Source: http://www.cisg.law.pace.edu/cisg/text/peclcomp49.html
Timestamp: 2019-04-24 16:50:58+00:00

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(1)	A party may terminate the contract if the other party's non-performance is fundamental.
(2)	In the case of delay the aggrieved party may also terminate the contract under Article 8:106(3) [Notice Fixing Additional Period for Performance].
(1)	A party's right to terminate the contract is to be exercised by notice to the other party.
(2)	The aggrieved party loses its right to terminate the contract unless it gives notice within a reasonable time after it has or ought to have become aware of the non-performance.
(3)	(a) When performance has not been tendered by the time it was due, the aggrieved party need not give notice of termination before a tender has been made. If a tender is later made it loses its right to terminate if it does not give such notice within a reasonable time after it has or ought to have become aware of the tender.
(4)	If a party is excused under Article 8:108 through an impediment which is total and permanent, the contract is terminated automatically and without notice at the time the impediment arises.
For information on the nature and effect of "termination" under the European Principles, go to the match-up with CISG art. 81 for PECL arts. 9:305 through 9:309 and the comments and notes that accompany this provision. For the CISG counterpart to this term, see "avoidance".
For the PECL definition of "non-performance", go to PECL art. 1:301(4) and the comment and notes that accompany this definition. For the PECL definition of "fundamental non-performance, see the match-up of CISG art. 25 with PECL art. 8:103. For the PECL definition of "reasonableness", go to PECL art. 1:302 and the comment and notes that accompany this provision.
No Fault, No Grace, No Regard for Title, No "Perfect Tender"
Avoidance ("termination", in the context of the PECL) of the contract is normally the most extreme measure a party may take in response to a breach ("non-performance", in the context of the PECL) of contract. Avoidance puts a stop to any future performance, except for contractual performances designated to take effect upon avoidance, such as dispute resolution clauses or liquidated damages. (Any restitution following avoidance is not, properly speaking, a contractual performance, but a statutory or common-law requirement, as the case may be). Both the CISG and the PECL offer aggrieved parties less extreme measures to deal with breach or with anticipatory breach, such as suspension of performance and requirement of assurances, requirement of performance, or unilateral price reduction. They likewise contain various cure measures that - when applied or applicable - allow for delayed or remedial performance and thus either delay recourse to avoidance or render it unnecessary. In this, both the CISG and PECL manifest a "relational" bias, namely attempting to salvage fractured contractual relations by providing an escalation of remedial measures, whose eventual failure ultimately leads to breaking up of the contractual framework through avoidance. In this, the CISG and PECL differ from several national systems that either allow for avoidance in cases of lesser breaches or simply fail to offer such sliding scales.
Due to its extreme nature, both the CISG and the PECL reserve avoidance to special cases, namely to fundamental breaches (non-performances) of the contract. This restriction, however, can be bypassed (or extended) in the case of non-delivery of the goods even without establishing that the failure constitutes a fundamental breach by use of a special mechanism. In the case of the CISG, while fundamental breaches make avoidance available immediately, non-fundamental non-delivery allows for avoidance if the aggrieved party has fixed a curative period for performance - a so-called "Nachfrist period" - and the breach has continued throughout that period. In the case of the PECL, "delay in performance" followed by further failure to perform throughout a Nachfrist period may allow for avoidance. Thus the CISG allows for an "upgrade" of post-Nachfrist non-fundamental non-delivery to allow for avoidance, while PECL makes avoidance under similar circumstances for "delay" in performance, whether that of delivery or another. These types of cases are discussed in detail below.
In making avoidance of the contract available only in cases of fundamental breach, both CISG and PECL seem to deviate from commercial practices that allow parties to reject goods - and more importantly, documents - that fail to strictly conform with the contractual specifications, even if that discrepancy is of little practical significance. Such practices are prevalent in documentary transactions such as CIF, and in particular such that involve documentary credit such as an L/C or "unclean" documents such as bills of lading. Under the fundamental breach rule it would seem that such rejection would not amount in itself to avoidance but instead to a demand for cure (see CISG Arts. 30, 34, 47) which, if unmet, may then constitute a breach allowing avoidance, as discussed below. However, two considerations mitigate the apparent difference between the fundamental breach and strict compliance approaches to avoidance of contract. The first is contractual, namely the parties' general freedom to stipulate what breaches would count as fundamental; in documentary transactions, strict documentary compliance may simply be agreed upon. The second has to do with the function of custom, usage, and commercial practices. Under CISG Art. 9(2), parties are generally bound by prevalent usages; this general principle would certainly apply to the construction of fundamental breach under CISG Arts. 25 and 49. Perhaps even more significantly, PECL 1:105 makes a similar provision for contracts in general, beyond lex mercatoria. Strict compliance with documentary requirements may fall under both categories: contractual stipulation as well as prevalent usage.
3. No Fault, No Grace, No Regard for Title, No "Perfect Tender"
Both the PECL and CISG share a no-fault approach to breach of contract that allows for avoidance. In this, the general common law rather than general civil law approach is followed (see, however, PECL Art. 8:103(c)).
Neither CISG nor the PECL sets a default "grace period" for performance, during which the aggrieved party is enjoined from avoiding the contract. However, both treat the matter of a cure or remedial period set or allowed by the aggrieved party as a special case during which the power to avoid the contract is suspended, as discussed below. Similarly, curative performance intended and indicated by the party in breach may limit the aggrieved seller's power to avoid the contract for a certain duration. Under PECL 9:303(3)(b) when the aggrieved party knows of the intention of the non-performing party to tender curative performance and fails to notify it that it will not accept cure, it forfeits the power to terminate the contract if the non-performing party in fact performs. Likewise, according to CISG Art. 48(2) an aggrieved buyer who failed to object to the breaching seller's indication that it intends to cure, is estopped from avoiding the contract for an indicated period.
Additionally, the fundamental breach requirement itself may sometimes operate as setting a grace period in relation to avoidance, in the sense that the buyer's failure to pay - or to carry out any other of her allocated or derivative performances - may become fundamental only some time after the breach itself has come to pass. E.g., a very short delay - in respect to the contractual stipulation - in opening a letter of credit will normally not constitute a fundamental breach, but a longer delay may.
As the CISG deals exclusively with obligatory questions, the aggrieved buyer's power to declare the contract avoided is wholly independent from questions of title to the goods. If questions of title need to be resolved, domestic law would apply and determine entitlements. The PECL, wider in scope and application than the CISG, is also limited to contractual (and related obligation) context too. Discharging rights granted by the CISG and PECL - such as the right to restitution following avoidance of the contract - may be found subject to third party interests and property rights, regulated by domestic law.
Both the CISG and the PECL do not contain a so-called "perfect tender" rule that allows for rejecting non-conforming goods after tender was performed (such as the UCC �2-601). Buyer must accept non-conforming goods, returning them to the seller only upon avoidance. Such taking of the goods does not constitute "acceptance" in the common law sense of the contract having been discharged and the power to avoid the contract lost.
Contract avoidance is sometimes referred to as a "self-help" remedy although, properly speaking, it is not a remedy in the strict contractual sense: rather than remedial, its effects are to excuse parties from further performances, and to restore pre-performance conditions by either requiring reciprocal restitution of all exchanges or making such restitution or its substitute available to parties. The basic feature of avoidance in the CISG is its autonomous, unilateral character: it requires no court action and may be executed entirely through appropriate declarations. The PECL shares the CISG's approach to contract avoidance as a unilateral act requiring merely a declaration (notice) to the other party. In this, it is "markedly different" from several continental systems, where the general principle is that avoidance requires court proceedings. Note, that this is consistent with the rule, shared by CISG and PECL, under which the aggrieved party need not serve the non-performing party with notice to put the latter into breach (such as a mise en demeure or Mahnung). Parties must, of course, be cognizant of the fact that in subsequent litigation courts may disagree with a claim that avoidance was either available or executed properly. Such risk is associated with all self-help measures. In the case of CISG or PECL avoidance, however, it is especially pronounced by the insistence that only fundamental and tantamount breaches may allow the aggrieved party to declare the contract avoided. A prudent buyer unsure of the fundamentality of the seller's breach may then attempt to "upgrade" the severity of the breach through the usage of a Nachfrist mechanism (discussed below), available under both the CISG and PECL. While suspending her power to avoid the contract for the length of the curative period (unless an anticipatory breach becomes apparent during that period), the two-tier mechanism significantly reduces her exposure to counterclaims regarding the unlawfulness of declaring the contract avoided.
The CISG distinguishes between two categories of cases for the purpose of contract avoidance: whether the goods were in fact delivered, or were not delivered. In each case, the CISG fixes a different point of balancing between the seller's risk and the buyer's risk. Quite obviously, avoidance - as it results in mutual restitution - typically creates hardship for the seller in the former case, when goods may be stranded. Sellers must internalize such risks into the contractual price, and the drafters of the CISG sought to reduce such risks (such ex-post expenditures may also provide buyers with over-strong bargaining positions in case of negotiation for mutual contract adjustment). The seller may incur substantial loss from retrieving the goods, finding substitute transaction under unfavorable conditions, and even - in extreme cases where the latter is not forthcoming and the cost of the former onerous - be compelled to relinquish the goods altogether. Furthermore, a breaching party has a distinct interest in knowing as soon as possible whether the aggrieved party intends to avoid the contract, or not. While the aggrieved party has an interest in extending a period of time for deliberation and calculation, both the CISG and the PECL contain some time limitations on exercising the power of avoidance (termination).
Herein, however, lays a distinct difference of approaches. PECL Art. 9:303(2) restricts the power to terminate to a "reasonable time" after the party has become aware of non-performance, or after it ought to have been aware. This applies to all cases of non-performance and is a general limitation on the power to terminate. The CISG contains no such general limitation; instead, CISG Art. 49(2) enumerates cases in which the power to avoid is limited to a reasonable time after a certain occurrence has come to pass. Such limitations apply only in cases in which the seller has delivered the goods, and are divided to breaches of late delivery and other breaches. The following section examines these limitations in the CISG, followed by their PECL counterparts.
In case the goods have been delivered, CISG Art. 49(2) restricts the buyer's right to avoid even under the relatively tight conditions - i.e., fundamental breach - of CISG Art. 49(1). The restriction is one of a time limit on the exercise of the power to avoid. In respect of late delivery, CISG Art. 49(2)(a) restricts the power to avoid to a "reasonable time" after the buyer became aware that delivery has been made. Circumstances obviously play an important role in how long "reasonable" is. In respect of any breach other than late delivery - such as non-conformity - the power to avoid will expire within a reasonable time after she knew or ought to have known of the breach (CISG Art. 49(2)(b)(i)).[36) Likewise, a Nachfrist period fixed in accordance with CISG Art. 47(1) (see below) limits the power of avoidance to a reasonable time, unless the seller has declared continuing default (see CISG Art. 49(2)(b)(ii), governing a case tantamount to anticipatory breach, where additional delay would serve no purpose.) This is also the case if the curative period was initiated by the defaulting seller according to Art. 48(2) (see Art. 49(2)(b)(iii)).
As noted, the PECL requires notice in reasonable time for all terminations. In this, the PECL expresses its comprehensive commitment to the good faith principle (PECL Art. 1:201). The provision corresponds with those of several European and other legal systems, although some require briefer delays such as "unverzüglich", "without undue delay"
7.1 In fact, the PECL shows special concern for cases of late tender, e.g., when goods were delivered by the seller. Art. 9:303 makes further provisions in this vain dealing with late tender. Art. 9:303 (3)(a) mitigates the effects of Art. 9:303 to the effect that, in cases of late tender, a notice of termination need not be given before the late tender is made. It must, however, be given within a reasonable time after the party has become, or ought to have become, aware of the late tender. In this, the provision is similar to that of CISG Art. 49(2)(a).
7.2 PECL Art. 9:303(3)(b) deals with an especially tricky situation that exists when tender is late, yet the non-performing party still intends to - and, in fact, does - cure by effecting tender in a reasonable time. While the aggrieved party has no general obligation to accept late tender, it loses its power to terminate the contract altogether if it knew, or has reason to know, that the other party in fact intended to cure by tender in a reasonable time, yet failed to notify the non-performing party in a reasonable time that it will refuse tender. This too may be termed a "relational" clause: it protects the non-performing party's reliance on the aggrieved party's cooperation, and encourages the parties to exchange information re their respective actions and intentions even when a breach situation occurs.
7.3 Although used frequently, the expression "reasonable time" is not defined in the CISG or in the PECL. Courts and commentators offer contextual criteria, noting that what may constitute "reasonable" in any given case may be effected by the nature of the goods, the transaction, the payment arrangements, third party claims, and whether legal advice or expert opinions were actually necessary in order to determine concrete rights (e.g., in cases of non-conformity merely sorting the matter out may be, for practical reasons, longer than under no tender at all). Courts have ruled on the reasonable length of time taking all such circumstances into account; and, in the absence of clear indicators, the question of when does the period begin to run is invariably left to judicial discretion.
7.4 PECL Art. 1:302 supplies some guidelines to "reasonableness" in general, but those are somewhat circular - "reasonable" is what reasonable persons, acting in good faith, would "consider reasonable". More helpful is the notion that reasonableness is contextual, and takes into consideration "the nature and purposes of the contract, the circumstances of the case" etc. Prof. Kritzer has persuasively suggested that reasonableness is a "general principle of the CISG."
7.5 Another approach would be to consider reasonableness in definition and execution of contractual obligations as an articulation of the principle of good faith, which in the context of CISG Art. 49 would seem to mean that buyers have a duty to avoid in good faith only in cases where the goods have been delivered. A different construction - one that would apply a general obligation of good faith to CISG obligations - would undermine the distinction between CISG Art. 49(1) and (2): under a general obligation of good faith, surely any declaration of avoidance by the buyer must be made in reasonable time so as not to create undue hardship for the seller. The limitation of the power of avoidance to a "reasonable time" under CISG Art. 49(2) would then become, in fact, tautological. For further considerations, see commentaries to CISG Arts. 7, 8, and 9 and their PECL counterparts.
Consistent with the relational approach, CISG Art. 49(1)(b) and PECL Art. 8:106(3) allow for avoidance of the contract even for some non-fundamental breaches (or, under a different construction, for what may be termed "constructed fundamentality"). The mechanism in such cases is of two tiers. First, the aggrieved buyer sets an additional, curative period of reasonable length for the seller to perform, so-called a "Nachfrist" period after similar provisions in German, Swiss, and other legal systems. Upon the seller's failure to tender curative performance throughout a Nachfrist period (or, under conditions tantamount to anticipatory breach, even during it) the aggrieved buyer may avoid the contract (the Nachfrist mechanism of PECL Art. 8:106(3) also allows automatic expiry of the contract once the additional period has expired to no avail). Thus these non-fundamental breaches are "upgraded" through the use of the Nachfrist mechanism to the status of avoidance-justifying breach.
Curative periods are set by the aggrieved buyer under CISG Art. 47 and PECL Art. 8:106, respectively. They share the same basic structure: under both, the aggrieved buyer may resort to remedies during the curative period (such as damages), but may not avoid the contract, unless the party in breach declares that no curative performance is forthcoming. The main constraint applying to Nachfrist periods is that, to allow for eventual avoidance of the contract, the period must be of contextually reasonable length to allow the party in breach to cure its non-performance. Under CISG Art. 47(1), curative periods must be of "reasonable length." Under PECL Art. 8:106(3), if the additional period is "too short," the aggrieved party may terminate only after an overall reasonable time has passed, even if the additional period had already expired.
The Nachfrist mechanism may also be used in cases of uncertainty as to the fundamentality of the seller's breach. While avoiding the contract post-Nachfrist delays the avoidance, the seller's continuing breach becomes "upgraded." As a consequence a buyer who is apprehensive about assuming the risk involved in unlawful avoidance may significantly reduce her exposure to if she follows the Nachfrist venue.
The several types of situations where post-Nachfrist avoidance under CISG and PECL is available are explored next.
A buyer who suffers a non-fundamental non-delivery (or "delay" in the case of the PECL), may, via CISG 49(1)(b) (PECL Art. 8:106(3)) go the two-tier way: first, fix an additional period for performance according to CISG Art. 47 (PECL Art 8:106(1)); then, if the seller fails to perform accordingly, avoid the contract. However, under CISG such strategy is limited to cases of non-delivery only, i.e., situations that, in sale of goods contracts, would often constitute fundamental breach anyway. Prof. Schlechtriem considers the non-delivery 49(1)(b) remedy to extend by analogy also to the failure to transfer documents of title, the argument being that in typical contexts, goods without appropriate documentation cannot be legally possessed: they have been delivered physically perhaps, but not legally, which is tantamount to non-delivery. Under PECL Art. 8:106(3), post-avoidance Nachfrist is limited to non-performances of "delay in performance." That may include performances other than delivery of goods, such as delivery of documents, clearing essential formalities, assisting in training personnel, setting a promotion scheme, etc. This interpretative matter requires further elaboration.
Scholarly controversy emerged from the fact that the language of CISG Art. 49(1)(b) - "in case of non-delivery" - does not seem to clearly require that the non-delivery itself be the breach for which the additional time is fixed, so that it may conceivably be another non-performance (e.g., non-conformity of goods or of documents). Thus the question is whether Art. 49(1)(b) covers also breaches other than non-delivery, committed under circumstances of non-delivery. For instance: assume that the breach in question is the seller's failure to deliver a certificate of origin as required by the buyer and specified in the contract. Buyer then may proceed to set a curative period according to CISG Art. 47(1), namely extending the time frame for obtaining the certificate. Let us assume that the certificate is required well ahead of the delivery of the goods and that although the goods were not yet delivered within the Nachfrist period, that in itself is no breach. May the buyer declare the contract avoided according to Art. 49(1)(b), assuming Art. 49(1)(a) does not apply? While some legal systems extend Nachfrist-base avoidance of contract to non-fundamental breaches in general, commentators warn, that while the CISG's Nachfrist mechanism allows an aggrieved buyer to exert pressure upon a defaulting seller, "the Nachfrist avoidance procedure was not to be extended any further than the essential obligation of delivery." Art. 49(1)(b) is therefore not designed to allow aggrieved parties to bypass the fundamentality requirement of Art. 49(1)(a) for any reason other than non-delivery of goods or, as suggested above, also of documents of title. Any other conclusion would erode considerably the dependence of avoidance on the fundamentality of breach, as it would suffice to set a Nachfrist period for any breach and then declare the contract avoided upon the continuing failure to perform. Professors Schlechtriem and Koch add that drawing analogies from non-delivery to other kinds of non-performance is jurisprudentially dubious, for where no lacuna exists there is no justification for expanding the scope of the clause by analogy - there is here no gap to be filled, but rather a positive apparatus privileging non-delivery over all other breaches. Commentators likewise note that the non-delivery must be complete non-delivery in order to allow application of Art. 49(1)(b); partial performance is not non-performance.
The case is slightly different with PECL Art. 8:106(3) which does not limit failure to perform following a Nachfrist period to non-delivery only but to the more general category of "delay in performance which is not fundamental." This still will not include non-performances in terms of non-conforming goods, yet certainly will include - as was the conclusion concerning CISG Art. 49(1)(b) - delay in tendering documents of title. However, the language of the PECL is wider and more liberal - from the aggrieved party's point of view - than the stringent criterion of the CISG. For non-delivery is a case of "delay", but not the only case. It may be argued that in the example rendered above, failure ("delay") to deliver a certificate of origin throughout a Nachfrist period may allow for avoidance under PECL 8:106(3) although - the document in question not pertaining to title and thus not being "essential" to the goods - that would not be the case under CISG 49(1)(b). Three comments mitigate this discrepancy. The first is, that any interpretation of the "delay of performance" language of PECL 8:106(3) must be conducted within the general framework of PECL Art. 9:301, namely the fundamental breach principle. Thus exceptions to the principle under PECL Art. 8:106(3) should be narrowly and contextually construed. This relates to the second comment, which is that such exceptions must pass the good faith test - no trivial delays in performance should be allowed to result in contract avoidance through a Nachfrist mechanism. This mechanism allows for "upgrade" of some non-fundamental delays, but certainly not any and all of them. Thirdly, in the context of international sales, tribunals may look to CISG Art. 49(1)(b) as an interpretative guideline in construing what non-performances would be allowed to result in avoidance of the contract. Certainly, such rulings may still allow for more extensive sets of cases than the CISG would. The drafters of the PECL were cognizant of the parallel rule in the CISG, and the choice to apply Nachfrist to non-performances other than delivery is meaningful.
Because of the "crossing of the Rubicon" status that delivery has in sale of goods transactions - and in international sales, where risks to the seller pursuant post-delivery avoidance are especially acute - non-delivery is a prerequisite for CISG Art. 49(1)(b) to kick in. Thus the delivery of non-conforming goods ("peius") and that of "wrong goods" ("aliud") is to be treated, under CISG Art. 49(1)(b) as well as under Art. 49(2) in the same category, namely they both put the parties in the category of "goods delivered". Recent case law tends to regard these traditional categories as points on a single continuum, which the CISG as well as the PECL in fact endorse. Recent German  and Austrian  case law confirm this view. According to the German Supreme Court, non-delivery could only be assumed in very blatant and obvious cases of divergence between the goods agreed upon and the goods actually delivered. Once the goods are delivered, the conditions for declaring the contract avoided for non-fundamental breach - on Art. 49(2) - become stricter. The contextual interpretation of general PECL clauses such as Art. 8:106(3) should attempt to follow an identical logic.
Under CISG Arts. 49(1)(b) and 49(2)(b)(ii) the buyer may avoid the contract even before the additional fixed period has elapsed, in cases where the seller himself declares that he will not perform within that period (this is also the rule set in CISG Art. 49(1)(b)(iii), governing avoidance of the contract during a curative allowance initiated by the breaching seller under Art. 48(2)). These clauses are tantamount to avoidance for anticipatory breach, with the double distinction, that they apply only within CISG Art. 47 periods, and that the information pertaining to future non-performance must originate from the seller himself, and not come by the buyer's way from incidental sources. In this it differs from the provisions of CISG Art. 72, that allow avoidance of the contract if "it is clear" that a fundamental breach is to occur: e.g., a careful buyer may discover non-conformity through proper inspection prior to delivery. "Clear" appears to be a mid-level degree of certainty, between the lower-level "it becomes apparent" of CISG Art. 71 (which allows for suspension of performance in cases of anticipatory breach) and the highest-level of CISG Art. 49(1)(b), (2)(b)(ii) and (iii) that requires a declaration by the seller himself. Note however, that even the stricter provisions in CISG Art. 49 do not require that the said declaration be a specific one directed at the seller to the effect that buyer will continue defaulting on this specific transaction. While under CISG Art. 26 a declaration of avoidance - a legal act - must be made by notice to the party in breach, this is not necessarily the case with declarations of continuing default made by the party in breach. A general declaration of insolvency, for instance, should fulfill the "declaration" requirement of CISG Art. 49(1)(b), (2)(b)(ii) and (iii), unless accompanied by a specific communication to the contrary (even an insolvent seller may go ahead with a transaction that will eventually generate value for distribution in eventual bankruptcy). Yet in the communicative framework of Nachfrist general third-party information is not basis enough to declare the contract avoided prior to the expiry of the duration.
As noted above, PECL Art. 8:106(3) allows an aggrieved party to terminate a contract following a delay in performance that does not amount to fundamental breach, if it had fixed a Nachfrist period during which curative performance did not occur. The Nachfrist mechanism cannot be used to bypass the reasonable time requirement set in PECL Art. 9:303(2). PECL Art. 8:106(3) requires that the additional period be of "reasonable length." If that additional period is "too short," the aggrieved party may terminate only after an overall reasonable time has passed, even if the additional period has expired. For purposes of termination, this imposes a de-facto "reasonable length" on the Nachfrist period, although such is not generally required in PECL Art. 8:106(1). Art. 8:106(3) includes a useful mechanism, in that the Nachfrist notice may include a conditional termination notice, which will apply automatically if the non-performing party fails to remedy during the additional period. In this case a contract may be terminated without a designated notice: the Nachfrist notice then doubles as a conditional notice of termination. In case the additional period is not deemed to be reasonably long, such automatic termination will take effect after a reasonable time only, in accordance with the principle examined above.
Similar to CISG Arts. 49(1)(b) and (2)(b)(ii), PECL Art. 8:106(2) maintains a device whereby the aggrieved party who has set a Nachfrist period is allowed to terminate the contract during that period if she "receives notice from the other party" to the effect that no curative performance is forthcoming. This requirement is likewise narrower than the general one governing anticipatory breach under the PECL, according to which it must be "clear" that default would persist (PECL Art. 9:304). In this the PECL applies to Nachfrist-situations the general rule governing anticipatory breach, with the exception, indeed adequate in the special communicative context of Nachfrist, that the notice of continuing default must originate from the defaulting party itself.
This balance follows also from good faith obligations: ceteris paribus, it would be in bad faith for a party to object to termination during a Nachfrist period when it knows that no performance is forthcoming, thus merely delaying termination to the period's conclusion; and yet it would be in bad faith for the aggrieved party to merely assume default based on third party information, once the special communicative framework of Nachfrist has been established.
There are two remaining questions. First, whether termination during a Nachfrist period due to anticipatory non-performance is limited to a reasonable time after the anticipatory non-performance becomes clear. There is no obvious reason here to deviate from the rules of PECL Arts. 9:303 and 8:106(3), and so the answer must be in the affirmative. Second, whether such notice of termination on anticipatory breach should be allowed to shorten the overall Nachfrist period to less than "reasonable". Here the answer should also be in the affirmative, which does not contrast the general rule: if the period is shortened on reasonable grounds what is left is not an unreasonable time. Once the occurrence of an anticipatory non-performance is declared by the defaulting party, there should be no further limitations on the power to avoid by a buyer who has already fixed a valid additional period. A further delay would serve no purpose and could no longer be justified on the grounds of reasonableness. This answer is consistent with the lack of any "grace period" for termination in the PECL both in general and in anticipatory breach under its Art. 9:304.
1. PECL Art. 9:303(4), dealing with automatic avoidance upon impediment, was omitted from this comparative analysis.
2. For avoidance \ termination of an installment contract, see also CISG Art. 73, PECL Art. 9:302.
* Faculty of Law, University of Haifa, Israel. The author gratefully acknowledges invaluable comments by Prof. Albert H. Kritzer an Dr. John Felemegas. Research work for this article was carried out under the auspices of the Max Planck Institute for Comparative Private and Private International Law in Hamburg, and the author thanks the Institute�s director, Professor Reinhard Zimmermann, as well as the fellows, researchers and other staff, for their hospitality, assistance, and opportunities to present ideas to a wonderful group of students and international scholars.
Prof. Richard Speidel�s unmistakable and lingering influence, conveyed in class, in writings and in conversation, is distinctly expressed throughout this article.
1. Ole Lando, "Salient Features of the Principles of European Contract Law: A Comparison with the UCC," 13 Pace International Law Review (Fall 2001) 339, at p.361.
2. See CISG Art. 81(1), PECL Art. 9:305(2). Nor does avoidance preclude recourse to any remedy consistent with it, such as damages (see CISG Art. 81(1), PECL Art. 8:102) The Secretariat Commentary (referring to the 1978 Draft) notes that "Such a provision was important because in many legal systems avoidance of the contract eliminates all rights and obligations which arose out of the existence of the contract. In such a view once a contract has been avoided, there can be no claim for damages for its breach and contract clauses relating to the settlement of disputes, including provisions for arbitration and clauses specifying 'penalties' or 'liquidated damages' for breach, terminate with the rest of the contract" (Official Records pp. 41-42).
3. See CISG Art. 81, PECL. Arts. 9:307 (concerning money) and 9:308 (concerning property). In variations, this seems to be a universal feature of contract avoidance. The effect of CISG Art. 81 on avoidance was even described as "chang[ing] the contractual relationship into a restitutional relationship". See Germany 11 October 1995 Landgericht [District Court] Düsseldorf, case presentation including English translation available at <http://cisgw3.law.pace.edu/cases/951011g1.html>. See also Harry M. Flechtner, "Remedies Under the New International Sales Convention: The Perspective from Article 2 of the UCC," 8 J.L. & Com. 53 (1988), at 80; Francesco G. Mazzotta, "Commentary on CISG Article 81 and its PECL Counterparts", available online at <http://cisgw3.law.pace.edu/cisg/text/peclcomp81.html>; Günter H. Treitel, "Remedies for Breach of Contract", in: International Encyclopedia of Comparative Law (Tübingen, Mouton, The Hague, Paris: J.C.B. Mohr, 1976). Courts acknowledge the CISG restitution as a matter of course; see Switzerland 5 February 1997 Handelsgericht [Commercial Court] Zürich, case presentation available at <http://cisgw3.law.pace.edu/cases/970205s1.html>; Switzerland 20 February 1997 Bezirksgericht (Zivilgericht) [District Court] Saane, case presentation including English translation available at <http://cisgw3.law.pace.edu/cases/970220s1.html>.
4. See CISG Art. 71, PECL Art. 8:105.
5. See CISG Arts. 46, 62 (but see Art. 28), PECL Arts. 9:101, 9:102.
6. See CISG Art. 50, PECL Art. 9:401.
7. For the general aspects of relational contract theory as applied both to sales and other kinds of contractual transactions, and especially its emphasis on ongoing, long-term contractual relations that are heavily based in commercial practices, see Ian Macneil, The New Social Contract: An Inquiry into Modern Contractual Relations (1980); idem, "Contracts: Adjustment of Long-Term Economic Relations under Classical, Neoclassical, and Relational Contract Law," 72 Nw. L. Rev. 854 (1978); Stewart Macaulay, "Non-contractual Relations in Business: A Preliminary Study", 28 Am. Soc. Rev. 55 (1963); Robert W. Gordon, "Macaulay, Macneil and the Discovery of Solidarity and Power in Contract Law," 1985 Wis. L. Rev. 565; Jonathan Yovel, "What is Contract Law 'About'? Speech Act Theory and a Critique of 'Skeletal Promises'," 94 Northwestern U. L. Rev. 937-962 (2000).
8. Some authors remark that in international sales, the effects of avoidance on the breaching party may prove especially onerous, hence the stringent application in the CISG (see, e.g., Joseph Lookofsky and Herbert Bernstein, Understanding the CISG in Europe, Deventer, 1997, 87). The PECL, of course, applies to domestic as well as international sales.
9. For what constitutes a fundamental breach (non-performance) see CISG Art. 25, PECL Art. 8:103, respectively; according to Lando, the latter was modeled on the former, see Lando, supra note 1 p. 362. For a discussion of fundamental breach in CISG law and related UNIDROIT Principles as well as the related topic of non-conformity of goods, see Robert Koch, "Commentary on Whether the UNIDROIT Principles of International Commercial Contracts May Be Used to Interpret or Supplement Articles 47 and 49 of the CISG", available online at <http://cisgw3.law.pace.edu/cisg/biblio/koch2.html> and references noted there.
10. See CISC Art. 49(1)(b), discussed below.
11. See PECL Art. 8:106(3), discussed below.
12. Such discrepancies indeed generated several criticisms regarding the CISG's application to documentary transactions in general. See Alastair Mullis, "Avoidance for Breach under the Vienna Convention: A Critical Analysis of some of the Early Cases," in Andreas & Jarborg (eds.), Anglo-Swedish Studies in Law (Uppsala: Iustus Forlag 1998), p. 326 et seq.; also Peter Schlechtriem, "Interpretation, gap-filling and further development of the UN Sales Convention" available online at <http://cisgw3.law.pace.edu/cisg/biblio/schlechtriem6.html>. Prof. Schlechtriem's critique is also germane to the commercial realities of the commodification of contracts, where practitioners regard themselves as dealing not in goods but in "contracts," moving away from the language of the assignment of in-personam (contractual) obligations to the in-rem, "propertized" language of goods or of commodities. The general question of the adjusted application of commercial law originally designed for transactions in goods (such as the CISG) to transactions in contracts is of course broader than can be dealt with here. Possibly, however, relational approaches to functional conformity of goods - the CISG's approach in the context of avoidance and its limitation to fundamental breach for lack of conformity (CISG Art. 35) - can be extended at least to some documentary transactions, the exception continuing to be financial (payment and credit) as well as investment instruments. This cautious approach is partially expressed by CISG Art 2(d).
13. According to the Secretariat Commentary, Art. 2(d) CISG does not exclude documentary sales of goods from the scope of application of the Convention. The Commentary warns however that in some legal systems such sales may be characterized as sales of commercial paper, excluded by Art. 2(d). See Secretariat Commentary on Art. 2, available online at <http://cisgw3.law.pace.edu/cisg/text/secomm/secomm-02.html>. As prevalent kinds of commercial paper tend to be "negotiated" rather than sold, paper falling under UCC Article 3 ("Negotiable Instruments") - ostensibly given to strict or "formalist" construction based on flaws discernible "on the face of the instrument" - would not fall under the scope of application of the CISG to begin with.
14. See Secretariat Commentary, para 7.
15. See, e.g., INCOTERMS 2000, CIF, provisions A8, B8.
16. See paragraph 8 below, and especially Prof. Schlechtriem's view that extends the right to declare the contract avoided for non-delivery of goods following a Nachfrist period to non-delivery of documents of title, infra note 50. One way to solve the apparent discrepancy between Art. 49 and prevalent commercial practices is through Art. 9 CISG and its counterpart, Art. 1:105 PECL. These important provisions subject parties to regularly observed usages and practices (see Art. 9(2) ULIS for the strongest formulation of the binding force of lex mercatoria). The strict compliance practices widely associated with documentary transactions would then take contractual effect between the parties.
17. E.g. under various INCOTERMS 2000 (for instance, A8 in all but Ex-Works).
18. See Jonathan Yovel, "Seller's Right to Remedy Failure to Perform: Comparison between provisions of the CISG (Article 48) and the counterpart provisions of the PECL (Articles 8:104 and 9:303)," available online at <http://cisgw3.law.pace.edu/cisg/biblio/yovel48.html>.
19. See CISG Art. 54 according to which "The buyer's obligation to pay the price includes taking such steps � to enable payment to be made."
20. See Honnold at p. 354, Lookofsky at p. 114.
21. See CISG Art. 4(b).
22. See the Australian case Roder v. Rosedown, Federal District Court Adelaide, 28 April 1995, available online at <http://cisgw3.law.pace.edu/cases/950428a2.html> (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, which was not the case). See Robert Koch, "Commentary on Whether the UNIDROIT Principles of International Commercial Contracts may be Used to Interpret or Supplement Article 25 CISG", Pace Review of the Convention on Contracts for the International Sale of Goods (1998) 246, available online at <http://cisgw3.law.pace.edu/cisg/biblio/koch1.html>.
23. Whether obligations stemming from PECL Arts. 2:301-3 should be properly classified as strictly contractual or belonging to the periphery of contract (quasi-contract, collateral (or "implied" contract), even tort) is a question that cannot be dealt with here; all these legal constructs are, however, obligatory in nature.
24. CISG Art. 86(2) indeed uses the language of buyer's "right to reject" non-conforming goods. As there is no such general right in the CISG, this clause should be read in the context of prospective avoidance of the contract, i.e. the case covered by Art. 42(2), in which case the buyer, prior to the avoidance of the contract, must - on the seller's behalf and at his expense - preserve the goods during the interim period; or in the context of either premature delivery or delivery in excess (CISG Art. 52(1) and (2), respectively).
25. Prof. Schlechtriem considers this a major deviation from common law doctrines, to the extent that the buyer's duty take over defective goods "must be repugnant to the Anglo-Saxon legal convictions" (Peter Schlechtriem, "Interpretation, gap-filling and further development of the UN Sales Convention" available online at <http://cisgw3.law.pace.edu/cisg/biblio/schlechtriem6.html>). However, White and Summers suggest that, at least in the context of sales transactions governed by the Uniform Commercial Code, various courts' rulings have so eroded the perfect tender rule that "the law would be little changed if � 2-601 gave the right to reject only upon 'substantial' non-conformity [instead of the UCC language that grants a right to reject for failure of the goods "in any respect to conform to the contract" - JY]." James J. White & Robert S. Summers, Uniform Commercial Code (4th ed., 1995) p. 441.
26. Prof. Schlechtriem suggests a construction according to which buyer, although not permitted to reject non-conforming goods outrightly, may nevertheless postpone taking them over for a reasonable duration necessary for determining whether under the circumstances avoidance is available or forthcoming (see Schlechtriem, supra note 25). While any such conduct will still be subject to Art. 86 obligations - namely the buyer's duty to care for the goods taken - such physical taking would not carry any legal effect in the sense of "taking over" the goods according to Art. 69; thus the risk would remain with the seller and would not pass to the buyer who acts, in essence, as the seller's agent in respect to preserving the goods. Note that this construction sits well with Art. 86 that carefully distinguishes between the act of "taking over" (Art. 69) which carries the effect of passage of risk, and "receiving" (Art. 86(1)) or "taking possession" (Art. 86(2)) which do not.
27. See Schlechtriem, supra note 25.
28. With significant exceptions, under the CISG a buyer's inability to make restitution forfeits his right to avoid the contract (CISG Art. 82), which has no exact PECL counterpart (see PECL Art. 9:309 which states a right to monetary recovery of value that cannot be restituted, but does not restrict the power to terminate as such).
29. In one case, the PECL allows for termination even without a termination notice; see PECL Art. 8:106(3), discussed above.
30. In Israel, a "hybrid" legal system whose which in it contract law combines common law, civil law, and original elements, all terminations of contract must be either in reasonable time or in reasonable time after the expiration of a Nachfrist period. This is the prevalent Common Law rule, which holds also in "hybrid" legal systems such as Israel, see Contract Law (Remedies for Breach of Contract) 1970, Art. 8. It conforms to several continental rules such as the Danish Sale of Goods Act Arts. 27, 32, and 52; Finnish and Swedish Sale of Goods Acts Arts. 29, 39, 59; Portuguese Civil Code Art. 436(1); and the Dutch BW 6:267, but differs from other legal systems that require court intervention such as French, Belgian and Luxembourg Civil Code Art. 1184(2), Italian Civil Code Art. 1453 and Spanish Civil Code Art.1124 (though in Spain a notice of termination may be effective if it is accepted by the defaulting party: Diez-Picazo, II, 722; Lacruz-Delgado II, 1, 26, 204; and Ministerio de Justicia, art. 1124). See also Ole Lando and Hugh Beale (eds.), Principles of European Contract Law: Parts I and II (Kluwer Law International (2000) (hereinafter "Lando and Beale"), 415 n1.
31. See commentary to PECL Art. 8:101. Strangely enough, litigants in countries where the rule for avoidance of domestic contracts is different still approach courts for declarations of avoidance even when they themselves claim that the CISG governs the case. See, e.g., France 4 June 2004 Cour d'appel [Appellate Court] Paris, SARL NE... v. SAS AMI... et SA Les Comptoirs M�, case presentation including English translation available at <http://cisgw3.law.pace.edu/cases/040604f1.html> where plaintiffs sued for a declaration of avoidance and for damages. Presumably, a court may refuse to hear the first part of the suit (in a common-law country it probably would) referring the plaintiff instead to CISG Art. 49(1)(a). The risk for making an unlawful declaration of avoidance then sits with the aggrieved party; continuing to refer the matters to courts (who are accustomed to such procedures in domestic issues) may be a clever way to avoid that risk, tantamount to a declaratory verdict concerning the fundamentality of the breach which could, conceivably, be sought in a common law system.
32. See Peter Schlechtriem, Uniform Sales Law in the Decisions of the Bundesgerichtshof, in: 50 Years of the Bundesgerichtshof, A Celebration Anthology from the Academic Community (2001), at III.1, available online at <http://cisgw3.law.pace.edu/cisg/biblio/schlechtriem3.html>. Professor Schlechtriem emphasizes the risks associated with retrieving stranded goods. See also John Honnold, Documentary History of the Uniform Law for International Sales (Deventer: Kluwer, 1989) 575 - 577; Lando, supra note 1, p. 361.
33. 3. However, see above for termination in case of anticipatory breach.
34. Another issue pertinent to avoidance in reasonable time is that a buyer loses his right to rely on a lack of conformity of the goods -- including the right to avoid the contract -- if he does not give the seller notice thereof within a reasonable time after he has discovered the lack of conformity or ought to have discovered it; see CISG Art. 39.
35. See, e.g., ruling by a Dutch court of appeal according to which a period of almost eight weeks was considered reasonable for purpose of a declaration of avoidance of a flour sale contract between Dutch and Mozambique parties: Netherlands 23 April 2003 Gerechtshof 's-Gravenhage [Appellate Court], Rynpoort Trading & Transport NV et al. v. Meneba Meel Wormerveer B.V. et al., case presentation including English translation available at <http://cisgw3.law.pace.edu/cases/030423n1.html>.
36. For the time in which buyer ought to know of the breach, see CISG Art. 38, which governs the time in which the buyer must examine the goods. One might expect avoidance following Nachfrist to be rather swift; however, disagreements might occur over the question of whether additional periods were granted or not. In one German case involving the sale of printing machines to an Egyptian buyer, an additional period of two weeks was set by the buyer, who subsequently avoided the contract seven weeks after the expiration of the period. The court found this to be a reasonable time: Germany 24 May 1995 Oberlandesgericht [Appellate Court] Celle, case presentation including English translation available at <http://cisgw3.law.pace.edu/cases/950524g1.html>.
37. Some commentators deem Arts. 49(2)(b)(ii) and (iii) redundant as they spell out the obvious. See John Honnold, Uniform Law for International Sales (Kluwer, 1999), at 308, available at <http://cisgw3.law.pace.edu/cisg/biblio/honnold.html>. This is not necessarily the case: the use of additional cure periods according to Arts. 47 or 48 does not in itself limit any subsequent termination period to a "reasonable time" after the cured failed. Indeed, Art. 49 itself makes the distinction between cases in which the goods have been delivered and those in which they were not, reserving any "reasonable time" provisions to the former cases.
38. In Israel, whose contract law combines common law, civil law, and original elements, all terminations of contract must be made either in reasonable time after knowledge of the breach, or in reasonable time after the expiration of a Nachfrist period. See Contract Law (Remedies for Breach of Contract) 1970, Art. 8.
39. See BGB �121 (controlling all acts of rescission, including HGB �377). German courts acknowledged a discrepancy between the two criteria, even when the facts satisfied both; see Germany 17 September 1991 Oberlandesgericht [Appellate Court] Frankfurt, case presentation including English translation available at <http://cisgw3.law.pace.edu/cases/910917g1.html> (in this case a one-day delay in sending an avoidance telex after the breach was discovered at a trade fair was judged both reasonable and unverzüglich). In another case, an Italian buyer of a used car was allowed to avoid the contract three months after she discovered the car was previously stolen and title cannot be transferred; the court accepted the time as pertinent to the various inspections required: Germany 22 August 2002 Landgericht [District Court] Freiburg, case presentation including English translation available at <http://cisgw3.law.pace.edu/cases/020822g1.html>.
40. See PECL Art. 8:104; compare with CISG Art. 48.
41. For CISG-PECL comparative match-up, see commentary to CISG Art. 48, available at <http://cisgw3.law.pace.edu/cisg/text/peclcomp48.html>.
42. See, e.g., Germany 31 January 1997 Oberlandesgericht [Appellate Court] Koblenz, case presentation available at <http://cisgw3.law.pace.edu/cases/970131g1.html>; see also Plate, "The Buyer's Remedy of Avoidance under the CISG: Acceptable from a Common Law Perspective?", 6 Vindobona Journal of International Commercial Law and Arbitration (2002) 57, at 67. For a historical and analytic review of German law see Reinhard Zimmermann, "Liability for Non-Conformity: The New system of Remedies in German Sales Law and its Historical Context," 10th John Maurice Kelly Memorial Lecture, Dublin 2004.
43. See France 14 June 2001 Cour d'appel [Appellate Court] Paris, Aluminum and Light Industries Company v. Saint Bernard Miroiterie Vitrerie, case presentation including English translation available at <http://cisgw3.law.pace.edu/cases/010614f1.html>, where the court applied CISG Art. 49(2) to a transaction of faulty fancy glass panels, determining that the eight months that lapsed from the determination of the breach to the notice of avoidance was an unreasonably long period. The court took into account the various expert inspections of the panels sought in this case, and began counting the period from the last one. In different circumstances, the German Supreme Court ruled that the five months that have elapsed between the buyer's being informed of the seller's breach (a delivery stop) made for too long a period and could not be considered as a reasonable time under article 49(1)(b): see Germany 15 February 1995 Bundesgerichtshof [Supreme Court], case presentation including English translation available at <http://cisgw3.law.pace.edu/cases/950215g1.html>.
44. 4. See Prof. Albert H. Kritzer, "Overview Comments on Reasonableness", available online at <http://cisgw3.law.pace.edu/cisg/text/reason.html>: "Reasonableness is specifically mentioned in thirty-seven provisions of the CISG and clearly alluded to elsewhere in the Uniform Sales Law. Reasonableness is a general principle of the CISG." See also comments by Jelena Vilus, available online at <http://cisgw3.law.pace.edu/cisg/text/reason.html#vilus>; rpr. in Homenaje a Jorge Barrera Graf, vol. 2, Mexico: Universidad Nacional Autónoma de Mexico (1989) 1440-1441. For the definition of reasonableness in the PECL and references to reasonableness in Continental and Common Law domestic rules, doctrine and jurisprudence, see Lando & Hugh Beale, pp. 126-128 available online at <http://cisgw3.law.pace.edu/cisg/text/reason.html#def>. For further discussion regarding the correlation between the PECL's definition of reasonableness and the meaning of this term for CISG drafters see <http://cisgw3.law.pace.edu/cisg/text/reason.html#over>.
45. Peter Schlechtriem, Uniform Sales Law (tr. From German: Einheitliches UN Kaufrecht, Manzsche, Vienna, 1986) 39. See also idem (ed.), Commentary on the UN Convention on the International Sale of Goods (CISG), Oxford 1998; Klein, J, "Good Faith in International Trade," 15 Liverpool L.R. 114-141 (1993).
46. A scholarly controversy exists regarding whether or not good faith is a general principle of the CISG, as it clearly is of the PECL (Art. 1:106). Professor Magnus, drawing on comparisons between CISG Art. 7 and the UNIDROIT Principles (Art. 1.6.) claims that it is (see Ulrich Magnus, "Remarks on good faith," available online at <http://cisgw3.law.pace.edu/cisg/principles/uni7.html>. Dr Felemegas reads Art. 7 differently, as applying to the interpretation of the CISG only and not to performances in general, see John Felemegas, "Remarks on Good Faith and Fair Dealing," available online at <http://cisgw3.law.pace.edu/cisg/text/peclcomp7.html>.This is certainly not the proper place to attempt to resolve this important issue, or even to determine whether it is, properly stated, merely an interpretative question -- albeit a preeminent one -- as Magnus and Felemegas approach it, or whether its determination transcends mere interpretative approaches. One may doubt, however, whether courts in legal systems that regard good faith obligations (in either the negotiation or performance stage) as immutable tenets of private law -- metaphorically speaking, a part of the "constitution" of private law -- might not impose derivative obligations also when dealing with contractual obligations governed by the CISG. Such may be inferred from dicta of Israel Supreme Court, where good faith is a general principle of Private Law, (see e.g., Klemer v. Guy (1993), 50(1) PD 184) following the Contracts (General Part) Law, 1973, �� 12, 39, 61(b) and expressed in the anticipated Civil Code, �� 2, 163.
47. Regarding CISG Art. 7, see Felemegas, op. cit.; regarding CISG Art. 8, see Maja Stanivukovic, "Remarks on the Manner in which the PECL may be Used to Interpret or Supplement CISG Article 8," available online at <http://cisgw3.law.pace.edu/cisg/text/peclcomp8.html#er>. Regarding CISG Art. 9, see Anja Carlsen, "Remarks on the Manner in which the PECL may be Used to Interpret or Supplement CISG Article 9", available at <http://cisgw3.law.pace.edu/cisg/text/peclcomp9.html#er>.
48. See Lando and Beale, op. cit., at 377. BGB � 326 practically makes Nachfrist periods compulsory in most cases, whereas CISG and PECL merely make it available to the non-breaching party. For the Swiss "Nachfristmodell," see Art. 107, 108 Obligationenrecht (Swiss Law of Obligations). Professor Treitel makes the point that other legal systems contain similar mechanisms, See Günter H. Treitel, Remedies for Breach of Contract, in International Encyclopedia of Comparative Law (Tübingen, Mouton, The Hague, Paris: J.C.B. Mohr, 1976) Ch. 16, �� 149-151. Such is Art. 7(b) of the Israeli Contract Law (Remedies for Breach of Contract), 1970, which combines the optional version of Nachfrist with the exception that avoidance under Nachfrist for non-fundamental breaches may be objected to on grounds of injustice, with courts retaining appropriate discretion.
49. In one French case, the seller sent the buyer a notice of avoidance following buyer's refusal to take delivery on a certain early date (amended from the original contractual stipulation). The court judged the breach non-fundamental and determined that the only way for the seller to avoid the contract was to first fix a Nachfrist period, which was not done: France 4 February 1999 Cour d'appel [Appellate Court] Grenoble (Ego Fruits v. La Verja Begastri), case presentation including English translation available online at <http://cisgw3.law.pace.edu/cases/990204f1.html>. In ICC Court of Arbitration case 7585/1992, the tribunal deemed the buyer's failure to open a letter of credit according to the contract a breach, but not a fundamental breach; nevertheless, the seller's declaration of avoidance was effective as it took place several months after the breach, and that time was constructed to operate as a valid Nachfrist period. Published (in English) in the ICC International Court of Arbitration Bulletin Vol. 6/N.2 - November 1995, 60-64; available online at <http://cisgw3.law.pace.edu/cases/927585i1.html>.
50. See Peter Schlechtriem, Uniform Sales Law: the UN Convention on Contracts for the International Sale of Goods (Vienna: Manz 1986), 77 also available online at <http://cisgw3.law.pace.edu/cisg/biblio/schlechtriem.html> Koch and others support this construction, see Koch, op. cit. note 6.
51. This is not to say that all commentators even acknowledge the existence of an interpretative ambiguity: for instance, Lookofsky and Bernstein take for granted that Art. 49(1)(b) applies only to breaches of non-delivery. See Joseph Lookofsky and Herbert Bernstein, Understanding the CISG in Europe Deventer, 1997, 91-2, take for granted. For a scholarly debate on this and other issues see "Transcript of a Workshop on the Sales Convention: Leading CISG scholars discuss Contract Formation, Validity, Excuse for Hardship, Avoidance, Nachfrist, Contract Interpretation, Parol Evidence, Analogical Application, and much more," 18 Journal of Law & Commerce (1999) 191, at 201 et seq.; available online at <http://cisgw3.law.pace.edu/cisg/biblio/workshop.html>.
52. See e.g. the Israeli Contract Law (Remedies for Breach of Contract), 1970 Art. 7(b) (Failure to perform following a Nachfrist period may generate a right to declare the contract avoided even for non-fundamental breaches, subject to judicial discretion (the latter does not apply in case of a fundamental breach).
53. Michael R. Will, Bianca-Bonell Commentary on the International Sales Law (Giuffrè: Milan 1987), p. 363, available at <http://cisgw3.law.pace.edu/cisg/biblio/will-bb49.html>.
54. Although not an overriding interpretative consideration in my view, this interpretation sits well with the legislative history of Art. 49. See Legislative History; 1980 Vienna Diplomatic Conference Summary Records of Meetings of the First Committee, 22nd meeting, 25 March 1980, available online at <http://cisgw3.law.pace.edu/cisg/firstcommittee/Meeting22.html>, paras. 61-96.
55. Or in Prof. Schlechtriem's words, "you cannot reach avoidance of the contract in the case of non-conforming goods where the non-conformity itself does not constitute a fundamental breach, by blowing up minor non-conformities through the process of setting an additional period of time to have them repaired. Because then you could avoid all contracts." Transcript, supra note 51, at p. 201.
56. See Koch, op. cit., II.I.b.
57. Or in Prof. Honnold's words, "non-delivery of the whole package", see Transcript, supra note 51, p. 211.
58. Likewise, both would put the buyer under Art. 69 obligations, namely to preserve the goods on the seller's behalf. For in-depth discussion see Koch, op. cit. II.I.c.
59. For relevant case law, see Germany 3 April 1996 Bundesgerichtshof [Supreme Court], case presentation including English translation available at <http://cisgw3.law.pace.edu/cases/960403g1.html>; Germany 12 March 2001 Oberlandesgericht [Appellate Court Stuttgart], case presentation including English translation available at <http://cisgw3.law.pace.edu/cases/010312g1.html> (stating that the delivery of an aliud does not constitute a non-delivery for the purposes of Art. 49(1)(b) CISG). For further case law, see Koch, op. cit.
60. See Austria 29 June 1999 Oberster Gerichtshof [Supreme Court], presentation including English translation available at <http://cisgw3.law.pace.edu/cases/990629a3.html>.
61. See VIII ZR 51/95 Bundesgerichtshof (Germany) 3 April 1996, supra note 59 (as a rule, aliud delivery does not amount to non-delivery, leaving the question open for the case of an especially blatant deviation of the goods from the contractual specifications).
62. Note the specific language of CISG Art. 49(2)(b)(ii):"[A]fter the seller has declared that he will not perform his obligations within such an additional period."
63. See also the language of the UCC �2-609, "reasonable grounds for insecurity" with respect to either party's performance. For further comparative and cultural insights, see Mirghasem Jafarzadeh, Buyer's Right to Withhold Performance and Termination of Contract: A Comparative Study Under English Law, Vienna Convention on Contracts for the International Sale of Goods 1980, Iranian and Shi'ah Law, Part II � 2.2.2.2, available online at <http://cisgw3.law.pace.edu/cisg/biblio/jafarzadeh.html>.
64. Whether the Nachfrist notice in fact makes this provision or not would become an interpretative question. See, in a similar context, such an approach to Nachfrist notice by the Austrian Supreme Court: Austria 28 April 2000 Oberster Gerichtshof [Supreme Court], case presentation including English translation available at <http://cisgw3.law.pace.edu/cases/000428a3.html>.
65. See Lando and Beale, op. cit., at 415.
66. It may be argued that the main effect of the "notice" clause of PECL Art. 8:106(2) is to limit the buyer's power to avoid during Nachfrist rather than to empower her to do so in the first place. The reason is that the PECL's general doctrine of anticipatory non-performance, expressed in PECL Art. 9:304, may otherwise apply in Nachfrist situations. This provision makes termination available whenever a fundamental non-performance becomes "clear" even before the performance's designated time. This may well cover performances expected throughout Nachfrist periods. The apparent problem here would be the limitation in PECL Art. 8:106(2) on the aggrieved party's power to terminate during the Nachfrist. However, the doctrine of anticipatory breach stipulated in PECL Art. 9:304 is specific to such cases and could conceivably hold also under Nachfrist conditions. Superimposing the two articles on each other would allow for termination, under Nachfrist, even of non-fundamental anticipatory non-performance. Of course, the termination due to notice of continuing default included in PECL Art. 8:106(2) is narrower and more specific than the said superimposition, and thus the argument is purely speculative.
Like the commentary to the UNIDROIT Principles and the U.S. Restatements, the comments to the PECL help explain the text. The PECL notes identify civil law and common law antecedents and related domestic provisions. With the permission of the Commission on European Contract Law, these comments and notes are presented below. The source of this material is Ole Lando & Hugh Beale eds., Principles of European Contract Law: Parts I and II, Kluwer Law International (2000) 408-411, 413-416.
Whether the aggrieved party should have the right to terminate the contract in the case of a non-performance by the other party depends upon a weighing of conflicting considerations.
On the one hand, the aggrieved party may desire wide rights of termination. It will have good reasons for terminating the contract if the performance is so different from that for which it bargained that it cannot use it for its intended purpose, or if it is performed so late that its interest in it is lost. In some situations termination will be the only remedy which will properly safeguard its interests, for instance when the defaulting party is insolvent and cannot perform its obligations or pay damages. The aggrieved party may also wish to be able to terminate in less serious cases. A party which fears that the other party may not perform its obligations may wish to able to take advantage of the fact that the threat of termination is a powerful incentive to the other to perform to ensure that the other performs every obligation in complete compliance with the contract.
For the defaulting party, on the other hand, termination usually involves a serious detriment. In attempting to perform it may have incurred expenses which are now wasted. Thus it may lose all or most of its performance when there is no market for it elsewhere. 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 termination should be avoided.
As a rule termination is effective only if notice thereof is given by the aggrieved party to the defaulting party, see Article 9:303 and Article 8:106. For exceptions to this rule, see Article 8:106(3) and Article 9:303(4). Termination may be effected by the act of the aggrieved party alone; it does not have to bring an action in court in order to have the contract terminated.
If the requirements of Article 9:301 are satisfied the Principles do not provide for any period of grace to be granted to the defaulting party by a court or an arbitral tribunal.
Under Article 8:106(3), when a delay in performance does not amount to a fundamental non-performance the aggrieved party may fix an additional period of time of reasonable length for performance. If by the time the period expires the defaulting party has still not performed, the aggrieved party may treat the contract as terminated. The same applies if the defaulting party has declared that it will not perform within the period so fixed.
D. Non-performance partly due to aggrieved party's own act.
One factor which should be taken into account is the extent to which the detriment to the aggrieved party is the result of its own conduct. If the detriment was substantially due to its own conduct it might be inappropriate to say that the non-performance was fundamental.
Illustration 1: A manufacturer undertakes to install a machine for supplying molten material in a factory. After it is installed, the machine is left on to warm up ready for testing; the factory owner undertakes to provide a watchman. A slight defect causes a fire which, because the owner failed to provide a watchman, spreads and causes substantial damage to the factory. The manufacturer's non-performance was not fundamental and the factory owner cannot terminate the contract.
In other cases it may be appropriate to permit termination but to hold that the aggrieved party's conduct amounted to a non-performance itself for which the other party may claim damages.
The Principles determine the circumstances in which an aggrieved party may terminate the contract by reference to whether the non-performance is "fundamental". Not all systems allow the aggrieved party to terminate by giving notice. FRENCH, BELGIAN and LUXEMBOURG CCs art. 1184 requires that résolution be by judicial pronouncement, and the court must decide whether the non-performance is sufficiently important to justify ending the contract; but clauses allowing automatic termination (clauses résolutoire de plein droit) are permitted (Malaurie & Aynès, Obligations, nos. 735-759). However, as seen earlier (see the notes to Article 8:103) similar results are reached in most systems, even those which rely on judicial discretion to decide when a contract should be terminated.
The Principles use the same rules for termination whether or not the non-performance was excused; the aggrieved party may give notice of termination. DUTCH BW arts. 6:74 and 6:265, NORDIC law (see Taxell, Avtal och rättsskydd 225), ULIS (for excused non-performance see art. 74), CISG (see art. 79) and Unidroit see art. 7.3.1. take a similar approach. This is a contrast to many systems in which the case of termination of a contract which has become impossible is treated separately from the case of termination because of a breach of contract. Thus in FRENCH and BELGIAN law in the case of impossibility the contract will be determined according to the theory of risks, CC arts. 1302 and 1624 (cf. Treitel, Remedies � 254); in SPANISH law see CC arts. 1182 ff. and 1124. In GERMAN law a separate paragraph of the BGB, � 323, applies to impossibility due to circumstances for which neither party is responsible (see Treitel, Remedies � 255), and a similar approach is taken by AUSTRIAN ABGB � 1147 and by GREEK CC art. 380; in ITALIAN law there is a separate regime for impossibility, CC arts. 1463-1466; and in COMMON LAW the doctrine of frustration will apply. See the notes to Article 8:108 above.
It should be noted that the Principles do not permit the non-performing party to be given extra time once the non-performance is fundamental; compare the FRENCH and BELGIAN délai de grâce (CC art. 1184; similarly, SPANISH CC art. 1124 (3)) or relief against forfeiture in the COMMON LAW systems (in which, for instance, a tenant may be able to obtain relief against forfeiture of a lease by the landlord for non-payment of rent: see Treitel, Remedies � 247).
A. The requirement of notice.
Fair dealing requires that an aggrieved party which wishes to terminate a contract normally give notice to the defaulting party. The defaulting party must be able to make the necessary arrangements regarding goods, services and money at its disposal. Uncertainty as to whether the aggrieved party will accept performance or not may often cause a loss to the defaulting party which is disproportionate to the inconvenience which the aggrieved party will suffer by giving a notice. When performance has been made, passiveness on the side of the party which was to receive performance may cause the performing party to believe that the former has accepted the performance even if it was too late or defective. If, therefore, the aggrieved party wishes to terminate the contract it must notify the other party within reasonable time. The need to notify the other party within a reasonable time does not apply to cases of anticipatory repudiation (see Article 9:304).
Notice may be given either by expressly declaring the contract terminated or by rejecting the tender of performance.
Article 9:303(2) states the general rule that will apply both when the aggrieved party has received a late tender of performance and when it has received a tender which was defective. In either case, once it knows or should know of the tender, it should have a reasonable time to check it for defects and to decide what to do; but if it waits for more than a reasonable time without notifying the other party that it is terminating the contract it loses the right to terminate. If it is prepared to accept the tender, it need not give any notice.
What is a reasonable time will depend upon the circumstances. For instance the aggrieved party must be allowed long enough for it to know whether or not the performance will still be useable by it. If delay in making a decision is likely to prejudice the defaulting party, for instance because it may lose the chance to prevent a total waste of its efforts by entering another contract, the reasonable time will be shorter than if this is not the case. If the defaulting party has tried to conceal the defects, a longer time may be allowed to the aggrieved party.
When a tender of performance is due but has not been made, the courses of action open to the aggrieved party will depend on the circumstances.
(2)	It does not know whether the other party intends to perform and either it does not want the performance or is undecided. In this case it may wait to see whether performance will ultimately be tendered and under Article 9:303 it may make up its mind if and when this happens. If the defaulting party wishes it may ask the aggrieved party whether it still wishes to receive performance, in which case the latter must answer without delay, see Article 1:201.
(3)	It has reason to know that the defaulting party is still intending to perform within a reasonable time, but it no longer wishes to receive the performance. In this case it would be contrary to good faith for it to allow the defaulter to incur further effort in preparing to perform and then to terminate when performance is tendered. Therefore Article 9:303(3)(b) requires it in this situation to notify the other party that it will not accept the performance, on pain of losing its right to terminate if the other party does in fact perform within a reasonable time.
There are two exceptions to the rule that notice of termination must be given. The first is under Article 8:106(3), according to which a notice setting a reasonable period during which the defaulting party must perform may provide that at the end of the period the contract shall terminate automatically if performance has still not been made.
The second is under Article 9:304(4), which provides that where a party's non-performance is excused because it was due to a total and permanent impediment, the contract terminates automatically. Some legal systems regard the contract as destroyed by such an event.
Illustration: A famous tenor is engaged to sing at the opening ceremony of the World Cup. The tenor falls seriously ill and has not recovered by the date of the opening ceremony. Notice of termination need not be given.
In cases of only partial or temporary impediment, the defaulting party may still tender performance, and a notice of termination by the aggrieved party will be needed. Note that in cases of excused non-performance, the non-performing party has a duty under Article 8:103(3) to give notice of the impediment.
Legal systems differ in their approach to the question of how termination is to be effected and how quickly the aggrieved party must act if he is not to lose the right. See Treitel, Remedies �� 243-252.
The Principles merely require notice to the non-performing party in order to terminate the contract. This accords with the COMMON LAW; DANISH Sale of Goods Act �� 27, 32, and 52; FINNISH and SWEDISH Sale of Goods Acts, �� 29, 39, 59. PORTUGUESE CC art. 436(1); and the DUTCH BW 6:267 allows rescission by notice. In SCOTTISH law, even notice is not always required: McBryde 324-325.
Article 9.303 of the Principles is markedly different to systems such as the FRENCH, BELGIAN, ITALIAN or SPANISH which at least in general principle require court proceedings to effect termination: see FRENCH , BELGIAN and LUXEMBOURG CC art. 1184(2), ITALIAN CC art. 1453 and SPANISH CC art. 1124 (though in SPAIN a notice of termination may be effective if it is [page 415] accepted by the defaulting party: Diez-Picazo, II, 722; Lacruz-Delgado II, 1, � 26, 204; and Ministerio de Justicia, art. 1124). The time limit on the court's power to order termination is the general period of limitation (see French CC art. 2262 and C Com. art. 189 bis; Italian CC art. 1453(1) and (2); Spanish CC art.1124); but in the case of defective goods the buyer, if he elects for résolution, must do so dans un bref délai, French and BELGIAN CC art. 1648. ITALIAN CC arts. 1454, 1456 and 1457, and Belgian caselaw, recognise exceptions to the rule that the creditor needs a court order to terminate: see Dirix and van Oevelen, R.W.1992-93, 1236; van Ommeslaghe R.C.J.B. 1986, nos.98-100; M.E. Storme T.B.B.R./R.G.D.C. 1991, 110-11, no. 12. Article 9:303 also differs from rules such as the GERMAN and AUSTRIAN Nachfrist procedure noted earlier (see note to Article 8:106) which may require that the debtor be given reasonable notice before the contract is terminated even in cases other than simple delay.
CISG arts. 49 and 64 and Unidroit art. 7.3.2 adopt an approach similar to that of the Principles.
The notice must generally be within a reasonable time of the non-performance. This corresponds broadly to many systems: e.g. DANISH Sale of Goods Act �� 27, 32 ("promptly" or "within a short time"); FINNISH and SWEDISH Sale of Goods Acts, �� 29, 32, 39, 59 ("reasonable time"); DUTCH BW art. 6:89 ("promptly"); FRENCH, BELGIAN and LUXEMBOURG CC art. 1648 for garantie des vices cachés ("dans un bref délai") and, in Belgium, in some other cases on the basis of good faith, see Cass. 18 May 1987, Arr. Cass. 546 and Cass. 8 Apr. 1988, Arr. Cass., no. 482; IRELAND "promptly and decisively", Clark 420; UK Sale of Goods Act 1979, ss. 34 and 35 (and see Treitel, Contract 711); PORTUGUESE CC art. 436(2); or the same result may be reached by application of the doctrine of good faith, e.g. in SPAIN and in GERMANY, see Staudinger (-Otto) � 325 no. 96. AUSTRIAN and GERMAN law have special time limits for claims to terminate in cases of defects, e.g. ABGB �� 932, 933, HGB � 377.
Some systems offer protection to the debtor by requiring that he be given reasonable notice before the contract is terminated: for example the German Nachfrist procedure noted earlier (see note to Article 8:106), under which the aggrieved party cannot demand performance after the notice period has expired, so that the non-performing party will know that after that date he no longer has to perform his obligations. Where a commercial contract containing a Fixgeschäft is not performed on time no Nachfrist is required, but the aggrieved party must notify the non-performing party promptly if he does not want to terminate, HGB �376 (1) sentence 2. In other cases where no Nachfrist is required the aggrieved party may lose his right to terminate if he does not exercise it promptly (eg in the case of a non-commercial Fixgeschäft: Palandt (-Heinrichs) � 361 No. 3). DUTCH law also requires notice of default, unless the contract provides for a fixed time for performance, or the creditor must conclude from a communication by the debtor that the latter will fail to perform (BW 6:82 and 6:83).
German law is not alone in allowing the non-performing party to set a reasonable time within which the aggrieved party must decide whether or not he wants to terminate (�� 327, 355 BGB); see GREEK CC arts. 546, 395, 387(2): see Michaelides-Nouaros ErmAK II/1 art. 382 no. 15, art. 383 no. 22 (1949); PORTUGUESE CC art. 436(2)).
There is no direct equivalent in any of the legal systems studied to Article 9:303(3)(b) but the same results might be reached by application of the doctrine of good faith or, in COMMON LAW, by promissory estoppel, at least where the aggrieved party had given some positive indication that he was still willing to accept performance; mere silence or inactivity would not create an estoppel, however, see The Leonidas D  1 W.L.R. 925, 937, C.A.

References: art. 81
 art. 1
 art. 25
 art. 8
 art. 1
 Art. 9
 Art. 8
 Art. 48
 Art. 9
 Art. 49
 Art. 49
 Art. 49
 Art. 49
 Art. 49
 Art. 47
 Art. 49
 Art. 48
 Art. 49
 Art. 1
 Art. 9
 Art. 9
 Art. 9
 Art. 49
 Art. 9
 Art. 1
 Art. 49
 Art. 49
 Art. 49
 Art. 49
 Art. 8
 Art. 8
 Art. 47
 Art. 8
 Art. 47
 Art. 8
 Art. 8
 Art. 47
 Art 8
 Art. 8
 Art. 49
 Art. 49
 Art. 47
 Art. 49
 Art. 49
 Art. 49
 Art. 49
 Art. 49
 Art. 8
 Art. 49
 Art. 9
 Art. 8
 Art. 49
 Art. 49
 Art. 49
 Art. 49
 Art. 49
 Art. 8
 Art. 49
 Art. 48
 Art. 47
 Art. 72
 Art. 71
 Art. 49
 Art. 49
 Art. 26
 Art. 49
 Art. 8
 Art. 9
 Art. 8
 Art. 8
 Art. 8
 Art. 8
 Art. 9
 Art. 9
 Art. 9
 Art. 73
 Art. 9
 Art. 81
 Art. 9
 Art. 81
 Art. 8
 Art. 81
 Art. 81
 Art. 71
 Art. 8
 Art. 28
 Art. 50
 Art. 9
 Art. 25
 Art. 8
 Art. 49
 Art. 8
 Art. 35
 Art 2
 Art. 2
 Art. 2
 Art. 2
 Art. 49
 Art. 9
 Art. 1
 Art. 9
 Art. 54
 Art. 4
 v. 
 Art. 86
 Art. 42
 Art. 52
 Art. 86
 Art. 69
 Art. 86
 Art. 82
 Art. 9
 Art. 8
 Art. 8
 Art. 436
 Art. 1184
 Art. 1453
 Art.1124
 art. 1124
 Art. 8
 v. 
 Art. 49
 Art. 39
 v. 
 Art. 38
 Art. 49
 Art. 8
 Art. 8
 Art. 48
 Art. 48
 v. 
 Art. 49
 Art. 7
 Art. 7
 v. 
 Art. 7
 Art. 8
 Art. 9
 Art. 107
 Art. 7
 v. 
 Art. 49
 Art. 7
 Art. 49
 Art. 69
 Art. 49
 Art. 49
 Art. 8
 Art. 9
 Art. 8
 Art. 9
 Art. 8
 art. 1184
 art. 74
 art. 79
 art. 7
 art. 380
 art. 1184
 art. 1124
 art. 436
 art. 1184
 art. 1453
 art. 1124
 art. 1124
 art. 2262
 art. 189
 art. 1453
 art.1124
 art. 1648
 art. 7
 art. 6
 art. 1648
 art. 436
 art. 382
 art. 383
 art. 436