Termination is an act of the aggrieved party, not an act of a court or arbitrator. By way of contrast with the approach of some civil law jurisdictions, there is no requirement under the Convention (as well as the two Principles) that the party avoiding the contract obtain judicial approval or confirmation. 551 "Avoidance constitutes a right. Since it is made dependent on a declaration, the entitled party can consciously decide to continue to claim performance of the contract even when there are grounds for avoidance." 552 In other words, the aggrieved party has a right and no obligation(except in regard to mitigation of losses) to declare the contract avoided.
However, "[a]voidance of the contract by one party may have serious consequences for the other party. He may need to take immediate action to minimize the consequences of the avoidance such as to cease manufacturing, packing or shipping the goods or, if the goods have already been delivered, to retake possession and arrange to dispose of them." 553 For this reason CISG Art. 26 provides "[a] declaration of avoidance of the contract is effective only if made by notice to the other party". It follows that the contract is avoided at the time notice of the declaration of avoidance is given to the other party. 554 Thus, a non-breaching party's avoidance will be successful and recognized by a court only if a notice of avoidance is communicated to the breaching party. The non-breaching party therefore cannot effectively exercise the right to declare the contract avoided if he fails or refuses to give notice to the other party. This narrows the rule from that found in ULIS Arts. 26, 30, 61 and 62, which provided for an automatic or ipso facto avoidance in certain circumstances in addition to avoidance by declaration of the aggrieved party. Automatic or ipso facto avoidance was deleted from the remedial system in this Convention because it led to uncertainty as to whether the contract was still in force or whether it had been ipso facto avoided. 555
In other words, prescribing a declaration of avoidance, the CISG breaks with the ipso facto avoidance, i.e. avoidance by virtue of law, which has played a great role in ULIS, thus overcoming the uncertainty as to whether, and possibly when, the contract is made void. 556 Art. 7.3.2(1) UPICC reaffirms the principle: "The right of a party to terminate the contract is exercised by notice to the other party." The notice requirements recited in UPICC Art. 7.3.2(1) and CISG Art. 26 correspond to one another. 557 PECL Art. 9:303(1) contains a substantially identical rule: "A party's right to terminate the contract is to be exercised by notice to the other party." The notice requirement will permit the non-performing party to avoid any loss due to uncertainty as to whether the aggrieved party will accept the performance. At the same time it prevents the aggrieved party from speculating on a rise or fall in the value of the performance to the detriment of the non-performing party. 558
However, the PECL specifies two exceptions to the rule that notice of termination must be given: The first is under Art. 8:106(3), according to which a notice setting a reasonable period during which the defaulting party must perform may provide that at the end of the period the contract shall terminate automatically if performance has still not been made. The second is under Art. 9:303(4), which provides that where a party's non-performance is excused because it was due to a total and permanent impediment, the contract terminates automatically. Some legal systems regard the contract as destroyed by such an event. However, in cases of only partial or temporary impediment, the defaulting party may still tender performance, and a notice of termination by the aggrieved party will be needed. Note that in cases of excused non-performance, the non-performing party has a duty under Art. 8:103(3) to give notice of the impediment. 559
Indeed, the two exceptions specified by the PECL can also be found or implied under the CISG. It is said that under the CISG the entitled party can, however, achieve partly similar effects (to ipso facto avoidance) when he, in cases where the right to make the contract void follows from the expiry of a Nachfrist without performance (Art. 49, subpara. (b); Art. 64, subpara. (b)), already in fixing such Nachfrist, declares the contract void If the other party does not perform within that additional period. 560 In addition, it is to be noted that where the failure in performance is due to a supervening event for which neither party is contractually responsible, such an event may lead to automatic discharge; but this differs from termination for contractual default, most obviously in that it excludes all claims for damages. 561
On the other hand, although it is not clear in the UNIDROIT Principles whether the contract would terminate automatically where a party's non-performance is excused because it was due to a total and permanent impediment, it does be specified in UPICC Art. 7.1.5(3) that the aggrieved party may in its notice allowing additional period for performance "provide that if the other party fails to perform within the period allowed by the notice the contract shall automatically terminate". However, Art. 7.1.5(4) UPICC stipulates at the same time: "Paragraph (3) does not apply where the obligation which has not been performed is only a minor part of the contractual obligation of the non-performing party."
Nonetheless, in general, there is no automatic termination: there must be a "declaration" of termination. As a rule termination is effective only if notice thereof is given by the aggrieved party to the defaulting party. However, it must be remembered that termination may be effected by the act of the aggrieved party alone; it does not have to bring an action in court in order to have the contract terminated. 562
551. See J. W. Carter in "Party Autonomy and Statutory Regulation: Sale of Goods"; 6 Journal of Contract Law, North Ryde NSW, Australia (1993); p. 107. Available online at ‹http://www.cisg.law.pace.edu/cisg/biblio/carter3.html›
552. See Fritz Enderlein, Dietrich Maskow, International Sales Law: United Nations Convention on Contracts for the International Sale of Goods, Oceana Publication (1992); p. 116. Available online at ‹http://www.cisg.law.pace.edu/cisg/biblio/enderlein.html›
553. See Secretariat Commentary on Art. 24 of the 1978 Draft [draft counterpart of CISG Art. 26], Comment 1. Available online at ‹http://www.cisg.law.pace.edu/cisg/text/secomm/secomm-26.html› The match-up indicates that Art. 24 of the 1978 Draft and CISG Art. 26 are identical. See the match-up, available online at ‹http://www.cisg.law.pace.edu/cisg/text/matchup/matchup-d-26.html›
554. Ibid., Comment 2.
555. See Secretariat Commentary on Art. 45 of the 1978 Draft [counterpart of CISG Art. 49], Comment 2. Available online at ‹http://www.cisg.law.pace.edu/cisg/text/secomm/secomm-49.html› ; also Secretariat Commentary on Art. 60 of the 1978 Draft [counterpart of CISG Art. 64], Comment 2. Available online at ‹http://www.cisg.law.pace.edu/cisg/text/secomm/secomm-64.html› Under ULIS, two types of avoidance of the contract were provided for. The first was ipso facto avoidance, that is, the right to continue performance under the contract would come to an end without needing a declaration by the victim of breach, and the second was avoidance by declaration or notice from the innocent party to the breaching party. Ipso facto avoidance was eliminated from the remedial system of the present Convention on the ground that it led to uncertainty as regards the rights and obligations of the parties, e.g., in the case of late delivery, the seller needs to know when he must reship or resell the goods or take other actions to prevent their wastage or spoilage. (See Mirghasem Jafarzadeh, infra. note 12.)
556. Supra. note 3.
557. See Albert H. Kritzer in "Editorial remarks on the manner in which the UNIDROIT Principles may be used to interpret or supplement CISG Article 26". Available online at ‹http://www.cisg.law.pace.edu/cisg/principles/uni26.html›
558. See Comment 1 on Art. 7.3.2 UPICC.
559. Supra. note 1, Comment D.
560. Supra. note 3, p. 117.
561. See Mirghasem Jafarzadeh in "Buyer's Right to Withhold Performance and Termination of Contract: A Comparative Study Under English Law, Vienna Convention on Contracts for the International Sale of Goods 1980, Iranian and Shi'ah Law" (2001). Available online at ‹http://www.cisg.law.pace.edu/cisg/biblio/jafarzadeh1.html›
562. See Comment and Notes to the PECL: Art. 9:301. Comment B. Available online at ‹http://www.cisg.law.pace.edu/cisg/text/peclcomp49.html›
Eric von Hippel
Erik S. Raymond