Reproduced with permission from Suomalainen Lakimiesten Yhdistys: - Tidskrift utgiven av Juridiska Föreningen i Finland [Finnish Law Society] 126 (1990) 327-343
Leif Sevón, Director General, jur.lic.
(. . .)
6. Remedies for breach of contract by the buyer
The remedies for breach of contract by the buyer are described in Articles 61-65. In addition, the provisions on damages in Articles 74-77 and on interest in Article 78 are also applicable to breach of contract by the buyer.
The provision on avoidance in Article 64 is supplemented by Article 72 on avoidance prior to the date for performance and by Articles 81-84 on the effects of avoidance. In addition, under Article 71 the seller may suspend his performance in certain cases. The provisions [page 338] on preservation of the goods are also important in an evaluation of the system of remedies.
Some of the remedies described in Articles 61-65 are available to the seller irrespective of the kind of breach by the buyer. Other remedies are available only for breach of a certain obligation. This Section of the Convention actually contains three sets of remedies consolidated into a single text.
The Convention does not describe in detail the relation between the different remedies available to the seller.
Irrespective of whether the seller declares the contract avoided or requires performance, he may claim damages. This is explicitly stated in Article 61(2).
In case of breach by the buyer of the obligation to pay the price, the seller may require performance by the buyer or avoid the contract. In either case, he may claim damages and/or interest.
If payment is not made in time, the seller may require the buyer to pay the price. Even if the delay amounts to a fundamental breach of contract, the seller may still choose to require payment.
The right to require payment is subject to a limitation following from Article 28 on specific performance. I shall not discuss that Article here.
Under Article 64 (1) the seller may declare the contract avoided if the failure to pay the price amounts to a fundamental breach of contract. Alternatively, the seller may fix an additional period of time for payment and declare the contract avoided if the buyer does not pay within that period of time.
By fixing such a period of time the seller can avoid the uncertainty arising from the vagueness of the concept of fundamental breach. The length of the period must be defined. This is the case if the seller has either specified the date on which he may resort to declaring the contract avoided in case payment has not been made or if he has specified the number of days after which he will do so. Secondly, the seller must make it clear that he is fixing the period for the purpose of being able to declare the contract avoided.[page 339]
The additional period must be of a reasonable length. What is reasonable in this context must be ascertained in the light of the circumstances of the case. One may assume, that a reasonable period of time for payment may be quite short and normally shorter than a period that the buyer may fix for the seller's performance of his obligations.
In case of the buyer's delay to take steps to enable payment to be made, the seller may fix a period of time for taking such steps and avoid the contract if the steps have not been taken within that period.
During the period thus fixed the seller may not resort to any remedy for breach of contract. This provision clearly covers a situation where the seller declares the contract avoided for the same reason which made him fix the period. Fixing a period means that the seller accepts not to declare the contract avoided on that ground during the period. However, during that period some other ground for avoidance may arise. A situation could be imagined where the buyer, during the additional period, refuses to take delivery of the goods and this refusal amounts to a fundamental breach of contract. It would not seem necessary to read the Convention in such a way that the contract could not be avoided because of a fundamental breach in taking delivery only because the seller has fixed an additional period for payment of the price.
Under the Convention the contract may be declared avoided for delay in payment irrespective of whether or not the buyer has already taken delivery of the goods. This rule differs from the corresponding rules of the national sale of goods laws in a number of countries. The rule may cause concern to other creditors of the buyer who may see such of the buyer's assets vanish on which they have based their decision to grant the buyer credit. This may, in particular, be the case as the Convention does not require the seller to declare the contract avoided within any specific period of time. He may obviously resort to this remedy as long as payment is not made. Under Article 64(2)(a) the seller cannot declare the contract avoided owing to late payment after having become aware that payment has been made.
Article 72 gives the seller the right to declare the contract avoided because of an anticipatory breach by the buyer.
It follows from Article 61(1)(b) that the seller is entitled to damages if the buyer fails to perform any of his obligations. Article [page 340] 78 seems to indicate that the seller is entitled to damages to the extent his losses are not covered by interest.
If, in cases where the buyer does not pay the price, the seller declares the contract avoided and resells the goods within a reasonable time after avoidance, Article 75 provides that the seller may recover the difference between the contract price and the price in the substitute transaction. If, as usually seems to be the case, the price in the substitute transaction is lower than the contract price, the difference is recoverable under the heading of damages. Alternatively, the seller may choose not to reveal the price of the substitute transaction but to claim damages under Article 76 for the difference between the contract price and the current price of such goods.
If the buyer fails to pay the price, under Article 78 the seller is entitled to interest on the sum in arrears. The Convention establishes only the right to interest but deals neither with the rate of interest nor with the time for which interest may be calculated. Thus these matters must be decided according to the law applicable to the contract.
If the buyer fails to take delivery of the goods, the seller may require him to do so, declare the contract avoided and claim damages.
The seller may require the buyer to take delivery of the goods as long as he has not resorted to a remedy which is inconsistent with this requirement.
If the buyer has neither paid the price nor taken delivery, the remedy may be used together with, or separately from, a requirement for payment. Situations can be envisaged where the seller is more anxious to receive payment than to force the buyer to take delivery of the goods.
In cases where the buyer has paid the price but fails to take delivery, the seller may require him to take delivery. The use of the remedy is limited by Article 28 on specific performance.
The provisions on avoidance of the contract upon the buyer's failure to take delivery of the goods start at the same point as those in respect of failure to pay the price.
First, let us assume that the buyer has neither paid the price nor taken delivery of the goods. In cases where the seller has granted the [page 341] buyer a credit, failure to take delivery may serve as an indication of an anticipatory breach of the obligation to pay the price. It might possibly cause the seller to suspend his performance in accordance with Article 71(1)(b). On the other hand, avoidance due to the failure to take delivery also serves as an independent remedy. The seller should, however, be careful in resorting to avoidance in these cases. The situations where the mere failure to take delivery would amount to a fundamental breach are presumably few.
Secondly, one may consider the case where the buyer has paid the price but fails to take delivery of the goods. Again, the remedy of avoidance for failure to take delivery would hardly be frequently available. As in the previous case, situations can be imagined where the seller necessarily needs to dispose of the goods.
If the buyer has paid the price but not yet taken delivery of the goods the seller must, according to article 64(2)(a), exercise his right to declare the contract avoided before he has become aware that the buyer has taken delivery.
In both cases it might be wiser to resort to the provisions on preservation of the goods. These provisions may be sufficient in dealing with the problems that the seller may have. This is the case if the seller is still in possession of the goods or otherwise able to control the disposition of them, e.g., by means of a transport document or a warehouse receipt in his possession.
Instead of awaiting the time at which the breach in taking delivery amounts to a fundamental breach of contract, the seller may fix an additional period of time for taking delivery. It would seem that this period cannot normally be as short as that which might be envisaged in the case of late payment. If the buyer does not take delivery of the goods within the fixed period, the seller may avoid the contract.
The seller is also entitled to compensation for loss caused by the buyer's failure to take delivery of the goods. The amount of compensation is to be calculated on the basis of Article 74. Under that Article damages consist of a sum equal to the loss, including loss of profit suffered by the seller as a result of the breach. If the seller has resold the goods, the proceeds from the resale are to be taken into account in calculating the difference between the contract price and the price in the substitute transaction. On the other hand, the seller would seem to be entitled to compensation for loss of profit even if he resells the [page 342] goods. The resale would indicate that the seller has lost a market and thus suffered loss of profit in one sale. However, one could also envisage cases where he would not be entitled to compensation for loss of profit.
Although the Convention does not deal with other obligations of the buyer, the provisions on remedies for failure to perform them are applicable. The seller may require performance of these obligations. He may fix an additional period of time for their performance and he may declare the contract avoided in case the failure to perform them amounts to a fundamental breach of contract. However, even if the seller has fixed an additional period of time, he is in this case not entitled to avoid the contract merely on the grounds that the period has lapsed. He may only avoid the contract if the breach is fundamental. Further, the right to declare the contract avoided is limited by the fact that this right must be exercised within a reasonable time after the seller knew or ought to have known of the breach. In addition, the seller may claim damages for the loss caused by the failure to perform the obligation.
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