Q 73-1
How do you distinguish ‘instalment contracts’ from respectively simple contracts and several separate agreements, respectively? See also Section 2-612(1) UCC.
Instalment contracts provide for the delivery of goods in separate lots. An instalment contract consists of at least two successive deliveries taking place at different moments in time and which must be severable from each other. It implies that the execution of performance lasts for some time. Those elements distinguish instalment contracts from simple contracts, in which the goods are delivered in one single delivery.
An instalment contract must also be distinguished from the case where several contracts have been concluded. An instalment contract forms a contractual unity for the parties, be it because the counter-performance consists of a single payment, or because all deliveries depend on one single order. Section 2-612(1) UCC gives predominance to an instalment contract even if the parties agreed to have one separated contract per delivery, as soon as the deliveries can be considered as a contractual unity. This is also the way case law under the CISG has dealt with the question: in case of doubt, a contract will be considered as an instalment contract.
Q 73-2
Differentiate between the three situations mentioned in Article 73(1) to (3) CISG and explain their interaction.
Article 73(1) CISG governs the situation where the failure of a party to perform only one of the instalments constitutes a fundamental breach of the contract, without jeopardising the others. Article 73(2) CISG governs the situation where the failure of a party to perform one of the instalments gives good grounds to conclude it will commit a fundamental breach with respect to future instalments. Article 73(3) CISG governs the situation where the failure of a party to perform one of the instalments makes other instalments unusable for the purposes initially contemplated by the parties. Those three situations address different parts of the instalment contract, respectively: the actual instalment (Art 73(1) CISG); future instalments (Art 73(2) CISG); and the whole instalment contract (Art 73(3) CISG).
Q 73-3
How do you distinguish Article 73 from Articles 71 and 72 CISG?
Articles 71 and 72 CISG are general rules applicable both to simple contracts involving one single delivery and to instalment contracts. As to their requirements and effects, see Articles 71 and Article 72 above.
Article 73 CISG specifically governs ‘instalment contracts’, as defined above in the answer to Q 73-1. Thus, Article 73 CISG provides for remedies tailored to contracts involving several subsequent deliveries of goods.
Q 73-4
(a) For which remedy does Article 73(1) CISG provide in case of fundamental breach in respect of a single instalment?
(b) Compare Article 73(1) CISG to Section 2-612(2) UCC with regard to requirements and available remedies.
(a) Article 73(1) provides for the right to avoid the contract with regard to a single defective instalment. The residual contract remains in force and has to be adjusted to the new situation.
(b) Section 2-612(2) UCC provides for a stricter solution than Article 73(1) CISG: avoidance with regard to the defective instalment is only possible if the seller fails to give adequate assurance of its cure, unless the non-conformity of the instalment substantially impairs the value of the whole contract.
Q 73-5
Article 73(2) CISG allows for an avoidance of the contract in respect of future instalments where there are ‘good grounds’ to conclude that a fundamental breach will occur with respect to future instalments. The question is whether this probability standard is higher or lower than the probability standard in Articles 71 and 72 CISG.
(a) See C 73-2: according to the tribunal, which of the three provisions provides for the lowest standard and which provides for the highest standard of prognosis?
(b) Note that the view adopted by the tribunal is a minority view. The majority in scholarly writing holds that the lowest probability standard applies in connection with Article 71 CISG and the highest under Article 72 CISG, with Article 73(2) somewhere in-between. Explain why this order has been suggested and why, in particular, Article 71 CISG is considered to provide for the lowest level of prognosis.
(a) The tribunal adopts the view that the lowest level of probability is required in Article 73(2) CISG and the highest in Article 72 CISG, whereas the degree of probability of Article 71 CISG is somewhere in-between.
(b) The level of probability depends on the kind of remedy. Article 72 requires the highest degree of probability because it deals with avoidance of the whole contract. Article 71 CISG deals with suspension of performance and thus with a preliminary remedy; it therefore requires the lowest degree of probability. Article 73(2) CISG allows for the avoidance of future instalments, which do not affect the part of the contract that has already been performed. The level of probability required in Article 73(2) is thus placed in-between those required in Articles 71 and 72 CISG.
Q 73-6
(a) Give an example of a situation that would give rise to avoidance pursuant to Article 73(3) CISG.
(b) Do you find similar solutions within the UCC?
(a) Examples may be the supply of uniform materials for a specific building (cladding, roof, windows), of material necessary for a special production item of a specified size (important in textile or chemical industry), or the supply of a product for a specific group of customers according to their instructions.
(b) Section 2-612 UCC states a rule similar to Article 73(3) CISG.
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