unidroit 71 and 72 Go to Database Directory || Go to Table of Contents to Annotated Text of CISG

GUIDE TO ARTICLES 71 and 72

Use of the UNIDROIT Principles to help interpret CISG Articles 71 and 72


Match-up of CISG Articles 71 and 72 with counterpart provisions of UNIDROIT Principles

UNIDROIT Principles
Article 7.3.3 - Anticipatory Non-Performance

CISG
Article 71

Where prior to the date for performance by one of the parties it is clear that there will be a fundamental non-performance by that party, the other party may terminate the contract.
 
 

Article 7.3.4 - Adequate Assurance of Due Performance

A party who reasonably believes that there will be a fundamental non-performance by the other party may demand adequate assurance of due performance and may meanwhile withhold its own performance. Where this assurance is not provided within a reasonable time the party demanding it may terminate the contract.

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.

2. If the seller has already dispatched the goods before the grounds described in the preceding paragraph become evident, he may prevent the handing over of the goods to the buyer even though the buyer holds a document which entitles him to obtain them. The present paragraph relates only to the rights in the goods as between the buyer and the seller.

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 provides adequate assurance of his perfomance.

CISG
Article 72
  

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.

[The UNIDROIT articles displayed above are to be read in conjunction with the Official Comments on them as "the comments on the articles are to be seen as an integral part of the Principles" (UNIDROIT).]


To examine CISG provisions displayed above in their context, go to the full text of the CISG || To examine UNIDROIT Principles displayed above in their context, go to the full text of the UNIDROIT Principles


Editorial remarks

Remarks on the manner in which the UNIDROIT
Principles of International Commercial Contracts may be
used to interpret or supplement Articles 71 and 72 of the CISG

Sieg Eiselen [*]
September 2002

a. Article 71, 72 and 73 of the CISG deal with the situation where it becomes apparent or clear that one of the parties to an agreement will or may not perform a substantial part of its obligations in terms of the agreement.[1] The object of Article 72 is to provide the innocent party with a remedy in cases where it is clear that the other party will not perform at all or will commit another fundamental breach.[2] This remedy based on the Anglo-American doctrine of anticipatory breach allows the innocent party to avoid the contract when the breach occurs without having to wait until performance becomes due.[3] Whereas Art 72 is aimed at the phenomenon of anticipatory breach of contract, i.e. a breach of contract that takes place before the performance is due by the party in breach, Article 71 has a wider scope in that it deals with anticipatory breach as well as incomplete performance.[4] The remedies in Article 71 is aimed at keeping the contract intact, whereas the remedies in Article 72 is aimed at avoiding the contract.[5] Article 73 provides for anticipatory breach installment contracts. It is for that reason that these articles contain different requirements for the exercising of the respective remedies.[6]

b. The UNIDROIT Principles is similarly structured in Articles 7.3.3 and 7.3.4. Article 7.3.3 makes provision for a party to terminate the agreement where it is clear that there will be a fundamental non-performance by the other party. There is no requirement to give notice as is the case with Article 72 of the CISG. If a party is uncertain as to whether there will be a fundamental breach or not, but has a reasonable suspicion that it may occur, that party is, in terms of Article 7.3.4, entitled to demand an adequate assurance from the other party that the latter will perform. Failure to provide an adequate assurance is a ground in terms of Article 7.3.4 to terminate the agreement. There is therefore, quite a close connection between the provisions of Article 7.3.3 and 7.3.4. As will be shown below, this is not necessarily the case with the very similar Article 72 and Article 71 of the CISG.

c. There are a number of interpretational issues in respect of Article 72 on which there is a divergence of opinion. Commentators differ on the exact interpretation and meaning of the meaning of the words "it is clear" (Article 72(1)) and "it becomes apparent" (Article 71(1))[7] and whether there is any difference in the meaning or the standards to be applied.[8] They also differ on whether the giving of notice of termination is an essential requirement to become entitled to the remedy or whether it is only necessary in circumstances where objectively speaking the other party would have been able to give an adequate assurance.[9] Lastly there is also a difference of opinion on whether a failure to give an adequate assurance on demand under Article 71(1) automatically entitles a party to avoid the contract under Article 72.[10] The construction and provisions of Article 7.3.3 and 7.3.4 of the UNIDROIT Principles may be helpful in solving these issues.

d. In certain circumstances, a party may be entitled to rely on either Article 71 or 72.[11] If an anticipatory breach occurs, the innocent party may want to enforce specific performance in which case it would make use of its right to suspend performance under Article 71 rather than to avoid the contract under Article 72 even if it is entitled to do so. However, in the case of part performance a party may apparently only rely on Article 51 in conjunction with Article 45 where Article 51 applies or on Article 71 (if it wants to enforce full performance) or Article 49 (if wants to avoid the contract), but not on Article 72. Article 72 is therefore a remedy that is only to be used in true circumstances of anticipatory breach and not where an actual breach has already taken place.[12] However where the contract consists of a series of performances (installments, for instance, delivery of a certain number of goods on a monthly basis), a serious deficiency in quality of the first installment, entitles the innocent party to exercise its rights under section 73 and avoid the contract.[13]

e. At first blush there seems to be a slight difference between the provisions of Article 72(1) of the CISG and Article 7.3.3 of the UNIDROIT Principles. In Article 72(1), it is required that it must be clear that the counter party will commit a fundamental breach. Article 7.3.3 of the UNIDROIT Principles is apparently more widely formulated in that it only requires that it must be clear that a fundamental non-performance will take place. This difference is more apparent than real. Under the CISG, any fundamental non-performance is regarded as a breach of contract, whether the performance was possible or not.[14] Thus where substantial performance becomes impossible, even if such impossibility results from circumstances beyond the control of the obligor, non-performance or mal-performance is still regarded as a breach.[15] This is also the approach followed in the UNIDROIT Principles.

f. The most difficult aspect of interpreting Article 72 (and Article 71 for that matter), is to establish what measure of certainty is required that a fundamental breach will occur.[16] Article 7.3.3 of the UNIDROIT Principles is, unfortunately, of no assistance in this regard as it uses exactly the same terminology as Article 72. In a 1992 German decision, the Landgericht [District Court] Berlin [17] has given the best judicial exposition of the standards required under Article 72. It defined the words "it is clear" ("offensichtlich") in terms of the probabilities that a fundamental breach will be committed. It stated that a very high degree of probability is required,[18] but that this did not mean a probability almost reaching certainty.[19]

g. Both the CISG and the UNIDROIT Principles require a clear indication of a fundamental non-performance, i.e. that it must be clear that there will be a fundamental non-performance.[20] The terminology used is very similar and the UNIDROIT Principles therefore sheds little light on what measure should be used to determine whether "it is clear". Under commentators there is a difference of opinion on whether "it is clear" (in Article 72) has the same meaning as "it becomes apparent" (in Article 71).[21] The majority opinion seems to be that Article 72 requires a higher standard of prospective certainty than Article 71 mainly due to the more drastic nature of the remedy under Article 72, namely avoidance.[22] Suspension as provided for in Article 71 is less drastic in that it is only a temporary remedy, especially if the contract is to be avoided without giving notice to the counter party.[23]

h. This approach also seems to be supported by the case law.[24] This approach is also supported by the provisions of Articles 7.3.3 and 7.3.4 of the UNIDROIT Principles , where there is a clearly formulated difference in the requirements. In terms of Article 7.3.3 it is required that it must be clear that there will be a fundamental non-performance, whereas in terms of Article 7.3.4 there need only be a reasonable belief on the part of the innocent party that there will be a fundamental non-performance.

i. If there is any doubt on whether, due to the conduct of the other party or the prevailing circumstances, there is an anticipatory breach objectively speaking, a party should rather exercise the right to suspend performance under Article 71 CISG and require an adequate assurance from the other party than issue a notice of avoidance under Article 72(2).[25] It is the safer option because the giving of a notice of avoidance in terms of Article 72(2) under circumstances where it is not warranted may in itself constitute an anticipatory breach entitling the other party to avoid the contract.[26]

j. There is a difference of opinion between commentators on whether a failure or a refusal to produce adequate security where it has been demanded is in itself a fundamental breach or whether it may only be a clear indication that the other party will commit a fundamental breach.[27] Article 7.3.4 UNIDROIT Principles may be of assistance in interpreting the interplay between Articles 72 and 71 as Article 7.3.4 UNIDROIT Principles makes express provision for the innocent party to demand an adequate assurance where it reasonably suspects that there will be a fundamental non-performance. In terms of Article 7.3.4 it is clearly stipulated that a failure to provide this assurance within a reasonable period of time, entitles the other party to terminate (avoid) the agreement. Whether this is possible in the light of the drafting history of the CISG, is debatable.[28]

k. The CISG takes a more lenient approach to anticipatory breach than the UNIDROIT Principles in that it obliges the innocent party, when time allows, to notify the other party if it intends avoiding the contract, except where the other party has clearly declared its intention not to perform.[29] The object of the notification is to enable the other party to provide adequate assurance that it will perform. There are different opinions on whether the obligation to give notice is a condition precedent for the valid exercising of the right to avoid.[30] It is submitted that in interpreting the duty to inform, a Court should follow a stricter approach towards the necessity to inform if regard is had to the approach followed under the UNIDROIT Principles.[31] If there is doubt on whether the innocent party should have informed or not, the Court ought to rule in favour of the innocent party, i.e. that there was no duty to inform. In terms of Article 7.3.3 of the UNIDROIT Principles, a party is not obliged to inform the other party, but may as a precaution require an adequate assurance of due performance, failing which that party is entitled to terminate the agreement.

l. Where it is apparent that notice will be totally ineffective in that it is impossible for the obligor to prevent the eventual breach, is there still a formal obligation to notify? It is submitted that this is a situation where the innocent party is not required to notify the other party.[32] The object of the notice requirement is to enable the other party to provide adequate assurance of his performance. If that has become impossible, then the necessity to give notice must surely fall away. There is, however, also a strong contrary view on this issue.[33]

m. In the literature there is a controversy on whether the requirement of "reasonableness" only refers to the notice or whether it also has a reference to the duty to give notice. The controversy, however, is mainly amongst German writers due to an inaccurate translation into the (unofficial) German text.[34]

[See also commentary by the author on this subject in: John Felemegas ed., An International Approach to the Interpretation of the United Nations Convention on Contracts for the International Sale of Goods (1980) as Uniform Sales Law, Cambridge University Press (2006) 207-211.]


FOOTNOTES

* Professor of Private Law, Faculty of Law, University of South Africa; Advocate of the High Court of South Africa

1. 1 Leser HG & Hornung R in Schlechtriem PH & Bacher K Kommentar zum Einheitlichen UN Kaufrecht 3rd ed (2000 München) Art 71 Rn 1; Art 72 Rn 1, Art 73 Rn 1; Magnus U in Martinek M (ed) J von Staudingers Kommentar zum Bürgerlichen Gesetzbuch mit Einführungsgesetz und Nebengesetze: Wiener UN-Kaufrecht (1999 Berlin) Art 71 Rn 1, Art 72 Rn 1, Art 73 Rn 1; Burkhart F Interpretatives Zusammenwirken von CISG und UNIDROIT Principles (2000 Baden-Baden) 194; Schnyder AK and Straub RM in Honsell H Kommentar zum UN Kaufrecht (1997 Berlin) Art 71 Rn 1, Art 72 Rn 1, Art 73 Rn 1; Witz W, Salger HC & Lorenz M Internationales Einheitliches Kaufrecht (2000 Heidelberg) Art 71 Rn 1, Art 72 Rn 1 & 2, Art 73 Rn 1; Kritzer AH Guide to the Practical Applications of the United Nations Convention on Contracts for the International Sale of Goods (1989 Deventer) 465-467; Honnold JO Uniform Law for International Sales 3rd ed (1999 The Hague) para 395 at p 437.

2. Enderlein F & Maskow D International Sales Law - United Nations Conven;tion on Contracts for the International Sale of Goods (1992 New York) <http://cisgw3.law.pace.edu/cisg/biblio/enderlein.html> para 1 at p 291.

3. Witz/Salger/Lorenz Art 72 Rn 2.

4. Staudinger/Magnus Art 71 Rn 34.

5. Staudinger/Magnus Art 71 Rn 1; Art 72 Rn 1.

6. See Schlechtriem Uniform Sales Law - The UN-Convention on Contracts for the International Sale of Goods (Vienna 1986) 389 et seq. (http://cisgw3.law.pace.edu/cisg/biblio/schlechtriem-72.html); Staudinger/Magnus Art 72 Rn 8 & 9; Flechtner HM 8 Journal of Law and Commerce (1988) 53-108 at <http://cisgw3.law.pace.edu/cisg/text/flecht71,72.html>. Initial efforts to combine the articles during the drafting process was intentionally rejected. See Enderlein/Maskow p 284 Note 1 & 2, p 291 N 1; Honsell/Schnyder/Straub Art 72 Rn 10. See also Kee C. Comparative Editorial Remarks to Articles 51 & 73 at <http://cisgw3.law.pace.edu/cisg/text/peclcomp51.html>.

7. Enderlein/Maskow p 286 Note 2; Honsell/Schnyder/Straub Art 71 Rn 24-26, Art 72 Rn 25; Staudinger/Magnus Art 71 Rn 18. Honnold p 429 para 388 remarks that these provisions were consciously so drafted and that this difference in terminology is also found in the French and Spanish versions of the CISG.

8. Enderlein p 286 Note 2; Honnold para 388 at p 429.

9. Enderlein p 293 Note 6; Honsell/Schnyder/Straub Art 72 Rn 35 & 36.

10. Enderlein/Maskow p 290 Note 1.

11. Enderlein/Maskow p 286 Note 3; Schlechtriem Art 72 Rn 9.

12. Honsell/Schnyder/Straub Art 72 Rn 15; Germany 18 November 1993 Oberlandesgericht [Appellate Court] Düsseldorf <http://cisgw3.law.pace.edu/cases/931118g1.html>; Germany 15 February 1995 Bundesgerichtshof [Federal Supreme Court] <http://cisgw3.law.pace.edu/cases/950215g1.html]>.

13. This is to be distinguished from the situation where only 1,000 pairs of shoes have been delivered instead of 2,000 on the date of performance. In this instance, the correct remedies are either Article 51 and Article 45 or Article 71 and not Article 72. See Witz/Salger/Lorenz Art 71 Rn 1; Art 73 Rn 1; Honsell/Schnyder/Straub Art 72 Rn 15; Austria 10 December 1997 Vienna Arbitration proceeding S 2/97 <http://cisgw3.law.pace.edu/cases/971210a3.html>; Germany 18 November 1993 Oberlandesgericht [Appellate Court] Düsseldorf <http://cisgw3.law.pace.edu/cases/931118g1.html>; Germany 15 February 1995 Bundesgerichtshof [Federal Supreme Court] <http://cisgw3.law.pace.edu/cases/950215g1.html>.

14. Schlechtriem/Stoll Art 79 Rn 6; Honsell/Schnyder/Straub Art 71 Rn 29, Art 72 Rn 19.

15. Honsell/Schnyder/Straub Art 72 Rn 18.

16. Staudinger/Magnus Art 72 Rn 7; Honnold p 439 para 397; Honsell/Schnyder/Straub Art 72 Rn 26-28; Australia 17 November 2000 Supreme Court of Queensland (Downs Investments v. Perwaja Steel) <http://cisgw3.law.pace.edu/cases/001117a2.html>.

17. Germany 30 September 1992 Landgericht [District Court] Berlin at <http://cisgw3.law.pace.edu/cases/920930g1.html>.

18. In the words of the court, "einer sehr hohen naheliegender Wahrscheinlichkeit".

19. In the words of the court, "eine an Sicherheit grenzende Wahrscheinlichkeit". See also Germany 18 November 1993 Oberlandesgericht [Appellate Court] Düsseldorf <http://cisgw3.law.pace.edu/cases/931118g1.html>; Germany 28 April 1993 Landgericht [District Court] Krefeld <http://cisgw3.law.pace.edu/cases/930428g1.html>; Australia 17 November 2000 Supreme Court of Queensland (Downs Investments v. Perwaja Steel) <http://cisgw3.law.pace.edu/cases/001117a2.html>.

20. See Schlechtriem Uniform Sales Law - The UN-Convention on Contracts for the International Sale of Goods (Vienna 1986) 389 et seq. (http://www.cisg.law.pace.edu/cisg/biblio/schlechtriem-72.html); Staudinger/Magnus Art 72 Rn 8, 9 & 18; Flechtner HM 8 Journal of Law and Commerce (1988) 53-108 at http://www.cisg.law.pace.edu/cisg/text/flecht71,72.html.

21. Enderlein/Maskow p 291 Note 1; Honsell/Schnyder/Straub Art 72 Rn 20-24; Witz/Salger/Lorenz Art 72 Rn 7; Staudinger/Magnus Art 72 Rn 8 & 9.

22. Honsell/Schnyder/Straub Art 72 Rn 23-25 indicates that this is the proper interpretation when due regard is had to the history and drafting of these articles. See also Staudinger/Magnus Art 72 Rn 9; Salger 7 Lorenz Art 72 Rn 8.

23. Staudinger/Magnus Art 72 Rn 9-11.

24. The clearest example where this has been applied has been ICC Arbitration Case No. 8786 of January 1997 <http://cisgw3.law.pace.edu/cases/978786i1.html> where one party declared that it would not perform by the date agreed due to a delay. Under the circumstances the delay was a fundamental breach and it was held that it was not necessary to give notice to the other party. See also Austria 10 December 1997 Vienna Arbitration proceeding S 2/97 <http://cisgw3.law.pace.edu/cases/971210a3.html>. In Switzerland 20 February 1997 Zivilgericht [District Court] Saane <http://cisgw3.law.pace.edu/cases/970220s1.html> and Switzerland 31 May 1996 Zürich Arbitration proceeding <http://cisgw3.law.pace.edu/cases/960531s1.html> reliance on Article 72 was rejected due to a lack of evidence that there was an intention to repudiate; it was not clear.

25. Enderlein/Maskow p 292 Note 3.

26. Commentary of the Secretariat Comment 2, Document A/CONF.975 p 53 as reprinted in Honnold J, Documentary History of the Uniform Law for International Sales (Deventer 1989) and at <http://cisgw3.law.pace.edu/cisg/text/secomm/secomm-72.html>; Enderlein/Maskow p 291 Note 1; Germany 21 September 1995 Landgericht [District Court] Kassel <http://cisgw3.law.pace.edu/cases/950921g1.html>.

27. Secretariat Commentary 2 p 53; Enderlein/Maskow p 290 Note 10; Honsell/Schnyder/Straub Art 71 Rn 51; Staudinger/Magnus Art 71 Rn 52; Honnold Art 71 Rn 394.

28. See the Secretariat Commentary 2 p 53.

29. Honsell/Schnyder/Straub Art 72 Rn 34 & 35.

30. Honsell/Schnyder/Straub Art 72 Rn 35 & 36. Witz/Salger/Lorenz is of the opinion that the failure to give notice does not affect the effectiveness of the avoidance. However, see the decision to the contrary in ICC Arbitration Case No. 8574 of September 1996 <http://cisgw3.law.pace.edu/cases/968574i1.html>.

31. For a contrary opinion, see Honsell/Schnyder/Straub Art 72 Rn 41 & 42.

32. Enderlein/Maskow p 293 Note 6; Witz/Salger/Lorenz Art 72 Rn 15; Staudinger/Magnus Art 72 Rn 22; Schlechtriem Art 72 Rn 16 & 17; Honsell/Schnyder/Straub Art 72 Rn 45; ICC Arbitration Case No. 8574 of September 1996 <http://cisgw3.law.pace.edu/cases/968574i1.html>.

33. See Honsell/Schnyder/Straub Art 72 Rn 36; Schlechtriem /Leser/Hornung Art 72 Rn 13 et seq.; Germany 9 July 1992 Landgericht [District Court] Düsseldorf <http://cisgw3.law.pace.edu/cases/920709g1.html>.

34. See Honsell/Schnyder/Straub Art 72 Rn 45; Staudinger/Magnus Art 72 Rn 21.


Official Comments on Articles of the UNIDROIT Principles cited

Comments reprinted with permission from UNIDROIT

 

ARTICLE 7.3.3

(Anticipatory non-performance)

Where prior to the date for performance by one of the parties it is clear that there will be a fundamental non-performance by that party, the other party may terminate the contract.

COMMENT

This article establishes the principle that a non-performance which is to be expected is to be equated with a non-performance which occurred at the time when performance fell due. It is a requirement that it be clear that there will be non-performance; a suspicion, even a well-founded one, is not sufficient. Furthermore, it is necessary that the non-performance be fundamental and that the party who is to receive performance give notice of termination.

An example of anticipatory non-performance is the case where one party declares that it will not perform the contract; however, the circumstances also may indicate that there will be a fundamental non-performance.

Illustration

A promises to deliver oil to B by M/S Paul in Montreal on 3 February. On 25 January M/S Paul is still 2000 kilometres from Montreal. At the speed it is making it will not arrive in Montreal on 3 February, but at the earliest on 8 February. As time is of the essence, a substantial delay is to be expected, and B may terminate the contract before 3 February.

ARTICLE 7.3.4

(Adequate assurance of due performance)

COMMENT

A party who reasonably believes that there will be a fundamental non-performance by the other party may demand adequate assurance of due performance and may meanwhile withhold its own performance. Where this assurance is not provided within a reasonable time the party demanding it may terminate the contract.

1. Reasonable expectation of fundamental non-performance

This article protects the interest of a party who has reason to believe that the other will be unable or unwilling to perform the contract at the due date but who cannot invoke Art. 7.3.3 since there is still a possibility that the other party will or can perform. In the absence of the rule laid down in the present article the former party would often be in a dilemma. If it were to wait until the due date of performance, and this did not take place, it might incur loss. If, on the other hand, it were to terminate the contract, and it then became apparent that the contract would have been performed by the other party, its action will amount to non-performance of the contract, and it will be liable in damages.

2. Right to withhold performance pending adequate assurance of performance

Consequently this article enables a party who reasonably believes that there will be a fundamental non-performance by the other party to demand an assurance of performance from the other party and in the meantime to withhold its own performance. What constitutes an adequate assurance will depend upon the circumstances. In some cases the other party's declaration that it will perform will suffice, while in others a request for security or for a guarantee from a third person may be justified.

Illustration

A, a boatbuilder with only one berth, promises to build a yacht for B to be delivered on 1 May, and no later. Soon afterwards, B learns from C that A has promised to build a yacht for C during the same period. B is entitled to ask A for an adequate assurance that the yacht will be delivered on time and A will then have to give B a satisfactory explanation of how it intends to perform its contract with B.

3. Termination of the contract

If adequate assurance of due performance is not given the other party may terminate the contract.


Additional commentary

Djakhongir Saidov [Uzbekistan], Anticipatory Non-Performance and Underlying Values of the UNIDROIT Principles, Uniform Law Review (2006) 795-822


Pace Law School Institute of International Commercial Law - Last updated May 7, 2007
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