Avoidance of the contract by the buyer under the United Nations Convention on Contracts for the International Sale of Goods (CISG)

Variety of different legal systems in force in different countries has always been a barrier to development of international trade. Due to strengthening internationalization of economics in the 20th century, efforts to harmonize private law have accelerated recently. In this context United Nations Convention on Contracts for the International Sale of Goods (CISG), which is developed by UNCITRAL's efforts, deserves particular attention. CISG forms an integral part of lex mercatoria with its outstanding success. Its world-wide acceptance has also attracted Turkey which became a party to the Convention. At the end of the required legal procedure, the CISG entered into force in Turkey on 1 August 2011 without any reservations. The Convention's entry into force in Turkey has marked a new era for Turkish sales law, which hereby transformed to a dualist structure. Contracts falling outside the CISG's sphere of application are exclusively governed by Turkish domestic sales law legislation (Turkish Code of Obligations, Turkish Commercial Code, Turkish Consumer Protection Code). Contracts within the CISG's sphere of application are subject to the Convention in the first place. Subsidiary recourse to Turkish domestic sales law legislation is only possible for external gaps. One of the most important qualities of the world-wide accepted Convention is its composite character blending common law and civil law traditions. Common law influence on the Convention and particularly on its remedial system constitutes an appeal to Turkish law which is a member of civil law family. Characteristic property of the remedial system is its unified breach of contract concept, legacy of common law. Such a unified concept differentiates the Convention's remedial system from Swiss – Turkish one. However our study analyzing the remedy of avoidance aims to reveal the fact that the CISG features a unique and autonomous remedial system which cannot be explained merely in the light of common law or civil law. The study analyzes the autonomous remedial system with a limited point of view focusing on buyer's avoidance remedy. Remedy of avoidance within the Convention is balanced by favor contractus principle, in parallel with other legal systems. Favor contractus is a principle promoting valid formation and maintenance of the contract. Maintenance of the xiv contract is preferred over its avoidance by a unilateral declaration of one party. However the CISG still grants the buyer a right to declare the contract avoided in cases where it is impossible for the buyer to be satisfied with another remedy. In other words, the remedy of avoidance is a remedy of last resort (ultima ratio). In line with the favor contractus principle, buyer's right to avoid is subject to strict conditions. Main provision granting the buyer a right to avoid the contract under CISG is Art. 49. Right to avoid in case of anticipatory breach and right of avoidance regarding installment contracts are held in addition to that main provision. Art. 49 enlists two numerus clausus conditions which grants the buyer a right to avoid the contract. a) Firstly, the buyer may declare the contract avoided if the failure by the seller to perform any of his obligations amounts to a fundamental breach of contract. As a rule, right to avoid is attached to fundamental breach within the remedial system of the Convention. In such a case the buyer may avoid the contract under Art. 49(1)(a). According to Art. 25, which defines the fundamental breach, there are three preconditions for a fundamental breach to occur. The first precondition is that the seller breaches any of his obligations. The second precondition is that the breach results in such detriment to the buyer as substantially to deprive him of what he is entitled to expect under the contract. The third precondition is that the seller has foreseen or a reasonable person of the same kind as the seller would have foreseen such a result. b) Despite the fact that the remedy of avoidance is attached to fundamental breach as a rule, there is an exceptional provision granting the buyer a right to avoid in case of non-delivery even if the breach is not fundamental. The buyer may declare the contract avoided in case of non-delivery if the seller does not deliver the goods within the additional period of time fixed by the buyer in accordance with Art. 47 or declares that he will not deliver within the period so fixed. There are three preconditions required for the buyer to avoid the contract under Art. 49(1)(b). There should be a case of non-delivery; the buyer should fix a reasonable additional period for the delivery to take place under Art. 47; the seller should fail to perform within the additional period. One of those two conditions grants the buyer the right to avoid the contract. However, the existence of some other provisions limiting the right to avoid should not be omitted. In some situations, the buyer may be deprived of the right to avoid xv despite the condition granting him such a right. a) First of the provisions limiting the buyer's right to avoid is the seller's right to cure. The seller's right to cure cannot be deemed as a direct and absolute barrier to buyer's right to avoid. If the contract is breached fundamentally or non-delivery persists despite an additional period granted, the buyer may avoid the contract regardless of seller's right to cure. However in case of delivery with non-conforming goods, the seller's right to cure may prevent the breach from being fundamental and block buyer's right to avoid. b) Art. 82(1) is another provision of that sort which limits the buyer's right to avoid in case the goods have already been delivered. The buyer loses the right to declare the contract avoided if it is impossible for him to make restitution of the goods substantially in the condition in which he received them. That limit does not apply for exceptions under Art. 82(2). c) Another provision liming buyer's right to avoid is Art. 80. The buyer may not rely on a failure of the seller and avoid the contract, if such failure was caused by buyer's act or omission. d) It is not possible for the buyer to combine the right to avoid with mutually incompatible remedies including specific performance and price reduction. e) In case of delivery with non-conforming goods, the buyer has to give notice to the seller specifying the nature of the lack of conformity, under Art. 39. Otherwise the buyer loses the right to rely on a lack of conformity and therefore avoid the contract. f) In case of delivery with goods encumbered with third party's rights or claims, the buyer has to give notice to the seller specifying the nature of such a right or claim, under Art. 43. Otherwise the buyer loses the right to rely on the provisions of Art. 41 or Art. 42 and therefore to avoid the contract. The Convention does not recognize the concept of ipso facto avoidance. The contract is not terminated automatically whenever certain required conditions are met. The buyer needs to declare the contract avoided by a notice within the time limit held under Art. 49(2), for the contract to be avoided. The time limit under Art. 49(2) is applicable only if the seller has delivered the goods. The buyer holding a right to avoid arising from Art. 49(1) and having declared the contract avoided by a notice fulfilling conditions of Art. 49(2) is deemed to have avoided the contract when he has dispatched the notice. According to Art. 27 the declaration to avoid becomes effective with its dispatch. Thus the consequences of avoidance step in at that moment. Avoidance of the contract releases both parties from their obligations under it and enables the party who has performed the contract to claim restitution from the other party (Art. 81 et. seq.). In addition to those, damages may be claimed (Art. 74 et. seq.). Hereby the status quo ante is reestablished. In the context of the CISG's remedial system, the avoidance does not have any direct effect on the contract. In other words, the avoidance does not annihilate the contract retrospectively or prospectively. However, it transforms the content of the contract by reversing it upside down. Therefore, the contract persists as transformed into a restitutionary relationship. The first side of the avoidance reestablishing status quo ante, is its liberating effect (effet libératoire) from obligations not performed. The parties are released from their obligations arising from the contract with the effect of declaration to avoid. Recuperatory effect (effet récupératoire) of the avoidance constitutes its second side reestablishing status quo ante. The party who has performed the contract may claim restitution from the other party of whatever the first party has supplied or paid under the contract. Claim for restitution arises from the contract which survives as a restitutionary relationship despite avoidance. For the reestablishment of status quo ante, restitution of whatever the first party has supplied or paid under the contract is not enough. Benefits deriving from performance are also to be restituted. In this context, the seller must pay interest on the price from the date on which it was paid, if he is bound to refund the price. Seller's obligation pay interest is held under Art. 84(1). The buyer must account to the seller for all benefits which he has derived from the goods. Buyer's obligation to account for the benefits is held under Art. 84(2). In many cases restitution of what he has performed under the contract will not be enough to satisfy the buyer. In such cases the buyer may also claim damages for the loss caused by the breach of the seller under Art. 74. According to Art. 74, "Damages for breach of contract by one party consist of a sum equal to the loss, including loss of profit, suffered by the other party as a consequence of the breach. xvii Such damages may not exceed the loss which the party in breach foresaw or ought to have foreseen at the time of the conclusion of the contract, in the light of the facts and matters of which he then knew or ought to have known, as a possible consequence of the breach of contract." Under this provision, it is required that the seller has breached the contract. Since the buyer avoids the contract based on a breach by the seller, such precondition is already fulfilled. The matter is to determine the extent of the loss to be compensated. The extent of the loss to be compensated is determined by two conflicting principles. According to the full compensation principle, on one hand, all the loss that is caused by the seller's breach has to be compensated. On the other hand, the foreseeability principle holds that the seller can only be held responsible for the loss that he knew or ought to have known at the time of the conclusion of the contract. Relation of causality and duty to mitigate losses are other concepts which limit the seller's responsibility for damages. The general provision as regards to the calculation of loss suffered by the buyer is Art. 74. The Convention also holds special provisions regarding the calculation of non-performance loss suffered by the buyer in case of avoidance: Art. 75 and Art. 76. In case the avoiding buyer has conducted a substitute transaction, his loss may be calculated concretely based on that transaction. If the buyer has bought goods in replacement in a reasonable manner and within a reasonable time after avoidance, he may recover the difference between the contract price and the price in the substitute transaction. On the other hand in case the avoiding buyer has not conducted a substitute transaction, his loss may be calculated abstractly based on the current price for the goods. The buyer may recover the difference between the price fixed by the contract and the current price of the goods.