12.5.4 Restitution of Benefits Received
12.5.5 Exceptions: Restitution Not Possible or Appropriate
Avoidance is a process through which an aggrieved party, by notice to the other side, terminates the contractual obligations of the parties.[1] As a result of the avoidance, both parties are released from their obligations. However, it is likely that either party might be left with property that has been transferred or payment that has been made by the other. In this case, each party that has performed its own obligation can claim restitution of whatever was paid (price) or supplied (goods or something ancillary to them) under the contract, and if both parties have to make restitution, it must be done concurrently.[2]
The CISG contains four articles on the effects of avoidance. The general rule is found in Art. 81, while Arts. 82, 83, and 84 specify the concrete duties of the seller and buyer in cases of avoidance of contract. Under the UNIDROIT Principles, two articles are related: Art. 7.3.5 prescribing the Effects of Termination in General; and Art. 7.3.6 dealing with Restitution. And under the PECL, Arts. 9:305 to 9:309 govern the nature and effect of termination under the European Principles.
Generally speaking, termination affects the legal life of the contract and the contractual relationship of the parties.[3] In the following, the effects of termination will be examined in details, involving such issues as relief of future performance, unaffected rights and obligations after termination and restitution.
12.2 RELIEF OF FUTURE PERFORMANCE
The primary effect of the avoidance of the contract by one party is that both parties are released from their obligations to carry out the contract.[4] In this respect, CISG Art. 81(1) provides in pertinent part that avoidance of the contract releases both parties from their obligations under it. Thus, the seller need not deliver the goods and the buyer need not take delivery or pay for them.[5] Under the Convention, the most important obligations are generally: a) the obligations of the seller to deliver the goods, to transfer title to the goods and to hand over the documents; and b) the obligations of the buyer to pay the price and to take delivery of the goods. If the obligations have not been fulfilled by the moment of the avoidance of the contract, the parties do not have to fulfill them later,[6] i.e. the other party could refuse to accept performance.[7]
Under the UNIDROIT Principles, Art. 7.3.5(1) prescribes that "Termination of the contract releases both parties from their obligation to effect and to receive future performance." This provision states the general rule that termination has effects for the future in that it releases both parties from their duty to effect and to receive future performance.[8] Much like CISG Art. 81(1) or UPICC Art. 7.3.5(1), PECL Art. 9:305(1) basically provides that termination releases both parties to the contract from their obligation to effectuate and receive future performance. Thus, by the notice of termination to the other side, an aggrieved party may either refuse to perform its own obligations, which he may also do on a temporary basis without terminating the contract by withholding its performance; or refuse future performance, including cure of any defective performance already made, from the other party.
In short, the main consequence of termination is that both parties are free in the sense that they are released from the duties and obligations assumed under the contract, except the obligation to pay damages (as well as the right to claim and the obligation to make restitution).[9] However, one should note that partial avoidance of the contract under CISG Art. 51 or 73 releases both parties from their obligations as to the part of the contract which has been avoided (and gives rise to restitution as to that part).[10] As to be shown below, this point has also been arguably supported by the two sets of Principles. Indeed, all systems now accept that where a contract for performance in successive parts or installments is terminated after some parts of it have been performed, it may be terminated for the future without the need to undo the completed parts.[11]
12.3 RETROSPECTIVE OR PROSPECTIVE APPROACH
The various legal systems exhibit great differences in concepts and terminology in the area dealing with the effects of termination. The differences in the practical results obtained are not so great but are still significant. The most apparent difference is between systems such as the FRENCH which treats résolution as essentially retrospective and those such as the COMMON LAW which sees termination (or "rescission for breach") as essentially prospective.[12]
In some legal systems avoidance of the contract eliminates all rights and obligations which arose out of the contract. In such a view once a contract has been avoided, there can be no claim for damages for its breach and contract clauses relating to the settlement of disputes terminate with the rest of the contract.[13] It would be very inconvenient, however, to treat a contract which has been terminated as cancelled in the sense of never having been made. First, if the contract had never been made the aggrieved party might be precluded from claiming damages for loss of its expectations, which would not seem an appropriate outcome. Secondly, if the contract were cancelled in the sense of never having been made, this might prevent the application of dispute settlement clauses or other clauses which were clearly intended to apply even if the contract were terminated.[14] On the other hand, in "prospective" systems such as the COMMON LAW claims by either party which arose before the date of termination are largely unproblematic: they are not affected by subsequent termination, except that if money due but as yet unpaid would in any event have to be repaid after termination, it will for obvious reasons cease to be payable. It seems likely that other systems would reach the same result even if in theory termination was retrospective; for instance, in FRENCH law for a contract à exécution successive only résiliation for the future might be ordered.[15] Indeed, as the differences are sometimes more apparent than real it may be helpful to consider the effect of "termination" in the various systems in a number of factual situations.[16]
As regards the question whether termination has retrospective or prospective effects on the contract, it is hard to say that the Convention adopted any single approach.[17] This is because it provides, on the one hand, that avoidance releases both parties from the obligations they have undertaken under the contract, subject to any damages which may be due and without affecting any provision of the contract for the settlement of disputes or any other provision of the contract governing the rights and obligations of the parties consequent upon the avoidance of the contract (Art. 81(1)). As to be discussed separately infra. 12.4, the two sets of Principles adopt a similar mechanism. Under the UNIDROIT Principles, Termination does not preclude a claim for damages for non-performance (Art. 7.3.5(2)) or affect any provision in the contract for the settlement of disputes or any other term of the contract which is to operate even after termination (Art. 7.3.5(3)). Under the PECL, Art. 9:305 are most pertinent to this point: Termination of the contract [...] does not affect the rights and liabilities that have accrued up to the time of termination (Art. 9:305(1)); nor does it affect any provision of the contract for the settlement of disputes or any other provision which is to operate even after termination (Art. 9:305(2)).
On the other hand, the Convention requires both parties to return all benefits of possession (profits and advantages of use). If the seller is required to return the price, he must also pay interest from the date on which the price was paid. Similarly, in contrast to the seller who is bound to pay interest on the refundable price, the buyer is required to account to the seller for all benefits which he has actually derived from using the goods or part of them (Art. 84). In addition, it imposes on the parties reciprocal duties of restoration (Art. 82). An obvious example of adoption of the retrospective effect of termination by the Convention can be found when an installment contract is entirely terminated after delivery of some defective installments (Art. 73(3)). Under this provision, all installments are to be returned even though some of them are perfect. These instances reveal that, although the Convention does not pose the problem in abstract terms of retrospectivity, its wording implies retrospective effects of avoidance.[18] Accordingly, it can be said that under the Convention an avoidance only "redirects" the main obligations of the contract; it does not void the contract ab initio.[19]
Nonetheless, it should be said that the contract is not nullified upon the exercise of the remedy of avoidance. Some obligations of the parties are terminated and some remain in existence. The specific obligations characteristic of the sales contract end or performance already made in fulfilling these obligations has to be returned in goods or in price so that a situation is achieved as from before the conclusion of the contract. However, the contract remains in force as long as there are still claims of the parties under it, including claims for returning the goods or the price. On these grounds, the contract cannot be considered as terminated either ex nunc or ex tunc, although legal doctrine does not adopt unified opinion on that question. The discussion, whether the avoidance operates retrospectively or prospectively is said to be of little help as avoidance always releases the parties from future characteristic obligations and, at the same time, imposes on the parties reciprocal duties of restoration having retrospective effect.[20]
Thus, it may be concluded that the Convention has adopted a quasi-rescission and not a real one.[21] As to be demonstrated below, such a quasi-rescission mechanism is followed either under the UNIDROIT Principles or under the PECL. However, it is also to be noted that the UPICC/PECL approach differs to some extent from the CISG approach. Such differences will be given details separately infra. 12.5.
12.4 UNAFFECTED RIGHTS AND OBLIGATIONS AFTER TERMINATION
12.4.1 Continuing Right to Claim Damages
Apart from the termination, which releases both parties from their duty to effect and to receive performance, claims for damages can be asserted by the aggrieved party under corresponding rules of each of the three instruments or based on contractual provisions. This refers in particular to claims for damages which have arisen in connection with the obligations from which he is now released. Damages, for instance, have to be paid because of delay, even if the contract is later avoided because of that delay and even if damages arise because of avoidance.[22]
According to CISG Art. 81(1), the fact that a party has resorted to the avoidance remedy does not deprive him of his right to claim damages that may be due under the Convention (pursuant to Arts. 74, 75, and 76) or the contract. Indeed, CISG Arts. 45 and 61 have already made it clear that claims for damages can be asserted apart from other legal consequences of breaches of contract, thus also apart from avoidance. The term "damages which may be due" is in this context conceived as a bit tight, for the same should apply to obligations to pay penalties under the contract in their different manifestations.[23]
Similarly, under Art. 7.3.5(2) of the UNIDROIT Principles, the fact that, by virtue of termination, the contract is brought to an end, does not deprive the aggrieved party of its right to claim damages for non-performance in accordance with the rules laid down in section 4 of Chapter 7 (Arts. 7.4.1 et seq.). The PECL provisions that are relevant to this point are to be found in Art. 8:102, entitled Cumulation of Remedies, which clearly states that a party is not deprived of its right to damages by exercising its right to any other remedy. Thus, a party which pursues a remedy other than damages is not precluded from claiming damages. A party which terminates the contract may, therefore, also claim damages.[24]
Thus, the primary effect of termination (supra. 12.2) may be more correctly stated as: "To the extent that the right to claim damages remains unaffected, the effects of contract avoidance are that the parties are deemed to have performed their respective obligations and no further performance remains to be tendered."[25]
12.4.2 Unaffected Clauses Intended to Apply despite Termination
Although avoidance of the contract relieves the parties from their contractual obligations, this does not mean that every clause of the avoided contract ceases to be effective or that all the rights and obligations provided for in the contract automatically come to an end.[26] Generally speaking, dispute resolution clauses always remain binding after the contract ceases to exist by way of avoidance or automatic termination.[27] All systems now accept that termination will not affect the application of clauses such as arbitration clauses which were intended to apply despite termination.[28]
Hereby a widely recognized rule is repeated under each of the three instruments. Under CISG Art. 81(1), if the contract itself provides that a party may exercise various rights and that the other party must fulfill certain obligations after the contract is avoided, these provisions, despite the contract having been avoided, will remain effective until those rights and obligations are fully realized. These contractual rights and the corresponding obligations to honor these rights do not cease to exist simply because the contract is avoided. These clauses, unlike those that are performance-related, are not avoidable unless the contract itself or a subsequent agreement between the parties indicates otherwise.[29] Under either of the two sets of Principles, a similar rule is set out in UPICC Art. 7.3.5(3) and PECL Art. 9:305(2), respectively. Thus, notwithstanding the general rule laid down in UPICC Art. 7.3.5(1)/PECL Art. 9:305(1), there may be provisions in the contract which survive its termination. This is the case in particular with provisions relating to dispute settlement but there may be others which by their very nature are intended to operate even after termination.[30]
The purpose of these provisions is to prevent complete termination of the contract,[31] including those provisions concerning not only those rights and obligations which are ancillary to an avoidance of the contract, like a respective penalty, but such which are to help solve a conflict between the parties and which, of course, are of special importance when that conflict aggravates so that the contract is terminated early, such as arbitration and renegotiation clauses and forum selection clauses, all of which will help the party relying on the avoidance take recourse to remedies provided by the instruments and the applicable law.[32] It is to be noted that the Secretariat Commentary declares non-exhaustive the two named conditions (sentence 2, CISG Art. 81(1)) which continue in existence.[33] This is not convincing because the second condition (any other provision of the contract governing...) actually is a description of general features. The surviving conditions can be multifaceted. They relate to general questions of cooperation between the parties, like agreement of general business terms whose individual elements again have to be examined according to that criterion, agreements on the form of declarations, a general obligation to cooperate, obligations to maintain secrecy, a reservation of title up to restitution, limitation of claims, and the applicable law. Another group of conditions refers to the modalities of performance, i.e. commercial terms, risk bearing, packaging, procurement of licenses, which can play a role where the return of the goods or of the price is concerned. Of particular practical relevance are those agreements which deal with liability, such as penalties, liquidated damages and damage clauses, including possibilities of exemption and restrictions, the amount of interest, etc.[34]
On the other hand, one should note that the rule does not remedy deficiencies which lead to non-validity of an arbitral clause or any other provision intended to apply despite termination under national law, including that based on other conventions.[35] None of these rules say that these provisions are valid; it merely provides the rule according to which avoidance of the contract "does not effect" such provisions.[36] This is confirmed by the Secretariat Commentary: "It should be noted that article 66(1) [draft counterpart of CISG article 81(1)] would not make valid an arbitration clause, a penalty clause, or other provision in respect of the settlement of disputes if such a clause was not otherwise valid under the applicable national law. Article 66(1) [draft counterpart of CISG article 81(1)] states only that such a provision is not terminated by the avoidance of the contract."[37]
12.5.1 In General
Termination may involve nothing for the aggrieved party more than refusing his own performance or refusing future performance from the other party, where nothing has been done by either party, or where any performance made has already properly been rejected, or where the contract is to be performed in successive parts and the parts already performed are not affected. But either party may be left with property transferred by the other, or with a payment made by the other. If this is the case, then a third situation arises: Either party may wish to rid itself of a performance already received, to recover money transferred to the other party and/or to recover property, or its value, transferred to the other party; in other words, in some sense to "undo" what has taken place before the date of termination.[38]
Indeed, even though termination is forward having no retroactive effect in general, there are situations in which it is appropriate to "undo" what has taken place before termination. Thus the aggrieved party may need the right to reject a performance already received if termination means that it is of no value to it; either party may need to recover money already paid to the other party if nothing has been received in return; and either may need to be able to recover other property which has been transferred.[39] These points are dealt with in CISG Arts. 81(2), 82, 83 and 84; UPICC Art. 7.3.6 and PECL Arts. 9:306, 9:307 and 9:308 respectively.
12.5.2 Entitlement of Parties to Restitution on Termination
Under the Convention, if the contract is avoided after one party has performed his obligations in whole or in part, Art. 81(2) entitles that party to claim restitution of what he has supplied or paid and requires the other party to make restitution: "A party who has performed the contract either wholly or in part may claim restitution from the other party of whatever the first party has supplied or paid under the contract. If both parties are bound to make restitution, they must do so concurrently." This provision differs from the rule in some countries that only the party who is authorized to avoid the contract can make demand for restitution. Instead, it incorporates the idea that, as regards restitution, the avoidance of the contract undermines the basis on which either party can retain that which he has received from the other party.[40] In other words, the party who is obligated to make restitution after avoidance does not have to be the breaching party. Whoever has received performance must make restitution in accordance with the Convention and/or any contractual provisions.[41]
Usually, the avoidance of the contract is at the same time accompanied by a claim to return that which has been supplied or paid.[42] It is, however, a condition for the claim to return what has been supplied or paid that the right to such return is asserted. This is justified because the parties may wish to leave what has been supplied or paid, respectively, with the other party.[43] In other words, the parties are free to claim restitution as they may wish to leave what has been supplied or paid with the other party. In the case of a contract for delivery and payment of goods by installment, they may agree to retain what they received prior to the avoidance.[44] On the other hand, subject to Art. 82(2), the party who makes demand for restitution must also make restitution of that which he has received from the other party. "If both parties are required to make restitution, they must do so concurrently" (Art. 81(2), sentence 2), unless the parties agree otherwise.[45]
In other words, if both the seller and the buyer have received performance in whole or in part from one another, then they must make restitution concurrently.[46] However, the rule of concurrent performance does not apply to restitution by the buyer who only demands substitute goods (instead of declaring an avoidance). The seller cannot make a delivery of substitute goods dependent on whether the buyer returns the delivered goods. A Norwegian proposal, which, contrary to trade practices, aimed towards this goal and would have permitted the buyer to keep defective goods until the seller delivers substitute goods, was rejected by a large majority (O.R., p. 136). The question of whether the buyer's restitution obligations to the seller can prevail over claims of his other creditors are matters to be decided by domestic law. Domestic law also governs the details of the transfer in restitution. Its special restrictions are not displaced by Art. 81(2).[47]
In any event, however, the non-performing party may be required by the other party to cover all costs incurred to return that which has been supplied or paid. This rule, although not provided in the Convention, is acknowledged by the doctrine.[48] It is supported in the Secretariat Commentary, which states as: "The person who has breached the contract giving rise to the avoidance of the contract is liable not only for his own expenses in carrying out the restitution of the goods or money, but also the expenses of the other party. Such expenses would constitute damages for which the party in breach is liable. However, the obligation under article 73 [draft counterpart of CISG article 77] of the party who relies on the breach of the contract to 'take such measures as are reasonable in the circumstances to mitigate the loss' may limit the expenses of restitution which can be recovered by means of damages if physical return of the goods is required rather than, for example, resale of the goods in a local market where such resale would adequately protect the seller at a lower net cost (OFFICIAL RECORDS, p. 57)."[49]
Under the UNIDROIT Principles, the relevant provision is Art. 7.3.6(1), which provides for a right for each party to claim the return of whatever it has supplied under the contract provided that it concurrently makes restitution of whatever it has received.[50] In this respect, sentence 1 of Art. 7.3.6(1) UPICC reads as: "On termination of the contract either party may claim restitution of whatever it has supplied, provided that such party concurrently makes restitution of whatever it has received." The present article also applies to the situation where the aggrieved party has supplied money in exchange for property, services etc. (which are beyond the scope of the CISG), which it has not received or which are defective. Money returned for services or work which have not been performed or for property which has been rejected should be repaid to the party who paid for it and the same principle applies to custody of goods and to rent and leases of property.[51] At first glance, the UNIDROIT Principles follow the approach established under CISG Art. 81. However, as to be shown infra. 12.5.5, this is not the case. Except for the basic textual similarities, the two sets of rules differ distinctly in their application. In this point, the PECL approach goes further and thus deserves a separate discussion below (infra. 12.5.3) with details to be developed.
Finally, it is to be recalled that if the contract is partially avoided, the rules governing its effects are relevant to that part of the contract, which has been avoided.[52] Similarly, in the case of a partial avoidance this restitution, naturally, applies only insofar as the performance already made is concerned.[53]
12.5.3 Restitution under the PECL
As already discussed earlier, Art. 9:305 states the general rule that termination of a contract has no retroactive effect. It does not follow from the fact that the contract has been terminated that the party which has performed can get restitution of what it has supplied.[54] Nonetheless, the PECL introduces a set of rules dealing with restitution - the PECL rule according to which the restitution of the goods is available only if the goods do not have any value for the party who received them (Art. 9:306); the principle that restitution of the money paid is subject to the circumstance that the party who paid for a performance did not receive it or it was properly rejected (Art. 9:307); and the rule according to which the party who performed will be entitled to restitution, where possible, only in absence of payment or counter-performance by the other party (Art. 9:308).[55]
12.5.3.1 Property reduced in value: Art. 9:306
Under many different types of contract there is a possibility that the aggrieved party may have received from the other some property which is of no value to it because of the other party's non-performance itself or because it has terminated the contract and will therefore not receive the rest of the performance. In such cases it should have the right to reject the useless property.[56] PECL Art. 9:306 provides for such cases as: "A party which terminates the contract may reject property previously received from the other party if its value to the first party has been fundamentally reduced as a result of the other party's non-performance."
This Article may also apply where the contract is to be performed in distinct installments, if failure to deliver a later installment makes the earlier installments useless. In all the cases suggested the aggrieved party could in the alternative claim damages or reduction in price for the reduced value that the property received now has to it. However it will often be more convenient for it simply to return the unwanted property than to have to dispose of it some other way and, since it is by definition the aggrieved party, it seems appropriate to give it the right to reject. There will be a considerable advantage in rejecting the property if it has not yet paid for it, as it can thus avoid having to pay even a reduced price.[57] Most systems also recognise the rule embodied in Art. 9:306 that the aggrieved party may reject property which has already been delivered to him, and which was itself in conformity to the contract, if the subsequent non-performance has rendered it of no use or interest to him.[58]
12.5.3.2 Recovery of money paid and property: Arts. 9:306, 9:307
PECL Art. 9:307 deals with the recovery of money paid and states as: "On termination of the contract a party may recover money paid for a performance which it did not receive or which it properly rejected." If money has been paid before the date of termination, and assuming that it was not paid as a deposit or on terms that it would be forfeited if the contract was not performed, systems in which termination is seen as retroactive will normally allow the money to be recovered. It does not matter whether the party seeking to recover the money is the aggrieved party or the non-performing party. The COMMON LAW is more restrictive. Except in cases of frustration, it allows recovery by the aggrieved party only where there has been "a total failure of consideration" and by the non-performing party only where the party who had received the money can be restored to his original position.[59] With this regard, the PECL follows a broad approach to restitution as CISG Art. 81(2). Under Art. 9:307 a party may claim back money which it has paid for a performance which it did not receive. This rule has general application where a party which has prepaid money rightfully rejects performance by the other party or where the latter fails to effect any performance. It applies equally to contracts of sale, contracts for work and labour and contracts of lease. The party claiming restitution for money paid may also claim interest.[60]
On the other hand, when it deals with property other than money, Art. 9:308 states that: "On termination of the contract a party which has supplied property which can be returned and for which it has not received payment or other counter-performance may recover the property." In other words, Art. 9:308 provides restitution after termination where a party has supplied a performance other than money without receiving the counter-performance, and the performance can be restored. If the contract is terminated it may claim back what it has supplied under the contract.[61] If the property remains in the possession of the party to whom it was transferred, and is not claimed by a third party, the "retroactive" systems allow the transferor to recover it. However, systems differ where a third party such as a creditor of the recipient claims the property. The PECL follows the CISG in leaving the question of whether the right to restitution enables the claiming party actually to recover the goods in the face of competing claims by third parties to the law applicable to the issue.[62] Art. 9:308 deals exclusively with the relationship between the parties and not with the effect which the contract may have on the property in goods sold or bartered. Whether a creditor of the buyer, the buyer's receivers in bankruptcy, or a bona fide purchaser may oppose the restitution of goods sold is to be determined by the applicable national law.[63] However, where the defaulting party has transferred property to the aggrieved party before termination and if the aggrieved party can restore the property but does not do so, the court may order it to restore it or its value under Art. 9:308.[64]
Among other things, it is to be noted that a contract for the sale or assignment of stocks, shares, investment securities, negotiable instruments and debts is often performed by delivering the warrant certificate or other instrument which gives evidence of the right. If the contract is terminated the seller or assignor should be entitled to recover the paper irrespective of whether this paper is a negotiable instrument or not, subject to third party rights.[65] On the other hand, if a contract for the assignment of a product of the mind is terminated literal restoration of the intangible is sometimes not possible. However, the assignment of patents, trade marks, and other legally protected intangible rights may be called off by a formal declaration or other act of the assignee and thereby returned to the assignor. Furthermore, restoration is possible of things which attach to the intangible. Know-how and literary works are written on paper, paintings are made on canvas, sculptures cast in bronze. Tangible things which in this way materialize the product of the mind may be restored when the contract is terminated. These things often have a value.[66] Moreover, it should be also noted that PECL Arts. 9:307 and 9:308, much like the UNIDROIT Principles, also apply to situations, such as service contracts, where the CISG cannot be applied.
12.5.3.3 Concluding remarks
As it indicates, when the effects of termination on performance already received are concerned, the PECL follows CISG Art. 81(2) and UNIDROIT Principles Art. 7.3.6(1) in taking a broad flexible approach. Thus the PECL is broadly in accordance with those systems which take a liberal approach to restitution after termination and thus enable the court or arbitrator to order full restitution of benefits received. This normally achieves a just settlement on the facts.[67]
However, it is noted that restitution of the property under PECL Art. 9:306 will occur where it is useless for the party that received it. This rule clearly is not compatible with the CISG set of rules. On the other hand, both PECL Arts. 9:307 and 9:308 subject the restitution to the instance where one party has conferred a benefit but has not received the promised counter-performance. Thus, unlike the CISG, where the ability to return the goods received in substantially the condition in which one received them is a prerequisite for avoiding a contract or demanding substitute goods (infra. 12.5.5), the general approach adopted by the PECL is that, upon termination of a contract, both parties are released from their duties to effect and to receive performance (PECL Art. 9:305). A restitution duty, which does not affect the right to terminate the contract, may arise only where one party has conferred a benefit on the other party without receiving the promised counter-performance in exchange.[68]
In other words, as to be discussed in more details infra. 12.5.5, the PECL only give a restitutionary remedy after termination, where one party has conferred a benefit on the other party but has not received the promised counter-performance in exchange. The benefit may consist of money paid (Art. 9:307), other property which can be returned (Art. 9:308) or some benefit which cannot be returned, e.g. services or property which has been used up (Art. 9:309).[69] Nonetheless, it does not matter that the property is worth more than was to be paid for it so that by obtaining restitution the aggrieved party escapes a bad bargain. In other words, the restitution rule also applies when the aggrieved party has made a bad bargain.[70]
12.5.4 Restitution of Benefits Received
Restitution of accruing benefits such as interests or other benefits derived from the performance appears as a natural concomitant of restitution of performances already received. The Convention, under Art. 84, provides for additional rules requiring restitution of benefits received by the parties.[71] In this respect, Art. 84 reads as: "(1) If the seller is bound to refund the price, he must also pay interest on it, from the date on which the price was paid. (2) The buyer must account to the seller for all benefits which he has derived from the goods or part of them: (a) if he must make restitution of the goods or part of them; or (b) if it is impossible for him to make restitution of all or part of the goods or to make restitution of all or part of the goods substantially in the condition in which he received them, but he has nevertheless declared the contract avoided or required the seller to deliver substitute goods."
Going beyond the obligation to restitute the goods under Art. 81(2), this Article stipulates that the benefits have to be accounted for which the party having to restitute the goods obtained from the performances in goods or in price, have to be returned.[72] Where the seller is under an obligation to refund the price, he must pay interest from the date of payment to the date of refund. The obligation to pay interest is automatic because it is assumed that the seller has benefited from being in possession of the purchase price during this period. Since the obligation to pay interest partakes of the seller's obligation to make restitution and not of the buyer's right to claim damages, the rate of interest payable would be based on that current at the seller's place of business.[73] This rule proceeds on the assumption that the seller, within the period in which he has disposal over the price, has a benefit from it, at least in the form of interest, and, therefore, sets the date of the payment as the date from which on interest begins to run. This is the day when the payment is actually made according to the contractually or legally (Arts. 57 and 58) provided procedure; also in cases where the seller in individual cases had disposal of the means only later. Interest runs until the demand for the restitution of the price lapses, in particular by performance or effective setting off.[74]
Where the buyer must return the goods, it is less obvious that he has benefited from having had possession of the goods. Therefore, paragraph (2) specifies that the buyer is liable to the seller for all benefits which he has derived from the goods only if (1) he is under an obligation to return them or (2) it is impossible for him to make restitution of the goods or part of them but he has nevertheless exercised his right to declare the contract avoided or to require the seller to deliver substitute goods (O.R., p. 58).[75] Basically, the buyer does not have to return the equivalent of the benefits which he omitted to draw. This again does not exclude that the seller may assert claims for damages because of loss in value of the goods delivered where the avoidance is based on a breach of contract by the buyer and/or the latter restitutes belatedly. These claims for damages may indeed come close to benefits not drawn. The benefits do not have to be returned in kind, but according to the requirements of international trade, in money.[76]
In sum, Art. 84 reflects the principle that a party who is required to refund the price or return the goods because the contract has been avoided or because of a request for the delivery of substitute goods must account for any benefit which he has received by virtue of having had possession of the money or goods. Where the obligation arises because of the avoidance of the contract, it is irrelevant which party's failure gave rise to the avoidance of the contract or who demanded restitution.[77] Thus, Art. 84 obligates the parties to return all benefits of possession (profits and advantages of use). If the seller is obligated to refund the price, he must also pay interest -- in an amount to be determined by domestic law -- from the date on which the price was paid. In contrast to the seller who is bound to pay interest on the refundable price, the buyer is only obligated to return benefits that he actually derived from using the goods. In addition, Art. 84(2) restricts the duty to return benefits in subparagraphs (a) and (b) to those cases in which the buyer either must return part or all of the goods or the buyer derived benefits before the goods were destroyed, and (complete) restitution therefore has become impossible.[78]
12.5.5 Exceptions: Restitution Not Possible or Appropriate
12.5.5.1 CISG approach: making restitution a prerequisite for avoidance
In some cases restitution will not be possible, for instance, restitution of the received goods. This, however, could not occur with respect to the seller's duty to refund the received price. In such exceptional cases the provisions of Art. 82 of the Convention shall apply. According to the provisions contained in CISG Art. 82, the buyer loses the right to declare the contract avoided or to require the seller to deliver substitute goods if it is impossible for him to make restitution of the goods substantially in the condition in which he received them (Art. 82(1)). However, the buyer retains the right to avoid the contract: if the impossibility of making restitution of the goods or of making restitution of the goods substantially in the condition in which the buyer received them is not due to his act or omission (Art. 82(2)(a)); if the goods or part of the goods have perished or deteriorated as a result of the examination provided for in article 38 (Art. 82(2)(b)); or if the goods or part of the goods have been sold in the normal course of business or have been consumed or transformed by the buyer in the course of normal use before he discovered or ought to have discovered the lack of conformity (Art. 82(2)(c)). One should note that the norm relates merely to the right of the buyer to avoid the contract.
Art. 82(1) simply recognizes the effect of natural causes on the condition of the delivered goods.[79] This point is made clear in the Secretariat Commentary: "The rule in paragraph (1) recognizes that the natural consequences of the avoidance of the contract or the delivery of substitute goods is the restitution of that which has already been delivered under the contract. Therefore, if the buyer cannot return the goods, or cannot return them substantially in the condition in which he received them, he loses his right to declare the contract avoided under article 45 [draft counterpart of CISG article 49] or to require the delivery of substitute goods under article 42 [draft counterpart of CISG article 46]."[80] Thus, the general rule of the Convention, i.e., that the contract may be avoided only if the goods can be returned substantially in the condition in which the buyer received them, is stated in Art. 82(1).[81] In other words, the right to avoid the contract lapses when the goods can no longer be restituted.[82] The ability to return the goods is, therefore, a prerequisite for avoiding a contract or demanding substitute goods. If, because he cannot return the goods, the buyer is barred from avoiding the contract or demanding substitute goods, his other remedies under the contract or the Convention (damages, reduction of price) remain unaffected (Art. 83).[83]
However, the goods to be returned do not have to be the same goods that were received; rather they must be "substantially in same the condition in which" the goods were received.[84] "It is not necessary that the goods be in the identical condition in which they were received; they need be only in 'substantially' the same condition. Although the term 'substantially' is not defined, it indicates that the change in condition of the goods must be of sufficient importance that it would no longer be proper to require the seller to retake the goods as the equivalent of that which he had delivered to the buyer even though the seller had been in fundamental breach of the contract."[85] Moreover, loss or damage to the goods does not in all cases eliminate the right to avoid the contract or to demand substitute goods. On the one hand, according to Art. 82(1), insubstantial damage is irrelevant. Normal wear and tear of the goods would not be in the way of their restitution. It would be different, however, in the case of greater damage which has its cause in the improper use or maintenance of the goods by the buyer. The latter can insofar not rely on grounds for exemption. They would only refer to claims for damages.[86]
On the other hand, Art. 82(2), provides three considerable exceptions to that rule: "The buyer should be able to avoid the contract or require substitute goods even though he cannot make restitution of the goods substantially in the condition in which he received them (1) if the impossibility of doing so is not due to his own act or omission, (2) if the goods or part of them have perished or deteriorated as a result of the normal examination of the goods by the buyer provided for in article 36 [draft counterpart of CISG article 38], and (3) if part of the goods have been sold in the normal course of business or have been consumed or transformed by the buyer in the course of normal use before the lack of conformity with the contract was discovered or ought to have been discovered."[87] Paragraph (2) in Art. 82, therefore, deals with the allocation of the risk of loss of the goods before avoidance.[88] A fourth exception to the rule states in Art. 82(1) is to be found in Art. 70 which states that if the seller has committed a fundamental breach of contract, the passage of the risk of loss under Art. 67, 68 or 69 does not impair the remedies available to the buyer on account of such breach (O.R., p. 58).[89]
While the construction of Arts. 82(2)(b) and 82(2)(c) is rather straightforward, some explanation is required as to Art. 82(2)(a). In any case, under Art. 82(2)(a), the buyer is presumably responsible for the acts or omissions of his personnel. On the one hand, in Schlechtriem's opinion, the acts of third persons can only be attributed to the buyer if his act or -- especially -- his omission has made it possible for the third persons to affect the goods. These questions do not turn on whether the buyer was at fault.[90] It is generally understood that under Art. 82(2)(a), the buyer is responsible for damages caused by acts or omissions by his personnel and by third persons, if he made it possible, by means of acts or omissions, for them to damage the goods.[91] On the other hand, more than mere physical causation is probably required before the buyer's remedies are lost. Otherwise, destruction caused by an accident or force majeure could be attributed to the buyer -- e.g., his taking possession unless the goods would have been destroyed while under the seller's control as well. The words "due to", however, permit the restrictive interpretation that the buyer must not merely have provided the opportunity for third persons or force majeure to affect the goods but also have increased this chance by his act or omission.[92]
Finally, it is to be noted that the Secretariat Commentary points out that the right of either party to require restitution may be thwarted by other rules which fall outside the scope of the international sale of goods. In this context it is stressed: "If either party is in bankruptcy or other insolvency procedures, it is possible that the claim of restitution will not be recognized as creating a right in the property or as giving a priority in the distribution of the assets. Exchange control laws or other restrictions on the transfer of goods or funds may prevent the transfer of the goods or money to the demanding party in a foreign country. These and other similar legal rules may reduce the value of the claim of restitution. However, they do not affect the validity of the rights between the parties."[93] It may thus be concluded that there are so many important exceptions to this principle (of restitution) that the principle itself should constitute an exception.[94]
12.5.5.2 UPICC/PECL approach: focusing on the allowance upon impossible restitution
Under the UNIDROIT Principles, the relevant provision is sentence 2 of Art. 7.3.6(1), which reads: "If restitution in kind is not possible or appropriate allowance should be made in money whenever reasonable." Thus, if the non-performing party cannot make restitution it must make allowance in money for the value it has received.[95]
The Official Comment states with this regard as follows: There are instances where instead of restitution in kind, allowance in money should be made. This is the case first of all where restitution in kind is not possible. Allowance in money is further envisaged by para. (1) of this article whenever restitution in kind would not be "appropriate". This is so in particular when the aggrieved party has received part of the performance and wants to retain that part. The purpose of specifying that allowance should be made in money "whenever reasonable" is to make it clear that allowance should only be made if, and to the extent that, the performance received has conferred a benefit on the party claiming restitution.[96]
Under the PECL, the closest counterpart is Art. 9:309, entitled Recovery for Performance that Cannot be Returned, which reads: "On termination of the contract a party which has rendered a performance which cannot be returned and for which it has not received payment or other counter-performance may recover a reasonable amount for the value of the performance to the other party." According to this Article, recovery for performance that cannot be returned, is subject to the following requirements: (i) that there is a termination of the contract; (ii) that a party has rendered performance and has not received payment or counter-performance for it; and (iii) that performance cannot be returned by the other party. If those requirements are met, the entitled party may recover a reasonable amount for the value of the performance rendered to the other party.[97]
As stated in the Comment to this Article, it frequently happens that after a contract has been terminated one party is left with a benefit which cannot be returned - either because the benefit is the result of work which cannot be returned, or because property which has been transferred has been used up or destroyed - but for which it has not paid. The other party may have a claim for the price, but this will depend upon the agreed payment terms and the price may not yet be payable. It may have a claim for damages, but the party which has received the benefit may be the aggrieved party, or, though it is the one which has failed to perform, it may not be liable for damages because its non-performance was excused under Art. 8:108. It would be unjust to allow it to retain this benefit without paying for it, and Art. 9:309 requires it to pay.[98] In calculating this amount, the PECL Comment on Art. 9:309 provides that, upon termination of a contract, the party which has received the benefit should not be required to pay the cost to the other of having provided it, if the net benefit to it is less, since it is only enriched by the latter amount. Occasionally it may happen that the net benefit to the recipient is greater than the cost of providing it. Then the recipient should not be liable under this Article for more than an appropriate part of the contract price.[99]
12.5.5.3 Comparative perspectives
The two sets of rules contained in the respective regimes of the CISG and the PECL (or the UNIDROIT Principles) are quite different. CISG Art. 82 deals exclusively with whether avoidance is still possible even when goods cannot be returned. As a general rule in the Convention, avoidance of the contract is not possible, unless one of the exceptions listed in CISG Art. 82(2) occurs. Avoidance of a contract is available regardless of whether the party which rendered the goods received the performance or other counter-performance.[100]
On the other hand, the PECL only give a restitutionary remedy after termination, where one party has conferred a benefit on the other party but has not received the promised counter-performance in exchange. The benefit may consist of money paid (Art. 9:307), other property which can be returned (Art. 9:308) or some benefit which cannot be returned, e.g. services or property which has been used up (Art. 9:309).[101] In particular, PECL Art. 9:309 provides that, when restitution cannot be made, the party who delivered the goods may recover a reasonable amount for the value of the goods to the other party if it has not received payment for them or counter-performance. Therefore, PECL Art. 9:309 addresses the issue of restitution, but only to set the rules on how to calculate the amount of recovery.[102] As already demonstrated above, this is also the case for the approach adopted under Art. 7.3.6(1) of the UNIDROIT Principles.
By contrast, the CISG clearly requires restitution of whatever received as a condition to avoid the contract. The ability to return the goods received in substantially the condition in which one received them is "a prerequisite for avoiding a contract or demanding substitute goods. If, because he cannot return the goods, the buyer is barred from avoiding the contract or demanding substitute goods, his other remedies under the contract or the Convention (damages, reduction of price) remain unaffected". In other words, the Convention clearly requires that whatever is exchanged between the parties because of the contract must be returned, and if this is not possible, subject to the exceptions considered by CISG Art. 82, avoidance of the contract is no longer an option. Thus, pursuant to CISG, if the buyer cannot make restitution for what he received, the contract cannot be avoided unless one of the exceptions set by CISG Art. 82(2) is met. The UPICC/PECL does not require any restitution as a condition for avoidance. Such differences arise out of the different understanding regarding the retroactivity concept. While both the CISG and the UPICC/PECL provide that avoidance of a contract does not have retroactive effect, since both expressly exclude that a terminated contract should be treated as never made, the CISG and the UPICC/PECL differ on what survives after avoidance and on the regime to be applied to the performances made under the contract. These are major differences that must to be taken into consideration when comparing the CISG and UPICC/PECL.[103]
Therefore, while under the CISG restitution is an obligatory step toward the avoidance of a contract, under the UPICC/PECL restitution is only a possible consequence of the avoidance of a contract. In fact, a restitution remedy arises only where there was a performance for which payment was not made. Thus, while the CISG tends to eliminate the consequences of an already partially performed contract, the UPICC/PECL tends to maintain the exchange when it is satisfactory for both parties. It is arguable that limiting the recovery where the party did not get what it bargained for may be a good way to reduce possible disputes between parties over issues related to restitution and/or the reasonable amount of the value of performance.[104]
12.5.5.4 Concluding remarks
In many contracts a literal restoration is not possible. This applies to work and labour, services, the hiring out of goods, the letting of premises, and the carriage and custody of goods. A party which has received a performance of this kind cannot give it back. In contracts for sale or barter restoration may become impossible when the goods have perished or have been consumed or resold. In all these situations the party which has received a performance which it cannot return might restore the value of it and various legal systems provide for such a restitution.[105]
As the above analysis indicates, although such cases are dealt with to some extent in CISG Art. 82, the CISG approach unfortunately, in so doing, makes the restitution a prerequisite for avoiding the contract. By contrast, the UPICC/PECL introduces the idea that there are circumstances in which it might be inappropriate to make the restitution. Such an idea is not shared with the CISG.[106] As stressed by the Comments to the two sets of Principles, either the rule under the UNIDROIT Principles both in Art. 7.1.3 on the right to withhold performance and Art. 7.2.2 on specific performance of non-monetary obligations, or the rules under the PECL in Chapter 9 Section 1 on right to performance apply mutatis mutandis (with appropriate adaptations) to the claim for restitution of property. Thus the aggrieved party cannot claim the return of goods or other tangibles when it has become impossible or would involve the defaulting party in an unreasonable effort or expense. In such cases the non-performing party must make allowance for the value of the property.[107]
Finally, it is noted that it would be also inconvenient to treat a contract which as being retrospectively cancelled in the sense that performances received must be returned or restitution made of their value. This is not appropriate where the contract was to be performed over the period of time when there can be termination for the future without undoing what has been achieved already.[108] In this point, Art. 7.3.6(2) of the UNIDROIT Principles clearly prescribes that: "However, if performance of the contract has extended over a period of time and the contract is divisible, such restitution can only be claimed for the period after termination has taken effect." Thus, if the performance has extended over a period of time, restitution can, in accordance with Art. 7.3.6(2), only be claimed in respect of the period after termination. This rule, however, only applies if the contract is divisible.[109] Although no similar counterpart is found in the text of the PECL, its Comment confirms this point: Where a contract is to be performed over a period of time, or in installments, and the performance is divisible, the rule [Art. 9:307] applies to payments made in respect of so much of the performance as was not made or has been rejected. Also, the rule [Art. 9:308] applies to contracts which are to be performed in parts. If the aggrieved party is entitled to terminate in respect of a part of a contract, it may recover a payment made in respect of that part.[110]
FOOTNOTES: Chapter 12
* Chengwei, Liu. LL.M. of Law School of Renmin University of China, P.O. Box 9-01 No. 1 (International Law), Law School of Renmin University of China, 59 Zhongguancun Street, Beijing 100872, China. E-mail: Genes@263.net.
1. See Harry M. Flechtner in "Remedies Under the New International Sales Convention: The Perspective from Article 2 of the U.C.C.": 8 Journal of Law and Commerce (1988); pp. 53-108. Available online at <http://www.cisg.law.pace.edu/cisg/biblio/flecht.html>.
2. See Francesco G. Mazzotta in "Commentary on CISG Article 81 and its PECL counterparts" (2003). Available online at <http://www.cisg.law.pace.edu/cisg/text/peclcomp81.html#er>.
3. See Mirghasem Jafarzadeh in "Buyer's Right to Withhold Performance and Termination of Contract: A Comparative Study Under English Law, Vienna Convention on Contracts for the International Sale of Goods 1980, Iranian and Shi'ah Law" (2001). Available online at <http://www.cisg.law.pace.edu/cisg/biblio/jafarzadeh1.html>.
4. See Secretariat Commentary on Art. 66 of the 1978 Draft [draft counterpart of CISG Art. 81], Comment 2. Available online at <http://www.cisg.law.pace.edu/cisg/text/secomm/secomm-81.html>. The match-up indicates that Art. 66 of the 1978 Draft and CISG Art. 81 are substantively identical. See the match-up, available online at <http://www.cisg.law.pace.edu/cisg/text/matchup/matchup-d-81.html>.
6. See Anna Kazimierska in "The Remedy of Avoidance under the Vienna Convention on the International Sale of Goods"; Pace Review of the Convention on Contracts for the International Sale of Goods, Kluwer (1999-2000); p. 146. Available online at <http://www.cisg.law.pace.edu/cisg/biblio/kazimierska.html>.
7. See Fritz Enderlein, Dietrich Maskow, International Sales Law: United Nations Convention on Contracts for the International Sale of Goods, Oceana Publication (1992); p. 342. Available online at <http://www.cisg.law.pace.edu/cisg/biblio/enderlein.html>.
8. Comment 1 on Art. 7.3.5 UPICC.
9. See Jelena Vilus in "Provisions Common to the Obligations of the Seller and the Buyer": Petar Sarcevic & Paul Volken eds., International Sale of Goods: Dubrovnik Lectures, Oceana (1986); p. 257. Available online at <http://www.cisg.law.pace.edu/cisg/biblio/vilus.html>.
11. E.g., in FRENCH, BELGIAN and LUXEMBOURG law, résolution is only retroactive when the contract is to be performed at one time: for a contract à exécution successive the contract is treated as disappearing only from the date at which the debtor ceased performing or was given notice of termination by the aggrieved party. In this context the process is often termed résiliation (Malaurie & Aynès, Obligations nos. 743 and 744). In ITALIAN law termination is in principle retrospective but for contracts involving continuous or periodic performance see CC art. 1458. In PORTUGUESE law termination does not affect performances already rendered unless they are affected by the non-performance, CC art. 434(2). In SPANISH law termination is not necessarily retroactive and does not affect past performance if this is not rendered useless by the non-performance. (Infra. note 12, Note 4.)
12. See Comment and Notes to the PECL: Art. 9:309. Notes. Available online at <http://www.cisg.law.pace.edu/cisg/text/peclcomp81.html>.
14. See Comment and Notes to the PECL: Art. 9:305. Comment B. Available online at <http://www.cisg.law.pace.edu/cisg/text/peclcomp81.html>.
19. See Peter Schlechtriem, Uniform Sales Law - The UN-Convention on Contracts for the International Sale of Goods, Manz, Vienna (1986); p. 107. Available online at <http://www.cisg.law.pace.edu/cisg/biblio/schlechtriem.html>.
20. Supra. note 6, pp. 148-149.
24. See Comment and Notes to the PECL: Art. 8:102. Comment A. Available online at <http://www.cisg.law.pace.edu/cisg/text/peclcomp45.html>.
25. See Jianming Shen in "Declaring the Contract Avoided: The U.N. Sales Convention in the Chinese Context": New York International Law Review, Vol. 10, No. 1, New York State Bar Association (1997); p. 33. Available online at <http://www.cisg.law.pace.edu/cisg/biblio/shen.html>.
26. See John O. Honnold in "On the Road to Unification of the Law of Sales": Forum International, No. 2, June 1983, 8.
28. E.g. COMMON LAW: Heyman v. Darwins [1942] A.C. 356, H.L.; FINLAND: Aurejärvi 106; FRANCE: clause compromissoire (NCPC art. 1466) and penalty clause (Malaurie & Aynès, Obligations no. 543); GERMANY, see Stein-Jonas (-Schlosser) 1025 No. 00; GREEK law, see Kerameus 171-173, with further refs, and Papanicolaou in Georgiadis & Stathopoulos II art. 389 no. 14 (1979); ITALIAN law: no specific text but see Satta 852; Cass. 5 Aug.1968 n. 2803, in Foro It., 1969, I c.445 and Cass. 27 May 1981 n.3474, in Foro It., 1982, I c.199; NETHERLANDS BW art. 6:271; PORTUGUESE CC art. 434(1); SPANISH Arbitration Act 1988 (see Bercovitz, Arbitraje, art. 1, 17 ff and Unidroit art. 7.3.5(3). (Supra. note 12, Note 3.)
30. Comment 3 on Art. 7.3.5 UPICC.
33. It is stated with this regard: "The enumeration in paragraph (1) of two particular obligations arising out of the existence of the contract which are not terminated by the avoidance of the contract is not exhaustive. Some continuing obligations are set forth in other provisions of this Convention. For example, article 75(1) [draft counterpart of CISG article 86(1)] provides that 'if the goods have been received by the buyer, and if he intends to reject them, he must take such steps as are reasonable in the circumstances to preserve them' ['If the buyer has received the goods and intends to reject them, he must take such steps to preserve them as are reasonable in the circumstances'] and article 66(2) [draft counterpart of CISG article 81(2)] permits either party to require of the other party the return of whatever he has supplied or paid under the contract. Other continuing obligations may be found in the contract itself or may arise out of the necessities of justice." (Supra. note 4, Comment 6.)
34. Supra. note 7, pp. 342-343.
38. Supra. note 14, Comment A.
39. Supra. note 14, Comment C.
44. Supra. note 6, pp. 146-147.
46. Supra. note 25, p. 36. As convincing as this rule may sound, it will be difficult to implement it. Since in international trade concurrence does not mean a direct change from one hand into the other, there can be several forms in which this requirement is to be fulfilled. Art. 58 can provide an orientation for it. It is believed, however, that in choosing the forms of concurrence, it has to play a role whether a party is liable for a breach of contract. The concrete form to be applied would then have to be chosen to the disadvantage of that party. When the contract is avoided because the seller has delivered grossly non-conforming goods, the buyer may demand that a letter of credit be opened up as a condition for the restitution. Where the avoidance, however, is caused by the buyer who stops paying installments, the seller will at best be willing to repay the refundable part of the price on the condition of cash against documents, and require the granting of an opportunity to examine the goods to be restituted. The situation, however, is further complicated because it will in most cases not be clear in which amount the performance in money will have to be restituted. In this regard, the CISG offers little help to clarify the situation. The parties, therefore, have to agree the sums and/or obtain a decision on them before the concurrent restitution takes place. (Supra. note 7, pp. 344-345.)
47. Supra. note 7, p. 344; supra. note 18.
49. Supra. note 4, Comment 11.
50. Comment 1 on Art. 7.3.6 UPICC.
54. See Comment and Notes to the PECL: Art. 9:307. Comment A. Available online at <http://www.cisg.law.pace.edu/cisg/text/peclcomp81.html>.
56. See Comment and Notes to the PECL: Art. 9:306. Comment. Available online at <http://www.cisg.law.pace.edu/cisg/text/peclcomp81.html>.
58. For instance, in GERMAN law, if the performances are inter-related either party can demand return of the earlier-delivered part. In ENGLISH and IRISH law, where a part of the goods to be delivered are defective, the buyer may reject the whole (U.K. Sale of Goods Act 1979, s. 30; for Ireland, see Forde 1.192), and this will apply even if the goods are to be delivered in installments provided that the installments are similarly inter-connected and thus the contract is not severable (see Gill & Dufus SA v. Berger & Co Inc [1983] 1 Lloyd's Rep. 622, reversed without reference to this point [1984] A.C. 382, H.L.; Atiyah 452). The position with severable contracts is less clear but probably there is a right to reject installments already received if they are rendered useless by the later breach (Atiyah 455; Forde 1.198). The DANISH Sale of Goods Act, 46, and the FINNISH and SWEDISH Sale of Goods Acts 43 and 44 (see Ramberg, Köplagen 462), provide that a buyer who has received a defective installment can reject installments received earlier if the installments are so inter-connected that it would be detrimental to the buyer to have to keep the earlier ones. In ITALIAN law there is no general provision but under CC art. 1672 when a construction contract is terminated the purchaser has only to pay for work done so far as it is of value to him. (Supra. note 12, Note 5.)
59. Supra. note 12, Note 8(a).
60. Supra. note 54, Comments B, D.
61. See Comment and Notes to the PECL: Art. 9:308. Comment A. Available online at <http://www.cisg.law.pace.edu/cisg/text/peclcomp81.html>.
62. Supra. note 12, Note 8(b).
63. Supra. note 61, Comment B. Similarly, the Official Comment on UPICC Art. 7.3.6 also clearly states that in common with other articles of the UNIDROITP Principles, Art. 7.3.6 deals with the relationship between the parties and not with any rights which third persons may have acquired on the goods concerned. Whether, for instance, an obligee of the buyer, the buyer's receivers in bankruptcy, or a purchaser in good faith may oppose the restitution of goods sold is to be determined by the applicable national law. (Comment 5 on UPICC Art. 7.3.6.)
64. Supra. note 61, Comment C.
65. Supra. note 61, Comment E.
66. Supra. note 61, Comment F.
70. Illustration: A has sold a Renoir painting to B for US$200,000; the true value of the painting is over US$250,000. When the picture is delivered to B, he does not pay for it. A is entitled to claim back the painting. (Supra. note 61, Comment G; also supra. note 50.)
72. This obligation arises irrespective of the grounds which have led to the avoidance of the contract. But its results can in the end be considerably modified. The party who has declared the contract avoided because of a breach of contract by the other party will, as a rule, have the right to claim damages which he can set-off against payment obligations under this Article. Furthermore, the parties may set-off against each other the claims they might have under this Article. Every party will, of course, be interested in having the sum of money to which he will be entitled or which he will have to pay under Art. 84 and refundable expenses related to the restitution included in the concurrent restitution as either surcharges or reductions. In general, this has to be considered as justified since restitution relates to the claims as they actually stand. (Supra. note 7, p. 345, 349.)
73. See Secretariat Commentary on Art. 69 of the 1978 Draft [draft counterpart of CISG Art. 84], Comment 2. Available online at <http://www.cisg.law.pace.edu/cisg/text/secomm/secomm-84.html>. The match-up indicates that Art. 69 of the 1978 Draft and CISG Art. 84 are substantively identical. See the match-up, available online at <http://www.cisg.law.pace.edu/cisg/text/matchup/matchup-d-84.html>.
75. Supra. note 73, Comment 3.
77. Supra. note 73, Comment 1.
80. See Secretariat Commentary on Art. 67 of the 1978 Draft [draft counterpart of CISG Art. 82], Comment 2. Available online at <http://www.cisg.law.pace.edu/cisg/text/secomm/secomm-82.html>. The match-up indicates that Art. 69 of the 1978 Draft and CISG Art. 84 are substantively identical. See the match-up, available online at <http://www.cisg.law.pace.edu/cisg/text/matchup/matchup-d-82.html>.
81. See Francesco G. Mazzotta in "Commentary on CISG Article 82 and PECL Article 9:309" (2003). Available online at <http://www.cisg.law.pace.edu/cisg/text/peclcomp82.html#er>.
85. Supra. note 80, Comment 3. In this respect, it is also to be noted that Enderlein & Maskow hold that what is at issue in regard to the obligation to restitute the goods is exact restitution of the delivered goods. Obligations cannot be fulfilled by delivering substitute goods as Tallon believes. Typically, the buyer will withdraw from a contract on goods which have already been delivered and taken by him on grounds of non-conformity of the goods, and then, only those goods will have to be restituted. (Supra. note 83.)
87. Supra. note 80, Comment 4.
88. See Hans G. Leser, Annotations 1-29 on Article 82, in Peter Schlechtriem, ed., COMMENTARY ON THE UN CONVENTION ON THE INTERNATIONAL SALE OF GOODS (1998); p. 644.
89. Supra. note 80, Comment 5.
93. Supra. note 4, Comment 10.
96. Comment 2 on Art. 7.3.6 UPICC.
98. Supra. note 12, Comment A.
99. Supra. note 12, Comment B.
107. Comment 3 on Art. 7.3.6 UPICC; supra. note 61, Comment H.
109. Comment 3 on Art. 7.3.6 UPICC.
110. Supra. note 54, Comments C; note 61, Comment D.
Pace Law School Institute of International Commercial Law - Last updated October 27, 2003
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