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INTRODUCTION
The origin of the 1980 Vienna Convention on the International Sale of Goods,
of April 11, 1980 (hereinafter, the CISG) must be sought in the exponential
growth of international trade in the twentieth century, which showed that the
various national legal systems needed to be adapted to enable them to
resolve the particular problems arisen from the volume of international
transactions, including the need to harmonize the various remedies of the
parties in case of breach.
According to articles 1 through 6 of the CISG, the CISG only applies to
contracts of sale of goods concluded between parties (typically, contracts of
sale of goods among traders with the aim to resell) having their places of
business in different States when those States are contracting States or when
the rules of Private International Law lead to the application of the law of a
Contracting State, regardless of the nationality of the parties or the civil or
commercial character of the parties or of the contract.
In this context, the CISG, set up as a uniform instrument and inspired by the US
Uniform Commercial Code, regulates the international sale of goods, dealing
exclusively with: (i) the formation of the contract; and (ii) the rights and obligations
of buyer and seller under the contract. As a result, unless expressly provided
otherwise in the CISG itself, it is not concerned with the validity of contracts nor their
clauses, nor with the ownership of the goods.

Notwithstanding the limited scope of the CISG described above, the rules of
the CISG usually serve to support the caselaw interpretation by local civil
courts1, even to the point where it has been clearly specified 2 that the CISG
may fill in gaps in the civil local provisions, and also sustain or support the
interpretation by the courts in relation to any legal institution which, although
not included in the Civil Codes or the Commercial Codes, is protected by case
law3. Similarly, it is considered that the CISG may be used to confirm
principles or general rules contained in the Civil Codes, Commercial Codes or
in special laws and that, furthermore, the CISG may be applied to cases in
which the parties did not specify the applicable law or where, even having
done so and such law being other than the CISG, the judge deems that the
CISG should be applied to the dispute in question.

1Supreme

Court of Justice (hereinafter, SCJ) of April 5, 2006; SCJ of July 20, 2006; Palma de
Mallorca Provincial Appellate Court (hereinafter, PACJ) of November 9, 2006; Huesca
PACJ of December 21, 2006; SCJ of December 22, 2006; Barcelona PACJ of February 4,
1997; Barcelona PACJ of January 28, 2004; Barcelona PACJ of November 9, 2004 and
Barcelona PACJ of November 27, 2003.

2SCJ

of April 5, 2006, SCJ of July 20, 2006; Palma de Mallorca PACJ of November 9, 2006;
Huesca PACJ of December 21, 2006.

3SCJ

of July 11, 2006; SCJ of April 5, 2006, SCJ of July 20, 2006; Palma de Mallorca PACJ of
November 9, 2006; Huesca PACJ of December 21, 2006.

On the other hand, it has to be taken into account that the CISG synthesizes
different traditions of law (Common Law and Civil Law), in which there is a
clear predominance of Common Law. This predominance has become
apparent, among others, in a favorable orientation toward maintaining the
contract and the resulting restrictive interpretation of breach to the
fundamental breach.
According to Article 25 of the CISG, a breach of contract 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.
Under the present circumstances: is the fundamental breach under Article 25
CISG the best solution in practice to protect the nonbreaching party?
In order to reply this question it is necessary to briefly analyze, firstly, the
other remedies provided by the CISG in case of breach of a contract and,
secondly, the requirements of a fundamental breach under the CISG.
II.

ALTERNATIVE RIGHTS TO THE PARTIES IN CASE OF A


BREACH OF CONTRACT

The CISG provides, in relation to an event of breach of contract, a selection of


remedies to the buyer and seller, based on the socalled favor negotii, to avoid the
termination/avoidance of the contract concerned (in some cases, these alternative
remedies were not previously provided by the relevant national local law, though
applied by the local courts). It may therefore be understood that contractual
termination/avoidance will operate where all other measures for preserving the
contract provided for under the CISG do not eliminate the imbalance produced by
the breach of one of the parties, rendering the contract invalid 4.

The distinction between "fundamental" and "nonfundamental" breach is


crucial in order to determine the various remedies available to the aggrieved
party, remedies which have different degrees for serious cases of a breach of
contractual obligations, according to the extent of the frustrated interests
and the foreseeability of the consequences of the breach. Thus, more severe
remedies are only provided for essential shortcomings in the performance of
a contract.
Accordingly, in the event of a breach of the sellers obligations, the following
specific rights are conferred on the buyer under the CISG:
(a)Specific performance (article 46 CISG): in cases of a breach, partial delivery or

lack of conformity of the goods, performance in natura may be claimed only


in respect of the
4SCJ

of January 17,
2008.

portion that is lacking or does not conform, unless the buyer has resorted to a
remedy which is inconsistent and subject to the limits in article 28 (it can only
be exercised if thelex fori allows it).
Judgment of the New York Federal District Court (hereinafter, the NYFDC) of
August 20, 2008 (Hilaturas Miel, S.L. v. Republic of Iraq), quoting the
Macromexdecision of another court of the same district, stated that if
without fault of either party () the agreed manner of performance ()
becomes commercially impracticable but a commercially reasonable
substitute is available, substitute performance must be tendered and
accepted (); a reasonable substituted performance tendered by either
party should excuse that party from strict compliance with the contract terms
which do not go to the essence of the agreement.
Under such case, as a consequence of the war in the Republic of Iraq,
Hilaturas Miel, S.L. was unable to deliver goods to a buyer who was in Iraq,
given that such goods were retained in a third country, despite the fact that
the seller sent several letters to the buyer in order to explain the situation
and requested that the relevant officers of the United Nations Security
Council renegotiate and prioritize their contract in order to avoid the
impossibility of meeting its obligations. The NYFDC had to analyze whether
the buyer should have made an extra effort with a view to receiving and
accepting the goods or, otherwise, whether the seller ought to have sought
an alternative performance of its obligations. In this connection, the NYFDC,
in its Judgment of August 20, 2008, also held that the seller has failed to
allege that it ever tendered reasonable substitute performance, nor does the
seller describe any method of substitute performance that was available.
Moreover, it was placed on record that the buyer does not bear a legal duty
to compensate the seller for goods that were never delivered due to
unforeseen events outside the control of the parties.
(b)Extension of the period for performance (article 47 CISG): in cases of breach,

partial delivery or partial lack of conformity of the goods, the seller is given
an additional period of time of reasonable length in which if the buyer
accepts, and unless the seller gives notice that he will not perform, the buyer
cannot resort to any remedy for breach of contract, except for claiming
damages.
In connection with the above, the Judgment of Arnhem Appellate Court (The
Netherlands) of October 7, 2008 (Arens Sondermaschinen GmbH v. Smit Draad /
Draad Nijmegen B.V.), provided that the period of grace did not apply in the case at
hand, as the delivery to the buyer as required by Article 47 in connection with Article
49 of the CISG never took place: in cases in which nondelivery amounts to a
fundamental breach, the buyer is not required to grant the seller an additional
period of time as foreseen in Article 47 of the CISG. However, the Court holds that
the buyers declaration to give a definite decision after the test [experts report] in
order to declare the avoidance of the contract, constituted the setting of an
additional period of time () which expired on the date of the test (). Hence, it was
clear for the seller that the buyer intended to give the seller a last chance to fulfill its

obligations. Moreover, the Court holds that when determining whether the breach
was fundamental in the sense of Article 25 of the CISG in connection

with Article 49.1 of the CISG (reason for avoidance) or not, it is also relevant
if the non performance could have been remedied within a reasonable
period of time.
(c)Remedy at the sellers expense (article 48 CISG): even after the delivery date,
only if he can do so without unreasonable delay and without causing
extensive unreasonable inconvenience or uncertainty to the buyer, who
retains the right to claim the relevant damages. The remedy option does not
apply in the case of specific goods in which the conformity defect cannot be
eliminated. In addition, if the breach could be remedied in more than one way
(repair or substitution), if both options are equivalent and do not imply an
unjustified delay for the buyer, the seller has the right to choose. For
instance, the view taken in Spanish case law is that, under the principle of
good faith, the buyer is required to accept a repair or substitution even if it
implies a slight variation in the identity of the item, unless the buyers
interests can only be satisfied with identical performance to what was agreed
upon.
An example of this is reflected in the Navarra PACJ of March 27, 2000, in a
case of delivery of goods and failure to pay the price where the buyer never
informed the seller of any deficiencies or faults in the goods. This Navarra
PACJ took the view that the buyer in the event that the notice of the faults
had been given in a reasonable period of time, he would always have to have
required performance of the warranty, and if he had obtained a court
decision against the plaintif (the seller) to repair the fault, only if he had not
done so within the period specified to him, can () do so at its expense, but
the repair of a fault by the buyer at the expense of the seller can never be
allowed without the seller having the opportunity to claim them, even if that
obligation is imposed on him by the court, on pain of causing him denial of
due process rights (), because the seller can remedy it at its own expense,
after the delivery the breach of its obligations, if it can do so without an
unreasonable delay and without causing the buyer unreasonable
inconvenience, which is determined by the failure by () to charge the price
reduction. Furthermore, it adds that, if the buyer had requested performance
of the warranty from the seller, the seller would have had the opportunity to
repair the faults with its own resources, and it would have turned out cheaper
for it, or it would simply have been able to substitute the defective
appliances with others.
On the other side, in the event of a breach of the obligations of the buyer, the
following specific rights are conferred to the seller under the CISG:
(a)Specific performance (article 62 CISG): in cases of breach of the obligation to
pay the price, take delivery of the goods and other contractual obligations,

performance in natura may be claimed only in respect of the portion that is


lacking or does not conform, unless the buyer has resorted to a remedy which
is inconsistent.
(b)Extension of the period for performance (article 63 CISG): in cases of breach, failure to
pay the price and failure to take delivery of the goods according to the terms that
have been fixed, the buyer is given an additional period of time of reasonable length
in which if the seller accepts, and unless the buyer gives notice that he will not
perform, the seller cannot resort to any remedy for breach of contract, except for
claiming damages.

(c)If under the contract the buyer is bound to specify the form, measurement or
other features of the goods and he fails to make such specification, the seller
may make the specification himself, in accordance with the requirements of
the buyer that may be known to him, in which case the seller must inform the
buyer of the details thereof and must fix a reasonable period of time so that
the buyer may make a different specification. If the buyer fails to do so, the
specification made by the seller is binding.
(d)The right of termination/avoidance of the contract by the buyer 5 or by the
seller6 will only come into play in the fixed cases defined (ultima ratio), and
only where they are met in the due time and form. Thus, some commentators
and local courts practically unanimously agree that legal transactions, save
for the exceptions provided for by law, are at all times expected to produce
effects and, even if they contain a defect leading to unenforceability, they are
to be remedied and preserved. The aforementioned principle of preservation,
whether or not based on a general principle of law, makes it possible to
safeguard all or some of the effects of the contract and to ensure the
circularization of goods and services necessary for the automatic
reproduction of the socioeconomic scheme.
In addition, articles 44 and 50 of the CISG provide for the following rights only
in cases where the goods do not conform:
(a)Substitution: if the goods delivered do not conform to the contract and their lack of
conformity constitutes a fundamental breach of contract, and a request for substitute

5Avoidance

by the buyer (article 49 CISG):


(a)Fundamental breach of contract (initial or supervening).
(b)Failure to deliver the goods, if the seller does not deliver them within any additional
period of time that may have been agreed.
In case the seller has delivered the goods, the buyer loses the right to declare the
contract avoided unless he does so: (c.1) in respect of late delivery: within a reasonable
time after he has become aware that delivery has been made; or (c.2) in respect of any

breach other than late delivery, within a reasonable time: after he knew or ought to have
known of the breach or after the expiration of any additional period of time or after the
seller has declared that he will not perform his obligations or after the buyer has declared
that he will not accept performances.
6Avoidance

by the seller (article 64 CISG):


(a)Fundamental breach of contract (initial or supervening).
(b)Failure to pay the price by the buyer if he declares that he will not do so within any
additional period of time that may have been agreed.
(c)Failure to take delivery of the goods by the buyer, if the buyer declares that he will not do
so within any additional period of time that may have been fixed.
(d)In case the buyer has paid the price, the seller loses the right to declare the contract
avoided unless he does so, in respect of late performance, within a reasonable time: (d.1)
after the seller knew or ought to have known that performance has been rendered or
(d.2) after the expiration of any additional period of time or after the buyer has declared
that he will not perform his obligations or after the seller has declared that he will not
accept the performance.

goods is made in conjunction with notice given in article 39 of the CISG within
a reasonable period of time.
(b)Remedy or repair of defective goods: only if this is possible taking into
consideration all the circumstances and if requested in the notice given under
article 39 of the CISG
within a reasonable time period (it does not have to be a fundamental
breach). Spanish case law7 has been accepting that the buyer may repair the
goods himself at his own expense and claim the expenses he has incurred
from the seller. It has also been accepted that the repair does not have to
leave the goods in an identical state to the state they would have been in if
the defect had occurred, and it is sufficient for them to leave the goods in a
substantially identical state, subject to compensation for any failure to reach
the exact same state.
(c)Price reduction: the remedy of quanti minoris, by means of which the balance is
reestablished between the price stipulated and the value received, without
affecting the validity of the contract and regardless of any damages, only in
cases where the goods do not conform, and the fundamental element is not
important. It is also necessary for the buyer to receive and accept the
delivery of the goods that do not conform to the contract and for them not to
have been remedied by repair. If the goods do not conform to the contract,
whether or not the price has been paid, the buyer may reduce the price in
proportion to the difference between the value of the goods actually
delivered, upon their delivery, and the value they would have had at such
time had they conformed to the contract, provided that the lack of conformity
is proved in due form and time.
In this connection, the Vizcaya PACJ of November 5, 2003, analyzed the lawfulness of
the price reduction claimed by the buyer in a possible case of lack of conformity of

the goods. The Provincial Appellate Court deemed that the buyers pretences could
not be admitted because said buyer could not successfully prove the lack of
conformity of the goods, since it had had reasonable knowledge of the
characteristics of the goods sent to him as agreed and, furthermore, it had been
proved that the amendment of the initial contract by the seller had been accepted in
full by the buyer, who, upon receiving the documentation, made no exception or
protest whatsoever regarding the qualities and quantities delivered, paying up to
90% of the price, having put on record the goods unloaded () to be consistent with
what had been agreed, being very significant for such purposes that it made no
protest regarding damage.

(d)Claim damages: such damages would include a sum equal to the loss
suffered
(damnum emergens) and a sum equal to the loss of profit (lucrum cessaus)
as a result of the breach8.
7
8

Navarra PACJ of March 27, 2000; Barcelona PACJ of March 11, 2002.
Barcelona PACJ of June 20, 1997.
7

In light of the foregoing comments, in the event of a fundamental breach, the


injured party may not only claim damages, a price reduction or the repair of
nonconforming goods, but may also declare the contract avoided or request
the delivery of substitute goods. Said distinction may lead to different legal
consequences.
III. TERMINATION/AVOIDANCE OF CONTRACT AS THE ULTIMATE
REMEDY
On the principle of preservation of the contract, the aim sought by the CISG is
to reduce the number of events in which the contract can be
terminated/avoided on the ground of a fundamental breach of the obligations
acquired, especially since the effectiveness and certainty of legal
transactions are truly necessary to international trade and to its dynamics. It
will only be accepted in specific events and on an exceptional basis, in order
to preserve the effective continuance of the legal transaction, by preventing
the termination/avoidance of the agreement as a result of minimum and not
fundamental breaches 9.
Since certain remedies are only available in cases of a fundamental breach,
this is where the distinction between a "fundamental" and a "non
fundamental" breach is of cardinal importance for the system of remedies,
because it can determine the life or death of the contract 10. Thus, as from a
certain degree of breach, there emerges a qualitative leap of legal
significance that enables the contract to be avoided.
According to the foregoing, termination of the contract will only operate
as ultima ratio in cases of fundamental breach. Such breach must occasion
substantial, obvious and notable damage which entails the deprivation of

what was expected pursuant to the provisions agreed in the contract. In this
connection, according to Spanish case law, the success of an action for
termination based on fundamental breach requires that the breach of what
was agreed be serious and fundamental, without being sufficient to claim a
breach of ancillary or supplementary obligations which, not being decisive,
do not prevent the creditor from obtaining the economic result which led it to
enter into the contract11.This starting point is equivalent to the traditional
interpretation of Spanish by the Spanish courts.
In this connection, it is important to highlight the SCJ of July 14, 2003, quoted
subsequently in the Cuenca PACJ of January 31, 2005, among others. The
Supreme Court held that the exceptio non rite adimpleti contractus must
be weighted by considering the specific circumstances of the case since,
although a complete breach, which configures the exceptio non rite
adimpleti contractus, does not create problems in connection with the
evaluation of its efects as a lawful cause of contractual termination, a partial
breach requires more detailed evaluation by the instance court of its extent
and repercussions on the economy of the

9El

contrato de compraventa internacional de mercaderas (Convencin de Viena de


1980), by Maria del Pilar Perales Viscasillas.
10

Fundamental Breach, by Will M., Bianca & Bonell.

Navarra PACJ of December 27, 2007; SCJ of February 29, 1988; SCJ of February 28, 1989;
SCJ of April 16, 1991; SCJ of February 8, 1993 and SCJ of November 18, 1994.

11

contract, since the success of the aforesaid exception for breach of contract
is conditional on the defect or defects being of certain significance or
transcendence in relation to the aim pursued and on the ease or difficulty of
their correction, making it unsuitable to satisfy the interest of the contracting
party. Moreover, and in accordance with articles 79 and 80 of the CISG,
which exempt the party at breach in certain circumstances, it will at all times
prove necessary to investigate the foreseeable nature of the breach and the
debtors chances of avoiding it, and it may therefore be said that the CISG
provides for a quasi objective liability regime, mitigated by the exemptions
system and the reasonability principle.
IV. FUNDAMENTAL BREACH VS. MERE MATERIAL BREACH
All in all, it is worth noting the existing difficulty when it comes to translating
the standard Common Law expression fundamental breach into Civil Law.
Thus, roughly speaking, it may be asserted that a fundamental breach of
contract is characterized by the seriousness of the breach and the
consequences deriving therefrom. This is usually described in doctrine as a

breach which goes to the root of the contract12 or which goes to the
essence of the agreement13.
Moreover, it is crucial to define and expressly determine the partys interests
in the contract. It is common to redefine or specify general concepts in line
with the partys needs, to specify the quantity and quality of the goods, as
well as to incorporate the relevant information within the contract, for the
purpose of assembling the puzzle with as many pieces as possible, in order to
discover the true intentions of the contracting parties when it comes to
interpreting the contract.
In light of the foregoing and as regards the importance of defining the
parties interests in the contract, the Switzerland Federal Supreme Court
(hereinafter, the SFSC), in its Judgment of May 18, 2009, considered that
the buyer was entitled to declare avoidance of the contract because of non
delivery and because of a fundamental breach of contract () existed as a
result of the fact that the parties adopted a meaning of the term delivery
which is in deviation to the meaning adopted by the CISG. According to the
parties, delivery should refer to the day when installation of the packaging
machine has finished and when the machine is operating to buyers full
satisfaction. Consequently, the delivery of the packaging machine never
actually occurred in the present case.
In view of the standpoint under the CISG, it may be deduced that two requirements
must be met in order to deem a potential breach to be fundamental: first of all, the
breach must give rise to such detriment to the other party as substantially to deprive
him of what he is entitled to expect under the contract, and, second, the seriousness
of the damage caused must be

Remedies for Breach of Contract (Courses of Action Open to a Party Aggrived), by Trietel,
G.H., Vol. VII., chapter 16 of the International Encyclopedia of Comparative Law,
Tbingen. Pars, The Hague, 1976.

12

13

NYDC Judgement of August 20, 2008.

foreseeable by the party at breach and by a reasonable person of the same


kind and in the same circumstances.
(i)Detriment of a contractual interest:

The concept of detriment is not defined in the CISG. However, a definition of


detriment cannot be confined simply to material loss or damage, but must
rather be interpreted in a broader sense, also including immaterial detriment
such as loss of clientele, loss of resale possibilities or being brought into
disrepute etc. ("Detriment

()fills the modest function of filtering out certain cases, for example where

breach of a fundamental obligation has occurred but not caused injury"14).


Moreover, it should be noted that cases in which a breach derives from the
acts of a third party are not understood to fall under Article 25 of the CISG.
Such cases would constitute noncontractual liability excluded under Article 4
of the CISG. Nonetheless, cases of a breach by a third party engaged by one
of the parties should be included, in situations similar to that under Article
79.2 of the CISG.
To this end, in cases of contract avoidance, certain national courts 15 have
even held that non conformity of goods does not result in any substantial
detriment of expectation if the goods may reasonably be used for another
purpose or can be resold elsewhere. In this case, the buyer may claim
damages or seek other remedies but may not declare the contract avoided
for the reason that the CISG aims at saving contracts. Therefore, the buyer is
face with a dilemma: on the one hand, he must retain the non conforming
goods in order not to forfeit the right to avoid the contract, and, on the other
hand, the buyer may be forced to resell the goods or make other use of them
in order to mitigate the loss. Thus, the term substantial detriment is open to
various interpretations and each interpretation may come into conflict with
certain provisions in the CISG or render them meaningless.
In this connection, it is worth mentioning the Judgment of the Hamburg Appellate
Court (Germany) of January 25, 2008, which rejects the possibility of classifying a
failure to meet the sellers obligations as a fundamental breach of contract, arguing
that the buyer can make some use of the nonconforming goods. To this end, the
aforesaid Court reasoned that in cases of delivery of defective goods, they must be
practically useless for the buyer in order for the breach to be fundamental. If the
defective goods can be put to use (and even where only restricted use is possible)
there will generally be no fundamental breach of contract [BGHZ 132, 290 (298)
(unrecoverable deviation in quality, which however did not render the delivered
cobalt sulphate unmarketable); BG SZIER 1999, 177 (meat with too high and
therefore non conforming content of a fat while it remained marketable)]. Given the
eforts necessary

14

Bianca & Bonell and Honsell.

Appeal Court in Frankfurt a.M., January 18, 1994 and Federal Court of Justice of Germany,
BGH UrteilVII ZR 51/95, April 3, 1996.

15

10

to unwind the transaction, an avoidance of the contract should be only


available as a lastresort remedy (). This rule also applies to cases where
goods cannot be put into full operation, where there is a failure to comply
with additional obligations under the contract, such as the obligation to
install the goods in a readyforuse condition. Furthermore, the Court states

that even if the inventory which had been intended for ice cream production
had not been usable in a similar manner, the buyer could at least have made
use of a part of the inventory () and has in fact made use of it. Avoidance
of the entire contract would have only been possible under these
circumstances if the missing installation of the inventory for ice cream
production had afected the buyers interest in making use of the other part
(); a delivery which is not in conformity with the contract, is also applicable
to cases like the present only by way of analogy. Finally, the Court held that
since the buyer has actually made use of a considerable part of the
inventory, it has demonstrated that it has been interested in this particular
part. Thus, there is no basis for an avoidance of the entire contract. The
buyer has not declared a partial avoidance in terms of Article 51 of the CISG,
which might have covered only the inventory intended for ice cream
production. Moreover, any partial avoidance would not entitle the buyer to
claim reimbursement of the whole advance payment.
Notwithstanding the above, in the event of a nonperformance by the seller,
where the buyer has made some use of the delivered non conforming goods
before he had notified the seller about the lack of conformity within a
reasonable period of time and duly fixed an additional period of time to
perform the obligations, within which the seller failed to remedy the lack of
conformity, the BaselStadt Appellate Court (Switzerland), in its Judgment of
September 26, 2008, understood that the seller has constantly attempted to
remedy the lack of conformity and is liable for a fundamental breach of
contract. The Appellate Court stated that the right to declare avoidance will
not be lost if the buyer has consumed or transformed the goods in the course
of normal use before he discovered or ought to have discovered the lack of
conformity. It is important to note that this rule only applies where the
consumption or transformation has taken place before the buyer was aware
or ought to have been aware of the lack of conformity () in the present
case, the relevant timeframe for utilization extends to the time when
avoidance was declared. () Any utilization () by the buyer after its
declaration of avoidance (i.e., during the time when the seller was in arrears
with redeeming the goods) does not have any bearing on the validity of the
declaration.
Returning to the concept of detriment, the main emphasis is placed upon the
contractual expectations of the injured party, on what he is entitled to expect
under the contract16. The expectation element adds an objective criterion to
the definition since it is the contract that determines the parties obligations
and also determines the importance of such duties. This becomes important
when a contract is declared avoided and the seller has made an offer to
remedy.

16

11

SFSC Judgement of May 18, 2009 and SFSC Judgement of October 28, 1998.

Such detriment must substantially deprive the injured party of what he is


entitled to expect under the contract. It has even been argued that to define
fundamental as substantial is an idem per idem definition and, therefore,
mere tautology. It implies that the substantial nature of the detriment
depends on whether or not the breach can be remedied without causing
unreasonable inconvenience and delay.
Further to the above, in a case where the seller had delivered a packaging
machine which failed to achieve the performance required under the contract
and, consequently, the buyer experienced a loss of productivity of 71%, in its
Judgment of May 18, 2009, the SFSC analyzed whether the buyer had been
substantially deprived of what he was entitled to expect under the contract.
In this case, the Court held that a fundamental breach applies, in particular,
to those lacks of conformity which cannot be remedied within reasonable
time and by reasonable eforts to the efect that the goods are practically
useless, untradeable or cannot be appropriately resold (). If the goods are
essentially inappropriate for the buyers own production, resale or other
needs, he will be entitled to declare the contract avoided. The SFSC also
stated that given a loss of productivity of 71%, the buyer is substantially
deprived of what it has been entitled to expect under the contract. This
amounts to a fundamental breach. The numerous attempts by the seller to
remedy the lack of conformity also demonstrate that the nonconformity
could not be remedied within a reasonable time. Moreover, the particular
packaging machine was specifically designed for the buyers individual
needs. Therefore, any resale of the machine has been impossible or at least
inappropriate for the buyer.
Finally, the SFSC considered that the buyer was entitled to expect that the machine
delivered by the seller would actually achieve the promised performance. However,
this was not the case by far. Therefore () it would not have concluded the
particular contract had it been aware of the packaging machines actual
performance. Even the buyers former packaging machine () had been capable of
a similar performance. A price reduction could not be considered because the
buyers loss of productivity throughout the expected lifetime of the machine
exceeded the purchase price by far. Moreover, it was not possible for the buyer to
resell the machine and thereby (partially) compensate its losses. Consequently, the
seller was liable for a fundamental breach.

(ii)Foreseeability of the substantial detriment:


The unforeseeability criterion is meant to be a filter for extraordinary situations. It
may be assumed that reasonable businessmen will foresee the negative effects of a
breach of contract so that they either will not contract or will avoid the breach. The
burden of proof of the unforeseeability lies on the party in breach. The reference to a
reasonable person of the same kind introduces an objective standard by comparing
the party in

12

breach with a hypothetical contracting party of the same commercial branch,


the same function, the same socioeconomic background and the same
education17.
As far as foreseeability of a substantial detriment is concerned, a breach is
not fundamental unless the party in breach did not foresee and a reasonable
person in the same circumstances would not have foreseen such a result.
This second part of Article 25 of the CISG is composed of a subjective and an
objective test of foreseeability, and it is meant to rule out a fundamental
breach where the substantial detriment occurs unexpectedly.
However, as parties in breach are not likely to admit that they foresaw the
detrimental result, the objective criterion of a reasonable person was introduced. The
whole range of facts, such as the conditions of world and regional markets, national
legislation and prior trade usage between the parties, among others, must be taken
into account to determine whether a reasonable person would have foreseen a
detrimental result.

Notwithstanding the above, the main problem of foreseeability rests with the
time at which the detrimental result must be foreseen. Article 25 of the CISG
does not answer this question and it remains uncertain whether the time of
the contract execution is crucial to assess foreseeability or whether
foreseeability of a detrimental result occurring after the conclusion of
contract also has to be taken into consideration. It is so expected that, in
particular cases, information which the party in breach received only after the
conclusion of the contract will also be considered in determining whether the
effects of the breach were foreseeable or not.
It has been suggested that if a detrimental result was not foreseeable at the
time of the conclusion of the contract, and becomes foreseeable thereafter,
the party in breach cannot claim that the detrimental result was
unforeseeable. According to this view, any foreseeability of a substantial
detriment before the time of breach but after the time of conclusion is to be
taken into consideration18. Others suggest that the foreseeability of
detrimental results after the conclusion of the contract can only be
considered in exceptional cases and only up to the time when the
preparations for performance of the contract started19. Otherwise, one party
could make substantial a certain interest that was not mentioned at the time
of execution of the contract and change a nonfundamental breach into a
fundamental breach simply by providing the other party with further
information.
Thus, the definition in Article 25 of the CISG can be divided into two
elements: first, a detriment such as substantially to deprive the other party of
what he is entitled to expect under the contract and second, the
foreseeability of the detriment. Unfortunately, the

17

Remedies for International Sellers of Goods, by Dennis Campbell.

18

Honnold.

19

Bianca & Bonell.

13

interpretation of a substantial detriment and the crucial time


foreseeability leave the buyer and the seller exposed to uncertainty.

of

However, a fundamental breach had to be drafted in general terms since


such a concept cannot specify all possible circumstances. Thus, the current
definition in Article 25 of the CISG has generated much controversy and
difficulties in its interpretation.
Moreover, a fundamental breach, as defined in the CISG, should not be
confused with the English doctrine of fundamental breach 20, according to
which the party responsible for such breach may not resort to a restriction of
liability which was fixed in standard business conditions.
If the breach serves to deprive the other party of what he is entitled to expect
under the contract, the party in breach can still prove that he did not foresee,
and a reasonable person of the same kind in the same circumstances would
not have foreseen, such negative consequences. Thus, a fundamental breach
appears to exist if a risk materializes to the detriment of the other party
which the violated term of the contract obviously intended to prevent 21.
Further to this reasoning, the avoidance of a contract due to a fundamental
breach of the same, would only take effect on compliance with examination
and notification requirements pursuant to Articles 38 and 39 of the CISG. By
way of example, the Hamburg Appellate Court, in its Judgment of January 25,
2008, considered that there is no fundamental breach to support the
avoidance of the contract since in any event, the buyer has not properly
notified the nonconformities within due time and sufficiently specified the
nature of the lacks of conformity. These may prove to be the most frequent
mistakes when it comes to declaring the avoidance of a contract. In this
connection, the Court explained that any lack of conformity must be notified
in a way that the defect is sufficiently specified in order to enable the seller
to comprehend it and to be able to plan his reaction (). Buyers letters ()
merely state that there has not been any installation of the machines for ice
cream production in readyforuse condition for the operation of the caf
which would have been required under the contract. Any reasonable person
of the same kind as the other party would have understood this as a mere
reminder to install the machines but not as a complaint about the actual
condition of the inventory (). Consequently, the buyer has lost its right to
rely on a lack of conformity ().
To sum up, a breach of contract should generally be classified as
fundamental only where the aggrieved party is no longer interested in

performance due to the breach22. In other words: whether the remedy of


avoidance is indeed justifiable23.

20

Photo production, Ltd. vs. Securicor Transport, Ltd., 1980, 2 WLR 283.

21

Remedies for International Sellers of Goods, by Dennis Campbell.

22

Federal Court of Justice of Germany, BGHUrteilVII ZR 51/95, April 3, 1996.

23

Swiss Federal Supreme Court of October 28, 1998.

14

With respect to the need or otherwise to account for negligence on the part
of the party at breach, it should be noted that the foreseeability test
inevitably entails a certain reference to the negligence of the party at breach.
Nonetheless, it should be clarified that the CISG maintains criteria similar to
those of countries, in which the debtor is liable for the breach, regardless of
whether or not such a breach has been deliberate in nature, while distancing
itself from where the intention to breach is relevant.
For example, in Spain, in order for termination of contract by virtue of article
1,124 of the Civil Code, the following requirements are laid down 24: (i) it must
be a contract with reciprocal obligations; (ii) there must have been a serious
breach of the obligation.
Moreover, with the exception of fixed term contracts, certain
corporate/commercial contracts and contracts providing for a time delay or a
justification of compliance compatible with the plan to perform what has been
promised, Spanish case law25 required prior to 2006 that the debtor, in
addition to breaching the contract in a serious or objectively significant
manner, must have an undeniable intention to deliberately rebel against
performance (deliberately defiant intention of the debtor) in order to be
able to terminate the contract pursuant to Article 1.124 of the Civil Code. This
intention may take shape expressly, orally or by action, or may emerge due
to the negligent conduct of the debtor, which definitively, absolutely and
irremediably prevents performance.
Since 2006 the seriousness is evidenced by the very fact of the
unenforceability of the price by violating the assumed obligation () due
either to a frustration of the aim of the contract without the need for a fast
and persistent resistance obstructing fulfillment, as it is sufficient for the
legitimate aspirations () of the other party () to fail to be achieved; or by
finally requiring simply that the debtors conduct must be serious (); and,
in cases of successive breaches, it is required that the party in breach give
the other injured party reasons to believe that it cannot trust that there will
be future compliance by the other party. This new line is consistent with the
rules on breach contained in the CISG. A manifest intention not to perform

the obligation incumbent on one of the parties does not constitute an


essential factor when it comes to classifying a breach as fundamental.
Nonetheless, the existence of an intention manifestly contrary to the
performance of the obligation entails the fundamental nature of the breach,
unless the party has justified grounds to oppose performance of the
obligations incumbent on it.
In contracts for delivery of goods by installments, if the failure of one party to
perform any of his obligations in respect of an installment constitutes a fundamental
breach of contract with respect to that installment, the other party may declare the
contract avoided with respect to

SCJ of April 5, 2006. Setting case law: SCJ of July 20, 2006; SCJ of December 22, 2006;
Palma de Mallorca PACJ of November , 2006, Huesca PACJ of December 21, 2006; SCJ of
October 10, 2005; SCJ of May 16, 1996; and SCJ of March 21, 1986.

24

25

SCJ of November 6, 1987 and SCJ March 22, 1984.

15

that installment only, unless the partys failure to perform gives the other
party good grounds to conclude that a fundamental breach of contract will
occur with respect to future installments, in which case he may declare the
contract avoided for the future, provided that he does so within a reasonable
time.
Mention must be made in this context of the Barcelona PACJ of November 3,
1997, which is one of the first judgments to apply the CISG, specifically, in a
case of the sale of goods in which delivery by installments was stipulated
(akin, in Spain, to the supply contract). In that judgment it was affirmed that
the CISG also authorizes the contract to be avoided for the future if the
breach by one of the parties of any of his obligations relating to any of the
installments gives to the other party well founded grounds to conclude that a
fundamental breach of contract will occur as regards future installments, in
the same way as in a case of late delivery, the subsistence of the buyers
right to avoid the contract is subject to the requirement to exercise that right
within a reasonable time after he has become aware that the delivery has
been made. Furthermore, it is concluded in the same judgment that in the
case on trial it has already been seen that the buyer tolerated successive
delays in the delivery of the goods (which is equivalent to the granting of
additional time provided for in article 47 of the CISG), and upon determining
the persistence of the delays, it was decided to exercise, within a period of
forty eight hours from the last late dispatch, the right to declare the contract
avoided for the future. This is a case, as a result, of a justified right to
unilaterally declare the contract avoided for the case in which it is applied
and legally, and therefore it must prevail. It would be another matter if, after
making supplies, despite the declaration to avoid the contract, their contents
had to be returned to their lawful owner.

A purchaser who declares the contract avoided with respect to any delivery
may, at the same time, declare it avoided with respect to deliveries that have
already been made or to future deliveries if, by reason of their
interdependence, such deliveries cannot be put to the use provided for by the
parties upon the conclusion of the contract.
However, as may be concluded from the wording of articles 32.3, 48.2 and 60
through 65 of the CISG26, and in line with the intention to preserve the
continuity of the contract, the CISG provides for the obligation of a party to
cooperate to make it possible for the other party to perform its obligations.
Moreover, and further to article 77 of the CISG, a party who relies on a breach of
contract must take such measures as are reasonable in the circumstances to
mitigate any loss, including

26

Article 32.3 CISG: If the seller is not bound to efect insurance in respect of the carriage
of the goods, he must, at the buyer's request, provide him with all available information
necessary to enable him to efect such insurance.
Article 48.2 CISG: If the seller requests the buyer to make known whether he will accept
performance and the buyer does not comply with the request within a reasonable time,
the seller may perform within the time indicated in his request. The buyer may not,
during that period of time, resort to any remedy which is inconsistent with performance
by the seller.

16

loss of profit, resulting from the breach. If he fails to take such measures, the
party in breach may claim a reduction in the damages in the amount by
which the aforesaid loss should have been mitigated. Nevertheless, the duty
to mitigate the damage is restricted to cases in which the action taken as a
result of the breach is a claim for damages and does not therefore apply to
cases of contractual termination.
The prerequisite of a fundamental breach is meant to save the contract and,
consequently, to avoid expensive and wasteful reshipment where either the
defect of goods is immaterial or the deprivations from the contract are
insubstantial.
In light of the above, an analysis of the concept of substantial detriment
reveals that the intention of achieving an objective term partially vanishes, if
we take into account the expectations of the aggrieved party, which involves
an interpretation of the contract before qualifying the breach, and if we take
into account that certain facts and behaviours of the breaching party, may
justify, in themselves, the existence of a substantial detriment. A study of the
foreseeability test, which reveals that there is no fundamental breach where
the substantiality was unpredictable, concludes that it has an exoneratory

function, demonstrates the meaning of the reasonable man concept, its


influence on the burden of proof and on the time for assessing the essential
nature of the breach.
In light of the above, the term fundamental breach under Article 25 of the
CISG is to be interpreted narrowly 27. If it is doubtful whether or not a breach
may be qualified as fundamental it should generally be assumed that no
fundamental breach exists.

27

Swiss Federal Supreme Court Judgement of September 5, 2000.