Fundamental breach of the buyer’s
obligation under the CISG
4th Hanover PreMoot Conference 2015
Kristina Siig
University of Southern Denmark
Fundamental breach and the buyer’s
obligations under the CISG
Art. 53 CISG: The buyer must pay the price for the goods and thake
delivery of them as required by the contract and this Convention.
Art. 54 CISG: The buyer’s obligation to pay the price includes taking
such steps and complying with such formalities as may be required
under the contract or any laws and regulations to enable payment
to be made.
Art. 60 CISG: The buyer’s obligation to take delivery consists: (a) in
doing all the acts which could reasonably be expected of him in
order to enable the seller to make delivery; and (b) in taking over
the goods.
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June 2009
Article 25 CISG
A breach of contract committed by one of the parties
is fundamental if it results in such detriment to the
other party as substantially to deprive him of what he is
entitled to expect under the contract, unless the party in
breach did not foresee and a reasonable person of the
same kind in the same circumstances would not have
foreseen such a result.
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June 2009
Fundamental breach and the buyer’s
obligations
Challenge in the light of Art. 25/fundamental breach
On the one hand: Breach of those obligations will normally amount to
a type of delay … and time is generally not of the essence under CISG.
Also: Breach of the obligations to receive the goods will in most cases
amount to a nuisance rather than a disaster for seller.
On the other hand: Breach of buyer’s main obligation – the payment of
the (full) purchase price (on time) – may often indicate not just an
unwillingness to pay – but an inability to do so.
In the end: From the seller’s point of view not obtaining the purchase
price will always ”substantially deprive” him of what he certainly
expected under the contract. And… honestly… any buyer would
know this.
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June 2009
Favor Contractus
 General provision – general principle
 Specific performance incl. demand for repair 46(1) CISG
and 62 CISG (cf. 28 CISG)
 Right to cure 48 CISG
 Nachfrist provisions in 47(1) CISG and 63(1) CISG
 Avoidance after part-delivery 51(2) CISG
 Avoidance of whole contract in installment contracts 73(2)
CISG
 Counter-offer with non-material changes 19(2) CISG
 Late acceptance potentially effective 21(1) and 21(2) CISG
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June 2009
Favor Contractus
 Rationale:
 Legal economics connected with logistics (storage /
reshipment)
 Focus on avoiding un-merited claims of avoidance /
spurious challenges to the contract based on rapid changes
in the commodities market or currency exchange rates
 Protection of the seller (??) – right to cure and time is not
generally of the essence
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June 2009
Favor Contractus
 Other approaches
 English law (Conditions/repudiation, warranties/damages, innominate
terms) after delivery. However: After taking of delivery normally only
”repudiation” if ”frustration”. (SGA Sec. 11(3)) Before delivery: Buyer
may reject due to ”perfect tender rule” (More & Co. v. Landauer & Co.
[1921] 2 KB 519) (Damages obtainable)
 US Law: UCC sec. 2-601: Perfect tender rule (before taking delivery).
After delivery: ”Breach of material issue”. (Damages obtainable).
 Danish Sales Act: ”Quick” reaction times (immediately or…). Time
always assumed to be of the essence (KBL §§ 21(3) and 28(1) –
regarding conformity: ”Significant” (”cf. CISG 35”) entails right of
avoidance or maintaining the contract and claiming price reduction,
however damages only if fraud or gurarantee)
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June 2009
Favor Contractus critizised
 Criticism
 Uncertainties (”The factors which have been suggested by commentators and
adopted by the courts include the importance of the reached term in the context of the
contract, the value of the loss relative to the overall value of the contract, the degree of
fitness of the goods for their intended purpose, the availablity of reasonable alternative
remedies, absence of offer to cure, the possibility of cure, the loss of confidence in the
party in breach and the foreseeability of the consequences of the breach.” Takahashi
2003), rendering it particularly…
 ”Unsuitable for the commodities trade” due to the lack of
foreseeability and transparency of the rule
 NB: Art. 6 CISG – Art. 7(1) CISG – Art. 9(2) CISG
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June 2009
Favor Contractus critizised
The (alleged?) unsuitability for the commodities trade
examined. Is it better to go than to stay ?
 Commodity trading – not just trading a “commodity”
 String sales – speculative nature – more risk of unmerited
shenanigans than in most other trades
Situation A:
S – B1 – B2 – B3 … Bn
Only S and Bn will ever see the goods
In the end, S delivers to Bn, normally as Bn is the holder of the B/L, (meaning
that Bn has title/ownership)
All other transactions only take place electronically (“documentary” –
trading the document of title – the B/L)
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June 2009
Favor Contractus critizised
Situation B: L/C transactions: UCP 600
Bank (S)
Bank (B)
Sales contract
Cr.
S
L/C may be
sold or given as
security by S as
it works as a
promissory
note
B1
B2
Bn
L/C instructions
Goods sold under B/L
traded under L/C
Same bank guarantees,
different purchase price
(CIF term: Bn either get the goods or an insurance claim for the goods
coupled with a claim against the Carrier – Why Bn dares buy the goods)
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June 2009
Favor Contractus critizised
 So…
 Sold in commodity trading because the market price is fluctuating => time is
probably of the essence as regards S’s performance
 If sold CIF with L/C as payment term: Time is of the essence in two ways: 1)
L/C has to be opened for full amount by buyer before shipment and before
date set in L/C instructions. If not done, S may generally opt to avoid and resell.
2) S has to provide “perfect tender of documents” before deadline set in L/C
instructions. Please note: No particular reason that CIF in itself indicates that
time is “more” off the essence than in other situations. It is its link to L/C
which provides for this. Neither CIF nor any other INCOTERM in itself
indicates that time is definitely of the essence.
 Most buyers never see the goods, so if L/C: Strict compliance: S’s presentation
of perfect tender takes the place of B’s inspection of the goods in the
documentary transaction. Strict compliance is B’s trade off to have to put op
guarantees in advance. Doctrine of strict compliance should be interpreted in
B’s favor when in doubt.
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June 2009
Favor Contractus critizised
Are these needs of the trade in conflict
with an application of Art. 25 CISG?
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June 2009
Favor Contractus critizised /
Fundamental breach and the buyer’s
obligations
A breach of contract committed by one of the parties
is fundamental if it results in such detriment to the
other party as substantially to deprive him of what he is
entitled to expect under the contract, unless the party in
breach did not foresee and a reasonable person of the
same kind in the same circumstances would not have
foreseen such a result.
My view is that we would get the same result under an application of Art. 25. I
do not see that the needs of the trade is that you can get out of the contract
in other situations.
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June 2009
Fundamental breach and the buyer’s
obligations
So … does it make sense to interpret buyer’s obligations in the light of the
CISG art. 25?
Generally:Yes
In commodity trades?
- Full amount of purchase sum made available for S on time
- Perfect tender of documents made available for B on time
Will already satisfy the requirements of Art. 25 to avoid the contract … other
needs of the trade remain to be shown to be of the necessary importance
“de minimis non curat lex”
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June 2009