Q 49-1
Compare the modern approaches regarding the circumstances under which avoidance of contract may take place. What are the similarities and differences?
Under § 323 BGB, unlike under the traditional civil law approach, no distinction is made between non-delivery and non-conformity of the goods. Avoidance is only possible if either there has been a fundamental breach (§ 323(2) BGB), in which case an additional period of time is not required, or after the lapse of a Nachfrist (§ 323(1) BGB). Article 49 CISG and Article 7.3.1 PICC 2016 share the same starting point. Avoidance primarily requires that the breach can be regarded as being fundamental. Only in case of non-delivery may the buyer avoid the contract after the lapse of an additional period of time (Art 49(1)(b) CISG, Art 7.3.1(3) PICC 2016). However, remarkable differences exist between the notions of fundamental breach under Article 25 CISG and Article 7.3.1(2) PICC 2016. Note that intentional or reckless non-performance is a decisive factor in determining the fundamentality of the breach under Article 7.3.1(2)(c) PICC 2016.
Q 49-2
What circumstances of the above case (C 49-1) did the court consider and how did it treat them when dealing with fundamental breach?
Primary regard was given to the express contractual stipulations. Absent such stipulations, the court considered whether or not the defect could be remedied, in the latter case, if the buyer can reasonably be expected to use the goods in a way other than originally intended. Finally, fraud on the part of the seller might be considered.
Q 49-3
What is the decisive criterion to determine the fundamentality of the breach according to the above case?
Whether the buyer could use the goods for their contractually stipulated purpose. It does not matter that the amount of damages exceeded the purchase price by far.
Q 49-4
What were the considerations concerning the fundamental breach in the above case (C 49-3)?
Although according to the court one could have found the breach to be fundamental due to the explicit stipulations in the contract, the fact that the buyer was able to process the goods differently or sell them in the normal course of business, if only with a price discount, militates against assuming a fundamental breach.
Q 49-5
Based on the above case (C 49-4), what will be decisive for a finding of fundamental breach in such cases?
It will be decisive whether there is another opportunity to process or resell the non-conforming goods in the ordinary course of business without an excessive burden for the buyer.
Q 49-6
In the absence of express stipulations as to the characteristics of the goods, what other factors will be relevant in determining whether a fundamental breach has occurred in a specific case? Give examples of fact patterns in which these might be relevant.
Some factors to be considered could be usages of trade, whether time to receive conforming goods is of the essence, and the position of the buyer.
Q 49-7
What were the considerations concerning the fundamental breach in C 49-5?
It appears that the court is satisfied to find a fundamental breach because the non-conformity leads to a certain decrease in value. Other considerations such as the ones found in C 49-3 and C 49-4 are not discussed. Thus, it seems that here the threshold for finding a fundamental breach is lower than in those cases.
Q 49-8
Discuss the findings that the Handelsgericht Aargau (C 48-1) makes with respect to the interaction between the seller’s right to cure and the buyer’s right to avoid the contract.
As long as cure is possible, the seller is willing to cure and the buyer can reasonably be expected to accept cure, the fundamentality of the breach of contract must be denied.
Q 49-9
(a) What approach does the court take in the above case (C 49-6) with regard to the issue of non-conforming documents?
(b) According to this case, in which circumstances will non-conformity of documents result in a fundamental breach of contract?
(a) Non-conforming documents are treated on an equal footing with cases of non-conformity of the goods.
(b) Non-conformity of the documents will lead to a fundamental breach of contract if remedying the defect is not possible—either by the seller or the buyer—and if the goods cannot be sold without conforming documents.
Q 49-10
How do the black letter rules compare (A 49-1) with the analysis of the foregoing case law?
The black letter rules of the CISG Advisory Council Opinion No 5 reiterate the considerations found in the above case law. Special emphasis is put on the weight accorded to the time of performance, special circumstances in the commodity trade, as well as the buyer’s right to withhold performance even if there is no fundamental breach.
Q 49-11
When will late delivery constitute a fundamental breach?
If timely delivery is of the essence.
Q 49-12
As a lawyer, how would you advise a buyer who comes to you and tells you that the seller has not delivered on time?
In many instances, it may not be clear whether a court or tribunal finds a breach to be fundamental. Thus, it is usually advisable for the buyer to set an additional period of time.
Q 49-13
How did the court interpret the requirements of Article 49(1)(b) CISG in the above case (C 49-8)?
Although the additional period of time set by the buyer may have been too short, the seller was deemed to have declared not to deliver within a reasonable period because it asked for a pre-payment of the purchase price which was not due under the contract. After the seller had sold the goods to a third party the buyer was later entitled to avoid the contract for fundamental breach as the seller could no longer perform; in this case, no additional period of time was necessary.
Q 49-14
(a) Article 49(2) CISG calls for the buyer to declare the contract avoided within a ‘reasonable time’. Why do you think this requirement was written into the CISG?
(b) When does the period of time for declaring avoidance start running?
(c) Is there a general period of time which is considered as reasonable?
(a) This requirement exists in order to clarify the legal situation between the seller and the buyer as soon as possible in view of the necessity of unwinding the contract.
(b) For the point in time when the period starts to run, see the detailed rules in Article 49(2) CISG. In case of non-conformity of the goods, the decision in C 49-8 clarifies that the period only starts to run once the buyer is aware that the breach is fundamental, thus giving it the right to avoid the contract.
(c) In general, the circumstances of the case have to be considered, such as the nature of the goods, alternative markets, nature of the defect, position of the parties, and the need to obtain legal advice. The court in C 49-8 suggests a period of one to two months unless the circumstances call for an extended or reduced period.
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