Cite as Will, in Bianca-Bonell Commentary on the International Sales Law, Giuffrè: Milan (1987) 359-367. Reproduced with permission of Dott. A Giuffrè Editore, S.p.A.
1. History of the provision
2. Meaning and purpose of the provision
3. Problems concerning the provision
(1) The buyer may declare the contract avoided:
(a) if the failure by the seller to perform any of his obligations under the contract or this Convention amounts to a fundamental breach of contract; or
(b) in case of non-delivery, if the seller does not deliver the goods within the additional period of time fixed by the buyer in accordance with paragraph (1) of article 47 or declares that he will not deliver within the period so fixed.
(2) However, in cases where the seller has delivered the goods, the
buyer loses the right to declare the contract avoided unless he does
(a) in respect of late delivery, within a reasonable time after he has become aware that delivery has been made;
(b) in respect of any breach other than late delivery, within a reasonable time:
(i) after he knew or ought to have known of the breach;
(ii) after the expiration of any additional period of time fixed by the buyer in accordance with paragraph (1) of article 47, or after the seller has declared that he will not perform his obligations within such an additional period; or
(iii) after the expiration of any additional period of time indicated by the seller in accordance with paragraph (2) of article 48, or after the buyer has declared that he will not accept performance.
1. History of the provision
1.1. - Article 49 contains the most drastic of all the buyer's remedies -- avoidance of the contract.
Paragraph (1) envisages two situations: (a) the non-performance of any of the seller's obligations amounting to a fundamental breach; (b) the seller's failure to deliver, even within the [page 359] additional period of time fixed by the buyer according to Article 47(1). Paragraph (2) declares the remedy lost if the seller actually delivered the goods and the buyer hesitated too long before declaring the contract avoided.
1.2. - The final text was accomplished only after a number of changes, the more substantial ones dating from the preparatory stage preceding the Vienna Conference.
1.2.1. - Avoidance of the contract was already contained in ULIS. But the system has been considerably altered.
188.8.131.52. - First, avoidance was converted from a double into a single remedy. ULIS provided for two forms of avoiding the contract: an automatic or ipso facto avoidance in five specified cases and the usual form of avoidance by declaration. Only the latter survived. Ipso facto avoidance, «bete noire» of ULIS (HUBER, UNCITRAL-Entwurf, 417) was controversial for many reasons and questioned from so many sides that the Working Group agreed to drop it (see Yearbook, III (1972), 41-54, 85; IV (1973), 41); the main reason was that it entailed too much uncertainty as to the fate of the contract (see Secretariat's Commentary, Official Records, I, 41). The matter was not discussed further at the Vienna Conference. Hence the avoidance under the Convention has become a single and a real remedy dependent on the buyer's choice.
184.108.40.206. - Second, avoidance has become a quicker temedy.
ULIS allowed avoidance only if both non-conformity and non-delivery at the date fixed constituted a fundamental breach of the contract. In all other instances of non-performance of the seller's obligations the buyer had to fix and wait out an additional period of time. Under this additional-period-of-time-avoidance-rule immediate avoidance was the exception.
The contrary is true under the Convention. Here, immediate avoidance is conceived to be the rule. Whenever non-performance by the seller of any of his obligations amounts to a fundamental breach, the buyer may avail himself of the remedy without further ado. The requirement is not confined merely to the cases of non-delivery in sub-paragraph (1)(b). This reversal of the former [page 360] approach more closely addresses the interests of the injured buyer. It was adopted by the Working Group (see Yearbook, III (1972), 88; IV (1973), 54) and not discussed further at the Vienna Conference.
220.127.116.11. - Third, avoidance has become limited in scope, a remedy applicable in fewer instances.
ULIS allowed the buyer to transform any breach of contract, however insignificant, into a fundamental breach simply by fixing an additional period of time for performance. This is no longer so under the Convention. Only in the case of non-delivery may the buyer avail himself of the time-fixing device and seek to give a non-fundamental breach the effect of a fundamental one (see Yearbook, IV (1973), 69).
At the Vienna Conference the proposal to switch back and to extend the procedure of fixing an additional period of time as a condition for avoidance to all material obligations was rejected (see Official Records, I, 116). The First Committee felt that the buyer should not be authorized to take advantage of minor shortcomings by transforming them into fundamental breaches in order to get out of the contract whenever the market fell (see Official Records, II, 355-356).
1.2.2. - During the Vienna Conference, one minor change was made in the wording of each paragraph.
18.104.22.168. - In order to remove any doubts as to the restriction previously described (see § 22.214.171.124., supra), sub-paragraph (1)(b) was amended to begin with the words «in case of non-delivery» (see Official Records, I, 116; Official Records, II, 354).
126.96.36.199. - Sub-paragraph (2)(b)(iii) was not contained in the UNCITRAL Draft Convention. It clarifies the relationship of Articles 48 and 49, but adds nothing that could not be found already in Article 48(2) (see Official Records, I, 117; Official Records, II, 357).
2. Meaning and purpose of the provision
2.1. - While paragraph (1) contains all the conditions of the remedy avoidance, the restrictions of that remedy follow not only [page 361] from paragraph (2) but from other articles of the Convention as well.
2.1.1. - Paragraph (1) offers a clear, narrow definition of when the buyer has the right to avoid the contract. Two different situations are contemplated. The first covers the situation when any non-performance of the seller's obligations amounts to a fundamental breach of contract. The second covers the case of non-delivery not amounting to a fundamental breach of contract in which an additional period for performance fixed according to Article 47(1) has not prompted the seller to perform.
The key aspect of the entire paragraph is the notion of fundamental breach, even though it appears only in the text of subparagraph (a). Under sub-paragraph (b) non-delivery always opens the way to avoid the contract. The only question is whether it does so immediately or later. The answer depends on whether the failure to deliver amounts to a fundamental breach. The notion of fundamental breach thus determines either when (failure to deliver) or whether (all other failures) the remedy of avoidance is available.
Before dealing more specifically with those two different situations, two remarks relating to both of them seem appropriate: their relation to Article 48, and the particulars of the buyer's declaration.
Article 48, by expressly reserving Article 49, appears to underline the priority of the buyer's remedy of avoidance over the seller's right to cure. But things are not as simple as that. The interplay between avoidance and cure has been a highly controversial issue throughout the Vienna Conference and ever since (see commentary on Article 48, supra, § 188.8.131.52.1.).
An entire article of the Convention, Article 26, is dedicated to the declaration of avoidance, requiring that it be made by notice to the other party. Excluded are ipso facto avoidance and advance notice. The notice, not subject to any form, may be written or oral. It may be transmitted by any means, but the buyer must choose appropriate means in the circumstances because the notice is to travel at the risk of the seller (see Article 27). The contract is avoided at the moment of dispatch.
2.1.2. - Avoidance as a remedy for fundamental breach is a well-known consequence. Under sub-paragraph (1)(a) the buyer [page 362] may immediately avoid the contract if the seller fails to perform any of his obligations, and if such failure constitutes a fundamental breach of the contract. «Any» refers to obligations under the contract or under the Convention (see Articles 30 et seq.).
For a general discussion on what constitutes a fundamental breach, see commentary on Article 25, supra. Where the breach is not fundamental, avoidance is not possible.
The purpose of restricting the buyer's choice of avoidance serves primarily the interests of the seller. Once the contract is avoided, he must take back the goods supplied (see Article 81) which necessarily involves risks of damage or loss and expenses such as costs for transports and storage. The situation is not different from that under Article 46. (see Article 45, supra, § 184.108.40.206.).
Whether the buyer suffers particular hardship by being restricted to fundamental breach situations will depend on the particular kind of breach and all the circumstances involved. Insignificant breaches and those of minor practical importance justify avoiding extremes by maintaining the contract, which more often than not is to the benefit of both buyer and seller. Restricting to a lesser extent the buyer's choice of avoidance would have opened opportunities to use the remedy as a means of speculation when market prices fluctuate. This was not the purpose of the Convention.
2.1.3. - Under paragraph (1)(b) the buyer may avoid, but not immediately and only if the seller fails to deliver. Delivery is considered such a fundamental obligation that its breach, even though not fundamental, opens the Nachfrist-avoidance-mechanism. If non-delivery amounts to, or during the Nachfrist turns into, a fundamental breach, sub-paragraph (a) applies.
The double purpose of sub-paragraph (b) became clearly manifest during the Conference: on the one hand, the remedy was to be extended beyond fundamental breach situations under sub-paragraph (a) to non-performance of the essential obligation-delivery. Thus, the buyer, by fixing a Nachfrist of reasonable length, is able to emphasize his claim and exert pressure upon a defaulting seller. On the other hand, the Nachfrist-avoidance-procedure was not to be extended any further than the essential obligation of delivery (unlike a proposal, see Official Records, [page 363] I, 116 No. 3(i), (ii); 117 No. 5). This again protects the interests of the seller as it would be too harsh for him to lose the benefits of the whole contract on account of insignificant shortcomings.
2.2. - Paragraph (2) defines some of the circumstances under which the buyer loses his right to avoid the contract; others are defined in Articles 39, 43 and 82. All of these rules presuppose that the seller has delivered.
Thus, this paragraph is not concerned with paragraph (1)(b) and considers only the situations covered by paragraph (1)(a). The fact that the goods have come under the buyer's control justifies the application of stricter standards because of the underlying principle of good faith in international transactions.
2.2.1. - The paragraph, like the preceding one, distinguishes between the obligation to deliver (a) and obligations other than delivery (b).
220.127.116.11. - In cases of delay the buyer may await delivery before he decides the crucial question of whether or not the delay amounts to a fundamental breach (see HONNOLD, Uniform Law, 320). As soon as delivery has been made, and if he wants to reject it, he must not wait. He is obliged, lest his right of avoidance be forfeited, to declare the contract avoided within a reasonable time after he has become aware of the delivery. The length of «reasonable time» depends on trade practices and the particular circumstances of the case, for instance the nature of the goods, market condition and the other possibilities open to the buyer and seller. To «become aware» seems to be another newcomer in legal terminology, all the more dubious since other versions, such as the Russian and Spanish, do not distinguish «has become aware» under (a) from «knew» under (b)(i), and probably rightly so.
18.104.22.168. - In cases of fundamental breach of any of the seller's obligations other than delivery -- i.e. mainly delivery of non-conforming goods, but others are conceivable -- the buyer must not hesitate either. He will lose his right to reject the goods and to declare the contract avoided unless he does so within a reasonable time under the particular circumstances set out in (i) to (iii). [page 364]
Under (i) the time for avoidance begins to run as soon as the buyer knows or ought to have known of the breach. Where the goods delivered fail to conform to the contract, «ought to have known» must be interpreted in the light of the time allotted for examination and will therefore come close to «as short a period as is practicable in the circumstances» (Article 38). By no means must the time limit for notifying the seller be exceeded. Otherwise the buyer loses his right to rely on a lack of conformity (Article 39), a condition of his right to avoidance (see § 22.214.171.124., infra).
Under (ii) the time for avoidance begins to run when the seller does not perform within any Nachfrist (including a second and any further Nachfrist) fixed by the buyer according to Article 47(1) or when the buyer has received the seller's declaration that he will not perform within that period (receipt principle, Article 47(2)).
Correspondingly, under (iii), when the seller has indicated any additional period of time according to Article 48(2), the time for avoidance begins to run when that period has expired without performance or when such performance has been expressly refused (dispatch principle, Article 27) by the buyer.
Both (ii) and (iii), mere applications of Articles 47(2) and 48(2), seem redundant and ungracefully inflate Article 49.
2.2.2. - Apart from the rule in Article 49(2), the Convention provides for several others where the buyer risks indirectly or directly to lose his right of declaring the contract avoided.
126.96.36.199. - Article 39 in this context is as important a filter as it is hidden. It obliges the buyer who has received non-conforming goods to give notice of the lack of conformity to the seller in due time, i.e., within a reasonable time after he has, or ought to have, discovered it, at the latest within two years from the date of the physical handing over. Beyond that time limit the right to rely on non-conformity is lost; consequently, if non-conformity amounted to a fundamental breach, the right of avoidance according to Article 49(1)(a) is forfeited already at that point. In such cases the time limits set by Article 39 prevail over the one contained in Article 49(2)(b): first, notice and avoidance for non-conformity need not coincide. But the time limits for both begin to run simultaneously, i.e., at the moment when the buyer discovered or ought to have discovered the defect; here «discovered» under Article 39(1) [page 365] equals «knew» under Article 49(2)(b). Secondly, the two-year cut-off in Article 39(2), unknown with respect to other fundamental breaches under Article 49(2)(b)(i), prevails. Thus Article 39 adds two more possibilities of loss of avoidance in the foreground of Article 49(2)(b).
188.8.131.52. - Article 43 similarly obliges the ,buyer who has received goods which are not free from third party claims to notify the seller in due time, i.e., within a reasonable time after he has, or ought to have, become aware of such claims, like in Article 49(2)(b), as the French, Spanish and Russian versions confirm. Beyond that time-limit the right to rely on Articles 41 or 42 is lost; consequently, if the nature and extent of third party rights or claims amounted to a fundamental breach, the right of avoidance according to Article 49(1)(a) is forfeited by the same token. However, compared to Article 39 (as discussed under § 184.108.40.206., supra), Article 43 favors the buyer in two respects: first, there is no cut-off after two years, so that the reasonable time for notification, open-ended as it is, may extend further. Secondly, even after that reasonable period of time for notification has expired, the buyer receives protection against a seller who knew of the right or claim and therefore finds himself barred by Article 43(2) from opposing avoidance. Article 43(2) being lex specialis, Article 49(2)(b) no longer applies under the circumstances; it would be absurd to relieve the non-disclosing seller only in fundamental breach situations. Thus Article 43 somewhat restricts the field of application of Article 49(2)(b).
220.127.116.11. - Article 82, unlike the preceding Articles 39 and 43, adds an independent rule applying to anyone of the different hypotheses of avoidance: the right of avoidance is lost when the buyer is unable to restitute the goods substantially in the condition in which he received them and cannot rely on the three exceptions provided.
3. Problems concerning the provision
3.1. - It may appear to be a problem for some to see the buyer burdened with the risk of determining whether or not the [page 366] breach he suffered is fundamental, and at the same time see him deprived of the possibility to have a judge or arbiter decide beforehand; the victim of more than minor inconvenience is to run, in addition, major risks. But on this point the Convention quite outspokenly rejected any idea of control a priori: no period of grace may be granted to the seller by a court or arbitral tribunal when the buyer resorts to a remedy for breach of contract. So Article 45(3) literally states (see commentary on Article 45 supra, § 2.2.). This language refers to no other remedy than that of Article 49, avoidance. Here the necessities of international trade prevailed over the interests of the buyer. [page 367]