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GUIDE TO THIS ARTICLE

Use of the UNIDROIT Principles to help interpret CISG Articles 81 and 82


Match-up of CISG Articles 81 and 82 with counterpart provisions of UNIDROIT Principles


UNIDROIT Principles
Article 7.3.5 - Effects of Termination in General

CISG
Article 81

(1) Termination of the contract releases both parties from their obligation to effect and to receive future performance.

(2) Termination does not preclude a claim for damages for non-performance.

(3) Termination does not 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.

Article 7.3.6 - Restitution

(1) Termination of the contract releases both parties from their obligation to effect and to receive future performance.

(2) Termination does not preclude a claim for damages for non-performance.

(3) Termination does not 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.

1. Avoidance of the contract releases both parties from their obligations under it, subject to any damages which may be due. Avoidance does not affect any provision of the contract for the settlement of disputes or any other provisions of the contract governing the rights and obligations of the parties consequent upon the avoidance of the contract.

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.

CISG Article 82

1. 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.

2. The preceding paragraph does not apply: (a) if the impossibility of making restitution of the goods substantially in the condition in which the buyer received them is not due to his act or omission; (b) if the goods or part of the goods have perished or deteriorated as a result of the examination provided for in article 38; or (c) 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.

[The UNIDROIT articles displayed above are to be read in conjunction with the Official Comments on them as "the comments on the articles are to be seen as an integral part of the Principles" (UNIDROIT).]


To examine CISG provisions displayed above in their context, go to the full text of the CISG || To examine UNIDROIT Principles displayed above in their context, go to the full text of the UNIDROIT Principles


Editorial remarks

Commentary on the manner in which Articles 7.3.5 and 7.3.6 of the
UNIDROIT Principles compare with Articles 81 and 82 of the CISG

Florian Mohs [*]
Basel, January 2004

I.   Introduction and terminology
II.  General effects of avoidance under CISG and termination under UNIDROIT Principles
      1. Art. 81 CISG is virtually identical to Arts 7.3.5(1) to (3) and 7.3.6(1) UNIDROIT Principles
      2. The UNIDROIT Principles do not release from obligations of performance only
      3. Restitution under CISG or UNIDROIT Principles and domestic law
          a. Remedy-oriented solution under CISG
          b. Prospective approach under UNIDROIT Principles
III. Restitution of goods and risk of loss
      1. Parties bound to restitution
      2. Bar of avoidance or allowance in money
IV. Contracts extending over a period of time
V.  Conclusion

I. INTRODUCTION AND TERMINOLOGY

Although the United Nations Convention on Contracts for the International Sale of Goods (hereinafter: CISG) uses the term "avoidance" of contract,[1] whereas the UNIDROIT Principles of International Commercial Contracts (hereinafter: UNIDROIT Principles) use the term "termination" of contract,[2] both sets of rules deal with the same situation: one party has lost its interest in the contract due to a fundamental impairment in the performance[3] of the other party and puts an end to the contract. In contrast to this situation, the UNIDROIT Principles only use the term "avoidance" of contract in the context of a remedy available to the aggrieved party in the event of an invalid contract on grounds of mistake, fraud, threat or gross disparity, see Art. 3 UNIDROIT Principles. According to Art. 29 CISG, "termination" under the Convention means cancellation of the contract by (mere) agreement of the parties. The following primarily provides a comparative overview of Arts 81 and 82 CISG and Arts 7.3.5 and 7.3.6 UNIDROIT Principles. On that basis, this essay addresses the issue of whether the UNIDROIT Principles provisions can be used to help interpret or supplement the CISG articles on the issue of the effects of avoidance of contract.[4]

II. GENERAL EFFECTS OF AVOIDANCE UNDER CISG AND TERMINATION UNDER UNIDROIT PRINCIPLES

1. Art. 81 CISG is virtually identical to Arts 7.3.5(1) to (3) and 7.3.6(1) UNIDROIT Principles

The general effects of avoidance under CISG are virtually the same as of termination under UNIDROIT Principles:

-    Firstly, both parties are released from their obligations under the contract, Art. 81(1) first sentence CISG/Art. 7.3.5(1) UNIDROIT Principles.[5]
 
- Secondly, possible damages claims are not precluded, Art. 81(1) first sentence, second part CISG/Art. 7.3.5(2) UNIDROIT Principles.[6]
 
- Thirdly, dispute settlement clauses are not affected, Art. 81(1) second sentence CISG/Art. 7.3.5(3) UNIDROIT Principles.[7]
 
Fourthly, even other clauses which operate after avoidance or termination, respectively, are not affected, Art. 81(1) second sentence, second part CISG/Art. 7.3.5(3) second part UNIDROIT Principles.[8]
 
Finally, under both sets of rules either party may claim restitution of what has been performed, Art. 81(2) first sentence CISG/Art. 7.3.6(1) first part of the sentence UNIDROIT Principles. If both parties have received anything under the contract, restitution will take place concurrently, Art. 81(2) second sentence CISG/Art. 7.3.6(1) second part of the sentence UNIDROIT Principles.

Apart from these similarities, there are, however, small differences in the language of these rules. The language of Art. 7.3.5(1) UNIDROIT Principles which reads "[...] obligation to effect and to receive future performance" (emphasis added) is more specific than the text of Art. 81(1) CISG which simply states that the parties are released "from their obligations". This difference in language raises two questions which will be analysed in the following.

2. The UNIDROIT Principles do not release from obligations of performance only

The term performance might, at a first glance, suggest a restrictive interpretation in a way that the parties are not released from all of their obligations but from their obligations of performance only. Under this viewpoint, the parties would not be released from ancillary obligations, e.g., the right of sole distribution. However, the structure of the provision shows that the obligations which continue to exist are exhaustively identified by paras. (2) and (3) of Art. 7.3.5 UNIDROIT Principles. Thus, as does the CISG the UNIDROIT Principles, in general, release the parties from all obligations under the contract except with respect to damages, dispute settlement and other clauses which operate (even) after avoidance. Especially with regard to the provision of para. (3), whether or not a clause qualifies under the prerequisites, e.g., the duty not to divulge confidential information or the duty to restrain from entering into competition, survive termination, is a question of contractual interpretation on a case-by-case basis.[9]

3. Restitution under CISG or UNIDROIT Principles and domestic law

The second difference in language is the inclusion of the term 'future performance' in the UNIDROIT Principles provision which, practically, points to the crucial question as to whether the seller, on termination, may claim repossession of goods under his title.[10] In other words, the question is whether avoidance causes the contract to cease to exist with the effect that, under certain domestic laws, ownership in the goods will automatically return to the seller. In legal doctrine, this issue is usually addressed by focusing on the concepts of retroactivity or prospectivity. According to the retroactive approach, the contract is void ab initio (ex tunc), which means that the parties are placed in the situation they would be in had the contract never been concluded.[11] By contrast, under the prospective approach, the contract remains in existence with the restitutionary obligations being the reverse of the original obligations of performance.[12] This question of principle should be left open because one can disregard the theoretical questions, but should address the practical consequences.[13]

a. Remedy-orientated solution under CISG

It is the author's opinion that one must distinguish two issues: on the one hand, the question is whether the seller may under domestic law claim repossession of the goods under his right to title. On the other hand, the question arises as to whether the seller may under domestic law claim for compensation or restitution of rights other than that to possess the goods.

The first question can be answered in the affirmative, because there is no danger of contradiction with principles of the Convention. Rather, the principle of restitution under the Convention (returning the goods to the seller) is reinforced by domestic law that recognize a replevin action where foreclosure against the buyer or insolvency of the buyer occurs.[14] The same is true in the situation had the parties contractually agreed on a retention of title clause under which the seller retains ownership in the goods until full payment has been made.[15] This solution is in accordance with Art. 4(b) CISG, which provides that the Convention is not concerned with questions as to the effect of avoidance on the property in the goods sold.

Yet, the second question is to be answered in the negative, because the questions concerning compensation for loss of use and compensation of expenses spent on the goods are settled exhaustively by the CISG itself.[16] Firstly, with respect to compensation for loss of use, Art. 84 CISG applies. This Article grants the seller a claim for all benefits which the buyer derived from the goods. Secondly, although the Convention does not expressly address the issue of compensation for expenditure, general principles of the Convention can be used to fill this internal gap in accordance with Art. 7(2) CISG by way of a damages claim.[17] In the case of a retention of title clause the parties shall not be deemed to have implicitly derogated from the application of the CISG regime regarding restitution.

b. Prospective approach under UNIDROIT Principles

Termination under UNIDROIT Principles has prospective effect. This becomes apparent when comparing the remedies termination and avoidance within the UNIDROIT Principles. According to Art. 3.17(1) UNIDROIT Principles, "[a]voidance takes effect retroactively" which means that the contract should be regarded as never being concluded.[18] By contrast, in the case of termination of contract, the UNIDROIT Principles do not provide for retroactive effect, but rather refer to "future performance". This difference shows that termination of contract under UNIDROIT Principles only has prospective effect.[19]

Now, one may argue that the UNIDROIT Principles prospective approach is an international solution,[20] and should thus be applied to the CISG as well. However, as shown above in the discussion on CISG it is not necessary to use the UNIDROIT Principles solution to interpret the CISG on this issue, since the question of principle can be left open and the practical consquences are answered by the Convention itself.

III. RESTITUTION OF GOODS AND RISK OF LOSS

1. Parties bound to restitution

Both sets of rules provide for restitution of what has been performed under the contract, Art. 81(2) CISG/Art. 7.3.6(1) first sentence UNIDROIT Principles.[21] Under the CISG, partial restitution is allowed expressly, whereas under the UNIDROIT Principles, this possibility must be deduced from the text.[23]

2. Bar of avoidance or allowance in money

The main difference in concept is that, according to Art. 82(1) CISG, the Convention, in principle, bars the buyer from avoiding the contract if he cannot make restitution of the goods whereas the UNIDROIT Principles treat this situation as a question of liability, Art. 7.3.6(1) second sentence UNIDROIT Principles.[23] The CISG approach is based on a Roman law principle and was already antiquated at the time the Convention had been drafted.[24] The UNIDROIT Principles approach is modern and, more importantly, sensible and has thus been implemented into the Principles of European Contract Law [25] and into various domestic laws of contract by reform statutes (e.g., Netherlands,[26] Germany[27]). However, the CISG provisions must be applied de lege lata and thus cannot be overruled by means of interpretation using a totally different concept, such as that of the UNIDROIT Principles. Even in situations governed, but not expressly settled by the CISG, the principles of the Convention and not the principles of the UNIDROIT Principles are to be used to fill any gaps. However, due to the wide range of exceptions to the bar of avoidance under Art. 82(2)(a) to (c) CISG and the objective equalization of benefits according to Art. 84(2) CISG, restitution under the two set of rules will quite often produce the same or, at least, a similar result. Furthermore, one should give broad application to the exceptions of para. (2) and thereby limit the bar of Art. 82(1) CISG.[28] In the case of an agreement to mutual restitution, Art. 82 is excluded by implication.[29] In the case of a contract including the supply of services, which qualifies under Art. 3(2) CISG as a sales contract, restitution should be made by way of monetary reimbursement of the value of the services based on Art. 84(2) CISG.

IV. CONTRACTS EXTENDING OVER A PERIOD OF TIME

Art. 7.3.6(2) UNIDROIT Principles [30] provides that "if performance of the contract has extended over a period of time and the contract is divisible, [...] restitution can only be claimed for the period after termination has taken effect." However, a party can also, contrary to the misleading language, avoid with respect to the (past) defective performance. The counterpart provision of the Convention is Art. 73 CISG [31] which, however, does not address the question of avoidance of contracts extending over a period of time in general, but does address the most relevant situation in international sales law practice, i.e., the contract for delivery of goods by installments.[32] The first step is to avoid the defective delivery only, Art. 73(1) CISG. If, however, the aggrieved party has good grounds to conclude that a fundamental breach will occur with respect to future installments it can, according to Art. 73(2) CISG, avoid on the grounds of anticipatory breach. Even under CISG, restitution will not take place for deliveries already made if the installments are independent, Art. 73(3) CISG. The CISG and the UNIDROIT Principles provisions will, however, quite often produce the same or, at least, similar results.[33]

The CISG provision has a narrower sphere of application. And for this specific case, the CISG text is more detailed and clearer than the UNIDROIT Principles text. Consequently, the UNIDROIT Principles cannot help in the interpretation of the CISG on the issue of avoidance of contracts extending over a period of time. In the case of a contract extending over a period of time but not qualifying as an installments contract, e.g., a contract calling for delivery of machines and on-site installation by seller's personnel which falls under the Convention according to Art. 3(2) CISG, a general right of avoidance has to be established in accordance with the principles of Art. 73 CISG.

V. CONCLUSION

In a comparison of the rules on restitution of both the CISG and the UNIDROIT Principles, one discovers that both sets of rules correspond with regard to the fact that restitution takes place on avoidance or termination of the contract, respectively, to the fact that partial restitution is possible, on the question of what contractual provisions survive avoidance of the contract, and that, if both parties had already received performance, restitution must be made concurrently. However, they do not correspond on the legal mechanism to apply in situations where it is impossible for the avoiding party to return what it had received under the contract: the CISG generally bars the aggrieved party from avoiding the contract whereas the UNIDROIT Principles grants the other party allowance in money.

In conclusion, one cannot successfully argue that the UNIDROIT Principles can be used to help interpret or supplement the CISG on the issue of effects of avoidance of contract.

[See also commentary by the author on this subject in: John Felemegas ed., An International Approach to the Interpretation of the United Nations Convention on Contracts for the International Sale of Goods (1980) as Uniform Sales Law, Cambridge University Press (2006) 252-259.]


FOOTNOTES

* Research Assistant at the University of Basel, Switzerland.

1. Cf. Art. 49 CISG for the buyer´s right to avoid the contract, Art. 64 CISG for the seller´s right of avoidance, and Arts 81 to 84 CISG for the effects of avoidance.

2. Cf. Arts 7.3.1 to 7.3.6 UNIDROIT Principles. But cf. the German translation "Vertragsaufhebung" which equals the German translation of avoidance under CISG; critically to the German language Ernst v. Caemmerer, Internationale Vereinheitlichung des Kaufrechts, Schweizerische Juristen-Zeitung, 257, 264 (1981); Christoph Coen, Vertragsscheitern und Rückabwicklung - Eine rechtsvergleichende Untersuchung zum englischen und deutschen Recht, zum UN-Kaufrecht sowie zu den Unidroit Principles und den Principles of European Contact Law, 210, 211 and at 225, 226 (2003).

3. "Fundamental breach of contract" in CISG terminology and "fundamental non-performance" in UNIDROIT Principles terminology.

4. The remainder of this editorial is based on the assumption that in general there are situations in which the UNIDROIT Principles can be used to help interpret the CISG, see Albert H. Kritzer, General observations, available at <http://www.cisg.law.pace.edu/cisg/text/matchup/general-observations.html>. But cf. Schlechtriem/Schwenzer/Ferrari, Kommentar zum Einheitlichen UN-Kaufrecht - CISG -, Art. 7 para. 59 et seq., 62 (4ed. 2004).

5. On CISG, see Schlechtriem/Leser, Commentary on the UN Convention on the International Sale of Goods (CISG), Art. 81 paras. 8-10 (1st ed. 1998); Schlechtriem/Schwenzer/Hornung, supra note 4, Art. 81 para. 8. On UNIDROIT Principles, see Art. 7.3.5 UNIDROIT Principles Comment 1.

6. On CISG, see Schlechtriem/Leser, supra note 5, Art. 81 para. 10; Schlechtriem/Schwenzer/Hornung, supra note 4, at Vor Artt. 81-84, paras. 7, 7a, 17 and Art. 81 para. 10. On UNIDROIT Principles, see Art. 7.3.5 UNIDROIT Principles Comment 2.

7. On CISG, see Schlechtriem/Leser, supra note 5, Art. 81 para. 10; Schlechtriem/Schwenzer/Hornung, supra note 4, Art. 81 para. 10. On UNIDROIT Principles, see Art. 7.3.5 UNIDROIT Principles Comment 3. Cf. Filanto S.p.A. v. Chilewich International Corp., U.S. Dist. Ct. (S.D.N.Y.), 14 April 1992, CISG-online No. 45 (available at <http://www.cisg-online.ch>), 789 F. Supp. 1229 where the Court held that Art. 81(1) CISG supports the doctrine of severability.

8. On CISG, see Schlechtriem/Leser, supra note 5, Art. 81 para. 10; Schlechtriem/Schwenzer/Hornung, supra note 4, Art. 81 para. 10. On UNIDROIT Principles, see Art. 7.3.5 UNIDROIT Principles Comment 3.

9. Cf. Art. 7.3.5 UNIDROIT Principles Illustration 2. ICC, Case No. 9978/1999, CISG-online No. 708 (available at <http://www.cisg-online.ch>): penalty clauses survive contract avoidance under CISG.

10. For practical relevance, see the CISG cases Usinor Industeel v. Leeco Steel Products, Inc., U.S. District Court (N.D. of Illinois, Eastern Division), 28 March 2002, CISG-online No. 696 (available at <http://www.cisg-online.ch>), reprinted in Internationales Handelsrecht, 237-240 (2003) and Roder Zelt- und Hallenkonstruktionen GmbH v. Rosedown Park Pty Ltd and Reginald R Eustace van Doussa J., FCA (Adelaide, SA), 28 April 1995, CISG-online No. 218 (available at <http://www.cisg-online.ch>).

11. Authorities supporting the retroactive approach under CISG: Bianca/Bonell/Tallon, Commentary on the International Sales Law, Art. 81 note 2.5; Bernard Audit, La vente internationale de marchandises, note 191 (1990); Vincent Heuzé, La vente internationale de marchandises - Droit uniforme, note 426 (2nd. ed. 2000); Claude Samson, La Convention des Nations Unies sur les contrats de vente internationale de marchandises. Etude comparative des dispositions de la Convention et des règles de droit québécois en la matière, 23 Les Cahiers de Droit (1982), 919, 962; Maria Angela Bento Soarez/Rui Manuel Moura Ramos, Les moyens dont dispose l'acheteur en cas de contravention au contrat par le vendeur (autre que le défaut de conformité) dans la Convention de Vienne de 1980 sur les contrats de vente internationale de marchandises , Revue de droit uniforme, 67, 87 (1986); Philippe Kahn, La Convention de Vienne du 11 avril 1980 sur les contrats de vente internationale de marchandises, Revue internationale de droit comparé, 951 978 (1981); cf. Roy Goode, Commercial Law, 933 footnote 35 (2nd. ed. 1995); Mirghasem Jafarzadeh, 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, available at <http://cisgw3.law.pace.edu/cisg/biblio/jafarzadeh1.html>, at Part Two § 2.5.1.

12. Cf. Oberster Gerichtshof (Austrian Supreme Court), 29 June 1999, CISG-online No. 483 (available at <http://www.cisg-online.ch>); LG Düsseldorf (German Regional Court), 11 October 1995, CISG-online No. 180 (available at <http://www.cisg-online.ch>); Michael Bridge, The International Sale of Goods, para. 3.44 (1999): "As with termination in English Law, avoidance for breach operates with prospective effect"; Schlechtriem/Leser/Hornung, Kommentar zum Einheitlichen UN-Kaufrecht - CISG -, Vor Artt. 81-84, para. 8 and Art. 81 para. 9 (3rd. ed. 2000); Peter Schlechtriem, Internationales UN-Kaufrecht, para. 330 (2nd. ed. 2003); Ernst v. Caemmerer, Internationale Vereinheitlichung des Kaufrechts, Schweizerische Juristen-Zeitung 257, 265 (1981); Staudinger/Magnus, Kommentar zum Bürgerlichen Gesetzbuch mit Einführungsgesetz und Nebengesetzen, Wiener UN-Kaufrecht (CISG), Art. 81 para. 2 (1999); Bamberger/Roth, Bürgerliches Gesetzbuch, Band 3, Art. 81 para. 4 (2003); Herber/Czerwenka, Internationales Kaufrecht, Art. 81 para. 7 (1991); Enderlein/Maskow/Strohbach, Internationales Kaufrecht, Art. 81 note 1 (1991); Bertrand Botzenhardt, Die Auslegung des Begriffs der wesentlichen Vertragsverletzung im UN-Kaufrecht, 61 (1998); Ulrich Ziegler, Leistungsstörungsrecht nach dem UN-Kaufrecht, 195 (1995); Botschaft betreffend das Wiener Übereinkommen über Verträge über den internationalen Warenkauf of 11 January 1989, at 235.51; Honsell/Weber, Kommentar zum UN-Kaufrecht, Art. 81 paras. 1, 2 and 4 (1997). See also Liu Chengwei, Remedies for Non-performance: Perspectives from CISG, UNIDROIT Principles & PECL, avaibable at <http://cisgw3.law.pace.edu/cisg/biblio/chengwei.html>, at § 10.6.

13. Schlechtriem/Schwenzer/Hornung, supra note 4, at Art. 81 Rn. 9 et seq., 9d: The language of Art. 81(2) CISG cannot be used to argue the one or the other way. See also Rainer Hornung, Die Rückabwicklung gescheiterter Verträge nach französischem, deutschem und Einheitsrecht - Gemeinsamkeiten, Unterschiede, Wechselwirkungen, 109, 110 (1998); Christoph Coen, supra note 2, at 216; Markus Krebs, Die Rückabwicklung im UN-Kaufrecht, 52, 53 (2000). Cf. G. H. Treitel, Remedies for Breach of Contract, A Comparative Account, 383 (1988).

14. But see Schlechtriem, supra note 14, at para. 330, who argues for the prospective approach and states that, from the viewpoint of the domestic law regarding movable goods, this question, in terms of private international law, qualifies as an "incidental question" (cf. Peter M. North and James J. Fawcett, Cheshire and North´s Private International Law, 46 et seq. (13th ed. 1999); another common term is "preliminary question", cf. Martin Wolff, Private International Law, 206 (2nd ed. 1950)) and should be answered by recourse to the CISG.

15. Cf. Usinor Industeel v. Leeco Steel Products, Inc., U.S. District Court (N.D. of Illinois, Eastern Division), 28 March 2002, CISG-online No. 696 (available at <http://www.cisg-online.ch>), reprinted in Internationales Handelsrecht, 237-240 (2003): third party creditor prevailed over seller under domestic law; Roder Zelt- und Hallenkonstruktionen GmbH v. Rosedown Park Pty Ltd and Reginald R Eustace van Doussa J., FCA (Adelaide, SA), CISG-online No. 218 (available at <http://www.cisg-online.ch>): seller prevailed in buyer's insolvency. Cf. also Herbert Bernstein and Joseph Lookofsky, Understanding the CISG in Europe, §6-25 (2nd. ed. 2003). In Europe, according to Art. 4 of the Directive 2000/35/EC of the European Parliament and of the Council of 29 June 2000 on combating late payment in commercial transactions, each member state's contract law has to provide for rules that accept and enforce retention in title clauses.

16. Cf. ICC, Case No. 9978/1999, CISG-online No. 708 (available at <http://www.cisg-online.ch>), where the Tribunal held that "reference to the rules of unjust enrichment of the applicable domestic law is neither necessary nor permissble". But see Daniel Friedrich Berg, Die Rückabwicklung gescheiterter Verträge im spanischen und deutschen Recht, Eine rechtsvergleichende Untersuchung unter besonderer Berücksichtigung des Einheitsrechts, 82 (2002), according to whom the concurrence should be resolved by applying the domestic law solution.

17. See Botschaft betreffend das Wiener Übereinkommen über Verträge über den internationalen Warenkauf of 11 January 1989, at 235.53.

18. See Art. 3.17 UNIDROIT Principles Comment 1; Christoph Coen, supra note 2, at 224.

19. On the drafting process, see UNIDROIT Study L - Doc. 35, A&D 1986 II, Sn 8 f; Rainer Hornung, supra note 18, at 110, 111; Christoph Coen, supra note 2, at 251.

20. The same approach shall apply to the Principles on European Contract Law, see Francesco G. Mazzotta, Commentary on CISG Article 81 and PECL Article 9:309, available at <http://cisgw3.law.pace.edu/cisg/text/peclcomp81.html>.

21. On CISG, see Schlechtriem/Schwenzer/Hornung, supra note 4, Art. 82 para. 11 et seq. On UNIDROIT Principles, see Art. 7.3.6 UNIDROIT Principles Comment 1.

22. On CISG, see Schlechtriem/Schwenzer/Hornung, supra note 4, at Vor Artt. 81-84 para. 14 et seq. On UNIDROIT Principles, cf. Christoph Coen, supra note 2, at 246.

23. On the Principles on European Contract Law, see Francesco G. Mazzotta, supra note 24, at § 2.

24. Cf. Peter Schlechtriem, Some Observations on the United Nations Convention on Contracts for the International Sale of Goods, in The Frontiers of Liability, Vol. 2 (Peter Birks ed. 1994): "There are good reasons to advocate an entirely different solution for the problem of restitution or inability of the avoiding party to restitute, namely, treating this as a problem of responsibility of the parties for performance of their obligation to restitute and not as one of a bar to avoidance."

25. See Art. 9:309 of the European Contract Principles; cf. Francesco G. Mazzotta, supra note 24.

26. See Art. 6:265,269,271,272 of the Nieuw Burgerlijk Wetboek (Civil Code of the Netherlands).

27. See § 346(2), (3) BGB (German Civil Code).

28. E.g. by holding that Art. 82(2)(b) CISG also covers improvements in the goods as a result of the examination, see Bundesgerichtshof (German Federal Supreme Court), 25 June 1997, CISG-online No. 277 (available at <http://www.cisg-online.ch>). E.g. by interpreting 'lack of conformity' within Art. 82(2)(c) CISG as covering also third party claims based on intellectual property, see Florian Mohs, The Restitution of Goods on Avoidance of the Contract for Lack of Conformity within the Scope of Art. 82(2)(c) CISG: On the Different Treatment of Defects in Quality, Third-Party Intellectual Property Rights, and Defects in Title as Elements of the Remedies for the Buyer, Review of the Convention on Contracts for the International Sale of Goods (CISG) (2002-2003); in German: Florian Mohs, Die Vertragswidrigkeit im Rahmen des Art. 82 Abs. 2 lit. c CISG, Internationales Handelsrecht, 59-66 (2002).

29. See Peter Schlechtriem, supra note 14, at 323. Cf. Oberster Gerichtshof (Austrian Supreme Court), 29 June 1999, CISG-online No. 483 (available at <http://www.cisg-online.ch>).

30. For the operation of Art. 7.3.6(2) UNIDROIT Principles, see Comment 3; Rainer Hornung, supra note 18, at 176, 177; critically Christoph Coen, supra note 2, at 246 et seq.

31. For the operation of Art. 73 CISG, cf. Schlechtriem/Leser/Hornung, supra note 5, at Art. 73 paras 1-41. But see Liu Chengwei, supra note 14, at 10.6, according to whom the UNIDROIT Principles do not provide a counterpart to Art. 73 CISG. Cf. on the European Contract Principles Christopher Kee, Remedies for breach of contract where only part of the contract has been performed: Comparison between provisions of CISG (Articles 51, 73) and counterpart provisions of the Principles of European Contract Law, available at <http://www.cisg.law.pace.edu/cisg/text/peclcomp51.html>.

32. But see Art. 51 CISG which addresses the case of partial deliveries although the contract called for performance at once.

33. Cf. Daniel Friedrich Berg, supra note 16, at 160.


Official Comments on Articles of the UNIDROIT Principles cited

Comments reprinted with permission from UNIDROIT

 

ARTICLE 7.3.5

(Ejects of termination in general)

(1) Termination of the contract releases both parties from their obligation to effect and to receive future performance.

(2) Termination does not preclude a claim for damages for non-performance.

(3)Termination does not 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.

COMMENT

1. Termination extinguishes future obligations

Para. (1) of this article 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.

2. Claim for damages not affected

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 this Chapter (Arts. 7.4.1 . et seq.).

Illustration

1. A sells B specified production machinery. After B has begun to operate the machinery serious defects in it lead to a shutdown of B's assembly plant. B declares the contract terminated but may still claim damages (Art. 7.3.5(2)).

3. Contract provisions not affected by termination

Notwithstanding the general rule laid down in para. (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.

Illustration

2. The facts are the same as in Illustration 1, the difference being that A discloses to B confidential information which is necessary for the production and which B agrees not to divulge for as long as it does not become public knowledge. The contract further contains a clause referring disputes to the courts of A's country. Even after termination of the contract by B, B remains under a duty not to divulge the confidential information, and any dispute relating to the contract and its effects are to be settled by the courts of A's country (Art. 7.3.5(3)).

ARTICLE 7.3.6

(Restitution)

(1) 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. If restitution in kind is not possible or appropriate allowance should be made in money whenever reasonable.

(2) 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.

COMMENT

1. Entitlement of parties to restitution on termination

Para. (1) of this article 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.

Illustration

1. A sells a Renoir painting to B for US $2,000,000. B does not pay for the picture when it is delivered. A can claim back the picture.

If the non-performing party cannot make restitution it must make allowance in money for the value it has received. Thus, in the case described in Illustration 1, B has to make allowance for the value of the picture if B has sold and delivered it to a purchaser from whom it cannot be reclaimed.

The rule also applies when the aggrieved party has made a bad bargain. If in the case mentioned in Illustration 1 the true value of the picture is US $3,000,000, A may still require the return of the picture and, if it cannot be returned, claim the true value of US $3,000,000.

The present article also applies to the situation where the aggrieved party has supplied money in exchange for property, services etc. which it has not received or which are defective.

Illustration

2. The "Renoir" painting for which B has paid US $2,000,000 was not a Renoir but a copy. B can claim back the money and must return the copy to A.

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.

2. Restitution not possible or appropriate

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.

Illustration

3. A, who has contracted to excavate B's site, leaves it after only half the work has been performed. B, who then terminates the contract, will have to pay A a reasonable sum for the work done, measured by the value that work has for B.

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.

Illustration

4. A, who has undertaken to decorate a bedroom suite for B, a furniture maker, abandons the work after having completed about half of the decorations. B can claim back the advance payments, but as the decorations made have no value for B, B does not have to pay for the work which has been done.

3. Contracts to be performed over a period of time

If the performance has extended over a period of time, restitution can, in accordance with para. (2) of this article, only be claimed in respect of the period after termination.

Illustration

5. A contracts to service B's computer hardware and software for a period of five years. After three years of regular service A is obliged by illness to discontinue the services and the contract is terminated. B, who has paid A for the fourth year, can claim return of the advance payment for that year but not the money paid for the three years of regular service.

This rule only applies if the contract is divisible.

Illustration

6. A undertakes to paint ten pictures depicting a historical event for B's festival hall. After delivering and having been paid for five paintings, A abandons the work. B can claim return of the advances paid to A and must return the five paintings to A.

4. Other rules applicable to restitution

Both the rule in Art. 7.1.3 on the right to withhold performance and Art. 7.2.2 on specific performance of non-monetary obligations apply with appropriate adaptations to a claim for the restitution of property. Thus the aggrieved party cannot claim the return of goods when this has become impossible or would put the non-performing party to unreasonable effort or expense (see Art. 7.2.2 (a) and (b)). In such cases the non-performing party must make allowance for the value of the property. See Art. 7.3.6(1).

5. Rights of third persons not affected

In common with other articles of the 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.


Pace Law School Institute of International Commercial Law - Last updated January 5, 2007
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