Q 64-1
(a) In which cases is the seller entitled to avoid the contract? Are there conditions for the seller’s entitlement?
(b) What competing interests and legal principles are at stake and need to be weighed against each other?
(a) Where the buyer has committed a fundamental breach or, where the buyer has not paid the price or taken delivery of the goods, after the expiration of an additional period of time, has still not performed these obligations or has indicated that it will not perform them. This is subject to Art. 62, 63(2), 64(2). In particular, the seller’s entitlement can be hindered by performance being rendered, despite delayed, and the seller knowing it has been rendered; or, if the breach is any other but late performance, the seller acts within a reasonable time after knowing of or when he ought to have known of the breach, or within a reasonable time after the expiration of a reasonable time fixed in accordance with Art. 63 (1), or the buyer’s declaration he will not perform within the additional period fixed in accordance with Art. 63 (1).
(b) The competing legal principles are pacta sunt servanda (contracts must be honoured), good faith and proportionality, which require termination only for fundamental breaches and within a reasonable time since the breach or knowing of said breach.
Q 64-2
(a) Does the buyer’s mere non-payment of the purchase price allow the seller to avoid the contract? See also C 64-1.
(b) Can a definite refusal to pay or take over the goods constitute a fundamental breach?
(c) Does the buyer’s failure to take over the goods entitle the seller to avoid the contract? See C 64-2.
(d) Does a late payment entitle the seller to avoid the contract? See C 64-3.
(a) Yes. However, a seller would be advised to act cautiously and set an additional period of time for performance in case a court later finds that non-payment did not amount to a fundamental breach of contract in and of itself.
(b) Yes, because then an additional period of time for performance is rendered pointless.
(c) It will depend on the circumstances. This will be the case where the seller sets an additional period of time and has informed the buyer that its failure to take over the goods within that period of time will result in it declaring avoidance of the contract.
(d) Generally speaking, no. The parties would have to demonstrate that time was of the essence and that the payment deadlines were fixed in order to constitute a fundamental breach of contract.
Q 64-3
(a) Could the buyer’s violation of obligations other than the ones mentioned in Article 64(1)(b) CISG constitute a fundamental breach of contract?
(b) If the seller has doubts as to whether such a breach amounts to a fundamental one, what can it do to clarify the situation?
(a) Yes, but subject to the requirements of Article 64(2) CISG.
(b) Set an additional period of time for performance by the buyer of its obligations.
Q 64-4
(a) What should a seller, who does not receive payment or whose goods are not taken over in time, do with a view to obtaining the right to avoid the contract?
(b) If the buyer does not comply with its duties other than to make payment and take over the goods, will an additional period of time (Art 63) automatically enable the seller to avoid the contract? Under which pre-conditions will the seller be entitled to terminate the contract? See also C 64-2.
(a) It should set an additional period of time for performance by the buyer of its obligations under the contract, after which the seller should declare to the buyer by notice avoidance of the contract.
(b) No, not automatically. Only where the seller does not have notice that performance has been made (in cases of late performance) or gives notice of avoidance within a reasonable time after the expiry of an additional period (other cases) will the seller be able to avoid the contract.
Q 64-5
(a) Which duties does the buyer’s obligation to make payment include?
(b) How broadly should the scope of the duties connected to the obligation to take over the goods be construed?
(a) It includes the obligations set out in Article 54 CISG.
(b) All obligations under Article 60(a) CISG fall within the scope of this duty.
Q 64-6
(a) Why was the seller unable to rely on Article 64 in C 64-3 above?
(b) Do you think this is the correct approach?
(a) It was not able to rely of Article 64(1)(a) because the quantity not accepted by the buyer did not amount to a fundamental breach. It was not able to rely on Article 64(1)(b) CISG because the obligation breached by the buyer did not concern the taking of delivery but the ordering of goods.
(b) No, the court should have looked at Article 64(2) CISG with respect to breaches not falling under the ‘taking of delivery’, whereby the seller is still able to set an additional period for performance and declare avoidance within a reasonable time after the expiry of this period.
Q 64-7
What factors did the court look at in C 64-3 to determine whether or not there was substantial detriment?
The circumstances of the case, including the percentage of goods not accepted in light of the entirety of the contract.
Q 64-8
(a) In monitoring the buyer’s conduct, what practical steps might a seller take to preserve its ability to declare avoidance swiftly while also seeking to fix an additional period for payment? Use the provided case law to argue potential strategies.
(b) If the buyer eventually tenders partial payment or disputes the contract’s original timeline, how might that affect the seller’s decision to avoid under Article 64 in a manner consistent with the holdings in the provided cases?
(a) First of all, the seller must ensure that the fixing of the additional period is clear, reaches the buyer, and stipulates a reasonable time. Adherence to the requirements of Art. 63 CISG impacts the seller’s rights under Art. 64. To then act swiftly, the seller should take note of whether the buyer refuses to fulfil its obligations or where there are indications that the buyer will not be willing or able to perform within the reasonable additional time. In the first instance, the seller may immediately declare the contract avoided (or should do so within a reasonable time of the buyer’s refusal), in the second instance, the seller should be prepared to declare avoidance upon lapse of the period. To ensure that it does so with little legal risk, the seller should record the respective proof of not only the fundamental breach but also the fixing of the additional time period and the buyer’s responses.
(b) C 64-1 raises the question whether all partial non-payment allows for avoidance of the contract by the seller. The court noted that “non-payment of the large sums due for the performance payments was a fundamental breach of contract” (emphasis added). While C 64-3 does not relate to partial payment, it also raises the point of comparing the damage incurred by the seller with the total volume of the contract.
C 64-4 shows that a buyer could argue that the dates agreed were not “fixed dates”, i.e. non-payment by the due date would not constitute a fundamental breach.
C 64-5 demonstrates that conditions precedents to payment could become relevant.
C 64-6 can be considered to show the interplay of different obligations being delayed, or to discuss the question of feasibility of a payment instalment within a certain timeframe. It also is a case that prompts discussion of when partial non-payment suffices to avoid a contract.
Q 64-9
How can Article 64(2)(a) and Article 64(2)(b) CISG be distinguished?
Article 64(2)(a) applies in respect of late performance, Article 64(2)(b) applies to all other cases of breach.
Q 64-10
In light of Article 64(2), how important is it for the seller to declare avoidance within a reasonable time, and how did the courts in the provided cases address the question of timeliness?
C 64-2 highlights how differently Art. 64 (2) cases are handled in contrast to Article 64(1) cases. Due to the non-payment, the court was willing to reinterpret the statement of claim as potential declaration of avoidance.
Q 64-11
Decide whether the seller can avoid or has justifiably avoided the contract in the following situations:
(a) Buyer has not paid timely, seller has fixed a reasonable additional period of time until yesterday and
— buyer has not made payment until today. Yes
— buyer has made payment within the additional period granted and notified the seller thereof. No.
— buyer paid this morning at 11 am. The seller has declared the contract avoided before this time this morning. Yes.
— buyer made payment yesterday and notified seller thereof; the money is transferred today, but prior to transfer the seller has declared avoidance. No.
— same situation as before, but buyer does not notify the seller of its having made payment. No, payment was still made within the Nachfrist, so not ‘late’ within the meaning of Article 64(2)(a) CISG.
(b) Buyer has neither paid timely nor has taken over the goods within an additional period of time. Shortly after,
— buyer pays, takes over the goods and notifies the seller thereof.
No.
— buyer pays but does not take over the goods.
Yes.
— buyer pays and takes over the goods, but is still in breach of another obligation which would allow it to avoid the contract.
Depends on whether other obligation is fundamental in and of itself and whether it was already covered by the Nachfrist set.
Q 64-12
Since, generally, where the requirements of Article 64(1)(a) and (b) are met, the seller can freely choose whether it avoids the contract or claims specific performance of the contract, there might be a risk that it speculates to the detriment of the buyer by avoiding the contract at a date particularly favourable to it. For example, it could avoid the contract when the market price is particularly high and claim damages under Article 76(1) CISG. Is there a general principle under the CISG which obliges a party to keep the damage of the other party to a minimum?
Yes, Article 77 CISG imposes an obligation on the non-breaching party to mitigate the damage claimable.
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