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GUIDE TO ARTICLES 71 AND 72

Comparison with Principles of European Contract Law (PECL)


Match-up of CISG Articles 71 and 72 with PECL Articles 8:105 and 9:304
CISG
Article 71

(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.

PECL Article 8:105 [Assurance of performance]
(complete and revised version 1998)

(1) A party which reasonably believes that there will be a fundamental non-performance by the other party may demand adequate assurance of due performance and meanwhile may withhold performance of its own obligations so long as such reasonable belief continues.

(2) Where this assurance is not provided within a reasonable time, the party demanding it may terminate the contract if it still reasonably believes that there will be a fundamental non-performance by the other party and gives notice of termination without delay.

PECL Art. 9:304 [Anticipatory non-performance]

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

(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 party provides adequate assurance of his performance.

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.


Definitions

For information on the nature and effect of "termination" under the European Principles, go to the 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 "termination " under the PECL, see "avoidance". For the PECL definition of "fundamental non-performance", see the match-up of CISG art. 25 with PECL art. 8:103. For the PECL definition of "reasonable", go to PECL art. 1:302 [Reasonableness] and the comment and notes that accompany this provision.


Editorial remarks

Remarks on the manner in which the Principles
of European Contract Law 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 Article 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 are aimed at keeping the contract in tact, whereas the remedies in Article 72 is aimed at avoiding the contract.[5] Article 73 provides for anticipatory breach in instalment contracts. It is for that reason that these articles contain different requirements for the exercising of the respective remedies.[6]

b. The PECL is similarly structured in Articles 9:304 and 8:105. Article 9:304 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 belief that it may occur, that party is, in terms of Article 8:105, entitled to demand an adequate assurance from the other party that the latter will perform and it may withhold its own performance as long as such reasonable belief continues. Failure to provide an adequate assurance is a ground in terms of Article 8:105 to terminate the agreement. There is therefore, quite a close connection between the provisions of Articles 9:304 and 8:105. 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 Articles 9:304 and 8:105 of the PECL 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 consignment, entitles the innocent party to exercise its rights under Article 73 and avoid the contract.[13]

e. 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.[14] Article 9:304 of the PECL is, unfortunately, of no assistance in this regard as it uses exactly the same terminology as Article 72. The court in the 1992 German case Landgericht [District Court] Berlin [15] 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,[16] but that this did not mean a probability almost reaching certainty.[17]

f. Both the CISG and the PECL require a clear indication of a fundamental non-performance, i.e., that it must be clear that there will be a fundamental non-performance.[18] The terminology used is very similar and the PECL 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).[19] 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.[20] 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.[21]

g. This approach also seems to be supported by the case law.[22] This approach is also supported by the provisions of Article 9:304 and 8:105 of the PECL, where there is a clearly formulated difference in the requirements. In terms of Article 9:304, it is required that it must be clear that there will be a fundamental non-performance, whereas in terms of Article 8:105 there need only be a reasonable belief on the part of the innocent party that there will be a fundamental non-performance.

h. 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).[23] 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.[24]

i. 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.[25] Article 8:105 PECL may be of assistance in interpreting the interplay between Article 72 and 71 as Article 8:105 PECL 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 8:105, 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.[26]

j.. The CISG takes a more lenient approach to anticipatory breach than the PECL 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.[27] 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.[28] 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 PECL.[29] If there is doubt on whether the innocent party should have informed or not, the court ought to rule in favor of the innocent party, i.e., that there was no duty to inform. In terms of Article 9:304 of the PECL 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.

k. 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.[30] 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.[31]

l. 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.[32] The controversy, however, is mainly amongst German writers due to an inaccurate translation into the (unofficial) German text.

[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) 461-465.]


FOOTNOTES

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

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 Convention on Contractsfor 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 were intentionally rejected. See Enderlein/Maskow p 284 Note 1 & 2, p 291 N 1; Honsell/Schnyder/Straub Art 72 Rn 10.

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. See also Kee C Comparative Editorial Remarks to Articles 51 & 73 at <http://cisgw3.law.pace.edu/cisg/text/peclcomp51.html>.

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. 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>.

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

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

17. 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>.

18. 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://cisgw3.law.pace.edu/cisg/text/flecht71,72.html>.

19. 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.

20. 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.

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

22. 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.

23. Enderlein/Maskow p 292 Note 3.

24. Commentary of the Secretariat, Comment 2, Document A/CONF.975 p 53 as reported in Honnold 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>.

25. 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.

26. See Secretariat Commentary 2 p 53.

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

28. 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>.

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

30. 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>.

31. 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>.

32. The controversy is mainly amongst German writers due to an inaccurate translation into the (unofficial) German text. See Honsell/Schnyder/Straub Art 72 Rn 45; Staudinger/Magnus Art 72 Rn 21.


Comment and notes on PECL 9:304

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) 370-372 and 416-419.


COMMENT AND NOTES: PECL Article 8:105: Assurance of Performance

(1) A party which reasonably believes that there will be a fundamental non-performance by the other party may demand adequate assurance of due performance and meanwhile may withhold performance of its own obligations so long as such reasonable belief continues.

(2) Where this assurance is not provided within a reasonable time, the party demanding it may terminate the contract if it still reasonably believes that there will be a fundamental non-performance by the other party and gives notice of termination without delay.

Comment

A. Purpose of rule

This Article is intended to protect the interests of a party which believes on reasonable grounds that the other party will be unable or unwilling to perform the contract at the due date but which may be reluctant to invoke Article 9:304 in case it transpires that the other party would after all have performed. In the absence of a rule along the lines of this Article the potentially aggrieved party will be in a dilemma. If it waits until the due date for performance and performance does not take place it may incur heavy losses. If on the other hand it terminates the contract under Article 9.304 but it is later found that it was not clear that the other party would commit a fundamental non-performance, it itself will have failed to perform the contract, with a consequent liability for damages. Article 8:105 enables it to obtain an assurance of performance, in default of which it can terminate the contract, with the result that the other party will be considered guilty of a fundamental non-performance.

B. Right to withhold performance

So long as the aggrieved party's reasonable belief in future non-performance by the other party continues it may withhold its own performance, until it has received adequate assurance of performance.

C. Effect of non-receipt of adequate assurance

If the aggrieved party does not receive adequate assurance of performance and still believes on reasonable grounds that performance will not be forthcoming, it may terminate [page 370] the contract. The other party's failure to give the assurance requested is itself treated as a fundamental non-performance, giving the aggrieved party the right to terminate the contract and also a right to damages where the deemed non-performance is not excused under Article 8:108.

Illustration 1: A, a caterer, contracts with B to cater for the reception at the wedding of B's daughter in three months' time. A month before the wedding B telephones A to discuss some outstanding details of the arrangements and is then told by A: "I am having some staff problems and there is a slight risk that I will not be able to organize the reception. But do not worry too much, everything should turn out all right." B is entitled to demand an adequate assurance that the reception will be provided. If this is given, as by A informing B that its staff difficulties have now been resolved, both parties remain bound by the contract and there is no breach by A. If the assurance is not given, B is not expected to court disaster on the occasion of his daughter's wedding. He is entitled to terminate the contract, engage another caterer and recover from A any additional expense involved.

Illustration 2: A, a boatbuilder, agrees to build a yacht for B, to be delivered in three months' time. B stipulates that time of delivery is to be of the essence of the contract. Soon after the making of the contract B learns that S's boatyard has been seriously damaged by fire. B is entitled to ask for an adequate assurance from A that the yacht will be delivered on time. A might give this assurance by showing that it has rented facilities to build the yacht at another yard.

D. What constitutes an adequate assurance

This will depend on the circumstances, including the standing and integrity of the debtor, its previous conduct in relation to the contract and the nature of the event that creates uncertainty as to its ability and willingness to perform. In some cases the debtor's declaration of intention to perform will suffice. In other cases it may be reasonable for the creditor to demand evidence of the debtor's ability to perform.

Illustration 3: B enters into three successive contracts for the purchase of goods from S. Subsequently B defaults in payment of the price under each of the first two contracts. S is entitled to demand a bank guarantee of the purchase price under the third contract or other reasonable assurance that payment will be made and is not obliged to rely solely on B's promise of payment.

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

1. Likelihood of non-performance

Several European systems have rules which entitle a party to terminate when it is clear that the other party will not perform, see notes to Article 9:304. Further, many systems allow a party to suspend his performance where there is a real and manifest danger that the other party will not perform his obligation when it falls due. Most of the laws deal with the situation where the other party becomes insolvent, see note 2 below. However, except for the UNITED STATES UCC 2.609 no statutory provision is known which provides a general rule equivalent to Article 8:105. The provision which comes [page 371] closest is CISG art.71 which is more detailed and which entitles a party to withhold his performance when, after the conclusion of the contract, it becomes apparent that the other party will not perform a substantial part of his obligations. The first party must give notice of the suspension to the other party, and must continue with his performance if the other party provides adequate assurance of his performance. CISG art.71 includes, but is not limited to, cases of insolvency. The FINNISH and SWEDISH Sale of Goods Acts. 61 are similar to CISG; see Ramberg, Köplagen 586 ff. In IRELAND, where the non-performance is by an employee who is on strike, the contract of employment is treated as suspended if notice of the strike has been given: Becton Dickinson v. Lee [1973] I.R. 1.

The Dutch BW art. 6:263 provides that the party who is obliged to perform first is entitled to suspend his performance if circumstances come to his attention after the conclusion of the contract which gave him good reason to fear that the other party will not perform his correlative obligations. The contract may be terminated if the conditions of art. 6:80 are met; see also note 2 to Article 9:304.

2. Insolvency

The other laws deal primarily with the situation where one party has become insolvent.

In general there must be a serious deterioration in the other party's financial situation (AUSTRIAN ABGB 1052, second sent.; GERMAN BGB 321; GREEK CC art.377; ITALIAN CC art.1461; PORTUGUESE CC art.780(2); DANISH Bankruptcy Act 54 and 57; SPANISH CC arts. 1129, 1467, 1502 and 1503). The first party may then suspend his performance.

Some laws provide similar rules on the seller's right to withhold or stop delivery in case of the buyer's insolvency or bankruptcy, see SPANISH CC art.1467 and FRENCH and BELGIAN CC arts.1613 (seller may withhold his performance if he is in imminent danger of losing his price).

The U.K. Sale of Goods Act 1979, s.39(1)(b) gives the unpaid seller a right to withhold or stop goods when the buyer becomes insolvent and s.41(1) gives him a lien in the goods. For IRELAND see Sale of Goods Act 1893, ss.39 and 41. A right to withhold and to stop goods already sent is provided also in the DANISH SGA 39 and in other legal systems as well.

The right to withhold performance generally persists until the other party provides adequate security, or performs his obligation: e.g. AUSTRIAN ABGB 1052 second sent.; FINNISH and SWEDISH Sale of Goods Acts. 61(4); GERMAN BGB 321; SPANISH cc art. 1467(2). If security is not provided the DANISH SGA 39 gives the seller the right to terminate the contract when the time for delivery of the goods has come. In GERMAN law not to provide security is considered to be a "positive breach of contract" which may give the creditor a right to terminate the contract (BGH 8 Oct. 1990, BGHZ 112, 279, 287). Similarly under GREEK law see Michaelides-Nouaros in Erm.AK II/1 art. 377 nos. 8, 11 (1949). Under ITALIAN cc art. 1461 the creditor can withhold his performance, but cannot terminate the contract. However under CC art 1186, if a debtor is insolvent the creditor can demand immediate performance and, if this is not forthcoming or security provided, the creditor may terminate.

In those laws in which only insolvency is a ground for suspension of performance or for demanding an assurance, to demand an assurance of performance in other circumstances may be wrongful. Thus in SCOTLAND a party who threatened to terminate unless assurance of performance was given was held to be in material breach: GL Group plc v. Ash Gupta Advertising Ltd 1987 S.C.L.R. 149.

See generally Treitel, Remedies 405ff. [page 372]

Go to full texts of Parts I and II of Principles of European Contract Law


COMMENT AND NOTES: PECL Article 9:304: Anticipatory Non-Performance

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

Comment

A. Anticipatory non-performance equated with actual non-performance

This Article entitles the aggrieved party to terminate the contract for "anticipatory non-performance", by which is meant an obvious unwillingness or inability to perform where the failure in performance would be fundamental within Article 8:103. The right to terminate for anticipatory non-performance rests on the notion that a party to a contract cannot reasonably be expected to continue to be bound by it once it has become clear that the other party cannot or will not perform at the due date. The effect of this Article is that for the purpose of the remedy of termination an anticipatory fundamental non-performance is equated with a fundamental non-performance after performance has become due.

Illustration 1: In January B agrees to build a house for O and to start work on 1st May. In April B tells O that owing to labour troubles he will not be able to carry out the contract. O may immediately terminate the contract.

B. Threatened non-performance must be fundamental

Termination under this Article is permitted only where the obligation of which non-performance is threatened is of such kind that its breach would entitle the aggrieved party to terminate the contract. This applies also to a threatened delay in performance. If a party indicates that it will perform but that its performance will be late this does not constitute an anticipatory non-performance within this Article except where time of performance is of the essence of the contract or the threatened delay is so serious as to constitute a fundamental non-performance within Article 8:103.

Illustration 2: B has agreed to build a house to O's design. B informs O that the double glazing specified by O is no longer available but that it can install double glazing from a different supplier which is almost identical. The failure to provide the double glazing originally specified would not, in these circumstances, be a fundamental non-performance, and O therefore cannot treat B's statement as indicating an anticipatory non-performance within this Article.

Illustration 3: In January S contracts to sell goods to B for delivery on 1st March. In February S tells B that delivery will be a few days late. B can treat this as an anticipatory non-performance if time of delivery is of the essence, but not otherwise.

C. Inability or unwillingness to perform must be manifest

In order for this Article to apply it must be clear that a party is not willing or able to perform at the due date. If its behaviour merely engenders doubt as to its willingness or ability to perform the other party's remedy is to demand an assurance of performance under Article 8:105. See Illustration 1 of that Article. [page 417]

D. Remedies consequent on termination

It is implicit in this Article that a party which exercises a right to terminate the contract for anticipatory non-performance has the same rights as on termination for actual non-performance and is therefore entitled to exercise any of the remedies available under this Chapter, including damages, except that damages are not recoverable where the non-performance at the due date would be excused under Article 3.108. See Article 8:101(2).

E. Time for notification of termination

The party faced with an anticipatory non-performance may terminate the contract at any time while it remains clear that there will be a fundamental non-performance by the other party.

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

1. Anticipatory repudiation a recognised doctrine

The root of this provision lies in COMMON LAW (cf. Hochster v. de La Tour (1853) E. & B. 678, Q.B.; Universal Cargo Carriers Corp v. Citati [1957] 2 Q.B. 401, Q.B.; Clark 414) and corresponds to SCOTTISH law. Unidroit art 7.3.3, art. 72(1) CISG and Art. 76 ULIS also adopt the notion of anticipatory repudiation. The FINNISH and SWEDISH Sale of Goods Acts, 61 and 62 adopt the CISG rule: see Ramberg, Köplagen, 583 ff.

2. Some equivalent rule recognized

The GERMAN BGB does not contain an express provision. However, there is unanimity that an unambiguous and definite refusal to perform is a non-performance, by analogy to BGB 280, 286, 325, 326; cf. Staudinger(-Otto), BGB 326 nos. 135 FF.. Similarly in AUSTRIA, see Rumell (-Reischauer) ABGB 918 no. 14.

Under DANISH Law the right of a party to terminate the contract in case of anticipatory non-performance is, in general, limited to cases where there is certainty, or probability amounting almost to certainty, that there will be a fundamental non-performance by the other party. This rule, however, is qualified: (1) when a buyer goes bankrupt or becomes insolvent and the time for delivery has come, the seller may terminate the contract unless security is provided (cf. 39 Sale of Goods Act; 57 Bankruptcy Act); (2) where the buyer of goods has been declared bankrupt and the administrator of the estate does not confirm the take-over of the contract within a reasonable time, the seller may terminate the contract (cf. 40 Sale of Goods Act); (3) in a sale where the goods are to be delivered in instalments and where the delay or defect in respect of one instalment or payment for one instalment amounts to a fundamental non-performance (cf. Sale of Goods Act 29: "unless there is no reason to expect a future delay"; see also 22 and 46).

In DUTCH law, BW art. 6:80 provides that the consequences of non-performance operate although the obligation is not yet due (a) if performance is not possible without breach; (b) if from a communication of the debtor the creditor cannot but conclude that there will be a breach of performance; (c) if the creditor has good reasons to fear a breach of performance by the debtor, and has not received adequate assurance of the debtor's willingness to perform.

Under GREEK law, genuine anticipatory breach exists where the debtor before the date for performance expressly declares (AP 339/1982, NoB 30 (1982) 1459 at 1460) or by conduct necessarily implies (Athens 2671/1957, EEN 25 (1958) 538-539), that he will not perform. In such situations, CC art. 385(1) equally relieves the creditor from setting an additional period of performance, and allows him the remedies for damages and termination even prior to the date of performance (Gasis Erm. AK II/1 Introd. remarks to arts. 335-348 no. 62 (1949); Georgiadis & Stathopoulos II Introd. remarks to arts. 335-348 no. 6 (1979); also cf. CC art. 686; in any case, the notice of termination, in terms of time and otherwise, may not result in an abuse of right (CC art. 281)).

In ITALIAN law CC art. 1219 provides an automatic mora debitoris if the debtor declares in writing his unwillingness to perform. The way is then open for termination. On insolvency of the debtor, see CC art. 1461. [page 418]

3. No equivalent doctrine

In contrast, there is no general rule as to termination for anticipatory non-performance in FRENCH law, SPANISH law and PORTUGUESE law. This problem has hardly been subject to academic discussion nor regulated in the Codes. In general, the law is reluctant to support the aggrieved party prior to the time of performance (cf. SPAIN: Lacruz-Delgado II, 1, 26, 200; Albaladejo II. 1, 20.4 K and M; but termination for anticipatory non-performance is possible if the defaulting party's behaviour makes it clear that performance will not take place: CC arts. 1129 and 1183). In Portuguese law, some of the results of anticipatory non-performance are reached in other ways: Soares-Ramos 195 ff.; STJ 15 March 1983, BMJ 325, 561; STJ 19 March 1985, BMJ 345, 400; STJ 19 February 1990, Act. jur., 1990. 2. 10. The same is true for BELGIUM: Cass. 5 June 1981, R.W. 1981-82, 245, R.C.J.B. 1983, 199; Cass. 15 May 1986, R.C.J.B. 1990, 106, Arr. Cass. no. 565; Vanwijck-Alexandre Nos.177 and 199 ff; M.E. Storme, Invloed no. 299 ff. [page 419]

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Pace Law School Institute of International Commercial Law - Last updated January 8, 2007
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