Source: http://www.cisg.law.pace.edu/cisg/biblio/koch-72.html
Timestamp: 2019-04-24 03:49:19+00:00

Document:
"(1) If prior to the date for performance of the contract it is clear that one of the parties will commit a fundamental breach of contract, the other party may declare the contract avoided."
The text of paragraph (1) itself does not offer much assistance in the determination of fundamental breach. 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). 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)?
"A party suspending performance, whether before or after the dispatch of the goods, must immediately give notice thereof and must continue with performance if the other party provides adequate assurance of his performance."
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. 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.
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. 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. In practice, there will be very few cases where a mere statement of intention and ability to perform provides adequate assurance to the promisee.
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.
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. 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.
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. 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. While the �Nachfrist-type� procedure eliminates uncertainty when performance is overdue, the adequate-assurance procedure eliminates uncertainty concerning performance that is not yet due.
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  or unwilling  to perform or where the circumstances [page 308] would not allow for reasonable notice, avoidance may only be based on the failure of the promisor to provide adequate assurance in compliance with a reasonable notice.
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 Andr� 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): "If prior to the date for performance of the contract it is clear that one of the parties will commit a fundamental breach, the other party may declare the contract avoided."
454. See � 2 of the Secretary Commentary on Draft art. 63, Documentary History, supra note 52, at 443.
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 D�sseldorf 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 D�sseldorf , 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.
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): "(1)�If the seller has already dispatched the goods before the grounds described in paragraph (1) of [Draft] article 62 become evident, he may prevent the handing over of the goods to the buyer even though the buyer holds a document which entitles him to obtain them. This paragraph relates only to the rights in the goods as between the buyer and the seller.
"(2)�The seller who prevents the handing over of the goods to the buyer under paragraph (1) of this article must immediately give notice to the buyer of his intention to declare the contract avoided should the buyer fail, within a reasonable time, to provide adequate assurance of properly performing his obligations."
The rejection, however, was mainly based on the grounds that the developed countries did not want to lump together the remedies of avoidance and suspension. It therefore does not rule out the conclusion that a failure to provide adequate assurance always constitutes a fundamental breach. For a fuller review of the discussion about the Egyptian proposal, see Strub, supra note 452, at 492-93 and Vilus, supra note 469, at 245.
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": "Where this assurance [of performance] is not provided within a reasonable time, the party demanding it may terminate the contract if he still reasonably believes that there will be a fundamental non-performance by the other party and gives notice of termination without delay."
"A party who reasonably believes that there will be a fundamental non-performance by the other party may demand adequate assurance of due performance and may meanwhile withhold its own performance. Where this assurance is not provided within a reasonable time the party demanding it may terminate the contract."

References: art. 76
 art. 72
 Art. 72
 Art. 72
 art. 72
 art. 63
 art. 63
 Art. 71
 art. 72
 art. 62
 art. 62
 art. 72
 art. 71
 Art. 72
 art. 71
 art. 72
 Art. 71
 art. 62
 art. 71
 art. 63
 Art. 72
 art. 72
 Art 72
 art. 8
 art. 3