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GUIDE TO ARTICLE 26

Comparison with Principles of European Contract Law (PECL)


Match-up of CISG Article 26 with PECL Article 9:303

CISG Article 26

A declaration of avoidance of the contract is effective only if made by notice to the other party.

PECL Article 9:303 [Notice of Termination]
(complete and revised version 1998)

(1) A party's right to terminate the contract is to be exercised by notice to the other party.

(3) (a) When performance has not been tendered by the time it was due, the aggrieved party need not give notice of termination before a tender has been made. If a tender is later made it loses its right to terminate if it does not give such notice within a reasonable time after it has or ought to have become aware of the tender.

      (b) If, however, the aggrieved party knows or has reason to know that the other party still intends to tender within a reasonable time, and the aggrieved party unreasonably fails to notify the other party that it will not accept performance, it loses its right to terminate if the other party in fact tenders within a reasonable time.

(4) If a party is excused under Article 8:108 through an impediment which is total and permanent, the contract is terminated automatically and without notice at the time the impediment arises.


Definitions

For information on the nature and effect of "termination" under the European Principles, go to match-up with CISG art. 81 for PECL arts. 9:305 through 9:309 and the comments and notes that accompany these provisions. For the CISG counterpart to this term, see "avoidance".

For the PECL definition of "reasonable", go to PECL art. 1:302 [Reasonableness] and the comment and notes that accompany this provision. For the PECL definition of "non-performance", go to PECL art. 1:301(4) and the comment and notes that accompany this definition. Relevant to the PECL 9:303(3)(a) phrase "knows or has reason to know" is PECL art. 1:305 [Imputed Knowledge and Intention] and the comment and notes that accompany this provision.


"Termination" and "avoidance" under the PECL [See also PECL Article 4:112]

As noted above, "termination" is the PECL counterpart to the CISG term "avoidance". The PECL does, however, use its own term "avoidance" in a different context: in the context of "invalidity and avoidance". The subject of Chapter 4 of the PECL is validity. In that context, there is a PECL article 4:112 entitled Notice of Avoidance. This article states: "Avoidance must be by notice to the other party."


Editorial remarks
COMPARATIVE ANALYSIS

Selected Notice Requirements under CISG, PECL and UNIDROIT Principles: CISG Arts. 39 & 26; UNIDROIT Principles Arts. 1.9, 3.14, 7.3.2.; PECL Arts. 1.303, 3.304, 4.112, 9.303, 13.104

Camilla Baasch Andersen [*]
November 2004

  1. Introduction
  2. CISG Vantage Point: All Non-conformities Require Specific and Timely Notice
  3. PECL and UNIDROIT Principles: Only Avoidance ("Termination") Requires Notice
  4. Form of "Notice"
  5. Case law and Issues of Notification
  6. Timelines
  7. Specificity
  8. Conclusion

I. Introduction

Doctrinal writing and caselaw on the problems of notice giving abound where the CISG is concerned (whereas there is little reported on the PECL or UNIDROIT) - it is one of the most popular areas of dispute as a proper notification is central to any remedial relief. The second opinion from the CISG Advisory Council [1] focuses on the requirements of examination and notification, and contains an overview of the relevant caselaw on point.

CAVEAT on terminology: Any comparison of notice requirements under the PECL, UNIDROIT and CISG will unearth a significant difference in terminology. The CISG solely encompasses selected formalities concerning validity of contract (such as form of communication, form of contract: Art. 12), but sets most validity issues outside the sphere of application by way of Article 4(a). It thus does not concern itself with most cases where the contract is not valid due to misrepresentation, threat, fraud or similar formality. It also uses the term "avoid" for termination and revocation as the only language of contract cancellation. In contrast, both the UNIDROIT Principles and the PECL refer to rescission by the term "avoid" and use "termination" for the equivalent to the CISG term "avoidance". The following will employ CISG terminology and indicate where it is not used in the same manner in the UNIDROIT Principles and the PECL.

II. CISG Vantage Point: All Non-conformities require specific and timely notice

Article 39 CISG requires notice for ALL non-conformities, and in addition to this Article 26 CISG requires notice in case of avoidance specifying this remedy. Both must be given within "reasonable time". A single notice can satisfy both requirements. The consequence of not giving a notice within reasonable time is for Art. 26 that the contract cannot be avoided, and for Art. 39 a complete loss of all remedies under the CISG (excepting the existence of a reasonable excuse under Art. 44 or the sellers bad faith or negligence under Art. 40 - the latter will only apply if notice is given within the two-year cut-off period in Article 39(2)).

Both notices pose two problems. First of all, what is "reasonable time" (CISG Arts. 39 and 26, and, secondly, what is what degree of particularity is required, i.e., in "specifying the nature of the non-conformity" (CISG Art. 39) and/or providing a proper "declaration of avoidance" (CISG Art. 26).

III. PECL and UNIDROIT: Only Avoidance ("Termination") Requires Notice

In the PECL and the UNIDROIT Principles, there are two immediate contrasts to the CISG approach.

First of all, because these two sets of principles also deal with the validity of contracts, they include notification requirements for rescission of contract in case of invalidity, which they both term "avoidance" (UNIDROIT Principles Art. 3.14; and PECL Art. 4.112).

Secondly, in contrast to CISG Art. 39, not all remedies in effect of breach require a formal notification under the PECL or UNIDROIT. However, the two counterpart instruments do contain requirements for notification of avoidance (CISG terminology) like CISG Art. 26 does, namely in PECL 9.303 and UNIDROIT 7.3.2.

The CISG equivalent to the notification requirements in the UNIDROIT Principles and the PECL is thus not Art. 39, but Art. 26. However, the notice provision in Art. 26 also requires that the conditions of Art. 39 be met, as no remedy can be exercised without a CISG Art. 39 notice. Note, however, that in the CISG regime a notice can serve as both Art. 26 and Art. 39 notice if it adequately meets the requirements for each provision; therefore, separate notices are not required. Thus, where a buyer wishes to avoid a contract based on a non-conformity of the goods, the situation is very similar under all three regulatory frameworks.

Interestingly, both sets of Principles do set out the timeliness of notification as "reasonable time" in line with the CISG timeframes, but do not assist in the determination of how this reasonable time-period is to be measured. Reasonableness, while understandably palatable and thus popular in modern drafting, is a very wide and flexible term which can be understood very differently. It permeates both sets of principles as well as the CISG. But it does not specifically define anything, leaving the practitioner with little by way of a yardstick with which to measure a time-period (see section VI, infra, on the issue of timeliness).

The official UNIDROIT commentary [2] contributes the following with regard to the reasoning behind the provision 7.3.2:

Para. (1) of this article reaffirms the principle that the right of a party
to terminate the contract is exercised by notice to the other party. The
notice requirement will permit the non-performing party to avoid any loss
due to uncertainty as to whether the aggrieved party will accept the
performance. At the same time it prevents the aggrieved party from
speculating on a rise or fall in the value of the performance to the
detriment of the non-performing party.
[3]

While this can be helpful in determining the need behind a notification requirement and thus help indicate the necessity for speediness, it does not help define the concept of "reasonable time".

IV. Form of "Notice"

Extensions or embellishments of notice requirements are found in both UNIDROIT Principles Art. 1.9. and PECL Art. 1.303. These two provisions are remarkably similar in content, both providing that notice may be given by any "appropriate" means, that it is effective when reaching the addressee with "reaches" defined as delivered to business or mailing address or habitual residence. They also both define "notice" as a communication or declaration ("…of intention", according to UNIDROIT).

It seems unnecessary to restate these basic principles of offer and acceptance, common to all three regimes, especially for notice giving, and the fact that the CISG is commonly accepted to have the same rules for notices without such special codification would seem to render this regulating superfluous.

PECL Art. 1.303 contains a further embellishment of the distribution of risk for notices for non-performance delayed or altered in transit. Subsection (4) provides that such notices (including anticipatory non-performance) if dispatched properly, shall have effect as if they had arrived under normal circumstances. This curious special rule also seems superfluous, imposing a "mailbox rule" which is seen to apply to notices in other regulatory frameworks even without the inclusion of such a provision.

While these provisions do embellish the concept of a notice to some extent, they do not help as guidelines for any further determination of the two main problems of notification, namely timeliness and specificity. There is - as of yet - very little caselaw available on the application of the corresponding PECL and UNIDROIT provisions to assist with a determination of these issues.

An overview of CISG caselaw on the form of notice can be found in section 2 of the CISG Case Law annexed to the CISG Advisory Opinion 2.[4] Although there is no form requirement in the CISG for notice giving, one main problem is that oral/telephonic notices are difficult to prove, and many cases concern notices which the buyer claims were given over the telephone. The burden of evidence of notice giving is clearly on the buyer, and if this cannot be proven, the judge will not allow the buyer to rely on the notice, and this will result in the loss of a remedy (notwithstanding CISG Arts. 44 and 40).[5] It is worth noting that no form requirement in the CISG prevents the requirements of Arts. 39 and 26 from being met in a single notice if it specifies both the nature of the non-conformity and the intention to avoid (see section VI, infra).

V. Caselaw and Issues of Notification

Due to the lack of cases involving the UNIDROIT and PECL, an analysis of these issues is solely based on the caselaw of the CISG.

VI. Timeliness

Much has been written on the timeliness of notification under Art. 39 (which also includes Art. 26) of the CISG.[6] The immediate problem is that the timeframe is so flexible, and subject to different guidelines in its interpretation of "reasonable time". The timeframe was meant to be flexible, determinable by the facts of the case in each instance, but this poses a problem for numerous systems of law who wish to form into a more tangible/rigid concept (primarily Civil Law systems). In Germany and Switzerland, attempts for introducing a generous "grosszugige monat" guideline of an outside period of one month determinable by the facts of the case to reduce it have found some support.[7] In Austria, similar attempts to determine a more objective and rigid timeframe of 14 days have surfaced in caselaw.[8] The Swiss Courts have followed the German evolution of a one month timeframe in some cases.[9]

There is no clear way to define this timeframe, or the criteria which influence it. This is - although it ideally would not be - subject to the jurisdiction in question, and its influences. Most scholars and jurisdiction are in favor of retaining the inherent flexibility of the provision to suit it to each case, with the determination of certain criteria for shortening/lengthening it. Some criteria for reducing the timeframe in most circumstances include: rapid deterioration of the goods (economic or physical),[10] or other reason why time would be of the essence between the parties (See also CISG Art. 9). If more rigid standards for the determination of "reasonable time" were to become universally accepted across the different jurisdictions, then it might be possible to look for guidelines in the PECL or the UNIDROIT Principles, but no such standards exist here.

There is, in the official UNIDROIT commentary, a not very helpful definition of "reasonable time":

Reasonable time

An aggrieved party who intends to terminate the contract must give notice
to the other party within a reasonable time after it becomes or ought to
have become aware of the non-performance (para. (2)).

What is "reasonable" depends upon the circumstances. In situations where
the aggrieved party may easily obtain a substitute performance and may thus
speculate on a rise or fall in the price, notice must be given without
delay. When it must make enquiries as to whether it can obtain substitute
performance from other sources the reasonable period of time will be longer.
[11]

And in Art. 1:302 of the PECL, "reasonable" is defined as:

Under these Principles reasonableness is to be judged by what persons acting in good faith and in the same situation as the parties would consider to be reasonable. In particular, in assessing what is reasonable the nature and purpose of the contract, the circumstances of the case and the usages and practices of the trades or professions involved should be taken into account.[12]

The overall conclusion on timeliness of notification would seem to be that it is flexible, based on circumstances of the case, for the CISG as well as the UNIDROIT timeframes, with the exception of those CISG jurisdictions which have attempted to introduce more rigid guidelines. It is clear that such jurisdictionally independent evolution of guidelines is an obstacle to applied uniformity of the CISG, but a reality nonetheless.

VII. Specificity

The degree of specificity required under CISG Art. 26 is not overly controversial. It must be evident to a reasonable person (using the criteria of CISG Art. 8) that the notice in question must clearly express the aggrieved party's wish to avoid the contract as a remedy in consequence of a particular breach. Implied intentions to avoid can be permitted, but the implication must be very strong.

The specificity required under CISG Art. 39, however, is a different and far more controversial matter. The notice must sufficiently specify the nature of the non-conformity, meaning exactly what is wrong with the goods, enabling the seller to determine a choice of action based on the notification and any request for relief. Some cases have applied this doctrine of specificity very harshly, cutting the buyer off from all relief where details of the non-conformity were lacking in the notice, even in a (strongly criticized) case where the language used to describe the non-conformity was an established phrase in the specific trade ("soft truffles" = worm ridden).[13]

Note that Art. 44 CISG may help to provide an excuse for why no properly specific notice is given, but a successful excuse for this has yet to surface in the caselaw.

VIII. Conclusion

In conclusion, a comparison of the texts of the notice requirements under the three regulatory frameworks discloses that although structured differently, and with the major discrepancy of the CISG notice requirement for all exercising of remedies in Art. 39, the three sets of rules are very reminiscent of one other.

Nevertheless, with the exception of the official commentaries, there is no aid to be found in either set of Principles which may be applied in interpreting the two issues of timeliness and specificity of notice under the Convention. The two major issues of specificity and timeliness are not addressed in a helpful way, nor is there at the time of writing any reported caselaw from these two regimes which could plausibly be used as an inspirational guideline for resolving the problems in other regimes.

[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) 133-138.]


FOOTNOTES

* Camilla Baasch Andersen is a lecturer in Commercial Law at the Centre for Commercial Law Studies, Queen Mary, University of London as well as a Fellow at the Pace Institute of Commercial Law. CISG-AC Opinion no 2, Examination of the Goods and Notice of Non-Conformity: Articles 38 and 39, 7 June 2004. Rapporteur: Professor Eric E. Bergsten, Emeritus, Pace University School of Law, New York; available online at <http://cisgw3.law.pace.edu/cisg/CISG-AC-op2.html>.

1. CISG-AC Opinion no 2, Examination of the Goods and Notice of Non-Conformity: Articles 38 and 39, 7 June 2004. Rapporteur: Professor Eric E. Bergsten, Emeritus, Pace University School of Law, New York; available online at <http://cisgw3.law.pace.edu/cisg/CISG-AC-op2.html>.

2. Available online at <http://cisgw3.law.pace.edu/cisg/principles/uni26.html#official>.

3. Id. Comment 1.

4. Available online at <http://cisgw3.law.pace.edu/cisg/CISG-AC-op2.html>.

5. See for examples of such cases:

    -     Germany 6 October 1995 Amtsgericht [Lower Court] Kehl, case presentation including English translation available online at <http://cisgw3.law.pace.edu/cisg/cases/951006g1.html>;
    -     Germany 22 June 1995 Landgericht [District Court] Kassel; case presentation available at <http://cisgw3.law.pace.edu/cisg/cases/950622g1.html>;
    -     Germany 23 May 1995 Oberlandesgericht [Appellate Court] Frankfurt case presentation including English translation available online at <http://cisgw3.law.pace.edu/cisg/cases/950523g1.html>;
    -     Switzerland 9 September 1993 Handelsgericht [Commercial Court] Zürich, case presentation available at <http://cisgw3.law.pace.edu/cases/930909s1.html>;

the latter clearly prescribes that the burden of proof for notice giving rests on the buyer.

6. See, amongst many other sources, the CISG Advisory Council's second opinion, available at <http://cisgw3.law.pace.edu/cisg/CISG-AC-op2.html>. See also Camilla Baasch Andersen, "Reasonable Time in Article 39(1) of the CISG", in Review of the Convention on Contracts for the International Sale of Goods (Kluwer 1998) 66-176, available online at <http://cisgw3.law.pace.edu/cisg/biblio/andersen.html> and Peter Schlechtriem, Commentary on issues associated with Article 39(1): Lack of conformity notice, timeliness, January 2000 (commentary provided with online case presentation at <http://www.cisg.law.pace.edu/cisg/cases/991103g1.html>). A bibliography of scholarly writing on CISG Art. 39 is available at <http://cisgw3.law.pace.edu/cisg/text/e-text-39.html>.

7. Introduced in the case

    -     Germany 8 March 1995 Bundesgerichtshof [Supreme Court], case presentation including English translation available online at <http://cisgw3.law.pace.edu/cisg/cases/950308g3.html>. The German Supreme Court's judgment also includes a reference to Swiss scholar Schwenzer's writing in von Caemmerer/Schlechtriem, Kommentar zum Einheitlichen UN-Kaufrecht (Commentary on the Uniform U.N. Law of Sales) 2nd ed., (in German).

Restated in many German cases since then, the latest reference in the Bundesgerichtshof [German Supreme Court] is:

    -     Germany 3 November 1999 Supreme Court, case presentation including English translation available at <http://cisgw3.law.pace.edu/cisg/cases/991103g1.html>.

But restatements of this principle abound in German law at all instances; see for example:

    -     Germany 29 January 1996 Amtsgericht [Lower Court] Augsburg, case presentation available online at <http://cisgw3.law.pace.edu/cisg/cases/960129g1.html>;
    -     Germany 2 July 2002 Landgericht [District Court] Saarbrücken, case presentation including English translation available at <http://cisgw3.law.pace.edu/cisg/cases/020702g1.html>; and
    -     Germany 26 May 1998 Oberlandesgericht [Appellate Court] Thüringer [Jena], case presentation including English translation available at <http://cisgw3.law.pace.edu/cisg/cases/980526g1.html>.

8. The "14-day" principle was first introduced in

    -     Austria 15 October 1998 Oberster Gerichtshof [Supreme Court], case presentation including English translation available at <http://cisgw3.law.pace.edu/cisg/cases/981015a3.html>;

and was recently restated in

    -     Austria 14 January 2002 Oberster Gerichtshof [Supreme Court], case presentation including English translation available at <http://cisgw3.law.pace.edu/cisg/cases/020114a3.html>.

9. See for instance Switzerland 30 November 1998 Handelsgericht [Commercial Court] Zürich case presentation available at <http://cisgw3.law.pace.edu/cisg/cases/981130s1.html>.

10. Scholars emphasized this before the Convention even entered into force, cf. John Honnold, Uniform Law for International Sales under the 1980 UN Convention (Kluwer, 1982): "Considerations indicating the need for speed include the perishable nature of the goods…" The reality of this consideration is extended to economic perishability, see Germany 6 October 1995 Lower Court Kehl, (where the court emphasized the need for speed as the goods were seasonal); case presentation including English translation available at <http://cisgw3.law.pace.edu/cisg/cases/951006g1.html>.

11. Comment 3, available online at <http://cisgw3.law.pace.edu/cisg/principles/uni26.html#official>.

12. For the definition of reasonableness recited in the Principles of European Contract Law and references to reasonableness in Continental and Common Law domestic rules, doctrine and jurisprudence, go to <http://cisgw3.law.pace.edu/cisg/text/reason.html#def>, with further references, and PECL Article 1:302. Ole Lando & Hugh Beale eds., Principles of European Contract Law: Parts I and II, Kluwer Law International (2000) 126-128. To drive home the correlation between the PECL's definition of reasonableness and the evident same meaning of this term to CISG legislators when they used the concept either specifically or as a general principle of the uniform law they drafted, see <http://cisgw3.law.pace.edu/cisg/text/reason.html#over>.

Reasonableness is also regarded as a general principle of the CISG. See Overview Comments on Reasonableness, Albert Kritzer, available online at <http://cisgw3.law.pace.edu/text/reason.html>; "Reasonableness is specifically mentioned in thirty-seven provisions of the CISG and clearly alluded to elsewhere in the Uniform Sales Law. Reasonableness is a general principle of the CISG." See also comments by Jelena Vilus, available online at http://cisgw3.law.pace.edu/cisg/text/reason.html#vilus>.

13. See Germany 24 January 1996 Landgericht [District Court] Bochum, case presentation including English translation available at <http://cisgw3.law.pace.edu/cisg/cases/960124g1.html>.


Comment and notes on PECL 9:303 and 4:112

Like the commentary to the UNIDROIT Principles and the U.S. Restatements, the comments to the PECL help explain the text. The PECL notes identify civil law and common law antecedents and related domestic provisions. With the permission of the Commission on European Contract Law, these comments and notes are presented below. The source of this material is Ole Lando & Hugh Beale eds., Principles of European Contract Law: Parts I and II, Kluwer Law International (2000) 413-416, 274-275.


COMMENT AND NOTES: PECL Article 9:303: Notice of Termination

(1) A party's right to terminate the contract is to be exercised by notice to the other party.

(2) The aggrieved party loses its right to terminate the contract unless it gives notice within a reasonable time after it has or ought to have become aware of the non-performance.

(3) (a) When performance has not been tendered by the time it was due, the aggrieved party need not give notice of termination before a tender has been made. If a tender is later made it loses its right to terminate if it does not give such notice within a reasonable time after it has or ought to have become aware of the tender.

(b) If, however, the aggrieved party knows or has reason to know that the other party still intends to tender within a reasonable time, and the aggrieved party unreasonably fails to notify the other party that it will not accept performance, it loses its right to terminate if the other party in fact tenders within a reasonable time. [page 413]

(4) If a party is excused under Article 8:108 through an impediment which is total and permanent, the contract is terminated automatically and without notice at the time the impediment arises.

Comment

A. The requirement of notice

Fair dealing requires that an aggrieved party which wishes to terminate a contract normally give notice to the defaulting party. The defaulting party must be able to make the necessary arrangements regarding goods, services and money at its disposal. Uncertainty as to whether the aggrieved party will accept performance or not may often cause a loss to the defaulting party which is disproportionate to the inconvenience which the aggrieved party will suffer by giving a notice. When performance has been made, passiveness on the side of the party which was to receive performance may cause the performing party to believe that the former has accepted the performance even if it was too late or defective. If, therefore, the aggrieved party wishes to terminate the contract it must notify the other party within reasonable time. The need to notify the other party within a reasonable time does not apply to cases of anticipatory repudiation (see Article 9:304).

Notice may be given either by expressly declaring the contract terminated or by rejecting the tender of performance.

B. When performance has already been tendered but it was late or is defective

Article 9:303(2) states the general rule that will apply both when the aggrieved party has received a late tender of performance and when it has received a tender which was defective. In either case, once it knows or should know of the tender, it should have a reasonable time to check it for defects and to decide what to do; but if it waits for more than a reasonable time without notifying the other party that it is terminating the contract it loses the right to terminate. If it is prepared to accept the tender, it need not give any notice.

What is a reasonable time will depend upon the circumstances. For instance the aggrieved party must be allowed long enough for it to know whether or not the performance will still be useable by it. If delay in making a decision is likely to prejudice the defaulting party, for instance because it may lose the chance to prevent a total waste of its efforts by entering another contract, the reasonable time will be shorter than if this is not the case. If the defaulting party has tried to conceal the defects, a longer time may be allowed to the aggrieved party.

C. When performance is overdue

When a tender of performance is due but has not been made, the courses of action open to the aggrieved party will depend on the circumstances.

(1) It does not know whether the other party intends to perform or not but it wants performance. In that case it should seek specific performance, and under Article 9:102(3) it must seek it within a reasonable time after it has or ought to have become aware of the non-performance. [page 414]

(2) It does not know whether the other party intends to perform and either it does not want the performance or is undecided. In this case it may wait to see whether performance will ultimately be tendered and under Article 9:303 it may make up its mind if and when this happens. If the defaulting party wishes it may ask the aggrieved party whether it still wishes to receive performance, in which case the latter must answer without delay, see Article 1:201.

(3) It has reason to know that the defaulting party is still intending to perform within a reasonable time, but it no longer wishes to receive the performance. In this case it would be contrary to good faith for it to allow the defaulter to incur further effort in preparing to perform and then to terminate when performance is tendered. Therefore Article 9:303(3)(b) requires it in this situation to notify the other party that it will not accept the performance, on pain of losing its right to terminate if the other party does in fact perform within a reasonable time.

D. Exceptions to requirement of notice

There are two exceptions to the rule that notice of termination must be given. The first is under Article 8:106(3), according to which a notice setting a reasonable period during which the defaulting party must perform may provide that at the end of the period the contract shall terminate automatically if performance has still not been made.

The second is under Article 9:304(4), which provides that where a party's non-performance is excused because it was due to a total and permanent impediment, the contract terminates automatically. Some legal systems regard the contract as destroyed by such an event.

Illustration: A famous tenor is engaged to sing at the opening ceremony of the World Cup. The tenor falls seriously ill and has not recovered by the date of the opening ceremony. Notice of termination need not be given.

In cases of only partial or temporary impediment, the defaulting party may still tender performance, and a notice of termination by the aggrieved party will be needed. Note that in cases of excused non-performance, the non-performing party has a duty under Article 8:103(3) to give notice of the impediment.

Notes [Match-ups with Continental and Common Law domestic rules, doctrine and jurisprudence]

Legal systems differ in their approach to the question of how termination is to be effected and how quickly the aggrieved party must act if he is not to lose the right. See Treitel, Remedies §§ 243-252.

1. Termination by notice to non-performing party

The Principles merely require notice to the non-performing party in order to terminate the contract. This accords with the COMMON LAW; DANISH Sale of Goods Act §§ 27, 32, and 52; FINNISH and SWEDISH Sale of Goods Acts, §§ 29, 39, 59. PORTUGUESE CC art. 436(1); and the DUTCH BW 6:267 allows rescission by notice. In SCOTTISH law, even notice is not always required: McBryde 324-325.

Article 9.303 of the Principles is markedly different to systems such as the FRENCH, BELGIAN, ITALIAN or SPANISH which at least in general principle require court proceedings to effect termination: see FRENCH , BELGIAN and LUXEMBOURG CC art. 1184(2), ITALIAN CC art. 1453 and SPANISH CC art. 1124 (though in SPAIN a notice of termination may be effective if it is [page 415] accepted by the defaulting party: Diez-Picazo, II, 722; Lacruz-Delgado II, 1, § 26, 204; and Ministerio de Justicia, art. 1124). The time limit on the court's power to order termination is the general period of limitation (see French CC art. 2262 and C Com. art. 189 bis; Italian CC art. 1453(1) and (2); Spanish CC art. 1124); but in the case of defective goods the buyer, if he elects for résolution, must do so dans un bref délai, French and BELGIAN CC art. 1648. ITALIAN CC arts. 1454, 1456 and 1457, and Belgian caselaw, recognise exceptions to the rule that the creditor needs a court order to terminate: see Dirix and van Oevelen, R.W.1992-93, 1236; van Ommeslaghe R.C.J.B. 1986, nos. 98-100; M.E. Storme T.B.B.R./R.G.D.C. 1991, 110-11, no. 12. Article 9:303 also differs from rules such as the GERMAN and AUSTRIAN Nachfrist procedure noted earlier (see note to Article 8:106) which may require that the debtor be given reasonable notice before the contract is terminated even in cases other than simple delay.

CISG arts. 49 and 64 and Unidroit art. 7.3.2 adopt an approach similar to that of the Principles.

2. Notice of termination must be given within reasonable time

The notice must generally be within a reasonable time of the non-performance. This corresponds broadly to many systems: e.g. DANISH Sale of Goods Act §§ 27, 32 ("promptly" or "within a short time"); FINNISH and SWEDISH Sale of Goods Acts, §§ 29, 32, 39, 59 ("reasonable time"); DUTCH BW art. 6:89 ("promptly"); FRENCH, BELGIAN and LUXEMBOURG CC art. 1648 for garantie des vices cachés ("dans un bref délai") and, in Belgium, in some other cases on the basis of good faith, see Cass. 18 May 1987, Arr. Cass. 546 and Cass. 8 Apr. 1988, Arr. Cass., no. 482; IRELAND "promptly and decisively", Clark 420; UK Sale of Goods Act 1979, ss.34 and 35 (and see Treitel, Contract 711); PORTUGUESE CC art.436(2); or the same result may be reached by application of the doctrine of good faith, e.g. in SPAIN and in GERMANY, see Staudinger (-Otto) § 325 no. 96. AUSTRIAN and GERMAN law have special time limits for claims to terminate in cases of defects, e.g. ABGB §§ 932, 933, HGB § 377.

Some systems offer protection to the debtor by requiring that he be given reasonable notice before the contract is terminated: for example the German Nachfrist procedure noted earlier (see note to Article 8:106), under which the aggrieved party cannot demand performance after the notice period has expired, so that the non-performing party will know that after that date he no longer has to perform his obligations. Where a commercial contract containing a Fixgeschäft is not performed on time no Nachfrist is required, but the aggrieved party must notify the non-performing party promptly if he does not want to terminate, HGB §376 (1) sentence 2. In other cases where no Nachfrist is required the aggrieved party may lose his right to terminate if he does not exercise it promptly (e.g. in the case of a non-commercial Fixgeschäft: Palandt (-Heinrichs) § 361 No. 3). DUTCH law also requires notice of default, unless the contract provides for a fixed time for performance, or the creditor must conclude from a communication by the debtor that the latter will fail to perform (BW 6:82 and 6:83).

German law is not alone in allowing the non-performing party to set a reasonable time within which the aggrieved party must decide whether or not he wants to terminate (§§ 327, 355 BGB); see GREEK CC arts. 546, 395, 387(2): see Michaelides-Nouaros ErmAK II/1 art. 382 no. 15, art. 383 no. 22 (1949); PORTUGUESE CC art. 436(2)).

3. The aggrieved party which knows the other still intends to perform

There is no direct equivalent in any of the legal systems studied to Article 9:303(3)(b) but the same results might be reached by application of the doctrine of good faith or, in COMMON LAW, by promissory estoppel, at least where the aggrieved party had given some positive indication that he was still willing to accept performance; mere silence or inactivity would not create an estoppel, however, see The Leonidas D [1985] 1 W.L.R. 925, 937, C.A.

4. Automatic termination in cases of impossibility

Several systems recognise that a contract comes to an end automatically if performance becomes impossible: e.g. ITALIAN CC art. 1463. See further notes to Article 8:108 above. [page 416]

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COMMENT AND NOTES: PECL Article 4:112: Notice of Avoidance

Avoidance must be by notice to the other party.

Comment

Avoidance may be effected by the party entitled to avoid the contract or communication; it is not necessary to seek a court order to avoid the contract. Under Article 1:303 the receipt principle applies and the avoidance will not be effective unless the notice reaches the other party.

Conduct unequivocally indicating that a party no longer considers itself bound by the contract will amount to avoidance if it is known to the other party.

Illustration: A takes a job as manager with B's firm after B makes fraudulent statements about the commission which previous managers have made with the firm. After A discovers the truth, he takes a job with another company. The contract is avoided as soon as B reads of this in the newspaper even if A has not communicated his avoidance directly to B.

Provided the time limit for avoidance has not passed (see Article 4:113), a party may give notice of avoidance by raising the ground of avoidance as a defence when an action is brought against it by the other party.

Notes [Match-ups with Continental and Common Law domestic rules, doctrine and jurisprudence]

In some systems the effect of some of the grounds for invalidity mentioned in this chapter is that the contract is altogether void (e.g. for erreur obstacle in FRENCH law and mistake at common law in ENGLISH law). In such case the party need not take any step to avoid the contract, though action may be necessary to recover property, money or payment for services transferred.

Where the contract is merely voidable, in many of the legal systems of Member States, a contract may be avoided on the traditional grounds of invalidity by simple notice to the other party, e.g. GERMAN BGB § 143; DUTCH BW art. 3:49; NORDIC law (Gomard, Kontrakret 142); ENGLISH and IRISH law (notice dispensed with if third party has deliberately gone into hiding and party seeking to avoid has taken all reasonable steps such as notifying police: Car & Universal Finance Co Ltd v. Caldwell [1965] 1 Q.B. 625, CA); SCOTS law (notice to police insufficient, McLoed v. Kerr 1965 SC 253). However a court action is required in GREECE, CC art. 154; in FRANCE, BELGIUM and LUXEMBOURG (CCs art. 1117), unless the annulment is accepted by the other party; and similarly in ITALIAN law (CC art. 1441) and PORTUGUESE law, Lima/Varela, I 264; Ascensão 440; Fernandes 393). In AUSTRIAN doctrine and court practice the opinion prevails that avoidance on the ground of error requires a court decision, and that it is not sufficient to [page 274] direct an informal notice to the other party. However this is doubtful as the ABGB does not require court proceedings.

Several systems have a different regime for unfair terms, under which the term is simply of no effect and so notice of avoidance is not needed. E.g. FRENCH CCons art. L.132.1 (above, note to art. 4:110), (reputée non écrite), similarly BELGIAN Act of 14 July 1991; LUXEMBOURG; GERMAN AGBG. Under the Directive, Member States are to provide that unfair terms will not be binding on consumers, art. 6(1).[page 275]

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© Pace Law School Institute of International Commercial Law - Last updated January 5, 2007
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