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Published in J. Herbots editor / R. Blanpain general editor, International Encyclopaedia of Laws - Contracts, Suppl. 29 (December 2000) 1-192. Reproduced with permission of the publisher Kluwer Law International, The Hague.

[For more current case annotated texts by this author, see Bernstein & Lookofsky, Understanding the CISG in Europe, 2d ed. (2003) and Lookofsky, Understanding the CISG in the USA, 2d ed. (2004).]

excerpt from

The 1980 United Nations Convention on Contracts
for the International Sale of Goods

Joseph Lookofsky

Article 81
Effects of Avoidance

A.  Introduction
B.  Release from Obligation
C.  Damages for Breach, Arbitration Clauses, Etc.
D.  Restitution

A. Introduction

309. Section V of Chapter V provides a series of rules regarding the effects of avoidance. The provisions of this section are common to the obligations of both parties.

B. Release from Obligation

310. The primary effect of (total) avoidance is to relieve both parties of their obligations to perform; i.e. the seller need not deliver the goods, and the buyer need not pay.[1]

Partial avoidance of the contract, for example where the buyer avoids with respect to a portion of the goods not delivered,[2] releases both parties from their obligations as to the part of the contract avoided: (in the example) the seller is released from his obligation to deliver the portion concerned, and the buyer need not pay for that portion.

1. Article 81(1).
2. See Article 51(1). See also Article 73(1) regarding avoidance with respect to a particular instalment.

C. Damages for Breach, Arbitration Clauses, etc.

311. Although avoidance of the contract releases both parties from their performance obligations, it does not eliminate all rights and obligations which arose out of the contract.

For one thing, avoidance does not affect claims for any damages which may be due.[1] Thus, though the party in breach need not deliver or pay, that party remains liable for any loss suffered by the other party as a consequence of the breach.[2]

Nor does avoidance affect any provision of the contract for the settlement of disputes,[3] such as an arbitration clause, choice-of-forum clause or a contractual provision governing the applicable law.[4] The same applies as regards any other provision of the contract governing the rights and obligations of the parties upon the avoidance of the contract, e.g. a clause providing for liquidated damages in the event of [page 167] non-performance. On the other hand, the question of whether such clauses remain binding will also depend on their validity, and validity is always a question for the applicable domestic law.[5]

Article 81 provides a non-exhaustive list of contractual and Convention obligations which continue even after avoidance. The duty of the buyer to take steps to preserve goods which he intends to reject constitutes another example of the kind of obligation not extinguished by avoidance.[6]

1. Article 81(1) and, e.g. the decision of Tribunale di Appello di Lugano (Switzerland), seconda camera civile, 15 January 1998, reported [at <http://cisgw3.law.pace.edu/cases/980115s1.html> and] in UNILEX.
2. See Article 74, supra No. 289. Regarding the breaching party's continuing obligation to pay damages see, e.g., the decision of LG Landshut (Germany), 5 April 1995, reported [at <http://cisgw3.law.pace.edu/cases/950405g1.html> and] in UNILEX.
3. Article 81(1), second sentence.
4. In the case of an international sales contract, such a clause might designate the CISG as the applicable law and/or point to the domestic law which regulates contract validity, etc. See supra No. 70 et seq.
5. Regarding Article 4, see supra No. 63.
6. See generally infra No. 322.

D. Restitution

312. Restitution is another effect of avoidance. According to Article 81(2), 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.[l]

In principle, the party in breach will bear the reasonable expenses which both parties incur in relation to the making of restitution for goods or sums received prior to avoidance; as regards the non-breaching party's expenses, the breaching party is liable in damages for such losses as a consequence of the breach.[2]

The Convention rules on restitution regulate only inter partes rights.[3] In a bankruptcy situation, however, the Convention rules may be thwarted by local rules which create property rights or priorities in goods or sums delivered, etc.[4]

1. See, e.g., the decision of LG Landshut (Germany), 5 April 1995, No. 540644/94, reported [at <http://cisgw3.law.pace.edu/cases/950405g1.html> and] in UNILEX (contract validly avoided by buyer; both parties bound to make restitution concurrently: when buyer placed non-conforming goods at seller's disposal, seller obliged to retake goods and refund price paid).
2. Article 74, supra No. 289. As always, damages are limited by the mitigation principle: see Article 77, supra No. 294.
3. See Article 4, supra No. 62 et seq. See also, e.g., the decision of OLG München (Germany), 8 February 1995, reported [at <http://cisgw3.law.pace.edu/cases/950208g1.html> and] in UNILEX (seller's non-delivery entitled the buyer to restitution of the sum obtained by the seller by executing the stand-by guaranty).
4. See A/CONF./97/5, para. 10 of Secretariat's Commentary to Article 66 of the 1978 Draft Convention.
[page 168]

Pace Law School Institute of International Commercial Law - Last updated April 5, 2005
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