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2008 UNCITRAL Digest of case law on the United Nations Convention on the International Sale of Goods

Digest of Article 73 case law [reproduced with permission of UNCITRAL] [*]

[Text of article
Introduction
What constitutes an instalment contract
Avoidance as to a single instalment
Avoidance of contract as to future instalments
Avoidance of contract as to independent instalment]

Article 73

(1) In the case of a contract for delivery of goods by instalments, if the failure of one party to perform any of his obligations in respect of any instalment constitutes a fundamental breach of contract with respect to that instalment, the other party may declare the contract avoided with respect to that instalment.
(2) If one party's failure to perform any of his obligations in respect of any instalment gives the other party good grounds to conclude that a fundamental breach of contract will occur with respect to future instalments, he may declare the contract avoided for the future, provided that he does so within a reasonable time.
(3) A buyer who declares the contract avoided in respect of any delivery may, at the same time, declare it avoided in respect of deliveries already made or of future deliveries if, by reason of their interdependence, those deliveries could not be used for the purpose contemplated by the parties at the time of the conclusion of the contract.

INTRODUCTION

1. This article provides special rules for instalment contracts. These rules set out when a seller or a buyer is entitled to declare the contract avoided with respect to a single instalment, future instalments, or the contract as a whole.[1] In accordance with article 26 a declaration of avoidance is effective only if the aggrieved party gives notice to the other party.

2. Article 73 does not preclude application of other articles of the Convention. When a seller fails to deliver an instalment or a buyer fails to pay for an instalment, the aggrieved party is entitled under article 47 or article 64 to give the breaching party an additional period of time and to avoid the instalment if that party fails to perform within the additional time.[2] When some but not all instalments are delivered, article 51 on partial delivery and article 73 may be applicable.[3] An aggrieved party may have both the right to suspend its performance under article 71(1) and the right to avoid the contract as to future instalments under article 73(2).[4] An aggrieved party may also be able to avoid its contractual obligations to make further deliveries under either article 72 or article 73.[5]

What constitutes an instalment contract

3. An instalment contract is one that provides for delivery of goods in separate lots.[6] The goods do not have to be fungible, so that an instalment contract may cover delivery of different kinds of goods in each instalment (e.g., men's lambskin coats and women's lambskin coats).[7] One decision states that an instalment contract need not determine the quantity of individual instalments under article 73 as precisely as partial deliveries under article 51.[8]

4. Several decisions have characterized separate contracts between parties that have an ongoing relationship as an instalment contract governed by article 73 [9] or have concluded that the aggrieved party might act under either article 73 or another article, such as article 71 [10] or article 72.[11] One decision also applies article 73 to separate yearly supply contracts for aluminium between the same parties.[12] Another decision, however, distinguishes an instalment contract from a distribution or framework agreement: the latter may provide for non-sales matters such as exclusive representation in a geographical area or an agreement without any determinable quantity.[13]

Avoidance as to a single instalment

5. Paragraph (1) entitles a party to declare a contract avoided as to a single instalment if the other party commits a fundamental breach (see article 25) with respect to that instalment. The same standards for determining whether a party commits a fundamental breach apply both to a contract that requires a single delivery and to a contract that requires delivery by instalments. The aggrieved party was found to be entitled to avoid as to an instalment in the following cases: when the seller failed to deliver the promised goods;[14] when the seller conditioned delivery of an instalment on satisfaction of new demands.[15] On the other hand, the aggrieved party was found not to be entitled to avoid as to an instalment where the buyer delayed paying the price for the instalment.[16]

Avoidance of contract as to future instalments

6. Paragraph (2) of article 73 entitles an aggrieved party to avoid the contract as to future instalments if the party has good grounds to conclude that the other party will commit a fundamental breach of contract (see article 25) with respect to the future instalments.

7. An aggrieved buyer was found to have the right to avoid as to future instalments in the following cases: where the seller made no delivery despite accepting payment;[17] where the seller failed to deliver first instalment;[18] where the seller declared that he would not make further deliveries;[19] where the seller refused to make further delivery of cherries because of a dramatic increase in the market price for cherries;[20] where seller's late delivery of three instalments caused disruption of buyer's production;[21] where the seller delivered poor quality goods;[22] where the buyer had good grounds to believe that the seller would be unable to deliver peppers that satisfied food safety regulations.[23]

8. In the following cases it was found that the seller had good grounds to avoid the contract: where the buyer's failure to open a letter of credit gave the seller good grounds to conclude that the buyer would not pay;[24] where the buyer continued to breach a contract term that prohibited the buyer from reselling the goods in specified markets.[25]

9. To avoid as to future instalments under article 73(2) an aggrieved party must declare avoidance (by notice to the other party -- see article 26) within a reasonable time. A buyer who was entitled to avoid the contract as to future instalments effectively avoided the contract when it gave notice to the seller within 48 hours of the third late delivery.[26]

Avoidance of contract as to interdependent instalment

10. If a party intends to avoid as to an instalment under article 73(1), paragraph (3) authorizes additional avoidance as to past or future instalments that are so interdependent with the avoided instalment that they could not serve the purposes contemplated by the parties at the time the contract was concluded. If a party avoids as to instalments under paragraph (3), it must notify the other party at the same time that it declares avoidance of the instalment under article 73(1). There are no reported cases applying this paragraph.


NOTES

* This presentation of the UNCITRAL Digest is a slightly modified version of the original UNCITRAL text at <http://www.UNCITRAL.org/pdf/english/clout/CISG_second_edition.pdf>. The following modifications were made by the Institute of International Commercial Law of the Pace University School of Law:

   -    To enhance access to contents by computer search engines, we present in html rather than pdf;
 
   -    To facilitate direct focus on aspects of the Digests of most immediate interest, we inserted linked tables of contents at the outset of most presentations;
 
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   -    To enable researchers to themselves keep the case citations provided in the Digests constantly current, we have created a series of tandem documents, UNCITRAL Digest Cases + Added Cases. The new cases and other cases that are cited in these updates are coded in accordance with UNCITRAL's Thesaurus.

In addition, this presentation introduces each section of the UNCITRAL Digest with a Google search button. This is to help you access doctrine (relevant material from the over 1,200 commentaries, monographs and books on the CISG and related subjects that we present on this database) as well as the texts of the cases that UNCITRAL cites in its Digests and that we present in our updates to UNCITRAL's Digests.

1. See also [ICC International Court of Arbitration, Award 8740 of October 1996 (Russian coal case)] (buyer duly avoided as to last instalment when total delivery of coal was less than contract amount).

2. [AUSTRIA Arbitration Award S2/97, Schiedsgericht der Börse für Landwirtschaftliche Produkte Wien 10 December 1997 (Barley case)] (buyer's failure to take delivery); [SWITZERLAND Handelsgericht des Kantons Zürich 5 February 1997 (Sunflower oil case)]; [SWITZERLAND Arbitration Award 273/95, Zürich Handelskammer 31 May 1996 (Aluminum case)] (buyer's failure to pay for instalment); [GERMANY Landgericht Ellwangen 21 August 1995 (Paprika case)] (seller's failure to deliver to third party as agreed).

3. [ICC International Court of Arbitration, Award 9448 of July 1999 (Roller bearings case)] (both articles 51 and 73 applicable but buyer did not establish right to withhold payments); [ICC International Court of Arbitration, Award 8128 of 1995 (Chemical fertilizer case)].

4. See [UNITED STATES Federal District Court, Western District of Michigan, 17 December 2001 (Shuttle Packaging Systems v. Tsonakis)] (citing arts. 7173 for remedies available in instalment transaction); [ICC International Court of Arbitration, Award 9448 of July 1999 (Roller bearings case)] see above (buyer not entitled to suspend because he had taken partial delivery of goods); [AUSTRIA Oberster Gerichtshof 12 February 1998 (Umbrella case)] (in addition to right to avoid as to instalments under art. 73, seller has right to suspend under art. 71(1) but seller failed to establish its right in this case).

5. [FINLAND Helsinki Court of Appeal 30 June 1998 (Skin care products case)] (EP S.A. v FP Oy)] (where two separate orders for skincare ointment were to be filled from the same batch of product and there was a fundamental breach with respect to the quality of the first delivery, the aggrieved buyer could avoid as to the second delivery either under either article 72 or, if the two orders constituted instalments of an instalment contract, under article 73(2)); [SWITZERLAND Arbitration Award 273/95, Zürich Handelskammer 31 May 1996 (Aluminum case)] (fundamental breach as to future instalments is covered by both articles 72 and 73).

6. [ICC International Court of Arbitration, Award 9887 of August 1999 (Chemicals case)] (chemical substance); [SWITZERLAND Handelsgericht des Kantons Zürich 30 November 1998 (Lambskin coat case)] (lambskin coats); [GERMANY Arbitration-Schiedsgericht der Hamburger freundschaftlichen Arbitrage, 29 December 1998 (Cheese case)]; [AUSTRIA Oberster Gerichtshof 12 February 1998 (Umbrella case)] (umbrellas); [SPAIN Audiencia Provincial de Barcelona 3 November 1997 (Rolled steel case)] (manufactured springs); [SWITZERLAND Handelsgericht des Kantons Zürich 5 February 1997 (Sunflower oil case)]; [FRANCE Cour d'appel Grenoble 22 February 1995 (Jeans case)]; [HUNGARY Arbitral award Vb 94124 of 17 November 1995 (Mushrooms case)]; [CHINA Chansha Intermediate People's Court Economic Chamber, 18 September 1995 (Molybdenum iron alloy)]; [GERMANY Landgericht Ellwangen 21 August 1995 (Paprika case)]; [ICC International Court of Arbitration, Award 8128 of 1995 (Chemical fertilizer case)].

7. [SWITZERLAND Handelsgericht des Kantons Zürich 30 November 1998 (Lambskin coat case)] (see full text of the decision).

8. [GERMANY Arbitration-Schiedsgericht der Handelskammer Hamburg, 21 March 1996 and 21 June 1996 (Chinese goods case)] (see full text of the decision).

9. [AUSTRIA Arbitration Award S2/97, Schiedsgericht der Börse für Landwirtschaftliche Produkte Wien 10 December 1997 (Barley case)] (from economic perspective two contracts for barley concluded on the same day calling for delivery during the same time period are part of same transaction and therefore governed by art. 73).

10. [AUSTRIA Oberster Gerichtshof 12 February 1998 (Umbrella case)] (attempted suspension under art. 73 rather than art. 71).

11. [FINLAND Helsinki Court of Appeal 30 June 1998 (Skin care products case)] (EP S.A. v. FP Oy)] (where two separate orders for skincare ointment were to be filled from the same batch of product and there was a fundamental breach with respect to the first delivery, the aggrieved buyer could avoid as to the second delivery either under either article 72 or, if the two orders constituted instalments of an instalment contract, under article 73(2)); [SWITZERLAND Arbitration Award 273/95, Zürich Handelskammer 31 May 1996 (Aluminum case)] (fundamental breach as to future instalments is covered by both articles 72 and 73).

12. [SWITZERLAND Arbitration Award 273/95, Zürich Handelskammer 31 May 1996 (Aluminum case)] (fundamental breach as to future instalments is covered by both articles 72 and 73).

13. [GERMANY Arbitration-Schiedsgericht der Handelskammer Hamburg, 21 March 1996 and 21 June 1996 (Chinese goods case)] (leaving open whether contract in case before the court was an instalment contract) (see full text of the decision).

14. [SWITZERLAND Handelsgericht des Kantons Zürich 5 February 1997 (Sunflower oil case)].

15. [GERMANY Arbitration-Schiedsgericht der Hamburger freundschaftlichen Arbitrage, 29 December 1998 (Cheese case)].

16. [SWITZERLAND Arbitration Award 273/95, Zürich Handelskammer 31 May 1996 (Aluminum case)].

17. [SWITZERLAND Handelsgericht des Kantons Zürich 5 February 1997 (Sunflower oil case)].

18. [SWITZERLAND Arbitration Award 273/95, Zürich Handelskammer 31 May 1996 (Aluminum case)] (failure to deliver first instalment gave the buyer good grounds for concluding that later instalments would not be delivered).

19. [GERMANY Arbitration-Schiedsgericht der Hamburger freundschaftlichen Arbitrage, 29 December 1998 (Cheese case)].

20. [HUNGARY Arbitration Court attached to the Hungarian Chamber of Commerce and Industry 25 May 1999 (Sour cherries case)].

21. [SPAIN Audiencia Provincial de Barcelona 3 November 1997 (Rolled steel case)].

22. [ICC International Court of Arbitration, Award 9887 of August 1999 (Chemicals case)].

23. [GERMANY Landgericht Ellwangen 21 August 1995 (Paprika case)].

24. [HUNGARY Arbitral award Vb 94124 of 17 November 1995 (Mushrooms case)].

25. [FRANCE Cour d'appel Grenoble 22 February 1995 (Jeans case)] (resale of jeans in Africa and South America; also citing art. 64(1)).

26. [SPAIN Audiencia Provincial de Barcelona 3 November 1997 (Rolled steel case)].


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