II. Case Law and Scholarly Writing on Fundamental Breach

III. The Meaning of the Concept of Fundamental Breach in Light of the Text of Article 25, The Convention’s Legislative History, Context Within the Convention, Underlying Purposes and the Observance of Good Faith

IV. Critique of the Remaining Approaches

V. Introduction of a New Methodology

INTRODUCTION

Judging by the number of states that have adopted it, there is no doubt that the United Nations Convention on Contracts for the International Sale of Goods [1] is one of the most successful examples of unification in the area of international commercial law.[2] The Convention was unanimously adopted in 1980 at a Diplomatic Conference with representatives from 62 states and 8 international organizations. Since then, 54 states from five continents, including almost all of the major trading nations, have approved, ratified, accepted, or acceded to the Convention.[3] [page 182]

While important, the extent of adoption by nations is not the only criteria by which to evaluate the Convention’s success. Of equal importance is the level of acceptance of uniform commercial law by the business world whose interest it is primarily meant to serve.[4] In the business world, however, the Convention lacks the wide acceptance it enjoys in the political arena; this can best be seen by the limited number of published decisions interpreting the Convention.[5] Even if one considers that not all decisions have been published or reported and that arbitration awards are often not published at all, in relation to the actual number of sales transactions since the Convention entered into force in 1988, the number of reported Convention cases nonetheless remains very small. This gives rise to the assumption that the Convention has often been excluded by the parties.[6]

Any attempt to explain this exclusion of the Convention, in the absence of empirical data, remains a rather speculative exercise. From the present writer’s own personal and professional experience as a practicing [page 183] attorney in Germany, however, parties often exclude the Convention for two main reasons: First, simply because the parties, as well as their lawyers, neither know the Convention nor are interested in becoming acquainted with it.[7] It is more convenient for such persons to confine themselves to well-known domestic rules than to learn a completely new set of rules.[8] Second, some very important provisions of the Convention contain vague language and terminology that cause uncertainty and unpredictability.[9] [page 184]

This thesis explores one of those vague provisions, namely, the concept of fundamental breach of contract in Article 25. Fundamental breach plays a crucial role within the remedial system of the Convention because the remedies available to the buyer and the seller depend on the characterization of the breach. Generally speaking, only if one of the party’s failure to perform his contractual obligations amounts to a fundamental breach will the other party be entitled to avoid the contract as of right (de pleno jure).[10] Moreover, fundamental breach is a prerequisite for the right of the buyer to demand substitute delivery if the goods delivered do not conform to the contract.[11] Finally, fundamental breach is important in the transfer of risk.[12]

Article 25 provides that a breach is fundamental if:

Article 25 does not provide any examples of events that constitute such a fundamental breach.[14] Instead, general terms and phrases are used to define fundamental breach, such as “detriment,” “substantial deprivation,”[page 185] and “foreseeability.”[15] These terms hardly allow the parties to a sales contract, in case of dispute, to determine ex ante (before one of the parties deems the contract avoided) whether a breach was fundamental.[16]

In such a situation, there is a need for certainty and predictability since parties must use different measures to effect either a contract avoidance or continuance.[17] For example, in the case of a fundamental breach of a seller’s obligation, once the buyer avoids the contract, the seller must immediately [page 186] take back the goods supplied. This necessarily involves risk of damage or loss and expenses such as transportation and storage.[18]

It is true, however, that the uncertainty created by the definition of fundamental breach can be avoided through a more specific avoidance regime negotiated by the parties [19] or by making use of the “Nachfrist” avoidance mechanism provided for under articles 49(1)(b) and 64(1)(b).[20] These opportunities, however, do not resolve the uncertainty inherent in the definition of fundamental breach. Moreover, the buyer and the seller cannot anticipate every problem that might arise. Thus, the circumstances which give rise to fundamental breach still must be determined.[21] [page 187]

Purpose

This paper attempts to elucidate the concept of fundamental breach. Its purpose is to replace the various approaches previously introduced by the courts and scholars with a methodology that provides more assistance to parties to determine whether a fundamental breach has occurred in a sales transaction governed by the Convention. To that end, the different approaches taken by scholars and the courts in defining fundamental breach will be critically examined. As mentioned above, article 25 was drafted in general terms and must be interpreted. Therefore, before examining the different approaches, it is necessary to identify the methods of interpretation provided by the Convention.

PART I — Rules of Interpretation and Construction under the Convention

When interpreting the meaning of a certain work, term, or phrase under uniform international law, which is subject to various interpretations, it is first necessary to determine whether that term or phrase must be interpreted “autonomously” or as interpreted in domestic law.[22] Within the scope of the Convention and except for those cases where express reference is made to the lex fori, such as under articles 1(1)(b) and 28, it follows from article 7(1), that an “autonomous” interpretation is required. According to the latter provision, “regard is to be had to its international character and to [page 189] the need to promote uniformity in its application and the observance of good faith in international trade.” [23]

Respecting the “international character” of the Convention and “the need to promote uniformity” requires an autonomous interpretation of its terms and concepts in the context of the Convention itself, without reference to any meaning under a particular domestic legal system.[24] The articles and concepts of the Convention cannot be regarded as a species of domestic legislation, even after its incorporation or implementation into domestic law.[25] To do otherwise would not only lead to a breakdown of uniformity but would also promote forum shopping.[26] [page 190]

However, where a term in the Convention has been taken from one or several legal systems, such as the “Nachfrist-type” requirement,[27] an analysis of its domestic meaning does not necessarily diminish the international character of the Convention and its primary aim of promoting uniformity.[28] Nor can one conclude that domestic interpretive techniques are excluded by that reference, provided that their application leads to results [page 191] which are persuasive and conform to the goals of the Convention in general, as well as those of the specific provision.[29] Domestic interpretation is compatible with article 7(1) [30] only if it is critically analyzed before application.

For example, interpretation under the English law “doctrine of fundamental breach” [31] is not permissible, since that concept was developed to enable an aggrieved buyer to escape contractual provisions when goods are defective.[32] It would be equally inconsistent with the Convention’s objectives [page 192] to interpret its provisions according to a common law standard, in which a narrow statutory interpretation is utilized to limit the effect of a particular court decision.[33] Moreover, in contrast to common law legislation,[34] reference to (equitable) rules previously governing matters within the Convention’s scope, whether derived from statute or case law, is also excluded by article 7(1).[35]

Traditional rules of interpretation in civilian legal systems, such as literal, historical, systematical and teleological rules, on the other hand, make allowances for the Convention’s international character and its primary goal of uniform application.[36] If the meaning of a word or term in a statute [page 193] is clear, literal interpretation best serves both requirements.[37] The same is generally true with historical, systematical or teleological interpretation. Such applications require no reference to domestic law, but only to the provisions, legislative history, and goals of the Convention as a whole, and to the particular provision.[38] If the meaning of a statute is ambiguous, article 7(1) requires the application of these methods of interpretation.[39]

In the following section, the suitability of these traditional methods of interpretation of the Convention will be examined in greater detail.[page 194]

B.  The Four Classical Methods of Interpretation

With regard to the Convention’s overriding objective of uniformity, the primary guide to interpretation is the ordinary meaning of the words.[40] If a word’s meaning is evident, either in its ordinary connotation or within a unique context, no further interpretation is required. In the event of ambiguity in one of the several language versions of the Convention, the various versions must be compared to determine whether each presents the same linguistic uncertainty.[41] If, after such comparison the exact meaning cannot be ascertained, or if it reveals disparities between the authentic texts,[42] then the literal interpretation must be supported by other methods of interpretation, since no single language may prevail.[43] [page 195]

Interpretation by way of legislative history seeks to resolve inherent ambiguities by considering the drafters’ motives and deliberations, as evidenced in the officially published travaux préparatoires.[44] At the national level, materials connected with the preparation of the law are parliamentary debates, minutes of meetings of commissions, etc. At the international level, such materials include the records of diplomatic conferences, documents that formed the basis for the work of the conferences, commentaries, drafts proposed by working groups, and comments of governments that participated in the drafting process.[45] Consequently, one should not only refer to the acts and proceedings of the Vienna Conference and the summary records of the previous deliberations within UNCITRAL. One must also examine the Convention’s predecessor, the 1964 Hague Sales Conventions,[46] since the deliberations in UNCITRAL started with an analysis of the 1964 text.[47] [page 196]

The unofficial commentary prepared by the UNCITRAL Secretariat for the 1980 Vienna Diplomatic Conference on the Convention must also be considered.[48] This commentary summarizes relevant conclusions derived from the legislative history of the Convention prior to the Conference and was used extensively by the delegates as a guide to the meaning of certain 1978 Draft Convention provisions. Where the Official Text of a provision is typically close to or identical with the 1978 Draft version of the same provision, it is said that the Secretariat Commentary is nevertheless the most persuasive citation.[49]

The interpretation of an international convention through legislative history presents some difficulties.[50] First, unlike those at the national level, preparatory materials of a diplomatic conference are often neither widely known nor available.[51] This, however, is not true for the Convention, because the deliberations of the Vienna Diplomatic Conference are well documented.[52] [page 197]

Second, it is difficult to determine the opinion of a diplomatic conference.[53] Like other international agreements, the Convention was not established unilaterally but was negotiated. One of the features of negotiation is that the negotiating parties do not always reveal their true intentions.[54] An agreement is typically reached without respect to the individual intentions of the contracting parties, but instead, through compromise. Accordingly, agreement on a text does not necessarily imply agreement as to the intentions of the delegates to a conference.[55] Divergent or even conflicting intentions may well underlie a final text.[56]

These concerns, however, may also be raised in the context of national legislation. It is therefore evident that caution is needed in approaching legislative history in general. In this author‘s opinion, where a proposal has been rejected by a clear majority and, provided that official records reveal the prevalent understanding of the delegates, legislative history creates a binding interpretation of the Convention, i.e., those proposals should never be admissible evidence in a dispute.[57] [page 198]

There are two ways of interpreting law systematically.[58] One seeks to discover the meaning of a statutory provision by looking at its context and interpreting it in relation to other provisions of a given instrument.[59] This approach, both at the domestic and the international level, is important to avoid conflicting interpretations of identical or similar terms within a complex legal text, especially where each provision is to be understood as part of a broader analytic system.[60] Even though international conventions sometimes lack the coherent structure that exists in a national code,[61] in general, this variant of systematic interpretation promotes the uniform application of rules within a single statute, such as the Convention.[62] [page 199]

The second approach to systematic interpretation is to look at a certain provision within a legal system as a whole.[63] Unlike at the domestic level, however, at the international level there exists no international legislator and thus no legal order, which requires consideration of one statute’s relationship to other statutes and interpretation of similar provisions in such a way to avoid contradiction.[64] In addition, the purpose of each convention usually differs, as with special statutes for particular issues under domestic law. For these reasons, as long as a general system of uniform laws has not been established, it would be arbitrary and therefore contrary to the purpose of unification to compare international conventions with each other in order to systematically interpret their provisions.[65] Only when a convention expressly refers to another convention should reference to the latter be permissible. Under the Convention, however, there is no such reference and, therefore, other international conventions should not generally act as a source for its systematic interpretation.[66] [page 200]

It has recently been suggested that the UNIDROIT Principles of International Commercial Contracts [67] should be used as a means of interpreting the Convention, provided that the relevant provision of the UNIDROIT Principles serves the same purpose as its corresponding provision in the Convention.[68] The objections to reliance on other international conventions, however, also apply in this context. In addition, there is another argument against the employment of the UNIDROIT Principles, namely the [page 201] very existence of another uniform law project within the framework of the Commission on European Contract Law; the Principles of European Contract Law.[69]

Although the European Principles address basically the same issues of general contract law and are very similar to the UNIDROIT Principles in terms of formal presentation,[70] the existence of competing instruments to interpret the Convention per se contradicts the purpose of the Convention to unify international sales law. More important than this theoretical argument, however, is the fact that the two instruments do not entirely coincide as to their content.[71] Since the territorial scope of the European Principles [page 202] is formally limited to the Member States of the European Union, while the UNIDROIT Principles are universal, it is to be expected that the courts and tribunals outside of Europe or in commercial transactions involving non-Europeans would apply the UNIDROIT Principles to interpret the Convention, while within the European Union or in purely intra-European contracts, the European Principles would be applied.[72]

Such a scenario clearly jeopardizes the objectives of the Convention and, therefore, courts and arbitral tribunals should not apply either instrument as a means of interpreting ambiguous terms.[73] Critical consideration [page 203] of concepts and criteria used in properly interpreting the Convention offered by those instruments, however, should be permissible. In this respect, the same restrictions pertinent to the use of the domestic interpretation of a given Convention term apply to those instruments.[74] In other words, resorting to the principles and criteria under the UNIDROIT Principles or any other uniform law project should only be permissible when their application can be justified by the legislative history and the underlying purposes of a given provision in the context of the Convention itself.

The teleological method of interpretation attempts to resolve uncertainties and bridge lacunae in legislation by looking at the objectives and underlying policies of the text in question.[75] There are two different aspects to teleological interpretation; the object and purpose of the particular provision or terms which require interpretation, and the object and purpose of the statute as a whole.[76] Determining the legislator’s intent requires the use of travaux préparatoires.[77] As far as it concerns the interpretation of a single provision, the teleological approach thus faces the same problems as interpretation by legislative history. In regard to the object of the Convention as a whole, however, the drafting parties’ intent is more easily discernible. That intent is laid out in the Convention’s preamble [78] and reinforced by the directive in Article 7(1) for regard to be had to its “international character” and the need to “promote uniformity.”[79] In practice, this means that [page 204] attention must be given to the way the Convention is interpreted in other countries by the courts, scholars, and practitioners.[80]

Although there is much scholarly writing on the Convention’s interpretive techniques, the problem of which technique prevails in the event of conflicting results has not yet been discussed. As discussed later in this Paper, this question becomes pertinent in determining fundamental breach in the context of the seller’s right to cure a defect under article 48(1) and the buyer’s right to avoid the contract under article 49(1)(a). The point at issue is whether it is permissible to replace the literal, historical, and contextual interpretation by a teleological approach.[81]

In the absence of a supranational tribunal endowed with exclusive jurisdiction to interpret the Convention’s provisions, it seems to be contrary to the principle of uniform application, as embodied in the Convention, to allow national courts to disregard the plain wording in order to give effect to what it deems the overriding purpose of a single provision.[82] Only where the plain meaning of one provision contradicts that of another, as with articles 14 and 55,[83] is recourse to other interpretive methods permissible, [page 205] since such contradictions endanger the Convention’s overall goal to promote uniformity.

C.  Observance of Good Faith in International Trade

Article 7(1) requires that, in the application of the Convention, attention be paid not only to the need to promote uniformity but also to “the observance of good faith in international trade.” The Convention does not provide a definition or the scope that should be given to “good faith” as an aid to interpretation, and there are as yet no published decisions which apply that principle.[84] With regard to its scope, scholars find themselves in disaccord as to whether good faith operates simply as an additional criterion in interpreting the Convention or if it is also governs the conduct of the parties to a contract.[85] There is, however, a general consensus of opinion [page 206] that the use of domestic definitions and concepts is barred by the reference to “international trade,” which reinforces the Convention’s goal “to promote uniformity.”[86]

The controversy over the scope of the concept of “good faith” seems to be of purely academic character. In practice, it appears to be nearly impossible to apply this principle to the interpretation of the Convention without also applying it to the parties’ conduct.[87] Moreover, there are several provisions in the Convention that are directed at the parties’ conduct and which [page 207] undeniably represent a particular application of the good faith principle.[88] Hence, the requirement of good faith can be considered as one of the “general principles” upon which the Convention is based. As such, it is not limited to the interpretation of the Convention itself, but also governs the parties’ conduct.[89] The reference to general principles underlying the Convention [page 208] as a whole best ensures the uniform interpretation of the good faith requirement, since this reference secures an interpretation based on principles found within the Convention, such as the concepts of reasonableness [90] [page 209] and the principle of mitigation.[91] The latter, for example, is contained in article 50. This provision limits the availability of the buyer's remedy of price reduction if he does not permit the seller to remedy any failure of obligations under the contract.[92]

It should be noted, however, that the Convention’s good faith principle does not permit the courts to introduce a general principle of fairness and equity. In other words, a national court may not replace the effects of a statutory provision, contrary to its plain wording and the legislative intent, by an outcome, which it believes to be more fair and equitable.[93] Any other reading of the good faith principle cannot be justified by the legislative history [page 210] and would endanger the uniform application of the Convention.[94] If, and to what extent this principle may take precedence over a contract provision will be discussed later in this Paper.[95]

D.  Filing Gaps in the Provisions of the Convention

It is hardly possible at both the national and international level to draft a lengthy and complicated piece of legislation without any gaps. Paragraph (2) of article 7 thus provides that questions which are not expressly settled in [the Convention] are to be settled in conformity with the general principles on which [the Convention] is based, or in the absence of such principles, in conformity with the law applicable by virtue of the rules of private international law.

The concept of fundamental breach, however, is expressly settled in article 25 and, consequently, its interpretation is restricted to the rules under paragraph (1) of article 7.[96]

E.  Conclusion (Part I)

The objective of Part I was to identify the rules of interpretation under the Convention. It was shown that the Convention’s rules of interpretation require first and foremost an autonomous interpretation of the terms of the Convention in order to ensure their uniform application. We examined different methods of interpretation and reached the conclusion that the traditional rules of interpretation in civilian legal systems best serves that goal. We argued that in cases where the application of different methods leads to conflicting results, the courts are not allowed to disregard the plain wording or the clear legislative intent in order to give effect to what they deem the overriding [page 211] purpose of a single provision. With regard to the Convention’s principle of good faith, we hold the view that it is not limited to the interpretation of the Convention itself, but also governs the parties’ conduct. Finally, we argued that this principle does not permit the courts to modify or replace the effects of a statutory provision, contrary to its plain wording and the legislative intent, by an outcome that they believe to be more fair and equitable.

PART II — Case Law and Scholarly Writing on Fundamental Breach

Unlike the Members of the European Union, the states participating in the drafting of the Convention were unwilling to transfer any of their sovereignty in order to establish a supranational court, such as the European Court of Justice, to ensure a unified interpretation of the Convention.[97] Furthermore, decisions of foreign courts are not binding on domestic courts,[98] nor are domestic courts required to consider foreign scholarly [page 212] writing.[99] On the other hand, the Convention’s requirement of having regard for “uniformity in its application” calls for courts to consider interpretations of the Convention in other countries.[100] Therefore, we will next canvas scholarly commentary (A) and case law (B) on fundamental breach.[101] [page 213]

B.  Scholarly Writing on Fundamental Breach

According to the statement of the unofficial Secretariat Commentary on the 1978 Draft Convention,[102] scholars from different legal systems debated on standards for determining whether a breach is fundamental. A consensus was reached that the determination must be made in the light of the circumstances of each case.[103] There is no such agreement, however, as [page 214] to which factors are decisive in determining whether an injury is substantial enough to amount to a fundamental breach and the point in time from which foreseeability is measured.

The section below first illustrates the different approaches and the relevant factors used for determining fundamental breach and then addresses the relevant point in time. Reference will be made to a very recent approach that involves the UNIDROIT Principles concerning non-performance in order to determine fundamental breach under the Convention.

Because of its practical importance within the Convention’s remedial system and its vagueness, the concept of fundamental breach has generated much commentary by scholars and practitioners. They have employed several factors in determining whether a breach is fundamental; which may be roughly categorized under the following headings: (a) nature of the contractual obligation; (b) gravity of the circumstances of breach; (c) remedy-oriented approach; (d) (in)ability of performance; (e) (un)willingness to perform; (f) lack of reliance on the other party’s future performance; (g) offer to cure; and (h) possible cure.

a.  Nature of the Contractual Obligation

The nature of the contractual obligation is one factor in the determination of fundamental breach. Where the parties have expressly or implicitly agreed that in the case of a breach by one party the other party may [page 215] terminate the contract, strict compliance with the contract is essential and any deviation from the obligation is to be regarded as a fundamental breach.[104] Absent such an express provision, the duty of strict compliance may also be inferred from the language of the contract, the surrounding circumstances, custom, usage, or a course of dealing between the parties.[105]

For example, it has been argued that the time of delivery is of the essence and consequently late performance amounts to a fundamental breach where the parties have stipulated that performance should be effected at an exact time (“Fixgeschäft”) [106] and the importance of timely performance flows from the nature of the goods,[107] the circumstances [page 216] of payment,[108] or from the time the taking of the goods was to be effected.[109]

Where the parties have expressly specified the quality of the goods, e.g., in case of an express warranty, any defect in quality constitutes a fundamental breach. Likewise, where the buyer has insisted that goods be fit for a [page 217] particular purpose,[110] or where he has notified the seller for what purposes he would need the goods (expressing his special interest that the goods be fit for that purpose), then any defect affecting this particular use is to also be regarded as a fundamental breach.[111]

b.  Gravity of the Consequences of Breach

The gravity of the consequences of the breach is another factor in determining fundamental breach. Whether or not the consequences of the breach actually deprive the aggrieved party of the expectation under the contract is discussed under the following headings:[112] the contract‘s overall value plus the monetary loss suffered by the aggrieved party, frustration of the purpose of the contract, and the remedy-oriented approach.[page 218]

There is some debate among scholars as to whether the monetary loss suffered by the injured party is a decisive factor in determining fundamental breach. Based upon the Secretariat Commentary on the fundamental breach governing provision under the 1978 Draft Convention,[113] some authors conclude that the contract’s overall value and the loss suffered by the buyer as a result of the non-performance are to be considered in determining fundamental breach.[114] Most authors, however, take the view that damages are not the decisive factor. Rather, the aggrieved party’s special interest in the performance of the particular obligation as fixed by the terms of the contract is the decisive factor in determining fundamental breach.[115] [page 219]

To determine fundamental breach, many authors focus on whether or not the purpose of the contract has been frustrated by the breach.[116] They argue that the buyer has purchased the goods for some purpose and consider those breaches that make the intended use of the goods impossible as fundamental.[117] In their view, when the goods do not possess the features necessary for the purpose,[118] or when a third party claims a right to possession or prohibits the use by virtue of a patent or other industrial or intellectual property right, a fundamental breach has been committed.[119] For example, the buyer’s interest in reselling the goods is not protected if it was evident that he bought the goods for manufacturing purposes, but his interest in selling the proceeds is protected. Accordingly, only if the sale of the latter is not possible due to the defective delivery is there a fundamental breach.[120]

Where documents are necessary in order to dispose of the goods or take delivery of the goods at their place of destination, e.g., a bill of lading, the delivery of defective and incomplete documents constitutes a fundamental breach.[121] Delivery of short or damaged goods entitles the buyer to [page 220] avoid the contract where complete and/or non-defective delivery was necessary for the use intended by the buyer.[122] Delivery of an aliud constitutes a fundamental breach where the merchandise delivered deviates so substantially from that ordered that the seller must view the buyer’s acceptance as impossible.[123]

Concerning the delivery of non-conforming goods, the case-by-case approach, which looks at whether the purpose of the contract has been frustrated, has been challenged by a more comprehensive one. Inspired by some recent German court rulings [124] on fundamental breach, this new approach asks whether it is reasonable for the buyer to retain the defective goods, make use of them and to then claim for damages for any loss suffered as a result of the breach.[125] In answering this question, the new approach considers the nature of the goods, the extent of the deviation from [page 221] the agreed quality, the purpose for which the buyer purchased the goods, and the size of the buyer’s business.[126]

According to this somewhat remedy-oriented approach, it is generally unreasonable for the buyer to run the risk of engaging in a dispute with the seller as to whether he had sold the goods for a reasonable price and thereby observed his duty to mitigate losses.[127] Consequently, defective delivery generally constitutes a fundamental breach when the goods would not be marketable or a reasonable price could not be realized.[128] Moreover, where the buyer is only a retailer, it is generally unreasonable for him to sell defective goods to his customers.[129]

If the defective goods were not purchased for resale but for other purposes, such as processing, it would also be unreasonable for the buyer to use the goods unless there were a market where the goods could be easily sold.[130] “Aliud” deliveries always constitute a fundamental breach where the goods in question are of a specific character, irrespective of whether they are unique or fungible.[131] Where the goods are generic, “aliud” deliveries are to be considered a fundamental breach when it is unreasonable for the buyer to resell them and to claim damages.[132] In determining unreasonableness, the extent to which the delivered goods deviate from the stipulated description must be considered.[133] [page 222]

c.  (In)ability of Performance

Another consideration in the determination of fundamental breach is the party’s (in)ability to perform at all, that is to say either to deliver the ordered goods or to pay the purchase price and to take delivery. Regardless of whether or not performance is due, non-performance is considered a fundamental breach where performance is objectively impossible, namely where the object of the transaction is unique and has been destroyed.[134] For example, if a party contracts to sell his Kandinsky and it has perished, performance is objectively impossible since no one could deliver the painting.[135] A fundamental breach has also been committed where only the party, which has yet to fulfill its obligation, is unable to perform the contract (subjective impossibility).[136] If, in the foregoing example, the Kandinsky were not destroyed but stolen, the seller would only be subjectively prevented from performing, since the thief or any other person having bought the stolen painting from him would be able to deliver it to the buyer, if only theoretically.[137] [page 223]

d.  (Un)willingness to Perform

The parties’ (un)willingness to perform is another factor in the determination of fundamental breach. For example, one party’s express refusal to perform his obligation, such as to pay for the goods or to take delivery of them, constitutes fundamental breach, except where the promisor is entitled to refuse to perform.[138] Making performance dependent on an unjustified counter-performance or additional guarantees also constitutes fundamental breach.[139]

e.  Lack of Reliance on the Other Party’s Future Performance

In determining fundamental breach, consideration is also given to whether the breach gives the aggrieved party reason to believe that he may not rely on the other party’s future performance. It has been argued, for example, that even where the contractual term broken is minor and the consequences of the breach do not substantially deprive the aggrieved party of his expectations under the contract, he can nonetheless treat the breach as fundamental if it was intentional.[140] In addition, where one party can reasonably [page 224] conclude from the other party’s conduct that he will not perform a substantial part of his obligation, the former may ask the latter for an adequate assurance of performance, and failure to provide an additional guarantee is regarded as a fundamental breach.[141]

f.  Offer to Cure

When one reads academic commentary on the drafting history of the Convention,[142] there is much controversy among scholars as to whether fundamental breach should be determined in the light of an offer to cure. Many authors favor the consideration of such an offer in determining whether or not a fundamental breach has occurred.[143] Their position is that a breach is not fundamental as long as the requirements of article 48(1) are met, namely, that repair is possible within a reasonable time and without causing the aggrieved party unreasonable inconvenience or uncertainty of reimbursement by the seller of expenses advanced by the buyer. Consequently, the seller’s refusal or failure to cure the defect within a reasonable time constitutes [page 225] a fundamental breach.[144] The same is true where timely delivery is an essential term of the contract.[145] Moreover, a fundamental breach has been committed where it is unreasonable for the buyer to keep the repaired merchandise,[146] or where the buyer reasonably cannot rely on the seller’s ability [147] or willingness [148] to cure the defect within a reasonable time.

Some authors, on the other hand, believe that an offer to cure should not be considered in determining fundamental breach.[149] They are of the opinion that taking into account an offer to cure and the curability of a defect contradicts the opening words of article 48(1), according to which the seller’s right to cure is “subject to article 49.”[150] They conclude from that wording that the buyer’s right to avoid the contract always prevails over the seller’s right to cure and, thus, the question of whether the breach was fundamental [page 226] for the purpose of avoidance cannot be answered in the light of an offer to cure.[151] Another argument advanced is that such an approach is incompatible with article 46(2), according to which the buyer can request substitute delivery if the lack of conformity constitutes a fundamental breach.[152] Defining fundamental breach in light of a feasible repair would practically bar the buyer from requiring substitute performance whenever the seller offers a cure.[153] The buyer’s right to require substitute goods would be limited to those situations where repair is impossible.[154] Moreover, it has been argued, that consideration of a possible repair contributes to the further weakening of the concept of fundamental breach since it is not clear under what circumstances the buyer’s right to cure would prevail.[155]

Those authors favoring consideration of an offer to cure in determining fundamental breach, with reference to the legislative history of article 48(1), defend their position on the ground that the opening words of that article do not clarify the exact relationship between the seller’s right to cure and the buyer’s right to avoid.[156] It could not, therefore, be answered with certainty whether avoidance or cure should prevail.[157] Furthermore, they argue that the purpose of article 48(1) would be frustrated if the buyer were [page 227] allowed to avoid the contract before giving the seller an opportunity to cure the defect.[158] As to the compatibility with article 46(2), they argue that the term fundamental breach must be interpreted differently, depending on whether the avoidance or the substitute delivery remedy is sought,[159] or if, for policy reasons, the seller’s right to cure should prevail over the buyer’s right to request substitute delivery.[160]

g.  Possible Cure

In an attempt to overcome some of the doctrinal concerns about the approach focusing on the existence of an offer to cure, some legal writers look exclusively at the curability of a given breach.[161] They determine fundamental breach not in the light of an offer to cure by the seller, but by looking at whether cure is possible at all. In their view, there is no fundamental breach when the breach is curable.[162]

Most authors conclude from the wording and legislative history of article 25 that there is a presumption that the party in breach foresaw the far-reaching consequences of the breach for the other party.[163] Consequently, they take the view that whether a breach is fundamental depends not only on its consequences but also on the foreseeability of those consequences to the other party.[164] For them, the foreseeability element has two functions: [page 228] first, a substantive function, i.e., the breaching party’s knowledge or foreseeability of the harsh consequences of the breach;[165] secondly, a procedural function, since the element of foreseeability shifts the burden of proof to the party in breach when that party claims that neither he nor any reasonable person of a similar class [166] and in the same circumstances [167] could have foreseen the result.[168]

The actual foreseeability of a substantial detriment caused by the breach depends on all relevant circumstances of the case, including the negotiations and any practices, established between the parties.[169] Where the parties, for instance, expressly or implicitly agreed that strict compliance with the contract terms is essential and any deviation from those terms is to be regarded as fundamental, the party in breach cannot invoke non-foreseeability. Under such circumstances, substantial detriment is foreseeable to a reasonable person of the same kind and in the same circumstances.[170] The same is true where the importance of the obligation breached follows from [page 229] the terms of contract or from the negotiations between the parties, which preceded the formation of the contract.[171] For example, where the parties stipulated that performance should be effected at an exact time, or where the buyer had made known to the seller that he needed the goods by a certain date in order to fulfill his own obligations vis-à-vis third parties, the seller cannot argue in defense that he was unaware of the fact that his failure to deliver on time would result in substantial detriment to the seller.[172] Only when the particular importance of the violated duty has neither been established in the contract itself nor discussed during the contract negotiations, can foreseeability be relevant.[173]

With regard to the relevant point at which foreseeability is measured there are basically two different positions.[174] Relying on the fact that the definition of fundamental breach is focused on the injured party’s expectations under the contract, some authors take the view that the time of the conclusion of the contract is relevant.[175] In their view, a contract in which the delivery time is not binding cannot be turned into a transaction where time is of the essence merely because the seller subsequently learns that the buyer needs the goods at a particular time.[176]

Furthermore, they argue that the relevant point at which foreseeability is measured must be evaluated in conjunction with article 74, which deals with monetary damages for breach of contract and limits the recovery of damages to cases where the breach is foreseeable “at the time of the conclusion of the contract.”[177] They point out that it would be anomalous if a [page 230] buyer were allowed to avoid the contract because of the seller’s breach while the grounds justifying avoidance were regarded as being too remote for the recovery of damages.[178]

This approach is opposed by those authors who want more protection for the aggrieved party. While some of them favor the time of the breach [179] or the period “before the time of the breach” [180] approach, most of them consider these interpretations as too far-reaching. They generally hold the time of the conclusion of the contract as the decisive point and will permit consideration of subsequent knowledge only in exceptional cases, e.g., in cases where preparations in view of performance have not yet started so that the other party can still adapt itself to the new situation.[181]

As mentioned above, some renowned scholars advocate making use of the UNIDROIT Principles as a means of interpreting ambiguous terms of the Convention.[182] They suggest employing them in the determination of [page 231] fundamental breach of contract, arguing that both the UNIDROIT Principles and the Convention follow the same policy, namely to preserve the enforceability of the contract whenever feasible.[183] This approach would be reflected by offering the breaching party the possibility to cure,[184] requiring the non-breaching party to provide an additional period of performance,[185] and most importantly, by allowing the termination of the contract only when the breach or non-performance qualifies as “fundamental.”[186]

The UNIDROIT Principles provide a more express guideline than does the Convention as to which factors are relevant in determining fundamental non-performance, the counterpart of the Convention’s fundamental breach.[187] In determining fundamental non-performance, the UNIDROIT Principles state that regard shall be had to whether the non-performance substantially deprives the aggrieved party of what it was entitled to expect under the contract.[188] Other factors to be taken into account in each case are: whether strict compliance with the unfulfilled obligation is of [page 232] essence under the contract;[189] whether the aggrieved party has reason to believe that it cannot rely on the other’s party’s future performance;[190] whether the non-performance is intentional or reckless;[191] and finally, whether the non-performing party would suffer a disproportionate loss as a result of the preparation or performance if the contract is terminated.[192]

With the exception of the last two enumerated factors, those applied by the UNIDROIT Principles in determining fundamental non-performance do not differ substantially from those employed by scholars and practitioners in defining fundamental breach under the Convention.[193] There is, however, a significant difference. Unlike under the Convention, the relationship between the seller’s right to cure and the buyer’s right to terminate is clear under the UNIDROIT Principles. The buyer’s right to terminate is suspended provided that the seller’s offer to cure is appropriate and the buyer has no “legitimate interest” in refusing an offer to cure.[194] Moreover, the seller’s right to cure is not precluded by notice of termination.[195] In other words, the buyer cannot exercise his right of termination for the purpose of denying the seller an opportunity to cure. Under the UNIDROIT Principles, therefore, curability is, de facto, a relevant factor in determining whether or not non-performance is fundamental.[page 233]

C.  Case Law on Fundamental Breach

As of April 1999, there have been 54 reported decisions dealing with fundamental breach in its various settings.[196] As discussed in greater depth below, in most cases the courts and tribunals do not provide a detailed analysis as to the definition of fundamental breach.[197] Their reasoning, however, gives some insight as to why the courts considered a given non-performance as being fundamental or not. The factors enumerated by the courts in determining fundamental breach are similar to those employed by the scholars and practitioners as mentioned above. There are two principal reasons that account for this convergence.

First, all but three of the reported decisions dealing with fundamental breach [198] were rendered by courts in civil law jurisdictions, where the influence of legal writing on the interpretation and development of law is traditionally [page 234] much greater than in most common law countries.[199] Second, many articles and some of the standard commentaries on the Convention were published before the Convention entered into force and thus were the only source of interpretation for the courts in the absence of any case law on the Convention.[200]

Scholars and practitioners, however, could not anticipate all of the problems arising out of the application of the Convention. It is necessary, therefore, to more closely examine the reported decisions on fundamental breach.

The courts often looked at the nature of the contractual obligation in considering whether strict performance is of the essence of the contract. In the absence of express terms stipulating that any failure to perform strictly in compliance with the contractual obligations is considered a fundamental breach, the courts have tried to infer from the language of the contract, whether there was a duty of strict compliance, and if so, its nature and the surrounding circumstances.

a.  Quality of the Goods

In two cases, buyers invoked fundamental breach, claiming that the quality of the goods did not meet the stipulated requirements. In the first case, the Innsbruck Court of Appeals heard a dispute between a Danish exporter and an Austrian buyer. The buyer refused to pay the price and argued that the seller committed a fundamental breach of the contract because the flowers he purchased did not bloom throughout the entire summer. The Court denied that there was a fundamental breach on the grounds that the [page 235] buyer failed to prove that the seller had guaranteed that the flowers would bloom through the entire summer.[201]

The second case involved litigation between German and Spanish parties over the delivery of a shipment of pepper. The pepper contained approximately 150% of the maximum concentration of ethyl oxide admissible under German food and drug law. Here the buyer was more successful, proving it had an express agreement with the seller that the goods must be fit for human consumption in Germany. Consequently, the Ellwangen District Court held the seller was in a fundamental breach.[202]

b.  Timely Delivery

In many cases where the seller has effected late delivery, the buyer, alleging that the time of the delivery was an essential term of the contract, declared the contract avoided and refused payment. To date, however, in only one reported case did a court hold that timely delivery was essential. In a dispute between a British seller and a German buyer over the non-delivery of iron-molybdenum (“CIF Rotterdam”), the Hamburg Court of Appeals held that in CIF contracts timely delivery is per definitionem an essential term of the contract.[203] In all other cases, however, the buyer failed to show [page 236] that time was significant for the buyer in the sense that the contract stands or falls with timely delivery.[204]

The Oldenburg District Court, for example, denied fundamental breach in a dispute between a German buyer and an Italian seller, where the seller had dispatched summer clothes one day later than the stipulated time.[205] The Court concluded from the fact that the buyer took delivery of the goods instead of rejecting them that time was not of the essence of the contract.

In another case involving the sale of women’s wear, where the French seller dispatched the goods two days after the stipulated time, the Ludwigsburg Petty District Court held that the inconvenience caused by the delay was only of minor importance to the German buyer and thus did not amount to fundamental breach.[206]

c.  Disregard of the Seller’s Distribution System

In a French case, the Grenoble Court of Appeals held that a buyer breached by reselling goods to an unexpected third party. The seller expected [page 237] the buyer to resell in South America or Africa but the buyer instead resold in Spain, where the seller also resold.[207] The Court found that the parties clearly understood that resale was to be in South America or Africa and that seller’s expectations under the contract were substantially impaired, because sale of its products in Spain had been seriously hampered by the parallel distribution caused when the buyer resold the goods in Spain.

In some cases, courts determining fundamental breach have in particular looked at the gravity of the consequences of the breach in the light of: (a) the contract’s overall value and the monetary loss suffered by the aggrieved party; (b) the fitness of the goods for the intended purpose and (c) whether or not an award of damages would adequately protect the aggrieved party.

a.  Contract’s Overall Value and the Monetary Loss Suffered by the Aggrieved Party

In none of the following cases, has a court expressly held that there was a fundamental breach due to the monetary loss suffered by the aggrieved party as a consequence of the breach. Nor have the courts denied the occurrence of such a breach on the grounds that the breach did not cause the aggrieved party any damages. The ratio decendi of these cases, however, leads one to believe that the courts were focusing on the monetary loss suffered [page 238] by the aggrieved party in relation to the contract’s overall value for the determination of fundamental breach.

For example, in Delchi v. Rotorex, a U.S. District Court admitted fundamental breach where 93% of the air condition compressors delivered were rejected in quality control checks because they had lower cooling capacity and consumed more energy than the sample model and specifications.[208] The U.S. Court of Appeals for the Second Circuit affirmed the District Court’s conclusion “because the cooling power and energy consumption of an air conditioner compressor are important determinants of the product’s value.”[209]

In a dispute between a German seller and a Swiss buyer where fundamental breach was alleged, the Landshut District Court emphasized that the buyer would suffer considerable detriment because all of the sportswear delivered had shrunk about 10 to 15% after being washed.[210] The Court held that there was a fundamental breach since the buyer’s customers would have either returned the merchandise or would not have bought any more from the buyer.[211]

The delivery of 80,000 scaffolding fittings, which did not entirely conform to the sample, was the subject of an arbitration award in a Chinese-Austrian [page 239] dispute. Stating that the estimated costs of sorting out the bad fittings from the good would have amounted to more than one third of the purchase price, the tribunal found a fundamental breach on the grounds that “an important part” of 80,000 scaffold fittings did not conform to the sample.[212]

The Hamm Court of Appeals found fundamental breach in a German case where the German buyer refused to take delivery of more than half of the ordered bacon.[213] In this case, the Italian seller had contracted with the buyer to deliver 200 tons of bacon in 10 installments. The seller delivered 4 installments, totaling 83.4 tons. Due to the way the bacon was packaged and claiming that 420 kilograms out of 22.4 tons of the fourth installment were dirty, the buyer refused to take delivery of the remaining installments. The Court found that even if 420 kg of the bacon were contaminated, the buyer would not have been entitled to refuse to take delivery according to article 71(1),[214] since such an amount could not be considered a “substantial part” as required under this provision.

In two other cases, the courts have denied fundamental breach since the aggrieved parties did not suffer any loss due to the alleged breach by the other party. In a Russian case, a Russian buyer failed to pay for the delivered goods and objected to the seller’s claim for the stipulated price, arguing, inter alia, that the seller had breached the contract by dispatching the goods before the buyer had transmitted the bank’s guarantee. Emphasizing that [page 240] the buyer did not suffer any damage, the Russian tribunal held that such a violation by the seller of the terms specified for dispatch of the goods (delivery in the absence of a banker’s guarantee) could not be termed a fundamental breach of contract.[215]

In another case, the plaintiff, a Swedish seller of coke delivered to a company in the former Yugoslavia, sued a German buyer for the purchase price. The defendant [buyer] objected that the coke was of inferior quality and that the seller had sold the coke in his own name directly to the buyer’s client in Yugoslavia. The Munich Court of Appeals held that, if proven, such interference might be regarded as a violation by the seller of his “post-contractual” obligations. The court, however, found that such a breach of contract would not result in any objectively significant detriment to the buyer since he would not have lost his claim under the Convention to be paid the price.[216]

b.  Frustration of the Purpose of the Contract

In two cases the buyer has invoked fundamental breach on the grounds that the goods delivered could not be used for their intended purpose and were therefore not merchantable. In the first case, the German Supreme Court held that, as a general rule, the merchantability of the goods (New Zealand mussels) in the importer’s country was not an essential term of the contract.[217] According to the court, in the absence of an agreement as [page 241] to the merchantability of the goods, unmerchantability arising from the failure to observe special statutory provisions of the importer’s country only constitutes a fundamental breach if one of the following conditions are met: (i) the same provision existed in the seller’s State; (ii) the buyer had informed the seller and relied on the latter’s expert knowledge; or (iii) the seller had or could have had knowledge of such provisions due to the particular circumstances of the case.[218]

In another case, the French Supreme Court reached what at first glance appears to be a somewhat different conclusion in a French-Italian controversy over the delivery of Italian wine that did not conform to the French wine law due to the addition of sugar by the Italian seller.[219] The French Supreme Court found a fundamental breach on the ground that the wine was not merchantable in France.[220] Unlike in the New Zealand mussels case, here the unmerchantability was the result of manipulations by the seller. For that reason it seems justifiable to impose on the seller the duty to verify whether such manipulations affect the merchantability of the goods sold, thereby shifting the risk of unmerchantability to the seller, and to treat his failure to do so as fundamental breach.[221] [page 242]

c.  Remedy-Oriented Approach

Recently, a new approach to determine fundamental breach has been introduced by the Frankfurt Court of Appeals and the German Supreme Court. Both the Frankfurt Court of Appeals [222] and the German Supreme Court [223] focused on whether it was reasonable for the aggrieved party to make use of the goods delivered, in particular to resell them, and to claim damages to compensate for the loss.[224]

In the case decided by the Frankfurt Court of Appeals, the plaintiff, an Italian shoe manufacturer, had delivered shoes to the defendant, located in [page 243] Germany, and issued invoices for the purchase price. The defendant paid only a portion of the price and denied any further obligation to pay the balance by asserting that the contract was avoided due to the late delivery and non-conformity of the shoes. The court held that the defendant was not entitled to declare the contract avoided because it had not set a time limit within which the seller had to deliver and had failed to establish that a fundamental breach of contract was committed.[225] The court noted that the evidence produced by the defendant proved neither specific defects nor the unfeasibility of further use of the goods and was therefore insufficient to determine whether or not the buyer could be reasonably expected to make use of the shoes.

In the case decided by the German Supreme Court, a Dutch company had entered into four separate sales agreements for the delivery of cobalt sulfate with the buyer, a German company. It was agreed that the goods should be of British origin and that the seller should supply certificates of origin and quality. After the receipt of the documents, the buyer discovered that the sulfate came from South Africa, that the certificate of origin was wrong, and that the quality fell short of the description in the contract. The buyer several times declared the contract avoided. Both the Hamburg District Court and the Hamburg Court of Appeals held that there were no grounds for contract avoidance.[226]

Affirming the lower courts’ holdings, the German Supreme Court held that there was no fundamental breach justifying contract avoidance since the buyer could not show that the sale of the South African cobalt sulfate in Germany or abroad was not reasonably possible.[227] The defendant therefore failed to demonstrate that it was substantially deprived of what it was entitled to expect under the contract. The Supreme Court expressly rejected [page 244] the buyer’s argument on appeal that the feasibility to cure a defect is the only decisive factor in determining fundamental breach and held that unfeasibility to cure does not necessarily constitute a fundamental breach.[228]

In the absence of express terms in the contract, the Supreme Court argued that in determining fundamental breach, the remedial system of the Convention and its underlying purposes, namely to preserve the enforceability of the contract and to restrain avoidance in favor of the damage or price reduction remedies, must be taken into account. The avoidance remedy, therefore, should only be allowed as a last resort in response to a breach so serious that the non-breaching party would have lost his interest in performing the contract.[229] Finally, the Court held that the delivery of wrong certificates of origin and of quality did not amount to a fundamental breach of contract since the defendant could have obtained correct documents from other sources.[230]

The Düsseldorf Court of Appeals, in a German-Swiss dispute, held that the inability to perform constituted a fundamental breach. A Swiss buyer declared avoided a contract with a German seller to deliver a machine designed to press keys after having been informed by the manufacturer of the ordered machine that the manufacturer had terminated the distribution agreement with the seller and would not carry out delivery of the machine in question unless payments were made directly to him. The buyer then made payments directly to the manufacturer. When the seller sued the buyer for the purchase price, the buyer objected that the seller was not able to deliver the machine and therefore he — the buyer — was entitled to declare the contract avoided. The Düsseldorf Court of Appeals rejected the buyer’s arguments and held that mere non- or late delivery does not constitute a fundamental breach under article 25 provided that delivery is objectively possible and the seller was willing to deliver.[231] The Court continued that where delivery was objectively possible, but where it was obvious that [page 245] the seller for idiosyncratic reasons would not be able to deliver the goods in question (subjective impossibility), the buyer would be entitled to avoid the contract. Since none of the requirements were pertinent, the Court denied that any fundamental breach had been committed by seller.[232]

The insolvency of the buyer and the subsequent appointment of an administrator were found to have been a fundamental breach in an Australian case.[233] A German company sold tent hall structures to an Australian firm specializing in major events, such as the Australian Grand Prix and other large festivals. The buyer agreed to pay for the goods according to a set schedule but fell behind in its payments and, having encountered other financial difficulties, was placed under administration. The seller demanded that the administrator deliver up possession of the goods on the grounds that the contract of sales contained a retention of title clause, whereby title to the goods did not pass to the purchaser until the purchase price had been paid in full.[234] The administrator denied the existence of such a clause and refused to return the goods. The Court held that the fact that the company was insolvent or was likely to become so and the placement of the company [page 246] under administration resulted in such a detriment to the seller so as to substantially to deprive it of what it was entitled to expect under the contract. The denial by the administrator of a retention of title term in the contract also amounted to fundamental breach within the meaning of article 25.[235]

A party’s unwillingness to perform was the subject of an Italian-German dispute over the delivery of textiles, some of which were of a different color from that specified in the contract. After being informed by the Italian seller that he could not at that time deliver the remaining textiles of the ordered color, the German buyer declared the contract avoided. The Düsseldorf Court of Appeals held that a fundamental breach occurs if the seller declares seriously and definitely that he will not deliver substitute goods, but does not occur if he only declares that he cannot deliver at the moment.[236]

Where a party has legitimately lost his faith and confidence in the other party’s future performance and cannot be reasonably expected to continue the contractual relationship, courts have frequently found for fundamental breach. The reasons for the courts’ findings can be best classified under the following headings:

a.  Violation of Exclusive Rights By the Seller or the Buyer

The buyer’s exclusive right to market and sell shoes under a certain brand name through an Italian manufacturer was the subject of a decision [page 247] by the Frankfurt Court of Appeals.[237] The seller contracted to manufacture shoes with a trademark (“Marlboro”) to be used as a basis for further orders. The manufacturer produced the shoes and subsequently displayed them with the trademark at a fair without the buyer’s prior consent. Despite the buyer’s urgent requests, the seller refused to remove the shoes from the exhibit. The buyer, after the fair, advised the manufacturer that he was severing the relationship and would not pay for the sample shoes, which were no longer of any value to the buyer. The court found for fundamental breach on the grounds that the seller exhibited the shoes without the buyer’s consent and under circumstances indicating that they could also be ordered directly from the manufacturer. It held that, in particular, the seller’s refusal to remove the shoes at the buyer’s request gave rise to the conclusion that the seller would breach the agreement again in the future. Therefore, the buyer could not reasonably be expected to further cooperate with the manufacturer.

In three cases fundamental breach was invoked by the buyer due to an alleged violation on the part of the seller of an exclusive distribution system. The first case was decided by the Frankfurt District Court and involved another German-Italian shoe dispute where a German retailer had ordered from an Italian manufacturer through a commercial agent 120 pairs of shoes “Exclusiva su B.”[238] After delivery was effected and 20 pairs were resold, the buyer learned that identical shoes supplied by the Italian manufacturer were offered for sale by a competing retailer at a considerably lower price, in violation of his exclusive right of distribution in his home district. The buyer then returned the unsold 100 pairs. The Frankfurt District Court did [page 248] not have to decide the issue of fundamental breach since it held that there was no express declaration of avoidance of the contract. Nevertheless, the District Court noted in obiter dictum that even if the buyer was substantially deprived of what he was entitled to expect under the contract, the seller could not have foreseen such result.[239]

An alleged violation of an exclusive distribution agreement was also the subject of a recent decision rendered by the Koblenz Court of Appeals in a German-Dutch dispute over the delivery of acrylic blankets where the buyer refused any payment, inter alia, on the grounds that the seller had breached an exclusive distribution agreement.[240] The court held that the buyer lost his right to declare the contract avoided under article 49(2)(b)(i) [241] and that in fact, the buyer had never declared the contract avoided for the alleged violation. Nevertheless, the court stated in obiter that, if proven, such a violation could constitute a fundamental breach.[242]

In the above mentioned “Bonaventure” jeans case where the U.S. buyer disregarded the seller’s exclusive distribution system, the Grenoble Court of Appeals held with reference to article 73(2) [243] that the buyer’s fundamental [page 249] breach of the particular contract in question gave the seller sufficient grounds to conclude that the buyer would also fundamentally breach the contract in respect to further deliveries.[244]

b.  Uncertainty as to the Seller’s Future Performance

In two reported cases, uncertainty as to the seller’s future performance seems to have been the decisive factor in finding fundamental breach. The Hamburg Court of Appeals, in the above mentioned Chinese iron-molybdenum case, found a fundamental breach was indeed committed where the seller, after not having been able to deliver the goods within the stipulated time, asked for more time due to ongoing negotiations with his supplier either for delivery of the goods or indemnification. Such a declaration, the court held, constituted a fundamental breach since it remained uncertain for the buyer if and when seller would fulfil his obligation to deliver the goods.[245] [page 250]

In the second case, a Swiss buyer had placed an order with an Italian seller requesting that the goods be delivered within the next 10 to 15 days. Almost two months later, the seller, after asking the buyer to confirm its order, specified the purchase price and assured the buyer that all the goods would be dispatched within a week. Two months after that, the buyer had not yet received the goods. The buyer then sent the seller a notice canceling the order and demanding a refund of the price. After receiving this notice the seller delivered part of the goods. The buyer refused to accept the late and short delivery and, as the seller did not refund the purchase price, commenced legal action, claiming avoidance of the contract for breach by the seller and asked for a refund of the purchase price with interest and damages. The Italian court found that there was a fundamental breach on the grounds that, two months after ordering and paying the price, the buyer was still waiting for two thirds of the goods.[246] [page 251]

c.  Failure to Provide Security for the Purchase Price

In one of the many German-Italian disputes regarding the delivery of shoes, the Italian manufacturer demanded security for the sales price because the German buyer had still not paid the manufacturer for a previous delivery. After the buyer failed to furnish security, the seller declared the contract avoided and resold the shoes to other retailers. The seller demanded compensation for various damages caused by the breach. The Düsseldorf Court of Appeals held that the Italian seller was entitled to avoid the contract under article 72 [247] due to the German buyer’s failure to furnish security for the sales price.[248]

Similarly, and again in a German-Italian shoe dispute, the Berlin District Court found the Italian seller to be entitled to avoid the contract.[249] Here the Italian seller had already manufactured the 212 pairs of shoes ordered by a German buyer. Shortly before handing them over to the carrier, however, the seller noticed that two out of three checks concerning an earlier sale had not been honored and payment had been made only after the courts rendered respectively judgments of consent and default. The seller requested security for the payment, but the buyer refused to honor this request. Highlighting the buyer’s previous experience with the seller’s unwillingness to pay, the Court held that, prior to the date fixed for the delivery of the shoes, it was “clear” [250] that the buyer would not pay the price The court [page 252] defined “clear,” in the sense of article 72, in terms of probability. “Clear” requires that a fact be obvious to anyone. Probability close to certainty, however, is not required.[251]

d.  Making Delivery Dependent on an Unjustified Condition

A dispute between a German buyer and a Hong Kong seller was the subject of a decision by the Hamburg Chamber of Commerce Arbitration Tribunal.[252] The Hong Kong claimant and the German defendant concluded a general agreement for the exclusive delivery and distribution of Chinese goods, under which the claimant was responsible for business relations with Chinese manufacturers while the defendant was responsible for distribution of the goods in Europe. On this basis, the parties regularly concluded successive contracts of sale. In 1993, the German buyer ordered goods from the Hong Kong seller. Following prepayment and confirmation by the Hong Kong seller, the latter, owing to financial difficulties of his Chinese supplier, made delivery dependent on the payment of unpaid invoices from previous sales contracts. The tribunal found that both parties had committed a fundamental breach. It held that making delivery dependent on payment of arrears from previous sales contracts, where the parties had agreed upon prepayment of a specific order and the total sum for that had been paid, entitled the German company to avoid that order. On the other hand, the tribunal also held that the Hong Kong seller was entitled to avoid the general agreement due to the unpaid invoices, which had been due for many months.

Whether or not a breach is curable without causing the buyer unreasonable inconvenience appears to be the decisive factor in a number of decisions rendered by German, French, and Swiss courts.

The Koblenz Court of Appeals, in the above mentioned dispute over the delivery of acrylic blankets, expressly held that there is no fundamental [page 253] breach if there is a serious offer to cure the defect.[253] In that case, the buyer refused payment of the purchase price not only on the grounds that the seller had broken an exclusive distribution agreement, but also because the goods delivered were defective and 5 acrylic blankets’ rolls were missing. Attempts to settle the dispute in the presence of the Spanish manufacturer of the goods, who had offered to make a substitute delivery against payment of the purchase price, were unsuccessful. The Koblenz District Court [254] found for the seller and the appellate court affirmed the decision.[255]

With regard to the alleged non-conformity of the goods, the court held that, even if proven, such a breach of contract would not be fundamental, since the seller’s supplier had offered substitute delivery. The appellate court stated that, according to article 49(1)(a), the buyer’s right to avoid the contract generally prevailed over the seller’s right to cure under article 48(1).[256] However, referring to its underlying purposes, the court held that article 49(1)(a) only prevails if the delivery of non-conforming goods amounted to a fundamental breach. In determining fundamental breach, the court stated that regard must be had not only to the gravity of the breach, but also to the willingness of the seller to cure the defect. Where the seller is willing to make substitute delivery and such delivery would not cause the buyer unreasonable inconvenience even non-conformity of major significance does not constitute a fundamental breach.[257]

The existence of a fundamental breach was denied by the Grenoble Court of Appeals in a Franco-Portuguese dispute as to whether the Portuguese buyer was entitled to refuse partial payment of the purchase [page 254] price.[258] A French company had sold a second hand metallic hangar to a Portuguese buyer, the purchase price including the cost of dismantling and delivery. Following the buyer’s refusal to pay the last installment of the price on the grounds that the dismantled metal elements were defective, the court found that a certain quantity of the goods were not fit to be exactly reassembled, a fact expressly made known to the seller. Since that defect related to only part of the hangar and concerned metal elements which could be repaired, the court held, however, that it did not constitute a fundamental breach justifying avoidance of the contract pursuant to article 49(1)(a).[259]

The possibility of repair was also taken into account by the Munich Court of Appeals in the above mentioned case of Polish coke sold from Sweden to Germany to be shipped to Yugoslavia, which was found to be of inferior quality.[260] The court denied fundamental breach on the ground that the deviation from the description was objectively of minor significance and could be compensated for by adapting the firing process.

The Commercial Court of Zürich did not need to decide whether or not a fundamental breach occurred, since the buyer failed to notify the seller about the lack of conformity of the goods within a reasonable time.[261] The Swiss plaintiff had sold a “floating centre,” a container filled with salt water for weightless floating, to the German defendant. The buyer alleged that the container leaked, declared the contract avoided and refused to pay the outstanding balance. The seller then sued to recover the outstanding balance and the court ruled in favor of the plaintiff. After stating that the buyer had [page 255] lost its right to declare the contract avoided under article 39, the court held in obiter dictum that there would not have been a fundamental breach because the non-conformity could have been easily cured.[262]

Fundamental breach was found in a case based on how a seller tried to cure a defect and also in a case of an unsuccessful cure. In the first case, the plaintiff, an Italian tile manufacturer, had supplied the defendant, a German company, with basic tiles and corresponding decorative tiles. After it was discovered that the basic tiles were defective, the manufacturer made a second delivery, of both basic and decorative tiles, in a larger number than had been ordered, to ensure that there would be enough tiles for the buyer to complete its work. When the seller demanded payment, the buyer declared the contract avoided. The Baden-Baden District Court held that the buyer cannot reasonably be expected to open all the packages, to sort out the tiles, to examine them and see whether a sufficient number of one kind were supplied, and then to repackage them.[263] It further held that the buyer had the right to avoid the contract in its entirety because the decorative tiles were of no interest for him without the basic tiles.[264]

In the second case, the Oldenburg Court of Appeals viewed the unsuccessful attempt of an Austrian seller to repair furniture, which did not conform to the contract, as a fundamental breach, and thus held that the German buyer was entitled to avoid the contract.[265] [page 256]

D.  Conclusion (Part II)

The principle objective of this Part has been to identify the various factors employed by scholars and the courts in determining when a breach of contract is fundamental. We have seen that both employ, with some minor variations, the following criteria in determining fundamental breach:

[(a)] While factors (2) through (4) basically concern situations where non-conforming goods were delivered, factors (5) and (6) respectively apply to non-delivery and non-payment or failure to take delivery situations. The scope of factors (1) and (7) is wider and applies to all forms of breach. The latter even covers situations where no breach has occurred at all but is to be expected.

[(b)] As for the remedy-oriented approach, at first glance it appears as if the courts are more concerned with whether the goods are reasonably (re)salable, while scholars also take into account other forms of making use of the goods, such as processing, and the buyer’s risk of getting involved in a dispute over whether he observed his duty to mitigate. Since scholars, however, deny a fundamental breach when the goods, even if they cannot be used for processing, are reasonably resalable, it seems that there is, in fact, no material difference from the jurisprudence.

[(c)] With regard to the approaches, which look at the existence of an offer to cure or a possible cure, it should be noted that only in one of the reported cases, in which the courts denied the occurrence of a fundamental breach, was an offer to cure made. In all other cases, the courts denied fundamental breach on the grounds that the breach was curable without stating whether an offer to cure was made and the reported facts did not reveal such an offer. On the other hand, courts never found for fundamental breach on the grounds that the non-conformity could not be cured, and it [page 258] should be noted that the German Supreme Court, in the above mentioned South African cobalt sulfate case, held that unfeasibility to cure does not necessarily constitute a fundamental breach.[267] It seems therefore possible to conclude from the case law that while the possibility to cure usually means that the non-conformity does not constitute fundamental breach, the contrary situation, namely that the non-conformity cannot be cured, does not in itself indicate a fundamental breach.

[(d)] Courts never made express reference to the UNIDROIT Principles in any of the reported cases. Nor did the courts discuss whether the fact that the breaching party would suffer disproportionate loss as a result of the avoidance, or that the breach was intentional or reckless, as relevant in determining fundamental breach.

[(e)] In no case did the breaching party successfully invoke unforeseeability of the consequences of the breach and, consequently, the courts did not need to decide the relevant point in time at which foreseeability is measured.[268] In other words, whenever the courts concluded that the injured party was substantially deprived of what he was entitled to expect under the contract and the notice requirements according to articles 38 and 39 were met, they found that a fundamental breach had been committed.

This is hardly surprising since unforeseeability can be successfully invoked only when the aggrieved party’s special interest in the performance of the violated duty does not follow from the terms of the contract or from the negotiations between the parties prior to the conclusion. In most of the reported cases in which the courts found for fundamental breach, however, the aggrieved party’s special interest was obvious from the terms of the contract, or the aggrieved party was able to prove that it had made clear its special interest during the contract negotiations.[269] [page 259]

PART III — The Meaning of the Concept of Fundamental Breach in Light of the Text of Article 25, the Convention’s Legislative History, Context within the Convention, Underlying Purposes and the Observance of Good Faith

The success of any uniform law depends on its uniform application and, consequently, article 7(1) calls for consideration of interpretations by judges, arbitrators, and scholars in all Contracting States. Uniform application, however, is not an end in itself. Consideration of foreign decisions or scholarly writing is only permissible to the extent the foreign courts or scholars arrived at their conclusions by following the Convention’s interpretation guidelines outlined above.[270] Part III examines whether the various factors employed by scholars and the courts in determining fundamental breach can be justified by means of the Convention’s interpretive techniques. The question of whether the criteria of the UNIDROIT Principles regarding the determination of fundamental non-performance can be involved in determining fundamental breach, insofar as they deviate from the approaches employed under the Convention, is also addressed

A.  Elements Constituting “Fundamental Breach”

The primary guide to interpretation is the ordinary meaning of the words used in the Convention. Therefore, this section examines the definition of fundamental breach under article 25. Subsection 1 determines the term “breach of contract” and the elements which transforms a “simple breach of contract” into a fundamental breach. Subsection 2 focuses on the detriment suffered by one of the parties. Subsection 3 defines substantial deprivation; and subsection 4 determines the meaning of foreseeability.[page 260]

Breach of a contractual obligation, as a precondition to a finding of fundamental breach of contract, is not defined in article 25 for the purpose of the Convention. However, one can conclude from the Convention’s remedial regime [271] and article 79(1) [272] that “breach of contract” includes all forms of defective performance, as well as a complete failure to perform. It also includes both excusable and inexcusable non-performance. The contractual obligation may either be one expressly defined in the Convention (e.g., delivery at the right time,[273] at the right place [274] and of the correct goods, [275] etc.) or one created and defined by the parties as a sui generis obligation.[276] Where a transaction cannot be considered a “contract of sale,” domestic law governs the legal consequences of the breach, unless the parties have agreed that the transaction is subject to the Convention’s rules.[277] Finally, [page 261] there is no breach of contract if the promisor’s refusal to perform [278] is authorized by the Convention.

The CISG does not contain any definitions for the term "detriment." It also does not give any examples of a detriment that rises to the level of a fundamental breach.[279] It is unclear whether the detriment requires actual injury, damage or loss, and whether it refers only to material losses or to intangible losses as well. It is also unclear whether a legal detriment, as distinguished from a detriment in fact, is required.[280] Neither the French, Spanish or Russian versions of detriment,[281] nor the Secretariat Commentary on the 1978 Draft Convention, provides any greater assistance in this respect. The latter states that: The determination whether the injury is substantial must be made in the light of the circumstances of each case, e.g., the monetary value of the contract, the monetary harm caused by the breach, or the extent to which the breach interferes with other activities of the injured party.[282] [page 262]

Confronted with such vagueness, it is tempting to resort to domestic interpretation of detriment. However, that would not shed any greater light on the matter, putting aside the fact that any uncritical reference would contradict the Convention’s need for an autonomous and uniform interpretation.[283] Detriment is unfamiliar as a technical term anywhere in the common law world.[284] The same is not true with regard to the French, Spanish or Russian version. Préjudice, perjuicio, bpeg — each of these words in its domestic setting represents a common legal terminology indicating injury, damage and loss.[285] Unfortunately, these terms are obscure and offer no help in determining the elements of detriment.[286] The most persuasive approach is to view the detriment element as a mere filter for those cases in which breach of a fundamental obligation occurred but has caused no injury. For example, where the seller fails in his duty to package or insure the goods but they arrive safely, there is no detriment. If on the other hand the buyer lost a customer or the opportunity to resell the goods, there would be a detriment.[287]

A breach must cause a detriment that “substantially deprives” the aggrieved party of what he is “entitled to expect under the contract” in order for it to be fundamental.[288] The reference to the expectation under the contract [page 263] makes clear that the yardstick for breach of contract is first and foremost to be found in the express and implied terms of the contract itself. This reference leaves open the question of whether other circumstances of the case, including the negotiations, trade practices established between the parties, usages, and any subsequent conduct of the parties should also be taken into account. Moreover, it is unclear when a breach substantially deprives the aggrieved party of his expectations. Is a party, for instance, substantially deprived when he has completely lost his interest in the performance? Or does substantial deprivation require that the aggrieved party’s purpose in entering the contract be “frustrated” or the benefit of the bargain be lost due to the breach? Is the monetary injury or harm suffered by the non-breaching party decisive? Literal interpretation does not provide answers to any of these questions.

The element of foreseeability sheds no further light on the concept of fundamental breach. First, the function of the foreseeability requirement itself is unclear. From the wording of the conditional clause “unless the party in breach did not foresee and a reasonable person of the same kind in the same circumstances would not have foreseen such result,”[289] one may infer that there is a presumption of foreseeability of the consequences of the breach. It thus confirms the opinion of many scholars that foreseeability is not only a burden of proof rule, but also requires taking into account the breaching party’s knowledge or foreseeability of the harsh consequences of the breach in determining whether or not it is fundamental.[290] On the other hand, the foreseeability requirement under article 25 has a similar effect as the foreseeability requirement under the general rule for calculation of damages in article 74, since it limits the rights of the aggrieved party in the event the other party did not foresee the far-reaching consequences and helps determine the severity of the breach.[291] It therefore seems plausible to conclude that only the detriment/substantial deprivation component is what makes a breach “fundamental,” and that the foreseeability element [page 264] serves solely to exempt the breaching party from his liability for breach of the contract.[292]

Another ambiguity results from the phrase “and a reasonable person of the same kind in the same circumstances.”[293] In order to determine “foreseeability,” the subjective and objective perspective of the party in breach must be considered. Additionally, the objective perspective of the reasonable merchant in the breaching party’s position is relevant.[294] In other words, the party in breach is considered to have been able to foresee the consequences of the breach if, when objectively viewed, it is determined that he could or should have known them. But what happens when the breaching party had special knowledge and thus could have foreseen more than the average merchant? The conjunction “and,” makes it possible to conclude that such special knowledge cannot be taken into account, allowing the breaching party to escape a finding of fundamental breach by hiding behind the paradigm of the reasonable person of the same kind in the same circumstances.[295]

Finally, the text of article 25 does not expressly address the point in time at which the foreseeability standard is to be applied. The use of the present tense “[a] breach of contract committed . . . is fundamental if it results” in depriving the other party “of what he is entitled to expect under the contract” makes it possible to conclude that a judge should place himself at the time the breach of contract has occurred.[296] Likewise, where article 25 states “unless the party in breach did not foresee . . . such a result” it would [page 265] appear that one should be placed at the time of the breach.[297] The French, Spanish and Russian text of article 25, however, give rise to a different conclusion.[298] The use of the past tense “était” instead of “est,” “tenia” instead of “tiene,” and “byla” instead of “yest” in the French, Spanish and Russian texts, respectively, conveys the impression that the formation of the contract is the relevant point in time to determine foreseeability.[299] This view is confirmed by the reference to the rights which the aggrieved party was entitled to expect under the contract.[300]

This section illustrates that the meaning of the elements constituting fundamental breach is not evident. The same is true for other official texts of the Convention, namely the French, Spanish and Russian versions. Therefore, the literal method of interpretation does not offer much guidance in answering the question of which of the various factors enumerated [page 266] above can be employed in determining fundamental breach. However, with regard to these factors, the following conclusions seem possible:

(1) Reference to the expectations under the contract support the employment of those factors which focus on the terms of the contract itself in determining fundamental breach; the nature of the contractual obligation.

(2) When one considers that a buyer purchases goods for some purpose, the severity of a breach may be evaluated in the light of whether the purpose of the contract is frustrated or whether the aggrieved party lost his interest due to the fact that the goods do not possess the features necessary for the intended use.

(3) The remedy-oriented approach is not excluded by the wording of article 25. Here one could argue that businessmen generally enter into commercial contracts for purely economic reasons and can therefore be fully compensated by damages for any loss resulting from the breach. They are only substantially deprived of their expectations if they can not be fully compensated with damages. By the same token, employment of an offer to cure or the possibility of cure is not excluded by the wording of article 25. Where the requirements of article 48(1) are met, the repair is possible within a reasonable time without causing the aggrieved party unreasonable inconvenience or uncertainty of reimbursement of expenses, the aggrieved party is not substantially deprived of his expectations.

(4) Demonstration of a monetary loss suffered by the aggrieved party cannot be used to justify the remedy-oriented approach. Employing this factor would impose a heavy burden on the aggrieved party to prove his substantial deprivation. Any determination of fundamental breach by reference to monetary loss would seem to be arbitrary since it is unclear when the loss amounts to a substantial deprivation. Is it required that the loss caused by the breach result in 50% or more of the monetary value of the contract? Or could a lesser percentage suffice? On the other hand, to require that the aggrieved party must have suffered a loss of more than 50% of the monetary value of the contract could not be justified etymologically.[301] [page 267]

(5) The wording of article 25 does not prohibit consideration of the parties’ ability or willingness to perform because total non-performance can be considered a breach which strikes at the root of the contract. A contract of sale is generally concluded for the very purpose of exchanging goods in return for consideration and if such exchange does not take place then the purpose of the contract is frustrated.

(6) The employment of the no-reliance factor also seems permissible where the breach or conduct creates uncertainty as to one party’s future performance and where, as a consequence, the other party loses his interest in the contract. For the same reason, the [UNIDROIT] factor focusing on whether the breach was committed intentionally seems legitimate.[302] The other [UNIDROIT] factor looks to whether the breaching party would suffer disproportionate loss when the breach is treated as fundamental. This factor cannot be supported by the wording of article 25. The concerns expressed in respect to the approach focusing on the monetary loss suffered by the aggrieved party also apply to this approach. It is not clear under which circumstances a breaching party’s loss becomes significant, and therefore any determination of fundamental breach would be arbitrary. In addition, the UNIDROIT factor is aimed at limiting the exercise of the right of avoidance, not at determining fundamental breach. In other words, it limits the availability of the avoidance remedy in spite of the existence of a fundamental breach but it does not prevent a breach from being fundamental. It therefore is inappropriate to use it as a factor in determining fundamental breach [under the Convention].

B.  The Meaning of the Concept of Fundamental Breach in Light of the Convention’s Legislative History

Interpretation by way of legislative history seeks to resolve inherent ambiguities in a provision by considering the drafter’s motives and deliberations as evidenced in the officially published preparatory works. To that end, [page 268] this section looks briefly at the history of the concept of fundamental breach as a principle of uniform sales law. Subsection 1 deals with the deliberations within the UN Commission on International Trade Law (UNCITRAL) based on an analysis of the corresponding concept under the Convention Relating to a Uniform Law on the International Sale of Goods (ULIS).[303] Subsection 2 examines the Official Records of the Vienna Diplomatic Conference proceedings and the preliminary discussions within UNCITRAL and its Working Group, reproduced in the UNCITRAL yearbooks.

The notion of making the parties’ right to terminate a contract dependent on the seriousness of the breach can be traced back to 1930 when the International Institute for the Unification of Private Law in Rome (UNIDROIT) appointed a committee to prepare a uniform law on international sales.[304] The early draft of 1939, however, did not contain a single concept of breach of contract applicable to violation of an obligation by any party to the contract. Instead, breach of contract was conceived as being a breach of a particular contractual obligation, such as the obligation to deliver or to take delivery.[305] Moreover, the remedial system resembled that of traditional English common law in that it gave the aggrieved party the right [page 269] to avoid the contract only in cases where the term violated could be classified as a condition.[306] The notion of fundamental breach of contract as an all-embracing concept was first introduced during the preparatory work for ULIS and was included in the Drafts of 1956 and 1963.[307]

The ULIS text adopted at the 1964 Hague Conference was further developed. ULIS Article 10 provided the following definition of a fundamental breach:[308]

The review of the preparatory works of the Convention is structured as follows. Section “a” looks at the attempts within UNCITRAL and at the Diplomatic Conference to define the concept of fundamental breach. Section “b” focuses on the existence of an offer to cure. This section discusses the relationship between the fundamental nature of a breach and the seller’s right to cure.

a.  Definition of Fundamental Breach

Already at the Hague Conference, the concept of fundamental breach under ULIS Article 10 was criticized on the grounds that it was too subjective, in that it relied on a test that required the breaching party to anticipate whether or not the non-breaching party would have entered into the contract had he foreseen the breach.[309] [page 271]

During the preparatory work for the Convention, ULIS article 10 was once again the object of criticism. States and organizations objected to the ULIS definition on the grounds that it was too complex, and its subjective standards would be difficult to apply.[310] As a result, the UNCITRAL Working Group, based on a Mexican proposal, eliminated the subjective test as well as the related speculative element as to whether a “reasonable person” would have “entered into the contract if he had foreseen the breach and its effects.”[311] Instead, the Working Group proposed a single objective criterion of whether the breach substantially impaired the value of the performance [page 272] required by the contract.[312] This purely objective test was further developed and led to the following definition of fundamental breach:

In its comment on article 9, the Government of the Philippines expressed dissatisfaction with the idea that the breaching party had to foresee the substantial detriment.[314] In case of litigation, the burden of proof would thus be on the non-breaching party. This was not considered a proper solution because it would be extremely difficult for the non-breaching party to prove that the party in breach “foresaw or had reason to foresee such a result.”[315] The United States echoed this criticism, and both the Philippines’ and the United States’ delegates to UNCITRAL suggested that the final phrase of article 9 should be reworded to read “unless the party in breach did not foresee and had no reason to foresee such a result.”[316] This suggestion was approved by a majority of the members of UNCITRAL and the definition of “fundamental breach,” as embodied under article 23 in the 1978 Draft Convention, thus reads:[page 273]

Unlike ULIS article 10, the proposed text did not deal with the issue of the relevant time at which it was possible to foresee the result and UNCITRAL did not consider it necessary to specify at what moment the party in breach should have foreseen or had reason to foresee the consequences of the breach.[318]

At the Vienna Conference, the Federal Republic of Germany,[319] Czechoslovakia,[320] Pakistan,[321] the United Kingdom,[322] Egypt,[323] Turkey,[324] [page 274] and India [325] submitted amendments to Draft article 23. What follows is a summary of those proposed amendments.

Having taken into account the amendments of the delegations of Pakistan and the Federal Republic of Germany, the ad hoc working group, Hungary dissenting, submitted the following text:

The text of the ad hoc working group was hotly debated. Many delegations were of the opinion that the text was no clearer than the existing formula “substantial detriment to the other party.”[361] Moreover, some of them criticized the new text as being more subjective than the previous one.[362] The majority of delegations, however, took the exact opposite view. They argued that the reference to the expectations of the non-breaching party under the contract was an additional element of objectivity and, thus, some of the previous definition’s vagueness was eliminated.[363] The proposal of the ad hoc working group was finally adopted by 22 votes in favor and 18 [page 281] against, and, together with the amendment by Egypt, was referred to the Drafting Committee.[364]

In the Drafting Committee, the wording “substantially impair his expectations” under the contract proved unacceptable to the representatives of the civil law countries.[365] Their representatives had suggested, that, rather than referring to expectations under the contract, the article should speak of the interests of one of the parties. However, that proposal was not acceptable to the representatives of the common law countries.[366] The Drafting Committee finally arrived at the present definition of fundamental breach, which represented a compromise acceptable to every one.[367] This definition was adopted at the Plenary Conference by 42 votes to 2, with two abstentions.[368]

b.  Relationship to the Seller’s Right to Cure

During the preparatory work for the Convention several proposals to clarify the relationship between the seller’s right to cure and the buyer’s right to avoid a contract were made.[369] The central issue in discussing these proposals [page 282] was whether the buyer may preclude the seller from curing any failure to perform his obligations where cure can be effected without causing the buyer unreasonable inconvenience or unreasonable expense. This issue was discussed in the context of a defect in the goods which, in the absence of repair, was so serious as to constitute a fundamental breach, but where the delay in remedying that defect would neither contribute a fundamental breach, nor even cause the buyer unreasonable inconvenience or expense.[370]

None of these proposals, however, was adopted. The first unsuccessful attempt was made at the Sixth Session of the Working Group. The Working Group rejected the proposal to add to proposed article [43 bis] [antecedent to article 25 of the Official Text] the words “on account of delay” following the words “unless the buyer.”[371] The effect would have been that the buyer could have avoided the contract and thereby cut off the seller’s right only if delivery was late.[372]

The second unsuccessful attempt to curtail the buyer’s right of avoidance was made within UNCITRAL. In the discussion of the various proposals [373] to amend article [43 bis], then renumbered as article 29 [antecedent to article 48 of the Official Text], some delegates took the view [page 283] that the seller’s right to cure should take precedence over the buyer’s right to avoid. Such a rule would promote the upholding of contracts and prevent the unnecessary expense to the seller of avoidance where the defect could be quickly cured. The buyer would be protected by the fact that the seller’s right would only operate where cure could be effected without such delay as would constitute a fundamental breach and only where the cure did not cause the buyer unreasonable inconvenience or expense.[374]

Another view was that if the defect could be cured easily there would be no fundamental breach of contract, since the notion of fundamental breach must be considered both in light of the defect itself as well as the possibility to cure.[375] It was pointed out that this result, however, would not be evident in many common law jurisdictions if the words “unless the buyer has declared the contract avoided in accordance with article 30 [antecedent to article 49 of the Official Text]” were retained in article 29(1).[376]

There was considerable opposition within UNCITRAL, however, to the idea that the buyer’s right to declare the contract avoided could be affected by an offer to cure the defect. Any possibility to cure was viewed as a privilege, which should depend upon the consent of the buyer, who always has the right to declare the contract avoided. UNCITRAL, after considerable deliberations, adopted in principle the following proposal:

In light of the foregoing discussion, UNCITRAL reconsidered the definition of fundamental breach contained in article 9 [antecedent to article 25 of the Official Text] and the U.S. delegation proposed that article 9 read as follows (new language in italics):

In support of this proposal, the U.S. delegation argued that the proposed addition to article 9 would protect against a technical avoidance of the contract when there had been an offer to cure under article 29.[379] However, others took the view that this change was unnecessary because the conditions governing an offer by the seller to cure were governed by article 29 and, if there was no offer to cure, the situation was governed by article 9.[380] Accordingly, the proposal was found to be superfluous.[381] UNCITRAL did not retain the proposal and finally arrived at the following text, then renumbered as 1978 Draft article 44(1):

(a)  Amendments

The controversy over the relationship between the buyer’s right to avoid and the seller’s right to cure continued at the Vienna Diplomatic Conference, where amendments were submitted to Draft article 44(1) by the Federal Republic of Germany,[383] Singapore,[384] Bulgaria,[385] Japan,[386] and the United States of America.[387] These amendments were to the following effect:

(b)  Joint Proposal of the Members of the ad hoc Working Group

The Working Group, consisting of the representatives of Bulgaria, Canada, the German Democratic Republic, the Federal Republic of Germany, the Netherlands, Norway, and the United States of America submitted the following joint proposal:[page 289]

The delegations of Bulgaria and Norway explained the joint proposal. The representative of the Bulgarian delegation emphasized that it was intended [page 290] to guarantee the seller’s right to remedy a failure to perform while at the same time safeguarding the legitimate interests of the buyer, who must be assured that the contract would be executed.[409] Explaining the different alternatives, the Norwegian delegation stressed that Alternative II deleted the reference to fundamental breach. It also made Draft article 44 subject to Draft article 45, since the buyer must preserve his right to declare the contract avoided. The formula of unreasonable delay replaced that of delay “not amounting to a fundamental breach,” since the new formula was more flexible and offered a remedy which suspended the buyer’s actual avoidance of the contract under Draft article 45.[410]

Having been criticized for introducing new conditions and elements,[411] Alternative I of the joint proposal was rejected by 7 votes in favor and 17 against.[412] Paragraph (1) of Alternative II of the joint proposal was adopted in place of paragraph (1) as adopted by the Commission by 19 votes in favor and 7 against.[413] A Greek proposal to replace the words “[s]ubject to [Draft] article 45” at the beginning of paragraph (1) of alternative II with the words “[s]ubject to the contract not having been declared avoided in accordance with [Draft] article 45” found no support.[414] At the Plenary Conference Draft article 44 was adopted in toto by 42 votes to 2, with two abstentions.[415] [page 291]

The examination of the legislative history has demonstrated that the drafters of the Convention were primarily concerned with formulating a text which would provide a more objective test in determining fundamental breach, as under ULIS article 10.[416] To that end, they introduced a “reasonable person” standard and made express reference to the aggrieved party’s “expectation under the contract.” With regard to the various factors employed in determining the fundamental nature of a breach, the Convention’s legislative history gives rise to the following analysis:

(1) The debate over the German proposal which, together with the Pakistani proposal, formed the basis for reference to the aggrieved party’s “expectation under the contract” makes clear that not only are terms of the contract relevant in the determination of fundamental breach, but so too are the surrounding circumstances. The travaux préparatoires of article 25 thus confirms the approach which employs the nature of the contractual obligation as a relevant factor in the determination of fundamental breach.

(2) One must ask whether the remedy-oriented approach is excluded by the fierce criticism of the United Kingdom’s proposal and its subsequent withdrawal. In the present writer’s view, this question cannot be answered in the affirmative. The proposal of the United Kingdom was intended to introduce the notion of adequacy of damages to the Convention. This principle is applied under Common Law to determine the availability of specific performance, whereas the Convention’s remedies depend on a fundamental breach, namely avoidance or substitute delivery.[417] The basic approach under the Common Law is that specific performance is a discretionary remedy available only when damages are inadequate.[418] Such inadequacy is present, for example, where the object of a contract is unique and cannot be [page 292] duplicated, or where obtaining a substantial equivalent involves difficulty, delay, or inconvenience.[419] Another factor taken into account is the difficulty of assessing and recovering damages.[420] Even where there is no difficulty in qualifying the loss, damages may be inadequate as a remedy because the aggrieved party’s loss is difficult to prove,[421] certain items of loss may not be legally recoverable,[422] only nominal damages would be claimable,[423] or simply because the debtor may not be “good for the money.”[424]

Ignoring the fact that not all of these factors are applicable in connection with the remedies of avoidance and substitute delivery,[425] the remedy-oriented approach as introduced by (civilian) scholars and (civilian) courts cannot be compared with the Common Law doctrine of adequacy of damages. It does not introduce any test of adequacy of damages in the sense that avoidance or substitute delivery could only be required if damages were an inadequate remedy. The emphasis is instead on whether the aggrieved party, under the circumstances, needs this remedy — as opposed to damages — to compensate for the detriment.[426]

It is true that some factors, such as difficulty in assessing damages, are significant under both the Common Law damage remedy and the remedy-oriented approach.[427] The Common Law remedy, however, does not make specific performance available on the grounds that it is unreasonable for the buyer to run the risk of engaging in a dispute with the seller as to whether goods sold for a reasonable price and in compliance with the duty to mitigate. On the contrary, under the Common Law one argument to support the existing doctrine is that the breaching party would lose the [page 293] benefit of the mitigation rule if specific performance were the primary remedy.[428]

Moreover, the doctrinal basis and rationale for the remedy-oriented approach is completely different than the Common Law notion of adequacy of damages. The Common Law doctrine is rooted in the historical and jurisdictional conflict between Common Law courts and the Courts of Equity and the reluctance to use the process of contempt of court to redress private wrongs where less drastic methods of enforcement could provide adequate justice for the plaintiff.[429] At present, based on the notion of contract law as a means of promoting economic efficiency, scholars increasingly justify this doctrine on economic grounds. They argue that the total cost of a breach is minimized by recognizing a right to break contracts, so long as the breaching party is able to fully compensate and reinstate the innocent party to their pre-contract position.[430] The remedy-oriented approach introduced by scholars and courts, on the other hand, is primarily based on the notion that avoidance and substitute delivery should be last-resort remedies used to preserve the contract, if at all feasible, and to avoid economic waste in international trade.[431]

Aside from these theoretical arguments, one must also consider that the United Kingdom proposal was not formally put to vote. Admittedly, it was apparent that the proposal would not receive the necessary support of the delegates at the Diplomatic Conference and that the United Kingdom’s delegation withdrew it for that reason. The lack of support, however, does not mean that the adequacy of damages factor cannot at all be employed in determining fundamental breach. What one can conclude from the opposition to this proposal is that the adequacy of damages should not be the exclusive relevant factor. The remedy-oriented approach is therefore not excluded by the legislative history of the concept of fundamental breach.[page 294]

(3) The discussion of the relationship between the seller’s right to cure and the buyer’s right to avoidance during the deliberations within UNCITRAL and at the Diplomatic Conference does preclude an approach which determines fundamental breach in the light of an offer to cure. No proposal aimed at precluding the buyer’s right to avoidance in favor of the seller’s right to cure was adopted. It might be true, as some authors argue, that the rejection of the U.S. proposal to amend the definition of fundamental breach within UNCITRAL was partly based on misunderstandings.[432] This argument, however, does not apply to the rejection of various proposals made at the Diplomatic Conference where the controversy over the effect of an offer to cure continued.

Moreover, the majority of the delegations to the Diplomatic Conference expressed that the right to cure should not prevail over the right to avoidance, although admittedly only in a preliminary vote. On the other hand, this vote becomes conclusive if viewed in conjunction with the failure to incorporate language into the cure provision which would have given the buyer’s right to cure priority. Therefore, any recourse to an existing offer to cure could only be considered a distortion of the Convention’s legislative history.

(4) The question remains, however, if the possibility to cure approach is also excluded by the travaux préparatoires. Whether the mere possibility of cure prevents a breach from being fundamental was not discussed. The controversies within UNCITRAL and at the Diplomatic Conference arose primarily out of the fact that article 48(1) gives only the seller the right to cure and, therefore, an offer must be made by him. The approach focusing on whether cure is possible, however, only looks at the curability of the breach in general. It requires neither an offer to cure by the seller nor a guarantee that he will carry it out. Rather, the buyer can charge another [page 295] person to remedy the defect or remedy it himself and claim damages. Thus, it seems possible to argue that this approach is not excluded by the Convention’s legislative history.

(5) In considering the relevant time when the party in breach had to foresee or should have foreseen the detrimental consequences to the other party, the legislative history, at first glance, seems to oppose the approach which focuses on the formation of the contract. One might follow from the deliberations within UNCITRAL and the subsequent withdrawal of the United Kingdom proposal at the Diplomatic Conference (which would have made the formation of the contract the determining point in time), that information must be taken into account if it refers to the other party‘s special interest and is received by the breaching party after the conclusion of the contract. On the other hand, as rightly pointed out by one author, the opposing viewpoints in the discussion at the Diplomatic Conference were still based on the objective fundamental breach definition in article 23 of the 1978 Draft Convention, which stated that the extent of the detriment was the only determinative factor.[433] It is therefore possible to conclude that the present version, in which the decisive factor is the interest of the party concerned, as fixed by the terms of the contract, also permits the conclusion of the contract as the relevant time to evaluate foreseeability.[434]

(6) The Convention’s legislative history provides no assistance concerning the permissibility of using the other approaches for the purpose of determining fundamental breach. Whether the legislative history of the various cross-references to fundamental breach in other provisions offers any help will be examined in the next section.

B.  The Concept of “Fundamental Breach” in Context

The method of systematic interpretation requires analysis of a provision within its context and in relation to other provisions. This method is primarily aimed at avoiding conflicting interpretations within a given instrument, and in most cases it can only confirm the correctness of a possible interpretation already achieved through analysis of wording and the legislative history of the provision in question. The following analysis thus focuses on whether the different factors (including the additional criteria [page 296] provided by the UNIDROIT Principles) employed to determine fundamental breach conform to the structure of the Convention’s remedial system. This section will analyze: [(1) the remedial systems of the Convention; (2)] the various cross-references to fundamental breach; [(3)] the few provisions under the Convention which give parties the right to avoidance without requiring a fundamental breach; [(4)] possible limitations on the concept of fundamental breach; [(5)] whether the regime of the seller’s obligations under the Convention may influence the definition of fundamental breach.

a.  Uniform Concept of Breach and the Notion of Fundamental Breach

The Convention provides a section on remedies available to each of the parties. Article 45(1) gives an overview of the remedies available to the buyer in the event of breach, namely specific performance (in the form of the right to delivery, substitute delivery and repair), avoidance, compensatory damages, and reduction in price.[435] The seller’s remedies are enumerated at article 61(1).[436] They differ from the remedies available to the buyer for obvious reasons in two respects. First, the remedy of claiming a reduction in price is not available to the seller. Second, there is no need for substitutional performance or the requirement that the buyer cure a defect in his performance.[437] [page 297]

Under the Convention, the notion of breach of contract covers all failures of a party to perform any obligation, without regard for whether the obligation has its origin in the contract, in usage, or in the Convention itself. Moreover, there is no distinction between “main” and “subordinate” obligations.[438]

Unlike under ULIS, the remedies available under the Convention are not effected by a particular type of breach.[439] In general, the type of the breach is of no importance in determining which remedies are available under the Convention. This principle is subject to two exceptions. First, substitute delivery and reduction in price are only available in case of the delivery of non-conforming goods. It is disputed whether goods, which are not free of third-party rights (in the sense of articles 41 and 42), can be considered non-conforming.[440] Secondly, in cases of non-delivery and non-payment or failure to take delivery, the buyer’s or the seller’s right of avoidance, respectively, is subject to a “Nachfrist-type procedure,” which allows avoidance only after having fixed a reasonable length of time for the defaulting party to remedy his non-performance.[441] [page 298]

Under the Convention, apart from the damages remedy, avoidance and substitute delivery are only available when a fundamental breach occurs. Thus, it seems plausible to conclude that the starting point of the Convention’s remedial system is that damages are adequate to compensate the aggrieved party, and that avoidance and substitute delivery are last-resort remedies available only when damages are inadequate. The structure of the Convention’s remedial system, therefore, supports the remedy-oriented approach introduced by scholars and the courts,[442] which applies to situations where non-conforming goods were delivered. By the same token, it allows the conclusion that the amount of damages suffered is not decisive in the determination of fundamental breach.

It should also be noted that under the Convention, “fault” is not generally a prerequisite to a finding of contractual liability and that this principle is as true with respect to the right to avoid the contract as it is to the right to require substitute delivery or to claim damages. Neither remedy depends on “fault” in the sense of deliberate or negligent wrongdoing. Consequently, there is no room for the application of the approach found in the UNIDROIT Principles treating intentional non-performance as fundamental.[443]

b.  The Concept of Fundamental Breach and Party Autonomy (Article 6)

The principle of freedom of contract as set out in article 6 is one of the cornerstone principles of the Convention.[444] According to article 6,

The debates of the Vienna Diplomatic Conference confirm that article 6 is to be interpreted at face value and that parties may indeed derogate from or vary the effect of any provision of the Convention with the exception of article 12, article 28, and the final provisions (articles 89 to 101).[445] [page 299] A suggestion that the principle of party autonomy be limited by the concept of good faith was rejected with relatively little debate.[446] Accordingly, not only may the parties determine the content and extent of their obligations by adopting contractual provisions that vary from the default rules in the Convention, but they may also indicate the circumstances under which the failure to perform by one party amounts to a fundamental breach. The principle of party autonomy thus requires looking at the nature of the contractual obligation for which strict performance might be essential.

There are several cross-references to the concept of fundamental breach in the Convention: articles 46(2), 49(1)(a), 51(2), 64(1)(a), 72(1),[page 300] 73(1), and (2).[447] Except for article 46(2), which is concerned with substitute delivery, all of the provisions deal with the right of the parties to avoid the contract in specific situations. First, we will examine the various avoidance provisions and then we will analyze the buyer’s right to demand substitute delivery.

a.  Fundamental Breach and Avoidance of the Contract

Articles 49(1)(a) and 51(2) deal with fundamental breach committed by the seller.

According to article 49(1)(a), the buyer may declare

When the seller delivers only a part of the goods, or if only a part of the goods delivered conforms to the contract, article 51(2) provides that:

The express reference to the “obligations under the contract” in article 49(1)(a) confirms the approach focusing on the nature of the contract terms in determining fundamental breach.

It has been argued that, under article 51(2), one important factor in determining whether the non-conformity of some of the goods or the incomplete delivery entitles the buyer to avoid the entire contract is if the breach renders the intended use of the remainder impossible.[448] Article [page 301] 51(2) therefore seems to support, at least in situations where the failure to make delivery completely or in conformity with the contract, the approach which asks whether the purpose of the contract has been frustrated by the breach.

Article 64(1)(a) deals with the buyer’s fundamental breach and runs parallel to article 49(1)(a).[449] It therefore does not add anything to the analysis of article 49(1)(a).

Article 72 allows a contract to be avoided when one party’s breach is anticipated by the other. It reads:

The text of paragraph (1) itself does not offer much assistance in the determination of fundamental breach.[450] In the context of paragraph (3), it is possible to conclude that those cases where it is clear that the promisor will not perform his future obligations are envisaged by the reference to fundamental breach under paragraph (1).[451] The question remains, however, which particular act or occurrence justifies the conclusion that the promisor will not perform? Is the application of article 72(1) limited to cases in which non-performance is absolutely certain? If so, the right to avoidance should be granted only where the promisor is unable to perform. But what then would be the function of paragraphs (2) and (3)?

At first glance, it seems that paragraph (2) limits the right of avoidance to those cases in which the promisor fails to provide adequate assurance following a reasonable notice by the promisee, and that paragraph (3) exempts the promisee from the notice requirement in case of the promisor’s refusal to perform.[452] [page 303]

The Secretariat Commentary on the Draft article 63 [453] shows confirmation of such an understanding. Since article 72(1) is identical with Draft article 63, with the one exception that the Official Text refers to “a fundamental breach of contract” rather than a “fundamental breach,” the Secretariat Commentary is of special relevance. It states, inter alia, that:

In the absence of such “clear” cases, the Secretary Commentary states that:

Draft Article 62(3) [antecedent to article 71(3) of the Official Text], which deals with the parties’ right to suspend performance, on the other hand, provides that:

The text of Draft article 62(3) does not substantially differ from paragraph (2) of article 72. It was added to this article only at the Vienna Diplomatic [page 304] Conference in order to address concerns of developing countries who expressed fears that the power of avoidance might be abused.[457] In the light of these comments, it is therefore possible to conclude that the promisor’s failure to provide adequate assurance in accordance with paragraph (2) of article 72 makes it “clear” that he will commit a fundamental breach.[458]

This conclusion, however, gives rise to further questions: (1) Under which circumstances is the promisee entitled to demand adequate assurance of performance from the promisor and what constitutes an adequate assurance? (2) Is the right of avoidance under article 72, where there is no indication that performance is impossible or that the promisor will fail to perform, limited to those cases in which the promisor fails to provide adequate assurance?

What constitutes an adequate assurance varies depending on the circumstances, including the standing and integrity of the promisor, his previous conduct in relation to the contract, and the nature of the event that [page 305] creates uncertainty as to his ability and willingness to perform.[459] In general, for such an assurance to be “adequate,” it must give reasonable security to the promisee that either the promisor will perform in fact, or that the promisee will be compensated for all losses incurred in executing his own performance.[460] In practice, there will be very few cases where a mere statement of intention and ability to perform provides adequate assurance to the promisee.[461]

In most instances a new term of payment against documents, a guarantee by a reputable bank, or a letter of credit issued by a reputable bank will be required.[462]

When the promisor must provide such assurance depends on the circumstances surrounding the risk of non-performance. In light of the serious economic consequences arising out of the failure to comply with the assurance obligation, a subjective fear by the promisee will not justify a demand for adequate assurance.[463] Rather, as under article 71(1),[464] which sets out the circumstances permitting the parties’ right to suspend performance, there must be objective grounds showing a high degree of probability that the promisor will not perform a substantial part of his obligations.[465] It is required that there be a serious deficiency in the promisor’s ability to perform or in his creditworthiness or it must follow from his conduct in preparing to perform or in performing the contract.[466] [page 306]

For example, a buyer’s history of making late payments on other contracts might indicate a serious deterioration in his creditworthiness, entitling the seller to ask for adequate assurance.[467] On the other hand, the mere fact that the seller made defective deliveries to other buyers with similar needs does not authorize the buyer to ask for assurance. However, if the cause of the seller’s defective deliveries to other buyers was the result of using a raw material from a particular source, indications that the seller is preparing to use the raw material from the same source would give the buyer the right to demand adequate assurance.[468]

It is unclear whether avoidance based on article 72 is limited to those cases where the promisor fails to provide adequate assurance after having received a reasonable notice. Neither the wording nor the legislative history supports or excludes such a reading.[469] With regard to anticipated non-delivery, non-payment, or failure to take delivery, the synchronism between article 72 and articles 49(1)(b), 64(1)(b) seems to support it. Failure to provide [page 307] adequate assurance and [failure] to respond to a Nachfrist notice present analogous questions because the underlying purposes and function of a Nachfrist notice and a demand for adequate assurance are analogous. Both are aimed at preserving the contract by giving the promisor the opportunity to remove the performance obstacles which give rise to the right to avoidance.[470] While the “Nachfrist-type” procedure eliminates uncertainty when performance is overdue, the adequate-assurance procedure eliminates uncertainty concerning performance that is not yet due.[471]

Although the “Nachfrist-type” procedure is not applicable to the delivery of non-conforming goods, the arguments supporting an interpretation of article 72 analogous to articles 49(1)(b) and 64(1)(b) also apply to the anticipated delivery of non-conforming goods. Making avoidance dependent on a failure to provide adequate assurance would not only help preserve the enforceability of the contract, but also eliminate uncertainty as to when the anticipated delivery of non-conforming goods justifies avoidance. Therefore, it seems plausible to argue that, except for cases where the promisor is unable [472] or unwilling [473] to perform or where the circumstances [page 308] would not allow for reasonable notice,[474] avoidance may only be based on the failure of the promisor to provide adequate assurance in compliance with a reasonable notice.[475]

In sum, article 72 confirms the approach that employs the parties’ (in)ability and (un)willingness to perform as a relevant factor in the determination of fundamental breach prior to the date of performance. It also confirms the approach that focuses on whether a party’s behavior may give cause to the other not to rely on his future performance. In this writer’s opinion, the absence of reliance, however, must be founded on a failure to provide adequate assurance of one party’s performance so as to allow the other party to avoid the contract.[page 309]

Article 73 governs the avoidance of installment sales. While paragraph (1) of article 73 basically repeats the contents of articles 49(1)(a) and 64(1)(a) with respect to the parties’ failure to perform a particular installment,[476] paragraph (2) deals with future installments. The latter paragraph entitles the aggrieved party to declare the installment contract avoided for the future if the promisor’s failure to perform any of his obligations in respect of any delivery gives [the aggrieved party] good grounds to conclude that a fundamental breach of contract will occur with respect to future installments.

As under article 72(1), paragraph (2) of article 73 does not itself provide any assistance to determine when a particular act or occurrence justifies the conclusion that a fundamental breach is to be expected.[477] The formulation “good grounds to conclude” seems to require a less strict and more subjective standard for avoidance than under article 72(1).[478] This reading [page 310] is confirmed by the Secretariat Commentary on the 1978 Draft version of article 73(2), which is identical with the Official Text. It is expressly stated with reference to the 1978 Draft version of article 72(1) that avoidance of the contract in respect of future deliveries is permitted even though it is not “clear” that there will be a fundamental breach.[479]

The grounds for the assumption that a fundamental breach will occur are different under article 73 from those under article 72. Neither the promisor’s failure to provide adequate assurance on demand due to a deterioration of creditworthiness, nor his declaration that he will not perform, give the promisee the right to avoid the contract. An actual failure to perform must instead be the basis for avoidance of future installments.[480]

Thus, as far as it concerns future installments, article 73(2) does not support the approach that considers a party’s refusal to perform itself as a fundamental breach. It confirms, however, the no-reliance approach based on an actual breach.

b.  The Concept of Fundamental Breach and the Duty to Deliver Substitute Goods (Article 46(2))

Article 46(2) specifically addresses the buyer’s right to demand specific performance.[481] It gives the buyer the right to substitute delivery [page 311] where the lack of conformity constitutes a fundamental breach of contract.[482]

Since this remedy applies only to the delivery of non-conforming goods and requires that delivery actually have occurred, article 46(2) does not apply when the seller has not delivered at all. In such a case the buyer has “only” the general right to demand specific performance under article 46(1). Consequently, the approach focusing on one party’s (in)ability or (un)willingness to perform as relevant factors in the determination of fundamental breach cannot be employed. Neither can the no-reliance approach be employed under article 46(2) since, as under articles 49(1)(a), 51(2) and 64(1)(a), no future performance is due other than the remedying of the non-conforming goods.

The approach of the UNIDROIT Principles, which focuses on whether the breaching party will suffer disproportionate loss as a result of the preparation for performance if the contract is avoided, has not been introduced into the Convention. The rationale for that approach, namely to regard non-performance after the preparation as a factor in favor of fundamental breach (as opposed to non-performance before such preparation),[483] has not been reported as a subject of deliberations within UNCITRAL or at the Vienna Diplomatic Conference.

As for the buyer’s right to substitute delivery, however, consideration was given to limit the exercise of this right to avoid hardship on the seller. Since the seller is in the same economic position as when the buyer chose avoidance of the contract,[484] it seems useful to examine the legislative history [page 312]of Article 46(2) and decide whether it can support the application of the UNIDROIT Principles approach.

(a)  Deliberations within UNCITRAL

During the preparatory work for the Convention there was some controversy as to whether or not the buyer’s right to demand cure should be made explicit in the text, and whether there should be any limitations on the exercise of the buyer’s rights to demand cure and substitute delivery. Under one view, the right to require cure should be limited to cases of fundamental breach and, if the goods have been delivered, the cure should not cause the seller unreasonable inconvenience or unreasonable expense.[485] Another view was that there should be no limitations on the right of the “innocent” party to require that the party in breach perform the contract.[486] A Special Working Group then proposed the following limitations on the buyer’s right to demand cure and substitute delivery.[487]

In support of the proposed text, it was stated, inter alia, that if the costs to the seller of curing defects or supplying substitute goods were prohibitive, then the buyer should be compelled to accept damages.[488] This rule would coincide with the principle of mitigation of damages set forth in article 59 [antecedent to article 77 of the Convention].[489] Those who opposed the proposed [page 313] text reiterated that the right to demand performance should not be subject to any pre-conditions.[490] UNCITRAL did not retain the proposal [491] and accordingly no limitation on the exercise of the buyer’s right to substitute delivery was introduced in the text of the 1978 Draft Convention.[492]

(b)  First Committee Deliberations and the Decisions by the Plenary Conference

The controversy continued at the Vienna Diplomatic Conference. The amendments submitted by the delegations of Norway,[493] Denmark,[494] Finland, [page 314] [495] and Sweden [496] to Draft article 42(2) proposed that the buyer should have the right to require that the seller bring non-conforming goods into conformity by repair. Such a remedy was viewed as in the interest of the buyer in cases where no substitute goods could be obtained, and generally in the interests of both parties, in that it allowed a fairly lenient remedy which would remove obstacles to a contract.[497] The Norwegian and Swedish delegations pointed out that paragraph (1) of Draft article 42 did not specify the nature or means of performance regarding the buyer’s right to repair. Therefore a specific provision on the buyer’s right to repair was required.[498] None of the proposals, however, focused on curtailing the exercise of the buyer’s right to substitute delivery.[page 315]

Only the proposal made by the Federal Republic of Germany [499] purported to limit the buyer’s right. It was to a large extent identical with the Scandinavian proposals and their approach to the buyer’s right to require the seller to repair the goods. There was a difference, however, in that the buyer’s right to require substitute goods did not depend on whether the lack of conformity constituted a fundamental breach of contract The German delegation took the view that this right should be excluded only if it was not reasonably practicable for the seller to deliver the substitute goods.[500]

An ad hoc Working Group was established to prepare a common text.[501] A compromise, however, was reached only in respect to the buyer’s right to demand repair, the exercise of which was made subject to the condition that repair be reasonably practicable for the seller.[502]

The joint proposal was generally welcomed by several delegations with the exceptions of France,[503] the former USSR,[504] and the United States, [page 316] [505] which proposed amendments aimed at taking into account that in some cases the buyer should have the right to repair, even if repair would put the seller to considerable inconvenience.[506] The three delegations finally agreed on a joint text, which was unanimously adopted.[507] It revised the new paragraph (3) to read:

The representative of the Federal Republic of Germany then suggested that his delegation’s draft amendment should be brought into line with newly adopted paragraph (3).[509] Paragraph (2) would accordingly be revised to read:

The German representative argued that his delegation’s proposal would allow the courts to consider the circumstances of each particular case, including the difficulties of both the seller and the buyer. This proposal was criticized by several delegations, primarily on the grounds that the delivery of substitute goods and avoidance were, from an economic perspective, very similar situations,[511] and that the delivery of substitute goods might turn out to be even more onerous to the seller than simple avoidance.[512] For these reasons, it was argued, the requirement of fundamental breach should be kept. In the light of that criticism the German proposal was rejected.[513]

(c)  Conclusion

Neither UNCITRAL nor the delegates at the Vienna Diplomatic Conference adopted proposals that took account of consequences arising out of the buyer’s exercise of his right to demand substitute delivery. It seems that the delegates viewed the seller’s interests as sufficiently protected by the fundamental breach requirement, and wanted the interests of the buyer in [page 318] exercising his right to substitute delivery to prevail over those of the seller.[514]

Such an interpretation is confirmed by the drafting history of the disposition governing the buyer’s right to demand repair, which does not require a fundamental breach but may be limited in view of the consequences to the seller. In this context, it should also be noted that the delegates adopted an amendment to the effect that the buyer’s right to repair is not automatically barred by the fact that repair would significantly inconvenience the seller.

Bearing in mind that in most cases substitute delivery is likely to generate greater costs and thus cause even more hardship to the seller than avoidance, it therefore seems plausible that if the consequences of substitute delivery are not considered in determining fundamental breach, then no consideration should be given to any hardship suffered by the seller as a result of the contract avoidance (argumentum a maiore ad minus).

a.  Non-Performance within Time Fixed by Nachfrist Notice: Articles 49(1)(b), 64(1)(b)

According to article 49(1)(b), non-delivery does not per se allow the buyer to declare the contract avoided. Likewise, article 64(1)(b) provides that non-payment or failure to take delivery itself does not entitle the seller to declare the contract avoided. In both cases a Nachfrist must be fixed,[515] and only when the breaching party fails to perform within this fixed period or declares that he will not perform is avoidance permitted. This “Nachfrist-type” [page 319] requirement leads to the question of whether it is reconcilable with articles 49(1)(b) or 64(1)(b), respectively, to treat non-performance due to the parties’ (in)ability or (un)willingness as fundamental breach without having set such a Nachfrist.

In the present writer’s view this question must be answered in the affirmative. The objective of the “Nachfrist-type” requirement is to exert pressure on the breaching party in case of late delivery and to give him a second chance to perform. However, where the party refuses to perform and thus expresses his unwillingness to perform the fixing of a Nachfrist makes no sense.[516] The same is true where it is clear from the circumstances that the party is or will not be able to perform.[517] The scope of article 49(1)(b) and 64(1)(b) is thus actually limited to cases of late delivery,[518] and it follows that the factors focusing on the parties’ (in)ability or (un)willingness to perform are not excluded by articles 49(1)(b) and 64(1)(b).

b.  Avoidance of Installments Based on Interdependence with a Defective Installment: Article 73(3)

Paragraph (3) of article 73 provides for cases where one installment is avoided in accordance with paragraph (1) of article 73 and it has interdependence with other past or future deliveries. In such case, the buyer may,[page 320]

This wording seems to support the approach that focuses on the purpose of the contract in determining fundamental breach, even though it is not expressly stated that the lack of utility of past or future deliveries can alone constitute a fundamental breach. It could be argued, however, that article 73(3) is the counterpart of article 51(2) as far as delivery is made in installments and that it clearly contemplates a fundamental breach situation.[519]

a.  Foreseeability of the Consequences of the Breach

The systematic interpretation of the foreseeability element, for several reasons, strongly supports the approach that focuses on the conclusion of the contract as the relevant point in time. First of all, except for those provisions concerning the loss of remedial rights as a result of a delay by the aggrieved party,[520] whenever knowledge or foreseeability is required under the Convention, the time of the conclusion of the contract is relevant.[521] It should also be noted that article 73(3), dealing with the avoidance of installment contracts, expressly refers to the time of the conclusion of the contract.

Moreover, businessmen calculate potential transactional risks at the time of the formation of the contract.[522] Taking account of events occurring [page 321] after the closure, however, would allow one party to increase the risks of the other party. A buyer, for example, could transform a contract, in which the time of delivery is not fundamental, into a transaction where time is of the essence of the contract by simply informing the seller that he has promised to sell the goods at a particular time.[523] Such a reading of article 25 would hardly contribute to a greater acceptance of the Convention in the business world.[524]

Finally, the foreseeability requirement under article 25 is similar to article 74, which contains the foreseeability test for the recovery of damages. It provides that the

As one Canadian author, who represented Canada at the Vienna Diplomatic Conference, rightfully pointed out: it would be “anomalous” if a party could take the radical step of avoiding the contract on the basis of consequences for which it could not even recover damages.[525] [page 322]

b.  Seller’s Right to Cure: Article 48

Consideration of an offer to cure is not expressly required in the determination of fundamental breach, and an American proposal to include such language in article 25 was not adopted by UNCITRAL.[526] Thus, consideration of an offer to cure as a limiting factor in determining fundamental breach, in view of its present definition, is only permissible if one argues that, where cure of a breach is feasible and the breaching party is willing to cure, the aggrieved party is not substantially deprived of his expectations under the contract. With regard to the buyer’s right to avoidance, such an interpretation, though plausible,[527] cannot be justified by the Convention’s legislative history of the concept of fundamental breach, as illustrated above.[528] It is also incompatible with the text of article 48(1).[529]

The opening words of article 48(1) make the seller’s right to cure “[s]ubject to article 49.” Giving these words their ordinary and plain meaning, it appears that the buyer’s right to declare the contract avoided in accordance with article 49(1)(a) prevails over the seller’s right to cure.[530] The determination of fundamental breach in the light of any offer to cure, however, would enable the seller to prevent the buyer from avoiding the contract and would, therefore, actually allow the seller’s right to cure to prevail over the buyer’s right to avoid. Even if one argues that the opening words do not clarify their exact relationship, the position that the right to cure is paramount ignores the fact that the majority of the delegations at the Vienna Diplomatic Conference took the exact opposite view.[531] [page 323]

Another argument against the determination of fundamental breach in light of an offer to cure can be found in the text of article 50, where it is expressly stated that the seller’s right to cure prevails over the buyer’s right to reduce the price. In view of such clear wording, it is plausible to conclude that if the delegates to the Diplomatic Conference had really wanted the right to cure to prevail over the right to declare the contract avoided, they would have used similar words either in article 48 or 49.

Furthermore, the employment of an offer to cure as a relevant factor in determining fundamental breach would cause both theoretical and practical problems. The notion of an offer retrospectively frustrating the buyer’s existing right of avoidance is difficult to justify in theory.[532] As a practical matter, this approach gives rise to the question of whether the seller must make his offer to cure before the buyer makes his notice of avoidance. If priority were decisive, one would provoke a competition between buyer and seller and produce purely arbitrary results.[533] Ignoring that such competition in exercising a remedy should not be a consideration under law, it would also leave the seller in limbo as long as he does not know of the defect.[534]

The only way to avoid such consequences (and to protect the seller’s interests) would be either to impose on the buyer the duty to notify the seller of the breach and to give the seller the opportunity to invalidate the declaration of avoidance retroactively through an offer to cure, or to not treat his right to cure as precluded by the notice of avoidance. The latter way has been adopted by the UNIDROIT Principles [535] but, at least as a general [page 324] rule, there is no room for it under the Convention. According to the Official Records of the Convention it was not even discussed during the preparatory work for the Convention.

Both approaches seem difficult to reconcile with the character of the avoidance remedy, which initially releases both parties from their obligations after notice of avoidance has been given. To make the fundamental nature of the breach dependent on an offer to cure would give the seller the opportunity to reinstate the buyer’s obligations. Consequently, the buyer would be retroactively burdened with the duty to mitigate the loss resulting from the breach. This result does not seem fair to the buyer since he already bears the risk of evaluating the gravity of the breach.[536]

For all these reasons, it is this writer’s view that consideration of an offer to cure as a decisive factor in the determination of fundamental breach is not permissible. It would result in more uncertainty and, as one author rightfully points out, indeed “contribute to the further weakening of the notion of fundamental breach.”[537] Although it has been argued, it is untrue that the seller’s right to cure would be frustrated through an unqualified application of the buyer’s right to avoidance. The right to cure is simply limited to those cases where the breach is not fundamental or where the buyer decides not to avoid the contract despite the occurrence of a fundamental breach.

c.  Duty to Mitigate Losses

Article 77 imposes a duty on the aggrieved party to take reasonable steps to mitigate his loss.[538] Those steps include the resale of the goods by [page 325] an aggrieved seller as well as the purchase of substitute goods by an aggrieved buyer.[539] If this provision were applicable under articles 46(2), 49(1)(a), and 64(1)(a), then article 77 would effectively preclude the buyer from exercising the right to substitute delivery and avoidance whenever substitute goods were reasonably available and would bar the seller from declaring the contract avoided whenever it was reasonably possible to resell the goods.[540] In other words, the effect of article 77 would be that the aggrieved party must mitigate loss through the choice of remedy.[541]

The suggestion that article 77 limits the right to substitute delivery and avoidance is contradicted, however, by the wording of article 77, the remedial structure of the Convention, and its drafting history. In the first instance, the second sentence of article 77 provides that

Under this wording, the duty to mitigate applies only when the aggrieved party claims damages, not when that party demands substitute delivery or avoidance.[542]

Second, article 77, as enacted, is placed within the section of the Convention entitled “Damages.”[543] Articles 46(2), 49(1)(a), 51(2), and 64(1)(a), [page 326] on the other hand, appear in the sections governing remedies for breach of contract, and are not concerned with the availability of damages. Under the Convention, there is a clear distinction between the remedies available to the buyer in articles 46 to 52 and damages as provided in articles 74 to 77.[544] A similar distinction can be found in the seller’s remedies.[545] The organization of the remedial provisions constitutes a significant distinction between the right to substitute delivery and avoidance and a claim for damages, including the duty to mitigate damages under article 77.[546]

Finally, the drafting history clearly indicates that article 77 does not limit the right to avoidance or substitute delivery. At the Vienna Diplomatic Conference, the United States proposed to amend the Draft version of article 77 to the effect that the words “or a corresponding modification or adjustment of any other remedy” should be added to the provision.[547] It was argued that an aggrieved party’s failure to mitigate loss should relieve the party in breach not only of liability for damages but also other remedies.[548] This proposal was rejected by a large majority of the delegates.[549] Article 77, therefore, is not applicable to the right to substitute delivery and avoidance. The question of whether the duty to mitigate loss, as an expression of good faith in international trade, requires that the aggrieved party should refrain from exercising these remedies, will be discussed later.[550] [page 327]

Under the Convention, a breach is not necessarily fundamental whenever the seller violates a specific obligation or provision, and the availability of remedies does not generally depend on the violation of a specific obligation, except for the seller’s duty to deliver the goods.[551] In the latter case, the buyer’s right to avoidance is subject to the “Nachfrist-type” procedure, which allows avoidance after having fixed a time of reasonable length for the defaulting party to remedy his non-performance.[552]

The fact that the fundamental nature of a breach does not depend on the violation of a specific provision of the Convention calls into question the approach focusing on whether the buyer’s expectations have been frustrated due to the breach. Those who support this approach take the view that, where the goods do not possess the features necessary for the use intended by the buyer, or where a third party claims a right to possession or prohibits their use by virtue of a patent or other intellectual property right, a fundamental breach has been committed. Since these cases constitute a breach of the seller’s obligation under articles 35(2)(a)(b),[553] 41,[554] and [page 328] 42,[555] this approach leads to the result that any violation of these provisions must be regarded as a fundamental breach.[556]

This conclusion, however, is supported neither by the text of article 25 nor by its legislative history. It also seems inconsistent with the legislative history of article 49(1)(b). At the Vienna Diplomatic Conference, a Dutch proposal to extend the Nachfrist-avoidance mechanism under the 1978 Draft version of article 49(1)(b) [557] to cover important breaches of contract other than non-delivery was rejected by a substantial margin.[558] [page 329] The effect of that proposal would have been to authorize the buyer to transform a lack of conformity into a fundamental breach and, as the Official Records of the discussion of the proposals show, this was the decisive factor leading to its rejection.[559]

From this rejection, it is plausible to infer that there should be no automatism in the sense that a certain lack of conformity or that third party claims should always be regarded as a fundamental breach. As the case law on fundamental breach confirms, lack of conformity is, in practice, most often invoked by buyers on the grounds that the goods are not fit for the intended use. Had the delegations to the Diplomatic Conference viewed such unfitness as a fundamental breach, the discussion of the extension of the Nachfrist-avoidance mechanism to cases of lack of conformity would have been superfluous. In this writer’s view, therefore, the approach, focusing on whether the purpose of the contract has been frustrated in order to determine fundamental breach, is not reconcilable with the regime governing the seller’s obligations under the Convention.[560]

We have scrutinized the concept of fundamental breach under article 25 in the context of the Convention’s remedial system, the various cross-references to fundamental breach, those provisions under the Convention giving the parties the right of avoidance without requiring a fundamental breach, and the regime of the seller’s obligations under the Convention. Also discussed were potential limitations on the concept of fundamental breach [page 330] and their effect on the availability of those remedies requiring a fundamental breach. The results of this examination can be summarized as follows:

The Remedial System of the Convention

The remedial system of the Convention supports the approach that focuses on the nature of the contractual obligation and the remedy-oriented approach. The approach, focusing on the gravity of the consequences as measured by the contract’s overall value and the monetary loss suffered by the aggrieved party, is not supported by the Convention’s remedial system. It disregards the fact that the damages remedy, apart from the right of avoidance, is always available to the aggrieved party. Moreover, it cannot explain why avoidance is necessary, above and beyond the damages remedy, to protect the expectation interests of the aggrieved party under the contract. Additionally, the application of the additional criteria provided for by the UNIDROIT Principles cannot be supported, according to which a breach is fundamental because it was committed intentionally or recklessly. It disregards the fact that under the Convention’s remedial system fault is not generally a condition of contractual liability and that no remedy depends on fault in the sense of deliberate or negligent wrongdoing.

Cross-References to Fundamental Breach

The criterion employed by the UNIDROIT Principles, which looks at whether the breaching party would suffer a disproportionate loss as a result of the avoidance in determining fundamental breach, cannot be supported by the various cross-references to fundamental breach. To the contrary, the drafting history of article 46(2) gives good reason to view recourse to this criterion, in general, as prohibited. The different cross-references do, however, confirm the no-reliance approach (articles 72, 73(2)) and the approaches looking at one party’s (in)ability/(un)willingness to perform (article 72) or whether the goods are fit to their intended purpose (article 51(2)).[page 331]

Avoidance Situations Where No Fundamental Breach Is Required

None of the various approaches to determine fundamental breach is excluded by the provisions entitling the parties to avoid the contract without requiring a fundamental breach (articles 49(1)(b), 64(1)(b)). As far as it concerns installment sales, article 73(3) supports the approach focusing on the intended purpose.

Regime of the Seller’s Obligations under the Convention

The approach, which asks whether the aggrieved party can use the goods for their intended purpose, can be supported by article 51(2) and 73(3). However, it is challenged by the Convention’s concept that the fundamental nature of a breach does not automatically follow from the breach of a certain obligation under the Convention. One way to avoid any inconsistency could be to apply this approach only within the scope of articles 51(2) and 73(3), and to consider unfitness for the intended purpose outside their scope as a fundamental breach only where the parties have agreed on fitness for a particular use. In that case, the parties’ will prevails over conceptual concerns.

Limitations on the Concept of Fundamental Breach

As far as the foreseeability requirement is concerned, the systematic interpretation supports the notion that the conclusion of the contract is the relevant point in time. Consideration of an offer to cure in determining fundamental breach, in so far as it concerns avoidance of the contract, is not permitted in the light of the wording and legislative history of article 48(1) and its relationship to articles 49(1)(a). The same is not true under an approach that looks only at whether cure is possible. It follows from the wording [561] [page 332] and the legislative history of article 48(1) that the scope of this provision is limited to situations where the seller or a third party appointed by him remedies the defect.[562] This approach, however, does not require the seller to remedy the defect. Nor do the theoretical concerns about the retroactive effect of an offer to cure apply to that approach.

D.  Underlying Purposes and Policies of the Term “Fundamental Breach” within the Remedial System of the Convention

The purpose of the fundamental breach requirement can best be understood in the context of the remedial system of the Convention and especially in the context of those remedies whose availability depends on the existence of a fundamental breach, namely avoidance and substitute delivery. From the Convention’s legislative history it is possible to conclude that the limitation of the right of avoidance and substitute delivery is primarily aimed at avoiding hardship to the party in breach.[563]

With regard to the remedy of substitute delivery, there is no doubt that in many cases it will cause hardship to the seller. He must not only take back the delivered goods but also deliver substitute goods, which necessarily involves the risk of damages or loss and expenses such as transportation and storage.[564] Regarding the avoidance remedy, however, there are situations where avoidance produces only little hardship to the seller. This is the case, [page 333] for example, in situations of future performance, where the goods have not been dispatched and the buyer declares the contract avoided. Unless the goods are of a specific nature, or are especially designed for the needs of the buyer, and for those reasons they are difficult to sell to third parties, avoidance does not mean hardship to the seller.[565]

Similarly, where the seller declares the contract avoided due to the buyer’s failure to pay, the costs of returning the goods will cause the buyer hardship only in exceptional cases. Moreover, in a situation where the buyer is close to going bankrupt the seller will be content to at least get back the goods, even at his own risk and expense.[566] To a certain extent the Convention seems to take into account these different situations by allowing the buyer to avoid the contract before delivery has been made and before the occurrence of an actual fundamental breach. However, there is no assumption under the Convention that the seller is generally in a better position to dispose of the goods than the buyer. It seems, therefore, that the underlying [page 334] purpose of the fundamental breach requirement is not so much concerned with protecting the interests of the breaching party as much as preserving the enforceability of the contract if it all feasible and to avoid economic waste in trade.[567] This policy is also reflected in offering the breaching party the possibility to cure and requiring the aggrieved party wishing to avoid the contract due to late delivery to provide a Nachfrist.

All factors employed in determining fundamental breach limit the availability of the remedies of avoidance and substitute delivery and thus serve the Convention’s objective. However, none of the factors is applicable to every possible situation of fundamental breach and, for that reason, the extent of the limitation differs depending on the factors employed. Some of the factors, such as (in)ability, (un)willingness, for example, can only be applied to the remedy of avoidance in cases of non-delivery, non-payment or failure to take delivery. They cannot be employed to determine under which circumstances the delivery of non-conforming goods amounts to a fundamental breach. The no-reliance approach is only applicable where future performance is due.

The approaches looking at an offer-to-cure/possible cure or whether the failure to perform was intentional or reckless are applicable to both the avoidance and the substitute delivery remedy. Since their application requires actual delivery, however, they cannot be employed in non-delivery situations or future performance situations. The same holds true for the remedy-oriented approach and the factor looking at the intended purpose of the goods. Finally, the approach in the UNIDROIT Principles that looks at whether the breaching party suffers disproportionate loss if the non-performance is treated as fundamental, is applicable to actual as well as to [page 335] future performance situations but is limited in its scope to the avoidance remedy.

In view of the limitations on each of these factors, it seems that their accumulated application would serve the underlying purposes and policies of the fundamental breach requirement best. In determining the relevant point in time for measurement of foreseeability of the consequences of the breach, the approach focusing on the time of contract formation limits the availability of the remedies of avoidance and substitute delivery more than the approach that also takes into account the breaching party’s subsequent knowledge.

E.  The Concept of Fundamental Breach and the Observance of Good Faith

This section is concerned with the final requirement to be observed in the interpretation of the Convention, namely the promotion of the observance of good faith in international trade. In particular, we will examine whether the promotion of the observance of good faith requires a modification of the contractual or statutory right of the parties to avoid the contract or demand substitute delivery. In this context, we will further examine whether the various factors employed in determining fundamental breach correspond with the requirement of good faith.

As pointed out above, the requirement of good faith not only operates as an additional criterion in interpreting the Convention, but is also directed to the conduct of the parties to an individual contract of sale.[568] Consequently, it has been argued by scholars to construe fundamental breach and the exercise of the remedies requiring a fundamental breach in the light of the Convention’s many references to standards of reasonableness and the general duty to mitigate damages.[569] [page 336]

The following four specific cases, especially worthy for consideration because of their practical relevance and partially because of the controversy they provoked at UNCITRAL as well as at the Vienna Diplomatic Conference, will be examined as they relate to the principle good faith.

a.  Minor Breaches of Contract

It has been argued that the good faith requirement precludes a party from automatically invoking his right of avoidance or substitute delivery after a minor deviation in performance by the other.[570] None of the various approaches applicable to the delivery of non-conforming goods considers a breach of contract causing few if any damages, where the goods can still be used for their intended purpose, or where the defect can be easily and cheaply repaired as fundamental. These approaches thus take the requirement of good faith in the proposed form sufficiently into account.

Such is not the case, however, where the parties have expressly agreed that any deviation from all or specific contract terms constitutes a fundamental breach. The application of the approach focusing on the nature of the contract would entitle the aggrieved party to avoid the contract or to demand substitute delivery even if the breach is minor as described above. The issue in a such case is whether the Convention’s principle of party autonomy is limited by the Convention’s good faith requirement to act reasonably.[page 337]

Unlike under the UNIDROIT [571] and the European Principles,[572] however, the principle of party autonomy is not expressly limited under the Convention, and attempts at the Vienna Diplomatic Conference to limit this principle by the concept of good faith were rejected.[573] Within the scope of the Convention, the parties’ freedom to determine the content of their individual contract is only restricted by otherwise applicable mandatory rules, be they of national, international, or supranational origin. It seems, therefore, that the Convention’s principle of party autonomy prevails over the Convention’s good faith requirement and that the breaching party cannot invoke good faith to invalidate a clause providing for avoidance or substitute delivery for any deviation from the contract, no matter how trivial.[574] This view is confirmed by article 4, according to which the Convention is not concerned with the validity of the contract or of any of its provisions.[575] [page 338]

b.  The Fundamental Breach is Curable and the Seller Offers Cure before/after the Buyer Declared the Contract Avoided

Professor Honnold, who argues that whether a breach is fundamental should be decided in light of an offer to cure, holds the view that the principle of good faith imports affirmative obligations on the parties to communicate during performance and to cooperate in the repairing of defects.[576] He argues that, in case of the delivery of defective goods, where cure is feasible, the principle of good faith requires that the buyer not avoid the contract before giving the seller the opportunity to remedy the defect. To that end the buyer must communicate the defect to the seller and request information regarding the seller’s plans concerning cure. The seller then is “obliged” to respond to the buyer’s request.[577] Other authors more generally take the view that an aggrieved party must act reasonably to mitigate damages and this duty may require accepting an offer to cure from the breaching party, possibly even after a fundamental breach has been committed.[578]

If one follows these propositions to their logical conclusion, as far as the avoidance remedy is concerned, in fact, only the offer-to-cure approach would be the decisive factor in the determination of fundamental breach where non-conforming goods have been delivered. All other approaches applicable to the delivery of non-conforming goods would need to be interpreted in a non-decisive way when the seller offers cure and the requirements of article 48(1) are met. To apply the good faith requirement in such a manner, however, is not permitted since it disregards the text of article 48(1) and the intention of the majority of the delegates at the Vienna Diplomatic Conference.[579] As we noted above, the principle of good faith may not modify a statutory provision of the Convention in order to justify [page 339] a result that is contrary to its wording and the intent of the drafting parties. Therefore, the proposition that the principle of good faith always requires accounting for an “offer-to-cure” in determining fundamental breach cannot be supported.

c.  The Fundamental Breach Is Curable and the Buyer Demands Substitute Delivery while the Seller Offers Cure

In the context of the buyer’s demand for substitute delivery when at the same time the seller offers cure, some authors take the view that if the seller can meet the buyer’s expectations by repairing as well as by delivering substitute goods, then the decisive consideration will be the cost, and consequently in choosing his remedy, the buyer must observe the duty to mitigate losses and allow the seller to cure.[580]

This situation seems to be a stronger case for considering an offer to cure. The opening words of article 48(1) refer only to the buyer’s right of avoidance but not to his right of substitute delivery, and the theoretical concerns about the retroactive effect of an offer to cure do not apply to the remedy of substitute delivery.[581]

The only objection to such an application of the principle of good faith would be that the U.S. proposal to amend the 1978 Draft version of article 48 and to allow the seller to cure a defect, regardless of the buyer’s right [page 340] to substitute delivery, was rejected at the Vienna Diplomatic Conference. However, the proposal was only rejected by 10 votes in favor and 10 against and, according to the Official Records of the Conference, without further discussion.[582] In view of the outcome of this vote, it seems, therefore, permissible to apply the good faith requirement in the proposed form.[583] Where repair is feasible without causing the buyer unreasonable inconvenience, it is indeed plausible to argue that the general principle of reasonableness requires consideration of an offer to cure in the determination of fundamental breach when the buyer demands substitute delivery while the seller offers repair.[584]

d.  Substitute Delivery Is Impossible or Exceptionally Burdensome

In regard to the right of specific performance under article 46(1), some authors argue that the principle of good faith requires that the breaching party be relieved of the obligation to make a delivery if it is physically impossible or exceptionally burdensome.[585] Since substitute delivery under article 46(2) is a particular case of specific performance, this proposition also applies to that right. Where substitute performance is physically impossible, however, recourse to the principle of good faith is not necessary. In that case the remedy of substitute delivery is meaningless and will not be sought by the buyer.[586] It only becomes relevant when the exercise of [page 341] the right to substitute performance is exceptionally burdensome for the breaching party.

There are, however, two objections to the proposed application of the good faith principle to the buyer’s right to substitute delivery. The first follows from the legislative history of article 46(2) and the context of article 46(3). Proposals aimed at taking into account the consequences to the seller when the buyer demands substitute delivery were rejected.[587] The second objection follows from article 28,[588] according to which the exercise of the right to specific performance, and also to the buyer’s right to substitute delivery, is subject to the law of the forum, which includes a domestic doctrine of good faith.[589] Hence, there is no room for the application of the Convention’s principle of good faith in the proposed form to limit the availability of the right to substitute delivery. Its application would entail broadening the scope of the Convention.

The main objective of this section was to examine whether the Convention’s requirement to promote the observance of good faith in international trade requires a modification of the contractual or statutory right of the parties to avoid the contract or demand substitute delivery. To that end, four specific cases were illustrated in which such a modification has been suggested. The result of this examination is that the principle of good faith cannot set aside express terms of the contract according to which any deviation from the contract is deemed fundamental. With regard to statutory [page 342] rights, it was shown that the principle of good faith limits the buyer’s right to substitute delivery, but not his right to avoid the contract, when the seller offers cure, provided that the requirements of article 48(1) are met. It therefore modifies the effect of article 46(2) and by the same token supports, in part, the approach that determines fundamental breach in light of an offer to cure. In all other above discussed cases, the good faith principle may modify the effect of the avoidance or substitute delivery provisions or take precedence over them only under exceptional circumstances, but not as a general rule.

F.  Conclusion (Part III: The Meaning of the Concept of Fundamental Breach in Light of the Text of Article 25, the Convention’s Legislative History, Context within the Convention, Underlying Purposes and the Observance of Good Faith)

In this Part, following the Convention’s rules of interpretation, we have examined the concept of fundamental breach under article 25 in light of its structure, legislative history, context within the Convention, underlying purposes, and the observance of good faith. We have attempted to demonstrate that all approaches employed in determining fundamental breach support the underlying purpose of this concept, namely to preserve the enforceability of the contract by limiting the remedies of avoidance and substitute delivery. However, the approaches which focus on the monetary loss of the aggrieved party, intentional or reckless non-performance and disproportionate loss, cannot be supported by means of literal, historical and systematic interpretation of fundamental breach and, therefore, their application must be ruled out. The results of our examination of the various approaches can be summarized as follows:

(1) Consideration of the nature of the contractual obligation violated in determining fundamental breach is confirmed by the text of article 25, its legislative history and the principle of party autonomy, which allows the parties to determine the circumstances under which a breach of contract will be fundamental. The supremacy of that principle is confirmed by the reference to the parties’ obligation under the contract in the various cross-references to fundamental breach. The principle of party autonomy is not [page 343] limited by the Convention’s requirement to observe good faith in international trade.

(2) The approach which focuses on the contract’s overall value and the monetary loss suffered by the aggrieved party cannot be supported by the wording of article 25. While the travaux préparatoires remain silent as to the permissibility of that approach, it cannot be supported by the remedial system of the Convention. It is therefore not a relevant factor to be considered in determining fundamental breach.

(3) Consideration of the fitness of the goods for their intended purpose as a relevant factor in determining fundamental breach is supported by the text of article 25. According to the preparatory works, the drafters of the Convention did not discuss whether the fitness of goods for the intended purpose is of such importance that unfitness always constitutes a fundamental breach. The cross-reference to article 51(2) confirms such an approach as far as partial non-performance is concerned, and article 73(3) confirms it in respect to installment sales. It is, however, rejected by the Convention’s regime governing the seller’s obligations. This approach, therefore, cannot be applied outside the scope of articles 51(2) and 73(3).

(4) The remedy-oriented approach can be supported by the language of article 25 and is not excluded by its legislative history. It is strongly supported by the Convention’s remedial system.

(5) The wording of article 25 can support the approach that determines fundamental breach in light of an offer-to-cure. It is, however, excluded by the opening words of article 48(1), its legislative history, and the systematic interpretation of fundamental breach. While the “observance of good faith” requirement under article 7(1) cannot modify article 48(1) contrary to the express intent of the legislator in avoidance situations, it requires consideration of an offer-to-cure where the buyer demands substitute delivery and the seller offers to cure.

(6) To consider whether cure is possible without requiring an offer by the breaching party can be supported by the text of article 25. This approach, unlike the offer-to-cure approach, is not excluded by the language of article 48(1). Nor is it ruled out by the drafting history of article 48(1).

(7) The wording of article 25 can support the approach that looks at the parties’ (in)ability and (un)willingness to perform. It is further supported by the legislative history of article 49(1)(b) and article 64(1)(b), by their wording, and by the various cross-references to fundamental breach in article 72 and article 73(2).[page 344]

(8) Consideration of whether the breach or conduct by one party gives the other party reason to believe that it cannot rely on the other party’s future performance can be supported by the language of article 25 and the cross-references to fundamental breach in article 72 and article 73(2).

(9) The approach that focuses on whether the breach was committed intentionally or recklessly can be supported by the text of article 25. It is, however, incompatible with the remedial system of the Convention under which fault is not a condition of contractual liability and of no importance in the availability of either remedy. Recourse to this approach to determine fundamental breach is thus not permissible.

(10) Consideration of the extent to which the breaching party suffers disproportionate loss in determining whether a breach is fundamental is supported neither by the wording of article 25 nor by its drafting history. This factor, therefore, cannot be employed in the determination of fundamental breach.

(11) The language of article 25 supports the approach which holds the time of the formation of the contract as the relevant point in time at which the party in breach had to foresee or should have foreseen the detrimental consequences to the other party. This approach is not supported by the legislative history, but it should it not be excluded, since the deliberations at the Vienna Diplomatic Conference [were] based on the Draft version of article 25 [which] differs from the final text. The systematic interpretation of the foreseeability requirement as well as the underlying purposes of article 25 strongly endorse this approach.

PART IV — Critique of the Remaining Approaches

There are three principal objections to the remaining approaches employed in determining fundamental breach. These objections are based on the assumption that the existence of various and partially conflicting approaches do not correspond to the business community’s need for certainty and predictability in contractual relationships. They originate from the placement of the definition of fundamental breach in the first chapter of Part III under the heading “General Provisions.”[590] Part III (articles 25-88) not only regulates the substance of the contract of sale, including the respective rights and obligations of the buyer and the seller, but also deals with the remedies available to the seller and the buyer. Giving this heading its plain and ordinary meaning, there is only one concept of fundamental breach to be applied to any provision in Part III.[591]

The first objection to the various approaches is their applicability. The no-reliance approach, as applied by the scholars and the courts, for example, is only applicable to cases where future performance is due. But where no future performance is due from the breaching party other than the remedying [page 346] of the breach itself, the aggrieved party cannot invoke no-reliance.[592] The approach, which looks at one party’s (in)ability or (un)willingness to perform, applies only to non-delivery, non-payment, or failure to take delivery situations, and not where non-conforming goods were delivered.

On the other hand, the approach that asks whether the goods are fit for their intended purpose requires some form of delivery of the goods. The same is true for the remedy-oriented and the offer-to-cure approach, as well as the possibility-to-cure approach, but none requires an offer by the breaching party. None of these approaches is applicable when the seller has not delivered the goods or when performance is not yet due.

The approach that is focused on the nature of the contractual obligation, in theory, applies to all possible situations of fundamental breach. However, where there are no express or implied terms of the contract from which it can be deduced that a certain failure to perform constitutes a fundamental breach or no terms that give the other party the right to avoidance or substitute delivery, this approach provides no assistance.

Consequently, the limited scope of the different factors leads to the conclusion that fundamental breach is to be interpreted differently depending on which remedy is sought and whether or not performance was due.[593] For example, when the buyer demands substitute delivery, only those approaches which are applicable where delivery actually took place can be employed in determining fundamental breach. Neither the no-reliance approach nor that which looks at a party’s (in)ability or (un)willingness to perform are applicable when the remedy of substitute delivery is sought. They apply only to the avoidance remedy. On the other hand, the approach focusing on the existence of an offer to cure cannot be employed when the buyer has declared the contract avoided, but is relevant in the determining fundamental breach when he demands substitute delivery.

The second objection arises from the fact that the application of the various approaches applicable to the delivery of non-conforming goods may lead to conflicting results. For example, where the goods were bought for processing, there would be a fundamental breach under the purpose approach if processing were impossible due to the delivery of partially defective goods. The remedy-oriented approach, on the other hand, would reach [page 347] this result only if the sale of the goods were unreasonable for the aggrieved party. Another conflict may potentially arise from the application of the remedy-oriented approach and the approach looking at whether cure is possible, e.g., where the defect in the goods sold is not curable, but their resale is reasonable, as was the case in the “African cobalt sulfate” decision by the German Supreme Court.[594] In those cases the question arises as to which of the conflicting approaches should prevail. A concurrent application of the different approaches, in the absence of any order, must necessarily lead to arbitrary results and is unduly onerous to the aggrieved party, since it increases the risk of misevaluating whether a breach was in fact fundamental.

The third objection to the various approaches is that they are not applicable to any possible actual fundamental breach in situations where no future performance is due. For example, none of the various approaches can be applied where the seller has violated the buyer’s exclusive right to market the goods sold where no further deliveries are due. Nor can they be employed when one of the parties to a contract of sale has violated his obligation to inform or to co-operate with the other party.[595] The approach that looks at one party’s (in)ability or (un)willingness to perform is limited to non-delivery, non-payment, or failure to take delivery situations. The approach that looks at whether the breach is curable is limited in its application to the delivery of non-conforming goods and documents, but cannot be employed to determine the nature of other forms of breach. The same holds true regarding the remedy-oriented approach and that which asks whether an offer to cure was made in determining fundamental breach. Finally, the approach focusing on whether the goods are fit for their intended use can be only employed with regard to the delivery of partially non-conforming goods.

In the light of these objections, it seems necessary not only for both practical and theoretical reasons, but also on grounds of certainty and predictability, to rethink the existing approaches in determining fundamental breach and to replace them by a more coherent unified concept.[page 348]

PART V — Introduction of a New Methodology

Many legal systems, in meting out justice in private law matters, assume that merchants generally enter into commercial contracts for purely economic reasons and can, therefore, be fully compensated with damages for any breach of contract, whether fundamental or not.[596] The Convention, however, accepts this premise only once the parties have performed their obligations to deliver the goods, paid the price for the goods, and taken delivery of them. Only then are damages the primary remedy in case of a breach, whereas all other remedies, with the exception of reduction in price, are available only after additional requirements have been met. Before the parties have fulfilled their obligations, at least in terms of its placement in the Convention’s overall scheme, specific performance is the primary remedy although damages are equally available.[597]

If the assumption is right that in commercial relations most things can indeed be reduced to monetary damages, then one must confront the question of why should the aggrieved party ever wish to pursue the remedy of avoidance and substitute delivery? The most important reason, in commercial practice, is that these remedies yield a more favorable result in monetary terms.[598] This will be so where the loss suffered is wholly or partly [page 349] irrecoverable, e.g., because the aggrieved party violated his duty to mitigate, or where the party in breach is exempted from damages for failure to perform due to an impediment beyond his control, or where damages are hard to quantify, to prove or to enforce, or are too remote. Another case in which the aggrieved party, in particular, might wish to avoid the contract is where he has made a bad bargain, which would still have been bad, even if the contract had been duly performed. Moreover, in principle, avoidance may favor the aggrieved party in the event of the other party’s insolvency. Finally, with regard to substitute delivery, a further reason to seek this remedy is that the buyer needs the goods and only the seller produces them; or where no adequate substitute goods are available elsewhere.

On the other hand, the party in breach may have equally obvious reasons for wishing to resist avoidance and substitute delivery. Once the contract has been avoided, the party in breach must make restitution of whatever the aggrieved party has supplied or paid under the contract. That may mean that he has to bear a risk, which, by the terms of the contract or by its very nature, was one that was undertaken by the aggrieved party.[599] This will generally be the position when a buyer seeks to avoid a forward sale in a falling market, or when a seller seeks to avoid such a sale in a rising market. The party in breach may even lose all or most of his performance when there is no market for it elsewhere. Moreover, in attempting to perform he may have incurred expenses, which will be wholly or largely wasted as a result of avoidance. In addition, both substitute delivery and avoidance necessarily involve risks of damage or loss and expenses such as costs for the transport of the (substitute) goods. When other remedies, such as damages or price reduction are available, these remedies will often safeguard the interests of the aggrieved party sufficiently so that avoidance should be not be employed.

The Convention, on the one hand, protects the interests of the aggrieved party by recognizing in principle the right to avoidance and substitute delivery. By providing these remedies the Convention takes into account that there are situations where the interests of the aggrieved party are not sufficiently protected by an award of damages. However, by requiring that the defect substantially deprive the aggrieved party and that the deprivation be foreseeable to the party in breach, the Convention also considers the interests of the party in breach. When the party in breach is able and willing to perform, he enjoys further protection in that a formal [page 350] notice either in the nature of a Nachfrist (after performance was due) or a demand for adequate assurance (before performance was due) is required. Where the party in breach is unable or unwilling to perform at all, the Convention allows the aggrieved party to avoid the contract without requiring any formal notice or the existence of a fundamental breach. Ignoring these particular cases, one may conclude that the Convention, in the determination of fundamental breach, incorporates a dual test based on a certain degree of severity of the breach and focuses on whether the aggrieved party especially needs these remedies — as opposed to damages — to compensate for impairment.

Of the existing approaches, only the remedy-oriented approach takes into account these two factors. This approach focuses not only on whether the goods do not possess the features necessary for their intended use by the buyer (“severity-of-the-breach” factor), but also on whether the interests of the buyer are sufficiently protected by damages (“need” factor). All other approaches focus exclusively on the severity of the default in evaluating the degree of the breach. The remedy-oriented approach, however, is limited in its scope to the delivery of non-conforming goods and, at least in its current form as proposed by scholars, only takes into account the risk of the buyer of engaging in a dispute with the seller as to whether he sold the goods for a reasonable price thereby observing his duty to mitigate losses. Moreover, it is of no assistance in the determination of fundamental breach when the seller is seeking the avoidance remedy. On the other hand, this approach is a good basis for developing a more comprehensive methodology.

In order to cover all possible situations of fundamental breach, past, present or future, in determining the severity of the breach, one should not exclusively consider whether the breach has frustrated the buyer’s expectations with respect to the intended use of the goods Rather one should ask whether a breach by one party has frustrated the expectations of the other party with regard to the purpose of the contract as a whole Such an approach would not only be applicable to the delivery of non-conforming goods, but also to other cases of non-performance enumerated in the Convention, such as late delivery or late payment, failure to deliver in full, defect in title, and missing or defective documents. Moreover, it would also apply to (anticipated) breaches of other obligations which “frustrate” the aggrieved party’s purpose in entering into the contract, such as: the failure to obtain certain permits, test certificates, or other documents;[600] protection [page 351] of trademarks [601] or preventing the buyer from parallel importing [602] or [preventing] the seller from selling goods inside a certain territory;[603] a violation of the duty to provide information; and the failure to co-operate in order to give full effect to the contract, etc.[604]

If the purpose of the contract has indeed been frustrated, the question that remains is whether there should be any limitations on the possible reasons indicating the aggrieved party’s “need” of the remedy of avoidance and substitute delivery as outlined above. In the present writer’s view, if the party in breach loses the benefit of the mitigation rule, the aggrieved party should be deprived of exercising these particular remedies. Moreover, problems with regard to the obtainment and enforcement of a damages award should not be taken into account, since such considerations also concern the remedy of avoidance and substitute delivery, the enforcement of which also requires taking legal action. One instance of when substitute delivery is not preferable to a damages award is when performance of the contract would be illegal, for example, where after the delivery of the defective goods the seller’s government has imposed an export ban on selling goods of that kind. The buyer should then be barred from exercising this remedy even if he cannot obtain a satisfactory substitute.

On the other hand, where the party in breach is exempted from paying damages under article 79 for failure to perform due to an impediment beyond his control, the aggrieved party should be entitled to avoid the contract or, if possible, demand substitute delivery.[605] The same is true where damages cannot compensate the aggrieved party when they are hard to quantify, difficult to prove, or where the buyer runs the risk that, when calculating [page 352] the loss, there will be a dispute with the seller regarding the reasonableness of the resale price. Such is the case where no market price for the non-conforming goods is ascertainable, or where the aggrieved party suffered or is likely to suffer immaterial harm for injury of his business reputation, for example, when the buyer of luxury goods designated to be sold in a high-end markets sells them to ordinary drugstores.

Another case where avoidance is the more appropriate remedy is continuing or successive contracts, calling for repeated acts of performance over a period of time, in particular exclusive distribution agreements. Such contracts presuppose the continuation of a relationship involving personal confidence, and, therefore, a breach of one party, which destroys that confidence, should justify avoidance by the other.

The buyer’s insolvency is a further case for avoidance though in most instances restitution will be thwarted by the applicable lex concursus.[606] Where the damages are too remote under article 74 and assuming that the formation of the contract is the relevant point in time at which foreseeability is measured, in most instances the grounds invoked by the aggrieved party to justify avoidance will also be regarded as too remote under article 25. Therefore, this case will not become very practical. Finally, the fact that a bad bargain was made should not be taken into account when determining the aggrieved party’s need of avoidance, since the risk of making a bad bargain has been undertaken by the aggrieved party.

It was the object of this Paper to elucidate the concept of fundamental breach and to replace the various approaches introduced by the courts and scholars with a methodology that would provide the parties to a contract governed by the Convention greater assistance in determining whether a fundamental breach has occurred. To that end, we critically examined the existing approaches. We have concluded that it is necessary not only for both practical and theoretical reasons, but also on grounds of certainty and predictability, to rethink the existing approaches in determining fundamental breach and to replace them by a more coherent unified concept. The new methodology incorporates a test that asks whether the purpose of the contract has been frustrated due to the breach, and whether the aggrieved party needs the remedy of avoidance or substitute delivery — as opposed to damages — in determining fundamental breach. In case of a breach and in the absence of any contractual provision providing for fundamental [page 353] breach, with the help of this new methodology, it should not be difficult for the aggrieved party to determine whether this breach is fundamental. Moreover, with regard to the remedy of substitute delivery, this methodology promotes the uniform application of the Convention in both Common Law and Civil Law jurisdictions since the factors indicating the buyer’s need for substitute delivery would give him in Common Law jurisdictions, subject to the court’s discretion, the right to a judgment entitling the buyer to this form of specific relief. By the same token, the new methodology is appropriate to reconcile the conflict in the Convention’s remedial provisions created by article 28, which limits the buyer’s right to (substitute) performance in Common Law jurisdictions.[page 354]

FOOTNOTES

* Dr. jur., Georg-August University Göttingen (Germany), 1994; associate in the law firm Graf von Westphalen, Fritze & Modest, Cologne (Germany); LL.M. (Dean’s Honor List) McGill University, Montréal (Canada), 1996/97; Visiting Lecturer at Ural State Law Academy in Yekaterinburg (Russian Federation) 1997/98.

This paper has been submitted to the McGill University Faculty of Graduate Studies and Research in partial fulfillment of the requirements of the degree Master of Laws. The author would like to express his gratitude to Albert Kritzer, the Executive Secretary, Institute of International Commercial Law, Pace University School of Law for his valuable comments on this paper. This work is dedicated to my wife, Olga Sosnovskaja.

1. United Nations Convention on Contracts for the International Sale of Goods, Apr. 11, 1980, U.N. Doc. A/CONF. 97/18, Annex I, reprinted in 19 I.L.M. 668 [hereinafter CISG]. Articles without any further designation refer to “the Convention.” The English, French and Spanish versions are available at "http://www.un.or.at/uncitral/[english][french][spanish]/texts/sales/salescon.htm#top".

2. See Michael J. Bonell, The UNIDROIT Principles of International Commercial Contracts and the Principles of European Contract Law: Similar Rules for the Same Purpose?, 26 Uniform L. Rev 26 (1996); Franco Ferrari, Specific Topics of the CISG in the Light of Doctrinal Writings and Judicial Applications, 15 J.L. & Com. 1, 13 (1995); Frank Diedrich, Lückenfüllung im Internationalen Einheitsrecht. Möglichkeiten und Grenzen richterlicher Rechtsfortbildung, im Wiener Kaufrecht 353, 353 RIW (1995); and Ronald A. Brand & Harry M. Flechtner, Arbitration and Contract Formation in International Trade: First Interpretation of the U.N. Sales Convention, 12 J.L. & Com. 239 (1993).

3. These countries and the date the Convention has or will come into force for them are: Argentina, Jan. 1, 1988; Australia, Apr. 1, 1989; Austria, Jan. 1, 1989; Belarus, Aug. 1, 1991; Belgium, Nov. 1, 1997; Bosnia-Herzegovina, Mar. 6, 1992; Bulgaria, Aug. 1, 1991; Burundi, Oct. 1, 1998; Canada, May 1, 1992; Chile, Mar. 1, 1991; China, Jan. 1, 1988; Croatia, Oct. 8, 1991; Cuba, Dec. 1, 1995; Czech Republic, Jan. 1, 1993; Denmark, Mar. 1, 1991; Ecuador, Feb. 1, 1993; Egypt, Jan. 1, 1988; Estonia, Oct. 1, 1994; Finland, Jan. 1, 1989; France, Jan. 1, 1988; Georgia, Sep. 1, 1995; Germany, Jan. 1, 1991; Greece, Feb. 1, 1999; Guinea, Feb. 1, 1992; Hungary, Jan. 1, 1988; Iraq, Apr. 1, 1991; Italy, Jan. 1, 1988; Latvia, Aug. 1, 1998; Lesotho, Jan. 1, 1988; Lithuania, Feb. 1, 1996; Luxembourg, Febr. 1, 1998; Mexico, Jan. 1, 1988; Moldova, Nov. 1, 1995; Mongolia, Jan. 1, 1999; Netherlands, Jan. 1, 1992; New Zealand, Oct. 1, 1995; Norway, Aug. 1, 1989; Poland, Jun 1, 1996; Romania, Jun. 1, 1992; Russian Federation, Sept. 1, 1991; Singapore, Mar. 1, 1996; Slovakia, Jan. 1, 1993; Slovenia, June 25, 1991; Spain, Aug. 1, 1991; Sweden, Jan. 1, 1989; Switzerland, Mar. 1, 1991; Syrian Arabian Republic, Jan. 1, 1988; Uganda, Mar. 1, 1993; Ukraine, Jan. 1, 1991; United States of America, Jan. 1, 1988; Uruguay, Feb. 1, 2000; Uzbekistan, Dec. 1, 1997; Yugoslavia, Jan. 1, 1988; Zambia, Jan. 1, 1988.

Ghana and Venezuela have each signed, but have yet to officially ratify, approve or accept the Convention. For relevant information on the status of the Convention, See United Nations Dept. of Public Information (visited March 15, 1999) "http://www.uncitral.org/en-index.htm".

4. The Convention does not apply to consumer sales. See Art. 2(a). See also V. Suzanne Cook, The U.N. Convention of Contracts for the International Sale of Goods, A Mandate to Abandon Legal Ethnocentricity, 16 J.L. & Com. 257, 258 (1997) (emphasizing that “the business community and legal practitioners however will cast the final decisive votes by either embracing, or opting out of, the Convention”); Albert Kritzer, The Convention on Contracts for the International Sale of Goods: Scope, Interpretation, and Resources, in Cornell CISG Review 147 (1995) (stating that the Convention “is designed to foster world trade by acting as a bridge to improved understanding in business dealings between persons from different countries and cultures”).

5. In the database of the University of Freiburg, 353 cases on the Convention has been registered. See University of Freiburg CISG Guide, (visited Aug. 18, 1998) "http://www.jura.uni-freiburg.de/ipr1/cisg/guide/8-2.htm". According to Professor Michael R. Will of the University of Geneva, who has established a network of correspondents for the purpose to share knowledge on citations to scholarly writings and case law on the CISG, courts and arbitral tribunals have rendered approximately [555] decisions. See Michael Will, The First 555 or so Decisions (8th ed., 1999).

6. For similar statements, see Burghard Piltz, Voices of International Practice, in Uniform Commercial Law in the Twenty First Century: Proceedings of the Congress of the United Nations Commission on International Trade Law, UN. GAOR Comm. on Int’l Trade L., 25th Sess., at 85, U.N. Doc. A/CN.9/SER.D/1 (1992) (stating that “surprisingly, only a very limited number of Sales Convention cases — in Germany as elsewhere — has been reported now”). See also Cook, supra note 4, at 257 (calling the fact that only two U.S. cases interpreting the Convention have been reported yet as “a stunning result considering the broad scope of the Convention’s application”).

7. See Kritzer, supra note 4, at 148 (stating that “there are many attorneys who are not aware of the CISG”); Stewart F. Hancock, A Uniform Commercial Code for International Sales? We Have it Now, 67 N.Y. St. Bar J. 20, 21 (1995) (emphasizing that, on the one hand, all lawyers appreciate the significance of such widely acclaimed achievements in international economic cooperation such as GATT and NAFTA but know little if anything of the Convention); and Claude Witz, La Convention de Vienne sur la vente internationale de marchandises a l’epreuve de la jurisprudence naissante, Rec. Dall. Sir. 143, 144 (1995) (stating that “les juges et avocats . . . n’aient pas encore suffisamment pris conscience de ce que les contrats dont ils ont à connaître sont régis par la Convention de Vienne”).

8. See also R.M. Lavers, CISG, To Use or Not to Use?, Int’l Bus.L. 10 (1993) (stating that “many lawyers tend to opt out of the CISG, according to the maxim the devil you know is better than the devil you do not know”); Willem Vis, Process of Preparing Universally Acceptable Uniform Legal Rules, in Uniform Commercial Law in the Twenty First Century: Proceedings of the Congress of the United Nations Commission on International Trade Law, U.N. GAOR Comm. on Int’l Trade L., 25th Sess., at 16, U.N. Doc. A/CN.9/SER.D/1 (1992) (pointing out that “[t]raders, merchants, bankers and lawyers will accept UNCITRAL texts only if they conclude that it is to their advantage to have their international transactions governed by such rules”); Martin Karollus, Der Anwendungsbereich des UN-Kaufrechts im Uberblick, 378 JuS (1993); Willibald Posch, On the Law of International Zsale of Goods: An Introduction, in International Sale of Goods, 8-9 (Lafili et al. eds., 1986).

9. For similar conclusions See Jacob Ziegel, Canada Prepares to Adopt the International Sales Convention, 18 Can.Bus.L.J. 1, 15 (1991) (stating that some lawyers will treat the uncertainties and untested Convention provisions as sufficient reason to exclude the Convention entirely). See also Cook, supra note 4, at 258; Note, Unification and Certainty: The United Nations Convention on Contracts for the International Sale of Goods, 97 Harv. L. R. 1984, 1986 (1984).

See Michael Sher, Voices of International Practice, in Uniform Commercial Law in the Twenty First Century: Proceedings of the Congress of the United Nations Commission on International Trade Law, U.N. GAOR Comm. on Int’l Trade L., 25th Sess., at 95, U.N. Doc. A/CN.9/SER.D/1 (1992) where the author comments on the practical implications of the Convention for the practice of law in New York, from the perspective of members of the New York Bar: “The uncertainty of the interpretation, and hence of the application, of the Sales Convention makes the New York practitioner wary, and thus reluctant to utilize the Sales Convention. The New York practitioner elects to opt out of the utilization of the Sales Convention in favor of a law with which he or she is more familiar, and therefore more comfortable. There is a tendency of the New York practitioners to opt out even in those situations where the likely outcome under the unsettled law of the Convention may be more favourable to the position of the practitioner and his or her client than the likely outcome under the settled law of the familiar Uniform Commercial Code.” Id.

10. See Arts. 49(1)(a), 51(2), 64(1)(a), 72(1), 73 (1)(2).

11. See Art. 46(2).

12. See Art. 70.

13. A similar emphasis on the actual effect of the breach was given in Hong Kong Fir Shipping Co. Ltd. v. Kawasaki Kisen Kaisha Ltd., [1962] 2 Q. B. 26; [1962] All E.R. 474, where a similar formula to article 25 was established: “Does the occurrence of the event deprive the party. . . of substantially the whole benefit which it was the intention of the parties as expressed in the contract that he should obtain . . .?” Id.

The formula was applied to contracts of the sale of goods in Cehave N.V. v. Bremer Handels-gesellschaft m.b.H., [1976] Q.B. 44, [1975] All E.R. 739, at 747, 755-57, 765. See also Kenneth C. Sutton, The Draft Convention on the International Sale of Goods, Austr. Bus. L.R. 269, 287 (1976) (commenting on an early draft of art. 25).

14. For a determination of the term “breach of contract,” see infra Part III, A. 1.

15. See Albert Kritzer, Guide to Practical Applications of the United Nations Convention on Contracts for the International Sale of Goods 211 (1992).

16. For a similar statement, see Michael Will, Art. 48, in Commentary on the International Sales Law, The 1980 Vienna Sales Convention 3.2.2 (C. Bianca & M. Bonell eds., 1987), (emphasizing that the buyer bears the risk of evaluating the degree of non-conformity); Antonio Boggiano, Uniform Law and Its Introduction into National Law — The Experience of Latin American States, in International Uniform Law in Practice 35 (UNIDROIT ed., 1988); Rolf Herber & Brigitte Czerwenka, Internationales Kaufrecht, Kommentar zu dem Übereinkommen der Vereinten Nationen vom 11 April 1980 über Verträge über den internationalen Warenkauf Art. 49, n. 6 (1991); Bernd v. Hoffman, Gewährleistungsansprüche im UN-Kaufrecht — verglichen mit dem EKG und BGB, in Einheitliches Kaufrecht und nationales Obligationenrecht 293, 300 (Peter Schlechtriem ed., 1987) (all emphasizing that in the absence of an express agreement, it will be very often not clear whether or not a breach amounts to a fundamental one; and that the seller runs the risk to commit a fundamental breach himself if he declares the contract avoided and a court later does not find for fundamental breach.); Jelena Vilus, Common Law Institutions in the United Nations Sales Convention, in Estudios en Homenage a Jorge Arrera Graf 1431, 1450 (Universidad Nacional Autonoma de Mexico, ed., 1989) (stating that businessmen, legal profession and judges of the civil law system will face difficulties in that the principle according to which liability is to be assessed in relation to the contract is unknown to them).

See also Commentary on the Draft Convention on Contracts for the International Sale of Goods prepared by the Secretariat, Document A/CONF.97/5, ¶ 2, art. 45 (antecedent to art. 49), United Nations Conference on Contracts for the International Sale of Goods, Official Records, New York, 1981 (A/CONF 97/19) [hereinafter Secretariat Commentary] (pointing out that uncertainty still exists as to whether the conditions for contract avoidance had been met). For a harsh criticism on the 1978 Draft art. 23 (antecedent to article 25 of the Official Text), See Ulrich Huber, Der UNCITRAL-Entwurf eines Übereinkommens über internationale Warenkaufvertrage, 43 RabelsZ 413, 524 (1979) (stating that the definition of fundamental breach is “meaningless, ambiguous and imprecise” and therefore “in general useless for practitioners”).

17. The mercantile need for predictability and certainty is emphasized by Kenneth C. Randall & John E. Norris, A New Paradigm for International Business Transactions, 71 Wash. U.L.Q. 599, 609 (1993).

18. See Robert Koch, Zum Begriff der wesentlichen Vertragsverltezung im Falle der Lieferung nicht vertragsgemaser Ware, RIW 98, 99 (1996) (pointing out that the seller has practically no choice but to take immediate possession of the goods delivered and/or try to sell them to a third party once the buyer has avoided the contract).

19. For a similar statement, see Jacob Ziegel, Analysis from a Provincial Common Law Perspective, in Report to the Uniform Law Conference of Canada on Convention on Contracts for the International Sale of Goods 33, Comment on Art. 25, (Jacob Ziegel & Claude Samson, eds., 1981) (emphasizing that the parties are always free to make arrangements with respect to the consequences of a breach); Steven J. Stein, Sales Contracts and the Impact of the UN Convention on the International Sale of Goods on U.S. Business, in International Commercial Agreements 49, 79 (Practicing Law Institute, ed. 1990) (stating the parties are advised to specify performance characteristics or testing procedures that “enable each side to make a more objective determination of whether a breach has occurred”).

20. See arts. 49(1)(b) and 64(1)(b), which enable the aggrieved party to declare the contract avoided if there is a delay in performance and if this breach of contract is not remedied within a reasonable time after notice in accordance with articles 47(1) or 63(1), respectively, has been given. The procedure authorized by these particular articles has a certain parentage in the German procedure of “Nachfrist” and the French procedure of a “mise en demure,” although in its current form, as emphasized in ¶ 7 of the Secretariat Commentary on 1978 Draft Art. 43 [antecedent to Art. 47 of the Official Text] (Original Records, at 39; Doc. History, at 429), it does not partake of either one. In the commentaries on the Convention the procedure is usually referred to as Nachfrist. See, e.g., Will, in Bianca/Bonell, Art. 49, supra note 16, at Art. 49, 2.1.3; and John O. Honnold, Uniform Law for International Sales Under the 1980 United Nations Convention § 305 (2d ed. 1991). See also infra note 27.

21. See Ziegel, supra note 19, at 3 (comment on art. 25).

22. See Peter Schlechtriem, Unification of the Law for the International Sale of Goods, National Report: Germany, in Internationaler Kongress für Rechtsvergleichng 1986, Deutscher Laenderberichte 121,136 (Schlechtriem, ed., 1987). A good example of the co-existence of both theories — interpretation autonomous to the Convention and interpretation in the light of domestic law — can be found in a decision of the European Court of Justice, Oct. 6, 1976, 12/76, Tessili/Dunlop, E.C.R. 1976, 1485, regarding the interpretation of the 1968 Brussels “Convention on Jurisdiction and the Enforcement of Judgements in Civil and Commercial Matters.” The Court stated: “The Convention frequently uses expressions and terms from the field of Civil, Commercial and Civil Procedure Law whose meaning may differ in the several member states. Consequently, the question arises as to whether these expressions and terms must be seen as autonomous — and thus common to all member states —, or as reference to the substantive provisions of that law which is applicable on the basis of conflict-of-laws rules of the court at first concerned with the matter.” Id.

23. Art. 7 (1) provides:

24. This point has been emphasized by Michael J. Bonell, Methodology in Applying Uniform Law for International Sales Under the U.N. Convention, in Italian National Reports to the 12th International Congress of Comparatice Law, 45 (1986); Schlechtriem, supra note 23, at 137; Frank Diedrich, Maintaining Uniformity in International Uniform Law via Autonomous Interpretation: Software Contracts and the CISG, 8 Pace Int’l L.Rev. 303, 313 (1996); Helen Elizabeth Hartnell, Rousing the Sleeping Dog: The Validity to the Convention on Contracts for the International Sale of Goods, 18 Yale J. Int’l L. 1, II.C.1a (1993).

25. See Michael Bonell, supra note 16, at 2.2.1, Art. 7; Amy H. Kastely, Unification and Community: A Rhetorical Analysis of the United Nations Sales Convention, 8 N.W. J.Int’l L. & Bus. 574, 601-2 (1988); Zhang Yuqing, Principles of Interpretation of a Uniform Law and Functions of Travauz Preparatories, Commentaries and Case Collections for Interpretation of a Uniform Law, in Uniform Commercial Law in the Twenty First Century: Proceedings of the Congress of the United Nations Commission on International Trade Law, U.N. GAOR Comm. on Int’l Trade L., 25th Sess., at 43, U.N. Doc. A/CN.9/SER.D/1 (1992).

26. This point has been emphasized by Ferarri. See Franco Ferarri, Uniform Interpretation of the 1980 Uniform Sales Law, 24 Ga. J. Int’l & Comp.L. 183, at 199 (1994), and Franco Ferarri, Recent Development: CISG: Specific Topics of the CISG in Light of Judicial Application and Scholarly Writing, 15 J.L. & Com. 1, at 9 (1995). The danger of forum shopping as a result of divergent interpretations has also been pointed out by Honnold. See John Honnold, Uniform Law for International Sales under the 1980 United Nations Convention § 92 (2d ed. 1991). The author states that “(t)he settlement of disputes would be complicated and litigants would be encouraged to engage in forum shopping if the courts of different countries persist in divergent interpretations of the Convention.” Id.

27. The “Nachfrist-type” requirement has its origin in German law and requires the creditor to give the debtor a notice requiring him to perform within a stated time. This principle is stated with regard to the obligation to make reparation in BGB § 250; with regard to cases where a decision for performance has been rendered against the debtor in BGB § 283; and with regard to reciprocal contracts in BGB § 326. See Guenter Heinz Treitel, Remedies for Breach of Contract, A Comparative Account 16-149 (1988).

28. For similar conclusions, see, e.g., Frans J.A. van der Velden, The Law of International Sales, National Report: Netherlands, in Netherland Reports to the Twelfth International Congress of Comparative Law 21, 31-34 (Gerver et al. eds., 1986) (stating that where a source of uniform law is a specific provision of national law recourse to its domestic interpretation is a logical aid to interpretation of the uniform law). See also F.A. Mann, Uniform Statutes in English Law, 99 L.Q.R. 376, 383 (1983) (stating that “[i]t is simply common sense that if the Convention adopts a phrase which appears to have been taken from one legal system . . . where it is used in a specific sense, the international legislators are likely to have had that sense in mind and to intend its introduction into the Convention”); Paul Volken, The Vienna Convention: Scope, Interpretation and Gap-Filling, in Dubrovnik Lectures 40 (Sarcevic & Volken eds. 1986) (emphasizing that recourse to domestic interpretation theories is admissible as long as the ultimate goal of uniform application remains unchallenged); Franco Ferarri, Uniform Interpretation of the 1980 Uniform Sales Law, 24 Ga. J. Int’l & Comp.L. 183, 209 (1994) (stating that recourse to the study of foreign concepts is admissible when “either the legislative history or the Convention itself leads to the conclusion that the drafters referred to concepts peculiar to a specific domestic legal system”); Ulrich Magnus, UN-Kaufrecht, in Julius von Staudingers Kommentar zum Bürgerlichen Gesetzbuch mit Einführungsgesetz und Nebengesetzen Art. 7 n. 13 (13th ed. 1995) (stating with regard to the foreseeability requirement under article 74 that recourse to its English roots is admissible).

For somewhat different conclusions, see Bonell, supra note 25, at 2.2.1 (1987) (stating that “[t]o have regard to the ‘international character’ of the Convention means first of all to avoid relying on the rules and techniques traditionally followed in interpreting ordinary domestic legislation”); Bernard Audit, The Vienna Sales Convention and the Lex Mercatoria, in Lex Mercatoria and Arbitration 154 (Carbonneau ed., 1990); Gyula Eörsi, General Provisions, in International Sales 5-6 (1984); Franco Ferarri, Uniform Interpretation of the 1980 Uniform Sales Law, 24 Ga. J. Int’l & Comp.L. 183, at 201-202 (1994); Nives Povrzenic, Interpretation and Gap-Filling under the United Nations Convention on Contracts for the International Sale of Goods, at 3(A) Pace CISG Database (visited April 1997), "http://www.cisg.law.pace.edu/cisg/biblio/gap-fill.html".

29. For similar affirmations, see Fritz Enderlein, Uniform Law and its Application by Judges and Arbrators, in International Uniform Law in Practice 331-333 (UNIDROIT ed. 1988).

30. The need for critical consideration of domestic legal concepts when interpreting uniform law has been pointed out by a decision of the German Supreme Court, (Bundesgerichtshof) 14 July 1983, RIW 1984, 153, on art. 29 CMR (Convention on the Contract for the International Carriage of Goods by Road), where the carrier’s liability depends on how the words “willful misconduct” in the English version and “faute . . . qui . . . est consideré comme equivalent au dol” in the French version were construed. After exhaustive consideration of foreign cases and analyses, the court came to the conclusion that in view of the linguistic ambiguities, regard should be had to “the Convention’s legislative history as well as to its underlying policy and objective; in doing so, one must take care not to borrow domestic legal concepts without closer inspection as this might endanger the intended unification”. [emphasis added]. See id.

A translated summary of the decision is reprinted in Peter Schlechtriem, Unification of the Law for the International Sale of Goods, National Report: Germany, in Internationaler Kongress fuer Rechtsvergleichng 1986, Deutscher Laenderberichte 139 n.34 (Peter Schlechtriem ed., 1987).

31. The doctrine of fundamental breach was introduced in Smeaton Hanscomb v. Sassoon I Setty [1953] 2 All E.R. 1471; Spurling v. Bradsbau [1956] 2 All E.R. 121; Karsales (Harrow) Ltd. v. Wallis [1956] 2 All E.R. 866. These decisions established the principle that it was a rule of law that a party to a contract could not be allowed to rely on an exclusion or exemption clause if he was guilty of a fundamental breach of that contract. This doctrine was put to rest by the House of Lords in Suisse Atlantique Sociétié d’Armement Maritime S.A. v. Rotterdamsche Kolen Centrale, [1967] A.C. 361, where the rule of law concept was rejected in favor of an approach based on the true construction of the contract. See also Photo Production Ltd. v. Securicor Transport Ltd., [1980] A.C. 827.

32. For a similar conclusion, see New Zealand Law Commission, Report, at ¶ 56; see also John O. Honnold, Uniform Law for International Sales Under the 1980 United Nations Convention § 181.1 (2d ed. 1991).

33. For a similar affirmation, see Bonell, supra note 25, (stating that “there is no valid reason to adopt a narrow interpretation”); see also Bernard Audit, The Vienna Sales Convention and the Lex Mercatoria, in Lex Mercatoria and Arbitration 153. Historically, much of the common law world adhered to the doctrine of English courts that statutes must be given a literal reading, whereas in most civil law countries the judge may examine the preparatory works (travaux préparatoires) in pursuit of the subjective intention of the legislature. As for the interpretation of international conventions, however, the House of Lords in 1980 made a significant departure from the strict English approach with respect to treaty interpretation (see Fothergill v. Monarch Airlines, [1980] 2 All ER 696, where four of five law lords made reference to the legislative history in order to interpret a provision of the Warsaw Convention on the liability of air carriers). Recently, the House of Lords has further relaxed the traditional approach in respect of domestic legislation (§ 63(1) of the Finance Act 1976). It held that:

34. See, e.g., UCC § 1-103 which provides:

35. See Frank Diedrich, Voraussetzungen einer Vertragsaufhebung wegen Sachmängeln nach dem Wiener Kaufrecht, 11, 13, RIW (1995). See also Diedrich, supra note 24, at 319 (stating that recourse to common law rules is not admissible).

36. For similar affirmation, see Enderlein, supra note 26, at 331-33; Joanne M. Darkey, Recent Developments: CISG: A U.S. Court's Interpretation of Damage Provisions under the U.N. Convention on Contracts for the International Sale of Goods: A Preliminary Step Towards an International Jurisprudence of CISG or Missed Opportunity? 15 J.L. & Com. 138, at 141 (1995) (stating that “since the CISG is a code, it is a logical assumption that a civil law approach to interpretation is favored”); Schlechtriem, supra note 22, at 149 (stating that in “the interpretation of uniform law of sales just as in the interpretation of domestic law, the grammatical/verbal, the systematic, the historical and the teleological methods are distinguished”).

37. See, e.g., Van der Velden, supra note 28, at 24; Diedrich, supra note 24, at 328.

38. Though concerned with the interpretation of treaties between States, the 1969 Vienna Convention on the Law of Treaties, U.N. Doc. A/CONF. 39/27, reprinted in 289 I.L.M. 679 (1969), confirms this point. Art. 31 of that Convention provides that a treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose. Art. 32 of that Convention further provides that recourse may be had to supplementary means of interpretation, including the preparatory work of the treaty and the circumstances of its conclusion, in order to confirm the meaning resulting from the application of art. 31, or to determine the meaning when the interpretation according to art. 31 leaves the meaning ambiguous or obscure or leads to a result which is manifestly absurd or unreasonable.

39. For similar conclusions, see, e.g., Diedrich, supra note 24, at 321 (1996); Enderlein, Uniform Sales Law, at 333-34; Frans J.A. van der Velden, The Law of international Sales: The Hague Conventions 1964 and the UNCITRAL Uniform Sales Code 1980 -- Some Main Items Compared, in Hague-Zagreb Essays 4 58 (Voskuil & wade eds., 1983). See also Peter Schlechtriem, From The Hague to Vienna-Progress in Unification of the Law of International Sale Contracts, in The Transnational Law of International Commercial Transactions: Studies in Transnational Economic Law 125, 134 (Horn & Schmitthoff eds., 1982) (stressing with regard to the teleological interpretation the importance of the teleological method to preserve and further uniformity).

40. See Enderlein, supra note 26, at 331; Van der Velden, supra note 28, at 24; and Diedrich, supra note 24, at 328 (1996).

41. See Schlechtriem, supra note 22, at 138 (observing that “numerous volumes [of decisions by German Courts] could be filled with similar decisions on uniform law created by international conventions: all of these decisions attempt to find a solution by analyzing the wording with regard to the several original languages . . . ”); and Enderlein, supra note 26, at 331.

The UNIDROIT Principles art. 4.7, see infra note 67, provides that preference should be given to the version in the language in which the contract was originally drawn up.

42. Several disparities in wording and content between the various language texts, mostly between the English and the French version, have been reported. See, e.g., Vivian Curran, Book Review: the Interpretive Challenge to Uniformity by Claude Witz, 15 J.L. & Com. 175, 180 (1995) (referring to differences in terminology between the French and the English version of arts. 3(1), 71 and 72); Audit, Vienna Sales Convention, at 154 (referring to the differences between the English and the French version of art. 39 which refers to the “non-conformity of the goods” whereas the French text speaks of “défault de conformité” in general terms); van der Velden, supra note 28, at 25 (asserting that the English and French enumerations under art. 2(d) are not identical in all details); and Arthur Rosett, Critical Relections on the United Nations convention on Contracts for the International Sale of Goods, 45 Ohio St. L.J. 265, 302 (1984) (analyzing the problems of translation when drafting and interpreting multilingual legal texts with reference to article 46).

43. See, e.g., Cook, The Need for Uniform Interpretation of the 1980 United Nations Convention on Contracts for the International Sale of Goods, 50 U. Pitt. L.Rev. 197 at 212 (1988); van der Velden, supra note 28, at 25; for somewhat different conclusions, see Diedrich, supra note 24, at 328 (1996) (asserting that in case of disparities article 33 of the Vienna Convention on the Law of Treaties has to be applied, which provides that the real or normative intention of the final diplomatic conference is decisive, and concluding that only the French and English texts have to examined).

44. In the eyes of some scholars interpretation by means of legislative history is only one way of historical interpretation. See, e.g., Enderlein, supra note 26, at 333; van der Velden, Interpretation by Dutch Courts, at 28. They contrast between interpretation by means of legal history and by means of legislative history. They are apparently of the opinion that the latter method does not allow consideration and analysis of the law as it was before the enactment of a statute. This is not true as far as the previous law was subject of the drafters’ deliberations and the starting point for amendments. Besides, reference to previous provisions is not allowed if such reference is aimed at justifying an interpretation different from the one that can be found in the officially published preparatory works. Thus only when these works are silent on the reasons for amendments or the drafters expressly referred to previous provisions reference to them is admissible.

45. See Peter Schlechtriem, Uniform Sales Law: the UN Convention on Contracts for the International Sale of Goods 19 (1986) and Yuqing, supra note 25, at 45.

46. Convention Relating to a Uniform Law on the International Sale of Goods (“ULIS”), July 1, 1964, 834 U.N.T.S. 107 (1972); 3 I.L.M. 854; also available in full text at http://www.cisg.law.pace.edu/cisg/text/ulis.html; and Convention Relating to a Uniform Law on the Formation of Contracts for the International Sale of Goods (“ULFC”), July 1, 1964, 834 U.N.T.S. 169 (1972); 3 I.L.M. 864; also available in full text at http://www.cisg.law.pace.edu/cisg/text/ulf.html.

47. See Honnold, supra note 20, at § 88. See also John O. Honnold, Uniform Words and Uniform Application. The 1980 Sales Convention and International Juridicial Practice, in Einheitliches Kaufrecht und Nationales Obligationenrecht 115, 130 (Peter Schlechtriem ed., 1987) (stating that where the Hague text was retained, modified, or rejected the discussions shed light on the common understanding of the Hague solution and the reasons for its retention or for the change); Claude Samson, La vente: Convention des Nations Unies sur les contracts de vente internationale de marchandises, in Conferences sur le nouveau code civil du Québec 269, 283 (Yvon Blais ed., 1992) (“Pour s’assurer que l’interprète devra prendre connaissance de l’historique du mouvement d’uniformisation du droit de la vente internationale de marchandises qui constitute le contexte dans lequel la C.V.I.M. a été adoptée”).

48. See generally Secretariat Commentary, supra note 16.

49. To the same effect, see database of the University of Freiburg, http://www.jura.uni-freiburg.de/ipr1/cisg/guide/8-2.htm (explaining the function of the Secretariat Commentary).

However, it is important to keep in mind that the Secretariat Commentary is a commentary on the 1978 Draft Convention, not on the official text that was eventually adopted by the 1980 Diplomatic Conference.

50. See, e.g., van der Velden, supra note 28, at 28.

51. See Enderlein, supra note 26, at 333.

52. The documents embodying this legislative history are reproduced in Volumes I-X of the UNCITRAL Yearbooks and in the Official Records of the 1980 Diplomatic Conference. See United Nations Conference on Contracts for the International Sale of Goods, Official Records, UN Document No. A/CONF.97/19, (Vienna, 10 March-11 April 1980) [hereinafter Official Records].

Furthermore, the relevant documents are reproduced and introduced and references in the documents’ margins to the final articles of the Convention for which the legislative deliberations were relevant are provided by Honnold’s excellent Documentary History of Uniform Law for International Sales. See generally John O. Honnold, Documentary History of the Uniform Law for International Sales (1989) [hereinafter Documentary History].

53. See Enderlein, supra note 26, at 333.

54. See Note, supra note 5, at 1989 (criticizing the negotiation procedure at the Vienna Conference and stating that “[t]he delegates may have accepted compromises simply because they regarded the portions reflecting their own national laws to be the essence of the new formulations”); Leif Sevón, Method of Unification of Law for the International Sale of Goods, in The Finnish National Reports to the Twelfth Congress of the International Academy of Comparative Law 22 (stating that the reasons for introducing or supporting a provision do not necessarily reveal the background of that provision).

55. See supra note 25, at 3.1.3. (stating that even when the arguments put forward in favor of the adoption of a given provision were not controversial they are not necessarily decisive).

56. For a similar statement, see Sevón, supra note 54, at 22 (stating that the reasons for introducing or supporting a provision given by one or a few delegates does not necessarily reveal the background of that provision).

57. For a similar conclusion, see Enderlein, supra note 26, at 333; for a somewhat different conclusion, see Dietrich Maskow, On the Interpretation of the Uniform Rules of the 1980 UN Convention on Contracts for the International Sale of Goods, in Nationales Komitee für Rechtswissenschaft der DDR 14 (1986).

58. See van der Velden, supra note 28, at 27, and Enderlein, supra note 26, at 332 (both stating that systematic interpretation has two aspects). Sometimes systematic interpretation is also called logical interpretation. It seems that these terms are used interchangeably when used to describe interpretive techniques and do not in fact differ.

59. See van der Velden, supra note 28, at 27 and Enderlein, supra note 26, at 332.

60. The importance of the systematic approach to interpretation within the Convention is emphasized by Schlechtriem, supra note 22, at 139; see also Kastely, supra note 25, at 604 (1988) (stating with regard to the systematical interpretation that it follows from Art. 7(1) that the Convention is to be interpreted as a “complex legal text, in which each detailed provision is to be understood as a part of a larger analytic system, given coherence by an underlying set of values”); Honnold, supra note 20, at § 186 (as to the term “fundamental breach” in context); Andrew Babiak, Defining "Fundamental Breach" under the United Nations Convention on Contracts for the International Sale of Goods, 6 Temple Int’l & Comp. L.J. 113, at 117 (1992); Mann, supra note 28, at 382 (1983); Magnus, supra note 28, Art. 7 n.34; and Gerhard Dannemann, An Introduction to German Civil and Commercial Law, at 4 (1993) (stressing that the unified structure of [German] law requires that legal provisions must be interpreted in such a way that they do not contradict each other).

61. For a similar statement, see J. S. Hobhouse, International Conventions and Commercial Law: The Pursuit of Uniformity, 106 L. Q. R. 530, at 534 (1990).

62. The controversy over whether the lack of a definite price term in an offer leads to the failure of the offer shows the practical significance of the systematic interpretation under the Convention. To determine the validity of an offer that neither fixes the price nor makes provision for determining the price, the relationship between Article 14 and Article 55 needs to be examined to avoid discrepancy. For an overview and detailed discussion of the controversy, see Amato, Recent Developments: CISG: U.N. Convention on Contracts for the International Sale of Goods -- The Open Price Term and Uniform Application: An Early Interpretation by Hungarian Courts, 13 J.L. & Com. 1 (1993) (commenting on early interpretations of the open price term by Hungarian Courts) and Gyula Eörsi, Art. 55, in Commentary on the International Sales Law, the Vienna Sales Convention 2.2.2 (C. Bianca & M. Bonell eds., 1987).

63. See van der Velden, supra note 28, at 27; Enderlein, supra note 26, at 332.

64. See Diedrich, supra note 24, at 335 (stating that systematic comparison with other conventions is dogmatically inadmissible since there is no international uniform law that could serve as justification for the principle of legal unity within one system of law that presupposes a methodical and dogmatic consistency of its laws); see also, van der Velden, supra note 28, at 27.

65. See Diedrich, supra note 24, at 335 (stating that as long as the international legislator is generally not identical it would be questionable to “transplant definitions or legal maxims from one convention to another unless these were explicitly or obviously adopted by the international legislator with the same specific meaning for the convention in question”); see also van der Velden, supra note 28, at 27, where the author points out as follows: “. . . once we try to interpret a provision by considering its relation to other statutes, we are on a slippery slope. Then we have to decide the question, what relationship exists between the various uniform statutes. Are they to be considered part of a general system of uniform law that is still in statu nascendi, part of a lex mercatoria moderna?”

66. For somewhat different conclusions, without further explanation, however, see Enderlein, supra note 26, at 332; (asserting that different uniform laws, such as the 1974 Limitation Convention for International Sale of Goods, should be compared and used for systematic interpretation).

67. International Institute for the Unification of Private Law, Principles of International Commercial Contracts (Rome 1994) [hereinafter UNIDROIT Principles]. The UNIDROIT Principles were approved in May 1994 by the UNIDROIT Governing Council of the International Institute for the Unification of Private Law. They do not have the force of law and can be best compared to Restatements of the law published in the United States. To an extent, the Principles are modeled on the Convention. The Principles are, however, far broader in scope since they are, unlike the Convention, not limited to contracts for the sale of goods and furthermore also deal with the question of contract validity. The UNIDROIT Principles are divided into seven chapters (“General Provisions,” “Formation,” “Validity,” “Interpretation,” “Content,” “Performance,” and “Non-Performance”) and preceded by a Preamble defining their scope of application.

For an overview of the UNIDROIT Principles, see generally, Joseph M. Perillo, UNIDROIT Principles of International Commercial Contracts: The Black Letter Text and a Review, 63 Fordham L. Rev. 281 et seq. (1994); and Franco Ferrari, Defining the Sphere of Application of the 1994 "UNIDROIT Principles of International Commercial Contracts," 69 Tul.L.Rev. 1225 (1995). The text of the Black Letter Rules of the UNIDROIT Principles is also available at "http://www.unidroit.org/english/principles/princ.htm".

68. See Michael J. Bonell, The UNIDROIT Principles of International Commercial Contracts: Why? What? How?, 69 Tul.L.Rev. 1121, 1142-1143 (1995); Perillo, supra note 67, at 283 (1994); Ferrari, supra note 67, at 1232-1235 (1995); Alejandro M. Garro, The Gap Filling Role of the UNIDROIT Principles in International Sales Law: Some Comments on the Interplay between the Principles and the CISG, 69 Tul.L.Rev. 1149, 1152-1155 (1995); Luiz Olavo Baptista, The UNIDROIT Principles for International Commercial Law Project: Aspects of International Private Law, 69 Tul.L.Rev., 1209, at 1218 (1995); Ulrich Magnus, The General Principles of the CISG, 3 Int’l Trade & Bus. L. A. (Austr.) 33-56, at 6(b) (1997); Ralph Amissah, The Autonomous Contract, in Seminar on Legal Information 10, 33 (1997) (at http://itl.irv.uit.no/trade_law/papers/The.Autonomous.Contract.18.08.1997.Amissah.c.html; and Maskow, supra note 57, at 11 (all stating that the UNIDROIT Principles could play a role in interpreting and supplementing international instruments). As to the relationship between the UNIDROIT Principles and the Convention in general, see A. S. Hartkamp, The UNIDROIT Principles for International Commercial Contracts and the United Nations Convention on Contracts for the International Sale of Goods, in Comparability and Evaluation. Essays on Comparative Law, Private International Law and International commercial Arbitration 95 (1994).

69. See generally Commission on European Contract Law, The Principles of European Contract Law (Ole Lando & Hugh Beale eds., 1995) [hereinafter European Principles]. Like the UNIDROIT Principles, the European Principles do not have the force of law. To date, the European Community has no legislative competence in the area of sales law. This lack of jurisdiction, however, does not exclude that, at a future date, the European Principles may be set in place as an instrument that has the force of law in the European Community, such as the 1980 (Rome) Convention on the Law Applicable to Contractual Obligations, June 19, 1980, O.J. (L.266); reprinted in 8 I.L.M. 1492 (1980) [hereinafter Rome Convention]. Referring to the desirability of “a common European Code of Private Law,” this goal is set forth in the Resolution of 6 May 1994 of the European Parliament that set in place the Commission on European Contract Law that authored the Principles of European Contract Law. See Cross Reference and Editorial Analysis of CISG Article 7, in Pace CISG Database, http://www.cisg.law.pace.edu/cisg/biblio/hillman1.html footnote 18 (Sept. 1987). For an account of the efforts made in order to create the “European Contract Law,” see, e.g., Lando, European Contract Law, 31 Am.J.Comp.L. 653, 653-655 (1983). As for the relationship between the UNIDROIT Principles, the Convention and the European Principles, see Bonell, supra note 2 at 229-46.

There are two versions of the European Principles. The English text of the first version is available at "http://www.ufsia.be/~estorme/PECL1en.html". The completed and revised English text of the second version is available at "http://www.ufsia.be/~estorme/PECL2en.html".

70. To this effect, see Bonell, supra note 69, at 245 (1996).

71. The practically most important example for a significant divergence in the remedial system between the two instruments concerns the non-performing party’s right to cure. While the UNIDROIT Principles grant the non-performing party such right even if the aggrieved party has rightfully terminated the contract (see art. 7.1.4), according to the European Principles, the non-performing party may cure only where the time of performance has not yet arrived or the delay would not be such as to constitute a fundamental non-performance (see article 8:104 [ex article 3.104]).

For further examples of divergences, see Bonell, supra note 26, at 236-241.

72. See id. at 245 (1996) (envisaging that “outside Europe or in commercial transactions involving non-Europeans, it will be the UNIDROIT Principles that apply, while within the European Union or in purely intra-European contracts, especially between merchants and consumers, it will be the European Principles that prevail”). Id.

73. The future existence of two similar sets of “Principles” has led some commentators to make “doomsday” predictions. Parties and arbitrators, it is argued, will be faced with two competing instruments and the need to choose between them is seen as a veritable “nightmare scenario.” See e.g., H. Raeschke-Kessler, Should an Arbitrator in an International Arbitration Procedure Apply the UNIDROIT Principles?, in UNIDROIT Principles for International Commercial Contracts, A New Lex Mercatoria? 167, 174–175 (Inst. Of Int'l Bus. Law ed., 1995). See also C. Kessedian, Un exercise de rénovation des sources du droit des contrats du commerce international: Les Principes proposés par l'Unidroit, in RCDIP 641, 669 (1995).

The few reported cases where courts have applied the UNIDROIT Principles do not concern the interpretation of the Convention but the filling of gaps in the Convention, namely three arbitration awards — two rendered by the International Court of Arbitration of the Federal Chamber of Commerce of Vienna, [Award No. 4318 and Award No. 4366 of 15 June 1994] (for an English translation see UNILEX, third release (1997), E.1994-13 and E.1994-14; for extracts of the original German version, see RIW 1995, 590 et seq.) and one by the Court of Arbitration of the International Chamber of Commerce [ICC Award No. 8128 of 1995] (an abstract of which has been published in J.D.I. 1996, 1024). They all deal with the determination of interest rates, the amount of which is not fixed under the Convention.

There is also a national court decision, which applied the UNIDROIT Principles in order to confirm a result already reached under the Convention. In determining the place of performance of the seller’s obligation to return part of the price unduly paid by the buyer, a Swiss court stated that monetary obligations are to be performed at the promisee’s place of business, which could be extracted not only from art. 57(1), but also from art. 6.1.6 of the UNIDROIT Principles. See Cour d’appel de Grenoble, 23 October 1996, unpublished; a summary is published in 1 Uniform L.Rev. (1997).

74. See supra Part I, B. 1.

75. See Schlechtriem, supra note 22, at 141 and Lisa M. Ryan, The Convention on Contracts for the International Sale of Goods: Divergent Interpretations, 4 Tul.J.Int’l & Comp.L. 99, at 117 (both emphasizing the importance of the interpretation of the Convention by way of the teleological method).

76. See Mann, supra note 28, at 383.

77. See, e.g., Honnold, Uniform Words, supra note 47, at § 88 (underlining the link of legislative materials to realize the purpose of the legislation).

78. See the Vienna Convention on the Law of Treaties, supra note 38, which specifically mentions the preamble of a treaty as being part of the context for the purpose of the interpretation of a treaty.

79. See the third clause of the Convention’s preamble which reads:

80. For similar conclusions, see Audit, supra note 28, at 154; Bonell, supra note 25, at 3.1.3; Mann, supra note 28, at 383-384 (1983); Diedrich, supra note 24, at 321; Yuqing, supra note 25, at 45-46; and Babiak, supra note 60, at 117.

For a discussion of the role of doctrinal writing in the unification of law, see Edgar Bodenheimer, Doctrine as Source of the International Unification of Law, 43 Am. J. Comp. L. 67 (1986).

81. See infra Part II, B. 1. f.

82. For a similar reasoning and conclusion, see Magnus, supra note 28, Art. 7, n.32. For a somewhat different conclusion, see Bonell, supra note 25, at 2.2.1 (stating that courts are expected to look whenever it is possible to the underlying purposes and policies of individual provisions as well as the Convention as a whole instead of sticking to their grammatical meaning).

83. According to art. 14 a proposal “is sufficiently definite if it . . . expressly or implicitly fixes or makes provision for determining . . . the price. On the other hand, art. 55 provides that “where a contract has been validly concluded but does not expressly or implicitly fix or make provision for determining the price, the parties are considered, in the absence of any indication to the contrary, to have impliedly made reference to the price generally charged at the time of the conclusion of the contract for such goods sold under comparable circumstances in the trade concerned”. To resolve this controversy it has been argued that art. 55, in Part III of the Convention dealing with the obligations of the buyer, was designed for use only where a Contracting State made a declaration under art. 92(1) that it will not be bound by Part II of the Convention on contract formation. For an overview on and detailed discussion of the controversy, see Amato, supra note 62, at 8 (commenting on early interpretations of the open price term by Hungarian Courts). See also E. Allan Farnsworth, Formation of Contract, in International Sales 1, ch. 3, 8-9 (Galston & Smit eds., 1984).

84. See Yuqing, supra note 25, at 43. The vagueness of the concept of good faith has been criticized, for instance, by Rosett, supra note 42, at 289, where the author points out “the multiple meanings of good faith and the differing connotations the doctrine possesses in different legal systems.” see also E. Allan Farnsworth, Problems of the Unification of Sales Law from the Standpoint of the Common Law Countries, 7 Dig. Com. L. 3, 18 (1980) (where the author draws attention to the disadvantages of the good faith term due to its vagueness).

Its incorporation into the Convention has been welcomed, inter alia, by Muna Ndulo, The Vienna Sales Convention 1980 and the Hague Uniform Laws on International Sale of Goods 1964: A Comparative Analysis, 38 Int’l & Comp. L.Q. 1, 9 (1989) (asserting that the good faith principle gives the courts the flexibility which is needed by any code to make it work in practice since it allows courts to avoid an over-literal interpretation which would provide inequitable results not intended by the drafters, and could prevent a too hasty resort to domestic law).

85. See Bonell, supra note 25, at 2.4, who points out that the “good faith” requirement represents a compromise between the views of those representatives “who would have preferred a provision imposing directly on the parties the duty to act in good faith, and those who in the contrary were opposed to any explicit reference to the principle of good faith in the Convention.” Id.

However, the compromise did not end the controversy between the divergent views and it is now in dispute how the reference to the interpretation of the Convention is to be understood. Some authors insist on the literal meaning of art. 7(1) and conclude that the principle of good faith is just an additional criterion to which judges must make reference in the interpretation of the Convention. See, e.g., Hillman, supra note 69, at para. 3; E. Allan Farnsworth, The Vienna Convention: History and Scope, 18 Int'l Law 17, 18 (1984); Peter Winship, International Sales Contracts Under the 1980 Vienna Convention, 17 U.C.C. L.J. 55, at 67 (1984); and Gyuilo Eörsi, A Propos for the 1980 Vienna Convention on Contracts for the International Sale of Goods, 27 Am.J.Comp.L 333, at 349 (1983). Others take the view that “the need to promote . . . the observance of good faith in international trade” is also necessarily directed to the parties to each individual contract of sale. See, e.g., Bianca, supra note 25, at 84; Rosett, supra note 42, at 290. In substance, see also Schlechtriem, supra note 45, at 39; Dietrich Maskow, The Convention on Contracts for the International Sale of Goods from the Perspective of the Socialist Countries, in La Vendita Internazionale 39, 54-57 (Giuffrè ed., 1981);Alejando M. Garro, Reconciliation of Legal Traditions in the U.N. Convention on Contracts for the International Sale of Goods, 23 Int’l Law. 443, at 467-468 (1989); and Glower W. Jones, Warranties in International Sale of Goods compared to the U.S. Uniform Commercial Code on Sales, 17 Int’l Bus. Lawyer 497, at 499 (1989).

86. For similar statements, see, e.g., Bianca, supra note 25, at 43; Maskow, supra note 57, at 18.

87. For similar affirmations, see Maskow, supra note 57, at 18 (pointing out that the dispute is of no practical relevance because “in the relationship between the parties the principle of good faith must be observed because in case of a subsequent examination of their conduct by an arbitration board this principle would be revoked anyhow in interpreting the Convention”); Eörsi, supra note 28, at 2-9 (arguing that interpretation of the contract and the Convention cannot be separated “since the Convention is also necessarily interpreted by the parties”); and Rolf Herber, in Commentary on the UN Convention on the International Sale of Goods 59, n.6 (Peter Schlechtriem ed.,1998) (stating that any differentiation is impossible because the interpretation of the Convention is to promote conduct that accords with good commercial practice).

88. For a list of applications of the good faith principle in particular provisions of the Convention, see the Secretariat Commentary, supra note 16, at art. 6 [antecedent to art. 7 of the Official Text] or the Official Records, supra note 52, at 18, where it is stated that

89. Similar statements can be found in Schlechtriem, supra note 45, at 39; Honnold, supra note 20, at § 95 (asserting that this approach is analogous to and supported by article 9, which provides that contractual obligations include “practices established by the parties and usages . . . in the particular trade”); Phanesh Koneru, The International Interpretation of the UN Convention on Contracts for the International Sale of Goods: An Approach Based on General Principles, 6 Minn.J. Global Trade 105 III.A (1997) (stating that “a general-principles analysis of the various provisions of the Convention makes it clear that ‘good faith’ is so pervasive a concept that it must be a general principle of the Convention”).

A similar linkage can be found in UCC § 1-203 (1978) (“Every contract or duty within this Act imposes an obligation of good faith in its performance or enforcement”). See also Issak Dore and James E. Defranco, A Comparison of the Non-Substantive Provisions of the UNCITRAL Convention on the International Sale of Goods, and the Uniform Commercial Code, 23 Harv. Int’l L.J. 49, 61 (1982) (where the authors state that the good faith requirement provision does not constitute a mere instrument of interpretation, but rather, it “appears to be a pervasive norm analogous to the good faith provision of the U.C.C”).

90. For similar conclusions, see Maskow, supra note 57, at 18 (asserting that “[i]n determining what observance of good faith means, one has to proceed, from the Convention itself, i.e. its individual principles and rules, being an expression of this principle” and concluding that “the principles of the Convention concretize each other”); Honnold, supra note 20, at § 95 (stating that interpreting the Convention to promote the observance of good faith is related to the general principles on which the Convention is based); Schlechtriem, supra note 45, at 39 (stating that “good faith in international trade” is of the general principles and should be construed in the light of the Convention’s many references to standards of reasonableness).

For references to reasonableness or the reasonable person, see the following overview in Honnold, supra note 20, at § 95, n. 28: Arts. 8(2) (reasonable person), 8(3) (same), 16(b) (reasonable reliance), 18(2) (reasonable time), 34 (unreasonable inconvenience or expense), 35(2)(b) (unreasonable to rely), 37 (unreasonable inconvenience or expense), 38(3) (reasonable opportunity for examination), 39(1) (reasonable time), 48(1) (unreasonable delay, inconvenience), 48(2) (reasonable time), 49(2) (reasonable notice), 60(a) (acts reasonably expected), 63(1) (reasonable time), 72 (reasonable time for notice), 75 (reasonable time and manner), 76(2) (reasonable substitute), 79(1) (reasonable expectations), 79(4) (reasonable time), 85 (reasonable steps), 86(1) (same), 86(2) (unreasonable inconvenience or expense), 88(1) (unreasonable delay), 88(2) (unreasonable expense; reasonable measures to sell). Honnold, id., suggests determining what is “reasonable” by “ascertaining what is normal and acceptable in the relevant trade.” Id. See also, Maskow, supra note 57, at 87, who refers to “a conduct as is normal among tradesmen.”

91. This principle is also considered one of the general principles of the Convention by Honnold. See Honnold, supra note 20, at § 101; Samson, supra note 47, at 247; Ferrari, supra note 26, at 225; Mark N. Rosenberg, The Vienna Convention: Uniformity in Interpretation for Gap-Filling -- An Analysis and Application, 20 Austr. Bus. L. Rev. 442, at 452 (1992).

92. See Secretariat Commentary supra note 16, at art. 73, para. 3, Official Records, supra note 52, at 61; Eric E. Bergsten and Anthony J. Miller, The Remedy of Reduction of Price, 27 Am. J. Comp.L. 255, at 265 (1979) (stating that although the mitigation principle of Draft article 73 [antecedent to article 77 of the Official Text] does not directly apply to the reduction of price the same result is achieved by Draft article 46 [antecedent to article 50 of the Official Text]; Magnus, supra note 68, at 5(b)(3), takes the view that the limitation under article 50 is an expression of the Convention’s general principle of the prohibition of venire contra factum proprium (actions contrary to prior conduct).

93. There is a considerable difference between the legal systems as to how extensive and how powerful the penetration of the principle of good faith has been. At the one end of the spectrum figures a system where the principle has revolutionized the contract law and added a special feature to the style of that system (Germany). At the other end we find systems, which do not recognize a general obligation of the parties to conform to good faith in the performance of a contract, but which in many cases by specific rules reach the results that the other systems reach by the principle of good faith (the Common Law of England). However, even in those systems where the principle of good faith is recognized, the courts are not generally permitted to establish a general principle of fairness and equity. See Lando & Beale, supra note 69, at 56-58. Only the new Dutch civil code (BW articles 6:2 and 6:248(2)) goes further and, under exceptional circumstances, allows a court to replace the effects of a contract or statutory provision by an outcome which it believes to be more fair and equitable. See Introduction to Dutch Law 95-97 (Chorus/Gerver/Hondius/Kockkock, eds., 2d. ed. 1993) (emphasizing that these new provisions adopts the view that statutory provisions and even express terms of contract can be set aside whenever their application or enforcement would be grossly unjust).

94. See the discussion of the inclusion of a provision on good faith within the Official Records, supra note 52, at 35. It is reported that the retention of the good faith requirement was criticized on the basis that the Draft Convention did not specify the consequences of a failure to observe the principles which were made binding on the parties, and consequently, no uniformity of sanctions would be achieved.

95. See infra Part III, C.1.b., and E.2.a.

96. For a similar conclusion, see Babiak, supra note 60, at 116-117.

97. Within the European Union it is the European Court of Justice (ECJ) which has been given the jurisdiction to render, at the request of national courts, binding decisions on questions of interpretation relating to EU-law in the narrow sense, as well as to international conventions adopted by the member states, such as the Brussels Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters, Sept. 27, 1968, 1990 O.J. (C 189) [hereinafter Brussels Convention] and the Rome Convention. supra note 69. In theory, European national courts, in tune with civil law systems’ rejection of stare decisis, are not bound by decisions rendered by the ECJ. In practice, however, courts follow the ECJ’s rulings. See P.S.R.F. Mathijsen, A Guide to European Union Law, at 98-99 (1995).

98. See Diedrich, supra note 24, at 338 (stating that there is no internationally binding rule that foreign judgements have the force of “binding precedents”); Enderlein, supra note 26, at 348 (emphasizing that “the only force foreign decisions have is their persuasive effect”); Boggiano, supra note 16, at 47 (stating that domestic courts should consider academic writings, obiter dicta, and decisions in previous cases, and the probability considered that other courts will follow such decisions).

But see Ferrari, supra note 2, at 11-12 (asserting that if “the same-or analogous-issues have already been examined by other States’ courts such decisions should have either the value of precedent ‘if there is already a body of international case law’, or a persuasive value”).

99. Like foreign decisions, scholarly writings have persuasive authority only. See Honnold’s review, in: Uniform Words, supra note 47, at 125-27, for the role of legal writing in different common and civil law jurisdictions. See also Michael Bonell, The UNIDROIT Principles of International Commercial Contracts and the CISG, in Uniform Commercial Law in the Twenty First Century: Proceedings of the Congress of the United Nations Commission on International Trade Law, U.N GAOR Comm. on Int'l Trade L., 25th Sess. at 37 U.N. Doc. A/CN.9/SER.D/1 (1992) (emphasizing the interaction between case law and comments by legal writing in the attempt to constantly improve the understanding of the legislative texts).

100. See Bonell, supra note 29, at 35 (stating that the most effective way of ensuring uniformity in the interpretation of uniform law is to have regard to the way in which the single convention or uniform law is interpreted in the other countries); Maskow, supra note 85, at 54 (stating that the interpreter must consider “what others have already done”); Volken, supra note 28, at 45 (emphasizing that “[i]n order to achieve uniform application of the Convention, in addition to applying basically similar interpretation theories and taking other linguistic versions of the same provision into account, the courts of one country should be able to consult the judicial decisions and doctrine of another country”).

For similar statements, see inter alia, John O. Honnold, The Sales Convention in Action -- Uniform International Words: Uniform Application, 8 J.L. & Com. 207-212, at III (1988); Yuqing, supra note 25, at 45; Audit, supra note 28, at 154-55; Cook, supra note 50, at 226; Burghard Piltz, Internationales Kaufrecht, 66 (1993); Michael Kabik, Through the Looking Glass: International Trade in the "Wonderland" of the United Nations Convention on the Contracts for the International Sale of Goods, 9 Int’l Tax & Bus. Law. 408, at 429 (1992); Elizabeth Hayes Patterson, United Nations Convention on Contracts for the International Sale of Goods: Unification Between Compromise and Domination, 22 Stan.J.Int’l L. 263, at 283 (1986).

101. A variety of guides to and sources of information about the Convention are available. Based on a decision by the United Nations Commission on International Trade Law (UNCITRAL) at its twenty-first session (see U.N. Doc. A/43/17, at 98-109, the Secretariat has established a system of collecting and disseminating information on court decisions and arbitral awards relating to Conventions and Model Laws that have emanated from the work of the UNCITRAL. The acronym for the system is “CLOUT” (Case law on UNCITRAL texts) (see U.N. DOC. A/CN.9/SER.C/ ABSTRACTS/1 et seq. (1993 and later)). The case abstracts are available as hard copy and on the Internet at http://www.un.or.at./uncitral/clout. Cites to CISG commentary and case law from around the world are also available through UNILEX, a commercial case collection system on CISG, published in paper and electronic form by Transnational Juris Publications, Inc., Irvington-on-Hudson, New York, Copyright: Italian National Research Council-Center for Comparative and Foreign Law Studies.

For comprehensive Internet databases devoted exclusively to the CISG, see the website of the Pace University School of Law "http://www.cisg.law.pace.edu", created by the Pace Institute of International Commercial Law, Albert H. Kritzer/Nicholas Triffin eds.; the CISG online website "http://www.cisg-online.ch/", created by the Institut für ausländisches und internationales Privatrecht (Director: Peter Schlechtriem, Albert-Ludwigs-Universität Freiburg) [special attention to German case law on the CISG]; the CISG — France website "http://www.jura.uni-sb.de/FB/LS/Witz/cisg.htm", Claude Witz ed. [special attention to French case law on the CISG].

Examples of other particularly valuable Internet databases containing information on the CISG or related to the CISG: the International Trade Law website of the Faculty of Law of Norway’s University of Tromsø "http://itl.irv.uit.no/trade_law/": Ralph Amissah ed. [the first WWW site dedicated to a given area of law on the Internet: international trade law (an important site for international trade law materials and links to related information on the “net”)]; CISG Finland "http://www.utu.fi/oik/tdk/xcisg/cisg.htm"; CISG W3 Database de CISG Brazil "http://www.uff.br/cisgbrasil/"; for texts of Italian and Spanish-language cases see the website of the Centre for Comparative and Foreign Law Studies in Rome "http://soi.cnr.it/~crdcs/crdcs/index.htm" and of the CISG — Spain and Latin America database "http://www.uc3m.es/cisg". Currently in process are the CISG — Arabic, CISG — Belgium, CISG — Canada, CISG — Iran, and CISG — Israel databases.

102. See Secretariat Commentary, supra note 16, at para. 3, Draft art. 23 [antecedent to article 25 of the Official Text], Official Records, supra note 52, at 26 (stating that “the determination whether the injury is substantial must be made in the light of the circumstances of each case. . . .”).

103. See Honnold, supra note 20, at § 181.2; Babiak, supra note 60, at 12; Gyula Eörsi, supra note 103, at 336 (emphasizing that "[I]n applying such concepts [fundamental breach] the judge forms an opinion, taking all circumstances into consideration whether (in this case) the breach of contract is so significant as to justify avoidance or not"); Sutton, supra note 13, at 286; Jaska Barbic, Uniform Law on the International Sale of Goods, Uniform Law on the Formation of Contracts for the International Sale of Goods (1964) and United Nations Convention on Contracts for the International Sale of Goods, in Hague-Zagreb Essays 4 19 (Voskuil & Wade eds., 1983); Magnus, supra note 28, at art.25 n.3 (stating that the concept is as vague as flexible and that, in practice, its determination will depend on the context of each case where the distinction between a fundamental and non-fundamental breach is relevant); Horacio A. Grigera Naón, The U.N. Convention on Contracts for the International Sale of Goods, in The Transnational Law of International Commercial Transactions: Studies in Transnational Economic Law 89, (Horn & Schmitthoff eds., 1982); and L.W. Melville, The Nature of Fundamental Breach, New L.J. 307, 308 (Mar. 27, 1980).

104. The right of the parties to indicate the circumstances under which an act or omission by one party entitles the other to avoid the contract follows from article 6, which reinforces the supremacy of the parties' agreement over the language of article 25. See para. 1 of the Secretariat Commentary, supra note 16, at para. 5 of the 1978 Draft Convention (antecedent to article 6 of the Official Text), Official Records, supra note 52, at 17 (stating that the parties "may derogate or vary the effect of any of its provisions by adopting provisions in their contract providing solutions different from those in the Convention").

105. See Rudolf Welser, Die Vertragsverletzung des Verkäufers und ihre Sanktion, in Das UNCITRAL-Kaufrecht im Vergleich zum österreichischen Recht 120 (Doralt ed., 1985; Herber & Czerwenka, supra note 16, at art. 47, n.4; Rüdiger Holthausen, Die wesentliche Vertragsverletzung nach, RIW 101, 105 (1990); Martin Karollus, Art. 25, in Kommentar zum UN-Kaufrecht Art. 25, n.32 (Heinrich Honsell ed., 1997); Olaf Clausson, Avoidance in Nonpayment Situations and Fundamental Breach under the 1980 U.N. Convention on Contracts for the International Sale of Goods, N.Y.L.Sch.J.Int. & Comp.L. 93, 113 (1984); Schnyder & Straub, Art. 49, in Kommentar zum UN-Kaufrecht Art. 49, n.26 (Heinrich Honsell ed., 1997); and Magnus, supra note 28, at art. 46 n.42.

106. See Enderlein/Maskow, International Sales Law, Art. 25, at 3.4 (stating that the use of customary terms as "fixed", "absolutely", "precisely", "at the latest", indicates that late delivery is to be regarded as fundamental breach of contract); see also Huber, in: Schlechtriem, Art. 49 n.5; Welser, supra note 105, at 120; Magnus, supra note 28, at art. 49 n.10 (stating that the Incoterms CIF, FOB give the buyer the right to avoid the contract in the event of late delivery); Holthausen, supra note 105, at 105; Herber/Czerwenka, supra note 16, at art. 47 n.4.

Where the buyer has informed the seller that he needs the goods at a certain date to fulfill his own obligations towards third parties, late delivery is to be considered fundamental breach. See, e.g., Schlechtriem, in Commentary on the U.N. Convention on the International Sale of Goods, Art. 25 n.18 (Peter Schlechtriem ed. 1998).

107. Where the goods in question are of fashionable or seasonable character, or where they have a stock or market price, or where the prices are subject to sharp fluctuations, late delivery has been viewed as fundamental breach. See, e.g., Schlechtriem, supra note 106, at Art. 25 n.18, and Schlechtriem, supra note 45, at 60 (stating that defaulted delivery of goods with a quoted market price is considered a fundamental breach); Magnus, supra note 28, Art. 49 n.11 (stating that late delivery of fashionable or seasonable goods generally constitutes fundamental breach); Enderlein/Maskow, supra note 106, at 3 (stating that in "the case of goods which have a stock or market price, untimely-delivery certainly constitutes a fundamental breach"). For a somewhat different conclusion, see, Huber, supra note 106, at Art. 49 n.5 (stating that late delivery of goods with a quoted stock or market price do not generally constitute a fundamental breach, but that a longer delay can turn into a fundamental breach even if no additional period of time has been fixed).

108. The buyer's obligation to pay the price includes all of the measures required by the contract, such as the duties to provide a letter of credit, and to comply with relevant domestic laws to enable payment to be made; see, Schlechtriem, supra note 45, at 81; Honnold, supra note 20, at § 354; para. 7 of the Secretariat Commentary on article 60 of the 1978 Draft Convention [antecedent to article 64 of the Official Text], Official Records, at 50; Doc. History, at 440.

Whether the failure to open a documentary credit within a fixed time constitutes a fundamental breach is disputed. While one author argues that the seller should always be allowed to declare the contract avoided if the buyer does not open a credit within a fixed time (see Jan Hellner, Dubrovnik Lecturers, at 353); others take the view that a delay in opening a credit constitutes a fundamental breach only in such cases where payment was to be made by letter of credit against delivery of shipping documents (see Hager, in: Schlechtriem, Art. 64 n.5; Enderlein/Maskow, supra note 106, at 244).

109. For example, a delay in taking delivery is to be regarded as fundamental breach in "just-in-time" contracts, when the goods are of perishable nature or where the goods cannot be stored; see Hager, supra note 108, at Art. 64 n.5; Willibald Posch, Die Pflichten des Kaüfers und die Rechtshelfe des Verkäufers, in Das Einheitliche Wiener Kaufrecht 143, 1 9 (Hoyer/Posch eds. 1992); Magnus, supra note 28, at Art. 64 n.17.

For further examples where timely performance is essential, see, Schlechtriem, supra note 45, at 84 (stating that seller's need to clear his warehouse can make timely taking delivery an essential duty); Hager, supra note 108, at Art. 64 n.6; Enderlein/Maskow, supra note 106, Art. 64, at 3, where the authors state that "time for performance can, for instance, in regard to fulfillment of the obligation to participate in the manufacture of goods, supply of drawings or sub-supply of material, be agreed as an essential date for the goods cannot be finished at another time because of different use of the facilities, planned changes in production, shutting-down of plant, etc."

110. See Schlechtriem, supra note 45, at 59-60 (stating that delivery of defective goods entitles buyer to avoid the contract only if the contract indicates that non-conformity is of special importance to him "such as in the case of an express warranty"). For a similar statement, see Magnus, supra note 28, Art. 46 n.42. See also Schlechtriem's example: "[I]f the buyer has unmistakenly insisted on, but not received, chips suitable for the tropics, then the breach is fundamental and the buyer retains the right to demand substitute goods, even if the buyer can otherwise use the non-performing transistors without great loss". Id. at 77.

111. See, e.g., Schlechtriem, supra note 106, Art. 25 n.21 and Andreas Kappus, Rechtsvergleichende Aspekte zur Vertragsaufhebung wegen Sachmangels nach UN-Kaufrecht, 985 NJW (1994).

112. Where no detriment whatsoever has been caused or is expected to be caused by the breach of contract, it is undisputed among scholars that there is no right of avoidance.

See Schlechtriem, supra note 45, at 60 n.210 (stating that there is no fundamental breach where, despite the seller's failure to properly pack and insure the goods, they nonetheless arrived in good order and condition; if, however, the buyer has lost a chance to resell the goods, there would be a detriment). See also Will, supra note 16, at Art. 25, at 2.1.1.2.; Magnus, supra note 28, at Art. 25 n.12; Karollus, supra note 105, Art. 25 n.14; and Schnyder & Straub, supra note 105, at Art. 49 n.23.

113. See Secretariat Commentary, supra note 16, at para. 3 of art. 23 [antecedent to article 25 of the Official Text], Official Records, supra note 52, at 25, where it is stated that "[t]he determination whether the injury is substantial must be made in the light of the circumstance of each case, e.g., the monetary value of the contract, the monetary harm caused by the breach, or the extent to which the breach interferes with other activities of the injured party". [emphasis added]

114. See, Babiak, supra note 60, at 118 (1992) and Sutton, supra note 13, at 286. A similar notion seems to be supported by Magnus, supra note 28, at Art. 25 n.11 (stating that the term "detriment" draws one's attention to the fact that the extent of the damages is a relevant factor in determining fundamental breach).

115. See Schlechtriem, supra note 45, at 77 (stating that the objective damages will not be the decisive factor in determining fundamental breach but "whether the risk of the particular non-conformity was considered so serious by the parties that its existence would eliminate the buyer's interest in the performance of the contract concerning these goods"); Enderlein & Maskow, supra note 106, at 3, Art. 25 (stressing that "[t]hough in commercial relations most things can be reduced to a damage, this is not the central issue"). For similar statements, see Will, supra note 16, Art. 25, at 2.1.1.2. (stating that detriment does not equal damages); Barry Nicholas, The Vienna Convention on Contracts for the International Sale of Goods, 15 L.Q.R. 201, 218 (1989); Karollus, supra note 105, at Art. 25, n.16; Gert Reinhart, UN-Kaufrecht, Kommerntar Zum Übereinkommen der Vereinten Nationen vom 11 April 1980 Über Verträge Über den Internationalen Warenkauf, Art. 25 n.5, 6; Herber & Czerwenka, supra note 16, at Art. 25 n.3, 8; see also Jacob Ziegel, The Remedial Provisions in the Vienna Sales Convention: Some Common Law Prespectives, in International Sales 16, ch. 9 (1984).

116. See Enderlein & Maskow, supra note 106, at Art. 25, at 3.4, where the authors state that to what extent non-fulfillment of an obligation is fundamental "depends on its relevance for the achievement of the purpose of the contract". [emphasis added]. See also, Karollus, supra note 105, at Art. 25 n.22 (stating that the detriment is only relevant under the condition that the violated obligation is important and the terms of the contract are aimed at protecting the aggrieved party from the consequences of breach).

117. See, e.g., Karollus, supra note 105, at Art. 25 n.21; Karl Neumayer & Catherine Ming, Convention de Viene sur les contrats de vente internationale de marchandises Art. 25 n.3 (1993); Enderlein & Maskow, supra note 106, at Art. 25, at 3.4; and Schnyder & Straub, supra note 105, at Art. 46 n.59.

118. See Karollus, supra note 105, Art. 25 n.21.

119. See Schlechtriem, supra note 106, at Art. 25, n.20; Enderlein & Maskow, supra note 106, at Art, 25, at 3.4; Magnus, supra note 28, at Art. 49 n.16; and Holthausen, supra note 105, at 107.

120. See Karollus, supra note 105, at Art. 25 n.21.

121. See Huber, supra note 106, at Art. 49, n.16. For the same conclusion, see Schnyder & Straub, supra note 105, at Art. 49, n.17 and Enderlein & Maskow, supra note 106, at Art. 49, at 3 (stating that failure to hand over negotiable documents constitutes a fundamental breach).

122. See Schlechtriem, supra note 106, Art. 25 n.19; Enderlein & Maskow, supra note 106, at Art. 25, at 3.4 (regarding non-conforming delivery). As for partial non-delivery, see Huber, supra note 106, at Art. 51 n.5, where the author with respect to article 51(2) holds the buyer to be entitled to avoid a contract to deliver computer systems, if the seller delivered only the hardware but not the software necessary to work with the computer. See also Honnold, supra note 20, at § 317 (emphasizing that one factor of special significance with respect to avoidance as to the entire contract is "whether the non-conformity of some goods interferes with the use or salability of the remainder") [emphasis added].

123. See, e.g., Will, supra note 16, at Art. 46 at 2.2.1.2 (stating that "[r]eceiving apples instead of pineapples satisfies the criteria of Article 25"). For somewhat different conclusions, see Schlechtriem, supra note 106, at Art. 25, n.21 (stating that even the delivery of a totally different aliud not always impairs the fundamental contractual expectations of the buyer); Magnus, supra note 28, at Art. 46 n.39 (stating that an aliud delivery does not constitute per se a fundamental breach except when it is of no use for the buyer and it would demand unreasonable measures to sell them); and Enderlein & Maskow, supra note 106, at Art. 25, at 3.4 (stating that the right to immediate avoidance in any case of an aliud delivery cannot be justified).

124. See infra Part II, C.2.c.

125. See Huber, supra note 106, at Art. 46, n.35 and Burghard Piltz, Neue Entwicklungen im UN-Kaufrecht, 2768, 2772 NJW (1996).

126. See Huber, supra note 106, at Art. 46, n.35, 42; and Schlechtriem, supra note 106, at Art. 25 N, 20.

127. See Huber, supra note 106, at Art. 46 n.36 (stating that it is unreasonable to expect a buyer to resell the goods if there is a danger that, when calculating the loss, there will be a dispute with the seller regarding the reasonableness of the resale price or where there was a breach of the duty to mitigate loss).

128. See id. (stating that the goods must be marketable despite their lack of conformity and it must be foreseeable that the buyer will receive a reasonable price).

129. See id. at n.37 (arguing that a retailer can generally never be expected to sell goods outside his normal course of business).

130. See id. at n.38 (arguing that a commercial buyer may be expected to resell the goods if there is a market on which the goods may be sold without great difficulties, that market is easily accessible for the buyer and likely to produce reasonable price).

131. See id. at n.40.

132. See Huber, supra note 106, at Art. 46 n.39 (stating that the question is whether it is reasonable to expect the buyer to dispose of the goods himself and to content himself with price reduction or damages).

133. See id. (stating that the "more blatant the discrepancy, the less it can be expected of the buyer to dispose of the goods"). see also Schnyder & Straub, supra note 105, at Art. 46 n.59 (without differentiation between generic or specific goods).

134. See Magnus, supra note 28, n.13; Schlechtriem, supra note 106, at Art. 25 n.17; and Huber, supra note 16, at 504 (1979).

135. For a similar example, see J. Baronage Marcantonio, Unifying the Law of Impossibility, 8 Hast. Int'l & Comp. L. R. 41, at 53 (1984) (commenting on the German concept of objective impossibility).

136. See Schlechtriem, supra note 106, at Art. 25, n.17; Sutton, supra note 13, at 93 (1977) (stating that failure to perform at all constitutes fundamental breach); Magnus, supra note 28, at Art. 72, n.11 (stating that insolvency of the buyer entitles seller to avoid the contract). For a somewhat different conclusion, see, Huber, supra note 106, at Art. 49 n.7 (stating that subjective impossibility only constitutes fundamental breach if the seller does not cure the defect within a reasonable time).

See also Secretariat Commentary, supra note 16, at para. 2, art. 63 [antecedent to article 72 of the Official Text], Official Records, supra note 52, at 53; (stating that a future fundamental breach "may be clear either because of the words or actions of the party which constitutes a repudiation of the contract or because of an objective fact, such as the destruction of the seller's plant by fire or the imposition of an embargo or monetary control which will render impossible future performance")[emphasis added].

137. For further examples, see Marcantonio, supra note 135, at 53 (1984) (commenting on the German concept of subjective impossibility).

138. See, e.g., Schlechtriem, supra note 106, at Art. 25 n.17 (stating that seller's refusal to deliver before or at the time when performance is due constitutes fundamental breach); Hager, supra note 108, at Art. 64 n.6; Hans Stoll, Zur Haftung bei Erfullungsverweigerung im Einheitlichen Kaufrecht, 52 RabelsZ 617, 624 (1988); and Magnus, supra note 28, at Art. 64 n.17 (stating that buyer's refusal to pay for the goods or to take delivery is to be considered a fundamental breach).

See also Huber, supra note 106, at Art. 49 n.6 (emphasizing that in practice, when the seller is not willing to perform, he often argues that the contract is not valid; the contract is avoided due to an alleged fundamental breach of contract on the side of the buyer; or invokes force majeure or article 71).

139. See Magnus, supra note 28, at Art. 72 n.11 and Stoll, supra note 138, at 625 (1988). Schlechtriem notes that "the frequent cases in which a demand for new terms or alleged contract violations by the other side are used as a pretext for not performing one's own obligations" provide in most cases a basis for immediate avoidance. See Schlechtriem, supra note 45, at 95.

For a somewhat different view, see Honnold, supra note 20, at § 396 (stating that avoidance should not be "triggered" if one party informs the other one of the need to negotiate a modification of their agreement).

140. See, e.g., Karollus, supra note 105, at Art. 25 n.2.

141. See, e.g., Trevor Bennett, Anticipatory Breach and Installment Contracts, Art. 71, in Commentary on the International Sales Law, The 1980 Vienna Sales Convention 513, Art. 71, 3.7 (C. Bianca & M. Bonell eds., 1987); Honnold, supra note 20, at § 394; and Magnus, supra note 28, at Art. 72 n.12.

See also Secretariat Commentary, supra note 16, at para. 2, art. 63 [antecedent to article 72 of the Official Text], Official Records, supra note 52, at 53 (stating that "failure by a party to give adequate assurances that he will perform when properly requested to do so under article 62 (3) [antecedent to article 72 of Official Text of the Convention] may help make it 'clear' that he will commit a fundamental breach").

142. For the drafting history, see infra Part III, B.

143. See Schlechtriem, supra note 106, at Art. 25, 21; Honnold, supra note 20, at § 296; Ziegel, supra note 115, at 9-22/3; Shinichiro Michida, Cancellation of Contracts, 27 Am.J.Comp.L. 279, at 288 (1979); E. Allan Farnsworth, Rights and Obligations of the Seller, in Lausanner Kolloquim, 83, 88; (Schweizerisches Institut für Rechtsvergleichung ed. 1985); Eric C. Schneider, The Seller's Right to Cure under the Uniform Commercial Code and the United Nations Convention on Contracts for the International Sale of Goods, 7 Ariz.J.Int'l & Comp.L. 69, 102 (1989); Huber, supra note 106, at Art. 48 n.23; Herber & Czerwenka, supra note 16, at Art. 48, n.9; Kastely, supra note 25, at 599 (1988); W. Mapp & C. Nicoll, The Vienna Convention on International Sale of Goods: Obligations under the Contract and Remedies for Breach, N.Z.L.J. 316, 319 (1993); Martin Karollus, Un-Kaufrecht: Vertragsaufhebung und Nacherfullungsrecht bei Lieferung mangelhafter Ware, ZIP 490, at 493-494 (1993); and Diedrich, supra note 35, at 13.

144. See Huber, supra note 106, at Art. 49, n.12; Magnus, supra note 28, at Art. 46, n.40; and Karollus, supra note 143, at 496.

145. See Karollus, supra note 143, at 496.

146. See Huber, supra note 106, at Art. 49, n.12 and Karollus, supra note 143, at 496 (stating that where a car has been seriously damaged a fundamental breach is given since it is unreasonable for the buyer to keep such car even if repaired).

147. See Huber, supra note 106, at Art. 49, n.12.; Karollus, supra note 143, at 496; and Magnus, supra note 28, at Art. 46, n.41 (stating that failure to remedy a defect often gives raise to doubt seller's general ability to cure and thus constitutes a fundamental breach).

148. See Huber, supra note 106, at Art. 49, n.12 and Karollus, supra note 143, at 496 (both stating that fraudulent behavior on the part of the seller constitutes fundamental breach).

149. See, e.g., Will, supra note 16, at Art. 48, 3.2.1., 3.2.2.; Magnus, supra note 28, at Art. 48, n.30; Piltz, supra note 100, at § 4, n.66; Enderlein & Maskow, supra note 106, at 10; Klaus Detzer and Manfred Thamm, Überblich über das neue UN-Kaufrecht, BB 2369, 2373 (1992); Holthausen, supra note 105, at 103; Reinhart, supra note 115, at Art. 48, n.2; Welser, supra note 105, at 125; Fritz Enderlein, Rights and Obligations of the Seller Under the U.N. Convention on Contracts for the International Sales of Goods, in Dubrovinik Lectures 133, 193 (Sarvic & Volken eds., 1986); Babiak, supra note 60, at 127, footnote 92; and Rolf Herber, The Rules of the Convention Relating to the Buyer's Remedies in Case of Breach of Contract, in Problems of Unification 104, at 123 (1980).

To protect the seller's right to cure, some authors suggest suspending the buyer's right to avoid "when a rightful offer to cure arrives" (see Will, supra note 16, at 3.2.2.); W. Bitter & G. Bitter, Wandlungsmöglichkeit des professionellen Käufers und Nachlieferungsrecht des Verkäufers bei aliud-Lieferung. Eine Untersuchung zum ceutschen and UN-Kaufrecht, BB 2315, 2323 (1993); and Bernard Audit, La vente internationale de Marchandises, Convention des Nations Unies Du 11 Avril 1980 133 (1990).

150. See Holthausen, supra note 105, at 103.

151. See id.

152. See Will, supra note 16, at Art. 48, 3.2.1. and Schnyder & Straub, supra note 105, at Art. 49, n.20.

153. See Will, supra note 16, at Art. 48, at 3.2.1. and Schnyder & Straub, supra note 105, at Art. 49, n.20 (the latter arguing that determining fundamental breach in light of an offer to cure contradicts arts. 48(1), 49, 72 and 73(2).

154. See Will, supra note 16, at Art. 48, 3.2.1. and Schnyder & Straub, supra note 106, n.20.

155. See Will, supra note 16, at Art. 48, at 3.2.2., where the author argues that it is not clear what elements qualify a rightful offer and that leads to further burdening the buyer who already bears the risk of evaluating the degree of non-conformity.

156. See id. at 1.3. (referring to the legislative history of article 48 and stating that the cross-reference to art. 49 in art. 48(1) is "enigmatic" and leaves the relationship to avoidance "open to interpretation"). See also Karollus, supra note 143, at 495 (arguing that article 48(1) represents a compromise between those delegates at the Vienna Conference who feared that the seller's right to cure might be frustrated and those who preferred the priority of avoidance, and that the delegates wanted to leave the relationship of cure and avoidance open to interpretation )

157. See Will, supra note 16, at Art. 48, at 1.3. and Karollus, supra note 143, at 495.

Honnold, supra note 20, at § 296, goes even further. He takes the view that the legislative history of art. 48(1) "leaves little room for doubt" that the right to cure prevails and that the cure provision of article 48(1) could be frustrated "by an unqualified application of article 49(1)". Id.

158. See Honnold, supra note 20, at § 296.

159. See Karollus, supra note 105, at Art. 25, n.11.

160. According to Huber, supra note 106, at Art. 48, n.23, only the consideration of an offer to cure "does justice to the legal policy concerns underlying art. 48, namely that the seller should be given a 'right to cure' which is efficient and does not merely exist on the paper". Id.

161. See e.g., Huber, supra note 106, at Art. 46, n.42; supra note 143, at 493-494; and Herber & Czerwenka, supra note 16, at Art. 48, n.9.

162. See Huber, supra note 106, at Art. 46, n.42 and Karollus, supra note 143, at 494.

163. See, e.g., Enderlein & Maskow, supra note 106, at Art. 25, at 4.1; Will, supra note 16, at Art. 25, 2.2.2.; and Schlechtriem, supra note 106, at Art. 25, n.11.

164. See, e.g., Schlechtriem, supra note 106, at Art. 25, n.11 (stating that knowledge or foreseeability of the aggrieved party's expectations are relevant for interpreting and assessing the importance of the obligation breached and its significance for the aggrieved party) and Enderlein & Maskow, supra note 106, at Art. 25, 4.1.

165. For a somewhat different conclusion, see Babiak, supra note 60, at 118 (stating that the detriment/expectation component is what makes a breach "fundamental").

166. It has been suggested that one should construe a "reasonable person" as a reasonable merchant encompassing all merchants that satisfy the standards of their trade and that are not intellectually or professionally sub-standard. See id. at 122 (1992) (stating that the phrase "of the same kind" refers to the standard merchant in the same business). See also, Will, supra note 16, at Art. 25, 2.2.2.2.1 and 2.2.2.2.3. (stating that not only must it be examined how a "man with due diligence" must act in a certain sector of trade, but also the socio-economic background in which this party operates, including the language, religion and professional status).

167. It has been argued that the requirement "in the same circumstances" refers to the market conditions, both regional and worldwide. See, Babiak, supra note 60, at 122 (1992) and Will, supra note 16, at Art. 25, 2.2.2.2.2. (stating that this element refers to all circumstances such as legislation, political situation, climate, and also previous contracts and negotiations between the parties).

168. For similar conclusions, see, e.g., Will, supra note 16, at Art. 25, at 2.2; Schlechtriem, supra note 106, at Art. 25, n.11; Enderlein & Maskow, supra note 106, at Art. 25, 4.1; Honnold, supra note 20, at § 183; and Ziegel, supra note 115, at 9-18 & 19.

169. See Will, supra note 16, at Art. 25, 2.2.2.1. (suggesting that whether a breaching party actually failed to foresee the substantial detriment caused to the non-breaching party will be evaluated in light of art. 74).

170. For this conclusion, see Schlechtriem, supra note 106, at Art. 25, n.12.

171. See id. at n.13.

172. See id.

173. See id. at Art. 25, n.14.

174. See Babiak, supra note 60, at 118; Michida, supra note 143, at 284-285 (1979); Schlechtriem, in: Schlechtriem, supra note 106, at Art. 25, n.3, & n.15; Honnold, supra note 20, at § 183; Will, supra note 16, at Art. 25, at 2.2.; and Ziegel, supra note 115, at 9-18 & 19.

175. See Schlechtriem, supra note 45, at 60; Van der Velden, supra note 39, at 64; Ziegel, supra note 115, at 9-20; Holthausen, supra note 105 at 105; and Magnus, supra note 28, at Art. 25, n.19.

176. See, e.g., Schlechtriem, supra note 45, at 60.

177. Article 74 provides:

178. This point, in particular, has been emphasized by Ziegel, supra note 115, at 9-20.

179. See, e.g., Bento Soarez & Moura Ramos, Contratos Internacionais. Compra e venda, 128, fn.83 (1986).

180. See, e.g., Feltham, The United Nations Convention on Contracts for the International Sale of Goods, J.Bus.L. 346, at 353 (1981); and Olga Gonzalez, Remedies Under the U.N. Convention for the International Sale of Goods, 2 Int'l Tax & Bus. Law. 79, 87 (1984) (stating that "a breach which becomes foreseeable after the conclusion of the contract, but before the time of delivery of the goods, may fall within the definition of fundamental breach"). A similar notion seems to be supported by Honnold, who believes that information received after formation but prior to performance can be relevant for the determining fundamental breach. See Honnold, supra note 20, at § 183 (giving example of situation where information sent by buyer to seller after formation but prior to performance allowed for conclusion that seller's noncompliance with contract terms amounted to fundamental breach).

181. See Will, supra note 16, at Art. 25, 2.2.2.2.5.; Enderlein & Maskow, supra note 106, at 112; Herber & Czerwenka, supra note 106, at Art. 25, n.9; Karollus, supra note 105, at Art. 25, n.27; Josef Aicher, Leistungsstörungen aus der Verkäufersphäre, in Das Einheitliche Wiender Kaufrecht 133 (Hoyer & Posch eds., 1992); Neumayer & Ming, supra note 117, at Art. 25, n.8.

The Commentary on art. 23 of the 1978 Draft Convention [antecedent to article 25 of the Official Text], however, seems to admit only the alternative "time of conclusion" or "time of breach". See Secretariat Commentary, supra note 16, at para. 5, art. 23, Official Records, supra note 52, at 26.

182. See supra Part I B. 4.

183. See Garro, supra note 68, at 1157 and 1185 (stating that "the UNIDROIT principles may be resorted to in order to determine whether or not there has been a fundamental breach of contract"); Perillo, supra note 68, at 308-309 (1994); Michael Bonell, The Unidroit Principles of International Commercial Contracts and CISG, in Uniform Commercial Law in the Twenty First Century: Proceedings of the Congress of the United Nations Commission on International Trade Law, U.N. GAOR Comm. on Int'l Trade L., 25^th Sess., at 11 U.N. doc. A/CN.9/SER.D/1 (1992) (suggests that the criteria laid down in article 7.3.1 of the UNIDROIT Principles may be used for a better understanding of art. 25).

184. Compare articles 37, 48 with UNIDROIT Principles, supra note 68, at art. 7.1.4.

185. See UNIDROIT Principles, supra note 68, at art. 7.1.5 (requiring the aggrieved party to provide an additional period of time to perform upon expiration of which the aggrieved party may proceed with any of the remedial provisions available under the UNIDROIT Principles).

186. Compare art. 25 with UNIDROIT Principles, supra note 68, at art. 7.1.3. See also, Garro, supra note 68, at 1185.

187. UNIDROIT Principles, supra note 68, art. 7.1.1, defines non-performance as a failure to perform any obligation under the contract, and it includes defective performance or late performance. Non-performance under the UNIDROIT Principles has thus the same meaning as "breach of contract" under the Convention. The difference between the two instruments is that the UNIDROIT Principles, unlike the Convention, do not refer to the remedies available to one party in case of a breach by the other, but provide a set of rules applicable to non-performance in general.

For the meaning of breach of contract under the Convention, see infra Part III, A.1.

188. See UNIDROIT Principles, supra note 68, at art. 7.3.1 para. 2(a).

189. See id. at art. 7.3.1 para. 2(b).

190. See id. at para. 2(d).

191. See id. at para. 2(c).

192. See id. at para. 2(e).

193. The reason for this parallel seems to be that many of the same individuals who labored to produce the Convention and later commented on it, such as Michael Joachim Bonell and Allan Farnsworth, continued under UNIDROIT auspices to produce the UNIDROIT Principles. For a list of the members of the working group, who drafted the UNIDROIT Principles, see Bonell, supra note 68, at 1126 (1995).

194. See UNIDROIT Principles, supra note 68, at art. 7.1.4. which states in part:

195. See id. at art. 7.1.4(2).

196. The number of reported decisions dealing with fundamental breach differs between the databases set up by the Institute of International Commercial Law, Pace University School of Law, and by the University of Freiburg. As of April 5, 1999, 37 decisions dealing with art. 25 were cited in the Freiburg database, while 54 decisions were listed in the Pace University database. Different methods of reporting seem to be the reason for that difference. As for most of these decisions, a cross-reference to the buyer's remedies in articles 46(2), 49(1)(a) and 51(2), very few of those of the seller which reference art. 64(1)(a) can be found. Hence, fundamental breach was invoked more frequently by buyers than by sellers.

197. In many cases the issue of fundamental breach was not decisive, since the buyer did not observe the notice requirements under arts. 38 and 39. See, e.g., Landgericht Berlin, 16 September 1992, 99 O 29/92, the full text of the decision is published in German. See database of the University of Freiburg, http://www.cisg-online.ch/cisg/urteile/49.htm; Oberlandesgericht München, 8 February 1995, 7 U 1720/94; the full text of the decision is published in German. See database of the University of Freiburg, http://www.cisg-online.ch/cisg/urteile/143.htm; Handelsgericht des Kantons Zürich, 26 April 1995; HG 920670; an abstract of the decision is published in German in SZIER/RSDIE 1996, 51-52.

198. See Delchi Carrier, SpA v. Rotorex Corp., 71 F.3d 1024, at 1027 (2nd Cir. 1995). The full text is also available in the Pace University database, http://www.cisg.law.pace.edu/cisg/wais/db/cases2/951206u1.html; an English abstract is available as CLOUT Case 85. Roder Zelt- und Hallenkonstruktionen v. Rosedown Park Pty Ltd and Reginald R Eustace, 1995 Fed. Ct. Rep. (Australia) 216-240; also available in full text at the Pace University Database http://www.cisg.law.pace.edu/cisg/wais/db/cases2/950428a2.html; and the University of Freiburg, http://www.cisg-online.ch/cisg/urteile/218.htm.

199. See Dannemann, supra note 60, at 5; and Eric C. Schneider, Consequential Damages in the International Sale of Goods: Analysis of Two Decisions, 16 U. Pa. J. Int'l Bus. L. 615, at 668 (1995).

The fact that most of the reported decisions on the Convention were rendered by European (civil law jurisdiction) courts gave one author reason to warn against regionalized interpretations, see Harry M. Flechtner, Recent Development: CISG: Another CISG Case in the U.S. Courts: Pitfalls for the Practitioners and the Potential for Regionalized Interpretations, 15 J.L. & Com. 127, at 135 (1995).

200. See, e.g., the commentaries by Honnold, supra note 20; Schlechtriem, supra note 45; Bianca & Bonell, supra note 16.

201. Oberlandesgericht Innsbruck, 1 July 1994, 4 R 161/94 (affirming Landgericht Feldkirch, 29 March 1994, 5 Cg 176/92y - 64, holding); the full text of the decision is published in German. See University of Freiburg Database, http://www.cisg-online.ch/cisg/urteile/107.htm and the English abstract available as CLOUT Case 107.

The appellate court further held that, even if the buyer had been able to establish lack of conformity of the goods, he would have lost his right to avoid the contract, since he had failed to give the seller notice within a reasonable period of time after discovery of the defect in accordance with article 39(1).

The decision of the Landgericht Feldkirch is available at Pace University database, http://www.cisg.law.pace.edu/cisg/wais/db/cases2/940329a3.html.

202. See Landgericht Ellwangen, 21 August 1995, 1 KfH O 32/95. The full text of the decision is published in German at University of Freiburg Database, http://www.cisg-online.ch/cisg/urteile/279.htm.

203. See Hanseatisches Oberlandesgericht Hamburg, 28 February 1997, 1 U 167/95 (affirming Landgericht Hamburg, 2 October 1995, 419 O 85/95). The text of the decision is published in German. See University of Freiburg Database, http://www.cisg-online.ch/cisg/urteile/261.htm.

The Hamburg Court of Appeal stated as follows: "[translation] The untimely delivery constitutes a fundamental breach according to art. 49(1)(a), 25 CISG. Untimely delivery, it is true, does not always constitute a fundamental breach. This general rule under the Convention, however, does not apply to cases where, at the time of the formation of the contract, it was obvious to the seller that the buyer had a special interest in punctual delivery. . . . In the pertinent case such special interest of the buyer follows from the reference to the Incoterm "CIF" in the contract."

For the factual background, see infra note 245.

204. Very often the buyer could not even show that the parties had established the terms of delivery. See, e.g., Arbitration Court attached to the Hungarian Chamber of Commerce and Industry Arbitral award in case No. VB/94131 of 5 December 1995. The original German full text of the decision is published in the University of Freiburg Database, http://www.cisg-online.ch/cisg/urteile/134.htm. The English abstract is available as CLOUT Case 164. See also Oberlandesgericht München, 8 February 1995, 7 U 1720/94. The full text of the decision is published in German: See University of Freiburg Database, http://www.cisg-online.ch/cisg/urteile/143.htm. The English abstract is available as CLOUT Case 133.

205. See Landgericht Oldenburg, 27 March 1996, 12 O 2541/95. The full text of the decision is published in German. See University of Freiburg Database, http://www.cisg-online.ch/cisg/urteile/188.htm.

206. See Amtsgericht Ludwigsburg, 21 December 1990, 4 C 549/90; the full text of the decision is published in German. See University of Freiburg Database, http://www.cisg-online.ch/cisg/urteile/134.htm (affirmed by Landgericht Stuttgart, 30 August 1991, 16 S 14/91); for comments on the decision of the Amtsgericht Ludwigsburg, see Burghard Piltz, Neue Entwicklungen im UN-Kaufrecht, NJW 1101 (1994).

207. See CA Grenoble, Chambre commerciale; S.A.R.L. Bri Production "Bonaventure" v. Société Pan Africa Export; 22 February 1995; original in French; the text of the decision is published in French. See University of Freiburg Database, http://www.cisg-online.ch/cisg/urteile/151.htm. An English abstract is available as CLOUT Case 154. An English translation of the text of the decision is available in this issue of the 1998 CISG Review.

In this case, an U.S. export company had entered into contractual relations with a French manufacturer of "Bonaventure" jeans and had declared to restrict resale to South America and Africa. In fact, the U.S. company had sold the jeans to a fashion store in Madrid and subsequently not only refused to reveal their true destination but even provided the seller's lawyers with misleading information. The appellate court found for fundamental breach, justifying avoidance of this particular contract according to article 64(1)(a) on the grounds that the final destination of the merchandise was an essential condition of the contract.

208. See Delchi Carrier, SpA , 71 F.3d 1024, at 1027.

The defendant, a Maryland manufacturer of compressors for air conditioners, agreed to sell 10,800 compressors to the plaintiff, an Italian manufacturer of air conditioners. The sales contract provided for delivery in three shipments. The defendant made the first shipment. While the second shipment was in transit, the plaintiff discovered that the compressors contained in the first shipment did not conform with the contract specifications. The plaintiff rejected the second shipment, stored it at the port of delivery and, after having tried unsuccessfully to cure the defects, sued claiming damages for breach of contract pursuant to article 74 CISG. The court held that the defendant's breach was fundamental and granted the plaintiff damages to cover.

209. See Delchi Carrier SpA, supra note 198.

210. See Landgericht Landshut, 5 April 1995, 54 O 644/94. The full text of the decision is published in German. See University of Freiburg Database, http://www.cisg-online.ch/cisg/urteile/193.htm.

211. See Landgericht Landshut, http://www.cisg-online.ch/cisg/urteile/193.htm, at 4, where it states that as a result of being washed the sportswear shrunk one or two sizes. Accordingly, the customers could not wear the sportswear anymore after having washed them for the first time. As a result, the court concluded, the customers would either complain to the buyer (later a retail seller) or would not buy clothes offered by this seller anymore which would cause substantial detriment to the buyer.

212. See Court of Arbitration of the International Chamber of Commerce, ICC Arbitration Case No. 7531 of 1994; see also the editorial remarks by Kritzer, in the Institute of International Commercial Law, Pace University School of Law Database, http://www.cisg.law.pace.edu/cisg/wais/db/cases2/947531i1.html, according to which the tribunal elaborated that the "[Buyer] has estimated the cost of sorting out bad fittings at USD 17,000, which may be compared with the invoiced price of the supplies, USD 46,397. The estimate has been communicated to [seller] and has not been disputed."

213. See Oberlandesgericht Hamm, 22 September 1992, 19 U 97/91 (partially reversing Landgericht Bielefeld, 18 January 1991, 15 O 201/90); full text of the decision is published in German. See University of Freiburg Database, http://www.cisg-online.ch/cisg/urteile/57.htm.

214. Article 71 provides:

215. See Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry, Arbitral award in case No. 200/1994 of 25 April 1995. The original is in Russian, but it is unpublished. An abstract is available as CLOUT Case 141. The tribunal further noted that under the CISG, if the violation of the contract on the part of the seller caused the buyer to suffer any damage, it would be entitled to compensation, but that in this particular case the buyer had not brought any such claim.

216. See Oberlandesgericht München, 2 March 1994, 7 U 4419/93 (affirming Landgericht München I, 8 November 1993, 15 HKO 12117/93). The text of the decision is in part published in German. See University of Freiburg Database http://www.cisg-online.ch/cisg/urteile/108.htm. An English abstract is available as CLOUT Case 83.

217. Michida, supra note 143, at 288; and Farnsworth, supra note 115, at 88.

See also Oberlandesgericht Frankfurt a.M., 20 April 1994, 13 U 51/93 (affirming Landgericht Darmstadt, 22 December 1992, 14 O 165/92); the full text of the decision is published in German. See University of Freiburg Database, http://www.cisg-online.ch/cisg/urteile/125.htm. An English abstract is available as CLOUT Case 84. For comments on that decision, see Ulrich Magnus, Aktuelle Fragen des UN-Kaufrechts, ZEuP 202, 210 (1995), (criticizing the decision on the grounds that the appellate court apparently views food only then not fit for human consumption when it actually harms the health of the consumers).

The decision of the Landgericht Darmstadt is published in German: See University of Freiburg Database, http://www.cisg-online.ch/cisg/urteile/177.htm.

218. See Bundesgerichtshof, 8 March 1995, VIII ZR 159/94. The full text of the decision is published in German. See University of Freiburg Database, http://www.cisg-online.ch/cisg/urteile/144.htm.

219. See Cour de Cassation, 23 January 1996, Ire chambre civile; published in French in IPRax 1997, 126; commented on by Peter Schlechtriem, Wesentlicher Vertragsbruch durch Lieferung gezeckerten Weins, IPRax 132 (1997); Witz, supra note 7, at 334; and Claude Witz & Gerhard Wolter, Die neuere Rechtsprechung französischer Gerichte zum Einheitlichen UN-Kaufrecht, RIW 278, 279-281 (1998).

220. See Cour de Cassation, 23 January 1996.

221. For a somewhat different conclusion, see Schlechtriem, supra note 219, 132 (stating that the French approach in treating "unmerchantability" in the buyer's country as fundamental breach differs from the German one).

222. See Oberlandesgericht Frankfurt a.M., 18 January 1994, 5 U 15/93 (reversing Landgericht Frankfurt a.M., 9 December 1992, 3/3 O 37/92). The text of the decision is in part published in German. See University of Freiburg Database, http://www.cisg-online.ch/cisg/urteile/123.htm; RIW 240-241; (1994); NJW 1994, 1013-1014 (1994). An English abstract is available as CLOUT Case 79. For comments on that decision, see Eva Diederichsen, Recent Developments: CISG: Commentary to Journal of Law and Commerce Case I: Oberlandesgericht Frankfurt a.M., 14 J.L. & Com, 177-180 (1995); Andreas Kappus, Vertragsaufhebengsrecht nach UN-Kaufrecht in des Praxis, NJW 984-985, 85 (1994); Diedrich, supra note 35, at 11-16; and Koch, supra note 18, at 98-100.

223. See Bundesgerichtshof, 3 April 1996, VIII ZR 51/95. The full text of the decision is published in German. See University of Freiburg Database, http://www.cisg-online.ch/cisg/urteile/135.htm; RIW 594-597 (1996); NJW 2364-2367 (1996). For comments on that decision, see Burghard Piltz, Anmerkung zu Bundesgerichtshof, EuZW 448 (1996); Peter Schlechtriem, Anmerkung zu Bundesgerichtshof, EWiR 597-598 (1996). An English abstract is available as CLOUT Case 171.

224. For a similar conception, see Landgericht Heidelberg, 3 July 1992, O 42/92. The full text of the decision is published in German. See University of Freiburg Database, http://www.cisg-online.ch/cisg/urteile/38.htm.

In that case the German buyer concluded a contract for the sale of computer components with an U.S. seller. After delivery of 5 parts had been carried out, the buyer refused payment and declared the contract avoided on the grounds that the delivery of 11 parts had been agreed. The Berlin District Court held that even if delivery of 11 parts had been agreed the dispatch of only five parts would not entitle the buyer to declare the contract in its entirety avoided according to article 51(2). The Court further held that, in determining fundamental breach, regard must be had whether it was reasonable for the buyer to make a substitute purchase and claim damages for any extra costs arising out of that substitute transaction. Since it turned out that the buyer had purchased the missing parts already before the delivery became due in order to satisfy his own client in Vienna, the Court found that no fundamental breach was committed.

225. See Oberlandesgericht Frankfurt a.M., 18 January 1994, 5 U 15/93, University of Freiburg Database,http://www.cisg-online.ch/cisg/urteile/123.htm.

226. See Hanseatisches Oberlandesgericht Hamburg, 14 December 1994, 5 U 224/93 (affirming Landgericht Hamburg, 5 November 1993, 404 O 175/92). The full text of the decision is published in German. See University of Freiburg Database, http://www.cisg-online.ch/cisg/urteile/216.htm.

227. According to the German Supreme Court, the delivery of goods, which do not conform to the contract either because they are of lesser quality or of different origin, does not constitute non-delivery. Thus, the declaration of avoidance could not be based on article 49(1)(b) CISG since the plaintiff had effected delivery. See Bundesgerichtshof, 3 April 1996, VIII ZR 51/95, supra note 223, at II.2.b).

228. See Bundesgerichtshof, 3 April 1996, VIII ZR 51/95, supra note 223, at II.2.c.dd.

229. See Bundesgerichtshof, 3 April 1996, VIII ZR 51/95, supra note 223, at II.2.c.dd.

230. See Bundesgerichtshof, 3 April 1996, VIII ZR 51/95, supra note 223, at II.2.d.

231. See Oberlandesgericht Düsseldorf, 18 November 1993, 6 U 228/92 (partly reversing Landgericht Düsseldorf, 9 July 1992, 31 O 223/91). The text of the decision is published in German. See University of Freiburg Database, http://www.cisg-online.ch/cisg/urteile/92.htm. The decision of the Landgericht Düsseldorf is published in German. See University of Freiburg Database, http://www.cisg-online.ch/cisg/urteile/92.htm.

232. On appeal, the German Supreme Court affirmed the decision of the appellate court insofar as it concerned the buyer's right to avoid the contract. The Court held that article 72 applies only where future performance is still due. Where the non-performance occurred after the performance had become due, the right to declare the contract avoided would be governed by article 49. Since in the case at issue the buyer declared the contract only avoided after delivery had been made and payment had become due, the Court thus held that the buyer could not invoke article 72. As for the buyer's right to declare the contract avoided under article 49 the Court held that he lost his right according to article 49(2)(b).

See Bundesgerichtshof, 15 November 1995; VIII ZR 18/94 (partly reversing Oberlandesgericht Düsseldorf, see supra note 231. The full text of the decision is published in German. See University of Freiburg Database, http://www.cisg-online.ch/cisg/urteile/149.htm. For a German abstract, see NJW 2101-2103 (1995).

233. See Roder Zelt- und Hallenkonstruktionen v. Rosedown Park Pty Ltd and Reginald R Eustace; 1995 Fed. Ct. Rep. (Australia) 216-240. The full text of the decision is published in English. See University of Freiburg Database, http://www.cisg-online.ch/cisg/urteile/218.htm.

234. See University of Freiburg Database, http://www.cisg-online.ch/cisg/urteile/text/92.htm, at para. 58.

235. See id.

236. See Oberlandesgericht Düsseldorf, 10 February 1994, 6 U 119/93 (affirming Landgericht Düsseldorf, 22 March 1993, 37 O 169/92; not published). The full text of the decision is published in German. See University of Freiburg Database, http://www.cisg-online.ch/cisg/urteile/187.htm. An English abstract is available as CLOUT Case 82 and commented on by Ulrich Magnus, Probleme der Vertragsaufhebung mach dem UN-Kaufrecht (CISG) -- Anmerkung zu OLG Düsseldorf, Jus 870 (1995) (criticizing the decision on the grounds that the appellate court did not apply article 51(2)).

237. See Oberlandesgericht Frankfurt a.M., 17 September 1991, 5 U 164/90; the text of the decision is in part published in German. See University of Freiburg Database, http://www.cisg-online.ch/cisg/urteile/28.htm. A translation of the decision is published in English: 12 J.L.& Com. 261-270 (1993) and an English abstract is available as CLOUT Case 2. For comments on that decision, see Babiak, supra note 60, at 126 (1992); Volker Behr, Interpretive Decisions Applying CISG: Commentary to Journal of Law and Commerce Case I; Oberlandesgericht Frankfurt a.M., 12 J.L. & Com. 271 (1993); Martin Karollus, Judicial Interpretation and Application of the CISG in Germany 1988-1994, in CISG Review 51, at 63 (Cornell Int'l L.J. ed., 1995).

238. See Landgericht Frankfurt a.M., 16 September 1991, 3/11 O 3/91. The text of the decision is in part published in German. See University of Freiburg Database, http://www.cisg-online.ch/cisg/urteile/26.htm. An English abstract is available as CLOUT Case 6.

239. This reasoning has been criticized by Karollus, supra note 237, at 63 (remarking that a seller who promises exclusive delivery must organize his distribution in such a way that he can meet his contractual obligations).

240. See Oberlandesgericht Koblenz, 31 January 1997, 2 U 31/96 (affirming Landgericht Koblenz, 29 November 1995, 3 HO 188/94). The buyer's appeal from the appellate court's decision to the Bundesgerichtshof (BGH, VIII ZR 64/97) is pending. The full text of the appellate court's decision is published in German. See University of Freiburg Database, http://www.cisg-online.ch/cisg/urteile/256.htm.

241. Article 49(2)(b)(i) provides:

242. See Oberlandesgericht Koblenz, University of Freiburg Database, http://www.cisg-online.ch/cisg/urteile/256.htm.

243. Article 73(2) provides:

244. See Cour d'appel de Grenoble, Chambre commerciale, S.A.R.L. Bri Production "Bonaventure" v. Société Pan Africa Export, 22 February 1995, supra note 207.

245. See Hanseatisches Oberlandesgericht Hamburg, 28 February 1997, 1 U 167/95, supra note 203.

In this case the German buyer contracted with the British seller to deliver iron-molybdenum (65 % molybdenum) from China for a price of $9.70/kg, CIF Rotterdam, time of delivery: October 1994 "from Chinaport to Rotterdam". The seller later informed the buyer that his supplier, due to a raise of the market price for molybdenum, demanded $10.50/kg. The buyer denied any adjustment of the contract price. The seller then offered the buyer iron-molybdenum with a lower percentage of molybdenum (60%) for 10,20 US $/kg to be shipped in November/early December 1994 from China to Rotterdam. The buyer accepted the lower percentage but insisted on the agreed price and shipment of the goods no later than November 30, 1994, otherwise he would make a substitute purchase and claim damages for all loss suffered thereby. Following an inquiry by the buyer on November 15, the seller ensured that he would make all efforts to fulfil the contract in November. On December 2, the seller informed the buyer of the shipment of the molybdenum form Tianjin to Rotterdam. On December 13, however, he admitted that his Chinese supplier would not have delivered the molybdenum and asked for more time to fulfil the contract. The buyer replied on the same day that he needed the molybdenum and stressed again that he would make a substitute purchase and claim the difference between the current market price of $31/kg and the agreed price as damages. The buyer, however, indicated that he would accept an indemnity. In his response on December 14, the seller again asked for more time due to ongoing negotiations with his supplier either for delivery of the goods or indemnification. He also offered the buyer payment of $10,088 as indemnity. The buyer turned down that offer, made a substitute purchase, and sued the seller for the difference between the contract price and the price in the substitute transaction.

246. See Pretura circondariale di Parma, sez.di Fidenza; 77/89; 24 November 1989; Foliopack Ag v. Daniplast S.p.A.. The original text of the decision is published in Italian. The text of the decision is published in Italian. See University of Freiburg Database, http://www.cisg-online.ch/cisg/urteile/316.htm; an English abstract is available as CLOUT Case 90.

See, on the other hand, the case decided by the Court of Arbitration of the International Chamber of Commerce, where a Finnish buyer of machinery for a production line of foamed boards failed to make the third payment to his Italian seller. See ICC case n. 7585 of 1992. Although the tribunal stated that it was absolutely clear that the defendant did not have the financial resources, it did not find for fundamental breach and, thus, the seller's right of avoidance on article 64(1)(b) thereby regarding the three-and-a-half months' waiting time as an "additional period of time" pursuant to article 63(1). A French abstract is available in: Bulletin de la Cour Internationale d'Arbitrage de la Chambre de Commerce Internationale 59 (November 1995). see also the editorial remarks by Kritzer, Pace University database, http://www.cisg.law.pace.edu/cisg/wais/db/cases2/927858i1.html, where the author states that "[w]ithout reference to Articles 63(1) and 64(1)(b), another provision of the CISG that could have been relevant to the results reached is Article 64(1)(a) on the theory that delay of over three months in providing the required letter of credit is a 'fundamental breach' of contract."

247. Article 72 provides:

248. See Oberlandesgericht Düsseldorf, 14 January 1994, 17 U 146/93 (affirming Landgericht Krefeld, 28 April 1993, 11 O 210/92). The text of the decision is published in German. See University of Freiburg Database, http://www.cisg-online.ch/cisg/urteile/119.htm; an English abstract is available as CLOUT Case 130. The decision of the Landgericht Krefeld is published in German. See University of Freiburg Database, http://www.cisg-online.ch/cisg/urteile/101.htm.

249. See Landgericht Berlin, 30 September 1992, 99 O 123/92. The text of the decision is published in German. See University of Freiburg Database, http://www.cisg-online.ch/cisg/urteile/70.htm.

250. Clear" in the -- unofficial -- German version of article 72 reads "offensichtlich" (obvious).

251. See Landgericht Berlin, http://www.cisg-online.ch/cisg/urteile/70.htm.

252. See Schiedsgericht der Handelskammer Hamburg; 21 March 1996 (award on substantive issues). The text of the decision is published in German. See University of Freiburg Database, http://www.cisg-online.ch/cisg/urteile/187.htm. An English abstract is available as CLOUT Case 166.

253. See OLG Koblenz, 31 January 1997, 2 U 31/96.

254. See OLG Koblenz, 29 November 1995, 3 HO 188/94 (not published).

255. See OLG Koblenz, 31 January 1997, 2 U 31/96.

256. See OLG Koblenz, 31 January 1997, 2 U 31/96.

257. See OLG Koblenz, 31 January 1997, 2 U 31/96.

258. See Cour d’appel de Grenoble, 26 April 1995, Marques Roque, Joaquim v. S.A.R.L. Holding Manin Riviegravere; original in French. The full text of the decision is published in French. See University of Freiburg Database, "http://www.cisg-online.ch/cisg/urteile/154.htm". An English abstract is available as CLOUT Case 152.

The Court held that the disputed contract covered the sale of a used hangar together with its dismantling and that it was apparent from the invoices submitted that the supply of services did not constitute the significant part [of the contractual obligations]. The Court concluded that the contract therefore fell within the scope of application of CISG in accordance with art. 3(2).

259. See Marques Roque, Joaquim.

260. See OLG München, 2 March 1994, 7 U 4419/93.

261. See Handelsgericht des Kantons Zürich, 26 April 1995, HG 920670. A German abstract of the decision is published in German in SZIER/RSDIE 51-52 (1996). An English abstract is available as CLOUT Case 191.

262. See Handelsgericht des Kantons, SZIER/RSDIE 52 (1996).

263. See LG Baden-Baden, 14 August 1991, 4 0 113/90. The text of the decision is in part published in German. See University of Freiburg Database, "http://www.cisg-online.ch/cisg/urteile/24.htm"; RIW 62 (1992). An English abstract is available as CLOUT Case 50. For comments on that decision, see Karollus, supra note 237, at 63 (agreeing with the court’s finding).

264. See LG Baden-Baden.

265. See OLG Oldenburg, 1 February 1995, 11 U 64/94. Original in German; unpublished. An English abstract is available as CLOUT Case 165.

The Austrian seller, a furniture manufacturer, agreed to manufacture a leather seating arrangement for the German buyer. The buyer sold the furniture to one of its clients, who discovered that the furniture did not conform with the contract. The buyer required the plaintiff to remedy the lack of conformity by repair. Even after the furniture had been repaired, the buyer still found that the furniture did not conform with the contract and declared the contract avoided. The seller demanded payment. The Court held that the seller did not have a payment claim against the buyer since the repaired furniture did not conform with the contract and this amounted to a fundamental breach of the contract giving the buyer the right to declare the contract avoided.

266. The concept of fundamental breach as set out by scholars and courts also corresponds closely to the position in English law. In particular, it seems that there is a direct correspondence to the four following cases: (1) where the term broken was a condition (e.g., Bunge Corp. v. Tradax S.A. [1981] 1 W.L.R. 711.); (2) where the breach deprived the aggrieved party of the substance of what he was contracting for (e.g., Hong Kong Fir Shipping Co.Ltd. v. Kawasaki Kisen Kaisha Ltd. [1962] 2 Q. B. 26; [1962] All E.R. 474); (3) where the breach evidences an intention not to perform the remainder of the contract (e.g., Sale of Goods Act 1979, U.K. 1979, c.54, s. 31(2)) and (4) that even an unintentional breach may give rise to an anticipatory repudiation of the rest of the contract (cf. Universal Cargo Carriers Corp. v. Citati [1957] 2 Q.B. 401, at 438).

Moreover, the criteria employed to determine fundamental breach under the Convention do not differ significantly from the American approach according to which a failure to render or offer performance must be material. The Restatement (Second) of Contracts (1979) § 241 provides:

267. See BGH, 3 April 1996, VIII ZR 51/95.

268. In the “esclusiva su B” case, the Frankfurt District Court noted only obiter that the seller could not have foreseen such result. See LG Frankfurt, 16.09.1991, 3/11 O 3/91.

269. See, e.g., the Chinese iron-molybdenum case, where the Hamburg Court of Appeal stated as follows: “[Translation] The untimely delivery constitutes a fundamental breach according to arts. 49(1)(a) and 25. Untimely delivery, it is true, does not always constitute a fundamental breach. This general rule under the Convention, however, does not apply to cases where, at the time of the contract formation, it was obvious to the seller that the buyer had a special interest in punctual delivery. In the pertinent case such special interest of the buyer follows from the reference to the Incoterm ‘CIF’ in the contract.” See Hanseatisches OLG Hamburg, 28 February 1997, 1 U 167/95 [emphasis added].

270. For somewhat similar conclusions, see Amato, supra note 62, at 27 (stating that promoting uniformity does not mean “a slavish deference”). see also Yuqing, supra note 25, at 45-46; Boggiano, supra note 16, at 47 (emphasizing that “court should take into account all available foreign precedents and academic writings in a comparative and critical manner”); and Sévon, supra note 54, at 18.

271. Art. 45, which enumerates the remedies available to the buyer, provides in part:

272. Art. 79(1) provides:

273. See art. 33 (time of delivery).

274. See art. 31 (place of delivery).

275. See art. 35 (conformity of the goods).

276. See Schlechtriem, supra note 106, at Art. 25, n.8.

277. There is no definition of “contract of sale” in the Convention. However, it is possible to reconstruct a definition from the articles defining the obligations of the parties. Art. 30 requires the seller “[t]o deliver the goods, hand over any documents relating to them and transfer the property in the goods;” while art. 53 requires the buyer “[t]o pay the price for the goods and to take delivery of them.” For this conclusion, see Peter Winship, The Scope of the Vienna Convention on International Sales Contracts, in International Sales 1, 1-22 (Galston & Smith eds., 1984).

278. See Schlechtriem, supra note 106, at Art. 25, n.8 (stating that if the seller suspends performance under art. 71 because of the buyer’s economic circumstances have deteriorated, the buyer is not entitled to avoid the contract for fundamental breach of contract).

279. This point has been stressed by Babiak, supra note 60, at 119.

280. Van der Velden, supra note 39, at 64-65, suggests the employment of the detriment definition given by the Corpus Iuris Secundum, according to which “the detriment need not be real and involve actual loss, nor does it necessarily refer to material disadvantage to the party suffering it, but means a legal detriment as distinguished from a detriment in fact. It has also been defined as giving up something which one had the right to keep, or doing something which one had the right to do.” Id. Will, supra note 16, at Art. 25, 2.1.1, has opposed this suggestion “because of the difference in context (i.e., the doctrine of consideration)” and “the need for autonomous and uniform interpretation.”

281. The French version uses the word “préjudice,” the Spanish “perjuicio” and the Russian “bpeg.” For the text of the different language versions, see supra note 1 and infra note 296.

282. See Secretariat Commentary, supra note 16, at ¶ 2, art. 23 of the 1978 Draft Convention [antecedent to article 25 of the Official Text], Official Records, supra note 52, at 26.

283. See Will, supra note 16, at Art. 25, 2.1.1.

284. See id. and Van der Velden, supra note 39, at 64.

285. See Will, supra note 16, at Art. 25, 2.1.1.

286. See Will, supra note 16, at Art. 25, 2.1.1 (emphasizing that the meaning attached to the French, Spanish and Russian version of detriment in their domestic contexts indicates injury, damage, and loss in “a rather large and vague sense”).

287. See id. at 2.1.1.2. For a similar notion, see Gonzalez, supra note 180, at 86 (stating that the “Convention’s definition of fundamental breach makes it possible to reconcile the interests of the parties in cases where an insignificant deviation from the contract produces surprising and serious consequences”); Mark L. Ziontz, A New Uniform Law for the International Sale of Goods: Is It Compatible with American Interests?, NW. J. Int’l. L. & Bus. 129, 173 (1980) (stating that “[a]voidance of an international sales contract is a remedy reserved for serious breaches by one of the parties”); Grigera Naón, supra note 103, at 105 (emphasizing that the notion of fundamental breach is consequently linked to the idea that no minor default shall give recourse to the extreme remedy of contract avoidance); Kastely, supra note 25, at 599; and Ndulo, supra note 84, at 16.

288. See CISG Art. 25

289. See CISG Art. 25

290. See supra Part II, B. 2, note 164.

291. See Enderlein & Maskow, supra note 106, at Art. 25, 4.1 (emphasizing that the special circumstances make up the severity of the breach).

292. For this conclusion, see Babiak, supra note 60, at 118.

293. Emphasis added.

294 See id. at 121 for the same conclusion. see also Grigera Naón, supra note 103, at 105 (stating that the decisive test can only be an objective one and that the judge will therefore have to analyze objectively the position of the non-performing party); Will, supra note 16, at Art. 25, 2.2.2.2.4; Enderlein & Maskow, supra note 106, at Art. 25, at 4.2; and Magnus, supra note 28, at Art. 25, n.14.

295. For a different conclusion, see Enderlein & Maskow, supra note 106, at Art. 25, 4.2; Will, supra note 16, at Art. 25, 2.2.2.2.4 (stating that “an overly astute merchant [who] in fact knew and foresaw more than his peers should not be allowed to hide the reasonable person of the same kind in the same circumstances”).

296. This point has been emphasized by Alain A. Levasseur, The Civil Code of Quebec and the Vienna Convention on International Contracts for the Sale of Goods: some Comments, in Conférences sur le nouveau code civil du Québec 269, 282 (Yvon Blais ed., 1992).

297. See Levasseur, supra note 296, at 282.

298. The French text of art. 25 reads:

299. With regard to the French text of art. 25, this point has been emphasized by Levasseur, supra note 296, at 282.

300. For the same conclusion, see, e.g., Schlechtriem, supra note 45, at 60.

For a different conclusion, see Harry M. Flechtner, Remedies Under the New International Sales Convention: The Perspective from Article 2 of the U.C.C., 8 J.L. & Com. 53-108, fn. 114 (1988). He argues that if, after the formation of the contract, it becomes clear that a failure to perform will cause substantial detriment, nothing in the text of art. 25 prevents such failure to perform up to this expectation from being a fundamental breach.

301. For a similar argument where the seller delivers less of a quantity of goods than he had agreed to deliver, see Ziegel, supra note 115, at 9-16, where the author argues that to require that the buyer must have been deprived by 50% or more of what he was entitled to receive before it can be said that there has been a fundamental breach cannot be “justified etymologically and would lead to startling results that could not have been intended by the delegates voting in support of the amendment of [Draft] art. 23.”

302. See comment d. on UNIDROIT art. 7.3.1 (stating that “[s]ometimes an intentional breach may show that a party cannot be trusted”).

303. See Uniform Law on the International Sale of Goods (1964), reprinted in 3 I.L.M. 855 (1964) [hereinafter ULIS]. The text of ULIS also appears in The Hague I, at 333-354. The English text is also available at the Pace University database, "http://www.cisg.law.pace.edu/cisg/text/ulis.html".

304. The Council of UNIDROIT resolved on April 29, 1930, to appoint a Committee, for the purpose of preparing a draft of an international uniform law of sale. The Committee met eleven times, from 1930 to 1934, and submitted a preliminary draft, which was adopted by the Council of UNIDROIT and forwarded to the Council of the League of Nations. The draft was then transmitted to the Governments for comments. On receiving the remarks of the governments, the Committee prepared a new revised draft, which was adopted by the Council of UNIDROIT in 1939. The French text of the 1934 Draft (Projet d’une loi internationale sur la vente) is reprinted in 9 RabelsZ 8-40 (1935). The governments’ comments on the 1934 Draft are reprinted in 10 RabelsZ 651-65 (1936) The English and French texts of the revised 1939 Draft are reprinted in UNIDROIT, Unification of Law, at 101-59 (1948).

305. See, e.g., arts. 53-55 (Remedies for non-compliance with the duty to deliver) and art. 66 (Sanctions in the event of failure to take delivery).

306. See art. 55(3) of the 1939 Draft:

307. In 1951 an international conference convened by the Government of the Netherlands in The Hague and attended by the representatives of 20 governments examined the 1939 draft and appointed a Special Commission with the task to further elaborate its text. By 1956 this commission had prepared a new draft which introduced at art. 15 the principle of fundamental breach and defined it as follows:

308. The text presented to the 1964 Hague Conference by the Text Committee contains only minor changes compared with the definition of fundamental breach under the 1956/1963 draft. These were: “From the point of view of this statute” — an introduction; instead of “party,” “party in breach,” instead of “contracted,” “entered into the contract;” instead of “breach of contract,” “breach of contract and its consequences.” Finally, the place of the “other party” is taken by the “reasonable person;” this reasonable person must be in the same position as the other party. See the ironic comment on the amendments by Eörsi, supra note 103, at 339, where the author states that the “number of words was increased from 31 to 64; for those who believe in the possibility of a definition of fundamental breach this was a quite useful change.”

309. See, e.g., observations of the Austrian government (The Hague II, at 108), Dutch Government (The Hague II, at 138), U.K. Government (The Hague II, at 169); in the course of the debate: Loewe (Austria), Yadin (Israel), Davis (U.K.); only Tunc (France) and O’Keefe (Ireland) held the subjective notion appropriate (The Hague I, at 35-36).

To overcome the ex post facto reasoning necessary in the ULIS art. 10 definition, the British and Dutch Governments, at the Hague conference proposed a new formula, in which objective criteria were to be judged at the time of the occurrence of the breach of contract (The Hague II, at 274). Their proposal read:

310. After it became evident that ULIS would not be widely adopted, the United Nations Commission on International Trade Law (UNCITRAL), established in 1966 with the task to promote “the progressive harmonization and unification of the law of international trade,” decided at its first session in 1968 to inquire into the intentions of all Member States of the United Nations. Based on the comments of the 36 States that replied, UNCITRAL decided to set up a Working Group to determine whether ULIS [and ULF] could be modified to increase their acceptability or whether completely new texts should be drafted. The Working Group, composed of 14 States representing the different regions and legal traditions of the world, held nine sessions and produced two Draft Conventions, namely the 1976 Draft Convention on Sales, setting forth the rights and obligations of the seller and buyer under the sales contract, and the 1977 Draft Convention on Formation of the Sales Contract. At the second stage, the full Commission reviewed the two Draft Conventions, decided to consolidate the texts into one document — the 1978 Draft Convention on Contracts for the International Sale of Goods — and recommended to the U.N. General Assembly that it convene a Diplomatic Conference to review the Draft and finalize the Convention.

The General Assembly adopted this recommendation and convened a Diplomatic Conference in March-April, 1980 at UNCITRAL’s headquarters in Vienna. At the Conference, attended by 62 States, most of the work was done in two “Committees,” each of which included all of the States that attended the Conference. The larger task was assigned to the First Committee, which prepared Parts I-III (Arts. 1-88) of the Convention. The Second Committee prepared Part IV, Final Provisions (Arts. 89-101). The Committees could take action by majority vote, whereas significant action by the Conference Plenary required approval by a two-thirds majority. For the history of the drafting within UNCITRAL, see John O. Honnold, The Draft Convention on Contracts for the International Sale of Goods: An Overview, 27 Am. J. Comp. L. 223 (1979); Farnsworth, supra note 85, at 17-19; and Winship, supra note 277, at 1-1 to 1-15.

311. Emphasis in the original. The Mexican proposal employs as a criterion “whether the breach of contract substantially alters the scope or contents of the rights of the other party” (see UNCITRAL Yearbook VI (1975), at 95; Doc. History, at 220).

312. The proposed revision of ULIS art. 10 reads as follows (see UNCITRAL Yearbook VI (1975), at 95; Doc. History, at 220):

313. ULIS art. 10 was replaced by Draft art. 9. See Working Group, Report on its Seventh Session, UNCITRAL Yearbook, VII (1976), at 90.

314. See UNCITRAL Yearbook VIII (1977), at 127.

315. See id. For fuller review of the discussion, see Michida, supra note 143, at 284-86.

316. See Michida, supra note 143, at 285.

317. See Official Records, supra note 52, at 26; Documentary History, supra note 52, at 416.

318. See UNCITRAL Yearbook VIII (1977), at 31. UNCITRAL did not accept a proposal that the criterion of fundamental breach should be a “loss of interest in the contract” on the part of the innocent party. This proposal was opposed on the ground that it brought in the question of motive of contract and this was too subjective an element. See UNCITRAL Yearbook VIII (1977), at 31.

319. See U.N. DOC. A/CONF.97/C.1/L.63; reprinted in Official Records, supra note 52, at 99; Documentary History, supra note 52, at 671.

320. See U.N. DOC. A/CONF.97/C.1/L.81; reprinted in Official Records, supra note 52, at 99; Documentary History, supra note 52, at 671.

321. See U.N. DOC. A/CONF.97/C.1/L.99; reprinted in Official Records, supra note 52, at 99; Documentary History, supra note 52, at 671.

322. See U.N. DOC. A/CONF.97/C.1/L.104; reprinted in Official Records, supra note 52, at 99; Documentary History, supra note 52, at 671.

323. See U.N. DOC. A/CONF.97/C.1/L.106; reprinted in Official Records, supra note 52, at 99; Documentary History, supra note 52, at 671.

324. See U.N. DOC. A/CONF.97/C.1/L.121; reprinted in Official Records, supra note 52, at 99; Documentary History, supra note 52, at 671.

325. See U.N. DOC. A/CONF.97/C.1/L.126; reprinted in Official Records, supra note 52, at 99; Documentary History, supra note 52, at 671.

326. See comments by the representative of the former Czechoslovakia (Kopac, ¶ 4), Official Records, supra note 52, at 295-96; Documentary History, supra note 52, at 516-17.

327. See U.N. DOC. A/CONF.97/C.1/L.81; reprinted in Official Records, supra note 52, at 99; Documentary History, supra note 52, at 671.

328. See comments by the representative of Mexico (Mantilla-Molina, ¶ 12), Official Records, supra note 52, at 296; Documentary History, supra note 52, at 517.

329. See comments by the representative of France (Ghestin, ¶ 32), Official Records, supra note 52, at 298; Documentary History, supra note 52, at 519.

330. See comments by the representative of Denmark (Trönning, ¶ 22), Official Records, supra note 52, at 297; Documentary History, supra note 52, at 518.

331. See Official Records, supra note 52, at 298; Documentary History, supra note 52, at 519.

332. See comments by the representative of Egypt (Shafik, ¶ 3), Official Records, supra note 52, at 295; Documentary History, supra note 52, at 515.

333. See U.N. DOC. A/CONF.97/C.1/L.106; reprinted in Official Records, supra note 52, at 99; Documentary History, c note 52, at 671.

334. See, e.g., comments by the representative of Austria (Reishofer, ¶ 6); Norway (Rognlien, ¶ 9); Mexico (Mantilla-Molina, ¶ 12); Greece (Krispis, ¶ 13); Denmark (Trönning, ¶ 21); Szasz (Hungary, ¶ 34), Official Records, at 296-298; Doc. History, at 517-519.

335. See the reply of the representative of Egypt (Shafik, ¶¶ 41-42), Official Records, supra note 52, at 298; Documentary History, at 519, to the comments by the various delegations.

336. See Official Records, supra note 52, at 299; Documentary History, supra note 52, at 520.

337. See comments by the representative of Pakistan (Inaamullah, ¶ 45), Official Records, supra note 52, at 299; Documentary History, supra note 52, at 520.

338. See U.N. DOC. A/CONF 97/C.1/L.99; reprinted in Official Records, supra note 52, at 99; Documentary History, supra note 52, at 671.

339. The delegations of Romania (Popescu, ¶ 46), the former Czechoslovakia (Kopac, ¶ 46), India (Kuchibhotla, ¶ 46) and Egypt (Shafik, ¶ 46) supported this amendment on the ground that it made the provision clearer and more precise; China (Wang, ¶ 53), Spain (Olivencia Ruiz, ¶ 50) and Kenya (Waititu, ¶ 59) also supported the Pakistan proposal. See Official Records, supra note 52, at 299-300; Documentary History, supra 52, at 520-21.

The delegations of Sweden (Hjerner, ¶ 47), Greece (Krispis, ¶ 49), the former USSR (Lebedev, ¶ 51), Hungary (Szasz, ¶ 54), Norway (Rognlien, ¶ 58) and the United States (Farnsworth, ¶ 55) criticized this amendment since they did not consider that it made the idea of substantial detriment more precise. See Official Records, supra note 52, at 299-300; Documentary History, supra note 52, at 520-21.

340. The ad hoc working group consisted of the representatives of Argentina, Czechoslovakia, the Federal Republic of Germany, Ghana, Hungary, Norway, Pakistan, Romania and Spain. See Official Records, supra note, at 300, ¶ 65-66; Documentary History, supra note 52, at 521.

341. See comments by the representative of the Federal Republic of Germany (Klingsporn, ¶ 68), Official Records, supra note 52, at 300; Documentary History, supra note 52, at 521.

342. See U.N. DOC. A/CONF.97/C.1/L.63; reprinted in Official Records, supra note 52, at 99; Documentary History, supra note 52, at 671.

343. See comments by the representatives of the United Kingdom (Feltham, ¶ 70), Australia (Bennett, ¶ 74), the former USSR (Lebedev, ¶ 75) and Sweden (Hjerner, ¶ 77), Official Records, supra note 52, at 300-301; Documentary History, supra note 52, at 521-22.

344. See comments by the German representative (Herber, ¶ 78); Official Records, supra note 52, at 301; Documentary History, supra note 52, at 522.

345. See comments by the delegations of Finland (Sevón, ¶ 71), Belgium (Dabin, ¶ 69), Argentina (Boggiano, ¶ 72), Republic of Korea (Kim, ¶ 73) and Ireland (Plunkett, ¶ 76), Official Records, supra note 52, at 299-300; Documentary History, supra note 52, at 521-22.

346. See Official Records, supra note 52, at 301 (¶ 79-80); Documentary History, supra note 52, at 522.

347. See Official Records, supra note 52, at 302 (¶ 1); Documentary History, supra note 52, at 523.

348. See Official Records, supra note 52, at 302 (¶ 4); Documentary History, supra note 52, at 523.

349. Id.

350. U.N. DOC. A/CONF.97/C.1/L.104; reprinted in Official Records, supra note 52, at 99; Documentary History, supra note 52, at 671.

351. See comments by the delegations of Norway (Rognlien, ¶ 2), Finland (Sevón, ¶ 2) and Hungary (Szasz, ¶ 2), Official Records, supra note 52, at 302; Documentary History, supra note 52, at 523.

352. See the comments of the Bulgarian representative (Stalev, ¶ 6), Official Records, supra note 52, at 302; Documentary History, supra note 52, at 523.

353. See the comments by the delegations of Ghana (Date-Bah, ¶ 8) and Ireland (Plunkett, ¶ 9), Official Records, supra note 52, at 302-03; Documentary History, supra note 52, at 523-24.

354. See the comments of the Irish representative (Plunkett, ¶ 9), Official Records, supra note 52, at 302-03; Documentary History, supra note 52, at 523-24.

355. See Official Records, supra note 52, at 302, 303 (¶¶ 3, 11); Documentary History, supra note 52, at 523, 524.

356. U.N. DOC. A/CONF.97/C.1/L.121; reprinted in Official Records, supra note 52, at 99; Documentary History, supra note 52, at 671.

357. See Official Records, supra note 52, at 303 (¶¶12, 13); Documentary History, supra note 52, at 524.

358. U.N. DOC. A/CONF.97/C.1/L.126; reprinted in Official Records, at 99; Doc. History, at 671.

359. See Official Records, at 303 (¶ 15, 16); Doc. History, at 524.

360. U.N. DOC. A/CONF.97/C.1/L.176; reprinted in Official Records, supra note 52, at 99; Documentary History, supra note 52, at 671.

361. See comments by the delegations of Iraq (Sami, ¶ 22), France (Ghestin, ¶ 21), the former USSR (Lebedev, ¶ 26), China (Li Chih-min, ¶ 29), Official Records, supra note 52, at 329-330; Documentary History, supra note 52, at 550-51.

362. See comments of the representatives of France (Ghestin, ¶ 21), the former USSR (Lebedev, ¶ 26), China (Li Chih-min, ¶ 29), Official Records, supra note 52, at 329-30; Documentary History, supra note 52, at 550-51.

363. See comments by the delegations of Bulgaria (Stalev, ¶ 16); Austria (Reishofer, ¶ 17); Federal Republic of Germany (Schlechtriem, ¶ 23); Italy (Bonell, ¶ 24); Norway (Rognlien, ¶ 23); Spain (Olivencia Ruiz, ¶ 31); the former Czechoslovakia (Kopac, ¶ 32-34); Ghana (Sam, ¶ 35); Argentina (Boggiano, ¶ 36); Ireland (Plunkett, ¶ 37), Official Records, supra note 52, at 329-30; Documentary History, supra note 52, at 550-51.

The delegations of the United Kingdom (Feltham, ¶ 15); German Democratic Republic (Wagner, ¶ 20) sought to replace the words “substantially impair his expectations” by “substantially disappoint his expectations.” See Official Records, supra note 52, at 329-30; Documentary History, supra note 52, at 550-51.

364. See Official Records, supra note 52, at 329-30 (¶ 39); Documentary History, supra note 52, at 550-51.

365. See comments by the Executive Secretary of the Convention (Vis, ¶ 13) explaining the text finally adopted by the Drafting Committee, Official Records, supra note 52, at 425; Documentary History, supra note 52, at 646.

366. Id.

367. Id.

368. See Official Records, supra note 52, at 206; Documentary History, supra note 52, at 741.

The Swedish delegate (Hjerner, ¶ 13) voted against it on the grounds that the new formulation “could lend itself to several different interpretations and lead to confusion.” And for the Spanish delegate (Garrigues, ¶ 15), “the idea embodied in art. 23 that a breach would be taken into account only if it were ‘fundamental’ was totally unacceptable. The Canadian delegate (Ziegel, ¶ 12) explained in his abstention that the new definition of fundamental breach imposed an unduly heavy onus on the aggrieved party since it would be difficult for him, particularly in the case of delivery of defective goods, to establish fundamental breach. See Official Records, supra note 52, at 206; Documentary History, supra note 52, at 741.

369. The seller’s right to cure appeared in ULIS as art. 44 (1), which read:

370. See UNCITRAL Yearbook VIII (1977), at 45 (¶ 273); Documentary History, supra note 52, at 338.

371. The amended text of ULIS art. 44(1) adopted by Working Group as art. [43 bis] (1) stated (see UNCITRAL Yearbook VI (1973), at 70, Documentary History, supra note 52, at 148):

372. See UNCITRAL Yearbook VI (1975), at 56; Documentary History, supra note 52, at 247.

373. These proposals were as follows (see UNCITRAL Yearbook VIII (1977), at 44 (¶¶ 271, 272; Documentary History, supra note 52, at 337):

374. See UNCITRAL Yearbook VIII (1977), at 44 (¶¶ 271, 272); Documentary History, supra note 52, at 337.

375. See Id.

376. See Id.

377. See UNCITRAL Yearbook VIII (1977), at 44 (¶¶ 271, 272); Documentary History, supra note 52, at 337.

In the light of its deliberations the UNCITRAL considered the following proposals:

378. UNCITRAL Yearbook VIII (1977), at 31 (¶ 93); Documentary History, supra note 52, at 324.

379. Id.

380. Id.

381. For fuller review of the discussion, see Michida, supra note 143, at 286-88.

382. UNCITRAL Yearbook VIII (1977), at 31 (¶ 94); Documentary History, supra note 52, at 324.

383. See U.N. DOC. A/CONF.97/C.1/L.140; reprinted in Official Records, at 114; Doc. History, at 686.

384. See Id. at U.N. DOC. A/CONF.97/C.1/L.148.

385. See id. at U.N. DOC. A/CONF.97/C.1/L.160.

386. See id. at U.N. DOC. A/CONF.97/C.1/L.164.

387. See id. at U.N. DOC. A/CONF.97/C.1/L.203. see also Pre-Conference Proposals, Official Records, supra note 52, at 78-79; Documentary History, supra note 52, at 399-400, made by the International Chamber of Commerce (proposing a rewording of Draft art. 44(1), which would have made it clear that there was no fundamental breach of contract if the defect, although serious in itself, could be easily cured); the Federal Republic of Germany (suggesting that the words “unless the buyer has declared the contract avoided in accordance with [Draft] article 45” be deleted from paragraph (1)) and Portugal (recommending the deletion of the second sentence of paragraph (1) since it already follows from [Draft] art. 41).

388. See comments of the representatives of Germany (Klingsporn, ¶ 38); Bulgaria (Stalev, ¶ 37) and Japan (Hosokawa¶ 46); Documentary History, supra note 52, at 562-63; Official Records, supra note 52, at 341-42.

389. See comments of the representative of Germany (Klingsporn, ¶ 38); Official Records, supra note 52, at 341; Documentary History, supra note 52, at 562.

390. See U.N. DOC. A/CONF.97/C.1/L.160; reprinted in Official Records, at 114; Doc. History, at 686.

391. See id. at U.N. DOC. A/CONF.97/C.1/L.140.

392. See id. at U.N. DOC. A/CONF.97/C.1/L.164.

393. For the text of the Draft art. 45 [antecedent to art. 49 of the Official Text], see Official Records, supra note 52, at 41; Documentary History, supra note 52, at 431.

394. See the comments of the delegations of Iraq (Sami, ¶ 42), India (Kuchibhotla, ¶ 51); Argentinia (Boggiano, ¶ 55); Chile (Eyzaguirre, ¶ 56); Australia (Bennett, ¶ 43), United Kingdom (Feltham, ¶ 44); Official Records, supra note 52, at 341-43; Documentary History, supra note 52, at 562-64.

395. See Official Records, supra note 52, at 341-43 (¶ 48); Documentary History, supra note 52, at 562-64.

396. See the comments of the delegation of Canada (Ziegel, ¶ 52) and the Federal Republic of Germany (Klingsporn, ¶ 58), Official Records, supra note 52, at 342-43; Documentary History, supra note 52, at 563-64.

397. See Official Records, supra note 52, at 343; Documentary History, supra note 52, at 564.

398. For the text of the Draft art. 42 [antecedent to art. 46 of the Official Text], see Official Records, supra note 52, at 38; Documentary History, supra note 52, at 428.

399. See comments of the U.S. delegation (Farnsworth, ¶ 32); Official Records, at 352; Doc. History, at 573.

400. U.N. DOC. A/CONF.97/C.1/L.203; reprinted in Official Records, supra note 52, at 114; Documentary History, supra note 52, at 686.

401. Id.

402. See Official Records, supra note 52, at 352 (¶ 34); Documentary History, supra note 52, at 573.

403. U.N. DOC. A/CONF.97/C.1/L.148; reprinted in Official Records, supra note 52, at 114; Documentary History, supra note 52, at 686.

404. See the comments by the delegation of Singapore (Khoo, ¶ 82), Official Records, at 344; Doc. History, at 565.

405. Id.

406. U.N. DOC. A/CONF.97/C.1/L.213; reprinted in Official Records, supra note 52, at 115; Documentary History, supra note 52, at 687.

The Federal Republic of Germany and Bulgaria withdrew their amendments in favor of the joint proposal. See Official Records, supra note 52, at 352 (¶ 12); Documentary History, supra note 52, at 573.

407. U.N. DOC. A/CONF.97/C.1/L.213; reprinted in Official Records, supra note 52, at 115; Documentary History, supra note 52, at 687.

408. U.N. DOC. A/CONF.97/C.1/L.213; reprinted in Official Records, supra note 52, at 115; Documentary History, supra note 52, at 687.

409. See the comments by the delegation of Bulgaria (Stalev, ¶ 6), Official Records, supra note 52, at 351; Documentary History, supra note 52, at 572.

410. See the comments by the delegation of Norway (Rognlien, ¶ 9), Official Records, supra note 52, at 351; Documentary History, supra note 52, at 572.

411. See the comments of the Swedish delegation, See Official Records, supra note 52, at 352 (Hjerner, ¶ 17); Documentary History, supra note 52, at 573.

412. See Official Records, supra note 52, at 352 (¶ 19); Documentary History, supra note 52, at 573.

413. Id. After the adoption of ¶ 1 of Alternative II of the joint proposal, Singapore’s own proposal became superfluous and was withdrawn accordingly. See Official Records, supra note 52, at 352 (¶ 36); Documentary History, supra note 52, at 573.

414. See Official Records, supra note 52, at 352 (¶¶ 29, 30); Documentary History, supra note 52, at 573.

Only the delegation of the former Czechoslovakia (Cuker, ¶ 27) shared the Greek delegation’s opinion. In the Czech delegation’s view, the new wording of ¶ 1 was open to a number of interpretations and it was therefore desirable to refer the text to the Drafting Committee to make the necessary modifications. See Official Records, supra note 52, at 352; Documentary History, supra note 52, at 573 fn.3.

415. See Official Records, at 211; Doc. History, at 746.

416. For similar conclusions, see Michida, supra note 143, at 285-86; Schlechtriem, supra note 45, at 58-59; and Gonzalez, supra note 180, at 86 (stating that the new definition under the Convention shifts the burden of proving foreseeability to the party in breach, thereby alleviating the significant burden of proof which ULIS placed on the buyer).

417. See the critical comments by the delegations of Ghana (Date-Bah, ¶ 8), Official Records, supra note 52, at 302; Documentary History, supra note 52, at 523.

418. See Guenter Heinz Treitel, Remedies for Breach of Contracts, in International Encyclopedia of Comparative Law 16-30 (Mouton & Mohr eds., 1988).

419. See id. at 16-31. see also Anthony T. Kronman, Specific Performance, 45 U.Chi.L.Rev. 351, 358 (1978).

420. See G.H. Treitel, The Law of Contract 920 (8th ed. 1991).

421. See Decro-Wall International S.A. v. Practitioners in Marketing Ltd.[1971] 1 W.L.R. 361.

422. See Hill v. C.A. Parsons Ltd. [1972] 1 Ch. 305 and Evans Marshall & Co. Ltd. v. Bertola S.A. [1973] 1 W.L.R. 349.

423. See Beswick v. Beswick, [1968] A.C. 58.

424. See Evans Marshall at 380; The Oakworth [1975] 1 Lloyd’s Rep. 531, at 583; The Oro Chef [1983] 2 Lloyd’s Rep. 509, at 521.

425. For example, where the subject matter is unique substitute delivery is impossible.

426. For a similar conclusion, See Diederichsen, supra note 222, at 180.

427. See supra Part II, B.1.b (3).

428. See Treitel, supra note 420, at 919 (stating that where, in a rising market, the buyer fails to make a substitute purchase, awarding him specific performance in such case would conflict with the principles of mitigation).

429. See Treitel, supra note 418, at 16-30 to 16-31.

430. See Alan Schwartz, The Case for Specific Performance, 89 Yale L.J. 271 (1979); Peter Linzer, On the Amorality of Contract Remedies — Efficiency, Equity, and the Second Restatement, 81 Colum.L.Rev. 111, 134-38 (1982); Kronman, supra note 419, at 351; Richard A. Posner, Economic Analysis of the Law § 4.11 (4th ed. 1992); and S.M. Waddams, The Law of Contracts § 663 (3d ed. 1993).

431. See BGF, 3 April 1996, VIII ZR 51/95, supra note 223, Part II, C.2.c.

432. See Michida, supra note 143, at 288, where the author comments on the discussion of the U.S. proposal as follows:

433. See Schlechtriem, supra note 45, at 60.

434. See id.

435. For the text of art. 45(1), see supra note 271.

436. For the text of art. 61(1), see supra note 271.

437. Although arts. 46 and 62 are phrased in terms of the “rights” of the parties, the Secretariat Commentary clearly indicates that they were intended to act as directives to a court in the event of litigation. The Commentary on Draft art. 42 [antecedent to art. 46 of the Official Text], ¶ 8, Official Records, supra note 52, at 38; Documentary History, supra note 52, at 428, states:

438. See Enderlein, supra note 149, at 187.

439. ULIS differentiated between remedies for the seller’s failure to perform his obligations regarding the date and place of delivery (ULIS arts. 24-32), remedies for lack of conformity (ULIS arts. 41-49), remedies for non-payment (ULIS arts. 61-64). For the text of ULIS, see supra note 46.

440. This question was not raised at the Vienna Diplomatic Conference when art. 46 was discussed. Since the debates were concerned with physical defects, some authors view the scope of the provision as being limited to physical defects. See, e.g., Huber, supra note 106, at Art. 46, n.27 (stating that though it may seem permissible to regard goods encumbered with third party rights or claims as being in “conformity with the contract,” the Convention uses the terms “conformity of the goods” and goods that “do not conform with the contract” in a technical sense, covering only cases falling under art. 35). For a similar view, see Piltz, supra note 100, at § 5, n.147.

For a different view, see Will, supra note 16, at Art. 46, 3.1 (arguing that the wording and the purpose of art. 46(1) allows the conclusion that the obligation to deliver goods free of any rights or claims by third parties is included). See also Enderlein & Maskow, supra note 106, Art. 46, 3; and Audit, supra note 149, at n.128.

441. See infra Part III, C.3.a.

442. See supra Part II, B.1.b(3) and C.2.c.

443. See supra note 191.

444. For similar statements, see, e.g., Bonell, supra note 25, at Art. 6, 1.1; Winship, supra note 277, at 9-31; and Samson, supra note 47, at 234.

445. See Official Records, supra note 52, at 247-48; Documentary History, supra note 52, at 468-69.

See also ¶ 1 of the Secretariat Commentary on art. 5 of the 1978 Draft Convention (antecedent to art. 6 of the Official Text) (stating that the parties “may derogate or vary the effect of any of its provisions by adopting provisions in their contract providing solutions different from those in the Convention”).

Art. 12 aims at serving the special demands of those states the legal systems of which impose written form for contracts of international sales for purposes of validity, evidence, and administrative control. It provides:

446. The proposal of the Canadian delegation aimed at limiting the principle of party autonomy was rejected after little debate. See the critical comments by the delegations of Norway (Rognlien, ¶ 57), Sweden (Hjerner, ¶ 58), United States (Farnsworth, ¶ 60), the Republic of Korea (Kim, ¶ 61), and Belgium (Dabin, ¶ 62). The Canadian proposal (U.N. DOC. A/CONF.97/C.1/L.10) to revise Draft art. 5, as orally amended by the delegation of the German Democratic Republic, read as follows:

447. Art. 70 also deals with fundamental breach but is not concerned with remedies. It is rather concerned with the effect of a breach by the seller on the passing of the risk.

448. See Huber, supra note 106, at Art. 51, n.5 (stating that avoidance under art. 51(2) requires that partial delivery must be of no interest to the buyer). see also Honnold, supra note 20, at § 317 (noting that “[o]ne of the purposes of paragraph (2) of Article 51 is to make clear that paragraph (1) does not force the buyer to sort out the non-conforming goods for separate handling”). The U.S. Uniform Commercial Code (U.C.C.) achieves a similar result by providing (§ 2-608) for the revocation of acceptance of a “commercial unit,” which is defined (§ 2-105(6)) as a unit which “by commercial usage is a single whole for the purpose of sale and division of which materially impairs its character or value on the market or in use.”

449. Art. 64(1) provides in part:

450. For a similar statement, see Schlechtriem, supra note 45, at 95 (stating that it is not clear from the wording of ¶ 1 when a particular act or occurrence justifies the conclusion that a fundamental breach is to be expected). Neither does the official ULIS commentary on ULIS art. 76, which is basically recapitulated by art. 72(1) provide any further illumination. There it is elaborated that avoidance due to an anticipatory breach is fully justified since it would not be “right that one party remains bound by the contract when the other has, for instance, deliberately declared that he will not carry out one of his fundamental obligations or when he conducts himself in such a way that it is clear that he will commit a fundamental breach of contract.” See André Tunc, Commentary on the Hague Conventions of 1 July 1964 on International Sale of Goods and the Formation of Contracts of Sale, in Diplomatic Conference on the Unification of Law Governing the International Sale of Goods 88 (Ministry of Justice of the Netherlands eds., 1964).

451. For a similar conclusion, see Hans G. Leser, Art. 72, in Commentary on the UN Convention on the International Sale of Goods Art. 72, n.21 (Peter Schlechtriem ed. 1998) (stating that if the party threatening to breach the contract refuses to provide adequate assurance or does not react to the notice within a reasonable time, the contract may be avoided without further delay).

452. For a different conclusion, see M. Gilbey Strub, The Convention on the International Sale of Goods: Anticipatory Repudiation Provisions and Developing Countries, 38 Int’l Comp.L.Q. 475, 498 (1989) (stating that a failure to respond to a request for assurances “is too vague to merit avoidance” under the text of art. 72).

453. Draft art. 63 reads as follows (see Official Records, supra note 52, at 53; Documentary History, supra note 52, at 443):

454. See ¶ 2 of the Secretary Commentary on Draft art. 63, Documentary History, supra note 52, at 443.

455. Id.

456. Official Records, supra note 52, at 52; Documentary History, supra note 52, at 442.

457. The delegate of Egypt (Shafik, ¶ 2), Official Records, supra note 52, at 420; Documetnary History, supra note 52, at 641, introducing his delegation’s amendments said that “the remedy [in ¶ 1] whereby a party might proceed directly to avoidance of contract was rather drastic; even if the other party had already been declared bankrupt, his creditors might still be prepared to fulfill the contract . . . notification should be given in all cases.” Id.

458. For the same conclusions, see Bennet, supra note 141, at Art. 71, 3.7; Honnold, supra note 52, at § 394. See also the decisions of the Düsseldorf Court of Appeal and the Berlin District Court where both courts held that failure to provide adequate assurance by the buyer makes it clear that he would not pay the purchase price. See OLG Düsseldorf , 14 January 1994, 17 U 146/93, supra note 248; LG Berlin, 30 September 1992, 99 O 123/92, supra note 249.

Ziegel, supra note 115, at 9-35, takes another position. He argues that a party’s failure to provide an adequate assurance of performance is not unequivocal evidence of his unwillingness to perform, “particularly when he may question the validity of the requesting party’s feeling of insecurity to bring with.” Id. S.K. Date-Bah, The Convention on Contracts for the International Sale of Goods from the Perspective of the Developing Countries, in La Vendita Internazionale 34 (Giuffrè ed., 1981), agrees with Ziegel’s opinion in that anticipatory breach under art. 72(1) “requires proof by the person seeking to avoid the contract of facts from which a conclusion can logically and rationally be reached by induction that the other party is likely to commit a fundamental breach. Mere appearances are not good enough.” Id. see also Schlechtriem, supra note 45, at 96 (stating that refusal to provide adequate assurance “should not in itself be regarded as ‘clear’ evidence of an impending breach of contract”).

459. See Honnold, supra note 20, at § 392 (emphasizing that threats of non-performance may develop under a wide variety of circumstances).

460. See ¶ 13 of the Secretariat Commentary on Draft art. 62, Official Records, supra note 52, at 53; Documentary History, supra note 52, at 443.

461. For a similar statement, see Honnold, supra note 20, at § 392 (stating that “reassuring words” alone cannot provide adequate assurance).

462. For further examples, see the examples 62E and 62F by the Secretariat Commentary on Draft art. 62(3), Official Records, supra note 52, at 53; Documentary History, supra note 52, at 443.

463. For a similar conclusion, see Honnold, supra note 20, at § 388; and Schlechtriem, supra note 45, at 95 (stating that art. 72(2) should primarily apply to situations where the performance of the promisor is jeopardized by objective circumstances).

464. For the text of art. 71(1), see supra note 214.

465. For a similar conclusion, see Honnold, supra note 20, at § 388.

466. For a similar conclusion, see Leser, supra note 451, at Art. 72, n.10 (stating that the reasons mentioned under art. 71(1) are also applicable to art. 72). For examples of deficiencies in seller’s ability to perform and the buyer’s creditworthiness, see Bennet, supra note 141, at Art. 71, 2.6 (e.g., where the production at the seller’s factories was held up by a strike, which is likely to continue for some time; or where buyer falls behind in his payments to a seller in respect of other contracts).

467. For a similar example with regard to the promisee’s right to suspend his performance, see ¶ 6 of the Secretariat Commentary on Draft art. 62 [antecedent to art. 71 of the Official Text], Official Records, supra note 52, at 52; Documentary History, supra note 52, at 442.

468. See id.

469. It is true that the proposed amendment by Egypt to link the remedies of avoidance and suspension by replacing Draft art. 63 was rejected by 19 votes in favor and 19 against. This amendment reads as follows (see U.N. DOC. A/CONF.97/C.1/L.249; U.N. DOC. A/CONF.97/C.1/L.250; reprinted in Official Records, supra note 52, at 130; Documentary History, supra note 52, at 702):

470. According to art. 72(2), the promisor “must give reasonable notice to the [promisee] in order to permit him to provide adequate assurance.” [emphasis added]

471. This point has been emphasized by Flechtner, supra note 300, at 53-108, fn.194, where the author notes that “[i]mperfect assurances and imperfect responses to a Nachfrist notice present analogous questions because the functions of a Nachfrist notice and a demand for adequate assurance are analogous: the “Nachfrist-type” procedure eliminates uncertainty when performance is overdue; the adequate-assurance procedure eliminates uncertainty concerning performance that is not yet due.”

472. For example, A promises to deliver oil to B by ship in Hamburg on Jan. 9. On Jan. 4 the ship is still 2000 kilometers from Hamburg. At the speed it is making it will not arrive in Hamburg on Jan. 9, but at the earliest on January 15. If time is of the essence, B may terminate the contract before Jan. 9.

473. Whether a demand for new terms or an alleged breach of contract amounts to a declaration not to perform is doubtful. For a similar conclusion, see Honnold, supra note 20, at § 396 (stating that “[a]voidance should not be triggered if A informs B of the need to negotiate a modification of their agreement”); and Magnus, supra note 28, at Art. 72 n.27.

For a different conclusion, see Schlechtriem, supra note 45, at 95, where the author notes that art. 72(3) also covers those cases “in which a demand for new terms or alleged contract violations by the other side are used as pretext for not performing one’s own obligations;” Stoll, supra note 138, at 642 (stating that cases where a party without justification put forward defenses or demands to have the contract modified or renegotiated require similar treatment than repudiation).

Making performance depend on a modification of the contract, however, must be considered as a refusal to perform. For a similar conclusion, see Honnold, supra note 20, at § 396; and Magnus, supra note 28, at Art 72, n.27.

474. It has been argued that where the date of delivery is so near that assurances cannot be procured in time, there is no need to notify the other party. See Schlechtriem, supra note 45, at 95. Honnold, supra note 20, at § 403, believes that “modern methods of communication” would normally allow the provision of notice without impinging on the aggrieved party’s “freedom of action.”Id.

475. Such an understanding would arrive at the same result as when one treats the failure to provide adequate assurance itself as an actual fundamental breach. This course is followed by the UNIDROIT Principles as well as the Principles of European Contract Law.

See art. 8:105(2) (Assurance of Performance) of the European Contract Principles [antecedent to art. 3.105(2) of the first version], supra note 69, at "http://www.ufsia.be/~estorme/PECL2en.html":

UNIDROIT Principles art. 7.3.4. (Adequate Assurance of Due Performance), at "http://www.unidroit.org/english/principles/chapter-7-3.htm":

476. Art. 73 (1) provides:

477. According to ¶ 6 of the Secretariat Commentary on Draft art. 64 [antecedent to art. 73 of the Official Text], Official Records, supra note 52, at 54; Documentary History, supra note 52, at 444, “the test does not look to the seriousness of the current breach. This is of particular significance where a series of breaches, none of which in itself is fundamental or would give good reason to fear a future fundamental breach, taken together does give good reason for such a fear.”

478. There is a dispute among scholars whether the different formulations under art. 71(1) (“it becomes apparent”), art. 72(1) (“clear”) and art. 73(2) (“good grounds to conclude”) require different degrees of certainty. Some authors hold the view that there is a gradation of remedies, increasing from art. 71(1) via art. 73(2) to art. 72, in the sense that the latter requires the highest degree of certainty. They argue that it is not the different wording itself that enables any distinction to be drawn, but the severity of the remedy’s interference with the contract. Avoidance of the contract in the future under art. 73(2), as a reaction to a breach of contract, although not necessarily fundamental in nature, is at a lesser level than avoidance of the whole contract. See Leser, supra note 451, at Art. 73, n.23; Magnus, supra note 28, at Art. 73, n.22 and Art. 72, n.9.

Other authors conclude from the wording and the fact that in the setting of art. 73(2) (unlike the situations invoking arts. 71 and 72) a breach of contract has already occurred, that a less strict and more subjective standard for avoidance is required. See, e.g., Honnold, supra note 20, at § 401; and Bennett, supra note 141, at Art. 73, 3.3.

Schlechtriem, supra note 45, at 96, takes the view that the different formulations under arts. 71(1), 72(1) and art. 73(2) do not require different degrees of certainty. He argues that the decisive factor is “whether a reasonable person would be convinced that a breach of contract is certain to occur.” Id.

479. See the Secretariat Commentary on Draft art. 64, supra note 16, at ¶ 5, Official Records, supra note 52, at 54; Documentary History, supra note 52, at 444.

480. For this conclusion, see Bennett, supra note 141, at Art. 73, 3.3 (stating that it is doubtful whether the grounds for the assumption that a fundamental breach will occur can derive from the bankruptcy of the other party or a statement by him that he does not intend to perform his obligations with respect to future installments); see also Enderlein & Maskow, supra note 106, at Art. 73, 7.

481. Art. 46(2) provides:

482. See Enderlein & Maskow, supra note 106, at Art. 46, 3.

483. See UNIDROIT Principles, supra note 68, at art. 7.3.1, comment e (stating that “[n]on performance is less likely to be treated as fundamental if it occurs late, after the preparation of performance, than if it occurs early before such preparation”).

484. For a similar statement, see Will, supra note 16, at Art. 46, 2.2.1.2. Where the buyer asks for substitute delivery the seller has to cover not only the costs of disposing of the non-conforming goods, as is the case when the buyer avoided the contract, but also for shipping a second lot of goods to the buyer. The costs to the seller arising out of the exercise of the remedy of substitute delivery thus might be considerably higher than of the avoidance remedy.

485. See UNCITRAL Yearbook VIII (1977), at 43 (¶ 247); Documentary History, supra note 52, at 336.

486. See id. at 43 (¶ 248).

487. See id. at 43 (¶ 251).

488. See id. at 44 (¶ 254).

489. See id. at 42 (¶ 254); Documentary History, supra note 52, at 335.

Likewise, the United States proposed amending Draft art. 73 (antecedent to art. 77 of the Official Text) to reduce a claim against the party in breach if the injured party failed to mitigate damages. As presented, the proposal would have applied to any form of relief. The proposal was defeated. See U.N. DOC. A/CONF.97/C.1/L.288, Official Records, supra note 52, at 133; Documentary History, supra note 52, at 705; see also Secretariat Commentary on Draft art. 73, supra note 16, at ¶ 3, Official Records, supra note 52, at 61; Documentary History, supra note 52, at 451 (mitigation applies only to damage awards).

490. See UNCITRAL Yearbook VIII (1977), at 42 (¶ 256); Documentary History, supra note 52, at 335.

491. See id. at 42 (¶ 257).

492. Draft art. 42 provides (see Official Records, supra note 52, at 9; Documentary History, supra note 52, at 386):

493. The Norwegian delegation proposed to replace ¶ 2 of Draft art. 42 with the following text of ¶¶ 2 and 3 (see U.N. DOC. A/CONF.97/C.1/L.79; reprinted in Official Records, supra note 52, at 112; Documentary History, supra note 52, at 684):

494. The Danish delegation proposed to replace ¶ 2 of Draft art. 42 with the following text of ¶¶ 2 and 3 (see U.N. DOC. A/CONF.97/C.1/L.138; reprinted in Official Records, supra note 52, at 112; Documentary History, supra note 52, at 684):

495. The Finnish delegation proposed to replace ¶ 2 of Draft art. 42 with the following text of ¶¶ 2 and 3 (see U.N. DOC. A/CONF.97/C.1/L.139; reprinted in Official Records, supra note 52, at 112; Documentary History, supra note 52, at 684):

496. The Swedish delegation proposed to replace ¶ 2 of Draft art. 42 with the following text of ¶¶ 2 and 3 (see U.N. DOC. A/CONF.97/C.1/L.173; reprinted in Official Records, supra note 52, at 112; Documentary History, supra note 52, at 684):

497. See comments of the Finnish delegation (Sevón, ¶ 74), Official Records, supra note 52, at 332; Documentary History, supra note 52, at 553.

498. See comments of the Norwegian (Rognlien, ¶ 77) and Swedish delegation (Hjerner, ¶ 81), Official Records, supra note 52, at 333; Documentary History, supra note 52, at 554.

499. The delegation of the Federal Republic of Germany proposed to revise ¶ 2 to read as follows (See U.N DOC. A/CONF.97/C.1/L.135; reprinted in Official Records, supra note 52, at 112; Documentary History, supra note 52, at 684):

500. See comments of the German delegation (Klingsporn, ¶ 76), Official Records, supra note 52, at 333; Documentary History, supra note 52, at 554.

501. The ad hoc working group was composed of the representatives of Finland, the Federal Republic of Germany, Norway and Sweden.

502. Their joint proposal was mainly based on the wording of the original amendment by the Federal Republic of Germany except for the question of the delivery of substitute goods, on which the member of the ad hoc Working Group held differing views. It added as a new ¶ 3 the following text (See U.N. DOC. A/CONF.97/C.1/L.173; reprinted in Official Records, supra note 52, at 112; Documentary History, supra note 52, at 684):

503. The French delegation proposed the addition of the words “due account being taken of the legitimate interests of the buyer” at the end of the first sentence. See Official Records, supra note 52, at 335 (Ghestin, ¶ 15); Documentary History, supra note 52, at 556.

504. The Soviet delegation proposed the deleting the words “for the seller” at the end of the first sentence of the new ¶ 3. See Official Records, supra note 52, at 336 (Medvedev, ¶ 24); Documentary History, supra note 52, at 557.

505. The U.S. delegation suggested introducing a phrase such as “taking account of the circumstances of the seller and the buyer.” See Official Records, supra note 52, at 336 (Farnsworth, ¶ 28); Documentary History, supra note 52, at 557.

506. See comments by the French (Ghestin, ¶ 15), Russian (Medvedev, ¶ 24) and U.S. delegations (Farnsworth, ¶ 28), Official Records, supra note 52, at 335-36; Documentary History, supra note 52, at 556-57.

507. See Official Records, supra note 52, at 336 (¶ 38); Documentary History, supra note 52, at 557.

508. See Official Records, supra note 52, at 336 (¶ 37); Documentary History, supra note 52, at 557.

509. See the comments by the German delegation (Landfermann, ¶ 47), Official Records, supra note 52, at 337; Documentary History, supra note 52, at 558.

510. Id. The proposal was welcomed by the Italian delegation whose representative pointed out that ¶¶ 2 and 3 dealt only with specific cases and that the general right was set out in ¶ 1. The choice between the two possible remedies described in ¶¶ 2 and 3, basically depended on the nature of the goods and not, as the existing text of ¶ 3 provided, on the nature of the breach. See Official Records, supra note 52, at 337 (Bonell, ¶ 51); Documentary History, supra note 52, at 558.

See, on the other hand, the comments of the Swedish delegation, Official Records, supra note 52, at 337 (Hjerner, ¶ 52); Documentary History, supra note 52, at 558, which criticized the German proposal for confusing the situation, since it collapsed two ideas, substitution and repair.

511. See comments of the Bulgarian delegation (Stalev, ¶ 49), Official Records, supra note 52, at 337; Documentary History, supra note 52, at 558.

512. See comments of the French delegation (Stalev, ¶ 49), Official Records, supra note 52, at 337; Documentary History, supra note 52, at 558. see also the Secretariat Commentary, supra note 16, at ¶12, Draft art. 42, Official Records, supra note 52, at 38; Documentary History, supra note 52, at 428:

513. See Official Records, supra note 52, at 337 (¶¶ 54, 55); Documentary History, supra note 52, at 558.

514. For a similar conclusion, see Vivian Curran Grosswald, Cross Reference and Editorial Analysis of CISG Article 46, at Pace University database, "http://www.cisg.law.pace.edu/cisg/text/cross/cross-46.html" (stating that elements of reasonableness are built into art. 46(2) and (3) in that the buyer may not require the seller to remedy a lack of conformity by repair pursuant to art. 46(3) when “this is unreasonable having regard to all the circumstances” and in that the buyer may only require delivery of substitute goods pursuant to art. 46(2) when there is a lack of conformity that constitutes a fundamental breach of contract.

515. See arts. 47(1) and 63(1) (permitting the setting of a time limit for late performance on the side of the seller and buyer, respectively).

516. For the same conclusion, see Huber, supra note 106, at Art. 49, n.22 and Will, supra note 16, at Art 49, 2.1.3; see also Treitel, supra note 418, at 16-149 to 16-150 (stating with regard to the Nachfrist requirement under German, Austrian and Swiss law that the main purpose of the requirement of a Nachfrist is to protect the promisor by giving him a further period of grace within which to perform, but that in case of the seller’s refusal, “no useful purpose would be served by the Nachfrist”). [emphasis in the original]

517. See id. at 16-150 (stating that the Nachfrist requirement is not applicable where the default does not consist of delay but of impossibility).

518. See the Secretariat Commentary supra note 16, at Draft art. 43, ¶ 4 [antecedent to art. 47 of the Official Text], Official Records, supra note 52, at 39; Documentary History, supra note 52, at 429:

519. See Huber, supra note 106, at Art. 51, n.3 (stating that art. 51(2) is not applicable to installment contracts).

520. See, e.g., arts. 40, 43, 49(2)(b), and 64(2)(b).

521. See Holthausen, supra note 105, at 105 (concluding from the very similar wording of articles 25 and 74 that the time of the conclusion of the contract is the relevant point in time for knowledge or foreseeability and emphasizing, with reference to arts. 9(2), 31(b), 42(2)(a), 73(3), and 79(1), that under the Convention, whenever knowledge and foreseeability is required, the time of the conclusion of the contract is relevant, except for those provisions which deal with the loss of remedial rights as a result of a delay by the aggrieved party, such as arts. 40, 43, 49(2)(b), and 64(2)(b). Those provisions, however, apply by their nature only at a later point in time).

522. This point has been emphasized by those authors viewing the time of the conclusion of the contract as relevant. See, e.g. Schlechtriem, supra note 106, at Art 25, n.15.

523. For a similar example, see Schlechtriem, supra note 45, at 60.

524. Both the black letter rules of the UNIDROIT Principles and the European Principles do not expressly state the time when the party in breach had to have or should have foreseen the detrimental consequences to the other side. The official commentaries, however, expressly refer to the time of the formation of the contract. See European Principles, supra note 69, at 126; UNIDROIT Principles, supra note 68, at comment on art. 7.3.2(a).

525. See Ziegel, supra note 115, at 9-20. Flechtner, supra note 300, at II.A, takes a different view. With reference to the U.C.C., which, on the one hand, limits consequential damages to losses foreseeable at the time of contracting (art. 2), while on the other hand permits the buyer to revoke acceptance of non-conforming goods — an action equivalent to avoidance under the Convention — if the non-conformity “substantially impairs [their] value to him” (§ 2-608(1)), he argues that there is a precedent for the “anomaly” feared by Ziegel in the U.S. sales law. Furthermore, he argues that this alleged “anomaly” could be justified on the ground that the foreseeability requirements in arts. 25 and 74 serve different purposes. While the foreseeability limitation on damages is designed to limit the financial exposure of the parties to a contract for sale by excluding liability for remote consequences, the foreseeability requirement in the definition of fundamental breach, in contrast, is meant to limit avoidance to appropriate circumstances.

526. See supra Part III, B.2.b.(1)(a)(ii), note 400.

527. See Huber, supra note 106, at Art. 46, n.23 (stating that where the cure of a breach is feasible the aggrieved party is not generally substantially deprived of its expectations under the contract) and Schlechtriem, supra note 45, at 78 (stating that when time is not of the essence of the contract, the seller’s cure within a reasonable time after the due date will normally prevent the delay from constituting a fundamental breach).

528. See supra Part III, B. 3.

529. For the text of art. 48(1), see supra note 256.

530. For a similar conclusion, see Ziegel, supra note 115, at 9-22; Schnyder & Straub, supra note 105, at Art. 48, n.29. Honnold, supra note 20, at § 296, takes a very different position. He argues, with reference to the legislative history, that the amendment to art 48(1) “leaves little room for doubt” that the right to cure is the paramount provision and that the cure provision of art. 48(1) could be frustrated “by an unqualified application of article 49(1).” Id.

531. See supra Part III, B.2.b.(1)(a)(ii), note 395.

532. See Karollus, supra note 143, at 495; Huber, supra note 106, at Art. 46, n.18 (both criticizing the curability approach on the grounds it enables the seller retrospectively to frustrate the buyer’s right of avoidance); see also the critical comments by Will, supra note 106, at Art. 48, 3.2.2, where the author asks the question of whether there is any “need to resort to so unconvincing a construction” to protect the seller’s right to cure by giving the following illustration:

533. This point is rightly emphasized by Schnyder & Straub, supra note 105, at Art. 49, n.22 and Karollus, supra note 143, at 495.

534. For the same criticism, see Karollus, supra note 143, at 495.

535. See supra note 194.

536. See Will, supra note 16, at Art. 48, 2.1.1.1.1 (stating that “the buyer who has already suffered the seller’s fundamental breach of contract should not, in addition, be burdened with the entire range of uncertainties as to the same seller’s ability and willingness to cure”).

537. For this statement, see id. at Art. 48, 3.2.2 , where the author criticizes the “offer-to-cure” approach for not being very precise.

538. Art. 77 provides:

539. For similar conclusions, see V. Knapp, Art. 77, in Commentary on the International Sales Law, The 1980 Vienna Sales Convention 2.2 (C. Bianca & M. Bonell eds., 1987); Peter Schlechtriem, Gemeinsame Bestimmungen über Verpflichtungen des Verkäufers und des Käufers, in Lausanner Kolloquium 169 (Schweizerisches Institut für Rechtsvergleichung ed., 1985); E. Allan Farnsworth, Damages and Specific Relief, 27 Am.J.Comp.L. 247, 251 (1979); Honnold, supra note 20, at § 418; Stoll, supra note 138, at Art. 77, n.10; Enderlein & Maskow, supra note 106, at Art. 77, 2; Herber & Czerwenka, supra note 16, at Art. 77, n.6; and Piltz, supra note 100, at § 5 n.462.

540. For a similar conclusion, see Farnsworth, supra note 27, at 251 (commenting on Draft art. 73 [antecedent to art. 77 of the Official Text] that “the most common step to be taken in avoidance of loss under a contract for the sale of goods is a substitute sale or ‘resale’ to another buyer in the case of breach by the buyer and a substitute purchase or ‘cover’ from another seller in case of breach by the seller”).

541. For the same conclusion with regard to the availability of the specific performance remedy under arts. 46(1) and 62, see Amy H. Kastely, The Right to Require Performance in International Sales, 63 Wash.L.Rev. 607, 622 (1988).

542. See Feltham, supra note 180, at 355 (stating that art. 77 “is hardly expressed as a bar to requiring performance”).

543. See Kastely, supra note 540, at 622 and Steven Walt, For Specific Performance Under the United Nations Sales Convention, 26 Tex.Int’l L. J. 211, 215-16 (1991) (both emphasizing that art. 77 is placed in the section that deals only with the damages remedy).

544. See Art. 45(1), supra note 271.

545. See Art. 61, supra note 271.

546. For a similar assertion in respect to the parties’ right to specific performance, see Kastely, supra note 541, at 622.

547. See U.N. DOC. A/CONF.97/C.1/L.288, Official Records, supra note 52, at 133; Documentary History, supra note 52, at 705. The U.S. proposed to revise the second sentence of Draft art. 73 [antecedent to art. 77 of the Official Text] to read as follows:

548. The U.S. proposal was aimed at cases where the seller, despite the buyer’s wish to the contrary, continue to manufacture a thing which has become useless for the buyer, solely in order to claim the full contract price. See the comments by the U.S. delegate (Honnold, ¶ 55), Official Records, supra note 52, at 396; Documentary History, supra note 52, at 617.

549. For the discussion of the proposal, see Official Records, supra note 52, at 396-98 (¶¶ 55–78); Documentary History, supra note 52, at 617-19. The proposal was rejected by 24 votes to 8.

550. See infra Part III, E.2.b.c.d.

551. Unlike the Common Law of England, the Convention does not adopt a system of a priori characterization of the seller’s obligations into condition and warranties with respect to implied terms of title, description, merchantability, fitness, and sale by sample. Nor does the Convention, like German law, differentiate between “main” and “subordinate” obligations, nor between different forms of breach (impossibility, delay, so-called “positive violation of a contractual duty,” culpa in contrahendo). For a brief summary of the Common Law remedial system, see Treitel, supra note 418, at 16-167, and for a brief summary of the German system, see, e.g., Dannemann, supra note 60, at 27 — 33.

552. See supra Part III, C.3.a.

553. Art. 35(2)(a)(b) provides:

554. Art. 41 provides:

555. Art. 42 provides in part:

556. See Peter Schlechtriem, Einheitliches UN-Kaufrecht, JZ 1037, 1045 (1988), where the author takes the view that any violation of art. 35(2)(b) and (c) constitutes a fundamental breach. Lack of fitness for the ordinary use, in his eyes, cannot be regarded as a fundamental breach.

557. Draft art. 45(1)(b) [antecedent to art. 49(1)(b) of the Convention] provides:

558. See Report on the proceedings in the First Committee, Official Records, supra note 52, at 117; Documentary History, supra note 52, at 689 (9 votes in favor and 31 against). The Dutch amendment (U.N. DOC. A/CONF.97/C.1/L.165; reprinted in Official Records, supra note 52, at 116; Documentary History, supra note 52, at 688) were to the following effect:

559. See the comments by the delegations of Sweden (Hjerner, ¶ 69), the Federal Republic of Germany (Schlechtriem, ¶ 71), the United States (Farnsworth, ¶ 76), Greece (Krispis, ¶ 77), International Chamber of Commerce (Bortolotti, ¶ 82), Spain (Olivencia Ruiz, ¶ 83) and the United Kingdom (Feltham, ¶ 84), Official Records, supra note 52, at 354-55; Documentary History, supra note 52, at 575-76.

560. The German Supreme Court’s finding in the New Zealand mussels case that, in the absence of an agreement as to the merchantability of the goods, unmarketability does not constitute fundamental breach thus corresponds with this conclusion. See BGH, 8 March 1995, VIII ZR 159/94, supra note 217.

561. “[t]he seller may . . . remedy at his own expenses any failure to perform his obligations. . . .” [emphasis added].

562. Accordingly the buyer himself, based on art. 48, cannot charge a third party to remedy the defect at the seller’s expense. The costs of repair effected by a third party are only recoverable as damages when the requirements of art. 74 are met. For the same conclusion, see Magnus, supra note 28, at Art. 48, n.35.

563. See Will, supra note 16, at Art. 49, 2.1.2 (stating that the purpose of restricting the buyer’s choice of avoidance serves primarily the interests of the seller who must take back the goods supplied and bears all risks of damages or loss).

564. At the Vienna Diplomatic Conference, the French representative (Ghestin, ¶ 53), in support of the fundamental breach requirement, pointed out that the remedy of substitute delivery might be even more onerous on the seller than avoidance of the contract. See Official Records, supra note 52, at 337 (¶ 53), Documentary History, supra note 52, at 559. For a similar statement, see also Will, supra note 16, at Art. 46, 2.2.1.2.

565. See Audit, supra note 28, at 150 (emphasizing that recession can be a great inconvenience, particularly where the goods were made specifically for the buyer).

566. Art. 64(1), which establishes the seller’s right to avoidance, does not distinguish between his right to avoid the contract before or after the goods have been delivered. If he does so, art. 81(2) entitles him to seek restitution from the buyer. When the seller is not the only unpaid creditor, however, his claim to restitution is likely to conflict with the claims of other creditors and the question arises as to which right prevails. The Convention does not deal with any rights that third persons may have acquired on the goods concerned. Whether, for instance, a creditor of the buyer, the buyer’s receivers in bankruptcy, or a purchaser in good faith, may oppose the restitution of goods sold is to be determined by the applicable national law. The effect of a retention of title clause may be influenced by three legal systems: the lex contractus decides whether the parties can contractually defer the transfer of title and the third party effect on the title is determined by the lex rei sitae. Finally, the lex concursus decides to what extent the retention of title must be recognized. And under these various applicable domestic rules, the right of an unpaid seller under art. 81(2) as against the rights of other creditors of a buyer in possession, the buyer’s receivers, or a purchaser in good faith will be often prejudiced. See Honnold, supra note 20, at §§ 356.1, 448-49; Joseph Lookofsky, Understanding the CISG in Europe 115-16 (1997) (stating that art. 81(2) is not intended to prejudice the rights of third parties as defined by other applicable rules); Denis Tallon, Art. 81, in Commentary on the International Sales Law, The 1980 Vienna Sales Convention Art. 81, 2.7 (C. Bianca & M. Bonell eds., 1987) (pointing out that restitution may be thwarted by the bankruptcy of the party who has to return the goods); and Ziegel, supra note 115, at 9-32 — 33.

567. See Robert A. Hillman, Applying the United Nations Convention on Contracts for the International Sale of Goods: The Elusive Goal of Uniformity, in Review of the CISG 21-49 C.1 (Cornell Law Review ed., 1995) (stating that the Convention’s goal of saving deals promotes important international values pertinent to the contracting process); Audit, supra note 28, at 150 (stating that avoidance leads to the unwanted inconvenience and expense of litigation); Georges Dubé, The Civil Code of Quebe and the Vienna Convention on International Contracts for the Sale of Goods, in Conférences sur le nouveau code civil du Québec 205, 219 (Yvon Blais ed., 1992); Michida, supra note 143, at 283; Kappus, supra note 111, at 530; and Ulrich Magnus, The General Principles of the CISG, 3 Int’l Trade & Bus. L.A. 33-56, at ¶ 9 (1997) (concluding from the fact that the Convention allows contract avoidance only under narrow conditions and as a last resort, that the favor contractus rule is one of the Convention’s general principle).

568. See supra Part I, C.

569. See, e.g., Dore & Defranco, supra note 89, at 61 (stating that the good faith requirement also applies in circumstances in which the right to declare a contract avoided is lost); Honnold, supra note 20, at 95 (stating that “avoiding a contract after a market change that permits a party to speculate at the other’s expense, may well be inconsistent with the Convention’s provisions governing [this remedy] when they are construed in the light of the principle of good faith”); Huber, supra note 106, at Art. 48, n.9 (stating that the seller’s right to choose between different methods of cure follows from the principle of good faith); Jianming Shen, The Remedy of Requiring Performance under the CISG and the Relevance of Domestic Rules, 13 Ariz.J.Int’l & Comp.L. 253, 276 (1996) (concluding that art. 7 subjects the exercise of the right to specific performance to the general “good faith” obligation).

570. See, e.g., Rosett, supra note 42, at 290 (stating that good faith is an interpretive tool that precludes a perfect tender approach to interpretation of the seller’s obligations of delivery and does not treat minor deviations by either side as an event that terminates the contract).

571. UNIDROIT Principles supra note 68, arts. 1.5 and 17 provide:

572. European Principles supra note 69, (completed and revised second version), art. 1:102 (1), provides (see http://www.ufsia.be/~estorme/PECL2en.html):

573. See supra Part III, C.1.b., n. 443, 444.

574. For a similar conclusion, see Enderlein & Maskow, supra note 106, at Art. 7, 5 (stating that a contract with clear wording cannot be modified based on the principle of good faith). For a different conclusion without giving any reason, see Babiak, supra note 60, at 142; Bonell, supra note 25, at Art. 7, 2.4.1 (stating that even contractual agreements might be disregarded if their application in accordance with art. 6 would in the specific case appear to be contrary to good faith); Magnus, supra note 567, at 5(b)(1) (stating that except for the provision of art. 12 CISG, the validity issues to be determined in conformity with national law and the principle of good faith, the parties’ authority to regulate their relationship is unlimited).

575. According to art. 4, the Convention merely lays down rules for the objective agreement necessary to create a contract of sale. All other questions concerning the validity of the contract are to be determined according to domestic law. Art. 4 provides:

576. See Honnold, supra note 20, at § 296 (arguing that the good faith requirement obliges on the one hand the buyer to inform the seller of the defect and to ask him whether he will remedy it, and on the other one, it obliges the seller to respond to the buyer’s request for early information about his plans to remedy).

577. See id.

578. See, e.g., Hillman, supra note 567, at C. 1 (stating that the aggrieved party’s duty to minimize loss may require it to accept new offers from the breaching party, possibly even after a fundamental breach).

579. See supra Part III, B.2.b, C.4.b.

580. See e.g., Will, supra note 16, at Art. 48, 3.1.1; Huber, supra note 106, at Art. 46, n.56 and Art. 48, n. 9 (stating that it follows from the principle of good faith that art. 46(2) does not give the buyer a right to compel the seller to deliver substitute goods, if the defect could be remedied just as well by repair and repair would be reasonable for the buyer and more favorable to the seller); see also Neumayer & Ming, supra note 117, at 322 (arguing that the Convention prefers to prevent the additional economic burdens involved in the restitution of previously delivered goods and conclude that the seller’s right to repair should prevail over the buyer’s right to require substitution, provided that the other conditions of art. 48(1) are met); and Grosswald Curran, supra note 514, at “Another reasonableness issue” (with reference to the principle of reasonableness arguing that “a solution is to handle [the interplay between art. 46(2) and art. 48] according to the formula recited in art. 46(3): in a manner that is not regarded as unreasonable having regard to the circumstances of each case”).

581. See Grosswald Curran, supra note 514, at “Another reasonableness issue” (with regard to the text of arts 48(1) and 50 (buyer’s right to reduce the price) pointing out that interplay between art. 46(2) and art. 48 is not accompanied by either type of express language).

582. See supra Part III, B.2. b (2)(a)(ii), notes 396-400.

583. See Schneider, supra note 143, at 82 (pointing out that the question of whether the Convention places a serious limit on the seller’s right to cure by giving the buyer the right to dictate the terms of the cure under art. 48 with a demand for substitute goods is still open to debate).

584. The consequence of such application of the good faith requirement is that the buyer’s right to substitute delivery depends on the seller’s failure to remedy the defect within a reasonable time.

585. See Kastely, supra note 541, at 621(concluding from the Secretariat Commentary on Draft art. 65 [antecedent to art. 79 of the Official Text] that the principle of good faith is an essential aspect of the right to performance; see also, the Secretariat Commentary, supra note 16, at ¶ 8, art. 65, Official Records, supra note 52, at 55; Documentary History, supra note 52, at 445.

586. See Schlechtriem, supra note 45, at 103 (stating that in cases where obligations are physically impossible to fulfill, domestic legal doctrine –“impossibilum nulla est obligatio”– generally prevent a demand for performance).

587. See supra Part III, C. 2.b (2).

588. Art. 28 provides:

589. There is general agreement that the right to substitute delivery, as a specific form of the right to require performance, is subject to art. 28. See, e.g., Lookofsky, supra note 566, at 86; Magnus, supra note 28, at Art. 46, n.31; Dubé, supra note 567, at 219. Honnold, supra note 20, at § 285, however, takes the view that “in the absence of evidence that UNCITRAL and the Diplomatic Conference faced this problem and evidenced a decision to give an unqualified reading to Article 28, Articles 46(2) and 46(3) should be regarded as lex specialis qualifying the general provisions of Article 28.”

590. For a similar conclusion, see Schnyder & Straub, supra note 105, at Art. 49, n.21; and Magnus, supra note 28, at Art. 48, n.29; (concluding from the placement of the definition of the term “fundamental breach” makes clear that it needs to be interpreted uniformly throughout the Convention).

591. See Schnyder & Straub, supra note 105, at Art. 49, n.21 and Flechtner, supra note 300, at I.D. (emphasizing that “the Convention replaces U.C.C. Article 2’s byzantine rules on material breach with a single standard applicable in all circumstances”).

592. This point has been emphasized by the German Supreme Court, see BGF, 15 November 1995; VIII ZR 18/94, supra note 232.

593. Such an interpretation has been suggested by Karollus, supra note 143, at 495.

594. See BGF, 3 April 1996, VIII ZR 51/95, supra note 223.

595. For example, S in Montreal agrees to sell goods to B in Hamburg at a stated price f.o.b. Montreal. B fails to nominate a vessel to carry the goods thereby preventing S from performing his own obligation to ship the goods. Does, in the absence of any contract terms from which it follows that failure to nominate a vessel is to be regarded as fundamental breach, B’s failure constitute a fundamental breach entitling S to terminate the contract?

596. See Treitel, supra note 418, at at 16-10 — 16-31 (illustrating the different approaches towards the availability of specific performance as opposed to damages in various common and civil law jurisdictions).

597. This point has been emphasized by Treitel, supra note 27, at § 72 (stating that the Convention adopts the Civil Law principle that the aggrieved party is entitled to require performance).

598. For other possible reasons which the aggrieved party has for terminating the contract, see Treitel, supra note 27, at § 241 (stating that while the most obvious reason of the aggrieved party is the hardship which he may suffer in having to accept or retain a performance different from that for which he bargained, the right to terminate is often asserted for quite different reasons, such as that termination is the speedier remedy than a suit for performance or damages).

599. This point has been emphasized by Treitel, supra note 27, at § 241.

600. See BGH, 3 April 1996, VIII ZR 51/95, supra note 223.

601. See OLG Frankfurt a.M., 17 September 1991, 5 U 164/90, supra note 237.

602. See CA, Chambre commerciale; S.A.R.L. Bri Production “Bonaventure,” 22 February 1995, supra note 207.

603. See LG Frankfurt a.M., 16 September 1991, 3/11 O 3/91, supra note 238.

604. See Schlechtriem, supra note 106, at Art. 25, n.24 (emphasizing that “the fact an obligation is stated to be ‘ancillary’ is irrelevant to the importance of the corresponding interest which the promisee has in its performance”); Lookofsky, supra note 566, at 88, where the authors state, that “even the breach of an ancillary duty can amount to a fundamental breach if it is so seriously jeopardizes the purpose of the transaction that the aggrieved party cannot reasonably be expected to further trust the party in breach”.

605. For the same conclusion, see Honnold, supra note 20, at § 308.2 (stating that “when Article 79 exempts a party from damages for failure to perform, the appropriate remedy is usually avoidance of the contract”) [emphasis added]

606. See supra note 564.

Pace Law School Institute of International Commercial Law - Last updated December 16, 2003

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