Can an instalment contract be avoided under Art.49/64 CISG?
The Convention on International Sale of Goods (CISG) provides for avoidance of contract as a remedy to both the buyer and seller if there is a fundamental breach of the contract. The buyer is given this right under Art.49 whereas the seller has a right under Art. 64. The CISG also provides for a special article on avoidance (Article 73) available to both seller and buyer, if the contract is one of installments. A contract is considered to be an installment contract, under the CISG, when it provides for deliveries in separate lots. (Secretariat Commentary on art. 64 of the 1978 Draft [draft counterpart of art. 73 CISG],
Art. 73 provides for avoidance in three cases:
(1) to avoid only that instalment in respect of which a fundamental breach has occurred,
(2) to avoid future instalments if a breach that has actually occurred gives him good reasons to conclude that a fundamental breach will occur with respect to future deliveries,
(3) to avoid past and future deliveries if by reason of their interdependence, they could not be used for the purpose contemplated.
On the other hand, Art. 49(1) (a) stipulates that the buyer may declare the contract avoided if the failure by the seller to perform any of his obligations under the contract or this convention amounts to a fundamental breach and similarly Art. 64 (1) (a) lays down that the seller may declare the contract avoided if the failure by the buyer to perform any of his obligations under the contract or this Convention amounts to a fundamental breach of contract.
The question that arises therefore, is if there is a contract of instalment and one instalment has been delivered and others are due and a party has been found to have breached his obligation under the contract or convention, then can the other party avoid the whole contract (i.e even in respect of deliveries still due) under Art. 49/64 as the case may be, on the justification that a fundamental breach of the whole contract has occurred? Or Is his supposed to show that a fundamental breach has occurred with respect to the installment delivered and that he anticipates that a fundamental breach will occur with remaining deliveries, in order to avoid the whole contract?
This question may at a glance appear of mere theoretical or academic significance to some but in my view this is an issue with great practical significance. This is because at the time of proving or disproving, it becomes important to distinguish between whether a fundamental breach has occurred or a fundamental is going to occur. The circumstances which will qualify each of these situations are different and thus the aforesaid question becomes important to answer.
The first argument on this question, is that when there is an instalment contract, the right to avoid the “entire contract” can only derive from Art.73 of CISG and not from Art.49/64 of CISG,
Peter Huber & Alastair Mullis, in their book “THE CISG A New Text Book for Students and Practitioners” suggest that Art. 73 provides for a tailor – made rule on intstalment contracts. Thus this rule should not be circumvented by the general rule of Article 49. Thus when the contract is for delivery of goods by installments, a buyer can avoid the whole contract only by showing that a default in a completed delivery constitutes a fundamental breach with respect to that delivery under Art.73(1) and gives him grounds to anticipate a fundamental breach as to future installments under Art.73(2) or under Art.73(3) if, by reason of their interdependence, the deliveries cannot be used for the purposes contemplated by the parties at the time of the conclusion of the contract. (Chengwei Liu),
In my next post I will consider the other argument - that a buyer or seller has the option to avoid the whole contract under Articles 49 and 64 respectively and not necessarily as per the terms of Art. 73 even when performance is due
Art. 73 provides for avoidance in three cases:
(1) to avoid only that instalment in respect of which a fundamental breach has occurred,
(2) to avoid future instalments if a breach that has actually occurred gives him good reasons to conclude that a fundamental breach will occur with respect to future deliveries,
(3) to avoid past and future deliveries if by reason of their interdependence, they could not be used for the purpose contemplated.
On the other hand, Art. 49(1) (a) stipulates that the buyer may declare the contract avoided if the failure by the seller to perform any of his obligations under the contract or this convention amounts to a fundamental breach and similarly Art. 64 (1) (a) lays down that the seller may declare the contract avoided if the failure by the buyer to perform any of his obligations under the contract or this Convention amounts to a fundamental breach of contract.
The question that arises therefore, is if there is a contract of instalment and one instalment has been delivered and others are due and a party has been found to have breached his obligation under the contract or convention, then can the other party avoid the whole contract (i.e even in respect of deliveries still due) under Art. 49/64 as the case may be, on the justification that a fundamental breach of the whole contract has occurred? Or Is his supposed to show that a fundamental breach has occurred with respect to the installment delivered and that he anticipates that a fundamental breach will occur with remaining deliveries, in order to avoid the whole contract?
This question may at a glance appear of mere theoretical or academic significance to some but in my view this is an issue with great practical significance. This is because at the time of proving or disproving, it becomes important to distinguish between whether a fundamental breach has occurred or a fundamental is going to occur. The circumstances which will qualify each of these situations are different and thus the aforesaid question becomes important to answer.
The first argument on this question, is that when there is an instalment contract, the right to avoid the “entire contract” can only derive from Art.73 of CISG and not from Art.49/64 of CISG,
Peter Huber & Alastair Mullis, in their book “THE CISG A New Text Book for Students and Practitioners” suggest that Art. 73 provides for a tailor – made rule on intstalment contracts. Thus this rule should not be circumvented by the general rule of Article 49. Thus when the contract is for delivery of goods by installments, a buyer can avoid the whole contract only by showing that a default in a completed delivery constitutes a fundamental breach with respect to that delivery under Art.73(1) and gives him grounds to anticipate a fundamental breach as to future installments under Art.73(2) or under Art.73(3) if, by reason of their interdependence, the deliveries cannot be used for the purposes contemplated by the parties at the time of the conclusion of the contract. (Chengwei Liu),
In my next post I will consider the other argument - that a buyer or seller has the option to avoid the whole contract under Articles 49 and 64 respectively and not necessarily as per the terms of Art. 73 even when performance is due
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