(1) The right of a party to terminate the contract is exercised by notice to the other party. 

 

(2) If performance has been offered late or otherwise does not conform to the contract the aggrieved party will lose its right to terminate the contract unless it gives notice to the other party within a reasonable time after it has or ought to have become aware of the offer or of the non-conforming performance.

 

COMMENT

 

1. The requirement of notice

 

Paragraph (1) of this Article reaffirms the principle that the right of a party to terminate the contract is 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.

 

2. Performance overdue

 

When performance is due but has not been made, the aggrieved party’s course of action will depend upon its wishes and knowledge.

 

It may be the case that the aggrieved party does not know whether the other party intends to perform, and either no longer wants the performance or is undecided. In this case the aggrieved party may wait and see whether performance is ultimately tendered and make up its mind if and when this happens (paragraph (2)). Alternatively, it may still want the other party to perform, in which case it must seek performance within a reasonable time after it has or ought to have become aware of the non-performance (see Article 7.2.2(e)).

 

This Article does not deal with the situation where the non-performing party asks the aggrieved party whether it will accept late performance. Nor does it deal with the situation where the aggrieved party learns from another source that the non-performing party intends nevertheless to perform the contract. In such cases good faith and fair dealing (see Article 1.7) may require that the aggrieved party inform the other party if it does not wish to accept the late performance. If it does not do so, it may be held liable in damages.

 

3. “Reasonable time”

 

An aggrieved party who intends to terminate the contract must give notice to the other party within a reasonable time after it becomes or ought to have become aware of the non-performance (paragraph (2)).

 

What is “reasonable” depends upon the circumstances. In situations where the aggrieved party may easily obtain a substitute performance and may thus speculate on a rise or fall in the price, notice must be given without delay. When it must make enquiries as to whether it can obtain substitute performance from other sources the reasonable period of time will be longer.

 

4. Notice must be received

 

The notice to be given by the aggrieved party becomes effective when the non-performing party receives it (see Article 1.10).

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