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| In 1991, a French seller and a Venezuelan buyer entered into an exclusive distributorship agreement whereby the latter undertook to purchase and distribute perfume in Venezuela. The parties agreed that the contract (originally concluded for two years and than tacitly renewed) could be terminated by one of the parties giving six months advance notice. In June 2002, after alleging a number of defaults by the buyer, the seller notified the buyer of its intention not to renew the agreement which was to expire in December 2002. Consequently, it suspended further deliveries of the goods. The buyer sued for breach of contract and damages.
The Court of Appeal ruled in favor of the seller. The buyer challenged the second instance decision arguing that CISG was not applicable to the obligations arising from a distributorship contract and that, instead, the contract at hand was subject to French law pursuant to Art. 4 (1) and (2) of the Rome Convention (1980). Moreover, the buyer contended that, even if CISG was applicable, its Art. 71 (on which the Court of Appeal had grounded its decision) could not be applied because, while Art. 71 implies that a party may suspend performance when it becomes apparent that the other party will not perform a substantial part of his obligations after the conclusion of the contract, in the present case the risk of insolvency already existed before the sales contracts were concluded; thus in any case Art. 71 CISG was not applicable and the seller had no right to suspend delivery. The Supreme Court rejected the buyer’s arguments. In doing so, it first of all held CISG applicable in the case at hand since the parties had chosen French law as the law governing the contract and, although the distributorship contract as such was not covered by CISG, the Convention was nonetheless applicable to the individual sales contracts executed under it. As to the anticipatory breach, the Court found that the seller had the right to suspend performance, i.e. deliveries of the goods, taking into account that even though, at the moment the seller notified its intention not to renew the contract, the buyer had no outstanding debts towards it, the buyer’s previous serious delays in payment and its belonging to a seriously indebted group had led the seller reasonably to believe that the other party would not perform in the future. Furthermore, the Court rejected the buyer’s claim that Art. 71 CISG was not applicable as the risk of insolvency did not become apparent after the contract conclusion, insomuch as such an argument had not previously been submitted before the Court of Appeal. |