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Report to the Uniform Law Conference of Canada on Convention on Contracts for the International Sale of Goods

Professor Jacob S. Ziegel, University of Toronto
July 1981

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Article 81

(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 provision 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.

COMMENT

1. Art. 81(1) has no precise counterpart in the provincial Acts, but is in accord with the generally understood position at common law. The House of Lords has recently reaffirmed that termination of a contract because of breach by the other party, even if it is fundamental, does not nullify the provisions of the contract limiting the liability of the guilty party consequent on breach: Photo Productions Ltd. v. Securicor Transport Ltd. (1980) 1 All E.R. 556.

2. The provincial Acts do not regulate the restitutionary rights of the parties where the contract has been avoided, and these continue to be governed by the common law. The common law rights are not as extensive as those apparently conferred under art. 81(2). In particular the following limitations on the common law remedy should be noted.

(a) The claimant must be able to show a total, or at least a substantial failure of consideration: Hunt v. Silk (1804) 5 East 449; Waddams, op cit., p. 447 OLRC Sales Report, pp. 504-509.

(b) Except in a claim for the recovery of monies paid, (Dies v. British& International Mining& Finance Co., (1939) 1 K.B. 724, appvd. in Stockloser v. Johnson (1954) 1 Q.B. 476, C.A.), a party in breach cannot bring a successful restitutionary claim unless he has substantially completed his performance or unless the other party is deemed to have accepted or agreed to the deficient performance: Cutter v. Powell (1795) 6 T.R. 320; Britain v. Rossiter (1879) 11 QBD 123; Cheshire& Fifoot, The Law of Contract, 9th ed., pp.523-24.

(c) Likewise, no restitutionary rights exist at common law for partial performance where the contract has been frustrated: Cutter v. Powell, supra, and Appleby v. Myers (1867) L.R. 2 C.P. 651. However, this rule has now been reversed by statute in most of the Provinces. Cf. Uniform Frustrated Contracts Act (1974), s.5(1). Apparently art. 81(2) of CISG applies to avoidance of the contract because of frustration as well as to avoidance for other reasons.

(d) At common law there is generally no right to restitution in specie, only a claim in personam for the money value of the benefits conferred. In particular, an unpaid seller cannot claim the return of goods delivered to the buyer for non-payment of the price unless he has retained title to the goods or there is an agreement otherwise providing for the return of the goods. Cf. UCC 2-702. Apparently art. 81(2) confers a right of specific restitution--"of whatever he has supplied". However, the [Secretariat] Commentary, p. 176, para. 10, cautions that such a restitutionary claim may be thwarted by bankruptcy or other national insolvency procedures not recognizing the plaintiff's claim in the property or granting him a preferred status in the distribution of the bankrupt's estate.

(e) At common law the restitutionary claim may probably not exceed the expectancy damages the plaintiff would have been entitled to recover in an action for breach of contract: Waddams, op cit., pp. 448-449; and cf. Bowlay Logging Ltd. v. Domtar Ltd. (1978) 4 W.W.R. 105 (B.C.). There is no such restriction in art. 81(2). Quaere whether it will be implied?

The first three differences are not too serious and will probably only have a modest effect in practice. Difference (d) could be significant and needs to be explored much more fully if Canada decides to ratify the Convention. Difference (e) is at best doubtful and even if it exists is only likely to have a minor impact.

3. I am not aware of any common law rule corresponding to the second sentence of art. 81(2). It is in fact well settled that a buyer under the provincial Acts has no lien on the seller's goods to secure the return of his payments. See Lyons& Co. v. May& Baker (1923) 1 K.B. 685. The common law rule has been reversed in UCC 2-711(3).

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Pace Law School Institute of International Commercial Law - Last updated April 23, 1999
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