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Published in J. Herbots editor / R. Blanpain general editor, International Encyclopaedia of Laws - Contracts, Suppl. 29 (December 2000) 1-192. Reproduced with permission of the publisher Kluwer Law International, The Hague.

[For more current case annotated texts by this author, see Bernstein & Lookofsky, Understanding the CISG in Europe, 2d ed. (2003) and Lookofsky, Understanding the CISG in the USA, 2d ed. (2004).]

excerpt from

The 1980 United Nations Convention on Contracts
for the International Sale of Goods

Joseph Lookofsky

Article 72

E.  Right to Avoid for Prospective Fundamental Breach
F.  Damages for Prospective Fundamental Breach
G.  Notice. Adequate Assurance of Performance

E. Right to Avoid for Prospective Fundamental Breach

283. Article 72(1) sets forth the general rule which entitles a party to avoid the contract when faced with an anticipatory breach:

'If prior to the date for performance of the contract it is clear that one of the parties will commit a fundamental breach of contract, the other party may declare the contract avoided.'

As regards the right to declare the contract avoided, Article 72 requires that it be 'clear' (il et manifeste') that the other party will commit a fundamental breach of contract. [page 149]

As already indicated, the requirements for avoidance, which effectively terminates the performance obligations of both parties,[1] are somewhat more strict than those associated with the right to suspend.[2] In any event, the right to avoid under Article 72 should be exercised with caution, particularly in light of the availability of suspension under Article 71: a party who fails to perform by virtue of an avoidance not justified under Article 72 will itself commit a (perhaps fundamental) breach.

1. See supra No. 46 and infra No. 310.
2. See supra No. 2130. See also the decision of OLG Düsseldorf (Germany), 14 January 1994, [at <http://cisgw3.law.pace.edu/cases/940114g1.html>] upholding the decision of Landgericht Krefeld, 28 April 1993, NJW 1994, 1101 [at <http://cisgw3.law.pace.edu/cases/930428g1.html>], both decisions also reported [at <http://cisgw3.law.pace.edu/cases/950215g1.html> and] in UNILEX (seller had right to avoid 2nd shoe contract since it had become 'clear' that buyer, who had not yet performed under prior contract, would not pay). Compare the decision of the Bundesgerichtshof (Supreme Court of Germany) of 15 February 1995, RIW 1995, 505, IPRax 1996, 182, also reported [at <http://cisgw3.law.pace.edu/cases/950215g1.html> and] in UNILEX (leaving open the question of whether buyer could have avoided when manufacturer stopped its deliveries to seller).

F. Damages for Prospective Fundamental Breach?

284. While Article 72(1) clearly gives the injured party the right to avoid in the face of a prospective fundamental breach, the Convention contains no specific rule as regards an immediate action for damages in this situation. Although it has been suggested that Articles 75 and 76 may authorize such an action immediately upon avoidance,[1] Section II of Chapter V deals with damages for breach,[2] and CISG damages are based on the failure of a party 'to perform ... his obligations under the contract or this Convention.'[3] Therefore, if an action for damages under Articles 74-76 is to be based upon a 'breach by anticipatory repudiation,' we might say that a CISG promise to perform in the future 'by implication includes an engagement not deliberately to compromise the probability of performance .. .'[4] The CISG protects the expectation interest of the promisee in general,[5] and the promisee should be entitled that his performance expectation be protected against anticipatory repudiation as well.[6] Such a flexible interpretation of the rules on damages would also require that the promisee take steps to mitigate the loss occasioned by a promisor's prospective failure to perform.[7]

1. See Honnold, Uniform Law (1999) at p. 439 [available at <http://www.cisg.law.pace.edu/cisg/biblio/honnold.html>].
2. Articles 75 and 76 are special applications of the general Article 74 rule: see infra No. 289 et seq.
3. See Articles 45 (supra No. 208) and 61 (supra No. 250).
4. This was the Common law reasoning of Judge Learned Hand in Equitable Trust Co. v. Western Pac. Ry., 244 F. 485, 502 (SD.N. Y. 1917), aff'd, 250 F. 327 (2d Cir.), cert. denied, 246 US 672 (1918).
5. Regarding Article 74, see infra No. 289.
6. This would accord with the American rule: see Farnsworth, Contracts (1999) 8.20.
7. Accord: A/CONF./97/5, para. 4 of Secretariat's Commentary to Article 63 of the 1978 Draft Convention; Leser in Schlechtriem, Commentary (1998) at 541.

G. Notice. Adequate Assurance of Performance

285. As in the case of suspension of performance under Article 71, the party intending to declare the contract avoided under Article 72 must, if time permits, [page 150] give reasonable notice to the other party in order to permit him to provide adequate assurance of his performance.

This rule does not apply, however, if the other party has declared that he will not perform his obligations,[1] in that such a 'repudiation' would, in itself, make the prospect of a forthcoming fundamental breach (abundantly) 'clear.'

1. Article 72, paragraphs (2)-(3). [page 151]

Pace Law School Institute of International Commercial Law - Last updated April 5, 2005
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