberlandesgericht [Appellate Court] Koblenz; case presentation available at <http://cisgw3.law.pace.edu/cases/970131g1.html>.

39. See Koch, supra note 7, at 204-205.

40. For a similar reasoning and conclusion, see Magnus, "UN-Kaufrecht" [UN-Sales Law, article by article commentary - in German], in: Staudinger, Julius von Staudingers Kommentar zum Bürgerlichen Gesetzbuch mit Einführungsgesetz und Nebengesetzen (13th ed., Berlin: Sellier/de Gruyter 1995), Art. 7, Comment 32; for a somewhat different conclusion, see Bonell, in: Bianca & Bonell, supra note 6, Art. 7, Comment 2.2.1 (stating that courts are expected to look whenever it is possible to the underlying purposes and policies of individual provisions as well as the Convention as a whole instead of sticking to their grammatical meaning).


Pace Law School Institute of International Commercial Law - Last updated January 5, 2007
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