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Reproduced with permission of 38 International and Comparative Law Quarterly (1989) 475-501

The Convention on the International Sale of Goods:
Anticipatory Repudiation Provisions and Developing Countries

M. Gilbey Strub

[INTRODUCTION]

In March 1980 a diplomatic conference met in Vienna to consider the adoption of a uniform law governing international sales contracts.[1] The conference unanimously adopted the final text of the Convention on Contracts for the International Sales of Goods "the 1980 Convention."[2] The adoption of the 1980 Convention was a considerable achievement, particularly in view of the failure of the previous draft, the 1964 Hague Convention, to attract widespread adherence.[3] Developing countries had been particularly resistant to that draft because of their inadequate representation in the Convention's drafting process [4] and their perception that it tended to favour the sellers of manufactured goods in the [page 475] industralised countries at the expense of buyers in developing countries.[5]

The 1980 Convention, however, succeeded in attracting widespread participation and approval from the Third World.[6] Yet, there were significant conflicts between the developed and the less developed countries over substantive areas of contract law. The doctrine of anticipatory repudiation was one area which generated considerable opposition from developing countries.[7] The doctrine is codified in Article 72 of the 1980 Convention, which provides:

   (1)   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.
 
   (2)   If time allows, the party intending to declare the contract avoided must give reasonable notice to the other party in order to permit him to provide adequate assurance of his performance.
 
   (3)   The requirements of the preceding paragraph do not apply if the other party has declared that he will not perform his obligations [emphasis added].

In addition, Article 71 provides, inter alia:

   (1)   A party may suspend the performance of his obligations if, after the conclusion of the contract, it becomes apparent that the other party will not perform a substantial part of his obligations as a result of:
(a) a serious deficiency in his ability to perform or in his creditworthiness; or
(b) his conduct in preparing to perform or in performing the contract.
 
   (3)   A party suspending performance, whether before or after dispatch of the goods, must immediately give notice of the suspension to the other party and must continue with performance if the other party provides adequate assurance of his performance [emphasis added].

A number of Third World representatives opposed Articles 71 and 72 in part because of their unfamiliarity with the anticipatory breach [page 476] doctrine.[8] The concept of anticipatory breach originated in the English common law.[9] Civil law jurisdictions generally do not recognise the doctrine.[10]

The crux of the developing countries' criticism of the 1980 Convention's suspension and avoidance provisions rested on two claims. First, the provisions penalise the repudiating party too severely by denying it notice and, thus, the opportunity to offer adequate assurances before the other party may suspend or avoid the contract. Even when a repudiating party provides assurances promptly, even a brief suspension may cause considerable damage, such as breaching a contract with a third party. Second, because the suspension provision rests on arguably subjective criteria, there is an enormous potential for abuse by a party who, wishing to get out of a contract that has become unprofitable as a result of a rising market for example, may do so by exploiting the other party's unstable state.[11] Furthermore, conditions of economic disparity and political instability in developing countries [12] may exacerbate the appearance [page 477] of an unstable situation, thereby enabling the contracting partner unjustly to break a contract.[13] From the developing countries' perspective, the anticipatory repudiation provisions reinforce their weaker bargaining power in the international trade setting.[14]

The delegates at the Vienna conference made compromises to reduce the potential for abuse of the anticipatory breach provisions. Whether the compromises will have that effect is questionable. What is significant, however, is that the current controversy over the doctrine of anticipatory repudiation between the developing and developed countries is reminiscent of the opposition the doctrine evoked among nineteenth-century common law scholars at the time of its origin in Hochster v. De la Tour.[15]

This article first examines the common law origins of the doctrine of anticipatory breach and the debate it generated as well as its present-day codification in the common law. Second, it compares the civil law analogies of the doctrine under French and German law. Third, it readdresses the anticipatory breach provisions of the 1980 Convention, the developing countries' opposition and the subsequent compromise; an analysis of the actual scope of the 1980 Convention's suspension and avoidance rights follows. Finally, the article concludes that the developing countries' opposition to the suspension provision was perhaps unwarranted; the provision in fact is fairly protective of the repudiator. The avoidance provision, however, is punitive to the repudiator because the cancelling party is required to give notice and an opportunity to offer assurances only "if time allows," and not at all in the case of a declared repudiation. Hence, this article proposes a stringent enforcement of the reasonable person standard of when "time allows." In addition, it advocates deleting the notice exemption for declared repudiations to lessen the cancelling party's temptation to misconstrue an ambiguous repudiation as a "declared" repudiation.

I. THE COMMON LAW DOCTRINE OF ANTICIPATORY BREACH

The doctrine of anticipatory breach originated in Hochster v. De la Tour. Albert Hochster contracted with Edgar De la Tour to be [page 478] De la Tour's courier, commencing 1 June 1852. On 11 May De la Tour wrote to Hochster that he had changed his mind and declined Hochster's services. On 22 May Hochster brought an action seeking damages for breach of contract. De la Tour objected that there could be no breach of contract before 1 June. Lord Campbell CJ took what was then a novel approach in holding that Hochster did not have to wait until June to sue De la Tour, but could sue immediately.[16] Thus the rule was established; victims can immediately seek damages for anticipatory repudiation of a bilateral contract.

A. Repudiation as a Defence

The doctrine of anticipatory breach provides both a defence and an immediate cause of action against the repudiating party.[17] It is a defence because the non-repudiating party is freed from any contractual obligations and immune to a claim for damages should the repudiating party reconsider, decide to perform and accuse the non-repudiating party of breach; the immediate cause of action precludes the repudiating party from reconsidering.[18] Both aspects of the doctrine posed logical and doctrinal difficulties for contract scholars.[19] Critics claimed that as a logical matter, repudiation of a contract did not constitute a present breach.[20] This assumption was based on the theory that contractual duties arise exclusively from express promises: unless there is an express promise not to repudiate, there can be no breach of a duty until the time of performance.[21] In Hochster, Lord Campbell countered this theory by imputing a duty upon each party to respect the contractual relationship by refraining from breaching it in advance.[22] Contract scholars embellished [page 479] this by finding an implied duty not to repudiate the contract based upon the sum of express promises under the contract.[23]

B. Repudiation as an Immediate Cause of Action

Professor Williston argues that even if repudiation does constitute a present breach and, thus, a defence, it does not mean the injured party is necessarily entitled to an immediate cause of action. This is where the distinction between a defence and a right of action becomes important: "The law can properly excuse a promisor from performing whenever justice requires, but it does not have the same liberty of enlarging a promisor's contractual obligations."[24] The legal difficulty with giving the promisee an immediate cause of action is that it gives the promise a benefit and the promisor a burden for which neither contracted.[25] Rather than creating another legal fiction scholars resolved this dilemma on policy grounds.[26] Social policy justified allowing the promisee an immediate cause of action for a number of reasons: first, both parties benefit by encouraging the injured party to cover the contract elsewhere and thereby mitigate damages;[27] second, it allows for immediate settlement of the dispute; third, the market places a present value on a right to future performance for purposes of assignment. A repudiated contract, however, is worthless. Allowing an immediate cause of action enables the injured party to avoid having to carry an accounting loss for an excessive amount of time as a result of the broken contract.[28]

C. Common Law Codification of Anticipatory Breach Doctrine

1. Repudiation

English common law has not codified the anticipatory breach [page 480] doctrine.[29] In the United States the doctrine is codified in section 2-610 of the Uniform Commercial Code 1977 ("the Code"), which provides:

When either party repudiates the contract with respect to a performance not yet due the loss of which will substantially impair the value of the contract to the other, the aggrieved party may
(a)   for a commercially reasonable time await performance by the repudiating party; or
(b)
 
resort to any remedy for breach (Section 2-703 or Section 2-711), even though he has notified the repudiating party that he would await the latter's performance and has urged retraction; and
(c)   in either case suspend his own performance or proceed in accordance with the provisions of this Article on the seller's right to identify goods to the contract notwithstanding breach or to salvage unfinished goods (Section 2-704).

Under section 2-610, when either party repudiates a contract the non-repudiating party may pursue several routes: he may wait for a commercially reasonable time to determine if in fact the other party will perform;[30] he may resort to any remedy for breach of contract under sections 2-703 (seller's remedies) and 2-711 (buyer's remedies), which include, but are not limited to, damages,[31] specific performance (if the non-repudiating party is the buyer) [32] or avoidance.[33] Whether the injured party awaits performance or pursues one of the available remedies, in either case it may suspend its own performance.[34]

The Code does not define "repudiation."[35] Comment 1 to section 2-610 restates the general common law definition: "anticipatory repudiation centers upon an overt communication of an intention or an action which renders performance impossible or demonstrates a clear determination not to continue with performance."[36] The requirement of [page 481] a positive statement or conduct showing intent is strict.[37] Because the doctrine of anticipatory repudiation tends to lead to harsh results, courts are unwilling to invoke its application unless there is an unambiguous demonstration of an intent to breach the contract.[38]

Courts will recognise a repudiation only under a narrow class of circumstances.[39] Attempting to make continued performance conditional upon terms that go beyond the original contract is a repudiation.[40] A simple declaration that a contract is not binding, however, is not.[41] An inability to perform does not in itself establish a repudiation because "a party's present inability to perform is not conclusive" as to ability to perform at the time of performance is due or of the party's intention to perform.[42] Financial distress in itself is not a repudiation [43] either, although it may give the other party "reasonable grounds for insecurity" (see infra). Section 2-609 was inserted in the Code to cover ambiguous situations such as insecurity. It enables a party to determine whether a threatened repudiation will materialise by permitting that party to make a written demand for adequate assurances.[44]

2. Reasonable grounds for insecurity

Section 2-609 of the Code provides, inter alia:

   (1)   When reasonable grounds for insecurity arise with respect to the performance of either party the other may in writing demand adequate assurance of due performance and until he receives such assurance may if commercially reasonable suspend any performance for which he has not already received the agreed return ...
 
   (4)   After receipt of a justified demand failure to provide within a reasonable [page 482] time not exceeding thirty days such assurance of due performance as is adequate under the circumstances of the particular case is a repudiation of the contract.

The rationale behind the section is that a contractual party has a right not only to counter-performance but also, during the period between formation of the contract and the time designated for performance, to be free from worry that the other party might breach.[45] In addition, if a party is going to breach, the other party deserves to be informed of it as soon as possible. This information allows the non-repudiating party to minimise damages, for both parties' benefit.[46]

Courts recognise grounds for insecurity that are "reasonable" in fairly broad circumstances. "Reasonable" is defined by commercial standards.[47] The determination of reasonableness tends to depend on the facts of each case, taking into account the nature of the contract, credit history of the parties, course of dealing between the parties and trade usage.[48] Failure to pay for a delivery under an instalment contract justifies deliveries until receipt of assurances.[49] Expanding use of a credit term may also constitute reasonable grounds for insecurity.[50] Examples of unreasonable grounds for insecurity are when a party's complaint has already been remedied [51] or when a party receives a slightly defective [page 483] shipment under a contract adhering to trade standards that require defects to be remedied by a price adjustment.[52]

A party may not evade a risk that it has contractually assumed by requesting assurances. For example, the buyer assumes the risk of receiving defective goods under a CIF contract because a CIF contract requires payment against documents with no right to inspect. Normally, if the buyer heard that the seller was going to ship defective goods, the buyer could suspend payment because there would be reasonable grounds for insecurity. However, because it is a CIF contract requiring payment to be made against documents, the buyer cannot. For the buyer to be entitled to demand assurances, the insecurity must relate to grounds which would excuse payment, for example a report that the seller was not going to ship at all.[53]

3. Adequate assurances

The Code similarly fails to define "adequate assurances." Like grounds for insecurity, whether assurances are adequate will be determined by the circumstances. Adequacy may turn on the character of the party offering the assurances: a party with a good business reputation might be able simply to state that the contractual obligations will be met; a party known to cut corners, however, might be required to give a security as adequate assurances. The nature of the goods will also be determinative. A seller of goods that are usable despite slight defects could promise to investigate the matter and assure that the defect will not be repeated. On the other hand, where the contract is for goods that, if defective, are completely useless, any assurances short of replacement are likely to be inadequate.[54]

II. CIVIL LAW ANALOGIES TO ANTICIPATORY BREACH

Although the civil law technically does not recognise the anticipatory breach doctrine, various civil law countries do provide a limited remedy for anticipatory breach. For the most part, the civil law remedy is procedural in nature rather than substantive.[55] [page 484]

A. French Law

French law does not recognise the doctrine of anticipatory breach.[56] The nearest French remedy to the US Code's suspension or avoidance remedy is exceptio non adimpleti contractus, which translated literally means "defence of unperformed contract." The French translation is exception d'inéxecution.[57] The remedy, available only when a contract requires concurrent performance, permits one party to refuse to perform until the other party performs. The French Civil Code contains this remedy in Articles 1612 and 1613, which respectively provide:

The seller need not deliver the object, if the buyer has not paid the price, unless the seller gave a period within which payment could be made.

The seller need not deliver, even if he extended a time for payment, if, after the sale, the buyer becomes bankrupt or insolvent so that the seller finds himself in imminent danger of losing the price, unless the purchaser furnishes security for making payment at the time agreed upon.

and Article 1653 (buyer's right to withhold payment). The term exceptio is misleading because it "suggests a defence to an action," when the remedy's essential characteristic is actually the right not to have to go to court to invoke the remedy. It is temporary in that "[t]he contract and the duties under it remain and the party making use of the exceptio" must be ready to perform if and when the other party does.[58] In this manner, the remedy functions as a suspension right, although its invocation is limited to the time of performance rather than in advance. The French remedy, however, is not capable of transforming into a full-blown right to cancel upon the other party's failure to provide assurances.[59]

If the party wishes to cancel the contract altogether due to the other party's failure to perform, the party must bring an action en résolution under Article 1184.[60] French law's "firmly rooted policy against self-help" [61] is embodied in Article 1184:

A cancellation condition is always implied in synallagmatic contracts, [page 485] where one of the two contracting parties does not fulfil his obligation [ne satisfera point à son engagement].

In this case the contract is not cancelled as a matter of right [de plein droit] ... Cancellation must be applied for in court, and the defendant may be given additional time [un délai], according to circumstances.[62]

Even in the case of delayed performance, the promisee may not reject the performance on the grounds of delay without having the contract judicially dissolved.[63]

French law does recognise three exceptions to the general rule that creditors must seek judicial termination in order to be discharged.[64] Extra-judicial résolution is permitted: (1) when the parties expressly provide conditions for termination in their contract;[65] (2) in certain narrowly defined situations in which the legislature views recourse to a court unnecessary and, finally, (3) in circumstances which "appear to justify it."[66] An outright repudiation apparently falls within the last category: when a party refuses outright to perform in advance of the time fixed for performance, the court will allow the promise to treat the contract as discharged without obtaining a court order.[67] But note that if the promisor repudiates the contract simply on its terms or by the date of performance, the injured party must still bring [page 486] an action en résolution in order to be discharged from the contract, and in either case the injured party must wait until the time of performance to bring the action.[68] Denying an immediate cause of action prevents giving the injured party excessive power over the defaulting party.[69] The tendency to be lenient toward the repudiating party is rooted in the civil law policy, characteristic of both French and German law of assuring a repudiating party an opportunity to correct its default.[70] In addition, a general resistance to self-help in contract law is reflected by the French judiciary's exclusive power to terminate contracts.[71]

In view of the position of French law on the doctrine of anticipatory breach, it is surprising how receptive France was to the anticipatory breach provisions in the 1980 Convention. A French commentator, Professor Kahn, approves of Article 71 of the 1980 Convention (the right to suspend) but not Article 72 (right to avoid) because suspension is a less definitive solution and, therefore, less harsh to the repudiating party. Kahn is comforted by the fact that the right to suspend does not terminate the contract and by the fact that the suspending party remains responsible under the contract should the other party perform after all.[72] The right to avoid, on the other hand, strikes Kahn as dangerous: he believes that as long as the fixed date of performance has not arrived, it is impossible to know for sure that the party in difficulty will actually breach.[73] In addition, there are problems of proof: apart from extreme cases such as when a party faces criminal charges or bankruptcy, it will be difficult to prove the other party's inability to perform. Finally, Article 72 may spawn fraud by inspiring a party to take advantage of the other party's difficult situation and thereby be released from the contract and free to enter another more profitable one.[74] [page 487]

B. German Law

German law, although it does not officially recognise anticipatory breach,[75] is considerably more liberal than French law in terms of offering a remedy to the victim of a repudiation. Article 321 of the German Civil Code authorises a party to suspend performance:

A person who is bound to perform first under a two-sided contract may insist that the other party perform first, or give security if after the conclusion of the contract a serious change for the worse in the financial circumstances of the other party comes about, which endangers the claim for the counter-performance.

This provision is, however, limited in two respect.[76] First, it applies only to the party that must perform first; thus it may not enable a party to suspend the manufacturing of goods under a contract that calls for concurrent exchange of goods against payment. Second, the right to suspend occurs only upon the worsening of the "financial position" of the other party. It is slightly more liberal than the English codification of the seller's lien [77] since a worsening of one's financial position could encompass more than plain insolvency. It is less liberal than section 2-609 of the US Code, which applies to either party and on very broad grounds, i.e. any circumstances giving rise to reasonable grounds for insecurity. The German provision is similar to both section 2-609 and Article 71 of the 1980 Convention in that it affords the repudiating party an opportunity to terminate the suspension. Under the German provision, however, the injured party has more power than under the Code or the 1980 Convention because it can make its continued performance conditional upon either the other party's promise to perform first, or upon the giving of security.

Article 326 of the German Civil Code provides, inter alia, that:

If, in the case of a two-sided contract, one party is in default due to delay, the other party may allot him a fixed reasonable period to perform and declare that he will refuse to perform after the period elapses. After the period expires he is entitled to demand compensation for non-performance, or to rescind the contract if the performance has not been made in due time; the claim for performance is barred ...

If in consequence of the default, the performance of the contract is of no use to the other party, the other party has the rights specified in paragraph 1 and need not fix a time period [emphasis added].[78] [page 488]

Article 326's application extends to situations in which a party unequivocally repudiates a contract before performance has fallen due: once the debtor has orally refused to perform, there is no reason to give the debtor a period of grace with a statement that it is final.[79]

A less unequivocal repudiation, such as imposing terms which go beyond the original contract, also entitles an injured party to bring an immediate action for damages or dissolution.[80] Any conduct which clearly demonstrates that a party will not perform the contract constitutes a repudiation.[81] The conduct, however, must be so clear that neither the threat of a lawsuit nor the offer of a period of grace will induce the promisor to perform,[82] or that in the interests of justice, it would be unfair to leave the promisee in an intolerable state of uncertainty.[83]

The right to terminate a contract on grounds of repudiation under German law is surprisingly similar to section 2-609 of the Uniform Commercial Code. Both laws require a high degree of certainty with respect to the alleged repudiation and under both legal systems the injured party is given the option of damages or dissolution.

III. ARTICLES 71 AND 72 OF THE 1980 CONVENTION

A. The Opposition

At the 1980 Diplomatic Conference the developing countries strongly opposed the 1978 draft of the Convention's suspension and avoidance provisions.[84] Their objections focused on the excessive power the provisions gave the non-defaulting party.[85] They supported this claim on two grounds. First, Article 63, the precursor to the 1980 Convention's avoidance provision (Article 72), authorised a party to cancel a contract [page 489] without giving any notice whatsoever to the party in default.[86] Article 62, precursor to the 1980 Convention's suspension provision (Article 71), however, required the suspending party immediately to give notice and to continue performance if the other party provided adequate assurance of performance.[87] Allowing a party to proceed directly to the remedy of avoidance was viewed by the developing countries as too harsh on the defaulting party.[88] Without notice, the defaulting party is deprived of an opportunity to offer adequate assurances and thereby is denied a chance to avert the harsh ramifications that flow from the complete cancellation of a contract.[89] The delegate from Egypt strenuously argued that the defaulting party should be given the opportunity to reestablish itself and that, even in the case of bankruptcy, a court-appointed receiver may be in a position to perform the contract. If so, the receiver should have the right to do so.[90] For these reasons, the Egyptian delegate proposed that notification be required regardless of whether a party is suspending or avoiding a contract.[91]

The developing countries criticised Article 62 for its subjectivity; because it rested on subjective criteria, there was a potential for abuse by the economically stronger party.[92] Article 62 allowed a party to suspend his performance "if it is reasonable to do so" because a serious deterioration in the ability to perform or in the creditworthiness of the other party or his conduct in preparing to perform "gives good grounds" to conclude that the other party will not perform a substantial part of his obligations. The delegate from Egypt argued that it is "extremely dangerous to empower parties to withdraw from their obligations solely on the basis" of such a "purely subjective assessment of the situation and without any supervision from the courts."[93] The avoidance provision (Article 63) was satisfactory to the Egyptian delegation in the [page 490] respect that it was based on clearer and less subjective criteria.[94] To avoid a contract under Article 63 it must be "clear" that one of the parties will commit a fundamental breach. The solution the delegate from Egypt suggested was to incorporate the objective "it is clear" language into both the suspension and avoidance provisions.[95]

The Egyptian delegation proposed an amendment combining Articles 62 and 63 "as a compromise between the interests of the developed countries and the developing countries."[96] The Egyptian amendment linked the remedies of avoidance and suspension in a manner similar to section 2-609 of the Code.[97] The amendment permitted a party to give notice of its intention to suspend performance if "it becomes apparent" (which was improperly translated from the French and should have read "it is clear")[98] the other party will commit a fundamental breach. If the party receiving the notice fails to give adequate assurance within a reasonable time, the other party may suspend performance. If the party receiving the notice fails to give any assurance at all, under the Egyptian proposal the other party may cancel the contract.

The developing countries tried to persuade the Conference to adopt the amendment. They argued that the amendment achieved a fairer balance between the interests of the two parties because it protected the economically weaker party by affording it an opportunity to give adequate assurances before entitling the injured party either to suspend or avoid a contract.[99] Second, the "it is apparent" language (had it been translated correctly) made the test objective.[100] The objective test would aid courts to adjudicate disputes in jurisdictions that have no [page 491] equivalent to the anticipatory repudiation doctrine under their domestic laws.[101]

The proposal was ultimately rejected by a 19-19 vote.[102] Those favouring rejection argued that making suspension conditional on mandatory notification in some situations was too burdensome on the non-defaulting party: when the deficiency is so serious and undisputed, quick action may be essential.[103] There was also resistance to lumping the remedies together: suspension is merely a precautionary measure and is intended to be temporary; avoidance, on the other hand, is a complete remedy available to a party as a last resort when non-performance is imminent.[104] Although the amendment preserved this distinction, it was nonetheless viewed as unnecessarily complicated.[105]

B. The Compromise

After the amendment failed to be adopted, an ad hoc working group of ten countries drafted a compromise solution.[106] The compromise draft became essentially the final draft of Articles 71 and 72 of the 1980 Convention and is actually quite similar to the original UNCITRAL Articles 62 and 63.[107] The compromise on the suspension provision consisted of deleting "when there are good grounds to conclude" from the UNCITRAL draft since this language had been regarded as too subjective; the Egyptian amendment had done this as well. "When it appears" was inserted in its place, and later became "when it becomes apparent" in the final draft.[108] The difference between "it becomes apparent" and "good grounds to conclude," however, is insignificant.[109] [page 492]

The Working Group also retained the specific examples of grounds for suspension (serious deficiency in ability to perform or creditworthiness; or conduct preparing to perform or in performing the contract).[110] The Egyptian amendment had deleted these examples in favour of the more stringent avoidance standard of "when it becomes apparent that one of the parties will commit a fundamental breach."[111]

The draft that the Working Group submitted with respect to the avoidance remedy is identical to Article 72 of the 1980 Convention.[112] In the spirit of compromise, the Working Group included the requirement that the defaulting party be given notice and an opportunity to offer adequate assurance -- "if time allows,"[113] The article provides, "If time allows, the party intending to declare the contract avoided must give reasonable notice to the other party," in order to permit the other party to provide adequate assurance of performance.[114] The Egyptian delegation objected to the "if time allows" phrase because it would lead to abuse. The delegate from China proposed its deletion. Discussion was cut short by the Canadian delegate's plea that the Working Group's text be adopted without amendment since it had been the product of "intensive discussion and represented a compromise." China's proposal to delete "if time allows" was rejected thereafter.[115]

IV. ANALYSIS OF ARTICLES 71 AND 72

The legitimacy of the developing countries' criticism of the 1980 Convention's codification of the suspension and avoidance rights can be evaluated by a determination of the parameters of those rights.

A. Suspension

Article 71 authorises a party to suspend performance when "it becomes apparent" that the other party will not be able to perform.

1. Objective standard

The developing countries' concern related to the excessive power that would flow to a party who could suspend performance because of his subjective conclusion that the other party was unable to perform. They can, however, rest assured that a subjective fear will not give a party [page 493] grounds for suspension under Article 71.[116] On the other hand, objective certainty is not a prerequisite to the right to suspend,[117] based on the following reasoning. First, the Diplomatic Conference explicitly rejected the incorporation of objective language into Article 71 when it refused to adopt the Egyptian delegation's amendment to combine the suspension and avoidance provisions. Second, the issue was squarely resolved during the debate over the proper English translation of "il apparait" from the French text of Article 71. The committee settled on "it appears" in preference to "it is clear" because of its intention that the criterion entitling a party to suspension be less stringent than that of avoidance since suspension was the less severe remedy. Finally, Article 71 permits the defaulting party to provide adequate assurances of his performance. Since "the initial appearance" of an inability to perform "may be modified by clarification of the situation," common sense suggests that the suspending party need not establish non-performance with absolute certainty.[118] It is more likely that Article 71 requires "objective grounds showing a high degree of probability of non-performance."[119]

2. Grounds for suspension

The appearance of prospective non-performance must result from either a serious deficiency in the ability to perform, or in creditworthiness, or from conduct in preparing or actually performing the contract.[120] The prospective non-performance must relate to a "substantial part" of the other party's contractual obligations.[121] There is no right to use suspension to coerce the other party into performing minor obligations.[122] In practice there may not be a distinction between a breach of a "substantial part" of the contract and a "fundamental breach," the standard for avoidance. Nonetheless, "it must be assumed that such a differentiation is, in principle, possible" since the Egyptian amendment making suspension conditional upon a prospective fundamental breach was rejected.[123] [page 494]

Circumstances justifying suspension may relate to general conditions such as the outbreak of war or the imposition of an export embargo so long as the condition affects the other party's ability to perform. Falling behind in payments on an instalment contract does not justify suspension unless it indicates a serious deficiency in creditworthiness. A seller who makes defective deliveries to a third party does not give the buyer grounds for suspension unless it reflects the seller's inability to perform with respect to the present contract. If the cause of the defective deliveries was the result of incorporating a raw material from a particular source which the present contract also calls for, the seller's conduct in preparing to use the same raw material would constitute an inability to perform a substantial part of the contract.[124]

The suspending party is entitled to suspend not only performance due at the time fixed by the contract, but may also discontinue preparations under the contract. The seller, for example, may suspend the manufacturing or procurement of goods. Similarly, the buyer may delay the "steps leading toward payment, such as the establishment of a letter of credit."[125] If the other party offers adequate assurances, the suspending party is allowed an extended period in which to perform. The suspending party is thus not liable for late performance, to the "extent the delay corresponds to the suspension of preparations."[126]

3. Adequate assurances

The provision of adequate assurances reinstates the suspending party's obligations under the contract.[127] Reassuring words that merely reiterate the party's contractual duties do not constitute adequate assurances: to be "adequate" the assurances must give reasonable security to the suspending party that the threat of non-performance is removed.[128] The assurances must demonstrate "either that the other party will in fact perform" or "that the suspending party will be compensated for losses" resulting from continued performance.[129] If for example, the buyer's performance is endangered as a result of a strike or the loss of a source of necessary raw materials, the threat of non-performance may be removed by showing proof of a settled strike or the procurement of another source of raw materials.[130] [page 495]

The assurances do not necessarily have to prove perfect performance. Since suspension is justified only when there is a threat of non-performance of a "substantial part" of a party's obligations, assurances may be adequate "even if it involves an insubstantial non-conformity in performance."[131] Thus, assurances demonstrating that full performance will occur, but after a slight delay, would require the other party to terminate the suspension.[132] The party in breach, of course, will have to compensate the other party for damages resulting from the delay -- in the case of prospective minor damages, a party may make a demand for adequate assurance of payment for those damages as well.[133]

An insolvent buyer may offer adequate assurances consisting of the establishment of an irrevocable letter of credit.[134] The buyer, however, is not required to do this in order to reinstate the suspending party's contractual duties.[135] The conference made this clear in its rejection of an amendment introduced by West Germany requiring that a guarantee, documentary or otherwise, constitute adequate assurances.[136] Conference members criticised the guarantee requirement for being too restrictive because it excluded other appropriate forms of assurances. In addition, members viewed it as penalising the economically weaker party by imposing additional costs on its provision of assurances.[137]

The final assessment of the right to suspend is that it is very broad.[138] The right is accorded under much broader circumstances than under German law ("significant deterioration in the financial position of the other party")[139] or under the United Kingdom Sale of Goods Act (unpaid seller's right to retain possession upon buyer's insolvency).[140] The right to suspend under the 1980 Convention, however, is no broader than its Uniform Commercial Code counterpart ("when reasonable grounds for insecurity arise").[141]

B. Avoidance

Article 72 of the 1980 Convention permits either party immediately to declare an international sales contract avoided if "it is clear" that the other party will commit a fundamental breach. A breach is fundamental [page 496] if it causes "such detriment to the other party as substantially to deprive" that party of what it "is entitled to expect under the contract."[142] By Article 72(2) the avoiding party is required to give notice and an opportunity to offer adequate assurances only "if time allows." The notice requirement is waived by Article 72(3) when the other party has "declared" its refusal to perform the contractual obligations.

1. Grounds for avoidance

Words or conduct may make it clear that a fundamental breach will occur.[143] The standard of when "it is clear" is, however, problematic. For example, a verbal repudiation may not make the future occurrence of a fundamental breach absolutely clear since the repudiating party can always undergo a change of heart.[144] Nonetheless, verbal repudiation is explicitly provided for as grounds for immediate avoidance in Article 72(3).

A seller's wrongful resale to a third party of the contract's subject matter would be a clear imminent fundamental breach.[145] An objective fact such as a natural disaster or the imposition of an embargo may also make it clear that future performance will be impossible.[146] The avoiding party would be prudent in this situation, however, to make a demand for adequate assurances since the objective fact must actually threaten the party's performance.[147]

2. Failure to give assurances as grounds for avoidance

It is unresolved whether the failure to offer adequate assurances in response to a proper request under Article 71 is a repudiation justifying avoidance. The Secretariat's Commentary to UNCITRAL Article 63 (which is identical to Article 72 except that it has no notice requirement) states that it "may help make it 'clear' that the party will commit a fundamental breach."[148] Professor Honnold agrees that it "may make it clear" but fails to reveal why.[149] Professor Schlechtriem holds a contrary view: the refusal to provide adequate assurances "should not in itself be [page 497] regarded as 'clear' evidence of an impending breach of contract."[150] Professor Ziegel agrees with Schlechtriem; because avoidance comes into play only when "it is clear" there will be a fundamental breach, the failure to give adequate assurances is too ambiguous to represent an imminent breach. He states: "A party's failure to provide an assurance of performance is surely not unequivocal evidence" of an unwillingness to perform, particularly when the repudiating party "may question the validity of the requesting party's feeling of insecurity to begin with."[151]

Obviously, there will be problems with this aspect of Article 72. A failure to respond to a request for assurances is too vague to merit avoidance under the text of Article 72. Yet how long must the party suspending performance wait? and what should the party do if a response is not forthcoming? A plausible solution would be to amend Article 72 with a Code-type clause: the failure to provide adequate assurances "within a reasonable time not exceeding thirty days" shall entitle the suspending party to treat the contract as repudiated. The period that is considered reasonable should be lengthened so as to be consistent with international business reality. The clause would enable the suspending party to do something about the predicament rather than having to remain in a state of uncertainty. The clause would also encourage the suspending party to fulfil its duty to mitigate damages under Article 77 for the sake of both parties.[152]

3. The notification requirement

The lack of a mandatory notice requirement in Article 72 is by far the most troublesome aspect of the 1980 Convention's codification of the anticipatory repudiation doctrine. It was understandably a major concern to the developing countries during the Diplomatic Conference. Article 72 requires a party to give notice of his impending avoidance only when time allows. This requirement is waived altogether when the party has "declared" its refusal to perform its contractual obligations.

(a) Notice required "if time allows." Honnold believes that "modern methods of communication" would normally allow the provision of notice without impinging on the aggrieved party's "freedom of action."[153] He is optimistic in his assumption that "modern methods of [page 498] communication" will inspire parties to give notification. Yet, parties will always be able to put forth some plausible reason for the particular circumstances demanding quick action: the party is unable to reach the other party, it is necessary to procure another source of supply to meet other contractual obligations, mitigate losses, meet a crucial deadline, etc. As the developing countries claimed, the potential for abuse is enormous. The solution is strictly to enforce the notice requirement by the reasonable person standard as to when time allows, with damages being awarded to the repudiator upon a showing that the failure to give notice was unreasonable. The developing countries proposed deleting "if time allows," making notice mandatory. The delegation rejected a mandatory notice requirement, and rightfully so, because it would have made the avoidance provision indistinguishable from the suspension provision.

(b) No notice required at all. Article 72 does not require the avoiding party to give notice to a party who declares its refusal to perform the contract. The following situation is illustrative of the problems that could arise. According to Schlechtriem, the imposition of terms going beyond the original contract or allegations of contract violations used as a pretext for evading one's own duties justify the other party in automatically terminating the contract. He considers these situations to fall within the category of declared repudiations and, thus, merit the waiver of the notice requirement.[154] His conclusion is troublesome; if a party's declared refusal fails to make non-performance absolutely "clear,"[155] a party's demand for additional or varying terms can hardly be considered to make non-performance "clear" either. If the party expressly makes performance conditional on terms going beyond the original contract by making a statement such as "I will not perform unless," it may or may not constitute a declared repudiation justifying avoidance. It is not so clear, however, that notification by the avoiding party is superfluous. The party could merely be haggling for a better bargain. The problem with allowing parties to dispense with the notification requirement is that parties to international contracts have a much greater propensity for misunderstandings -- of culture, language and business ethics -- and hence deals are more likely needlessly to collapse due to communication breakdowns. The solution is stringently to enforce the notice requirement by the reasonable person standard of "when time allows" in all situations. Damages could be awarded to the repudiating party upon showing that the cancelling party's failure to give notice was unreasonable. In addition, if the exemption for declared repudiations was deleted, the "if time allows" condition would be less objectionable. [page 499] Without Article 72's express absolution, there would be less temptation to neglect giving notice in situations of ambiguous repudiations.

It is arguable that waiving the notice requirement is justifiable when time is short or when the repudiation is so obvious that the notice is futile precisely because of the nature of international contracts. A wider range of things can thwart an international contract than a domestic contract. Wars, embargoes, exchange controls and natural disasters are events beyond a party's control that can occur during the course of an international deal. Waiving the notice requirement may return some of the control to a party who relinquishes it due to the unpredictable nature inherent in international contracts.

Yet, this justification undermines the value the market places on international contracts. Parties to an international contract subject themselves to its inherent risks and in turn are rewarded by the corresponding market values of imports or exports. A party that can automatically cancel a contract under certain circumstances evades a risk contractually assumed by that party. The ultimate effect is to upset the balance in bargaining power between parties that are not on equal terms to begin with.

C. The Avoidance Provision and Developing Countries

Developing countries' unequal bargaining power is apparent regardless of whether they are on the buying or selling end of an international contract: as sellers of commodities, they are "confronted with a powerful world market of buyers, and, as buyers of industrial products, they encounter the know-how and economic power of their co-contractor."[156] Regardless of their position in the contract, the nature of suspension and avoidance imposes harsher consequences on developing countries than on developed countries.[157] Industrialised countries take for granted modern transportation, efficient communication and storage facilities that assure the preservation of goods. In developing countries "at seaports where adequate storage facilities do not exist one may see piles of industrial products on the ground, exposed to the weather." These conditions exacerbate the harshness resulting from immediate cancellation by the buyer or seller.[158]

Regardless of the remedy's shape or scope, in common or civil law, the right to cancel or suspend has always been sharply circumscribed to maintain a balance between the right to terminate a bad contract and the right to be free from extra-contractual duties which might lead to [page 500] abuse. The nineteenth-century common law recognised as a repudiation nothing less than an express verbal intention not to perform a contract. Common law judges saw to it that the law did not overstep its bounds and trample upon contracting parties' free will by imposing extra-contractual burdens and benefits. To be consistent with modern economic realities, the Code expanded its definition of repudiation to include conduct, as well as speech, that manifested an intent to breach. In addition, section 2-609 was designed as an inventive tool to weed out the real from the feigned repudiations. The civil law has been particularly protective of the party in default. French law, ever mindful of the defaulting party's potential for redemption, limited the remedy to a procedural benefit -- extra-judicial dissolution. German law pragmatically recognised a repudiation as a present breach when all else failed; repudiation occurred when neither the threat of suit nor the offer of a period of grace would induce a recalcitrant promisor to perform.

In relation to the fragile evolution of the anticipatory repudiation doctrine, the 1980 Convention is out of kilter. The avoidance provision fails to take into account the dramatically disparate levels of bargaining power among those subject to the 1980 Convention by virtue of its worldwide scope. Cancellation of a contract without notice imposes a harsh and unpredictable penalty on the defaulting party. As long as developing countries are the more likely party to be on the receiving end of a cancellation, their status as the weaker international trade partners will be reinforced. [page 501]


FOOTNOTES

1. Winship, "The Scope of the Vienna Convention on International Sales Contracts" in Parker School of Foreign and Comparative Law Symposium, Sales: The Convention on Contracts for the International Sale of Goods (Galston and Smit (Eds.), 1984), §101, pp. 1-14.

2. Conference on Contracts for the International Sale of Goods, Final Act (10 Apr. 1980), UN Conf. on Cont. for the Int. Sale of Goods -- Official Recs. (UN Doc.A/CONF.97/18) (hereafter "Off. Recs."), reprinted (1980) 19 I.L.M. 668-699. In the footnotes the Convention will be cited as "CISG." The CISG is the culmination of efforts to draft a uniform international sales law dating back to the formation of the International Institute for the Unification of Private Law (UNIDROIT) in Rome in 1929: P. Schlechtriem, Uniform Sales Law (1986), p. 17. By 30 Sept. 1981, the closing date for signatures, 21 countries had signed the CISG: Austria, Chile, China, Czechoslovakia, Denmark, Finland, France, East Germany, West Germany, Ghana, Hungary, Italy, Lesotho, Netherlands, Norway, Poland, Sweden, Singapore, US and Venezuela: J.Honnold, Uniform Law for International Sales: Under the 1980 United Nations Convention (1982), p. 47. Three more countries have acceded since then: Argentina, Egypt, and Syria: Schlechtriem, idem. p. 20, n. 18. Any State, although not a signatory State, may accede to the CISG at any time: Art. 91(3). The CISG became law in the US 1 Jan. 1988: see Griffin and Calabrese, "The New Rules for International Contracts," A.B.A.J., 1 Mar. 1988, 62. Unless the parties opt out, the CISG applies to any sales contract between parties that have places of business in different countries: Art. 1(l).

3. Schlechtriem, idem, p.17. The Uniform Law for the International Sale of Goods (ULIS) and the Law on the Formation of Contracts for the International Sale of Goods (ULF) constituted the draft signed at the 1964 Hague Convention. Only seven States fully ratified the Convention: idem, p. 18, n. 6. Especially disappointing was the failure of certain signatory States -- such as the US and France -- to ratify, despite their considerable influence in the formulation of the draft: idem, p. 18.

4. Date-Bah, Problems of the Unification of International Sales Law from the Standpoint of Developing Countries, Problems of Unification of International Sales Law Colloquium, Potsdam, Aug. 1979, pp. 43-44.

5. [...]

6. [...]

7. [...]

8. Schlechtriem, op. cit. supra n. 2, at p. 93 (opposition was "nourished by misunderstanding" according to the author). Professor Schlechtriem represented West Germany at the Vienna Conference.

9. See Hochster v. De la Tour (1853) 118 Eng. Rep. 922. Exceptio non adimpleti contractus is somewhat similar to the common law doctrine of anticipatory repudiation: see Cohn, "The Defence of Uncertainty: A Study in the Interpretation of the Uniform Law on International Sales Act 1967" (1974) 23 I.C.L.Q. 520, 526. The remedy of exceptio pertains to contracts requiring concurrent performance. If one party fails to perform, the other party is then excused.

10. Treitel, "Remedies for Breach of Contract," (1976) 7 Int. Ency. Comp. L., Chap. 16, para. 176, p. 139 (anticipatory breach has no precise counterpart in civil law); Kahn, "La Convention de Vienne du 11 avril 1980 sur les contrats de ventes internationales de marchandises" (1981) 33 Rev. Int. Dr. Comp. 952, 983 ("résolution préventive non utiliseé dans les droits continentaux").

Of course, not all developing countries have civil law systems. Former British colonies in Africa that have retained the common law system include Sierra Leone, Gambia, Nigeria. Ghana, Kenya, Uganda and Tanzania. K. Zweigert and H. Kötz, An Introduction to Comparative Law (Weir trans., 1977), Vol. 1, p. 237. Liberia, which was founded as a settlement for freed US slaves in 1821, is also common law. Actually, the common law is "of no practical significance" since many areas of law such as contract, property and family law, are governed by local customary African and also Islamic law: ibid.

African civil law countries influenced by French colonialism are Senegal, Mauritania, Mali, Niger, Upper Volta, Guinea, Ivory Coast, Gabon, Congo, Chad, Madagascar, Cameroon, Algeria, Tunisia and Morocco: idem, p. l04.

In the Near East, contract law in Egypt, Syria and Lebanon has been influenced by the French Civil Code, but family and inheritance law are governed by Islamic law: idem, pp. 102, 103.

Former Spanish colonies in South and Central America chose the French Civil Code over Spanish civil law because it represented ideals of freedom originating during the French Revolution: idem, p. 106.

11. See Off Recs., supra n. 2, A/CONF.97/C.1/SR.34, para. 55, p. 419.

12. See Park, "The Third World as an International Legal System" (1987) 7 B.C. Third World L.J. 37, 41 (uniting the Third World is blame on colonialism for economic under development and instability); Merican, The Third World and International Law (1976), p. 103 (developing countries are "have-nots").

13. See Off. Recs., supra n. 2, sources cited supra n. 7.

14. For a brief discussion on whether uniform international law ought to recognise the imbalance between the industrialised and developing countries, see van der Velden, "The Law of International Sales: The Hague Conventions 1964 and the UNCITRAL Uniform Sales Code Sales Code 1980 -- Some Main items Compared," in Voskuil and Wade (Eds.), Hague-Zagreb Essays 4 On the Law of International Trade (1983), pp. 67-68, and Szasz, A Uniform Law on International Sales of Goods (Decsenyi trans, 1976), p. 4 (differences in the development of countries such as whether bourgeois revolution took place in early or later phase of capitalist development will account for differences in legal regulation).

15. (1853) 118 Eng. Rep. 922.

16. Idem, p. 926. By 1808 it was established law that a seller of goods is immediately liable for breaching a promise to sell goods to X at a future date, if before that date the seller conveys them to Y. See Bowdell v. Parsons (1808) 103 Eng. Rep. 811, 813. Immediate liability was premised on the theory that the seller has thwarted performance of the contract by disposing of the contract's subject matter.

17. S. Williston, Williston on Contracts (3rd ed., Jaeger (Ed.), 1968), Vol. 11, §1313 p. 111.

18. Idem, p. 112. Although Williston acknowledged the law's recognition of the non-repudiating party's right to an immediate cause of action, he claims that the rule is illogical.

19. See e.g. Comment, "Anticipatory Breach -- A Comparative Analysis" (1976) 50 Tul. L. Rev. 927, 928.

20. L. Simpson, Handbook of the Law of Contracts (2nd ed., 1965) §191 384 (reputation is no more than the expression of the promisor's intention to breach at some future date).

21. Williston, op. cit. supra n. 17, § 1309, atp. 101, writes, "If the defendant promised to employ the plaintiff upon June 1, the breach must be that he did not do that. A statement in May by the defendant thathe is not going to employ the plaintiff upon June 1 can be a breach only of a contract notto make such statements."

22. (1853) 118 Eng. Rep. 922, 926.

23. See J. Calamari and J. Perillo, The Law of Contracts (1970). §175, p. 281. Professors Calamari and Perillo assert that it is not illogical to impose a duty to not repudiate a contract since the law imposes other constructive duties such as the duty of good faith.

24. Williston. loc. cit. supra n. 17.

25. Simpson, loc. cit. supra n. 20. Professor Corbin, Contracts (1951), Vol. 4. §959, p. 852, n. l, offers an explanation as to why 20th-century scholars find this doctrine illogical. They were "born in a community whose political and legal ideas were first developed under pioneer conditions by a people looking for unlimited personal liberty ... in the time of revolution (American and French). The preferred theory was that ... a person could be bound only by the expression of his own will, and that there could be no legal duty to be enforced against him beyond the terms of his own consensual promise."

26. See Corbin; idem. §961. p. 860 ("legal duties arising out of a contract and in the course of its performance or breach are created in the furtherance of social policy").

27. Hochster (1853) 118 Eng. Rep. 922, 926.

28. Calamari and Perillo, op. cit. supra n. 23, §175, at pp. 281-282, make these points.

29. See UK Sale of Goods Act 1979, reprinted 10 Benjamin's Sale of Goods (3rd ed., Guest (Ed.), 1987), pp. 1609-1627. The Act does, however, codify the seller's lien in s. 41. The seller's lien permits a seller to retain possession when the buyer has become insolvent. The effect is to give the seller the right to suspend because of prospective non-performance: Honnold, op. cit. supra n. 2, at §389; the grounds for suspension, however, are fairly narrow in that it is granted only to the seller and in only one circumstance -- the buyer's insolvency.

30. If the non-repudiating party delays too long, however, he risks limiting the amount of damages that he may recover because of his obligation to mitigate: R. Anderson, Uniform Commerce Code (3rd ed.,1983), Vol. 4, §2-610:17.

31. UCC, ss. 2-703(d) and (e), 2-711(a) and (b).

32. UCC, s. 2-711(2)(b).

33. UCC, ss. 2-703(f), 2-711(1)

34. UCC, s. 2-610(c). This right to suspend is distinct from that authorised under s. 2-609: see infra. S. 2-610's suspension right rests on the assumption that performance will not be accepted anyway: Anderson, loc. cit. supra n. 30. Its purpose under s. 2-609 is to afford the repudiating party an opportunity to provide assurances.

35. Nat'l Farmers Org. v. Bartlett & Co. 560 F.2d 1350, 1355 (8th Cir. 1997).

36. See also Corbin, op. cit. supra n. 25 , at §973; Williston, op. cit. supra n. 17, at §§1322-1323.

37. See Marr Enters. Inc. v. Lewis Refrig. Co. 556 F.2d 951, 959 (9th Cir.1977).

38. Regional Enters. Inc. v. Teachers Insur. & Annuity Ass'n 352 F.2d 768, 775 (9th Cir. 1965).

39. See Anderson, op. cit. supra n. 30, at §§2-610:11, 2-610:12, 2-610:13.

40. Jon-T Farms Inc. v. Good Pastures Inc. 554 S.W. 2d 743, 745 (Tex. Civ. App. 1977) (demand which goes beyond terms of original contract is expression of intention not to be bound and thus a repudiation). But see Marr Enters., supra n.37, p. 956 (letter offering to increase the capacity of refrigerator for additional sum did not constitute repudiation, but rather an election).

41. Copylease Corp. of Am. v. Memorex Corp. 413 F. Supp 625, 630 (S.D.N.Y. 1975).

42. Anderson, op. cit. supra n. 30, §2-610:3, at p. 232.

43. See Ringel & Meyer Inc. v. Falstaff Brewing Corp. 511 F.2d 659, 660 (5th Cir. 1975). The Falstaff court applied Louisiana State law, which despite its civil law roots, does recognise the anticipatory repudiation doctrine, citing Marek v. McHardy 234 La. 841, 101 So. 2d 689 (1958). Even though Louisiana law recognises nothing less than an "outright, unequivocal repudiation," the case is still relevant because of the court's statement "no court, common law or civil, has yet held that obvious incapability of performance due to financial difficulties constitutes anticipatory breach" ibid.

44. See Anderson, op. cit. supra n. 30, at §2-610:13. See also Farnsworth, Problems of the Unification of Sales Law from the Standpoint of the Common-Law Countries, Potsdam Colloquium, supra n. 4, Vol. 3, p. 15 (s.2-609 is UCC's useful contribution for distinguishing repudiation from non-repudiation situations).

45. Anderson, idem, §2-609:21.

46. Ibid.

47. Idem, §2-609:1, p. 212. Yet Anderson states several pages later that insecurity is subjectively measured; thus, the fact that it may be based on a wrong conclusion is immaterial, and he cites Turntables Inc. v. Gestetner 382 N.Y.S. 2d 798 (N.Y. App. Div. 1976): idem, §2-609:26, n. 19. This statement is quite misleading.

In Turntables the court stated, p. 799, that the defendant had reasonable grounds for insecurity "... even though his suspicion that plaintiff was insolvent may have been inaccurate." The court in fact stated that "reasonable grounds for insecurity" are measured by commercial standards. It found that reasonable grounds "obviously existed." The buyer was behind in payments: its showroom was really an answering service, and its factory did not in fact exist: ibid. Based on these facts, the seller evidently mistakenly assumed the buyer was insolvent. His mistake did not undermine his grounds for insecurity because there were already other grounds that justified his insecurity.

48. See Anderson, ibid.

49. Toppert v. Bunge Corp. 60 Ill. App. 3d 607, 611, 377 N.E. 2d 324, 328 (1978).

50. Corn Prods. Refining Co. v. Fasola 109 A. 505 (N.J. 1920) (buyer that suddenly stops its established practice of taking cash discounts constitutes reasonable grounds for insecurity).

Under the contract in Erwin Weller Co. v. Talon Inc. 295 N.W. 2D 172 (S.D. 1980), the seller manufactured ice scrapers and snow brushes for the buyer, put the buyer's name on them, and sent them directly to the buyer's customers. The buyer was to pay within 90 days from the date of shipment. After eight months the seller had extended $47,000 in credit to the buyer. The court found the growing amount of credit extended combined with the buyer's failure to return seller's phone calls constituted reasonable grounds for insecurity.

51. Teeman v. Jurek 251 N.W. 2d 698. 701 (Minn. 1977) (seller's suspension not justified when promised reimbursement for grading discounts and given option of taking future deliveries to another elevator),

52. Continental Forest Products Inc. v. White Lumber Sales Inc. 474 P.2d 1, 7 (Or. 1970).

53. Anderson, op. cit. supra n. 30, §2-609:1 at p. 212, for the various points in this paragraph.

54. Idem, pp. 212-213, for the points in this paragraph.

55. Treitel, op. cit. supra n. 10, at pp. 139-140 (civil law countries nevertheless give "certain special effects" resembling common law doctrine of anticipatory breach; stressing that "anticipatory breach" affects only the machinery of termination -- it does not entitle the obilgee to terminate before performance has become due): see also Williston. op. cit. supra n. 17, §1337A, at p. l90 (no recognition of anticipatory breach doctrine in civil law until relatively recently, citing Marek, supra n. 43).

56. Houin, "Sale of Goods in French Law: Some Comparative Aspects of the Law Relating to Sale of Goods" (1964) I.C.L.Q. (Supp. 9) 16, 27.

57. B. Nicholas French Law of Contract (1982) p. 207. The Latin term is derived from medieval Roman law. However, the Ministry of Justice now encourages the legal community to refrain from using Latin expressions.

58. Idem, pp. 207-208.

59. The right to Suspend is not capable of growing into a right to cancel under CISG, Art.71 either. UCC's 2--609(4), however, expressly provides that the failure to provide adequate assurance of due performance "is a repudiation of the contract."

60. Nicholas, op. cit. supra n. 57 at 208.

61. Idem, p. 207.

62. The remedy of résolution under Art.1184 serves a similar function to that of the common law remedy of avoidance for breach, with two marked differences: first, for a résolution, a party must apply to the court for an order to dissolve the contract except under certain limited circumstances: Nicholas, idem, p. 236. Second, there is no legal distinction between breaches that are substantial enough to merit dissolution and those that are not. Whether the breach is sufficiently serious to merit dissolution is within the discretion (pouvoir souverain) of the trial judge: idem, p. 237.

63. Williston, op. cit. supra n. 17, §1337A. at p. 190. Again, the court has considerable discretion; it may even grant the repudiating party a grace period (un délai).

64. Nicholas, op. cit. supra n. 57, at p. 201.

65. Houin, op. cit. supra n. 56, at p. 28. The likelihood that a contract would include an anticipatory breach provision is remote.

66. Nicholas, op. cit. supra n. 57, at pp. 239-240. Art. 1657 of the Civil Code is the "only such instance." Art. 1657 provides: "In sales of foodstuffs and personal effects, the sale is rescinded, by operation of law and without a summons being required, upon the expiration of the time agreed on for removal."

This provision allows a seller of movable goods to regard a contract as discharged if the contract set a date for the buyer to take delivery and the buyer fails to do so in time. This right to extra-judicial résolution is not to be confused with codifications of exceptio non adimpleti: the exceptio applies only to concurrent performances and does not authorise termination. It authorises only suspension. See Nicholas, idem, pp. 207-210, 239-240.

67. A. Anton, L. Brown and F. Lawson, Introduction to French Law (2nd ed., Ames and Walton (Eds.), 1967), p. 188. Other instances in which "justice" permits automatic termination are when an employee is fired for a particularly gross breach of duty, there is a special relationship of trust between the parties, or there is an urgent need to protect the promisee's interest: Nicholas, idem, pp. 239-240.

The "elasticity" of the exception is criticised as undermining the policy of court-ordered termination. In all cases of extra-judicial termination, the debtor may challenge the creditor for acting prematurely: Nicholas, idem, p. 240.

68. Houin, op. cit. supra n. 56, at p. 28. This result would be the same under the UCC in one sense: termination of the contract is permitted only in situations in which the repudiation is a clear manifestation of an intent not to perform the contract. Anything less than this does not constitute a repudiation, but merely grounds for insecurity.

69. See Madray, Des Contrats d'après la récente Codification privée faite aux Etats Unis (1936), p. 146 (doctrine of anticipatory repudiation seen as "Draconian").

70. Williston, op. cit. supra n. 17, §1337 A. at pp. 190, 196.

71. Nicholas, op. cit. supra n. 57, at p. 239 (general French hostility to self-help); see also Anton, Brown and Lawson, op. cit. supra n. 67, at p. 180 ("a creditor cannot take justice into his own hands and seek to enforce for himself the execution of obligations").

72. See Kahn, loc. cit. supra n. 10. M. Plantard, the French delegate to the Diplomatic Conference, had very similar views on CISG, Arts. 71 and 72. See infra n. 100.

73. Ibid. See also Off Recs., supra n. 2, A/CONF.97/C.1/SR.35, para. 14. p. 422 (avoidance provision as drafted by UNCITRAL Art. 63 would cause "considerable political and economic problems" for France) (statement of French delegate Plantard).

74. Kahn, ibid. Bankruptcy was actually an issue during the hearings on Arts.71 and 72. The Egyptian delegate claimed that even in a case of bankruptcy, it might not be "clear" that a party is unable to perform because a court-appointed receiver may still be willing and able to perform and should be given the opportunity to do so. See Off. Recs., idem, SR. 34, para. 56, pp. 419-420).

75. A. von Mehren and J.Gordon, The Civil Law System (2nd ed., 1977), p. 1105 (anticipatory breach does not fit within doctrinal structure of German law).

76. Honnold, op. cit. supra n. 2, at p. 390.

77. See supra n. 29.

78. See also N. Horn, H. Kötz and H. Leser, German Private and Commercial Law: An Introduction (Weir trans., 1982), pp. 103-104. Because the contract's purpose is aborted, it is pointless to provide the debtor with an additional period of time to perform. Horn, Kötz and Leser give examples of when Easter eggs arrive after Easter, Christmas trees after Christmas, or when a taxi cab is hired to take someone to the airport but arrives after the plane has left.

79. Zweigert and Kötz, op. cit. supra n. 10 Vol. 2 at p. l66 (innocent party may immediately exercise his rights under Art. 326 even before performance is due); but see Horn, Kötz and Leser, idem, p. 105 (although it is not laid down in the BGB, legal consequences of repudiation are same as those provided by Arts. 325 and 326), citing 65 BGHZ 375, and pp. 104-105 ("it makes no more sense to set a time for performance than it would do to wait for it").

80. Idem, p. 105, n. 11.

81. Williston, op. cit. supra n. 17, §1337 A, at p. 194 citing 93 RGZ 285 (buyer entitled to sue immediately manufacturer of army canteens that was unable to procure the necessary felt).

82. Ibid, citing 66 RGZ 419, 90 RGZ 317, 121 RGZ 132.

83. Ibid citing 93 RGZ 285.

84. The 1978 Draft Convention was approved by UNCITRAL. See Off. Recs., supra n. 2, Text of Draft Convention Approved by UNCITRAL, UN Doc. A/CONF.97/5, p. 5. Art. 62 (suspension) and Art. 63 (avoidance) are reprinted idem, p. 12.

85. See supra n. 7.

86. UNCITRAL Art. 63 provides: "If prior to the date for performance of the contract it is clear that one of the parties will commit a fundamental breach, the other party may declare the contract avoided."

87. UNCITRAL Art. 62 provides, inter alia:

"(1) A party may suspend the performance of his obligations if it is reasonable to do so because, after the conclusion of the contract, a serious deterioration in the ability to perform or in the creditworthiness of the other party or his conduct in preparing to perform or in actually performing the contract gives good grounds to conclude that the other party will not perform a substantial part of his obligations.

(3) A party suspending performance, whether before or after dispatch of the goods, must immediately give notice to the other party thereof and must continue with performance if the other party provides adequate assurance of his performance."

88. Off. Recs., supra n. 2, A/CONF.97/C.l/SR.35, para. 2, p. 420.

89. Idem, SR.34, para. 56, pp. 419-420.

90. Ibid.

91. Idem, SR.35, para. 2, p. 420.

92. Idem, SR.34, para. 55, p. 419.

93. Ibid.

94. Idem, SR.34. para. 56, p. 419.

95. Idem, SR.34, para. 57, p. 420.

96. Ibid.

97. Idem, L.249, pp. 129-130. Egypt's amendment to Art.62 provides:

"(1) If prior to the date for performance of the contract. it becomes apparent that one of the parties will commit a fundamental breach of contract, the other party may notify him of his intention to suspend performance of his obligations if the first party fails to provide adequate assurances, within a reasonable period of time, of properly performing his obligations.

(2) If the party which has been notified fails to provide the assurances described under paragraph (1) of this article, the other party may declare the contract avoided."

98. See idem, SR.35, paras. 10-11, p. 421. The Egyptian delegation intended the phrase "il est manifeste" in order to retain the "it is clear" language of UNCITRAL Art. 63. "Il est manifeste" was improperly translated as "it is apparent." There apparently was no attempt to correct the error since the Egyptian amendment failed to be adopted.

99. Idem, SR.35, para. 8, p. 421 (statement of Mr. Sami, delegate from Iraq).

100. See idem, SR.35, para. 14, p. 422. Plantard, the delegate from France, strongly supported the amendment for its heightened degree of objectivity. He favoured the amendment also for its "system of obligatory notification" since it "gave the non-performing party an opportunity to defend its position." He did not favour the proposed Art.62(2), however, because it was too extreme in "creating automatic avoidance" upon the defaulting party's failure to provide assurance.

101. Idem, SR.35, para. 16, p. 422 (statement of Mr. Adal, delegate from Turkey).

102. Idem, SR.35, paras. 21-22, p. 422.

103. Idem, SR.35, para. 1, p. 420 (statement of Mr. Rognlien, delegate from Norway).

104. Idem, SR.35, para. 3, pp. 420-421 (statement of Mr. Bonell, delegate from Italy). Professor Schlechtriem of West Germany agreed. idem. para. 5, p. 421.

105. Ibid, para. 3.

106. Idem, SR.35, paras. 23-25, p. 422. The Working Group consisted of delegates from Argentina, Egypt, Finland, France, East and West Germany, Iraq, Mexico, Republic of Korea and the US.

107. Idem, SR. 27, para. 95, p. 431; see also A/CONF.97/C.l/252, p. 130 (ad hoc Working Group amendment).

108. See ibid, para. 95; see also idem, SR.38. paras. 11-12, p. 433. The debate over the proper translation of the French draft was revived: see idem, SR.37, para. 95, p. 431. The French delegation explained that the expression "il apparait" is objective and that it is synonymous with "il est étabil" (it is established). Some members of the Working Group were sceptical and wanted the expression "il est manifeste" (it is evident). The Ghanaian delegate argued that it should be replaced with "it is clear": idem, para. 97, p. 431. Ultimately, "it appears" was retained so that the criteria entitling a party to suspension would be slightly easier to meet than those for avoidance: idem, paras. 104-105 (statements of US delegate Honnold and Norwegian delegate Rognlien).

109. Idem. SR.38, para. 8, p. 433 (little difference between the implications of "it appears" and "good grounds") (statement of Canadian delegate Ziegel). See also Ziegel, op. cit. supra n. 7 (unconvinced that "it appears" injects higher degree of objectivity).

110. Working Group amendment, loc. cit. supra n. 107.

111. Supra n. 97.

112. Off. Recs., supra n. 2, A/CONF.97/C.1/C.253, p. 130.

113. See idem, SR.37, para. 96, p. 431.

114. Idem, A/CONF.97/C.1/C.253, p. 130. CISG, Art: 72(2) is identical.

115. See idem, SR.38, para. 6, p. 433; para. 2; p. 432 (since Professor Chafik of Egypt had been involved in the ad hoc Working Group's compromise, he may have felt restrained from further arguing his viewpoint); para. 7, p. 433; paras. 17-18. p. 433.

116. See Honnold, op. cit. supra n. 2, at p. 389.

117. Ibid.

118. Ibid.

119. Ibid. See also Schlechtriem, op. cit. supra n. 2, at p. 94 (apparent inability to perform must not only induce subjective fears but must also enable objective observer to foresee non-performance).

120. See CISG, Art.71(1)(a) and (b).

121. See Off Recs., supra n. 2, Secretariat's Commentary on the UNCITRAL draft A/CONF.97/5. p. 52. These comments define the scope of UNCITRAL Art. 62, which is very similar to its CISG counterpart: see supra n. 107. CISG, Art. 71 narrows the grounds for suspension, albeit negligibly: see Honnold, op. cit. supra n. 2, at p. 387. Nonetheless, the Secretariat's comments are helpful in defining the broadest possible grounds deserving suspension.

122. Idem, p. 53.

123. Schlechtriem, op. cit. supra n. 2, at p. 93.

124. Secretariat's Commentary, loc. cit. supra n. 121 for the matters in this paragraph.

125. Honnold, op. cit. supra n. 2 at p. 386.

126. Schlechtriem, op. cit. sup. Supra n. 2, at p. 93

127. CISG, Art. 71(3).

128. Honnold op. cit. supra n. 2 at p. 399.

129. Secretariat's Commentary, loc. cit. supra n. 121. See also Honnold, op. cit. supra n. 2, at p. 398 (assurances must consist of "evidence of concrete facts or action that removes the threat" of non-performance).

130. Honnold, ibid.

131. Idem, p. 399.

132. Idem. p. 398.

133. Idem, p. 399.

134. Idem.

135. See Off. Recs., supra n. 2, A/CONF.97/C.1/SR.26, paras. 72-79, pp. 376-777.

136. See idem, A/CONF.97/C.1/L.187, p. 129 (amendment of West Germany).

137. See idem, SR.26, paras. 72-79, pp. 376-377.

138. Ziegel, op. cit. supra n. 7, §905, at pp. 9-34.

139. German Civil Code. Art. 321.

140. See supra n. 29.

141. See UCC, s.2-609.

142. CISG. Art. 25. A breach is not fundamental, however, if 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."

143. Secretariats Commentary, loc. cit. supra n. 121.

144. Honnold, op. cit. supra n. 2, at p. 402 (declaration does not make fundamental breach absolutely clear); Schlechtriem, op. cit. supra n. 2. at p. 96 (obilgor can always change mind).

145. Honnold, ibid.

146. Secretariat's Commentary, op. cit. supra n. 121, at p. 53.

147. See Schlechtriem, op. cit. supra n. 2. at p. 95.

148. Secretariats Commentary, op. cit. supra n. 121, at p. 53.

149. Honnold, op. cit. supra n. 2, at p. 400. (Maybe because the UCC says so?)

150. Schlechtriem, op. cit. supra n. 2, at p. 96.

151. Ziegel, loc. cit. supra, n. 7.

152. The suspending party is not technically required to mitigate his damages under Art. 77 but it is nonetheless good policy for him to do so. Art. 77 provides:

"A party who relies on a breach of contract must take such measures as are reasonable in the circumstances to mitigate the loss, including loss of profit, resulting from the breach. If he fails to take such measures, the party in breach may claim a reduction in the damages in the amount by which the loss should have been mitigated."

153. Honnold op. cit. supra n. 2, at p. 403.

154. Schlechtriem, op. cit. supra n. 2, at p. 95.

155. See supra n. 143.

156. Van der Velden, op. cit. supra n. 14, at p. 68.

157. See Michida, "Cancellation of Contract" (1979) 27 A.J. Comp. L. 270, 280-281.

158. Idem, p. 281.


Pace Law School Institute of International Commercial Law - Last updated June 10, 2008
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