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Termination of Contract under the
Principles of European Contract Law - A Comparative Study

Mercédeh Azeredo da Silveira [*]
2006

  1. Introduction
    I.1.   The Principles of European Contract Law
    I.2.   Remedies for non-performance under the PECL
  2. Termination of contract under the PECL
    II.1.   Termination as a remedy
    II.2.   Termination for fundamental non-performance
              II.2.1.   In general
                           II.2.1.1.   Under the PECL
                           II.2.1.2.   Comparison with the CISG
              II.2.2.   Contracts to be performed in separate parts
                           II.2.2.1.   Under the PECL
                           II.2.2.2.   Comparison with the CISG
    II.3.   Termination for fundamental anticipatory non-performance
              II.3.1.   Under the PECL
              II.3.2.   Comparison with the CISG
    II.4.   Termination for non-fundamental delay in performance
              II.4.1.   Under the PECL
              II.4.2.   Comparison with the CISG
  3. Notice of termination
    III.1.  Under the PECL
              III.1.1.   Principle
              III.1.2.   Moment
              III.1.3.   Form
              III.1.4.   Exceptions
    III.2.  Comparison with the CISG
  4. Effects of termination
    IV.1.  Under the PECL
              IV.1.1.   Release from the rights and obligations effective after the
                            date of termination v. absence of release from the rights and
                            liabilities that have accrued up to the time of termination
              IV.1.2.   Obligation of restitution
              IV.1.3.   Damages
    IV.2.  Comparison with the CISG
              IV.2.1.   Release from the obligations and rights that would have
                            been effective after the date of termination and restitution
              IV.2.2.   Damages
  5. Concluding remarks
    Bibliography

I.  INTRODUCTION

I.1.  THE PRINCIPLES OF EUROPEAN CONTRACT LAW

The Principles of European Contract Law (PECL) have been drafted by an independent,[1] non-governmental body composed of experts of each Member State of the European Union, in the context of a project supported, amongst others, by the European Commission. Today, the PECL are considered to be "one of the most noted 'non-governmental' unification projects within private law."[2]

The group of experts who drafted the PECL aimed at the elaboration of a uniform legal instrument setting out, in a "concise, comprehensive, and workable"[3] manner, "the principles of contract law shared by the legal systems of the Member States."[4] The objective of this group was to allow entities from various Member States to select an a-national set of rules - with most of which all parties would be familiar - as the law governing their contractual relationships. As a result, today, "the PECL, to consolidate the rapidly expanding volume of Community law regulating specific types of contract, provide for a legal framework of common European principles - a Community-wide infrastructure of contract law. The promising potential of the Lando-Commission [5] is to reach a compromise between the obvious need for a common legal framework of contract law and the patchwork character of European legislative activities."[6]

Some of the provisions of the PECL reproduce rules present in various national legal systems, whereas others are innovative in that they incarnate principles and concepts that have not yet materialized in the law of any state.[7] The systems of all the Member States have been taken into consideration at the time of the drafting of the PECL, "but not every one of them has had influence on every issue dealt with."[8] Even international contractual rules and some contractual rules enacted in countries that do not belong to the European Community, such as, for example, the United Nations Convention on the International Sale of Goods (hereafter "CISG") [9] and the American Restatement on the Law of Contracts [10] have been taken into account for the drafting of the PECL.

The PECL are non-binding rules: they apply solely when the parties have agreed to incorporate them into their contract or have agreed that their contract is to be governed by them (art. 1:101(1) and (2) PECL). Whether the PECL will, in the future, remain "soft law" is an issue which is currently being debated. Whereas some, on the one hand, "limit the critical function attributed to the Lando-Commission to that of a 'non-legislative' project of contract law unification [...] without ambitions to become a mandatory codification,"[11] the Commission on European Contract Law holds, on the other hand, that the "main purpose [of the Principles] is to serve as a first draft of a part of a European Civil Code."[12]

The PECL provide general rules of contract law for the European Union.[13] They encompass core rules of contract law, as well as provisions regulating the issues of formation, authority of agents, validity, interpretation, contents and effects, performance, non-performance, and remedies. They are applicable to the great majority of the issues raised by commercial contracts for the provision of goods and services and the transfer of rights. "The Commission has made an effort to deal with those issues in contract which face business life of today and which may advance the trade, especially the international trade. However, the Principles do not intend to apply exclusively to international transactions."[14]

I.2.  REMEDIES FOR NON-PERFORMANCE UNDER THE PECL

Under the PECL, there is non-performance whenever a party does not perform any one of its obligations. Defective performance, delayed performance, violation of accessory duties, and violation of a duty to receive or accept the other party's performance are some examples of non-performance.

Art. 8:101 PECL sets out the framework of the remedial system as follows:

"(1) Whenever a party does not perform an obligation under the contract and the non-performance is not excused under Article 8:108, the aggrieved party may resort to any of the remedies set out in Chapter 9.

(2) Where a party's non-performance is excused under Article 8:108, the aggrieved party may resort to any of the remedies set out in Chapter 9 except claiming performance and damages.

(3) A party may not resort to any of the remedies set out in Chapter 9 to the extent that its own act caused the other party's non-performance."

According to this provision, in order to first determine if any remedy at all is available, the party whose behavior caused the non-performance must be identified. If the non-performance was wholly caused by the creditor of the performance,[15] no remedy is available (art. 8:101(3) PECL). Indeed, "a non-performance which is due solely to the other party's wrongful prevention does not give the latter any remedy."[16] In particular, the creditor or obligee of the performance "has no remedies against the obligor if he is unable to receive the performance even when this is due to an impediment beyond his control. His failure to receive performance may in itself be a non-performance which may give the other party remedies such as a right to terminate the contract."[17] The effect, on the availability of remedies, of the creditor's contribution to the non-performance "may be total, that is to say that the creditor cannot exercise any remedy, or partial"[18] if the non-performance is caused by both the creditor and the debtor. However, even if the non-performance was caused only by the aggrieved party, "it may be appropriate [in certain circumstances] to permit termination but to hold that the aggrieved party's conduct amounted to a non-performance itself for which the other party may claim damages."[19]

Once it has been verified that the non-performance was not caused solely by the creditor's behavior, it must be determined, in order to identify the remedies available, whether the non-performance is excused - because it is due to an impediment in the sense of art. 8:108 PECL - or not.

If the non-performance is not excused, the aggrieved party may be entitled to claim performance (recovery of money due or specific performance), claim damages, withhold or reduce its own performance, or even terminate the contract (art. 8:101(1) PECL). These remedies are available in all cases of non-performance, including cases in which the defaulting party has violated its duty to receive or accept performance (in such cases, however, the aggrieved party must comply with the requirements of art. 7:110 and 7:111 PECL).

If the non-performance is excused in the sense of art. 8:108(1) PECL - i.e., if the defaulting party proves that the non-performance was due to an impediment beyond its control and that it could not reasonably have been expected to take such impediment into account at the time of the conclusion of the contract, or to have avoided or overcome the impediment or its consequences - the aggrieved party is not entitled to claim damages or specific performance, but remains authorized to claim all other remedies set out in chapter 9 (art. 8:101(2) PECL). Consequently, termination of contract remains a remedy available even in cases of excused non-performance.

The present article focuses primarily on the factual and legal circumstances that may lead to the termination of a contract. It examines the effects of termination, and briefly compares the relevant provisions of the PECL with those of the CISG.

II.  TERMINATION OF CONTRACT UNDER THE PECL

II.1.  TERMINATION AS A REMEDY

As exposed in section I.1. supra, termination of the contract is a remedy available when the non-performance has not been caused by the sole act or omission of the creditor of the performance, regardless of whether the said non-performance is excused in the sense of art. 8:108 PECL or not.

Termination should be used as a remedy of last resort. Indeed, the aggrieved party should seek termination of the contract only when it suffers a substantial detriment as a result of a fundamental non-performance and when other remedies, such as price reduction or damages alone, do not permit the safeguard of its interests.

In a number of situations, the only remedy truly safeguarding the interests of the aggrieved party would be the termination of the contract. This is the case, for example, when the performance of the defaulting party is so different from that for which the aggrieved party bargained that the latter cannot use it for its intended purpose, when the performance is so late that the aggrieved party's interest in the contract is lost, or when the defaulting party is insolvent and cannot perform its obligations or pay damages.[20] Nevertheless, chapter 9, section 3 of the PECL strictly stipulates that termination of contract is available solely in situations of fundamental non-performance and, provided that certain conditions are satisfied, in situations of delayed performance.[21] Given the heavy consequences induced by termination, termination is not available in any other circumstances, even if the "party which fears that the other party may not perform its obligations may wish to be able to take advantage of the fact that the threat of termination is a powerful incentive to the other to perform to ensure that the other performs every obligation in complete compliance with the contract."[22]

In conclusion, the factual circumstances that may lead to the right, for the aggrieved party, to terminate the contract are limited and strictly defined by the law.

II.2.  TERMINATION FOR FUNDAMENTAL NON-PERFORMANCE

II.2.1. In general

II.2.1.1. Under the PECL

Under the PECL, a party may be entitled, in case of fundamental non-performance, to terminate the contract, either after the time when performance was due by the other party or even before that moment, depending on the specific circumstances of the case. Indeed, on the one hand, a party may, according to art. 9:301 (1) and 9:302 in fine PECL, terminate the contract, after the time when performance was due, if the other party's non-performance is fundamental. On the other hand, pursuant to art. 9:304 PECL, "where prior to the time for performance by a party it is clear that there will be a fundamental non-performance by it[,] the other party may terminate the contract."

The present section deals solely with the issue of termination of the contract subsequent to the time when performance was due. Situations of anticipatory non-performance are examined in section II.3., infra.

According to art. 1:301(4), "'non-performance' denotes any failure to perform an obligation under the contract, whether or not excused." "Non-performance" encompasses defective performance, failure to perform at the time when performance was due (performance made too early, too late, or that never occurred), failure to co-operate in order to give full effect to the contract (duty imposed by art. 1:202 PECL), violation of accessory duties such as the duty not to disclose the other party's trade secrets, and failure to observe a duty to receive or accept the other party's performance.[23] Thus, failure in performing can consist "of a total inactivity (i.e., no step towards performance) or of conduct in or towards performance which in some way fails to conform to the contract."[24] Nevertheless, one should keep in mind that in the case of a defective tender that has been properly rejected, the defaulting party may still have time to perform its obligation in conformity with the contract (art. 8:104 PECL).[25]

Situations of non-performance in the sense of the PECL include both cases of failure to perform that are not excused and cases of failure to perform that are excused in the sense of art. 8:108 PECL. Indeed, excuse in the sense of art. 8:108 PECL deprives the aggrieved party only of the right to claim specific performance and damages, but not of the right to claim the other remedies set out in chapter 9 (see section I.2., supra).[26] Thus, for example, if the object of a sale contract has been damaged due to an impediment beyond the parties' control before the moment in time when the risk passes on to the buyer, the latter cannot claim damages but he remains entitled to terminate the contract or claim a reduction of the price.

In order to constitute a ground for termination, the non-performance must, according to art. 9:301(1) PECL, be fundamental. Art. 8:103 PECL identifies the following three situations in which the non-performance is deemed fundamental.

First, a non-performance is fundamental if strict compliance with the obligation is of the essence of the contract (art. 8:103(a) PECL). Here, "the relevant factor is not the actual gravity of the breach but the agreement between the parties."[27] The duty of strict compliance may be derived from implied terms, inferred from the nature of the contract or the circumstances of its conclusion, or from customs, trade usages or usages regularly observed by the party. The duty of compliance may also be expressly stipulated in the contract, in particular if the law or the nature of the obligation does not imply such a duty. Indeed, art. 8:103(a) PECL encompasses all situations in which the parties have agreed "that strict compliance to the terms of the contract is essential, and that any deviation from the obligation goes to the root of the contract so as to entitle the other party to be discharged from his obligation under the contract."[28] In other words, the contract may provide that any breach of contract will be deemed a fundamental breach, and may, as a result, empower the aggrieved party to terminate the contract in any and all cases of breach. However, the principle of good faith set out in art. 1:601 PECL applies and ought to be taken into consideration, in particular when the parties have stipulated that strict compliance with the terms of the contract is essential. Indeed, "if the non-performance is so slight that it would be unreasonable for the aggrieved party to terminate the contract he shall not be entitled to do so."[29]

Second, a non-performance is fundamental if the non-performance substantially deprives the aggrieved party of what he was entitled to expect under the contract, unless the other party did not foresee and could not reasonably have foreseen the result (art. 8:103(b) PECL). According to paragraph (b) of art. 8:103 PECL, the basic criterion for determining whether the non-performance is fundamental is the gravity of the detriment suffered by the aggrieved party: "where the effect of non-performance is substantially to deprive the aggrieved party of the benefit of its bargain, so that it loses its interest in performing the contract, then in general the non-performance is fundamental [unless] the non-performing party did not or could not reasonably have foreseen those consequences."[30] The defaulting party is considered not to have foreseen the consequences of the non-performance if a person in the same situation, acting reasonably diligently, would not have known or foreseen, at the time of the conclusion of the contract, the consequences of the non-performance. In this respect, the aggrieved party may expect more skill, diligence, and knowledge from a highly qualified specialist than from a novice.

For the purpose of interpreting art. 8:103(b) PECL, one may refer to art 25 CISG,[31] according to which a fundamental breach is a breach which results in such a detriment to the other party as substantially to deprive it of what it is entitled to expect under the contract (for a comparative analysis of art. 8:103(b) PECL and art. 25 CISG, see section II.2.1.2., infra).

Third, a non-performance is fundamental if it is intentional and gives the aggrieved party reason to believe that it cannot rely on the other party's future performance (art. 8:103(c) PECL). In this third situation, the non-performance is fundamental and the aggrieved party entitled to terminate the contract even if "the contractual term broken is minor and the consequences of the non-performance do not substantially deprive the aggrieved party of the benefit of the bargain."[32] The rationale underlying this paragraph is that if the obligor has intentionally disregarded its obligation, the relationship of trust that once bound the parties has been disrupted in such a manner that the aggrieved party can no longer rely on the defaulting party's future performance and is consequently entitled to terminate the contract. Some authors nevertheless hold that "where no future performance is due from the non-performing party, other than the remedying of the non-performance itself, or where there is no reason to suppose that it will not properly perform its future obligations, the aggrieved party cannot invoke paragraph (c) of this Article."[33]

II.2.1.2. Comparison with the CISG

As a general rule, any claim of the buyer seeking a remedy for breach of contract under the CISG is subject to the examination and notice regimes of art. 38 [34] and 39 [35] CISG. Such regimes do not exist under the PECL.

Arts. 49(1)(a) and 64(1)(a) CISG govern the procedure of termination of the contract by the buyer and the seller, respectively, for fundamental breach of contract by the other party. The two provisions are identical. Just like art. 9:301(1) PECL, these articles of the CISG provide that each party may declare the contract avoided if a failure by the other party to perform any of its obligations under the contract or the CISG amounts to a fundamental breach of contract. The term "non-performance" under the PECL is synonymous with the term "breach" under the CISG.

Also, as is the case under the PECL, termination is available to the aggrieved party, under the CISG, whether the fundamental breach be excused or not. Indeed, according to art. 79(5) CISG, the aggrieved party is entitled to avoid the contract even if the defaulting party proves that the failure to perform its obligation was due to an impediment beyond its control, an impediment that it could not reasonably be expected to have taken into account at the time of the conclusion of the contract or to have avoided or overcome.[36]

The PECL and the CISG establish a distinction between fundamental and mere non-performance/breach. Both provide that the aggrieved party is entitled to claim termination of the contract in cases of fundamental non-performance/breach.

Art. 8:103 PECL identifies three situations in which the non-performance is deemed fundamental (see section II.2.1.1., supra). Art. 25 CISG defines a fundamental breach as a breach resulting "in such a detriment to the other party as substantially to deprive him of what he is entitled to expect under the contract, unless the party in breach did not foresee and a reasonable person of the same kind in the same circumstances would not have foreseen such a result." Even though art. 8:103(b) PECL and the general definition of fundamental breach provided by art. 25 CISG are similar in substance, they are not identical. Indeed, the "detriment" and the "substantial deprivation" mentioned in art. 25 CISG constitute two distinct conditions.[37] The history of art. 25 CISG indicates that the terms "so as substantially to deprive him of what he is entitled to expect under the contract" do "not refer to the extent of the damage, but instead to the importance of the interests which the contract and its individual obligations actually create for the promisee."[38] Thus, under the CISG, there is a fundamental breach of contract only if the aggrieved party, as a result of the breach, does not only lose interest in the performance of the contract, but also suffers a detriment.[39] The conditions of art. 25 CISG thus differ from those of art. 8:103(b) PECL. In the context of the latter provision, even though the non-performance must, like in the CISG, go "to the root" of the contract (the interest in the performance of the contract must be lost),[40] the occurrence of a "detriment" is not a condition for a non-performance to be fundamental.

In conclusion, only two parameters regarding the fundamental status of a non-performance are common to the CISG and the PECL. These two parameters are firstly the existence of a substantial deprivation of what the aggrieved party was entitled to expect under the contract, and secondly the foreseeability of the deprivation by the breaching party.

There are no provisions in the CISG corresponding to paragraphs (a) and (c) of art. 8:103 PECL. Nevertheless, it stems from the wording of art. 25 CISG, according to which a breach of contract committed by one of the parties is fundamental if it results in such a detriment to the other party as substantially to deprive him of what he is entitled to expect under the contract, and the fact that "the expectation interests [...] are tied entirely to the terms of the contract,"[41] that if the contract requires strict compliance with its terms, a deviation from the defined standard of performance will often amount to a fundamental breach of contract.[42] Consequently, art. 25 CISG is deemed to encompass most situations falling within the scope of art. 8:103(a) PECL. This is not the case in situations covered by art. 8:103(c) PECL, which has no equivalent in the CISG. Indeed, the CISG does not promote to the status of fundamental breach minor breaches that do not substantially deprive the aggrieved party of what it is entitled to expect under the contract, solely on the ground that the breach was intentional. "It is the prevailing view that in sales governed by the CISG the remedies for fraud are to be found in national law."[43]

II.2.2. Contracts to be performed in separate parts

II.2.2.1. Under the PECL

Art. 9:302 PECL provides that "if [...] in relation to a part to which a counter-performance can be apportioned, there is a fundamental non-performance, the aggrieved party may exercise its right to terminate under [section 3] in relation to the part concerned." This provision applies to contracts to be performed in a series of smaller performances, each having a corresponding counter-performance (for example, separate payment for each performance) [44]. In such cases, "if one party fails to perform one unit, the other may want to put an end to its obligation to accept performance of that unit."[45]

It is appropriate to allow the aggrieved party to terminate in relation to the non-performed unit without affecting the rest of the contract, only if the non-performance is fundamental precisely regarding that specific "unit" of the contract, if the unit not performed does not affect the rest of the contract significantly, and if the non-performance is not likely to be repeated.[46] If the non-performance is fundamental to the contract as a whole, art. 9:302 in fine PECL allows termination of the "contract as a whole," the parties being, in this case, according to art. 9:305 PECL, released from all their future obligations (the rights and obligations that have accrued up to the time of termination remaining unchanged,[47] except in the cases provided for in arts. 9:306 and 9:308 PECL; see section IV., infra).

The general rules on termination (such as the need to give notice according to art. 9:303 PECL, see section IV., infra) are applicable.

II.2.2.2. Comparison with the CISG

Regarding situations in which only part of the contract has been performed, two provisions of the CISG ought to be mentioned. First, art. 51(1) CISG provides that "if the seller delivers only a part of the goods or if only a part of the goods delivered is in conformity with the contract, articles 46 to 50 apply in respect of the part which is missing or which does not conform." Art. 51 CISG is consequently applicable where the contract intended the goods to be delivered as a whole, but the seller failed to deliver part of the goods or delivered goods that were in part defective. Second, art. 73(1) CISG provides that, "in the case of a contract for delivery of goods by installments, if the failure of one party to perform any of his obligations in respect of any installment constitutes a fundamental breach of contract with respect to that installment, the other party may declare the contract avoided with respect to that installment." Art. 73 CISG is thus applicable, in the case of installment contracts, to the failure, by the buyer or the seller, to perform an obligation in respect to an installment. Arts. 51 and 73 CISG are to be compared with art. 9:302 PECL.

A priori, art. 9:302 PECL seems to correspond to art. 73 CISG rather than art. 51 CISG. Indeed, art. 9:302 PECL differs from art. 51 CISG both in its conditions of application and in the definition of the range of situations in which notice of termination may be given by the aggrieved party. First, concerning the conditions of application, both art. 9:302 PECL and art. 73 CISG deal with contracts to be performed in separate parts to which counter-performances can be apportioned; by contrast, art. 51 CISG is applicable where the contract intended the goods to be delivered as a whole, but the seller failed to deliver part of the goods or delivered goods that were in part defective. Second, under art. 9:302 PECL and art. 73(1) CISG, termination in relation to a specific part of the contract, respectively to an installment, is possible only in cases of fundamental non-performance regarding the said part of the contract/installment. On the contrary, art. 51(1) CISG, by referring to art. 47 and 49(1)(b) CISG, provides the possibility, for the aggrieved party, to terminate part of the contract, in cases of non-fundamental delay in performance, in compliance with the Nachfrist procedure (see section II.4., infra). In conclusion, it seems that "the drafters of the PECL have avoided the competition between CISG Articles 51 and 73 by not including a specific provision that explicitly directs the parties to act in the same manner as CISG Article 51."[48] However, one could argue that, in fact, given the reference, in art. 8:106(1) PECL, to "any case of non-performance," termination of part of a contract for non-fundamental delay in performance is possible, in compliance with the Nachfrist procedure, under art. 8:106(3) PECL. One might consequently hold that, according to this interpretation of the PECL, even though termination of part of the contract for non-fundamental delay in performance does not fall within the scope of art. 9:302 PECL, it is possible under art. 8:106 PECL, as it is under art. 51 CISG. Accordingly, the combination of art. 8:106(3) and 9:302 PECL would cover all cases envisaged in art. 51 CISG.

There are also a number of similarities between art. 9:302 PECL and 51 CISG. First, even though the term "part" has a different meaning in art. 51 CISG and art. 9:302 PECL (as explained above), in both cases, the provisions provide that the aggrieved party may terminate the contract only as to the part in relation to which there has been a non-performance. Second, both articles provide that the aggrieved party may terminate the whole contract (although the effects of such termination are different under the PECL and the CISG) if the non-performance is fundamental to the whole contract (art. 9:302 in fine PECL and art. 51(2) CISG).

Concerning installment contracts, art. 73 CISG deals specifically with the possibility, on the one hand, to avoid the contract with respect to future installments, pursuant to paragraph (2), if the breach of one installment indicates "the probability of a breach of installment obligations not yet due"[49], and, on the other hand, to avoid the contract with respect to past or future installments, pursuant to paragraph (3), "if, due to the interdependence of the installments, the defective or failed performance makes past or future installments worthless."[50]

Finally, it is important to note that art. 73 CISG and art. 9:302 PECL convey the spirit of art. 51 CISG: all three provisions aim at keeping the contract "on foot." Indeed, "the [creditor] is able to avoid a part of the contract if the criteria for avoidance are met as to that part."[51] Thus, the contract may be avoided, in compliance with the general conditions of termination (art. 9:301(1) PECL and arts. 49 and 64 CISG), specifically in respect of the part which is missing or which does not conform to the contract. It is only if the breach concerning one part causes a detriment that is so substantial as to constitute a fundamental breach of the contract as a whole that termination of the contract as a whole is permitted.

II.3.  TERMINATION FOR FUNDAMENTAL ANTICIPATORY NON-PERFORMANCE

II.3.1. Under the PECL

According to art. 9:304 PECL, "where prior to the time for performance by a party it is clear that there will be a fundamental non-performance by it, the other party may terminate the contract." This provision "rests on the notion that a party to a contract cannot reasonably be expected to continue to be bound by it once it has become clear that the other party will commit [a fundamental breach], cannot or will not perform at the due date."[52]

"Anticipatory non-performance" means "an obvious unwillingness or inability to perform where the failure in performance would be fundamental within art. 8:103."[53] "The party faced with an anticipatory non-performance may terminate the contract at any time while it remains clear that there will be a fundamental non-performance by the other party."[54] More precisely, the contract may be terminated at any time, provided that the following two conditions are satisfied.

First, the inability or unwillingness to perform must be manifest. Mere doubts as to the ability or willingness to perform are insufficient, and only allow the creditor of the performance to demand assurance of performance under art. 8:105 PECL.[55] Indeed, "a party who reasonably believes that there will be a fundamental non-performance by the other party may demand adequate assurance of due performance and meanwhile may withhold performance of its own obligations so long as such reasonable belief continues" (art. 8:105(1) PECL). In such a case, it is only "where this assurance is not provided within a reasonable time [that] the party demanding it may terminate the contract if it still reasonably believes that there will be a fundamental non-performance by the other party and gives notice of termination without delay" (art. 8:105(2) PECL).

Second, the threatened non-performance must be fundamental in the sense of art. 8:103 PECL. This condition also applies to delays in performance. Consequently, if a party indicates that its performance will be late, this does not constitute an anticipatory non-performance allowing termination of the contract, unless the "time of performance is of the essence of the contract or the threatened delay is so serious as to constitute a fundamental non-performance within Article 8:103 PECL."[56]

In conclusion, it is only in cases where, clearly, the debtor of a performance cannot or will not perform at the due date and that such non-performance will be fundamental, that it is unreasonable for the creditor to continue to be bound by the contract. Only in such circumstances is the creditor of the performance entitled to terminate the contract. The following examples illustrate cases in which it is clear that a fundamental breach of contract will be committed and which consequently fall within the scope of art. 9:304 PECL: a party declares that it will not perform its obligation or denies the existence of the contract; in a sale contract, the seller resells to a third party the goods that it had pledged itself to deliver to the buyer, or sells the machines with which he had agreed to produce the goods for the buyer; the debtor of the obligation is insolvent and has initiated bankruptcy proceedings.

Art. 9:304 PECL does not burden the innocent party with any duty to inform the other party of its intention to terminate the contract. However, the innocent party "may as a precaution require an adequate assurance of due performance, failing which that party is entitled to terminate the agreement."[57]

II.3.2. Comparison with the CISG

First, the CISG provides, in art. 72(1), that "if prior to the date for performance of the contract it is clear that one of the parties will commit a fundamental breach of contract, the other party may declare the contract avoided." The notion of anticipatory breach adopted by the CISG under art. 72(1) is very similar to that of art. 9:304 PECL. Both provisions "are said to establish the principle that a non-performance which is to be expected is to be equated with a non-performance which occurred at the time when performance fell due."[58] Art. 72(1) CISG and art. 9:304 PECL both require a clear indication of a future fundamental non-performance; in both cases, "a suspicion, even a well-founded one, is not sufficient."[59] The two provisions however differ in that the scope of application of art. 9:304 PECL is wider: whereas art. 72(1) CISG requires that the debtor of the obligation be the author ("will commit") of the fundamental breach, the conditions of art. 9:304 PECL are satisfied if it is clear that "there will be" a fundamental non-performance, regardless of the identity of the author of the non-performance. Nevertheless, this distinction between the two provisions does not hold an important place beyond the boundaries of the theoretical comparative analysis.[60]

Whereas art. 9:304 PECL does not mention any duty of the innocent party to inform the other party of its intention to terminate the contract, art. 72(2) and (3) CISG obliges the former to give reasonable notice to the latter of its intention to terminate the contract - unless the defaulting party has already clearly declared its intention not to perform - "in order to permit him to provide adequate assurance of his performance."

Second, art. 71(1) CISG provides that "a party may suspend the performance of his obligations if, after the conclusion of the contract, it becomes apparent that the other party will not perform a substantial part of his obligations as a result of: (a) a serious deficiency in his ability to perform or in his creditworthiness; or (b) his conduct in preparing to perform or in performing the contract." On the other hand, art. 8:105 (1) PECL states that "a party who reasonably believes that there will be a fundamental non-performance by the other party may demand adequate assurance of due performance and meanwhile may withhold performance of its own obligations so long as such reasonable belief continues." Although the two provisions provide for mechanisms of suspension of the creditor's obligation, they differ in their conditions of application. Indeed, whereas under art. 71(1) CISG, a sufficient condition, for the creditor to be entitled to suspend its obligations, is that it be "apparent that the other party will not perform a substantial part of its obligation," under art. 8:105(1) PECL, it is necessary that the creditor reasonably believe that there will be a fundamental non-performance that could trigger termination.

Rather than being compared to art. 71(1) CISG, art. 8:105 PECL should be examined together with art. 72(2) CISG, according to which "if time allows, the party intending to declare the contract avoided must give reasonable notice to the other party in order to permit him to provide adequate assurance of his performance." Even though the substance of the two provisions is not the same in that the latter imposes a duty on the innocent party that the former does not, these articles serve the same purpose. Indeed, their aim is to "protect the interests of a party who has reason to believe that the other will be unable or unwilling to perform the contract at the due date but who cannot or may be reluctant to terminate the contract immediately in case it transpires that the other party would after all have performed. Consequently, it enables a party who reasonably believes that there will be a fundamental non-performance by the other party to demand an assurance of performance from the other party and in the meantime to withhold its own performance."[61] Furthermore, in both cases, the failure to give the requested assurance is treated as a fundamental non-performance, giving the aggrieved party the right to terminate the contract and claim damages (unless the non-performance would have been excused, see art. 8:101(2) PECL).

II.4.  TERMINATION FOR NON-FUNDAMENTAL DELAY IN PERFORMANCE

II.4.1. Under the PECL

Pursuant to art. 9:301(2) PECL, "in the case of delay the aggrieved party may [...] terminate the contract under Article 8:106(3) PECL." The latter provision provides that "if in case of delay in performance which is not fundamental [62] the aggrieved party has given a notice fixing an additional period of time of reasonable length, it may terminate the contract at the end of the period of notice. [...] If the period stated is too short, the aggrieved party may terminate [...] only after a reasonable time period from the time of the notice." The procedure described in art. 8:106 PECL is called the Nachfrist procedure. It has its origin in arts. 49(1)(b) and 64(1)(b) CISG: if a party is late for the performance of its obligations, the other party may grant it an additional period of time for the performance, at the end of which, if no performance at all has occurred, the aggrieved party may terminate the contract, even if the delay in performance does not constitute a fundamental non-performance in the sense of art. 8:103 PECL.

"In his notice the aggrieved party may [even] provide that if the other party does not perform within the period fixed by the notice the contract shall terminate automatically."[63]

Within the additional period of time, the aggrieved party may not benefit from any remedy against the defaulting party. After expiry of the additional period of time, if the defaulting party performs its obligation, the aggrieved party is entitled to refuse it. But "if the aggrieved party actually knows that the defaulter is still attempting to perform after the date [indicated in the notice], good faith requires it to warn the defaulter that the performance will not be accepted. If the defaulting party asks the aggrieved party whether it will accept performance after the date set, good faith requires the aggrieved party to give an answer within a reasonable time."[64]

Article 8:106(3) PECL applies only to delayed performance and not to (non-fundamental) defective performance. In the case of a performance which, although prompt, is defective in a non-fundamental way, the notice procedure may be used by the aggrieved party only to inform the defaulting party that it is still pursuing performance, and to give the latter party a last chance to perform before the aggrieved party seeks specific performance. "The aggrieved party will not have the right to terminate and serving notice fixing an additional time for performance will not give it that right."[65]

Art. 8:106(3) PECL is applicable not only when the debtor of the obligation is not performing on time, but also when "it is the aggrieved party who is to perform a service but the other party has refused to accept or to allow performance."[66] Art. 8:106(3) PECL is even applicable when the non-performance is excused because of a temporary impediment in the sense of art. 8:108(2) PECL.[67]

A party giving notice fixing an additional period for performance will be entitled to terminate the contract only if, on the one hand, the additional period of time was definite [68] and, on the other hand, the additional period of time was of reasonable length.

Under the PECL, reasonableness is to be determined by comparison with what a person acting in good faith and in the same situation as the parties to the contract would consider reasonable.[69] In particular, in assessing what is reasonable in the sense of 8:106 (3) in fine PECL, the nature and purpose of the contract, the circumstances of the case, and the usages and practices of the trades or professions involved, should be taken into account (art. 1:302 PECL). More specifically, the following factors should be taken into consideration:

Even in a case of fundamental delay or non-performance, the aggrieved party may decide not to terminate the contract without giving the defaulting party a last chance to perform. In such a case, the aggrieved party will most likely grant the defaulting party an additional period for performance, and will, as a result, be bound by the requirements of art. 8:106 PECL (see infra). Indeed, "even where the aggrieved party has an immediate right to terminate because of the other's fundamental non-performance, if the aggrieved party has indicated that it is still prepared to accept performance, it may not change its mind without warning."[76] Thus, even in case of fundamental delay or non-performance, "the procedure set out in art. 8:106 permits [the aggrieved party] to give the debtor a final chance to perform (or to correct a defective performance), without the aggrieved party losing the right to seek performance or to terminate if by the end of the period of notice the debtor has still not performed in accordance with the contract."[77]

II.4.2. Comparison with the CISG

Art. 9:301(2) combined with art.8:106 PECL, on the one hand, and art. 49(1)(b) combined with art. 47 CISG as well as art. 64(1)(b) combined with art. 63 CISG, on the other hand,[78] introduce, in the context of international contractual relations, the concept of Nachfrist. Both the PECL and the CISG empower the aggrieved party to terminate a contract in case of non-fundamental delay in performance, after the expiry of an additional final period of time granted to the defaulting party for the performance of its obligation. Both the PECL and the CISG require that the additional period of time granted to the defaulting party be of reasonable length. Commentators disagree on the nature of the notice fixing the additional period of time: some hold that the additional period of time must be fixed "in such a way as to make it clear to the buyer that the additional period sets a fixed and final limit on the date for performance," whereas others maintain that "no such unequivocal warning is necessary."[79] Where the PECL applies, if less than reasonable time was fixed, the aggrieved party "need not serve a second notice; it may terminate after a reasonable time has elapsed from the date of notice."[80] "As far as the CISG is concerned, no jurisprudence has solved the issue; however, it can be argued that a court would invoke good faith and may set a date which fulfills the requirements of the principle of reasonableness."[81]

Under both the PECL and the CISG, unless the aggrieved party receives notice from the defaulting party that the latter will not perform within the additional period of time, the aggrieved party may solely withhold performance of its own reciprocal obligations during the additional period of time and claim damages for the delay in performance or other losses caused by the non-performance, but it may not resort to any other remedy (art. 8:106(2) PECL, arts. 47(2) and 63(2) CISG). Consequently, it may not seek specific performance or terminate the contract during the additional period of time granted to the defaulting party.

If the contract is governed by the CISG, the buyer is not compelled to grant the defaulting party an additional period of time before it can terminate the contract, if the seller manifests the clear intention that he will not deliver the goods within the period so fixed (art. 49(1)(b) in fine CISG).

III.  NOTICE OF TERMINATION

III.1.  UNDER THE PECL

III.1.1. Principle

According to art. 9:303(1) PECL, "a party's right to terminate the contract is to be exercised by notice to the other party" (see however the exceptions discussed in section III.1.4, infra). "Termination must be effected by the act of the aggrieved party alone [, who] does not have to bring an action in court in order to have the contract terminated."[82]

III.1.2. Moment

In the case of a non-fundamental delay in performance, the issue of the time at which notice of termination must be given is governed by art. 8:106 PECL. According to this provision, the aggrieved party may not give notice of termination before the expiry of the additional time granted to the defaulting party for performance (art. 8:106(3) PECL), unless it has received notice from the defaulting party that the latter will not perform within that period (art. 8:106(2) PECL) (see section II.4, supra).

"When there is a fundamental non-performance of any obligation, the aggrieved party can terminate the contract immediately without referring the matter to the court or arbitral tribunal."[83] Art. 9:303(2) and (3) PECL, which governs the time frame within which notice of termination may be given, is applicable to both fundamental defective non-performances and fundamental delays in performance.[84] Pursuant to art. 9:303(2) PECL, the aggrieved party loses its right to terminate the contract unless it gives notice within a reasonable period of time after it has or ought to have become aware of the non-performance.

In the case of a defective tender, the "reasonable period of time" starts running when the aggrieved party "knows or should know of the tender."[85] This moment is, as a general rule, the moment agreed upon, by the parties, for the performance of the obligation.

In the case of a delayed performance, art. 9:303(3)(a) and (b) PECL clarifies the general principle set out in paragraph (2), by fixing the time when notice of termination must be given in the various situations that ought to be envisaged.[86] If the aggrieved party does not know whether the defaulting party still intends to perform its obligation, and the former no longer wishes to receive the performance or is undecided in this respect, it may, according to art. 9:303(3)(a) PECL, wait to see if performance is eventually tendered and then decide, within a reasonable period of time after it has or ought to have become aware of the tender, whether to accept it or to terminate the contract. Thus, in this situation, the aggrieved party need not take any action between the time when performance was due according to the parties' agreement and the moment when performance is actually tendered by the defaulting party. The rationale underlying art. 9:303(3)(a) is that "once the aggrieved party knows or should know of the tender, it should have a reasonable time to check it for defects and to decide what to do."[87] The principle set out in art. 9:303(3)(a) PECL however suffers an exception mentioned in art. 9:303(3)(b) PECL. This subparagraph governs the following alternative situation: if, after the moment agreed on by the parties for performance, the aggrieved party wishes to terminate the contract but knows or has reason to know that the defaulting party still intends to perform within a reasonable time, the former must inform the latter that it will not accept the performance. If it fails to do so and the defaulting party eventually tenders within a reasonable time, the aggrieved party loses the right to terminate the contract. The rationale underlying art. 9:303(3)(b) PECL is that "in this case it would be contrary to good faith for [the aggrieved party] to allow the defaulter to incur further effort in preparing to perform and then to terminate when performance is tendered."[88]

The length of the "reasonable time" within which notice of termination should be given depends on the circumstances of the specific case. "For instance the aggrieved party must be allowed long enough for it to know whether or not the performance will still be usable by it. If delay in making a decision is likely to prejudice the defaulting party, for instance because it may lose the chance to prevent a total waste of its efforts by entering another contract, the reasonable time will be shorter than if this is not the case. If the defaulting party has tried to conceal the defects, a longer time may be allowed to the aggrieved party."[89]

III.1.3. Form

According to art. 4:112 PECL, "avoidance must be by notice to the other party." It is effective only once it has reached the addressee in compliance with the requirements of art. 1:303(3) PECL [90] (art. 1:303(2) PECL). As indicated previously, a court order is not necessary.

"Notice may be given either by expressly declaring the contract terminated or by rejecting the tender of performance."[91] Indeed, "conduct unequivocally indicating that a party no longer considers itself bound by the contract will amount to avoidance of it is known to the other party."[92] Furthermore, provided that the time limit for the termination of the contract has not expired (art. 4:113 PECL), a party is deemed to have given to its co-contractor notice of termination if it has raised termination of the contract as a defense in an action brought by the other party.

The notice of termination may take any form: it may be transmitted orally, in writing, by telex, by fax, by electronic mail, or by any other means, provided that it is appropriate to the circumstances. "A communication is appropriate to the circumstances, if it is appropriate to the situation of the parties."[93]

III.1.4. Exceptions

There are two exceptions to the general principle according to which termination is effective only if notice thereof is given by the aggrieved party to the defaulting party.

First, according to art. 9:303(4) PECL, if a party is excused under art. 8:108 PECL and the impediment is total and permanent, the contract is terminated automatically and without notice at the time the impediment arises. On the contrary, if the impediment is merely partial or temporary, a notice of termination by the aggrieved party is necessary, as the defaulting party may still tender performance.[94]

Second, in the case of a non-fundamental delay in performance, the aggrieved party may, in its notice to the defaulting party fixing an additional period of time for performance, provide that if the latter does not perform within the period fixed by the notice, the contract shall terminate automatically (art. 8:106(3) PECL). Therefore, in such a situation, a notice of termination is not necessary for termination to become effective.

Finally, one should note that in cases of anticipatory non-performance, the need to give notice of termination of the contract to the other party, within a reasonable period of time, does not apply (see art. 9:304 PECL).[95] "The aggrieved party may avoid the contract at any time before the period for the performance expires because [...] PECL 9:304 prescribes no time limit for such a declaration."[96]

III.2.  COMPARISON WITH THE CISG

Under the CISG,a declaration of avoidance of the contract is effective only if made by notice to the other party (arts. 49(2), 64(2) and 26 CISG), regardless of whether the non-performance is excused or not (see art. 79 CISG). The general principle set out by arts. 49(2) and 64(2) CISG regarding the obligation to give notice of termination "within a reasonable time" is similar to PECL's general principle considered above.

Indeed, in cases of late performance, if the buyer decides to avoid the contract after the goods have been delivered, he is required by art. 49(2)(a) CISG to declare the contract avoided "within a reasonable time after he has become aware that delivery has been made." This paragraph applies both when the delay in performance constitutes a fundamental breach and when tender is performed after the expiry of the additional period of time granted in the context of the Nachfrist procedure. Similarly, art. 64(2)(a) CISG provides that "where the buyer has paid the price, the seller loses the right to declare the contract avoided unless he does so in respect of late performance by the buyer, before the seller has become aware that performance has been rendered". Nevertheless, as a general rule, the aggrieved party does not lose the right to declare the contract avoided under art. 49(2)(a) or 64(2)(a) CISG until all the goods have been delivered or until the total price has been paid.[97]

All other cases of fundamental breach of contract are governed by arts. 49(2)(b) and 64(2)(b) CISG, according to which the aggrieved party must exercise its right to avoid the contract within a reasonable time. For the buyer, this period of time starts running, pursuant to art. 49(2)(b) CISG, "(i) after he knew or ought to have known of the breach; (ii) after the expiration of any additional period of time fixed by the buyer in accordance with paragraph (1) of article 47, or after the seller has declared that he will not perform his obligations within such an additional period; or (iii) after the expiration of any additional period of time indicated by the seller in accordance with paragraph (2) of article 48, or after the buyer has declared that he will not accept performance." For the seller, the reasonable period of time starts running, pursuant to art. 64(2)(b) CISG, "(i) after the seller knew or ought to have known of the breach; or (ii) after the expiration of any additional period of time fixed by the seller in accordance with paragraph (1) of article 63, or after the buyer has declared that he will not perform his obligations within such an additional period."

Under the CISG, as under the PECL, notice can be oral or written and can be transmitted by any means.

Two exceptions to the obligation to give notice of termination, corresponding to those mentioned above regarding the PECL (subsection a. iv.), are also present in the CISG. Indeed, first, legal scholars hold that, in the context of the Nachfrist procedure (art. 49(b) and 64(b) CISG), the aggrieved party may, when it grants to the defaulting party the additional period of time for performance, declare that the contract will be avoided if the latter does not perform its obligation within that additional period of time.[98] Second, "where the failure in performance is due to a supervening event for which neither party is contractually responsible, such an event may lead to automatic discharge; but this differs from termination for contractual default, most obviously in that it excludes all claims for damages."[99]

IV.  EFFECTS OF TERMINATION

IV.1.  UNDER THE PECL

IV.1.1. Release from the rights and obligations effective after the date of termination v. absence of release from the rights and liabilities that have accrued up to the time of termination

Two main principles govern the effects of contract termination under the PECL. Firstly, termination releases both parties from the rights and obligations that would have been effective after the date of termination, had termination not taken place. Indeed, according to art. 9:305(1) PECL, upon reception of the notice of termination, both parties are released from their obligation to execute future performances and lose the right to claim future performances. Secondly, termination of the contract has no retroactive effect. Consequently, the obligations that have been performed prior to the termination of the contract are not affected: except in specific situations examined hereafter (section IV.1.2, infra), neither performances received are required to be returned, nor is their value required to be restituted. Furthermore, termination does not affect any provision of the contract for the settlement of disputes or any other provision which is to operate after termination (art. 9:305(2) PECL).

IV.1.2. Obligation of restitution

The principle according to which the rights and liabilities that have accrued up to the time of termination are not affected by the termination is subject to a number of exceptions (art. 9:305(1) PECL). Art. 9:306 through 9:308 PECL deal with these exceptions.

First, art. 9:306 PECL authorizes the party terminating the contract to "reject property previously received from the other party if its value to the [aggrieved] party has been fundamentally reduced as a result of the [defaulting] party's non-performance." This provision may apply, for example, if, because of the termination of the contract, the aggrieved party will not receive the rest of the performance due, or, in the case of an installment contract, "if failure to deliver a later installment makes the earlier installment useless."[100] If the aggrieved party returns the property received, it is entirely freed from the obligation to pay its price. As an alternative to returning the unwanted property, the aggrieved party is also entitled to claim damages under art. 9:502 PECL or a price reduction under art. 9:401 PECL.

Second, arts. 9:307 through 9:309 PECL give to the party that has not received, in exchange of its own performance (money paid, transfer of property, performance of a service), the promised counter-performance, the right to claim restitution.

The aggrieved party can recover money paid for a performance which it did not receive or which it properly rejected (art. 9:307 PECL). In the case of an installment contract or a contract to be performed over a period of time, art. 9:307 PECL applies - if the performance is divisible and if the aggrieved party is entitled to terminate part of the contract under art. 9:302 PECL - "to payments made in respect of so much of the performance as was not made or as has been rejected."[101] The party claiming restitution of an amount of money is entitled to claim interests on the said amount (art. 9:508 PECL).

The aggrieved party can also claim recovery of the property it has supplied and for which it has not received payment or other counter-performance, if the property supplied can be returned (art. 9:308 PECL). Art. 9:308 PECL applies to installment contracts as well as contracts to be performed in parts: if the aggrieved party is entitled to terminate part of the contract in virtue of art. 9:302 PECL, it may recover property transferred pursuant to that part of the contract.[102] The initiative to regain possession of the property transferred can also be that of the defaulting party. Indeed, under art. 9:308 PECL, if the defaulting party has transferred property to the aggrieved party before termination and the latter can restore it but does not do so, the court may order the restitution of the property or of its value.

As a general rule, art. 9:308 PECL does not apply if restitution has become impossible or would cause the defaulting party an unreasonable effort or expense.[103] The provision applies in particular in the following situations:

The rights of third-parties to whom the goods might have been sold or bartered [107] are not affected by art. 9:308 PECL.

Third, if the aggrieved party has rendered, prior to the termination of the contract, a performance which cannot be returned and for which it has not received payment or other counter-performance, it may, pursuant to art. 9:309 PECL, "recover a reasonable amount for the value of the performance to the other party." In such a case, however, "the party which has received the benefit should not be required to pay the cost to the other for having provided it, if the net benefit to it is less, since it is only enriched by the latter amount."[108] Similarly, if "the net benefit to the recipient is greater than the cost of providing it[,] then the recipient should not be liable under [art. 9:309] for more than an appropriate part of the contract price."[109]

IV.1.3. Damages

Pursuant to art. 8:102 PECL, "remedies which are not incompatible may be cumulated. In particular, a party is not deprived of its right to damages by exercising its right to any other remedy." Consequently, the party that terminates the contract is not precluded from claiming damages.

In cases of termination for anticipatory fundamental non-performance, the party which exercised the right to terminate the contract holds the same rights as those it would have, had it terminated the contract for actual non-performance after the moment when performance was due. Consequently, the aggrieved party may, pursuant to art. 8:102 PECL, claim damages, unless the non-performance at the due date would have been excused in the sense of art. 8:108 PECL (art. 8:101(2) PECL).

IV.2.  UNDER THE PECL

IV.2.1. Release from the obligations and rights that would have been effective after the date of termination and restitution

The PECL and the CISG share some common rules regarding the effects of contract termination. Like art. 9:305(1) PECL, art. 81(1) ab initio CISG provides that "avoidance of the contract releases both parties from their obligations under it, subject to any damages which may be due." Thus, in case of avoidance of the contract, "both parties are released from their obligations to carry out the contract. The seller need not deliver the goods and the buyer need not take delivery or pay for them."[110] Furthermore, art. 81(1) in fine CISG stipulates, like art. 9:305(2) PECL, that "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", such as, for example, the right to seek damages for breach of the contract. Indeed, "an avoidance only 'redirects' the main obligations of the contract; it does not avoid the contract ab initio. Under article 81, damage claims for breach, dispute-settlement mechanisms (arbitration clauses), liquidated damages and penalty clauses, etc., are not affected by avoidance (article 81 sentence 2)."[111]

There is, however, an important difference between the PECL and the CISG regarding the effects of contract termination: whereas, under the CISG, restitution subsequent to termination is the rule, under the PECL, it is the exception. "While the CISG tends to eliminate the consequences of an already partially performed contract, the PECL tends to maintain the exchange when it is satisfactory for both parties."[112] Art. 81(2) CISG stipulates that "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."[113] In other words, all that has been exchanged in compliance with the contract must be restituted after termination: "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."[114] On the contrary, under the PECL, a restitution duty exists only when "one party has conferred a benefit on the other party without receiving the promised counter-performance in exchange."[115] Indeed, as explained above (section IV.1.1, supra), as a general rule, the termination of a contract in compliance with the provisions of the PECL does not undo what has taken place before termination: the performances received must neither be returned, nor must restitution of their value be made. Indeed, it stems from arts. 9:305, 9:307, and 9:308 PECL, that restitution subsequent to termination is appropriate only in certain circumstances, namely when the property transferred has become useless, as a consequence of the termination, for the party that received it (art. 9:306 PECL), and when a party, by performing its contractual obligation, has conferred a benefit upon its co-contracting party, but has not received the corresponding counter-performance (arts. 9:307 and 9:308 PECL).

With respect to the effects of the impossibility, for a party, to restitute the goods received in substantially the same condition as when they were delivered, the rules of the CISG and those of the PECL also differ. Under the CISG, if a party is unable to restitute the goods in substantially the same condition as when it received them, it is prohibited from avoiding the contract. Indeed, according to art. 82(1) CISG, "the buyer loses the right to declare the contract avoided [...] if it is impossible for him to make restitution of the goods substantially in the condition in which he received them." In other words, "the ability to return the goods received in substantially the condition in which one received them is 'a prerequisite for avoiding the contract [...]' "[116] Nevertheless, art. 82(2) CISG, which deals with the issue of allocation of risk of loss of the goods before avoidance of the contract, provides three exceptions to the general rule stated under art. 82(1) CISG: the buyer is entitled to declare the contract avoided, even if he cannot make restitution of the goods in compliance with art. 82(1), if (a) the damages to the goods are not due to the buyer's act or omission; (b) the deterioration or consumption of the goods results from the examination as required by art. 38 CISG; or (c) the goods are sold in the normal course of business or consumed or transformed by him in the normal course of use before he discovered, or should have discovered, their lack of conformity. Under art. 9:309 PECL, a party may, after termination of the contract, recover a reasonable amount for the value of the performance rendered to the other party, if the former has rendered a performance and has not received payment or counter-performance for it, and if that performance cannot be refunded by the other party.

Consequently, with the exception of the three specific cases stated above, the CISG, which addresses, in art. 82, the issue of termination, does not allow the avoidance of the contract if the goods cannot be restituted. On the contrary, under the PECL, restitution is not a prerequisite to termination (art. 9:309 PECL).

"Neither the Convention, nor the PECL have any specific provisions dealing with: (i) the expenses incurred in making restitution; (ii) the rights acquired by third parties; (iii) the location where the restitution must be made and (iv) the buyer's responsibility when the goods that must be returned are destroyed after the effective date of a declaration of avoidance."[117]

IV.2.2. Damages

According to art. 81(1) CISG, the fact that a party has resorted to the avoidance remedy does not deprive it of its right to claim damages that may be due under the Convention or the contract. .

V.  CONCLUDING REMARKS

Based on the assumption that "restricting the right to termination promotes good faith and efficiency in commercial dealings,"[118] termination of a contract or of part of a contract is construed, both under the PECL and under the CISG, as a remedy of last resort.

First, termination of the contract is generally available to the aggrieved party only when no other remedy could, alone, safeguard its interests. Indeed, under both the CISG and the PECL, other remedies protecting the interests of the aggrieved party, such as the possibility of seeking specific performance or a reduction of the price, have been elaborated in order to render the right to terminate the contract less accessible and less appealing to the aggrieved party.

Second, the conditions for terminating a contract are defined restrictively by the law. As a general rule, the right to terminate a contract exists when one party commits a breach that substantially deprives the other party of its interest in the contract. Such a breach is said to "go to the root of the contract." Today, most legal systems are in agreement as to the principal condition that ought to be satisfied for the aggrieved party to be entitled to terminate the contract: the non-performance must be of a serious nature. Indeed, uniform sales laws draw a distinction between "fundamental" and other breaches of contract; only the former empower the aggrieved party to terminate the sales contract.[119] Under both the PECL and the CISG, a party may consider itself discharged from its obligations under the contract generally only if its co-contracting party has committed a breach that is fundamental either to the entire contract or to part of it, a breach that is "material and not merely of minor importance."[120] Exceptionally, in precisely articulated circumstances, the breach may be deemed fundamental, even if it is not material or of major importance, if it has caused the relationship of trust that bound the parties at the time of the conclusion of the contract, to be disrupted.

Finally, a notice of termination does not invalidate the contract with retroactive effect (the parties are not placed in the situation that would have prevailed, had the contract never existed). The spirit of the PECL to keep the contract alive as long as possible is thus carried by art. 9:302 in fine and art. 9:305(1) PECL: even if the contract as a whole is terminated, the parties are, as a general rule, merely released from their future obligations; the parties' rights and liabilities that have accrued up to the date of termination remain unchanged.

In conclusion, the remedial systems under both the CISG and the PECL have been elaborated in such a way as to keep the contract "on foot" even in situations of breach of contract or impediment beyond the parties' control, so as to promote good faith, loyalty, and seriousness in international commercial transactions.


BIBLIOGRAPHY

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Resolution of the European Parliament Relating to the Communication of 11 July 2001 from the European Commission, available online at <http://frontpage.cbs.dk/law/commission_on_european_contract_law/literature/Lando/Europ_Parl_1511012.doc>

Communication on European Contract Law. Joint Response of the Commission on European Contract Law and the Study Group on a European Civil Code, 27.09 2001, available online at <http://frontpage.cbs.dk/law/commission_on_european_contract_law/literature/Lando/StellungnahmeKommission4_24Sept01.doc>

Commission on European Contract Law, Introduction to the Principles of European Contract Law, available online at <http://www.cisg.law.pace.edu/cisg/text/peclcomments.html>

J. W. Carter, Party Autonomy and Statutory Regulation: Sale of Goods, in 6 Journal of Contract Law (North Ryde NSW, Australia, 1993), available online at <http://www.cisg.law.pace.edu/cisg/biblio/carter3.html>

Liu Chengwei, Remedies for Non-Performance: Perspectives from CISG, UNIDROIT Principles & PECL (2003), available online at <http://www.cisg.law.pace.edu/cisg/biblio/chengwei.html>

Ulrich Drobnig, General Principles of European Contract Law, in Petar Sarcevic & Paul Volken eds., International Sale of Goods: Dubrovnik Lectures (Oceana, 1986), available online at <http://www.cisg.law.pace.edu/cisg/biblio/drobnig.html>

Hossam El-Saghir, Editorial remarks regarding the comparison of art. 8:103 PECL and art. 25 CISG, in Guide to Article 25 - Comparison with Principles of European Contract Law (PECL), available online at <http://www.cisg.law.pace.edu/cisg/text/peclcomp25.html>

Fritz Enderlein, Dietrich Maskow, International Sales Law: United Nations Convention on Contracts for the International Sale of Goods (Oceana Publication, 1992), available online at <http://www.cisg.law.pace.edu/cisg/biblio/enderlein.html>

Sieg Eiselen, Remarks on the Manner in which the UNIDROIT Principles of International Commercial Contracts May be Used to Interpret or Supplement Articles 71 and 72 of the CISG. (2002), available online at <http://www.cisg.law.pace.edu/cisg/principles/uni71,72.html#er>

Sieg Eiselen, Remarks on the manner in which the Principles of European Contract Law may be used to interpret or supplement Articles 71 and 72 of the CISG (2002), available online at <http://www.cisg.law.pace.edu/cisg/text/peclcomp71,72.html#er>

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 (2001), available online at <http://www.cisg.law.pace.edu/cisg/ biblio/jafarzadeh1.html>

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 online at <http://www.cisg.law.pace.edu/cisg/text/peclcomp51.html>

Ole Lando, Some Features of the Law of Contract in the Third Millennium, available online at <http://frontpage.cbs.dk/law/commission_on_european_contract_law/literature/lando01.htm>

Ole Lando and Hugh Beale (eds), The Principles of European Contract Law, Part I. Performance, Non-Performance, and Remedies (Nijhoff, Dortrecht, 1995)

Ole Lando and Hugh Beale eds, Principles of European Contract Law: Parts I and II (Kluwer Law International, The Hague, 2000)

Francesco G. Mazzotta, Commentary on CISG Article 81 and its PECL Counterparts, available online at <http://www.cisg.law.pace.edu/cisg/text/secomm/secomm-81.html>

Kristina Riedl, The Work of the Lando-Commission from an Alternative Viewpoint, in European Review of Private Law (2000) Issue 1, available online at <http://www.cisg.law.pace.edu/cisg/ text/peclintro.html>

Secretariat Commentary on Art. 45 CISG of the 1978 Draft [counterpart of art. 49 CISG], available online at <http://www.cisg.law.pace.edu/cisg/text/secomm/secomm-49.html>

Secretariat Commentary on Art. 47 CISG of the 1978 Draft [counterpart of art. 51 CISG], available online at <http://www.cisg.law.pace.edu/cisg/text/secomm/secomm-51.html>

Secretariat Commentary on Art. 60 CISG of the 1978 Draft [counterpart of art. 64 CISG], available at <http://www.cisg.law.pace.edu/cisg/ text/secomm/secomm-64.html>

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Bruno Zeller, Editorial remarks regarding the comparison of art. 8:106 PECL and art. 63 and 64(1)(b) CISG, in Guide to Articles 63 and 64(1)(b) - Comparison With Principles of European Contract Law (PECL), available online at <http://www.cisg.law.pace.edu/cisg/text/peclcomp63.html>

Bruno Zeller, Editorial remarks regarding the comparison of art. 8:106 PECL and art. 47 and 49(1)(b) CISG, in Guide to Articles 47 and 49(1)(b) - Comparison With Principles of European Contract Law (PECL), available online at <http://www.cisg.law.pace.edu/cisg/text/peclcomp47.html>

Jacob S. Ziegel, The Remedial Provisions in the Vienna Convention: Some Common Law Perspectives, in Galston/Smit (ed.), International Sales: The United Nations Convention on Contracts for the International Sale of Goods (1984)


FOOTNOTES

* LL.M. Columbia Law School; attorney-at-law, Schellenberg Wittmer (15 bis, rue des Alpes, P.O. Box 2088, 1211 Geneva 1, Switzerland; tel.: +41 (0) 22 707 8000; fax: +41 (0) 22 707 8001; email: Mercedeh.daSilveira@swlegal.ch).

1. The drafters are independent from all European authorities, and have received mandate neither from the European Union, nor from any Member State.

2. Kristina Riedl, The Work of the Lando-Commission from an Alternative Viewpoint (2000), in European Review of Private Law, Issue 1, available on the Pace Law School Institute of International Commercial Law website, at <http://www.cisg.law.pace.edu/cisg/text/peclintro.html>.

3. Introduction to the Principles of European Contract Law prepared by the Commission on European Contract Law, available online at <http://www.cisg.law.pace.edu/cisg/text/peclcomments.html>.

4. Introduction to the Principles of European Contract Law, op. cit..

5. The "Lando-Commission" is the unofficial name of the Commission on European Contract Law; it refers to the chairman and initiator of the project, Professor Ole Lando of the Copenhagen Business School.

6. Kristina Riedl, op. cit..

7. Introduction to the Principles of European Contract Law, op. cit..

8. Introduction to the Principles of European Contract Law, op. cit..

9. The nature of the PECL however differs from that of the CISG: the CISG constitutes an instrument of international uniform law that was formally adopted by 66 countries, and that may apply in the absence of the parties' explicit consent. Indeed, the CISG is automatically applicable to sales contracts - unless the parties have agreed on the contrary - provided that the conditions of its art. 1(1)(a) or 1(1)(b) be satisfied. Consequently, even in the absence of a choice of law agreement between the parties, the CISG may apply.

10. The current nature of the PECL is similar to that of the American Restatement on the Law of Contracts drafted by the American Law Institute, a private organization of lawyers working on a systematic set of legal rules common to all states of the USA: both the PECL and the American Restatement on the Law of Contracts constitute sets of non-binding rules pertaining to contract law, and "provide solutions for lawyers and national courts in cases where their own law is silent or where their law is in need of reform, and such reform may be brought about by the courts" (Kristina Riedl, op. cit.). The Commission on European Contract Law explicitly refers, in the introduction to the PECL Part I, to the American Restatement on the Law of Contracts as a model for the drafting of the PECL (Ole Lando and Hugh Beale (eds), The Principles of European Contract Law, Part I. Performance, Non-Performance, and Remedies (Nijhoff, Dortrecht, 1995)).

11. Kristina Riedl, op. cit..

12. Introduction to the Principles of European Contract Law, op. cit.; see also the Communication of 11 July 2001 from the European Commission to the Council and the European Parliament on European Contract Law (com (2001) 398 final), available online at <http://frontpage.cbs.dk/law/commission_on_european_contract_law/literature/Lando/engelskl398_Communication_of_theCommissionJuly01.doc>; the Communication on European Contract Law. Joint Response of the Commission on European Contract Law and the Study Group on a European Civil Code, 27.09 2001, available online at <http://frontpage.cbs.dk/law/commission_on_european_contract_law/literature/Lando/StellungnahmeKommission4_24Sept01.doc>; and the Resolution of the European Parliament Relating to the Communication of 11 July 2001 from the European Commission, available online at <http://frontpage.cbs.dk/law/commission_on_european_contract_law/literature/Lando/Europ_Parl_1511012.doc>.

13. Hossam El-Saghir, Editorial remarks regarding the comparison of art. 8:103 PECL and art. 25 CISG, in Guide to Article 25 - Comparison with Principles of European Contract Law (PECL), available online at <http://www.cisg.law.pace.edu/cisg/text/peclcomp25.html>.

14. Introduction to the Principles of European Contract Law, op. cit..

15. For example, the non-performance is caused by the creditor if the latter directly prevents the performance of the other party's obligation, or if it violates its duty to disclose information by giving false or incomplete information.

16. Ole Lando and Hugh Beale eds, Principles of European Contract Law: Parts I and II, p. 362 (Kluwer Law International, The Hague, 2000), available online in Comment and Notes on PECL 1:301(4) at <http://www.cisg.law.pace.edu/cisg/text/nonperf.html> (hereafter referred to as Ole Lando and Hugh Beale, op. cit.).

17. Ole Lando, Some Features of the Law of Contract in the Third Millennium, p. 390, available online at <http://frontpage.cbs.dk/law/commission_on_european_contract_law/literature/lando01.htm>.

18. Ole Lando and Hugh Beale, op. cit., p. 360, available online in Comment and Notes on PECL 8:101 and 8:102 at <http://www.cisg.law.pace.edu/cisg/text/peclcomp45.html>.

19. Ole Lando and Hugh Beale, op. cit., p. 410, available online in Comment and Notes on PECL 1:301(4) at <http://www.cisg.law.pace.edu/cisg/text/nonperf.html>, which provides the following illustration: "An exclusive dealership contract between a manufacturer and a dealer is terminated because the dealer has contravened the exclusive purchase clause. However the dealer can show that it was led to purchase elsewhere by the financial demands of the manufacturer which, contrary to the terms of the agreement, had demanded payment in cash. The court should investigate the effect of each party's behavior and, if it concludes that the manufacturer's actions led to the dealer's default, may award damages to the dealer."

20. Ole Lando and Hugh Beale, op. cit., p. 409, available online in Comment and Notes on PECL 9:301, at <http://www.cisg.law.pace.edu/cisg/text/peclcomp49.html>.

21. There are indeed situations in which, in accordance with the Nachfrist procedure (discussed in section II.4., infra) set forth in art. 8:106 PECL, the aggrieved party may be able to terminate the contract for reasons other than fundamental non-performance.

22. Ole Lando and Hugh Beale, op. cit., p. 409, available online in Comment and Notes on PECL 9:301, at <http://www.cisg.law.pace.edu/cisg/text/peclcomp49.html>.

23. Ole Lando, op. cit., p. 389.

24. Ole Lando and Hugh Beale, op. cit., p. 123, available online in Comment and Notes on PECL 1:301(4), at <http://www.cisg.law.pace.edu/cisg/text/nonperf.html>; see also Ole Lando, op. cit., p. 389.

25. Ole Lando and Hugh Beale, op. cit., p. 123, available online in Comment and Notes on PECL 1:301(4), at <http://www.cisg.law.pace.edu/cisg/text/nonperf.html>.

26. Non-performance under the PECL is thus not identical to breach of contract in the common law sense, which consists solely of unexcused non-performance, i.e. non-performance that, under the rules regarding frustration, gives the aggrieved party a right to damages.

27. Ole Lando and Hugh Beale, op. cit., p. 364, available online in Comment and Notes on PECL 8:103, at <http://www.cisg.law.pace.edu/cisg/text/peclcomp25.html>.

28. Ole Lando, op. cit., p.391.

29. Ole Lando, op. cit., p.391.

30. Ole Lando and Hugh Beale, op. cit., p. 365, available online in Comment and Notes on PECL 8:103, at <http://www.cisg.law.pace.edu/cisg/text/peclcomp25.html>.

31. Ole Lando, op. cit., p.391.

32. Ole Lando and Hugh Beale, op. cit., p. 365, available online in Comment and Notes on PECL 8:103, at <http://www.cisg.law.pace.edu/cisg/text/peclcomp25.html>.

33. Ole Lando and Hugh Beale, op. cit., p. 366, available online in Comment and Notes on PECL 8:103, at <http://www.cisg.law.pace.edu/cisg/text/peclcomp25.html>.

34. Art. 38(1) CISG provides that "the buyer must examine the goods, or cause them to be examined, within as short a period as is practicable in the circumstances."

35. Art. 39(1) CISG provides that "the buyer loses the right to rely on a lack of conformity of the goods if he does not give notice to the seller specifying the nature of the lack of conformity within a reasonable time after he has discovered it or ought to have discovered it." Art. 39(2) CISG adds that "in any event, the buyer loses the right to rely on a lack of conformity of the goods if he does not give the seller notice thereof at the latest within a period of two years from the date on which the goods were actually handed over to the buyer, unless this time-limit is inconsistent with a contractual period of guarantee."

36. Indeed, if the defaulting party proves that the conditions for its exemption are satisfied, the aggrieved party is solely prevented from claiming damages, but not from exercising any other right under the CISG.

37. Hossam El-Saghir, op. cit.; Liu Chengwei, Remedies for Non-Performance: Perspectives from CISG, UNIDROIT Principles & PECL (2003), chapter 8, section 8.2.2, available online at <http://www.cisg.law.pace.edu/cisg/biblio/chengwei-25.html>.

38. Hossam El-Saghir, op. cit.; Peter Schlechtriem, Commentary on the UN Convention on the International Sale of Goods (CISG), p. 177 (Clarendon Press, Oxford, 1998).

39. Hossam El-Saghir, op. cit..

40. Jacob S. Ziegel, The Remedial Provisions in the Vienna Convention: Some Common Law Perspectives, in Galson/Smit (ed.), International Sales: The United Nations Convention on Contracts for the International Sale of Goods, ch. 9, p. 9-14 (1984); Hossam El-Saghir, op. cit..

41. Hossam El-Saghir, op. cit..

42. Hossam El-Saghir, op. cit..

43. Ole Lando and Hugh Beale, op. cit., p. 367, available online in Comment and Notes on PECL 8:103, at <http://www.cisg.law.pace.edu/cisg/text/peclcomp25.html>.

44. Art. 9:302 PECL applies to contracts to be performed in separate successive parts, even if there is not one counter-performance per "unit" but only one global payment, provided that the first party's performance is divisible and that the payment can be properly apportioned to each performance.

45. Ole Lando and Hugh Beale, op. cit., p. 411, available online in Comment and Notes on PECL 9:302, at <http://www.cisg.law.pace.edu/cisg/text/peclcomp51.html>.

46. Ole Lando and Hugh Beale, op. cit., pp. 411-412, available online in Comment and Notes on PECL 9:302, at <http://www.cisg.law.pace.edu/cisg/text/peclcomp51.html>.

47. 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 online at <http://www.cisg.law.pace.edu/cisg/text/peclcomp51.html>.

48. Christopher Kee, op. cit..

49. Liu Chengwei, op. cit., chapter 10, section 10.1, available online at <http://www.cisg.law.pace.edu/cisg/biblio/chengwei.html#10-1>.

50. Liu Chengwei, op. cit., chapter 10, section 10.1, available online at <http://www.cisg.law.pace.edu/cisg/biblio/chengwei.html#10-1>.

51. Secretariat Commentary on Art. 47 CISG of the 1978 Draft [counterpart of art. 51 CISG], available online at <http://www.cisg.law.pace.edu/cisg/text/secomm/secomm-51.html>.

52. Liu Chengwei, op. cit., chapter 9, section 9.6.1, available online at <http://www.cisg.law.pace.edu/cisg/biblio/chengwei-71.html>.

53. Ole Lando and Hugh Beale, op. cit., p. 417, available online in Comment and Notes on PECL 9:304, at <http://www.cisg.law.pace.edu/cisg/text/peclcomp72.html>.

54. Ole Lando and Hugh Beale, op. cit., p. 417, available online in Comment and Notes on PECL 9:304, at <http://www.cisg.law.pace.edu/cisg/text/peclcomp72.html>.

55. Ole Lando and Hugh Beale, op. cit., p. 417, available online in Comment and Notes on PECL 9:304, at <http://www.cisg.law.pace.edu/cisg/text/peclcomp72.html>; Liu Chengwei, op. cit., chapter 9, section 9.6.2, available online at <http://www.cisg.law.pace.edu/cisg/biblio/chengwei-71.html>.

56. Ole Lando and Hugh Beale, op. cit., p. 417, available online in Comment and Notes on PECL 9:304, at <http://www.cisg.law.pace.edu/cisg/text/peclcomp72.html>.

57. Liu Chengwei, op. cit., chapter 9, section 9.6.3, available online at <http://www.cisg.law.pace.edu/cisg/biblio/ chengwei-71.html>; see also Sieg Eiselen, Remarks on the Manner in which the UNIDROIT Principles of International Commercial Contracts May be Used to Interpret or Supplement Articles 71 and 72 of the CISG (2002), available online at <http://www.cisg.law.pace.edu/cisg/principles/uni71,72.html#er>, and Remarks on the manner in which the Principles of European Contract Law may be used to interpret or supplement Articles 71 and 72 of the CISG (2002), available online at <http://www.cisg.law.pace.edu/cisg/text/peclcomp71,72.html#er>.

58. Liu Chengwei, op. cit., chapter 9, section 9.6.1, available online at <http://www.cisg.law.pace.edu/cisg/biblio/chengwei-71.html>.

59. Ole Lando and Hugh Beale, op. cit., p. 417, available online in Comment and Notes on PECL 9:304, at <http://www.cisg.law.pace.edu/cisg/text/peclcomp72.html>.

60. Sieg Eiselen, Remarks on the manner in which the UNIDROIT Principles of International Commercial Contracts may be used to interpret or supplement Articles 71 and 72 of the CISG, op. cit., and Remarks on the manner in which the Principles of European Contract Law may be used to interpret or supplement Articles 71 and 72 of the CISG, op. cit..

61. Liu Chengwei, op. cit., chapter 9, section 9.7.1, available online at <http://www.cisg.law.pace.edu/cisg/biblio/chengwei-71.html>.

62. If the delay constituted a fundamental non-performance of the contract, for example because the time of performance was of the essence of the contract, the case would fall within the scope of art. 9:301(1) PECL, and the aggrieved party would not be compelled to follow the procedure of art. 8:106(3) PECL to terminate the contract.

63. Ole Lando, op. cit., p. 391.

64. Ole Lando and Hugh Beale, op. cit., p. 376, available online in Comment and Notes on PECL 8:106, at <http://www.cisg.law.pace.edu/cisg/text/peclcomp47.html>.

65. Ole Lando and Hugh Beale, op. cit., pp. 374-375, available online in Comment and Notes on PECL 8:106, at <http://www.cisg.law.pace.edu/cisg/text/peclcomp47.html>.

66. Ole Lando and Hugh Beale, op. cit., p. 374, available online in Comment and Notes on PECL 8:106, at <http://www.cisg.law.pace.edu/cisg/text/peclcomp47.html>.

67. Ole Lando and Hugh Beale, op. cit., p. 374, available online in Comment and Notes on PECL 8:106, at <http://www.cisg.law.pace.edu/cisg/text/peclcomp47.html>.

68. A notice requiring performance "as soon as possible" does not comply with the terms of art. 8:106 PECL and consequently does not give the aggrieved party the right to terminate the contract. As a general rule, a notice that does not give a definite period of time for performance will give to the defaulting party the impression that it may freely postpone performance ad aeternum.

69. In cases other than cases of non-fundamental delay, art. 8:106(3) PECL is not applicable. Consequently, the aggrieved party may grant to the defaulting party an additional period of time for performance of the length that it deems adequate, even if such period of time would not be considered appropriate by a reasonable person acting in good faith and in the same circumstances; during this period of time, the aggrieved party may neither terminate the contract, nor seek specific performance. Furthermore, if the length of the additional period of time granted is ambiguous, the aggrieved party "may not terminate or seek specific performance unless the non-performance has continued for long enough that it would be consistent with good faith for the aggrieved party to terminate despite its earlier notice" (Ole Lando and Hugh Beale, op. cit., p. 374).

70. Ole Lando, op. cit., p. 392.

71. Ole Lando, op. cit., p. 392.

72. Ole Lando and Hugh Beale, op. cit., p. 127, available online in Comment and Notes on PECL 1:302, at <http://www.cisg.law.pace.edu/cisg/text/reason.html>.

73. Ole Lando, op. cit., p. 392.

74. Ole Lando and Hugh Beale, op. cit., p. 127, available online in Comment and Notes on PECL 1:302, at <http://www.cisg.law.pace.edu/cisg/text/reason.html>.

75. Ole Lando and Hugh Beale, op. cit., p. 127, available online in Comment and Notes on PECL 1:302, at <http://www.cisg.law.pace.edu/cisg/text/reason.html>.

76. Ole Lando and Hugh Beale, op. cit., p. 373, available online in Comment and Notes on PECL 8:106, at <http://www.cisg.law.pace.edu/cisg/text/peclcomp47.html>.

77. Ole Lando and Hugh Beale, op. cit., p. 374, available online in Comment and Notes on PECL 8:106, at <http://www.cisg.law.pace.edu/cisg/text/peclcomp47.html>.

78. According to arts. 47(1) and 63(1) CISG, if, at the time performance is due, either the seller does not deliver the goods, or the buyer does not pay the price or does not take delivery of the goods, the aggrieved co-contracting party may fix an additional period of time of reasonable length for performance by the defaulting party of his obligations. If the latter does not, within this additional period of time, perform its obligation, or if it declares that it will not do so within such period of time, the aggrieved party may declare the contract avoided (arts. 49(1)(b) and 64(1)(b)). Arts. 49(1)(b) and 64(1)(b) are applicable solely in cases of complete non-performance (absence of payment if the buyer is the defaulting party; absence of delivery of the goods if the seller is the defaulting party). Consequently, if the seller delivers the goods at the time agreed to by the parties in the contract, the buyer may avoid the contract only if the non-conformity of the goods amounts to a fundamental breach of contract in the sense of art. 25 CISG.

79. Bruno Zeller, Editorial remarks regarding the comparison of art. 8:106 PECL and arts. 63 and 64(1)(b) CISG, in Guide to Articles 63 and 64(1)(b) - Comparison With Principles of European Contract Law (PECL), available online at <http://www.cisg.law.pace.edu/cisg/text/peclcomp63.html>.

80. Ole Lando and Hugh Beale, op. cit., p. 375, available online in Comment and Notes on PECL 8:106, at <http://www.cisg.law.pace.edu/cisg/text/peclcomp47.html>.

81. Bruno Zeller, Editorial remarks regarding the comparison of art. 8:106 PECL and art. 47 and 49(1)(b) CISG, in Guide to Articles 47 and 49(1)(b) - Comparison With Principles of European Contract Law (PECL), available online at <http://www.cisg.law.pace.edu/cisg/text/peclcomp47.html>.

82. Ole Lando and Hugh Beale, op. cit., p. 410, available online in Comment and Notes on PECL 9:301, at <http://www.cisg.law.pace.edu/cisg/text/peclcomp64.html>; see also J. W. Carter, Party Autonomy and Statutory Regulation: Sale of Goods, in 6 Journal of Contract Law, p. 107 (North Ryde NSW, Australia, 1993), available online at <http://www.cisg.law.pace.edu/cisg/biblio/carter3.html>.

83. Liu Chengwei, op. cit., chapter 11, section 11.5, available online at <http://www.cisg.law.pace.edu/cisg/biblio/chengwei.html#11-1>.

84. Art. 9:303(2) and (3) PECL does not apply to non-fundamental delays in performance, which are governed by art. 8.106(3) PECL. The two provisions are mutually exclusive. Indeed, first, whereas under art. 9:303(2) PECL, the aggrieved party may give notice of termination immediately after the time when performance was due (but will not lose its right to terminate the contract if it does not do so), it must, under art. 8:106 PECL, if it wishes to terminate the contract, grant to the defaulting party an additional period of time during which it is not allowed to terminate the contract. Second, whereas under art. 9:303(3) PECL, the aggrieved party may terminate the contract within a reasonable period of time after the late performance has been tendered, it may not, under art. 8:106(3) PECL, terminate the contract if performance was tendered within the additional period of time granted.

85. Ole Lando and Hugh Beale, op. cit., p. 414, available online in Comment and Notes on PECL 9:303, at <http://www.cisg.law.pace.edu/cisg/text/peclcomp49.html>.

86. Other situations may be envisaged, such as for example situations in which the aggrieved party, in the case of a late tender, seeks specific performance. The present paper does not deal with such situations as they do not constitute alternatives leading to the termination of the contract.

87. Ole Lando and Hugh Beale, op. cit., p. 414, available online in Comment and Notes on PECL 9:303, at <http://www.cisg.law.pace.edu/cisg/text/peclcomp49.html>.

88. Ole Lando and Hugh Beale, op. cit., p. 415, available online in Comment and Notes on PECL 9:303, at <http://www.cisg.law.pace.edu/cisg/text/peclcomp49.html>.

89. Ole Lando and Hugh Beale, op. cit., p. 414, available online in Comment and Notes on PECL 9:303, at <http://www.cisg.law.pace.edu/cisg/text/peclcomp49.html>.

90. Art. 1:303(3) PECL provides that a notice reaches the addressee when it is delivered to it or to its place of business or mailing address, or, if it does not have a place of business or mailing address, to its habitual residence.

91. Ole Lando and Hugh Beale, op. cit., p. 414, available online in Comment and Notes on PECL 9:303, at <http://www.cisg.law.pace.edu/cisg/text/peclcomp49.html>.

92. Ole Lando and Hugh Beale, op. cit., p. 274, available online in Comment and Notes on PECL 4:112, at <http://www.cisg.law.pace.edu/cisg/text/peclcomp26.html>.

93. Liu Chengwei, op. cit., chapter 11, section 11.2, available online at <http://www.cisg.law.pace.edu/cisg/biblio/chengwei.html#11-1>.

94. In cases of excused non-performance, the defaulting party has a duty under art. 8:103(3) PECL to give notice of the impediment.

95. Ole Lando and Hugh Beale, op. cit., p. 414, available online in Comment and Notes on PECL 9:303, at <http://www.cisg.law.pace.edu/cisg/text/peclcomp26.html>.

96. Liu Chengwei, op. cit., chapter 11, section 11.5, available online at <http://www.cisg.law.pace.edu/cisg/biblio/chengwei.html#11-1>.

97. Secretariat Commentary on Art. 45 CISG of the 1978 Draft [counterpart of art. 49 CISG], available online at <http://www.cisg.law.pace.edu/cisg/text/secomm/secomm-49.html>, and Secretariat Commentary on Art. 60 CISG of the 1978 Draft [counterpart of art. 64 CISG], available at <http://www.cisg.law.pace.edu/cisg/text/secomm/secomm-64.html>.

98. Fritz Enderlein, Dietrich Maskow, International Sales Law: United Nations Convention on Contracts for the International Sale of Goods, p. 117 (Oceana Publication, 1992), available online at <http://www.cisg.law.pace.edu/cisg/biblio/enderlein.html>.

99. Liu Chengwei, op. cit., chapter 11, section 11.1, available online at <http://www.cisg.law.pace.edu/cisg/biblio/chengwei.html#11-1>; see also 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 (2001), available online at <http://www.cisg.law.pace.edu/cisg/biblio/jafarzadeh1.html>.

100. Ole Lando and Hugh Beale, op. cit., p. 421, available online in Comment and Notes on PECL 9:306, at <http://www.cisg.law.pace.edu/cisg/text/peclcomp81.html>.

101. Ole Lando and Hugh Beale, op. cit., p. 422, available online in Comment and Notes on PECL 9:307, at <http://www.cisg.law.pace.edu/cisg/text/peclcomp81.html>.

102. Ole Lando and Hugh Beale, op. cit., p. 423, available online in Comment and Notes on PECL 9:308, at <http://www.cisg.law.pace.edu/cisg/text/peclcomp81.html>.

103. Ole Lando and Hugh Beale, op. cit., p. 424, available online in Comment and Notes on PECL 9:308, at <http://www.cisg.law.pace.edu/cisg/text/peclcomp81.html>.

104. Ole Lando and Hugh Beale, op. cit., pp. 423-424, available online in Comment and Notes on PECL 9:308, at <http://www.cisg.law.pace.edu/cisg/text/peclcomp81.html>.

105. Ole Lando and Hugh Beale, op. cit., p. 424, available online in Comment and Notes on PECL 9:308, at <http://www.cisg.law.pace.edu/cisg/text/peclcomp81.html>.

106. Ole Lando and Hugh Beale, op. cit., p. 424, available online in Comment and Notes on PECL 9:308, at <http://www.cisg.law.pace.edu/cisg/text/peclcomp81.html>.

107. Examples of third-parties that could be opposed to the restitution of the property: a creditor of the buyer, the buyer's receivers in bankruptcy, or a bona fide purchaser (Ole Lando and Hugh Beale, op. cit., p. 423, available online in Comment and Notes on PECL 9:308, at <http://www.cisg.law.pace.edu/cisg/text/peclcomp81.html>).

108. Ole Lando and Hugh Beale, op. cit., p. 425, available online in Comment and Notes on PECL 9:308, at <http://www.cisg.law.pace.edu/cisg/text/peclcomp81.html>.

109. Ole Lando and Hugh Beale, op. cit., p. 426, available online in Comment and Notes on PECL 9:308, at <http://www.cisg.law.pace.edu/cisg/text/peclcomp81.html>.

110. Secretariat Commentary on Art. 66 CISG of the 1978 Draft [counterpart of art. 81 CISG], available online <http://www.cisg.law.pace.edu/cisg/text/secomm/secomm-81.html>.

111. Peter Schlechtriem, Uniform Sales Law - The UN Convention on Contracts for the International Sale of Goods, p. 107 (1986), available online at <http://www.cisg.law.pace.edu/cisg/biblio/schlechtriem.html>.

112. Francesco G. Mazzotta, Commentary on CISG Article 81 and its PECL Counterparts, available online at <http://www.cisg.law.pace.edu/cisg/text/secomm/secomm-81.html>.

113. The right of a party to claim, under art. 81(2) CISG, restitution may however be "limited by other rules which fall outside the scope of the Convention, such as bankruptcy or other insolvency procedures, and/or exchange control laws or other restrictions on the transfer of goods or funds [preventing] the transfer of the goods or money to the demanding party in a foreign country" (Francesco G. Mazzotta, op. cit.).

114. Francesco G. Mazzotta, op. cit..

115. Francesco G. Mazzotta, op. cit..

116. Francesco G. Mazzotta, op. cit..

117. Francesco G. Mazzotta, op. cit..

118. Liu Chengwei, op. cit., chapter 7, section 7.3, available online at <http://www.cisg.law.pace.edu/cisg/biblio/chengwei.html#07-3>.

119. Ulrich Drobnig, General Principles of European Contract Law, in Petar Sarcevic & Paul Volken eds., International Sale of Goods: Dubrovnik Lectures, p. 328 (Oceana, 1986), available online at <http://www.cisg.law.pace.edu/cisg/biblio/drobnig.html>.

120. Liu Chengwei, op. cit., chapter 7, section 7.2, available online at <http://www.cisg.law.pace.edu/cisg/biblio/chengwei.html#07-3>.


Pace Law School Institute of International Commercial Law - Last updated June 6, 2006
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