2008 UNCITRAL Digest of case law on the United Nations Convention on the International Sale of Goods
Digest of Article 64 case law [reproduced with permission of UNCITRAL] [*]
[Text of article
Requirements for the right to declare the contract avoided (paragraph (1))
The case of fundamental breach of contract (art. 64(1)(a))
Buyer's failure to pay or take delivery within additional period fixed by seller (Art. 64(1)(b)
Timing of the declaration of avoidance of the contract (article 64(2))]
(1) The seller may declare the contract avoided:
(a) if the failure by the buyer to perform any of his obligations under the contract or this Convention amounts to a fundamental breach of contract; or
(b) if the buyer does not, within the additional period of time fixed by the seller in accordance with paragraph (1) of article 63, perform his obligation to pay the price or take delivery of the goods, or if he declares that he will not do so within the period so fixed.
(2) However, in cases where the buyer has paid the price, the seller loses the right to declare the contract avoided unless he does so:
(a) in respect of late performance by the buyer, before the seller has become aware that performance has been rendered; or
(b) in respect of any breach other than late performance by the buyer, within a reasonable time:
(i) after the seller knew or ought to have known of the breach; or
(ii) after the expiration of any additional period of time fixed by the seller in accordance with paragraph (1) of article 63, or after the buyer has declared that he will not perform his obligations within such an additional period.
1. Article 64 identifies situations in which the seller may declare the contract avoided because the buyer is in breach of one or more of its obligations. The rules mirror those of article 49 governing the buyer's right to declare the contract avoided for breach by the seller. The effects of avoidance are governed by articles 81 to 84. In all cases, avoidance requires a declaration by the seller as specified in article 26.
Requirements for the right to declare the contract avoided (paragraph (1))
2. Article 64(1) specifies two cases in which the seller has the right to declare the contract avoided: if the buyer has committed a fundamental breach, or if the buyer fails to pay the price or to take delivery of the goods (or declares that he will not do so) within an additional period of time for performance fixed by the seller pursuant to article 63.
The case of fundamental breach of contract (article 64(1)(a))
3. The first situation in which the seller can avoid the contract under article 64(1) is where the buyer has committed a fundamental breach of contract as defined in article 25. This requires that the breach of contract cause such damage to the seller that he is substantially deprived of what he was entitled to expect under the contract. One arbitral award found that, "according to both the general framework of the Convention and its interpretation in case law, the notion of fundamental breach is usually construed narrowly in order to prevent an excessive use of the avoidance of the contract". Case law affords several illustrations of fundamental breaches involving the three conceivable types of contract violations, namely failure to pay the purchase price, failure to take delivery of the goods, and failure to perform other obligations specified in the contract.
4. Thus it has been held that a definitive failure to pay the price constitutes a fundamental breach of contract. One decision declared that delay in opening a letter of credit does not in itself constitute a fundamental breach of contract  whereas another decision stated that refusal on the part of the buyer to open the letter of credit does constitute a fundamental breach.
5. A buyer's final refusal to take delivery, or his return of the goods to the seller in the absence of a fundamental breach by the seller, have been judged to constitute a fundamental breach of contract. Generally, a mere delay of a few days in the delivery of the goods is not deemed a fundamental breach.
6. Non-performance of obligations that arise from the contract -- as opposed to being imposed by the Convention -- may also constitute a fundamental breach, as is demonstrated by decisions involving the buyer's violation of a re-export prohibition  and a seller's breach of an exclusive rights clause.
Buyer's failure to pay or to take delivery within an additional period of time fixed by the seller (article 64(1)(b))
7. If the buyer does not perform its obligation to pay the price or to take delivery of the goods within the additional period of time for performance that a seller has fixed under article 63(1), or if the buyer declares that it will not do so within the period so fixed, the seller may declare the contract avoided under article 64(1)(b).
8. The buyer's obligation to pay the price encompasses taking the necessary steps for that purpose, as provided in article 54. It has been decided that the buyer's failure to take those steps within the additional period of time granted to him by the seller pursuant to article 63 permits the seller to avoid under article 64(1)(b).
Timing of the declaration of avoidance of the contract (article 64(2))
9. Article 64(2) addresses the time within which a seller must exercise a right to declare the contract avoided. The provision makes clear that the seller's right to declare avoidance is not subject to time limitations as long as the buyer has not paid the price. Once the price has been paid, however, the seller's right to avoid must be exercised within specified periods. In cases of late performance by the buyer, the seller loses the right to declare the contract avoided unless he does so before he becomes aware that the buyer has (tardily) performed (article 64(2)(a)). For other kinds of breaches, the right to avoid is lost upon the expiration of a reasonable period of time measured from either the time the seller knew or ought to have known of the breach (article 64(2)(b)(i)) or from the end of an additional period of time the seller has fixed in accordance with article 63(1) (article 64(2)(b)(ii)). There are, as of the time this is written, no decisions which have applied the rules in article 64(2).
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1. See the Digest for art. 25.
2. [ICC International Court of Arbitration, Award 9887 of August 1999 (Chemicals case)].
3. Id.; see also [GERMANY Oberlandesgericht Düsseldorf 14 January 1994 (Shoes case)]. Similarly, [SWITZERLAND Tribunal cantonal du Valais 2 December 2002 (Tea room case)]; [UNITED STATES Federal District Court, Western District of Michigan, 17 December 2001 (Shuttle Packaging System v. Jacob Tsonakis)].
4. [GERMANY Landgericht Kassel, 21 September 1995 (Wooden poles case)].
5. [AUSTRALIA Supreme Court of Queensland 17 November 2000 (Scrap steel case)].
6. See [SWITZERLAND Kantonsgericht Zug 12 December 2002 (Methyl tertiary-butyl ether case)]; [SWITZERLAND Handelsgericht des Kantons Aargau 26 September 1997 (Cutlery case)] (failure to take delivery) (see full text of the decision); [GERMANY Oberlandesgerichthof 22 September 1992 (Frozen bacon case)] (refusal to take delivery of more than half of the goods).
7. [FRANCE Cour d'appel, Grenoble 4 February 1999 (Orange juice case)].
8. [FRANCE Cour d'appel Grenoble 22 February 1995 (Jeans case)].
9. Compare [SWITZERLAND Handelsgericht des Kantons Aargau 26 September 1997 (Cutlery case)].
10. See the cases cited in the Digest for art. 63, footnotes 3-5. See also [SWITZERLAND Handelsgericht St. Gallen 3 December 2002 (Sizing machine case)]; [AUSTRIA Oberlandesgericht Graz 24 January 2002 (Excavator case)].
11. [SWITZERLAND Bezirksgericht der Sanne 20 February 1997 (Spirits case)] (failure to open a letter of credit within the additional period of time fixed by the seller under article 63).