4.3 SETTING OF A NACHFRIST NOTICE

4.3.1 Transmission of the Intention

The aggrieved party must set an additional period, i.e. inform the non-performing party accordingly with an appropriate notice to make his intention clear, once he makes decision to invoke the Nachfrist procedure so as to give the non-performing party a second chance. In this respect, two issues should be examined: form of the notice; risk in communication (see also the discussion in Chapter 11 on the notice of a declaration of termination).

4.3.1.1 Form of the notice

As for the form of the notice, the CISG is silent on whether the notice must be in writing or can be presented orally. However, a broad interpretation of CISG Art. 11 (A contract of sale need not be concluded in or evidenced by writing and is not subject to any other requirement as to form. It may be proved by any means, including witnesses.) will lead to the conclusion that the notice granting an additional period for performance under Art. 47/63 need not be made in writing and that it may be transmitted by any means.

Under the UNIDROIT Principles, the Official Comment to Art. 1.9(1) (Where notice is required it may be given by any means appropriate to the circumstances.) clearly states: "This article first lays down the principle that notice or any other kind of communication of intention (declarations, demands, requests, etc.) required by individual provisions of the Principles are not subject to any particular requirement as to form, but may be given by any means appropriate in the circumstances. Which means are appropriate will depend on the actual circumstances of the case, in particular on the availability and the reliability of the various modes of communication, and the importance and/or urgency of the message to be delivered."  ²⁰⁸  Under the European Principles, the Official Comment to Art. 1:303(1) (Any notice may be given by any means, whether in writing or otherwise, appropriate to the circumstances.) similarly indicates that "notices may be made in any form - orally, in writing, by telex, by fax or by electronic mail, for example - provided that the form of notice used is appropriate to the circumstances. It would not be consistent with good faith and fair dealing (see Article 1:201) for a party to rely on, for instance, a purely casual remark made to the other party. For notices of major importance written form may be appropriate."  ²⁰⁹ 

It can therefore be concluded that no form is prescribed for the notice; it can be oral or in writing but, according to its character of the Nachfrist notice and as to be supported by the discussion infra. 4.3.2, it cannot be given by other conduct, i.e. conduct implying an intent. Given this, there will be no lengthy discussion here as to the type or form of the notice that must be furnished by the aggrieved party to invoke the Nachfrist procedure.

4.3.1.2 Risk in transmission

As to the communication to the non-performing party, under the CISG the general rule of Art. 27 reflects the "dispatch principle", it is expressly stated that: "Unless otherwise expressly provided in this Part of the Convention, if any notice, request or other communication is given or made by a party in accordance with this Part and by means appropriate in the circumstances, a delay or error in the transmission of the communication or its failure to arrive does not deprive that party of the right to rely on the communication." Following this rule, the risk in transmission of a Nachfrist notice is fairly burdened on the side of the non-performing party. However, it seems unpractical that a Nachfrist notice will be effective once it is dispatched because only if such intention is transmitted to the non-performing party it brings fruits.

By contrast, both the UNIDROIT Principles and the PECL adopt the receipt principle as a general rule. Art. 1.9(2) UPICC stipulates that "[a] notice is effective when it reaches the person to whom it is given", whose purpose is to "indicate that the same will also be true in the absence of an express statement to this effect: see Arts. 2.9, 2.11, 3.13, 3.14, 6.1.16, 6.2.3, 7.1.5, 7.1.7, 7.2.1, 7.2.2, 7.3.2 and 7.3.4."  ²¹⁰  Similarly, Art. 1:303(2) PECL states that "any notice becomes effective when it reaches the addressee." It is important in relation to the receipt principle to determine precisely when the communications in question "reach" the addressee. In an attempt to define the concept, Art. 1.9(3) UPICC draws a distinction between oral and other communications: "For the purpose of paragraph (2) a notice "reaches" a person when given to that person orally or delivered at that person's place of business or mailing address." The former "reaches" the addressee if they are made personally to it or to another person authorised by it to receive them. The latter "reaches" the addressee as soon as they are delivered either to the addressee personally or to its place of business or mailing address. The particular communication in question need not come into the hands of the addressee. It is sufficient that it be handed over to an employee of the addressee authorised to accept it, or that it be placed in the addressee's mailbox, or received by the addressee's fax, telex or computer.  ²¹¹ 

A plain understanding of the receipt principle is that a party cannot rely on a notice sent to the other party unless and until the notice reaches that party. Although it is not necessary that the notice should actually have come to the addressee's attention provided that it has been delivered to him in the normal way, the risk of errors in the communication is normally placed upon the sender under the receipt principle. However, many of the situations in which one party giving a notice to the other are situations in which the party to be notified is in default, or it appears that a default is likely. Here it seems appropriate to put the risk of loss, mistake or delay in the transmission of the message on the defaulting party rather than on the aggrieved party.  ²¹²  While under the UNIDROIT Principles, no appropriate solution could be found as to this concern either in Art. 1.9 or Art. 7.1.5; a persuasive solution has been found in the PECL in conjunction with the reference of "Subject to paragraphs (4) and (5)" at the outset of Art. 1:303(2) PECL. Under the PECL, Art. 1:303 adopts the receipt principle as a general rule, at the same time it links this general rule to two qualifications for the operative effect of communications, one of which is set out in PECL Art. 1:303(4) reading pertinently: "If one party gives notice to the other because of the other's non-performance or because such non-performance is reasonably anticipated by the first party, and the notice is properly dispatched or given, a delay or inaccuracy in the transmission of the notice or its failure to arrive does not prevent it from having effect. The notice shall have effect from the time at which it would have arrived in normal circumstances."

In sum, on the one hand, the so-called "receipt principle" seems appropriately applicable to the Nachfrist notice since decisive is that the notice reaches the addressee so that the non-performing party would be well aware of his situation; on the other hand, the rule following from the dispatch principle that the risk of loss, mistake or delay in the transmission of the message should be put on the defaulting party rather than on the aggrieved party, suits for the case of a Nachfrist notice. Therefore, the solution found in PECL Art. 1:303(4) best accords with the case of a Nachfrist notice: Generally, the Nachfrist notice is effective when it reaches the non-performing party. In a case of the risk in transmission, a delay or inaccuracy in the transmission of the Nachfrist notice or its failure to arrive does not prevent it from having effect; the notice shall have effect from the time at which it would have arrived in normal circumstances. The idea underlying the principle and the exceptions is that the risk for transmitting a message should be carried by the one who, as a result of his deviation from normal performance, caused the statement to be sent.

4.3.2 Fixing of the Time-limit

As discussed above, the CISG, UPICC and PECL recognize, on the one hand, the difference between non-performance which amounts to a fundamental breach and non-performance which is not serious enough to constitute a fundamental breach; and each allows, on the other hand, the aggrieved party who is not sure whether the non-performance amounts to a fundamental breach the ability to avoid the contract by allowing him to set an additional period of time to perform the contract. Therefore, they all require that two conditions must be met: Firstly, the period must be fixed. Secondly, the period so fixed must be reasonable. In other words, when a notice fixing an additional period for performance is served after a non-fundamental delay, it will only give the aggrieved party the right to terminate if, first, it is for a fixed period of time, and secondly, if the period is a reasonable one.

4.3.2.1 Fixed period

With regard to the first condition, it is to be noted that an effective Nachfrist notice should make clear that the additional period sets a fixed limit on the date for performance. It must be clear from the communication that it is an additional period of time for performance, i.e. fulfilment after expiration of that period is rejected.

This period may be fixed either by specifying the date by which performance must be made (e.g. 30 September) or by specifying a time period (e.g. "within one month from today"). A general demand by the entitled party that the other party perform or that he perform "promptly" or the like is not a "fixing" of a period of time.  ²¹³  In other words, this time will have to be fixed or be fixable according to the calendar (O.R., 49). The mere invitation to perform "as soon as possible", "promptly", "immediately" or within a similarly vaguely defined period of time is not sufficient because that would merely have to be considered as abstract reliance on the right to obtain performance. It is confirmed by the Official Comment on PECL Art. 8:106 which states: "If the notice is not for a fixed period of time it may give the defaulting party the impression that it is free to postpone performance indefinitely. It will not suffice to ask for performance 'as soon as possible'. It must be a request for performance 'within a week' or 'not later than July 1'. The request must not be couched in ambiguous terms; it is not sufficient to say that 'we hope very much that performance can be made by July 1'."  ²¹⁴ 

However, a questionable issue arising from the fixing of the time-limit is whether a Nachfrist notice should be considered as final and/or the non-performing party be warned by the entitled party that he will declare the contract avoided. Honnold submits that an effective Nachfrist notice should make clear that the additional period sets a fixed and final limit on the date for performance; e.g., "The last date when we can accept delivery will be July 1." To the contrary, Enderlein and Maskow hold that the Nachfrist must not be considered as final and/or the non-performing party must not be warned by the entitled party that he will declare the contract avoided. A formulation like "We set an additional period of time for payment on your part until May 31 ..." is sufficient. The setting of a Nachfrist for performance gives the entitled party an option to either stick to the contract, e.g. when non-payment is caused by foreseeable temporary difficulties of transfer, or make it subject to avoidance. The aggrieved party would be forced into too strict a scheme if in setting a Nachfrist he had to threaten the other party with avoidance of the contract.  ²¹⁵  However, the authors in favour of this left open what would happen if the non-performing party does not carry out his threat. One should not get too near to the scheme of the ipso facto avoidance. Of course, on the other hand, the entitled party in setting the Nachfrist may declare the contract at the same time avoided in case it is not kept to by the non-performing party (see the discussion infra. 4.4.2 on automatic termination).

In my opinion, Zeller stands more persuasively in submitting that, as far as the non-performing party is concerned the additional period is a final period, however, the entitled party is not barred from fixing additional periods if he so wishes or if he wants to respond to the non-performing party's request for additional time.  ²¹⁶  In setting an additional period of time, the entitled party expresses his continuing interest in contract performance and offers the non-performing party a chance to fulfil the contract nonetheless. If the non-performing party does not perform within the additional period, the entitled party may set another (or more) additional period(s) of time, or avoid the contract. Neither does the contract end automatically upon the expiration of the additional period (unless it is expressly stated in the notice, see the discussion infra. 4.4.2) nor has the entitled party an obligation to avoid the contract.  ²¹⁷ 

4.3.2.2 Reasonable length

In considering the Nachfrist procedure would have the danger turning an inconsequential delay which would not justify declaring the contract avoided for fundamental breach into a basis for declaring the contract avoided, which means in cases of non-fundamental delay the notice procedure is conferring an additional right on the aggrieved party, the period of notice must be reasonable. Determining the additional period of "reasonable length" one should fix in the notice perhaps is perhaps the most significant issue in drafting a Nachfrist notice

What is reasonable can only be decided with regard to specific cases. Enderlein and Maskow suggest the following, non-exhaustive, list of factors for determining a reasonable length: "In calculating the additional period, factors have to be taken into account which concern both parties. On the seller's part, these are: possibilities and costs for storage of the goods (compare also Article 88, paragraph 2) and price developments, e.g. the Nachfrist will be shortened in the event of a rapid decline in prices because the proceeds from a substitute transaction under Article 75, which presupposes an avoidance of the contract, would be reduced as a result. On the buyer's part, it is the difficulties which he is confronted with during performance that are of relevance, e.g. when he needs more time than expected for complying with the so-called formalities in preparing the payment (Article 54) or also in importing the goods. The seller can take such factors into consideration only when the buyer informs him thereof. In the setting of a Nachfrist, the postal handling time needed for the information to reach the buyer has to be considered because the latter must have time to undertake the relevant activities during that Nachfrist."  ²¹⁸ 

In other words, the question of what exactly should be considered a reasonable length of time, depends on the particular circumstances for each case. Among the elements to be taken into account are the nature, extent and consequences of the delay, the non-performing party's possibilities of and time needed for performance, and the aggrieved party's special interest in speedy performance. In the light of the fact that there is a breach of contract by a party (the debtor), the interests of the other party (the aggrieved party) should be decisive. Within this leeway the choice is given to the innocent party who faces breach by the other. Indeed, respect must be given to the aggrieved party's discretion in setting the "reasonable" period if the notice-avoidance procedure is to serve its purpose -- reducing uncertainty concerning the right to avoid the contract.

However, it follows from the flexible reasonableness that different periods of time could be reasonable: "The vague term of reasonableness leaves some room to act at one's own discretion which can be used by the party who is entitled to set the Nachfrist, i.e. in this case the seller. If he fixes too short a period, the competent deciding body could determine the minimum Nachfrist."  ²¹⁹  PECL in its Comment therefore states as follows:  ²²⁰ 

"The determination of which period of time is reasonable must ultimately be left to the court. Regard should be had to several factors such as:

-    the period of time originally set for performance. If the period is short, the additional period of time may also be short;

-    the need of the aggrieved party for quick performance, provided that this is apparent to the defaulting party;

-    the nature of the goods, services or rights to be performed or conveyed. A complicated performance may require a longer period of time than a simple one;

-    the event which caused the delay. A party which has been prevented from performance by bad weather should be granted a longer respite than a party which merely forgot its duties."

In a word, the question to what amounts to a reasonable time is a question of fact and is left to the courts to decide.  ²²¹  While the setting of a reasonable time under the European Principles is handled much as it is under German law by designating the courts as the final word on a reasonable time, the CISG presents a more ambiguous dilemma than under German law. As far as the CISG is concerned, no jurisprudence has solved this issue. Under the UNIDROIT Principles, Art. 7.14(3) provides for the allowance of a reasonable amount of time in which to complete performance of the contract. If the additional amount of time is not of a reasonable length, the UNIDROIT Principles provide for an additional extension in order to comply with the mandate in the Article. However, the UNIDROIT Principles and its Official Comment do not specifically address the method to be incorporated in determining what is a reasonable amount of time and who decides when and if an additional extension of time is warranted. Nonetheless, it can be argued that a court would invoke good faith, which is a principle in the CISG or the UPICC, and could set a date which fulfills the requirements of the principle of reasonableness. In any event, the Nachfrist must not serve the aggrieved party as a pretext upon its expiration to declare the contract avoided.

Finally, one should recall that it is because in cases of non-fundamental delay the notice procedure is conferring an additional right on the aggrieved party, that the period of notice must be reasonable. "In cases other than non-fundamental delay the aggrieved party is granting a concession to the debtor. Here the aggrieved party can give the debtor as long or as short a period as it chooses, though having done so it will not be able to resort to termination or specific performance within that period. It may serve a notice which fixes an ambiguous deadline for example, 'Please perform as soon as possible'. In this case it may not terminate or seek specific performance unless the non-performance has continued for long enough that it would be consistent with good faith for the aggrieved party to terminate despite its earlier notice."  ²²²