Nachfrist for late performance
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Nachfrist for late performance
- 1. NACHFRIST FOR LATE PERFORMANCE UNDER CISG, UNIDROIT & PECL
- 2. NACHFRIST Automatic extension of time Fulfill commercial contract under German law Known in German as Nachfrist Provide additional protection
- 3. LEGAL STANDARDS FOR INTERNATIONAL SALES The United Nations Convention on Contracts for the International Sale of Goods, ("CISG") The Principles of International Commercial Contracts ("UNIDROIT Principles") Principles of European Contact Law (PECL)
- 4. NACHFRIST UNDER CISG a) The Nachfrist obligations of the seller and buyer's remedies for breach of contract by the seller. b) The Nachfrist obligations of the buyer and seller's remedies for breach of contract by the buyer
- 5. ARTICLE 47 1. The buyer may fix an additional period of time of reasonable length. 2. Unless the buyer has received notice from the seller that he will not perform within the period so fixed, during that period, resort to any remedy for breach of contract.
- 6. CISG ARTICLE 49(1) (B) In case of non-delivery, if the seller does not deliver the goods within the additional period of time fixed by the buyer.
- 7. CISG ARTICLE 63 1) The seller may fix an additional period of time of reasonable length. 2) Unless the seller has received notice from the buyer that he will not perform within the period so fixed, the seller may not, during that period, resort to any remedy for breach of contract.
- 8. CISG ARTICLE 64(1) (B) If the buyer does not, within the additional period of time fixed by the seller, perform his obligation to pay the price or take delivery of the goods.
- 9. NACHFRIST UNDER THE UNIDROIT ARTICLE 7.1.5 1) In a case of non-performance the aggrieved party may by notice to the other party. 2) During the additional period the aggrieved party may withhold performance of its own reciprocal obligations. 3) Where in a case of delay in performance which is not fundamental the aggrieved party has given notice allowing an additional period of time of reasonable length, it may terminate the contract at the end of that period.
- 10. NACHFRIST UNDER PECL ARTICLE 3.106 1) In any case of non-performance the aggrieved party may by notice to the other party. 2) During the additional period the aggrieved party may withhold performance of its own reciprocal obligations and may claim damages, but it may not resort to any other remedy 3) If in a case of delay in performance which is not fundamental the aggrieved party has given a notice fixing an additional period of time of reasonable length, it may terminate the contract at the end of the period of notice.
- 11. THE REMEDIES UNDER THE CONVENTION A. Claims for Performance: B. Avoidance of the contract and its limit: the seller's right to cure ("Second Tendering") C. Reduction of the price D. Remedies for partial non-performance or partial lack of conformity E. Refusal to take early delivery or delivery of excess goods F. Suspension of performance G. Claim for damages
- 12. NACHFRIST USED TO PAVE THE WAY FOR TERMINATION The first model (CISG, PICC and PECL, English law), states that termination is allowed only in case of a fundamental breach. The second model (German law) is based on a general requirement that the oblige first has to set an additional period of time to allow the obligor a second chance.
- 13. THE SERVICE OF A NACHFRIST NOTICE 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.
- 14. FIXING OF THE TIME-LIMIT fixed period of time, if the period is a reasonable one.
- 15. DETERMINING THE PERIOD OF REASONABLE LENGTH The period of time originally set for performance. The need of the aggrieved party for quick performance. The nature of the goods, services or rights to be performed or conveyed. The event which caused the delay. A party which has been prevented from performance by bad weather.
- 16. EFFECTS FOLLOWING THE SERVICE Remedies Available/Suspended during the Period "During the period fixed the aggrieved party may not take further action against the debtor; it may withhold its own performance and it may claim damages for the delay in performance.”
- 17. EFFECTS FOLLOWING THE SERVICE Rights retained during the additional period “only comparable rights and comparable claims are excluded, not however claim for compensation."
- 18. EFFECTS FOLLOWING THE SERVICE Early end of the uncertainty in case of an express rejecting notice "an early end of the existing uncertainty".
- 19. EFFECTS FOLLOWING THE SERVICE Termination upon the expiration a) if upon expiry of that period due performance has not been made, the aggrieved party may resort to any of the remedies. b) if upon expiry of that period due performance has not been made, the aggrieved party may resort to any of the remedies that may be available under chapter 9. c) The buyer/seller may claim any damages he may have suffered because of the delay in performance.
- 20. CONCLUSION Since in case of late performance it is often hard to determine when delay may amount to fundamental breach. It is often advisable that the parties fix an additional term for performance (the so-called Nachfrist). Through a Nachfrist procedure, the aggrieved party expresses his continuing interest in contract performance and offers the other party a chance to fulfill the contract nonetheless. The additional period of time for performance under the Nachfrist procedure can be granted to the non-performing party by the aggrieved party. No party to the contract is authorized to postpone unilaterally the date of the performance of a contractual obligation.
Editor's Notes
- Providing an automatic extension of time for the parties to a commercial contract to fulfill their obligations is mandated under German law. Such automatic extension, and its mechanics, is known in German as Nachfrist. Its principal purpose is to provide additional latitude and protection to the debtor contracting party.
- Various multilateral/international organizations have developed legal standards applicable to international sales contracts which have incorporated (or purported to incorporate) the concept of Nachfrist. These include, The United Nations Convention on Contracts for the International Sale of Goods, ("CISG") The Principles of International Commercial Contracts ("UNIDROIT Principles") Principles of European Contact Law (PECL)
- The CISG deals separately, with the Nachfrist obligations of the seller and buyer's remedies for breach of contract by the seller and with the Nachfrist obligations of the buyer and seller's remedies for breach of contract by the buyer
- The buyer may fix an additional period of time of reasonable length for performance by the seller of his obligations. Unless the buyer has received notice from the seller that he will not perform within the period so fixed, the buyer may not, during that period, resort to any remedy for breach of contract. However, the buyer is not deprived thereby of any right he may have to claim damages for delay in performance.
- In case of non-delivery, if the seller does not deliver the goods within the additional period of time fixed by the buyer or declares that he will not deliver within the period so fixed.
- The seller may fix an additional period of time of reasonable length for performance by the buyer of his obligations. Unless the seller has received notice from the buyer that he will not perform within the period so fixed, the seller may not, during that period, resort to any remedy for breach of contract. However, the seller is not deprived thereby of any right he may have to claim damages for delay in performance.
- If the buyer does not, within the additional period of time fixed by the seller, perform his obligation to pay the price or take delivery of the goods, or if he declares that he will not do so within the period so fixed.
- In a case of non-performance the aggrieved party may by notice to the other party allow an additional period of time for performance. During the additional period the aggrieved party may withhold performance of its own reciprocal obligations and may claim damages but may not resort to any other remedy. If it receives notice from the other party that the latter will not perform within that period, or if upon expiry of that period due performance has not been made, the aggrieved party may resort to any of the remedies that may be available under this Chapter. Where in a case of delay in performance which is not fundamental the aggrieved party has given notice allowing an additional period of time of reasonable length, it may terminate the contract at the end of that period. If the additional period allowed is not of reasonable length it shall be extended to a reasonable length. The aggrieved party may in its notice provide that if the other party fails to perform within the period allowed by the notice the contract shall automatically terminate. 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.
- In any case of non-performance the aggrieved party may by notice to the other party allow an additional period of time for performance. During the additional period the aggrieved party may withhold performance of its own reciprocal obligations and may claim damages, but it may not resort to any other remedy. If it receives notice from the other party that the latter will not perform within that period, or if upon expiry of that period due performance has not been made, the aggrieved party may resort to any of the remedies that may be available under chapter 9. If in a case of delay in performance which is not fundamental the aggrieved party has given a notice fixing an additional period of time of reasonable length, it may terminate the contract at the end of the period of notice. The aggrieved party may in its notice provide that if the other party does not perform within the period fixed by the notice the contract shall terminate automatically. If the period stated is too short, the aggrieved party may terminate, or, as the case may be, the contract shall terminate automatically, only after a reasonable period from the time of the notice.
- The CISG makes the following remedies available for the buyer in case of breach of contract by the seller. Claims for Performance: right to performance [Art. 46 (1) and 47] reparation [Art. 46 (2)] delivery of substitute goods [Art. 46 (3)] Avoidance of the contract [Art. 49] and its limit: the seller's right to cure ("Second Tendering") [Art. 48] Reduction of the price [Art. 50] Remedies for partial non-performance or partial lack of conformity [Art. 51] Refusal to take early delivery or delivery of excess goods [Art. 52 (1) and (2)] Suspension of performance [Art. 71] Claim for damages
- Two models of termination of the contract in case of fundamental breach can be found, The first model (CISG, PICC and PECL, English law), states that termination is allowed only in case of a fundamental breach. When the seriousness of breach might be uncertain; the termination is possible by setting a Nachfrist which makes time of the essence. The second model (German law) is based on a general requirement that the oblige first has to set an additional period of time to allow the obligor a second chance, but that such an additional period of time is considered unnecessary in cases of an obvious fundamental or incurable breach. These models are based on the use of ‘Nachfrist’ criterion and on possibility to use termination as the remedy.
- 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, they should form a notice.
- 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.
- "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."
- as stated in the Official Comment to PECL: "During the period fixed the aggrieved party may not take further action against the debtor; it may withhold its own performance and it may claim damages for the delay in performance or other losses caused by the non-performance, but it may not seek specific performance or terminate the contract during the period of notice."
- Rights retained during the additional period It would be somewhat unfair if the aggrieved party could not exercise any of his rights ensuing from a breach of contract, but rather has to wait and see whether the breaching party performs within the Nachfrist. Thus, it is made clear in the relevant rules that, “only comparable rights and comparable claims are excluded, not however claim for compensation."
- Early end of the uncertainty in case of an express rejecting notice The aggrieved party does not need to wait until the Nachfrist has expired, only when the non-performing party has declared that he will not perform within the additional period of time because such a declaration on the non-performing party's part will mean "an early end of the existing uncertainty".
- Termination upon the expiration As the second sentence of UPICC Art. 7.1.5(2) provides in part that "if upon expiry of that period due performance has not been made, the aggrieved party may resort to any of the remedies that maybe available under this Chapter.” Similarly, the second sentence of PECL Art. 8:106(2) stipulates that "if upon expiry of that period due performance has not been made, the aggrieved party may resort to any of the remedies that may be available under chapter 9.” In particular, the buyer/seller may claim any damages he may have suffered because of the delay in performance. Such damages may arise even though the seller/buyer has performed his obligations within the additional period of time fixed by the buyer/seller.
- Since in case of late performance it is often hard to determine when delay may amount to fundamental breach, it is often advisable that the parties fix an additional term for performance (the so-called Nachfrist). Especially in case of a delay in the performance, but only in that case, the lapse of that additional period turns a non-fundamental breach into a fundamental one. In that case, if the party in breach fails to perform during that period, the aggrieved party thereupon may declare the contract avoided, even if there is no fundamental breach (the so-called "notice-avoidance"). Moreover, through a Nachfrist procedure, the aggrieved party expresses his continuing interest in contract performance and offers the other party a chance to fulfill the contract nonetheless. In any event, however, one should note that the additional period of time for performance under the Nachfrist procedure can be granted to the non-performing party by the aggrieved party only after the former's failure to perform by the date specified in the contract, that is, after it has fallen into delay in performing. Prior to this date, no party to the contract is authorized to postpone unilaterally the date of the performance of a contractual obligation.