Having completed the review of pre-contractual remedies and excuses, we now turn to the remedies for breach of a contract whose performance is due and cannot be excused. The claim for a breach of contract can arise from the fact that the due date has elapsed without performance by the obligated party, or as the result of a breach of the promised performance after performance has commenced. In addition, a claim for breach of contract can be sustained in some jurisdictions prior to the due date of performance. Such a remedy usually requires that the behavior of one of the parties strongly indicates to the other his inability or unwillingness to comply when compliance is due. Alternatively such a claim can be sustained if the potentially non-compliant party fails to provide assurances of his willingness and ability to comply. The remedies for these pre-due-date breaches are known in some jurisdictions as “anticipatory.” This and the following chapters are devoted to the most common remedies for actual (or due-date) breaches, as well as for anticipatory breaches of contracts.
Two of the remedies that are studied in these chapters are well known to the reader: one is the “specific” or judicially-decreed performance of the party in breach and the other is the action for damages. A third group of lesser-known remedies are “extrajudicial remedies” or remedies carried out by the parties themselves and without the intervention of judicial or arbitral authorities. This chapter examines the most common extrajudicial remedies as well as the judicial remedy of specific performance. The following chapter will examine the judicial remedy of damages.
Extrajudicial remedies are especially necessary in international sales where parties are separated by geography and different legal systems. Litigating one’s contract in a foreign court is neither easy nor cost effective. On the other hand, when dealing with perishable goods, speedy delivery is required to be successfully completed. Such speed of delivery requires that the goods be represented by “documents of title” which in many instances could be made to arrive at the destination before the goods. Because of the reliance of these documents of title by means of anticipating the goods, a new type of sale—documentary sales1—emerged. If the nineteenth century law of domestic sales uniformly allowed the buyer a “reasonable time” to inspect the goods sold prior to requiring payment, international documentary sales law required the buyer’s payment or acceptance of a draft or bill of exchange at the time of presentation of the shipping documents (not the goods) to the buyer. Thus, in these sales, payment 1160against documents would come first, and the inspection of the goods and the claim for non-performance or breach would come later.
This reversal of the “cash on the barrelhead” sequence of transactions (a variety of what Roman jurists referred to as “I give so that you give” (do ut des)) was dubbed by some courts and commentators as a “Solve et Répéte” (first pay then claim) method of doing business. Not surprisingly, the twentieth-century remedial law of sales reflected the same need for expediency not only for international but also for local sales. Some jurisdictions facilitated extrajudicial remedies in their domestic codification and case law early in the twentieth century. Less than a century later (a short time span in the development of commercial legal institutions, and getting shorter with each passing decade), other jurisdictions introduced the same remedies in international sales law treaties and related sources. To facilitate a better understanding of the law of extrajudicial remedies and because these treaties and related sources set forth the remedies in their clearest and most succinct fashion, we will turn to them first.
Before beginning the examination of these treaties and rules, a clarification of terminology is in order. As was discussed in the preceding chapter and as will become apparent in the following discussion, there are significant differences in the use of the remedial terminology on breaches of contract among common and civil lawyers. For example, common-law lawyers also use the term “rescission” in a generic manner to include the remedy of unilateral or bilateral “termination” that civil lawyers of the French, Italian and Spanish family of codes refer to as “resolution.” In addition, Anglo-American lawyers use the term rescission in connection with remedies that apply to cases of duress, coercion and unconscionability. This is the usage that most closely approximates that of civil-law lawyers especially in French, Italian and Spanish legal writings, who (as discussed in the preceding chapter) associate rescission with the suffering of a serious economic, physical or psychological harm or threat of harm (lesion) by the plaintiff.
On the other hand, the United Nations Convention on Contracts for the International Sale of Goods (1982) (hereinafter CISG), in an attempt to provide a generic term that would embrace not only the above common and civil law terminology but also that used by the German family of codes, used the term “avoidance” while referring to the unilateral termination of contracts. The use of such a term by the United Nations makes sense when its fundamental purpose is to bring about legislative and judicial uniformity. However, since the purpose of this book is educational and thus must highlight the conceptual differences, I will use the term resolution in a manner consistent with its French, Italian and Spanish code usage. Accordingly, the term resolution will include the Anglo-American remedy of unilateral termination for the counterparty’s breach and also the remedy that CISG refers to as “avoidance”; however, it will not include the remedies for duress, coercion or unconscionability unless otherwise indicated by the discussion.
Article 25 (Essential breach): A breach of contract committed by one of the parties is fundamental if it results in such detriment to the other party as substantially to deprive him of what he is entitled to expect under the contract, unless the party in breach did not foresee and a reasonable person of the same kind in the same circumstances would not have foreseen such a result.
Article 26: A declaration of avoidance of the contract is effective only if made by notice to the other party.
Article 39
(1) The buyer loses the right to rely on a lack of conformity of the goods if he does not give notice to the seller specifying the nature of the lack of conformity within a reasonable time after he has discovered it or ought to have discovered it.
(2) In any event, the buyer loses the right to rely on a lack of conformity of the goods if he does not give the seller notice thereof at the latest within a period of two years from the date on which the goods were actually handed over to the buyer, unless this time-limit is inconsistent with a contractual period of guarantee.
Article 47
(1) The buyer may fix an additional period of time of reasonable length for performance by the seller of his obligations.
(2) 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.
Article 48
(1) Subject to Article 49, the seller may, even after the date for delivery, remedy at his own expense any failure to perform his obligations, if he can do so without unreasonable delay and without causing the buyer unreasonable inconvenience or uncertainty of reimbursement by the seller of expenses advanced by the buyer. However, the buyer retains any right to claim damages as provided for in this Convention.
(2) If the seller requests the buyer to make known whether he will accept performance and the buyer does not comply with the request within a reasonable time, the seller may perform within the time indicated in his request. The buyer may not, during that period of time, resort to any remedy which is inconsistent with performance by the seller.
(3) A notice by the seller that he will perform within a specified period of time is assumed to include a request, under the preceding paragraph, that the buyer make known his decision.
(4) A request or notice by the seller under paragraph (2) or (3) of this article is not effective unless received by the buyer.
Article 49
(1) The buyer may declare the contract avoided:
(a) if the failure by the seller to perform any of his obligations under the contract or this
Convention amounts to a fundamental breach of contract; or
(b) 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 paragraph (1) of article 47 or declares that he will not deliver within the period so fixed.
(2) However, in cases where the seller has delivered the goods, the buyer loses the right to declare the contract avoided unless he does so:
(a) in respect of late delivery, within a reasonable time after he has become aware that delivery has been made;
(b) in respect of any breach other than late delivery, within a reasonable time:
(i) after he knew or ought to have known of the breach;
(ii) after the expiration of any additional period of time fixed by the buyer in accordance with paragraph (1) of article 47, or after the seller has declared that he will not perform his obligations within such an additional period; or
(iii) after the expiration of any additional period of time indicated by the seller in accordance with paragraph (2) of article 48, or after the buyer has declared that he will not accept performances.
The following escrow agreement was discussed with Mexican judges, litigants, notary publics and real estate brokers as an alternative extrajudicial remedy to be used instead of “Promises of Sale” or options to purchase that were declared unenforceable by Mexican courts when accompanied by a lawsuit for specific performance which could last several years.2 After you read this agreement and the Astorga decision, do you think that having such an agreement enforced would restore the inadequacy of the judicial enforcement of options to purchase and promises to sell?
A New York Real Estate Escrow Agreement With Consumer Protection Ingredients3
Down Payment Escrow Agreement
(For Residential Sales in New York State [for low and mid-income buyers])
Escrow agreement between the buyer and seller of real property and their attorneys as escrow agents. The use of the singular in this agreement shall be deemed to include the plural, and vice versa, whenever the context requires. [FN2] If more than one person is buying or selling the premises covered by this agreement, their obligations shall be joint and several.
The buyer and seller have entered into a contract to purchase and sell residential real estate. The premises to be conveyed to the buyer are located at: _______.
As a term of the contract of sale, the buyer is obligated to provide the seller with a down payment on the purchase price, to be held in escrow. To safeguard the down payment from loss, the buyer and seller, and their attorneys, agree to the escrow arrangement set forth in this agreement. For that purpose, this agreement designates 1163the buyer and seller as “escrow beneficiaries”; their attorneys as joint “escrow agents” and the buyer’s down payment as the “escrow deposit.”
Escrow agents acknowledge the receipt of the escrow deposit in the amount of $ _______.
Escrow agents acknowledge their fiduciary obligations to the escrow beneficiaries to safeguard the escrow deposit in a special bank account, and to provide to them a complete accounting of all financial transactions relating to that escrow deposit. [FN3]
[Optional clause for certain type of sales:] Escrow agents will make no claim for compensation for their services as escrow agents.
Escrow agents will deposit the escrow deposit in a bank account with the following banking institution in the State of New York at its branch located at the following address: _______.
No later than 10 business days after the date of this agreement, escrow agents will provide the escrow beneficiaries with written notice confirming the escrow *466 deposit required by this agreement, the title and number of the bank account and, if such account is interest-bearing, the initial rate of interest.
[Consumer Notice: Section 778 of the New York … Law sets forth the fiduciary obligations of escrow agents in possession of down payments in the sale of residential real estate …]
Upon closing, the escrow agents will deliver the escrow deposit to the seller, together with interest, if any. [Optional clause specially designed to Facilitate the Process of Transferring Title to the Property in various States and added to this text by the NLCIFT: “Seller authorizes X (employee, officer or representative of the escrow agents) as his agent, pursuant to the power of attorney for the transfer of real property, which provides broad and sufficient powers to carry on the agency, so that when the escrow agent gives notice of payment of the full purchase price as agreed in the option agreement, the seller’s agent X will sign the deed of sale in favor of the buyer.”] In the event the closing does not occur, the escrow agents will refund the escrow deposit to the buyer, together with interest, if any. Upon payment of the escrow deposit to the seller, or its refund to the buyer, escrow agents will be fully released from all liability and other obligations with respect to the escrow deposit …
[Consumer Notice: Section 1006 of the New York Civil Practice Law and Rules provides a judicial procedure for resolving conflicting claims to property that is held by stakeholders, including escrow deposits held by escrow agents.]
This agreement may be canceled by a written notice signed by the escrow beneficiaries and delivered to the escrow agents. [FN4]
Escrow agents will be jointly and severally liable to the escrow beneficiaries for any loss of the escrow deposit which results from gross negligence, bad faith, or wilful [sic] misconduct. Escrow agents will not be liable for any error in judgement [sic], or any act taken or omitted in good faith, any mistake of law, or any mistake of fact …
In Witness Whereof, the buyer and seller and their attorneys have signed this agreement on the ___ day of _______, 199_.
Chapter 7—Non compliance
Section 1: Non-Performance in General
Article 7.1.1 (Non-performance defined) Non-performance is failure by a party to perform any of its obligations under the contract, including defective performance or late performance.
Article 7.1.3 (Withholding performance)
(1) Where the parties are to perform simultaneously, either party may withhold performance until the other party tenders its performance.
(2) Where the parties are to perform consecutively, the party that is to perform later may withhold its performance until the first party has performed.
Article 7.1.4 (Cure by non-performing party)
(1) The non-performing party may, at its own expense, cure any nonperformance, provided that
(a) without undue delay, it gives notice indicating the proposed manner and timing of the cure;
(b) cure is appropriate in the circumstances;
(c) the aggrieved party has no legitimate interest in refusing cure; and
(d) cure is effected promptly.
(2) The right to cure is not precluded by notice of termination.
(3) Upon effective notice of cure, rights of the aggrieved party that are inconsistent with the non-performing party’s performance are suspended until the time for cure has expired.
(4) The aggrieved party may withhold performance pending cure.
(5) Notwithstanding cure, the aggrieved party retains the right to claim damages for delay as well as for any harm caused or not prevented by the cure.
Article 7.1.5 (Additional period for performance)
(1) In a case of non-performance the aggrieved party may by notice to the other party allow an additional period of time for performance.
(2) 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.
(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. If the additional period allowed is not of reasonable length it shall be extended to a reasonable length. The 1165aggrieved 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.
(4) 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.
The extrajudicial remedies of the CISG and UNIDROIT Principles as well as the escrow practices just illustrated have facilitated international and national commerce by discouraging litigation and, slowly but surely, have influenced domestic law.4 Yet, too many civil-law jurisdictions remain attached to the notion that termination or resolution of a contract are judicial remedies “by nature” and therefore should not be made available extrajudicially. This attitude prevails even where courts could reverse or correct the import of these remedies a posteriori, i.e., after the extrajudicial remedies had already been resorted to.5
The judicial opposition to extrajudicial remedies is unrealistic and harmful to the smooth flow of trade. The reality is that for every contract or binding legal relationship that is judicially terminated, resolved or rescinded, there are millions that are harmlessly resolved or terminated by the complying party or by both parties. After all, extrajudicial termination saves the time, money and aggravation that usually accompany a protracted and expensive lawsuit. Further, the aggrieved party’s inability to resell or repurchase the goods or services at a profit involved in the failed transaction while awaiting a judicial resolution results in the significant loss of business and economic opportunity.
Despite these commercial, legal and economic realities, the reader will soon encounter some code provisions and court decisions that force the aggrieved parties of the actual or likely breach to act in a “Spartan” way.6 In other words, the aggrieved party who wishes to claim the other party’s breach has the duty to perform his side of the bargain even if he has every reason to believe that the counterparty will not perform his. And if the non-culpable party does not act in a Spartan manner and sues, 1166he will be part of a lengthy and costly procedural standoff; all the counterparty has to do is to raise the defense of the plaintiff’s own failure to perform (exceptio non adimpleti contractus). Under these circumstances, this exceptio will freeze judicial adjudication sine die, or indefinitely. A review of the above-transcribed UNIDROIT Principles 7.1.3(1) and 7.1.5(2) will quickly reveal that these code provisions stand in sharp contrast.
Furthermore, a court operating under such Spartan assumptions is likely to decide (as was decided by a Mexican court in a case discussed in a later section) that an aggrieved seller who resells property extrajudicially after his buyer failed to pay the purchase price criminally misappropriated the defaulting buyer’s property. The basis of such a ruling was that in accordance with the “consensual” nature of sale agreements, the resold property belonged to the defaulting buyer from the moment he and the seller agreed on a stipulated (albeit unpaid) price.7 The only remedy left to the aggrieved seller in this case was to sue the defaulting buyer either for damages or specific performance.
Those who are opposed to extrajudicial resolution fail to take into account that since Roman law days, certain complying parties have been allowed to terminate the breached contract partially or completely and even allowed to appropriate the assets in their possession that prior to the breach belonged to the non-performing party. Consider, for example, the contractual implications of the creditors’ right of set-off. The Roman compensatio and its progeny in civil codes throughout the civil-law world allowed a depository-creditor in possession of the liquid amount owed by a defaulting debtor to set off what he owed without having to go to court.8 A variant of this type of termination takes place in unlimited fashion in everyday business, and especially in connection with deposit accounts held by banks and other financial intermediaries. They are known as “clearing,” “netting” and “settling” operations. Without the implicit set-offs in these operations, the banking and securities industries would start each business day owing each other truly incalculable amounts.
The same would be true with laws that grant to certain creditors the right to retain possession of assets that belong to non-performing parties after their breach (thereby sanctioning a unilateral termination or resolution)9 such as for: 1) the innkeeper in possession of the luggage of guests who have not paid for their lodging thus breaching their lodging contracts;10 2) the provider of unpaid repair services who is in possession of the repaired goods;11 and 3) the carrier of goods who may retain delivered goods when the receiver has not paid for the delivery service.12 Curiously, while this extrajudicial remedy is allowed as a lien or right of retention without court intervention, the same remedy is rejected by the same jurisdictions in the case of other, more formally-established claims.
Despite the widespread prohibition of the Pactum Commissorium in civil-law countries, as was discussed in Chapter 24, none of the above lien creditors and others like them are required to obtain judicial decisions in order to exercise their right to terminate their contracts.
It is obvious that the notion of a judicial monopoly over the termination or resolution of contracts is inconsistent with the needs of contemporary commercial transactions, including their volume, expeditiousness, and the fact that creditors or their agents often are or can easily be in possession of money and assets that belong to their debtors. It is also worth considering, as noted earlier, that the previously-described extrajudicial resolutions of contracts, as well as others not described, can always be subject to an a posteriori form of judicial review. Furthermore, if the debtor can prove that the creditor exceeded or abused his rights to extrajudicially terminate the contract or otherwise enriched himself, nothing should prevent that debtor from obtaining adequate judicial relief. Yet, unlike its a priori counterpart, such a relief would encourage the smooth flow of commerce.
Article 7.3.1 and especially sub-article (d) of the UNIDROIT Principles enable the aggrieved party to exercise his right to terminate the contract unilaterally when the breach is substantial. This right can be exercised even when the breach occurs before the due date of performance as long as the party has sufficient indications that that performance will not be forthcoming.13 This provision was modeled after the U.C.C. 1168Article 2 provisions that will be discussed in the following chapter14 and also by the German Nachfrist as found in Article 321 of the B.G.B.:
1) A person who is obliged to perform in advance under a reciprocal contract may refuse to render his performance if, after the contract is entered into, it becomes apparent that his entitlement to consideration is jeopardised [sic] by the inability to perform of the other party. The right to refuse performance is not applicable if consideration is rendered or security is given for it.
(2) The person required to perform in advance may specify a reasonable period in which the other party must, at his choice, render consideration or provide security reciprocally and simultaneously against performance. If the period ends without result, the person required to perform in advance may revoke the contract. Section 323 applies with the necessary modifications.15
This provision will be discussed in more detail in Chapter 29.16 Similarly, as discussed in the preceding chapter,17 the UNIDROIT Principle finds support in Article 1456 of the Italian Civil Code:
Article 1456. The parties to a contract may expressly stipulate the termination of a contract when a given obligation is not complied with according to their stipulations.
Once one of the parties expresses its intention to apply the resolution clause, the contract is deemed terminated by law.
The policy of facilitating the flow of commerce is also responsible for the remedial rules that attempt to reduce the economic waste that results from a breach of contract. These rules compel the aggrieved party who unilaterally terminates a contract to 1169minimize the damages claimed from the defaulting party by acting as diligently as possible in reducing the waste. Thus, if he is a seller the law encourages him to seek timely, profitable and cost-effective resales, and if he is the aggrieved buyer he is encouraged to do the same by repurchasing as diligently and cost-effectively as possible.18 The manner in which courts decree these remedies will be illustrated in the following chapter.
As the current technology of the financial marketplace develops the pressure upon its participants to use inexpensive and speedy methods of financing and payment of commercial contracts, the parties are also increasingly forced to rely on equitable remedies designed to encourage a modicum of diligence and finality of payment or settlement. One of these equitable remedies is that of “preclusion,” used extensively by correspondent bankers.
A variant of this extrajudicial remedy was first used by Article 8(f) of the 1974 version of the Uniform Customs and Practice for Documentary Credits of the International Chamber of Commerce:
If the issuing bank fails to hold the [non-complying] documents at the disposal of the remitting bank, or fails to return the documents to such bank, the issuing bank shall be precluded from claiming that the relative payment, acceptance or negotiation was not effected in accordance with the terms and conditions of the credit.19
As was discussed in Chapter 24, the purpose of this rule was to encourage the timely examination of documents by a nominated bank placed in charge of paying or negotiating these documents on behalf of the bank that issued the documentary credit. The standard practice is for the nominated bank to examine the documents tendered by the beneficiary of the documentary credit; once they are found to be in compliance with the terms and conditions of the credit the bank will accept the draft drawn by the beneficiary—promising to pay at a future time—or to pay the draft. If the documents are not in order, the bank must reject the presentation within a specified period of time and explain the reasons for the rejection.
If the issuing bank does not object to the payment or negotiation performed by the nominating bank, or if it does not reject and send the examined and rejected documents to the nominated bank within a specified time frame, then the nominated bank will deem the credit as paid and be reimbursed by debiting the issuing bank’s account in its own books, or by drawing against the issuing bank’s account with a reimbursing bank. This is all done without the nominated bank appearing before a court or independent adjudicator prior to its unilateral debiting or drawing against the account of the negligent issuing bank—i.e., it is an extrajudicial solution.
This rule has remained in force in subsequent revisions of the UCP because of its evident procedural and transactional efficiency: If each and every case of untimely failure to accept or pay or to reject the presentation had to be litigated by 1170correspondent banks, the fate of billions of dollars would remain unsettled for unaffordable long periods of time. However, as mentioned above with respect to the remedy of set-offs and netting, nothing would prevent an a posteriori judicial revision of the extrajudicial settlement.
The same is true with the rule known as the “midnight deadline” used in the collection of checks in markets such as the United States, which can be found under Section 4–302(a)(1) of the U.C.C.:
(a) If an item [check or bill of exchange] is presented to and received by a payor bank, the bank is accountable for the amount of:
(1) a demand item, other than a documentary draft, whether properly payable or not, if the bank, in any case in which it is not also the depositary bank, retains the item beyond midnight of the banking day of receipt without settling for it or, whether or not it is also the depositary bank, does not pay or return the item or send notice of dishonor until after its midnight deadline; or….
A strong link exists between the prohibition to terminate or resolve a contract extrajudicially and a Roman contractual clause that enabled the parties’ resolution known as the Pactum Commissorium. I described this clause earlier as one that allowed the party who had performed his side of the bargain to appropriate and dispose of the defaulting debtor’s property in order to repay himself for the latter’s unpaid debts.20 The Pactum was widely used in Roman law to effectuate the extrajudicial resolution of loan agreements until it was forbidden by Emperor Constantine in his 326 A.D. Constitution. Constantine justified his prohibition asserting: “As with other deceptive practices, the constant harsh use of the lex commissoria [by creditors] has increased and it is our pleasure that this law be invalidated.”21
The harshness to which Constantine was referring resulted from the use of the pactum to guarantee payment of what he considered usurious loans. Yet, he (and early Christian doctrine) deemed usurious any loan that charged interest, regardless of how insignificant the amount paid or the rate charged. Even though some European jurisdictions redefined usury as involving only those amounts charged over and above the market rate,22 the prohibition of the Pactum continues to be in force in many civil law countries.
The following extract of a Costa Rican decision illustrates the continued application of the prohibition of the pactum as a restriction on the parties’ ability to 1171rescind their contracts extrajudicially.23 There are certain legal provisions that must be considered while reading this decision:
Civil Code of Costa Rica:
Article 627: For the validity of an obligation it is indispensably essential that there be:
(1) [Legal] capacity of the party who is acquiring an obligation;
(2) Certain and possible purpose or object matter of the obligation; and
(3) Legal cause.24
Article 421: Any stipulation authorizing the creditor to take possession of mortgaged assets upon the debtor’s default is null and void.25
Commercial Code of Costa Rica:
Article 536: Any stipulation authorizing the creditor to take possession of the pledged assets or to dispose of them upon de debtor’s default is null and void. At the time the contract is executed it is possible to authorize the creditor to foreclose the collateral through an authorized broker and without undertaking any judicial procedures. In which case, it is the obligation of the authorized broker in charge of foreclosure to make one publication of the foreclosure notice in the Official Gazette with eight days in advance of the date of sale—including in those days the date of publication and the date on which the foreclosure sale will take place.26
Second Civil Court, First Section Decision No.264: Jose Luis Garcia Abarca v. Guillermo Pana Rodriguez and Elizabeth Pana Fernández (2005):
BY Judge BRENES VARGAS
WHEREAS:
On September 4, 1997, José Luis García Abarca and Guillermo Pana Rodríguez entered into a contract of “assignment of rights in real property,” rights which at that time had been granted by the National Housing and Urbanization Institute [NHUI] in favor of defendant Guillermo Pana Rodriguez … The contract provided that José Luis García Abarca lent Guillermo Pana Rodríguez one million colones, payable in two months with a one-month extension and stipulated a five percent monthly interest rate. It also established that in case of the debtor’s default, the agreement would be deemed a fully-fledged assignment of rights in the said property in favor of the plaintiff lender …
[T]he defendant, Guillermo Pana Rodríguez, did not repay the money lent by the plaintiff, and the latter requested to the NHUI that ownership of the property be transferred to him. This request was denied because in December 2001 the defendant had conveyed his right of ownership to his daughter and co-defendant, Elizabeth Pana 1172Fernández. That donation was accepted by the NHUI, and on the February 18, 2002 it executed a public deed [Escritura Publica] in favor of Ms. Pana Fernández, which was recorded in the Public Registry …
The plaintiff, José Luis García Abarca, in his appeal against the decision that dismissed his complaint, alleges a wrongful application of Article 330 of the Code of Civil Procedure … He also argues the failure to apply Article 457 of the Civil Code, because according to him the donation in favor of Ms. Pana Fernández, by Mr. Guillermo Pana Rodríguez, constitutes a fraud against his creditors by disposing of property that his creditors could foreclose on … He concludes that Ms. Pana Fernández cannot be protected by the registration of the conveyance provided by the cited Article 457, and for this reason the lower court judgment should be reversed and his appeal granted.
This Court considers that the defendant’s defense of plaintiff’s lack of entitlement to sue is appropriate … Apart from the reasons stated by the trial court, there are others that can be raised ex-officio by this Court. These grounds are related to the legality of the contract discussed before the trial court … According to the contract labeled by the parties an “assignment of rights in real property” … the plaintiff and defendant … stipulated that in case of the debtor’s non-performance the creditor would become the owner of the property ipso jure, which at the time had been granted by the NHUI in favor of the debtor … [This] agreement to rely on the assignment of rights in real property as collateral for a commercial loan amounts to a violation of the prohibition of the Pactum Commissorium [and] for this reason it cannot be used as a basis for a lawsuit to recover the property allegedly conveyed to the creditor in accordance with the doctrine that inspires numbers 19, 421 and paragraph 3) of Article 627 of the Civil Code, and [thus the agreement is deemed] absolutely null … Given that the cause of the obligation is illegal, it is not possible to accept the allegations of the complaint, because the plaintiff lacks the in rem right that he alleges to have …
THEREFORE: The appealed decision is affirmed.
Does Article 627 of the Costa Rican Civil Code forbid the Pactum Commissorium, if so where? How much freedom of action does Article 627 of the Costa Rican Civil Code allow a judge trying to determine the legality of a clause that resolves a loan agreement in the event of non-payment? Would the outcome of this case have been different if the transaction was a commercial transaction? What does the reader think was the intention of the legislator in including Article 536 in the Commercial Code? How much weight does the reader ascribe to the amount of interest charged by the plaintiff to the defendant for his “commercial loan” (approximately sixty percent per annum)? Does the reader believe this amount to be usurious and, if so, on what basis? Would the reader be surprised to learn that this rate of interest did not greatly exceed that which was ordinarily charged for “commercial” loans in San Jose, Costa Rica at that time? The prohibition of the Pactum Commisorium in civil-law jurisdictions and developing nations has been a major obstacle when trying to enable those jurisdictions to enact secured transactions laws that have proven to be essential tools for economic 1173development.27 On the other hand, as discussed in Chapter 24, the abuse of the Pactum Commisorium by creditors had equally damaging consequences.
Susan Jacqueline Butler, a German and U.S. attorney and LL.M. graduate, describes the Sicherungsübereignung as a secured transaction in which the debtor keeps possession of the collateral and assigns to the creditor a fiduciary ownership right over the security, bound by the terms and conditions of an agreement where the parties stipulate the conditions and way in which to execute the security such as returning the collateral and its ownership to the performing debtor.29
Butler also summarizes a 2000 decision of the German Federal Supreme Court (Bundesgerichtshof) as follows:
A brewing company granted a loan to two restaurant and bar owners in exchange for their promise to exclusively acquire the beer produced by the plaintiff-creditor. The security interest was granted in a portion of the equipment of the two restaurants-bars. Given the non-performance on the payment of the loan by the defendant, the brewing company unilaterally terminated the loan agreement and filed suit for the amount owed, 65,500 German marks, which was the remaining balance of the loan after the extrajudicial enforcement of the security interest that resulted in a total of 11,500 German marks. Finding that the resolution clause in the contract and the extrajudicial remedy to enforce the creditor’s security interest were legal, the Court dismissed the objection made by the defendant to both legal institutions.30
As the drafter of the chapter 5 on Letters of Credit of the Encyclopedia of Comparative Law of the Max Planck Institute of Hamburg, I conducted various interviews with many German bankers in charge of issuing and examining documentary credits at the beginning of 1971. Following are two sample questions from the Supplementary Questionnaire given to the bankers:
Question 13, Supplementary Questionnaire: What security interest is most commonly used in the issuance of a documentary credit (excluding amounts deposited in special accounts or in any other form of prepayment of the documentary credit)?
Question 14: What percentage of the credits issued are guaranteed by this security interest and approximately what is the amount granted annually in 1174this type of credits by your banks: a) more than 10 million; b) more than 50 million; or c) 100 million marks?31
Seven of the nine interviewed bankers that answered Question 13 indicated that they predominantly use the Sicherungsübereignung. On the approximate amount of money loaned annually, only one of the bankers estimated this amount at fifty million marks, while the rest of bankers estimated the amount in excess of 100 million marks for each of their banks.32
The previous figures illustrate the importance that secured transactions have acquired in the German credit industry. In the U.S. market, the figures on secured lending—including dematerialized securities such as stock and bonds—exceed trillions of dollars per year.33 Not surprisingly, World Bank economists have estimated that the gross domestic product of a country and especially that of a developing country can be increased by significant percentages through the use of secured transactions with express agreed resolution that allows the use of extrajudicial remedies for collection and repossession.34 Some developing countries such as Guatemala, Honduras, Colombia, El Salvador, and Mexico have introduced or enacted laws that in effect create the bases for a national and regional commercial credit market with interest rates much below that in the above-discussed Costa Rican decision. The parties and especially the lender’s ability to terminate the loan agreement unilaterally and pursue the extrajudicial remedy of repossession and foreclosure play a critical role in these laws discussed in the following sections.
Article 57. General Principles on Enforcement: Enforcement of security interests will be conducted based on the following general principles:
1. Enforcement will always be conducted on an extrajudicial basis by means of a public auction before a notary public, in compliance with the provisions of this Law and, in a subsidiary manner, with those of the Notarial Code …
The conditions pursuant to which enforcement shall be conducted will be determined in the agreement that creates the security interest. Such conditions shall be used as a guide by the judge or notary for purposes of the auction of the security interests.36
Article 66. Agreement on the Conditions for Sale or Auction: At any time, before or during the enforcement proceeding, the secured debtor may reach an agreement with the secured creditor on terms other than those previously established, either for the delivery or repossession of the goods, the terms of sale or auction, or any other matter, provided such agreement does not affect other secured creditors or buyers in the ordinary course of business, and is not contrary to the applicable law.37
Is Constantine’s justification to preclude the use of the Pactum Commissorium valid in our days? And if so, could you think of practices that would be considered “harsh” or “deceptive”? As just noted, World Bank studies show significant increases of the GDP of developing countries by enacting a law like that provided under Article 9 of the U.C.C. or like the OAS Model Law of 2002 or the laws of Guatemala and Honduras previously quoted.38
One of the many reasons for such an assertion is the high cost of credit and the large number of loans that cannot rely on enforceable security interests. For instance, the Central Bank of Brazil estimated that the risks of credit collection were the cause of at least thirty percent of the cost of commercial loans in Brazil, loans that only two years ago charged interest rates exceeding forty percent per year.39
Despite the assertion of Justice Holmes, Jr. that a defaulting party always has the option to breach his contract as long as he is willing to pay damages, specific performance obtained within a reasonable time after the breach is, in principle, the remedy most consistent with the needs of a busy marketplace.40 For, where parties enter into their contracts in good faith, specific performance is the remedy most consistent with their expectations. Nevertheless, the trial practice of civil and common law countries reveals that an award of damages is the remedy most commonly sought by and granted to the aggrieved parties.
It could be that the preference for damages is at root semantic: What some litigators regard as damages others see as specific performance. Consider, for example, an action for repayment of the principal and interest due on a loan. On the one hand, the action asks for the very same performance stipulated in the loan agreement, but on the other hand it is intended to compensate the lender for the monetary damages suffered as a consequence of the breach.
Similarly, an underlying obligation to pay an amount of money could be characterized as an obligation to “give” (what was promised) and an obligation to “do” (also what was promised), especially when one takes into account that “giving” is a 1176form of “doing” and vice versa. The reason for mentioning the dichotomy of “giving” and “doing” is not to sharpen the reader’s sophistic skills but to prepare him or her for the following comparative and historical excursus that explains why in many if not most legal systems a distinction continues to be made between obligations to do and to give as they relate to the remedies of damages and specific performance.
Regardless of why the remedy of damages is preferred by merchants and litigators, the historical path of specific performance and its scope of application are of great interest to comparative commercial law. The following discussion should teach us how remedial law was formed, by whom and for what purpose(s). It will also educate us on the cultural reasons responsible for the contrast between the “official” substantive law and the “unofficial” or living law. Based on what this section teaches, the reader might be able to contribute to the making of a more effective remedial law.
The understanding of the law of specific performance everywhere has been greatly aided by Professor John P. Dawson’s study, “Specific Performance in France and Germany.”41 In this study, Dawson outlines, step by laborious step, the development of specific performance since its beginnings in Roman law to the mid-twentieth century. In the following pages I will try to summarize Dawson’s findings. I say that I will “try,” because synthesizing the writings of such a great scholar is (in keeping with one of the main themes of this section) easier said than done.
According to Gaius, the praetorian procedure of classical Roman law only knew of monetary awards—meaning that the measure of the breach was in money and not through the delivery of the promised goods. This affirmation was based on his description of an ordinary praetorian formula:
In all formulas containing a condemnation, the condemnations are expressed through valuation in money. And so, even though the action is to recover a specific thing, such as land, a slave, a garment, gold or silver, the iudex does not order the defendant to deliver the specific thing, as was the practice in early times, [but] orders him to pay money after estimating its value.42
This clear description of judicial practices during the Classical period became clouded during the preparation of Justinian’s Corpus Juris Civilis. One of the few remedial law texts of Classical Roman Law updated by the compilers of the Corpus Juris Civilis was an opinion by Ulpian with reference to the Rei Vindicatione, or the action given to an owner to recover his property in hands of a non-owner. Ulpianus restated the rule that the standard remedy for an unlawful possession was measured in terms of money and could be increased if the defendant was guilty of fraud.43 However, the Justinian compilers added the following clause: “If the defendant has the 1177property sued for, it will be taken from him ‘by military force on the authority of the iudex’ (manu militari officio iudicis).”44 Dawson notes that the goal of the compilers was to express the usual practices in the times of Justinian. Nonetheless, this simple addition contradicted Gaius’ formulation of the rule. As pointed out by Dawson, the Justinian compilers could hardly have foreseen the consequences of this addition.45
The compilers also cited two opinions by Celsus, a contemporary of Gaius (second century A.D.). In one of these, Celsus discussed the guarantor’s liability for the contractual losses and concluded that in case there were losses, the guarantor had to be sentenced to pay a sum of money “as happens in all obligations to do.”46 While it is true that the Classical jurists often referred to obligations to “do” or to “give,” they did so without ascribing precise legal consequences to these terms.47 A possible explanation to what Celsus had in mind when referring to obligations to do is found in another text where Ulpianus suggested a monetary judgment as the appropriate solution. It involved cases where several persons were obligated to perform an indivisible obligation such as that of transferring an in rem right over indivisible real estate such as a house or in an easement, obligations that because of their indivisibility could not be easily partitioned and allocated among the obligors. In this context, Ulpianus cites Celsus’ statement that in case of non-performance of an obligation to do, the non-performing party will have to comply by making a monetary payment.48 Yet, neither this statement by Celsus nor the related opinion by Ulpianus provides a basis with which to distinguish between obligations to give and to do something. In fact, according to Ulpianus, the obligation to do something not only included acting or abstaining to act, but also the delivery of a thing.
The Bologna-based glossators who reinitiated the study of Roman law circa 1100 by relying exclusively on the Justinian Corpus Juris Civilis could not know that the reference to a “military force” (manu militare) procedure to implement the replevin action (vindicatio rei) was an addition by the Justinian compilers to the Ulpianus text. Nevertheless, the Bolognese scholars did find a conflict between texts related to specific performance especially with respect to sale agreements. If a seller refused to deliver the thing sold, was it lawful to force the delivery of the thing sold, and if so what was the importance of the maxim “nemo potest praecise,” or “no one can be forced into contract”?49 With the exception of one of the jurists, the rest concluded that force could not be used and maintained that the remedy was monetary as provided in the Classical texts.
The dissenting view belonged to Martinus, who was known for his often radical views.50 Martinus argued that since the seller’s obligation was to deliver a specific thing, he should be compelled into doing so to the extent possible. He supported his view with a distressful, almost ad misericordiam, question: “If you have sold bread, have not delivered it, and I have died of hunger, will a money judgment suffice?”51 Despite the lack of support for Martinus’ opinion in Roman sources, his opinion and the manu militare addition of the Justinian compilers to Ulpianus’ text were the most influential during the following centuries. This meant that specific performance would be available against a breach of contract of a sale agreement when the breach consisted in a failure to obtain the delivery of a specified thing that was in existence, and that it could be enforced in some instances manu militare. It would not be available generally in contracts whose obligations could be characterized generally as “to do something.”
During the time of the “commentators” (fourteenth to sixteenth centuries), there was strong support among these writers for the use of manu militare against a seller of a specific thing who had refused to deliver it.52 In somewhat less dramatic terms than Martinus, the commentator Baldus de Ubaldis tempered the application of the remedy of specific performance by arguing that he who had promised to build a house (possibly over an extended period of time) could not be compelled to specifically perform such a promise (non cogitur praecise ad factum) because “this would be a kind of servitude.”53
Bartolus de Saxoferrato (1314–1357), one of the most respected commentators (the mostly Italian-based jurists who replaced the glossators as more ambitious interpreters of the Corpus Juris Civilis and framers of Roman medieval law), objected to the weak logical and juristic support behind Celsus’ and Martinus’ remedial dichotomy. He asked: “Why would one result in obligations to give and another in obligations to do? … I have searched the gloss and it gives no answer. So far as the writers discuss this question, they can give no answers that are necessarily conclusive, only some that appear to be somewhat persuasive.”54 Bartolus then turned to Baldus’ analogy between specific performance and slavery when the act involved required the performance of acts over an extensive period (quaedam species servitutis). His reply was that only certain contracts required a long period of performance and that most of the promised acts in contracts were for a short period of time and thus their forced performance would not entail slavery. Nonetheless, given the weight of juristic opinion in favor of the dichotomy of doing and giving, he was willing to accept its application.
High Appellate Courts (Parlements) in feudal France did not feel bound by the medieval Roman law dichotomy and applied both remedies to obligations to do as well as to give, with few distinctions.55 Thus, when the drafters of the 1804 Code Civil promulgated this dichotomy it was not because of pre-existing law. According to 1179Dawson, the source responsible for this rule was Pothier’s “Treatise of Obligations” (a source frequently discussed in this book). Dawson was not an admirer of Pothier’s scholarship. He described him as a superficial writer, incapable of original ideas but with an easy-to-follow writing style that provided the impression that what was being described as the law was invariably self-evident.56
As did his Roman and medieval predecessors, Pothier distinguished between obligations “to give a thing” and “to do something”; in the latter, the debtor could only be forced to pay damages, because, as in Baldus’ analogy to slavery: “no one can be forced into doing something” (nemo potest praecise cogi ad factum). Pothier considered that the same was applicable to obligations “not to do something”, taking into account that in this negative type of obligation, if the obligor had done something that could be undone, the obligee could have it undone at the obligor’s expense.57
The drafting commission that approved the first draft of the 1804 Code Civil accepted Pothier’s views without debate. The only reference to the dichotomy was found in the “Motives” of the Code. It contained a paraphrase of Baldus’ opinion as repeated by Pothier: “No one can be constrained to do or not to do a thing, and if it were possible such constraint would constitute violence, which cannot be a means for enforcing contracts.”58 This was the principle that inspired Article 1142 of the Code Civil: “Every obligation to do or not to do resolves itself into damages, in case of non-performance on the part of the debtor.”59
With respect to obligations to give, such as to deliver a specific thing (that included sales, donations and barters), the applicable rule was that because the contracts involved were “consensual” (meaning that title was transferred by the mere consent of the parties) the appropriate remedy was specific performance. With it, the plaintiff could obtain or regain possession of the identifiable promised thing.60
Dawson suggests that there were cultural and historical reasons that supported the French choice of nemo potest praecise cogi ad factum with respect to obligations to do. The fall of the ancien régime and the popularity of liberal ideas were behind the distrust of a powerful judiciary, one that could force manu militare on the missing performances. Pothier’s dichotomy curtailed such a power by limiting the judge’s ability to enforce the performance of an open-ended category of contractual obligations that could be characterized as obligations to do.61
In my opinion, there was another reason why the drafting commission did not challenge Pothier’s dichotomy, and it had to do with the maxim that supported it. Nemo potest praecise cogi ad factum was a Roman legal maxim and a regulae juris. As it was noted in the section on European codification,62 the axiomatic approach to civil code drafting invested numerous of its provisions with the aura of self-evident truths. 1180Pothier contributed to this aura, not only by advocating the adoption of the dichotomy but also by characterizing the nemo potest praecise cogi ad factum as a “legal maxim.”63
A few decades following the enactment of the Code Civil, French courts began decreeing fines, sometimes in high amounts, to force parties in default to do or not to do what the court had ordered should be done or not done. This order was known as an “astreinte”; and its scope was broad enough to encompass the rendering of accounts, the filing of required documents or the delivery of things.64
Yet, what seemed on its face a return to a more powerful judiciary and the adoption of a method of enforcing contracts that disregarded the equation between slavery and specific performance turned out to be just an appearance. The astreinte proved ineffective in forcing the performance of contractual obligations to do or not to do something. Its ineffectiveness was and still is a result of its limited and “simulatory” purpose: It was designed to scare the debtor into compliance by raising the amount of a fine (that existed only on paper) until compliance took place. It was conceived strictly as a temporary and revocable remedy which was cancelled the moment the party in default complied. When the debtor did not perform, meaning that he was not scared enough by the astreinte (as was and is usual with well-advised debtors), the astreinte was not enforceable. It was unenforceable because as a fine for an action in contempt of a judicial order it was an unsanctioned crime—a crime not included in the French Penal Code. Therefore, the enforcement of an astreinte was contrary to another equally self-evident maxim “no crime without a law” (nulla poena sine lege).65
The reluctance to enforce the astreintes seemed destined to disappear as a consequence of the housing crisis following World War II. During this time, thousands of residents of apartments and other family dwellings ignored the astreintes ordered by the French courts in support of eviction notices in favor of the owners or lessees dispossessed during the war period. For fear that the non-compliance of judicial orders would lead to a generalized anarchy, many French courts began to issue astreintes that were automatically transformed into final rulings or judgments (in effect as punitive damages) for the amount of the fine.66 However, as a result of populist pressures, the French Congress enacted the Law of July 21, 1949 which reinstated the astreinte as a mere warning and forbad its transformation into punitive damages, only allowing as damages those that were directly attributable to the non-performance of lessees or squatters.67
In concluding his study on specific performance in France, Dawson summarizes the status of the law on specific performance in 1950 as follows:
As to one class of promises—to transfer land or goods that can be reached by a bailiff—specific relief is available, it seems, to any promisee who wants it if rights of third parties have not intervened. This is a large percentage of the potentially enforceable promises, and its importance should not be minimized. 1181Outside this group, for promises in general, the authors have been saying for more than a century that the ‘principle’ is always specific performance. The only reservation that is usually admitted is for that very rare case where the performance promised involves a high degree of personal creativity—the usual illustration is the artist who promised to paint a picture … [In support of the remedy inspired on this principle we continue citing the astreintes] … An outside observer will be excused, I hope, for describing such a principle as almost wholly meaningless where the astreinte is the only means employed for its realization.68
In 1998, Konrad Zweigert and Heinrich Kötz, two renowned German comparative law scholars, evaluated the status of specific performance before French courts in 1998 as follows: “French Law generally admits the issuance of judgments for performance in kind but enforces them in a very grudging manner.”69 A 2004 comparative survey by Henrik Lando and Caspar Rose reached the same conclusion.70 Thus, the large gap between the French positive law of specific performance and its living law counterpart persists and with it the preeminence of the underlying attitudes toward the real power of the judiciary.
The comparison of the laws of specific performance in France and Germany illustrates some of the key cultural differences between these two pillars of the civil law system. On the one hand, the Germany of the second half of the nineteenth century was a society shaped by Prussian values that stressed respect for authority (often blindly) and for the law it handed down, including the penalties for non-performance of obligations. At the same time, as was discussed in an earlier chapter,71 Germany had been the most serious recipient and user of Roman legal institutions, especially after it received Roman law officially in the sixteenth century as the “ius commune” of many of its provinces. This reception made German lawyers familiar with the medieval Roman law dichotomy between “doing” and “giving” as relied upon by the earlier quoted commentators. French society, on the other hand, as was discussed in the preceding section, was distrustful of authority. Thus, it also discouraged truly enforceable astreintes by pretending or simulating an enforcement that did not exist.
Before the enactment of the BGB, German jurists were very familiar with the preference that classical Roman law had for the remedy of damages, and thus the main issue they had to deal with was how to best apply the remedy of specific performance in connection with sale agreements.72 Most courts and commentators concluded that a buyer could sue for specific performance when the real or personal property sold was one susceptible of being attached.73 The same was not true for obligations “to do” 1182because courts and commentators generally assumed that these obligations could not be subject to specific performance.
In 1870, the Drafting Commission of the German Code of Civil Procedure unanimously agreed that, as provided by Articles 1143 and 1144 of the Code Civil, only those acts that could be assigned to someone else—that could be performed by a third party—could give rise to an action for specific performance whose cost would be borne by the defendant. The Commission also agreed that the incarceration of the debtor for acts whose performance could be delegated or substituted was a violation of the prohibition of debtors’ imprisonment.74 However, the majority of the same Commission also agreed that it was “intolerable and inconsistent with the basic principles of the modern law of obligations that an obligor without property should be able to defeat the execution of a judgment [of specific performance] merely through his own disobedience.”75
This Code’s “Motives,” published in 1872,76 assured the citizenry that no effort was spared to limit the use of fines and arrests to those cases in which performance could not be obtained through any other means. The Motives added that if the claimed performance was only to obtain an amount of money from an insolvent obligor, then a fine or arrest was not appropriate because the purpose of specific performance was not to punish insolvency.77
It was not hard to discern the internal contradictions in the “Motives.” Hence, the Code of Civil Procedure, effective as of 1879, included a number of mutually exclusive remedies. One of them applied to court decrees for the delivery of identifiable personal or real property. For such property, the appropriate procedure was the attachment of the property by a court officer.78 A second remedy applies to court decrees that authorized the substituted or delegated performance at the expense of the defendant.79 The third remedy applies to a court decree that ordered the performance of an unfulfilled unilateral promise known as a “declaration of will.” Typically, such a promise involved the conveyance of title to real estate property, and the remedy consisted in the judicial order compelling the defendant-promisor to execute or to allow for the public deed of transfer to be executed. This decision was self-enforceable because it provided for the execution of the transfer by the judicial authority itself.80
In Dawson’s opinion, the most interesting type of remedy is that in which the court orders performance of an act that cannot be delegated to or be performed by a third party and whose performance depends exclusively on the will of the defaulting defendant. In this case, the applicable remedy is that of an arrest or a monetary fine initially limited to 1,500 marks (but unlimited since 1924).81 An obligation “to refrain from doing something” is equated to the types of acts whose performance cannot be 1183delegated, and for this reason the defaulting defendant can be arrested for a maximum of two years or subject to an equivalent fine.
In an apparent departure from what was the most common remedy in classical Roman law, the BGB “Motives” stated that the specific performance of breached promises was the normal and preferred procedure. This principle informed the applicable substantive law in the BGB which was to act in harmony with the remedies set forth in the Code of Civil Procedure. Accordingly, Section 241 of the BGB states: “By virtue of an obligation the obligee is entitled to claim performance from the obligator. The performance may also consist in forbearance.”82
This rule made damages an exceptional remedy, applicable to cases of “injury to a person or damage to a thing,”83 or to cases in which specific performance was “not possible or is not sufficient to compensate the obligee,”84 and when the aggrieved party gave formal notice of his claim for damages in terms of money and allowed for a reasonable time for its performance.85 The debtor also had the right to a monetary compensation instead of specific performance when the latter required “disproportionate expenses” compared to the amount of the debt.86
Apart from the rigorous definition of all of the remedies associated with specific performance, another characteristic of the German remedial system is that German courts, in contrast with the French, have frequently granted the remedy of substitute performance (performance by somebody else) or compliance. Nevertheless, a shared characteristic with the French is that most of the German litigants resort to the remedy of damages for the majority of contractual non-performance suits and especially in relation to sale agreements and other commercial contracts.87 Both Zweigert and Kötz in 199888 and Lando and Rose in 200489 agree with Dawson’s analysis. In the words of Zweigert and Kötz:
In Germany … where the claim to performance is regarded as the primary legal remedy, it does not in practice have anything like the significance originally attached to it, since whenever the failure to receive the promised performance can be made good by the payment of money commercial men prefer to claim damages rather than risk wasting time and money on a claim for performance whose execution may not produce satisfactory results.90
Zweigert and Kötz note that specific performance has been used in Germany, albeit not exclusively, to obtain performance of building contracts, thereby vindicating Bartolus’ reply to Baldus’ comment,91 and for the delivery of goods or personal property in existence.92 A study cited by Lando and Rose makes reference to a court decision on 1184specific performance of service contracts such as a contract to supply electricity to a hotel or to repair a computer system; nonetheless, in the words of Lando and Rose, “specific performance is rarely used, especially in commercial transactions.”93
Dawson notes that by 1450 the common law had already adopted the remedy of damages as its preferred one for contractual non-performance, with the exception of actions for the attachment of movable and immovable property such as replevin or other extraordinary remedies such as the mandamus. Since then, a “mixed system” was developed, which to this day uses both damages and specific performance dependent on the adequacy test of the latter remedy.94
The elements for this adequacy test have been determined by the U.S. courts through the use of an exclusion formula: The remedy of specific performance will be granted by a court of equity in its discretion when there is no other adequate remedy under common law (a jurisdiction which was assumed to be stricter than the equity jurisdiction before both merged).95 Generally the remedy at law has been found inadequate by courts in two situations: 1) where damages would be insufficient given the special nature of the subject matter of the contract; and 2) where damages are impracticable—in other words, when it is impossible to arrive at a legal measure of damages with enough certainty.96
An example of the difficulty in arriving at a legal measure of damages is found in a case before the Supreme Court of the State of Arkansas in 1948.97 The action for specific performance was brought seeking the purchase of a Ford automobile. The Supreme Court held that: “While equity will not ordinarily enforce a contract for the sale of chattels, it will do so where special and peculiar reasons exist which render it impossible for the injured party to obtain adequate relief by way of damages in an action at law.”98 Hence, if the automobile at issue would have “peculiar, unique or sentimental value to the buyer not measurable in damages,”99 then specific performance should be granted.
Dawson, among others, criticizes this “adequacy test” of the remedy because of its vagueness and suggested as a better rule that specific performance be available for any asset that can be attached by a sheriff as done under German Law. It is true that specific performance would not be used in cases involving markets where the expeditiousness of the transaction is of the essence, and where the markets are reasonably well organized, in such a way that complying sellers and buyers may easily obtain substitute performances. But Dawson sets out the question: Why not leave the choice to the aggrieved and complying party? And to this Dawson concludes by 1185affirming that the adequacy test is so well rooted in the U.S. system that in order to eliminate it, it would be necessary to enact a special law.100
The reader is asked to evaluate if the Sections of the U.C.C. that follow are that “special law” to which Dawson makes reference:
Section 2–702. Seller’s Remedies on Discovery of Buyer’s Insolvency
(1) Where the seller discovers the buyer to be insolvent he may refuse delivery except for cash including payment for all goods theretofore delivered under the contract, and stop delivery under this Article [Section 2–705].
(2) Where the seller discovers that the buyer has received goods on credit while insolvent he may reclaim the goods upon demand made within ten days after the receipt, but if misrepresentation of solvency has been made to the particular seller in writing within three months before delivery the ten day limitation does not apply. Except as provided in this subsection the seller may not base a right to reclaim goods on the buyer’s fraudulent or innocent misrepresentation of solvency or of intent to pay.
(3) The seller’s right to reclaim under subsection (2) is subject to the rights of a buyer in ordinary course or other good faith purchaser under this Article [Section 2–403]. Successful reclamation of goods excludes all other remedies with respect to them.
Section 2–704. Seller’s Right to Identify Goods to the Contract Notwithstanding Breach or to Salvage Unfinished Goods
(1) An aggrieved seller under the preceding section may
(a) identify to the contract conforming goods not already identified if at the time he learned of the breach they are in his possession or control;
(b) treat as the subject of resale goods which have demonstrably been intended for the particular contract even though those goods are unfinished.
(2) Where the goods are unfinished an aggrieved seller may in the exercise of reasonable commercial judgment for the purposes of avoiding loss and of effective realization either complete the manufacture and wholly identify the goods to the contract or cease manufacture and resell for scrap or salvage value or proceed in any other reasonable manner.
Section 2–709. Action for the Price
(1) When the buyer fails to pay the price as it becomes due the seller may recover, together with any incidental damages under the next section, the price
(a) of goods accepted or of conforming goods lost or damaged within a commercially reasonable time after risk of their loss has passed to the buyer; and
(b) of goods identified to the contract if the seller is unable after reasonable effort to resell them at a reasonable price or the circumstances reasonably indicate that such effort will be unavailing.
(2) Where the seller sues for the price he must hold for the buyer any goods which have been identified to the contract and are still in his control except that if resale becomes possible he may resell them at any time prior to the collection of the judgment. The net proceeds of any such resale must be credited to the buyer and payment of the judgment entitles him to any goods not resold.
(3) After the buyer has wrongfully rejected or revoked acceptance of the goods or has failed to make a payment due or has repudiated [Section 2–610], a seller who is held not entitled to the price under this section shall nevertheless be awarded damages for non-acceptance under the preceding section.
Section 2–712. “Cover”; Buyer’s Procurement of Substitute Goods
(1) After a breach within the preceding section the buyer may “cover” by making in good faith and without unreasonable delay any reasonable purchase of or contract to purchase goods in substitution for those due from the seller.
(2) The buyer may recover from the seller as damages the difference between the cost of cover and the contract price together with any incidental or consequential damages as hereinafter defined [Section 2–715], but less expenses saved in consequence of the seller’s breach.
(3) Failure of the buyer to effect cover within this section does not bar him from any other remedy.
Section 2–716. Buyer’s Right to Specific Performance or Replevin
(1) Specific performance may be decreed where the goods are unique or in other proper circumstances.
(2) The decree for specific performance may include such terms and conditions as to payment of the price, damages, or other relief as the court may deem just.
Throughout the first part of this book, we have followed the evolution of the enforcement of promises of deferred performance, and we have reached the conclusion that after achieving a high degree of enforceability and abstraction, these promises have become the most popular in our time in matters where the amounts involved exceed billions of dollars per day. Even though according to Roman law the promises of purchase, sale, barter, payment, and lease of are not exclusively personal ones, they clearly should allow for damage awards.
On the other hand, non-performance of many of these promises may result in a similar (and more generalized) situation visualized by the glossator Martinus when he put himself in the place of a starving buyer awaiting the delivery of bread.101 Think for example of a case where Bank “X” has promised to pay the principal amount and 1187interest owed from the emission of bonds in the amount of one billion euros issued by country “Y” to thousands of bearers in the entire financial industry. Payment will be made through a standby letter of credit or through an independent bank guarantee. It is very possible that many of these bearers would rely on the immediate payment of the interest of these bonds to pay other obligations or imminent expenses that cannot be postponed. It is also probable that if there is no immediate payment of the bonds, Y would lose credibility in the international financial market, and with that any future issuance of bonds would have much higher costs.
Assume X announces on December 31, 2005 at noon that it will postpone payment of Y’s bonds, originally due the following day, for an “additional week” until it receives full payment of a deposit prior to payment required in a contract with “Z” (a broker and endorser of Y who negotiated with X the issuance of the letter of credit or bank guarantee). Should X’s non-performance deserve an extremely expedited specific performance based on highly enforceable remedies of fines or imprisonment?
Along the same lines, consider the current transactional practice known as the “just-in-time delivery” that a producer or distributor must rely on to be able to fulfill a number of vital commitments. This practice requires that delivery of goods and services promised by the supplier be just in time to meet all these impending commitments. Management experts and economists alike would testify that success of many contemporary producers of goods, especially industrial goods, depends on having the necessary goods and parts in their inventory to be able to serve their customers. This method of management is but a modern version of the old Spanish saying: “an anchored vessel earns no freights,” This principle is responsible for a large number of typical contracts for the different economic sectors and industries, most of which are now in electronic form. What would be the role of a modernized remedy for specific performance in order to encourage reliance on these practices?
Why does the reader think that French and German substantive law on specific performance has been replaced by the living law of damages? Could this be attributable to the artificiality of the dichotomy derived from the corrupted and inconclusive texts of the classical Roman law? Looking back, what would you think was the flaw in the French and German codification processes with respect to specific performance? What would the reader suggest in order to repair these flaws? How could a current legislator obtain a clearer view of the purpose of specific performance? How useful would it be to conduct an analysis of the different types of contracts that are mostly used in a market or markets, including those that are of a personal nature as well as those whose performance can be delegated or substituted? Would it be relevant to research how to increase reliance on “just-in-time delivery” performances? From an economic development perspective, does specific performance deserve to be encouraged or discouraged? Could countries poorer than France and Germany afford an ineffective remedial law in a world market that is highly competitive and dependant on the commercial practice that reduces the existence of “anchored vessels that earn no freight”?
The following is a summary of a 2009 decision by the Supreme Court of New York’s Kings County, written by the Judge Jack M. Battaglia. In this case, purchasers-plaintiffs brought an action against a vendor-defendant, seeking specific performance of a contract for sale of a cooperative apartment. The plaintiffs moved for preliminary injunction to prohibit the defendant from conveying or otherwise encumbering the 1188apartment, pending adjudication of action, for summary judgment, and to amend caption. Ultimately, the court held that the purchasers were not entitled to summary judgment on specific performance claim. This case is particularly important because it shows how a thoughtful judge attempts to achieve equity by looking at conditions of the marketplace and not simply legal doctrines in the abstract.
Joseph Lezell and Yachiel Michael Jaffe v. David Forde102
Supreme Court, King’s County, New York
Specific performance is an equitable remedy, and so the requirement … that there be no adequate remedy at law for it to be ordered. Satisfaction of the requirement is, in effect, presumed when real property is the subject of the contract. “The pleading itself is sufficient to show that the plaintiff has no adequate remedy, or not one, at least, which may be full, adequate, and perfect.”
“(A)s to contracts pertaining to personal property,” however, “(t)he rule is that … a party should be confined to his action for damages, unless it appears that he is entitled to the thing contracted for in specie, which to him has some special value and which he cannot readily obtain in the market, or in cases where it is apparent that compensation in damages would not furnish a complete and adequate remedy.
Specific performance of a contract for the purchase and sale of stock was ordered where the stock “had never been listed on any exchange or had any quoted value or any definite market price or any certain value capable of exact ascertainment” and “the defendant was the owner of at least ninety-two percent of the stock and controlled the balance.” (“[T]rading in defendant’s stock was so thin that plaintiff would be unable to purchase the number of shares to which it is entitled on the open market, and nearly half of the outstanding shares were held by insiders or members of their families.”)
Similarly, “while specific performance is available in appropriate circumstances for the breach of a commercial or residential lease, this equitable remedy is not awarded as a matter of course to enforce real property leases.” (“[S]pecific performance of a lease can only be awarded upon a showing of uniqueness.”) “The word ‘uniqueness’ is not … a magic door to specific performance.” “A distinction must be drawn between physical difference and economic interchangeability.” “The point at which breach of a contract will be redressable by specific performance thus must lie not in any inherent physical uniqueness of the property but instead in the uncertainty of valuing it.”
Where specific performance of a lease is sought, the distinction between physical difference and economic interchangeability may not always be evident.
The question is whether, for purposes of an action for specific performance, the ownership interest in a cooperative apartment, comprised of shares of the corporate owner of the property and a long-term proprietary lease, should be 1189treated as real property, requiring no showing as to an adequate remedy at law, or “irreparable harm” for purposes of preliminary injunctive relief, or should be treated as personal property, requiring a showing of “uniqueness,” however conceived. In other words, should the whole be found greater than the sum of its parts?
The ownership interest in a co-operative apartment is sui generis….
The growth of co-operative ownership of apartment buildings…. especially in New York City, has created legal problems not resolved by uncritical resort either to the rubrics governing real property or those governing personal property …
“Neither the stock certificate nor the lease, inseparably joined, can appropriately be viewed or valued in isolation from the other. Nor may a dynamic jurisprudence ignore the manner in which economic affairs are conducted or the perception that the members of society have in conducting their affairs.”
As a result, “stock in a residential cooperative corporation with its appurtenant proprietary lease are subject to various characterizations as realty or personalty depending upon the purpose of the characterization.”
Specific performance and related preliminary injunctive relief are available remedies, in the appropriate case, for the breach or threatened breach of a contract for the purchase and sale of a cooperative apartment. For the most part, however, the decisions do not address the “adequate remedy at law” or “irreparable injury” requirements for specific performance and related injunctive relief.
An exception is Seitzman v. Hudson River Associates, in which the First Department upheld a preliminary injunction in an action for specific performance, finding irreparable injury in part by reason of a provision in the contract that “(purchaser) shall have such remedies as he is entitled to at law or on equity, including but not limited to specific performance because the Apartment and possession thereof cannot be duplicated.” But the court also found that “[i]f plaintiffs are relegated to monetary damages by denial of injunctive relief, they will be prevented from having an office in the same building in which they live—not a minor consideration, in Manhattan.”
Although not addressing the requirements for equitable relief, another First Department opinion states that “a proprietary lease is no different from any other type of lease” and “[c]ooperative apartment stock is … like any other stock in a corporation owning real estate.” “It does not appear that the pairing of the two together does anything to create a new classification of real estate.”
It is clear that a contract for the purchase and sale of the ownership interest in a cooperative apartment is governed, as a contract for the sale of goods, by Article 2 of the U.C.C., including Article 2’s remedy provisions. But none of the decisions that address specific performance of a contract for the purchase and sale of a cooperative apartment makes mention of U.C.C. section 2–716, Buyer’s Right to Specific Performance or Replevin.
Section 2–716(1) provides that “[s]pecific performance is no longer limited to goods which are already specific or ascertained at the time of contracting. The test of uniqueness under this section must be made in terms of the total situation which characterizes the contract.” “[T]he use of the term ‘unique goods’ is not intended to revive the common-law tests of equity jurisdiction and is not the sole test for relief.” “[U]niqueness is not the sole basis of the remedy under this section for the relief may also be granted ‘in other proper circumstances’ and inability to cover is strong evidence of ‘other proper circumstances.”
The reference to “cover” is to the remedy provided by section 2–712. “[T]he buyer may ‘cover’ by making in good faith and without reasonable delay any reasonable purchase of or contract to purchase goods in substitution for those due from the seller.” “The buyer may recover from the seller as damages the difference between the cost of cover and the contract price together with any incidental or consequential damages …, but less expenses saved in consequence of the seller’s breach.” Referring to “the section on specific performance of contracts for unique’ goods,” the Official Comment states that “availability of the goods to the particular buyer for his particular needs is the test for that remedy.”
The intended meaning of “unique” and its relationship to “other proper circumstances” as requirements for specific performance under section 2–716 is not entirely clear. But a legislative policy to broaden the circumstances in which the remedy would be appropriate does seem clear, and, particularly with the reference to the cover remedy, the availability of substitute goods in the market-in other words, “uniqueness” in an economic sense-is central to the determination. The policy appears consistent with the “distinction between physical difference and economic inter-changeability” and the availability of substitute goods as a central consideration is hardly a recent innovation.
The upshot of all this seems to be that a claim for specific performance of a contract for the purchase and sale of a cooperative apartment is not treated like real property for purposes of an assessment of the adequacy of a remedy at law or the existence of irreparable injury, but those assessments are tied to the operative market for cooperative apartments at the time and place of actual or threatened breach of the contract. The result is consistent with equity, the attempt to achieve fairness in the individual case.
One might question, therefore, the persistence of the special benefit given to real property, grounded in the culture and economics of more than a century ago, over the cooperative form of ownership, on which the real estate market in modern New York City depends. And what of the condominium unit, declared “for all purposes” to “constitute real property?” A claim for specific performance of a contract for the purchase and sale of a condominium apartment is deemed to involve real property … but this Court is unaware of any decision that expressly addresses the requirements for an equitable remedy. These are questions for another day, and, ultimately, a higher court.
Plaintiffs’ Verified Complaint, or at least the incomplete copy included with the motion papers, contains no allegation as to the “uniqueness” of apartment 1191F1 at 446 Kingston Avenue, or as to the inadequacy of a remedy at law or irreparable injury if specific performance is not ordered….
The contract of sale does contain a provision that, in the event of Seller’s default, “Purchaser shall have such remedies as Purchaser is entitled to at law or in equity, including specific performance, because the Unit and possession thereof cannot be duplicated.” … But, although not insignificant, the provision in itself is insufficient to establish entitlement to an equitable remedy.
Plaintiffs have, therefore, failed to demonstrate a likelihood of success on the merits of their cause of action for specific performance or irreparable injury if preliminary injunctive relief is not granted.
Plaintiffs’ motion is denied in its entirety.
As noted by Judge Battaglia, “Specific performance is an equitable remedy … and so the requirement is that there be no adequate remedy at law for it to be ordered. Satisfaction of the requirement is, in effect, presumed when real property is the subject of the contract.”103 Why should the requirement that there be no adequate remedy at law be presumed in the case of real property and not, say, in the case of valuable personal property? Is it a reflection of the uniqueness that rural America attributed to real property and especially to land or buildings on it? Was this the “rural” attitude that Professor Karl Llewellyn was referring to in his landmark article “Across Sales on Horseback”?104 Curiously, many of the civil law jurisdictions studied in this book arrive at the same conclusion as that alluded to by Judge Battaglia but through a different reasoning—the obligation to convey land usually entails the obligation to sign a public deed, which is an obligation “to do” as opposed to an obligation to “to give.” A person cannot be compelled to do something he does not want to for that would be tantamount to some form of slavery, thus there must be a substituted performance often by a judge signing the deed of conveyance of Blackacre.105 No one has traced the development of the dichotomy of obligations “to give” and “to do” and their relationship to specific performance as insightfully as did Professor Dawson whose landmark study I summarized in this chapter.106 Please re-read his comments on the adequacy test and see if you are satisfied with Judge Battaglia’s analysis. If the uniqueness of the personal property is no longer a “magic door” to specific performance, what is? Do you agree with Judge Battaglia (and an increasing number of other judges) that the test of uniqueness is no longer “the inherent physical uniqueness of the property but instead in the uncertainty of valuing it.” If so, why? In attempting to establish the legal nature of a lease of real property accompanied inseparably with the stock in the cooperative building where the premises are located, Judge Battaglia states: “Stock in a residential cooperative corporation with its appurtenant proprietary lease is subject to various characterizations as realty or personalty depending upon the purpose of the 1192characterization.”107 Does any particular school of comparative and historical legal thought come to mind as agreeing with this analysis? After reading this decision, would you conclude that the law of specific performance has declined in importance in United States law given the prevalence of actions for damages? Or would you conclude, that specific performance, or aspects of it, must now be found in cases involving the law of injunctions (temporary restraining orders and preliminary injunctions), in the law of cover and substitute performance, in actions for the price, and impossibility or impracticability of performance, among others?
__________________________
1 See Glossary, “Documentary Sales.”
2 See Teófila Astorga Vda. De Aceves, The Supreme Court of the Justice of the State of Sinaloa (El Supremo Tribunal de Justicia del Estado de Sinaloa), Semanario Judicial de la Federación [SJF], Quinta Época, tomo CXXV, 1953, tesis 5313, Sec. 1a, Pagina 193 (Mex.).
3 Boris Kozolchyk, Symposium: Enhancement of Mexican Commercial Adjudication by Improved Transactional Fact-Finding, Application of Equitable Principles, and Drafting of Standard Contracts and Best Contractual Practices: English Material: Working Group Reference Materials, 27 ARIZ. J. INT’L COMP. L. 441 (2010). A New York Real Estate Escrow Agreement with Consumer Protection Ingredients, 27 Ariz. J. Int’l & Comp. L. 465 (2010).
4 See Rafael Illescas Ortiz & Pilar Perales Viscasillas, Derecho Mercantil Internacional: el Derecho Uniforme [International Commercial Law and Uniform Law] 197–332 (2003) (for a general overview of remedies under Spanish law). See also Maria del Pilar Perales Viscasillas, El Contrato De Compraventa Internacional de Mercancías (Convención de Viena de 1980) (2001), available at http://www.cisg.law.pace. edu/cisg/biblio/perales1.html (on the Vienna Convention); and Maria del Pilar Perales Viscasillas, El derecho uniforme del Comercio Internacional: los principios de Unidroit (ámbito de aplicación y Disposiciones Generales) [Uniform International Commerical Law: The UNIDROIT Principles (scope of application and general provisions)] 223 Revista de Derecho Mercantil 221 (1997) (on the UNIDROIT General Principles); and Maria del Pilar Perales Viscasillas, UNIDROIT Principles of International Commercial Contracts: Sphere of Application and General Provisions, 13 Ariz. J. Int’l & Comp. L. 381, 390–441 (1996). See also Boris Kozolchyk, The UNIDROIT Principles as a Model for the Unification of the Best Contractual Practices in the Americas, 46 Am. J. Comp. L. 151 (1998).
5 See infra §§ 29:5–29:7. See also Kozolchyk, Fairness, at 229–30 & 257–58.
6 See, e.g., Cód. Com. (Mex.) art. 376 (2008) (translation by author). It states, “In commercial sales, once the contract is perfected, the complying party will have the right to claim to the non-complying party the resolution or compliance of the contract, and reparation, apart from damages.” Id. (Emphasis added.) The reference to the Spartan behavior belongs to William Hedrick, a former student and distinguished lawyer. See his path-breaking article: William Headrick, La Rescisión de la Compraventa, 49 Revista de la Facultad de Derecho de la U.N.A.M. 83 (1963).
7 See infra § 29:6 (for the decision by the Magistrate Judge Agustín Mercado Alarcón in Pedro J, González 1637/63). It states:
If the defendant executes a contract agreeing to transfer a piece of land to the state government and then transfers it to a private party, the defendant will be criminally guilty of embezzlement. He is not excused from such a crime by alleging that he acted the way he did because the state government did not perform according to the draft of the contract and that he does not consider himself bound to such a document … The fact that the state government as an entity and acting in its private capacity did not perform its contractual obligations does not give the defendant the right to consider the contract as terminated, nor does it allow him to transfer the rights at issue …
Id.
8 See Berger, Encyclopedic Dictionary, at 401 (for an illustration on how the compensatio operated under Roman Law.) The author explains that in classical law, the judge could, when the creditor acted in good faith and as part of a good faith inspired decision (bona fide iudicum) take into account what the plaintiff owed the defendant from another transaction and condemn the defendant to pay the balance if the debt was larger. Berger states:
Later a set off of reciprocal debts was available under certain circumstances [without judicial intervention] through the exceptio doli. The practice of the cognitio extra ordinem favored the development of the institution [of compensatio] and thus it became a general form of extinction of obligations which operated beyond the judicial courts. . ”
Id. (emphasis added).
9 See Cód. Com. (El. Sal.) arts. 957–959 (1983); Cód. Com. (Hond.) arts. 703–706 (1950); and Cód. Com. (Guat.) arts. 682–687 (1877) (on the right to retain possession of goods).
10 See, e.g., id. art. 870. It states: “The innkeeper has priority over the guest’s luggage and personal property to cover unpaid lodging, and for that effect, he can retain possession over these assets until he receives payment of the amount owed by the guest.” Id. (translation by author). See also Cód. Civ. (El. Sal.) art. 2221(1) (1858).
11 See id. art. 916 & Cód. Civ. (Guat.) arts. 1981–1982 (1877).
12 See Cód. Com. (El. SalUpon effective notice of cure, rights of the aggrieved party that ar.), supra note 9, art. 1322; Cód. Civ. (El. Sal.), supra note 10, art. 2221(2); and Cód. Com. (Hond.), supra note 9, art. 1081.
13 UNIDROIT Principles of International Commercial Contracts art. 7.3.1, UNIDROIT International Institute for the Unification of Private Law (2010), http://www.unidroit.org/english/principles/contracts/principles2010/integralversionprinciples2010–e.pdf. Article 7.3.1 UNIDROIT Principles provides:
ARTICLE 7.3.1 (Right to terminate the contract)
(1) A party may terminate the contract where the failure of the other party to perform an obligation under the contract amounts to a fundamental non-performance.
(2) In determining whether a failure to perform an obligation amounts to a fundamental non-performance regard shall be had, in particular, to whether
(a) the non-performance substantially deprives the aggrieved party of what it was entitled to expect under the contract unless the other party did not foresee and could not reasonably have foreseen such result;
(b) strict compliance with the obligation which has not been performed is of essence under the contract;
(c) the non-performance is intentional or reckless;
(d) the non-performance gives the aggrieved party reason to believe that it cannot rely on the other party’s future performance;
(e) the non-performing party will suffer disproportionate loss as a result of the preparation or performance if the contract is terminated.
(3) In the case of delay the aggrieved party may also terminate the contract if the other party fails to perform before the time allowed it under Article 7.1.5 has expired.
Id. See also id. arts. 7.3.3. & 7.3.4.
14 See infra § 29:7.
15 BGB § 323, art. 321 (2012).
16 See infra § 29:7.
17 See infra § 27:4(D).
18 UNIDROIT Principles of International Commercial Contracts, supra note 13, art. 7.4.8.
19 Int’l Chamber of Commerce, Uniform Customs and Practice for Documentary Credits [UCP] No. 290, art. 8(f) (1974). For a discussion of the origin and the effect of this provision, see supra § 24:6(F).
20 See supra § 24:3(B)(4).
21 See The Theodosian Code and Novels and the Sirmondian Constitution 65 (Clyde Pharr trans., 1952) (citation omitted), cited in Kozolchyk & Furnish, A Comparative Analysis 235 & 256 n.76.
22 See Boris Kozolchyk, Law and the Credit Structure in Latin America, 7 Va. J. Int’l L. 1, 10–11 (1966–1967) (on the interaction of the illegality of the Pactum Commissorium, usury and secured transactions loan in Latin America). See also supra § 9:2(E)(4) (for a discussion of the impact of the strict definition of usury upon commerce during pre-codification France).
23 I am thankful to Joaquin Picado Esq. from San José, Costa Rica, an LL.M. student, for the text of this decision.
24 Cód. Civ. (Costa Rica) art. 627 (1841) (translation by author).
25 Id. art. 421 (translation by author).
26 Cód. Com. (Costa Rica) art. 536 (1964) (translation by author).
27 Organization of American States [OAS], Model Inter-American Law on Secured Transactions, adopted at the Sixth Inter-American Specialized Conference on Private International Law (CIDIP-VI), (Feb. 8, 2002) art. 17, see also Kozolchyk & Furnish, A Comparative Analysis, at 16–17.
28 I am thankful to Susan Jacqueline Butler, German and U.S. Attorney, and a former student of mine, for providing me with this decision and its translation on May 15, 2002.
29 Id.
30 Id.
31 Interviews with German Bankers conducted by Boris Kozolchyk, James E. Rogers Colleg of Law, Univ. of Ariz. (1971).
32 Id.
33 Id.
34 Heywood Fleisig, Secured Transactions: The Power of Collateral, 33 Finance & Development 44, 46 (1996), available at at http://www.worldbank.org/fandd/english/0696/articles/0150696.htm.
35 Honduras, Law of Secured Transactions, Decree no. 182–8009, La Gaceta, Diario Oficial de la Republica de Honduras, Num. 32, 125 (Jan. 28, 2010) (Ley de Garantias Mobiliarias, Decreto no. 182–2009), La Gaceta, Diario Oficial de la Republica de Honduras (28, Enero 2010) [hereinafter Honduras, Sec. Trans. L.], http://www.garantiasmobiliarias.hn/ley.pdf.
36 Id. art. 57 (translation by author).
37 Id. art. 66 (translation by author).
38 Decree 51 art. 3, Law on Secured Transactions, Diario Oficial [D.O.] (2007) (Guat.), available at http://db.natlaw.com/subscribe.php?url=/interam/gu/bk/tn/stgubk00034.pdf. See also Honduras, Sec. Trans. L., supra note 35; [OAS], Model Inter-American Law, supra note 27; The World Bank Group, Mexico Country Brief (2000) (on file with this author).
39 See Kozolchyk & Furnish, A Comparative Analysis, at 242 (in relation to these studies).
40 See J. Holmes, The Path of the Law, 10 Harv. L. Rev. 457, 462 (1897).
41 John Philip Dawson, Specific Performance in France and Germany 57 Mich. L. Rev. 495 (1958–1959). The numerous citations to specific pages of Dawson’s article have the purpose of facilitating the reader with access to rich sources of information that this author uses, and hopefully some of the readers of this book will too.
42 Id. at 496 (citation omitted).
43 Id. at 500–501.
44 Id. at 501.
45 Id.
46 Id. (citation omitted).
47 Id. For example, D.45.1.2 states that: “Some stipulations involve giving and some involve doing.” The formulas that make reference to iudices normally say that they are addressed to what the defendant must “give or do.” Id. at 501 n.17. But in D. 50.16.218, Paul was cited as follows: “The term ‘to do’ (facere) includes every kind of doing such as giving, paying, judging …” Id.
48 Id. at 502 (citation omitted).
49 Id. at 503.
50 Id. at 503. It states, “The facts known of Martinus are collected by Kantorowicz, Studies in the Glossators of the Roman Law 86–87 (1938).” Id. at 503 n.19.
51 Id. at 503.
52 Id. at 504 (citations omitted).
53 Baldus, Commentary on C.4.49, cited in id. at 504 n.26.
54 Id. at 504.
55 Id. at 508.
56 Id. at 509.
57 Pothier, I Obligations, at 84, 87, 92–93 (in reference to §§ 141, 146, 156–158).
58 Dawson, supra note 42, at 510.
59 C. Civ. (Fr.) 1142 (Barrister 1804).
60 Dawson, supra note 42, at 511 (citing arts. 1136, 1138, 1583, 938, 1703 of the Code Civil).
61 Id. at 510.
62 See supra § 8:7(G) (on the persuasiveness of legal maxims).
63 Dawson, supra note 42, at 509.
64 Id. at 512–14.
65 Id. at 513 & 524.
66 Id. at 521.
67 Loi n. 49–972 du 21 juillet 1949 donnant le caractère comminatoire aux astreintes fixées par les tribunaux en matière d’expulsion, et en limitant le montant (1949), available at http://www.legifrance.gouv. fr/affichTexte.do?cidTexte=LEGITEXT000006068069&dateTexte=20120531.
68 Dawson, supra note 42, at 524–25.
69 Konrad Zweigert & Hein Kötz, Introduction to Comparative Law Volume II—The Institution of Private Law 165 (Tony Weir trans., 2d rev. ed. 1987).
70 Henrik Lando & Caspar Rose, On the Enforcement of Specific Performance in Civil Law Countries, 24 Int’l Rev. L. & Econ. 473, 478 (2004).
71 See supra § 12:1 & 12:3(A).
72 Dawson, supra note 42, at 525.
73 Id. at 525. It states, “References to opposing views are collected by Ziebarth, die Realexecution Und die Obligation § 16 (1866),” cited in id. at 525 n.83.
74 Id. at 526.
75 Id.
76 Begruendung des Entwurfs Einer Deutschen Civil Prozessordnung 573–77 (1872), cited in id. at 526 n.86 and accompanying text.
77 Id.
78 See Zivilprozessordung [ZPO] [Code of Civil Procedure], Jan. 30, 1877, Reichsgesetzblatt [RGBI.], 83, as amended, arts. 883 & 886 (Ger.). [hereinafter ZPO]; see also art. 884 ZPO, for a similar provision.
79 Id. art. 888.
80 Id. arts. 894–896.
81 Id. art. 888.
82 BGB, supra note 15, § 241.
83 Id. § 249.
84 Id. § 251.
85 Id. § 250, 283 & 326.
86 Id. § 251 ¶ 2.
87 Dawson, supra note 42, at 530.
88 Konrad Zweigert & Hein Kötz, An Introduction to Comparative Law Volume 484 (Tony Weir trans., 3d rev. ed. 1998).
89 Lando & Rose, supra note 71, at 478.
90 Zweigert & Kötz, supra note 89, at 484.
91 See supra § 28:7(B)(2).
92 Lando & Rose, supra note 71, at 479.
93 Id.
94 Dawson, supra note 42, at 495–96.
95 See, among other decisions, Portnoy v. Brown, 430 Pa. 401 (1968); Roth v. Hartl, 365 Pa. 428 (1950); and First National State Bank of New Jersey v. Commonwealth Federal Savings and Loan Association, 610 F.2d 164 (3d Cir. 1979).
96 See Girard Bank v. John Hancock Mut. Life Ins. Co., 524 F. Supp. 884, 895 (Pa. 1981).
97 McCallister v. Patton, 214 Ark. 293 (1948).
98 Id. at 293.
99 Id.
100 Dawson, supra note 42, at 532.
101 See supra § 28:7(B)(2).
102 Joseph Lezell et. al. v. David Forde, 26 Misc. 3d 435, 442–47 (2009) (citations omitted).
103 26 Misc. 3d 435, at 442.
104 Karl Llewellyn, Across Sales on Horseback, 52 Harv. L. Rev. 725 (1939).
105 See supra § 22:10(K).
106 See supra § 28:7(B).
107 26 Misc. 3d 435, at 444.