10.2 TERMINATION OF FUTURE INSTALLMENTS: CISG ART. 73(2)

Art. 73(2) entitles the aggrieved party to declare the installment contract avoided for the future if the promisor's failure to perform any of his obligations in respect of any delivery gives the aggrieved party good grounds to conclude that a fundamental breach of contract will occur with respect to future installments. This paragraph provides three inseparable conditions under which the non-breaching party may declare the contract avoided with respect to future installments: 1) a breach by the defaulting party with respect to any of the installments has occurred, 2) such breach "gives the [non-breaching] party good grounds to conclude that a fundamental breach of contract will occur with respect to future installments", and 3) the declaration of avoidance must be made "within a reasonable time of the failure to perform". The crucial condition is the second one, which concerns anticipatory fundamental breach.  ⁵¹⁵ 

Art. 73 represents, in principle, application of the rule of Art. 72 in the special case of installment contracts.  ⁵¹⁶  As under Art. 72(1) (see Chapter 9), paragraph (2) of Art. 73 does not itself provide any assistance to determine when a particular act or occurrence justifies the conclusion that a fundamental breach is to be expected. The formulation "good grounds to conclude" seems to require a less strict and more subjective standard for avoidance than under Art. 72(1).  ⁵¹⁷  This reading is confirmed by the Secretariat Commentary: "[...] It should be noted that article 64(2) [draft counterpart of CISG article 73(2)] permits the avoidance of the contract in respect of future performance of an installment contract even though it is not 'clear' that there will be a fundamental breach of the contract in the future as would be required by article 63 [draft counterpart of CISG article 72]."  ⁵¹⁸  "It should be noted that the test of the right to avoid under article 64(2) [draft counterpart of CISG article 73(2)] is whether a failure to perform in respect of an installment gives the other party good reason to fear that there will be a fundamental breach in respect of future installments. The test does not look to the seriousness of the current breach. This is of particular significance where a series of breaches, none of which in itself is fundamental or would give good reason to fear a future fundamental breach, taken together does give good reason for such a fear."  ⁵¹⁹ 

As stated above, the standard under Art. 73(2) is less strict and more subjective than grounds for avoidance under Art. 72. This may be explained by the fact that in the setting of Art. 73(2) a breach of contract has already occurred. The grounds for the assumption that a fundamental breach will occur are different under Art. 73 from those under Art. 72. Neither the promisor's failure to provide adequate assurance on demand due to a deterioration of creditworthiness, nor his declaration that he will not perform, give the promisee the right to avoid the contract. An actual failure to perform must instead be the basis for avoidance of future installments. Thus, as far as it concerns future installments, Art. 73(2) does not support the approach that considers a party's refusal to perform itself as a fundamental breach. It confirms, however, the no-reliance approach based on an actual breach.  ⁵²⁰ 

The final clause of Art. 73(2), which requires a party to avoid as to future installments "within a reasonable time", is curiously ambiguous. When is the reasonable time to begin running? A comment to a draft of the Convention suggested that the time runs from the breaching party's "failure to perform". Where the faulty performance could not be detected immediately, however, it would be preferable to measure reasonableness from the time the aggrieved party discovered (or had reason to discover) the breach. Neither of these approaches works well if the past defaults involved non-delivery or if "good grounds" to anticipate a fundamental breach as to future installments arose only after a series of non-conforming installments. The best solution is to measure reasonableness from the time the aggrieved party acquired "good grounds" to anticipate serious problems with future installments. Such a standard is very uncertain, but it offers the only hope for dealing with the variety of circumstances that will arise.  ⁵²¹ 

However, it is to be noted that that Art. 73(2) deals only with avoidance as to future performance. It does not address avoidance of an entire installment contract. If a default in a completed delivery constitutes a fundamental breach with respect to that delivery and gives the aggrieved party good grounds to anticipate a fundamental breach as to future installments, however, the past deliveries can be avoided under Art. 73(1) and the future installments can be avoided under Art. 73(2). Except for this situation, a party who wishes to avoid an entire installment contract must show that defaults as to past deliveries constitute a fundamental breach of the entire contract (see the discussion followed), or that the party can avoid under the general anticipatory breach provisions (see Chapter 9).