Article 81. Effect of Avoidance on Obligations: Arbitration, Restitution

• Text of Article 81
• Outline of issues
• Descriptors
• Coded case annotations
  -  Guide to case codes
• Case digest and analysis
     -  UNCITRAL's case law digest; and
     -  An analysis of CISG jurisprudence
• Annotated comparatives
  -  PECL comparative

TEXT OF ARTICLE 81

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

(2) A party who has performed the contract either wholly or in part may claim restitution from the other party of whatever the first party has supplied or paid under the contract. If both parties are bound to make restitution, they must do so concurrently.

OUTLINE OF ISSUES

Reproduced with permission of UNCITRAL

81A Obligations of both parties under Convention

DESCRIPTORS

Avoidance ; Restitution ; Bankruptcy

CASE ANNOTATIONS: UNCITRAL DIGEST CASES PLUS ADDED CASES

Austria 2 April 2009 Oberster Gerichtshof [Supreme Court] (Boiler case)

United States 26 March 2009 U.S. District Court [Ohio] (Miami Valley Paper, LLC v. Lebbing Engineering & Consulting GmbH)
 

Germany 18 November 2008 Oberlandesgericht [Appellate Court] Brandenburg (Beer case) [translation available]

Switzerland 12 September 2008 Amtsgericht [District Court] Sursee (Second-hand tractor case)

Serbia 15 July 2008 Foreign Trade Court of Arbitration, Serbian Chamber of Commerce (Milk packaging equipment case) 81D [translation available]

Germany 19 May 2008 Oberlandesgericht [Appellate Court] Köln (Pesticide case) [translation available]

Germany 31 March 2008 Oberlandesgericht [Appellate Court] Stuttgart (Automobile case) [translation available]

Germany 14 February 2008 Oberlandesgericht [Appellate Court] Karlsruhe (Antique Jaguar sport car case) 81C [translation available]

Germany 25 January 2008 Oberlandesgericht [Appellate Court] Hamburg (Café inventory case) [translation available]
 

Germany 21 November 2007 Oberlandesgericht [Appellate Court] Koblenz (Shoes case) [translation available]

Switzerland 13 November 2007 Bundesgericht [Supreme Court]

Serbia 1 October 2007 Foreign Trade Court of Arbitration, Serbian Chamber of Commerce (Timber case) 81C [translation available]

Switzerland 26 July 2007 Tribunal cantonal [Appellate Court] Jena (Industrial furnace case)

Austria 4 July 2007 Oberster Gerichtshof [Supreme Court] (Auto case) [translation available]

Switzerland 25 June 2007 Handelsgericht [Commercial Court] Zürich (Printed materials case) [translation available]

Switzerland 19 April 2007 Pretore del Distretto [District Court] Lugano (Spring toys case)

Germany 21 March 2007 Oberlandesgericht [Appellate Court] Dresden (Stolen automobile case) 81C [translation available]

France 13 February 2007 Cour de cassation [Supreme Court] (Computer motherboard case) [translation available]

Russia 1 February 2007 Arbitration Award
 

Switzerland 20 December 2006 Bundesgericht [Supreme Court] [translation available]

Russia 19 December 2006 Arbitration Award 46/2006

China December 2006 CIETAC Arbitration Award [CISG 2006/05] (Rabbit skin case) 81C [translation available]

Russia 23 November 2006 Arbitration Award 11/2006

Switzerland 8 November 2006 Zivilgericht [Civil Court] Basel-Stadt (Packaging machine case)

Germany 19 October 2006 Oberlandesgericht [Appellate Court] München (Auto case) 81C [translation available]

Russia 29 September 2006 Arbitration Award 127/2005

China September 2006 CIETAC Arbitration Award [CISG 2006/08] (Air purifier case) 81C [translation available]

China August 2006 CIETAC Arbitration Award [CISG 2006/13] (Chilling press case) 81C [translation available]

Spain 22 May 2006 Court of First Instance of Badalona (Bermuda shorts case) [translation available]

Russia 13 April 2006 Arbitration Award 105/2005 81A ; 81C [translation available]

Russia 1 March 2006 Arbitration Award 101/2005 [translation in process]

Russia 20 January 2006 Arbitration Award 84/2005 [translation in process]

Germany 11 January 2006 Bundesgerichtshof [Supreme Court] (Automobile case) [translation available]
 

Russia 21 November 2005 Arbitration Award 42/2005 (Equipment case) 81C [translation available]

China 31 October 2005 CIETAC Arbitration Award [CISG 2005/10] (Waste plastic case) 81C [translation available]

Russia 18 October 2005 Arbitration Award 21/2005 (Varnish and paint machine case) 81C [translation available]

Spain 26 September 2005 Audiencia Provincial [Appellate Court] Palencia (Printing machine case) [translation available]

Ukraine 5 July 2005 Arbitration Award (Medical equipment case) 81C [translation available]

China 13 June 2005 CIETAC Arbitration Award [CISG 2005/12] (Industrial general equipment case) 81C [translation available]

Russia 27 May 2005 Arbitration Award 95/2004 81A [translation available]

Germany 11 April 2005 Landgericht [District Court] Frankfurt

Switzerland 21 February 2005 Kantonsgericht [Appellate Court] Valais / Wallis (CNC machine case) 81C1 [translation available]

Russia 24 January 2005 Arbitration Award 68/2004 81A [translation available]
 

Russia 21 December 2004 Arbitration Award 39/2003 81C [translation available]

Ukraine 18 November 2004 Arbitration Award (Manufactured articles case) 81A ; 81C [translation available]

Russia 2 November 2004 Arbitration Award 188/2003 [translation available]

Russia 25 June 2004 Arbitration Award 120/2003 81C [translation available]

Austria 1 June 2004 Oberlandesgericht [Appellate Court] Wein 81C [detailed abstract available]

Germany 28 May 2004 Oberlandesgericht [Appellate Court] Düsseldorf 81C [translation available]

Russia 28 May 2004 Arbitration Award 175/2003 81A [translation available]

Germany 21 April 2004 Oberlandesgericht [Appellate Court] Düsseldorf [15 U 88/03] 81C [translation available]

Netherlands 27 January 2004 Gerechtshof [Appellate Court] 's-Hertogenbosch

Switzerland 27 January 2004 Kantonsgericht [District Court] Schaffhausen 81A [translation available]
 

China 31 December 2003 CIETAC Arbitration Award [CISG/2003/03] (Clothes case) 81B [translation available]

Canada 6 October 2003 Ontario Supreme Court (Diversitel v. Glacier)

Russia 16 June 2003 Arbitration Award No. 135/2002 81C [translation available]

Russia 16 June 2003 Arbitration Award No. 164/2001 81B2 [translation available]
 

Germany 19 December 2002 Oberlandesgericht [Appellate Court] Karlsruhe [translation available]

Germany 17 December 2002 Landgericht [District Court] Giessen 81A ; 81C [translation available]

Switzerland 3 December 2002 Handelsgericht [Commercial Court] St. Gallen 81A ; 81C [translation available]

Switzerland 2 December 2002 Tribunal Cantonal [Appellate Court] Valais 81C [translation available]

Germany 14 October 2002 Oberlandesgericht [Appellate Court] Köln 81C [translation available]

Germany 22 August 2002 Landgericht [District Court] Freiburg 81A ; 81C [translation available]

* United States 28 March 2002 U.S. District Court [Illinois] (Usinor Industeel v. Leeco Steel Products) 81C3

China 2002 Shanghai Yangpu District People's Court (China Xhanghai Dongda Import & Export Corp. v. Germany Laubholz – Meyer Corp) 81C [translation available]
 

Germany 30 August 2001 Landgericht [District Court] München [translation available]

Russia 27 April 2001 Arbitation Court [Appellate Court] for the Moscow Region [translation available]
 

Austria 28 September 2000 Oberlandesgericht [Appellate Court] Graz

Russia 13 June 2000 Arbitration Award No. 280/1999 81B [translation available]

Germany 6 April 2000 Landgericht [District Court] München [translation available]
 

* Germany 26 November 1999 Oberlandesgericht [Appellate Court] Hamburg 81A [translation available]

Russia 27 October 1999 Arbitration award 269/1998 [translation available]

* ICC August 1999 International Court of Arbitration, Case 9887 [English text]

* Austria 29 June 1999 Oberster Gerichtshof [Supreme Court] 81C [translation available]

Russia 7 June 1999 Arbitration award 238/1998 81C [translation available]

* France 26 May 1999 Cour de Cassation [Supreme Court] [translation available]

China 5 April 1999 CIETAC Arbitration Award [CISG/1999/19] (Air conditioner equipment case) 81A [translation available]

* ICC March 1999 International Court of Arbitration, Case 9978 [English text]

Austria 24 February 1999 Oberlandesgericht [Appellate Court] Graz (Military weapons case) [translation available]

Austria 19 January 1999 Oberster Gerichtshof [Supreme Court] [translation added]

ICC 1999 International Court of Arbitration, Case 10274 81A [English text]
 

* Germany 29 December 1998 Hamburg Arbitration award [translation available]

* Switzerland 28 October 1998 Bundesgericht [Supreme Court] (Meat case) [translation available]

Russia 9 June 1998 Arbitration award 263/1997

Russia 5 March 1998 Arbitration award 160/1997 81C [translation available]

* Germany 28 January 1998 Oberlandesgericht [Appellate Court] München 81C [translation available]

* Switzerland 15 January 1998 Tribunale d'appello [Appellate Court] Lugano [translation available]

* France 14 January 1998 Cour d'appel [Appellate Court] Paris
 

China 19 December 1997 CIETAC Arbitration Award [CISG/1997/36] (Steel case) 81A [translation available]

* Germany 5 November 1997 Oberlandesgericht [Appellate Court] Hamm [translation available]

* Germany 15 September 1997 Landgericht [District Court] Heilbronn [translation available]

* Germany 21 August 1997 Oberlandesgericht [Appellate Court] Köln [translation available]

* Germany 25 June 1997 Bundesgerichtshof [Federal Supreme Court] [translation available]

Switzerland 12 June 1997 Pretore [District Court] Lugano

Russia 11 May 1997 Arbitration award 2/1995 81C [translation available]

Germany 6 May 1997 Landgericht [District Court] München

China 23 April 1997 CIETAC Arbitration Award [CISG/1997/08] (Automobile case) 81C [translation available]

* Russia 3 March 1997 Arbitration award 82/1996 81C [translation available]

* Switzerland 20 February 1997 Bezirksgericht [District Court] Saane 81C [translation available]

* Switzerland 5 February 1997 Handelsgericht [Commercial Court] Zürich 81C [translation available]
 

* Germany 4 December 1996 Bundesgerichtshof [Federal Supreme Court] [translation available]

* France 21 November 1996 Cour d’appel [Appellate Court] Aix-en-Provence [translation available]

* Finland 5 November 1996 Käräjäoikeus [District Court] Kuopio [translation available]

* Switzerland 31 May 1996 Arbitration ZHK 273/1995 [Zürich Chamber of Commerce] [English text]

* Germany 21 March 1996 Hamburg Arbitration award [translation available]
 

Germany 19 December 1995 Landgericht [District Court] Krefeld

Russia 19 December 1995 Arbitration award 133/1994 [translation available]

Russia 1 December 1995 Arbitration award 22/1995 [translation available]

* Germany 11 October 1995 Landgericht [District Court] Düsseldorf [translation available]

Germany 21 September 1995 Landgericht [District Court] Kassel [translation available]

Germany 20 September 1995 Oberlandesgericht [Appellate Court] Nürnberg

* Germany 24 May 1995 Oberlandesgericht [Appellate Court] Celle 81C [translation available]

* Australia 28 April 1995 Federal District Court, Adelaide (Roder v. Rosedown)

Russia 25 April 1995 Arbitration award 161/1994 81A ; 81B [translation available]

* Germany 5 April 1995 Landgericht [District Court] Landshut 81C [translation available]

* Germany 20 March 1995 Landgericht [District Court] München 81C [translation available]

* ICC March 1995 International Court of Arbitration, Case 7645 [English text]

Germany 8 February 1995 Oberlandesgericht [Appellate Court] München [7 U 1720/94] 81C [translation available]

* Germany 1 February 1995 Oberlandesgericht [Appellate Court] Oldenburg [translation available]
 

Russia 23 November 1994 Arbitration award 251/1993 81C

Germany 14 June 1994 Amtsgericht [Lower Court] Nordhorn [translation available]

* Russia 15 April 1994 Arbitration award 1/1993 81C

* Germany 2 March 1994 Oberlandesgericht [Appellate Court] München [translation available]

* Germany 10 February 1994 Oberlandesgericht [Appellate Court] Düsseldorf [6 U 32/93] [translation available]

* Germany 18 January 1994 Oberlandesgericht [Appellate Court] Frankfurt [translation available]

* ICC 1994 International Court of Arbitration, Case 7660 [English text]
 

China 26 October 1993 CIETAC Arbitration Award [CISG/1993/12] (Frozen beef case) 81A1 [translation available]

China 20 July 1993 CIETAC Arbitration Award [CISG/1993/10] (Shaping machine case) 81C [translation available]

* Mexico 4 May 1993 Compromex Arbitration award [translation available]

* ICC 26 March 1993 International Court of Arbitration, Case 6653 [translation available]
 

* Germany 24 November 1992 Landgericht [District Court] Krefeld (Shoes case) 81C1 [translation available]

* United States 14 April 1992 Federal District Court [Southern Dist. NY] (Filanto v. Chilewich) 81B1
 

* China 30 October 1991 CIETAC Arbitration award [translation available]

* Germany 17 September 1991 Oberlandesgericht [Appellate Court] Frankfurt 81A [translation available]

CASE DIGEST AND ANALYSIS
-   UNCITRAL's case law digest; and
-   An analysis of CISG jurisprudence

DIGEST OF ARTICLE 81 CASE LAW

Article in general: "consensual avoidance"

1. Article 81 governs the general consequences that follow if one of the parties avoids the contract or some part thereof .

2. Article 81 and the other provisions in Chapter V Section V dealing with the "Effects of Avoidance" have been described as creating a "framework for reversal of the contract" that, at its core, contains a "risk distribution mechanism" overriding other risk allocation provisions of the CISG when the contract is avoided.[1] It has also been stated that, under article 81, an avoided contract "is not entirely annulled by the avoidance, but rather it is 'changed' into a winding-up relationship."[2] Several decisions have held that article 81 does not apply to "consensual avoidance" -- i.e., termination of the contract that occurs where the parties have, by mutual consent, agreed to cancel the contract and to release each other from contractual obligations -- but rather is properly limited to cases where one party "unilaterally" avoids the contract because of a breach by the other party.[3] In such cases of "consensual avoidance," it has been asserted, the rights and obligations of the parties are governed by the parties' termination agreement.[4] Thus where the parties agreed to cancel their contract and permit the seller to deduct its out-of-pocket expenses before refunding the buyer's advance payment, the seller was allowed to make such deductions but was denied a deduction for its lost profit because that was not part of the parties' agreement.[5] Where an issue arises that is not expressly addressed in the parties' termination agreement, however, a court has asserted that, pursuant to article 7(2), the gap should be filled not by recourse to national law but by reference to the principles of article 81 and related provisions of the CISG.[6]

Consequences of avoidance under Article 81(1): release from obligations; ineffective avoidance

3. Several decisions have recognized that valid avoidance of the contract releases the parties from their executory obligations under the contract.[7] Thus it has been held that buyers who avoid the contract are released from their obligation to pay the price for the goods.[8] It has also been held that avoidance by the seller releases the buyer from its obligation to pay[9] and releases the seller from its obligation to deliver the goods.[10] On the other hand, failure to effectively avoid the contract means that the parties remain bound to perform their contractual obligations.[11] Courts have found a failure of effective avoidance where a party failed to follow proper procedures for avoidance (i.e., lack of timely and specific notice of avoidance to the other party)[12] or where a party lacked substantive grounds for avoiding (e.g., lack of fundamental breach).[13]

Preservation of right to damages and of provisions governing the settlement of disputes and the consequences of avoidance

4. As one decision has noted, under article 81 an avoided contract "is not entirely annulled by the avoidance,"[14] and certain contractual obligations remain viable even after avoidance. Thus the first sentence of article 81(1) states that avoidance releases the parties from their contractual obligations "subject to any damages which may be due". Many decisions have recognized that responsibility for damages for breach survives avoidance, and have awarded damages to the avoiding party against the party whose breach triggered the avoidance.[15] One court commented, "[w]here ... the contract is terminated and damages for failure to perform are claimed under Art. 74 CISG et seq., one uniform right to damages comes into existence ... and prevails over the consequences of the termination of a contract provided for in Arts. 81-84 CISG".[16] The second sentence of article 81(1) provides that "[a]voidance does not affect any provision of the contract for the settlement of disputes." This has been applied to an arbitration clause contained in a written contract, and has been characterized as making the arbitration clause "severable" from the rest of the contract.[17] The same sentence of article 81(2) also provides that avoidance does not affect "any other provision of the contract governing the rights and obligations of the parties consequent upon the avoidance of the contract." This has been applied to preserve, despite avoidance of the contract in which it was contained, the legal efficacy of a "penalty" clause requiring a seller who failed to deliver to make certain payments to buyer.[18] It has also been asserted that article 81(1) preserves other contractual provisions connected with the undoing of the contract, such as clauses requiring the return of delivered goods or other items received under the contract.[19]

Restitution under Article 81(2)

5. For parties that have wholly or partially performed their contractual obligations, the first sentence of article 81(2) creates a right to claim restitution from the other side of whatever the party has "supplied or paid under the contract". It has been suggested that the restitutionary obligation imposed on a buyer by article 81 is not intended to put the seller into the position it would have been in had the contract been fully performed or had not been concluded, but instead requires the restitution of the actual goods delivered, even if those goods are damaged during that return.[20] Note that under article 82, a buyer's inability to make restitution of delivered goods "substantially in the condition in which he received them" will, subject to important exceptions, forfeit the buyer's right to avoid the contract (or to require the seller to deliver substitute goods).[21] Under article 84(2), a buyer who must make restitution of goods to a seller must also "account to the seller" for all benefits it derived from the goods before making such restitution[22]; similarly, a seller who must refund the price to the buyer must also, under article 84(1), pay interest on the funds until they are restored,[23] although it has been held that, beyond such right to interest, a seller is not liable in damages for losses caused when it refused to give restitution of the price to the buyer.[24] It has been almost universally recognized that avoidance of the contract is a precondition for claiming restitution under article 81(2).[25] One decision stated that an obligation of the seller for the repayment of the purchase price exists under article 81(2) CISG only after an avoidance of the sales contract by the buyer and that the avoidance of the contract is thus a constitutive right of the buyer, which changes the contractual relationship into a restitutional relationship.[26]

6. In many cases where the buyer has properly avoided the contract, tribunals have awarded the aggrieved buyer restitution of the price (or part thereof) that it had paid to the seller.[27] A breaching seller is entitled to the restitution of the goods it delivered to a buyer who thereafter avoided the contract,[28] and it has been held that an avoiding buyer has a right, under article 81(2), to force the seller to take back goods it delivered.[29] A seller who properly avoided the contract has also been awarded restitution of the goods it delivered,[30] and it has been recognized that breaching buyers are entitled to restitution of the portion of the price actually paid if the seller subsequently avoids.[31] It has been held, however, that not all restitution claims arising out of a terminated sales contract are governed by the CISG. In one decision [32] the parties had mutually agreed to cancel their contract and the seller had given the buyer a refund for a payment check that was later dishonored. When the seller sued to recover the refund, the court found that the seller's claim was not governed by article 81(2) because that provision deals only with what a party has "supplied or paid under the contract," whereas the seller was seeking reimbursement for a refund made after the contract was cancelled. Instead, the court held, the seller's claim was based on unjust enrichment principles and was governed by applicable national law.

Place of restitution; jurisdiction over actions for restitution; risk of loss for goods being returned; currency of restitution of payments

7. Several decisions address the problem of where the obligation to make restitution under article 81(2) should be performed. This question has arisen either as a direct issue, or as a subsidiary matter related to a court's jurisdiction or to the question of who bears risk of loss for goods that are in the process of being returned by the buyer. Thus in determining whether an avoiding buyer offered the breaching seller restitution of delivered goods at the proper location, a court has held that the issue of the place for restitution is not expressly settled in the CISG, nor can the CISG provision dealing with the place for seller's delivery (art. 31) be applied by analogy, so that the matter must be resolved by reference to national law -- specifically (in this case), the law governing the enforcement of a judgment ordering such restitution.[33] Employing somewhat similar reasoning for purposes of determining its jurisdiction under article 5(1) of the 1968 Brussels Convention on Jurisdiction, a court has held that the CISG does not expressly settle where a seller must make restitution of the price under article 81(2), that the CISG provision governing the place for buyer's payment of the price (art. 57(1)) did not contain a general principle of the Convention that can be used to resolve the issue, and thus that the matter must be referred to applicable national law.[34] In contrast to the reasoning of the foregoing decisions, which led to the application of national law to the issue of the place for restitution, another decision asserted that jurisdiction under article 5(1) of the Brussels Convention over a buyer's claim for restitution of the price should be determined by reference to the place of the delivery obligation under article 31 of the CISG.[35] Another court has found that the CISG does not expressly deal with the question of where, for purposes of determining who bore risk of loss, an avoiding buyer makes restitution of goods that are returned via third party carrier, but it resolved the issue by reference to the CISG itself without recourse to national law: it filled the "gap" pursuant to article 7(2) by identifying a general principle that the place for performing restitutionary obligations should mirror the place for performing the primary contractual obligations, and found that buyer made its delivery (and thus risk of loss transferred to the seller) when it handed the goods over to the carrier for return shipment, because under the contract risk had passed to buyer in the original delivery when the manufacturer handed the goods over to the carrier.[36] The court also found this result consistent with the principles of article 82, which creates very broad exceptions to an avoiding buyer's obligation to return goods in their original condition and thereby suggests that the seller bears the risk that the condition of the goods will deteriorate. Finally, it has been concluded that an avoiding buyer's refund of the price was due in the same currency in which the price had been duly paid, and at the exchange rate specified in the contract for payment of the price to the seller.[37]

Requirement that mutual restitution be concurrent

8. The second sentence of article 81(2) specifies that, where both parties are required under the first sentence of the provision to make restitution (i.e., where both parties have "supplied or paid" something under an avoided contract), then mutual restitution is to be made "concurrently". An arbitration panel has ordered simultaneous restitution of the goods by an avoiding buyer and restitution of the price by a breaching seller.[38] Consistently with the principle of mutual restitution, a court has ruled that a breaching seller was not in default of its obligation to give the avoiding buyer restitution of the price until the buyer actually offered to return the goods seller had delivered, and it ordered the parties to make concurrent restitution.[39] Another decision stated that an avoiding seller need not make restitution of the buyer's payments until delivered goods were returned.[40]

Interaction between right to restitution under Article 81(2) and rights under national law

9. An avoiding seller's right to restitution of delivered goods under article 81(2) can come into conflict with the rights of third parties (e.g., the buyer's other creditors) in the goods. Such conflicts are particularly acute where the buyer has become insolvent, so that recovery of the goods themselves is more attractive than a monetary remedy (such as a right to collect the price or damages) against the buyer. Several decisions have dealt with this conflict. In one, a court found that an avoiding seller's restitutionary rights under article 81(2) were trumped by the rights of one of buyer's creditors that had obtained and perfected, under national law, a security interest in the delivered goods: the court ruled that the question of who had priority rights in the goods as between the seller and the third party creditor was, under CISG article 4, beyond the scope of the Convention and was governed instead by applicable national law, under which the third party creditor prevailed.[41] This was the result even though the sales contract included a clause reserving title to the goods in the seller until the buyer had completed payment (which buyer had not done), because the effect of that clause with respect to a non-party to the sales contract was also governed by national law rather than the CISG, and under the applicable law the third party's claim to the goods had priority over seller's. Another court, in contrast, found that an avoiding seller could recover goods from a buyer that had gone through insolvency proceedings after the goods were delivered.[42] In this case, however, the seller had a retention of title clause that was valid under applicable national law and that had survived the buyer's now-completed insolvency proceedings, and there apparently was no third party with a claim to the goods that was superior to seller's under national law. Thus the two cases described in this section do not appear to be inconsistent. Indeed, the later case cited the earlier case in support of its analysis.

FOOTNOTES

* The present text was prepared using the full text of the decisions cited in the Case Law on UNCITRAL Texts (CLOUT) abstracts and other citations listed in the footnotes. The abstracts are intended to serve only as summaries of the underlying decisions and may not reflect all the points made in the digest. Readers are advised to consult the full texts of the listed court and arbitral decisions rather than relying solely on the CLOUT abstracts.

[Citations to cisgw3 case presentations have been substituted [in brackets] for the case citations provided in the UNCITRAL Digest. This substitution has been made to facilitate online access to CLOUT abstracts, original texts of court and arbitral decisions, and full text English translations of these texts (available in most but not all cases). For citations UNCITRAL had used, go to <http://www.uncitral.org/english/clout/digest_cisg_e.htm>.]

1. [AUSTRIA Oberster Gerichtshof [Supreme Court] 29 June 1999, available online at <http://cisgw3.law.pace.edu/cases/990629a3.html>].

2. Id.; see also [GERMANY Landgericht [District Court] Düsseldorf 11 October 1995, available online at <http://cisgw3.law.pace.edu/cases/951011g1.html>] (stating that avoidance "changes the contractual relationship into a restitutional relationship [winding up]").

3. [RUSSIA Arbitration Award case No. 82/1996 of 3 March 1997; available online at <http://cisgw3.law.pace.edu/cases/970303r1.html>]; [AUSTRIA Oberster Gerichtshof [Supreme Court] 29 June 1999, available online at <http://cisgw3.law.pace.edu/cases/990629a3.html>]. Compare CLOUT case No. 288 [GERMANY Oberlandesgericht [Appellate Court] München 28 January 1998, available online at <http://cisgw3.law.pace.edu/cases/980128g1.html>] (where seller "refunded" to buyer the purchase price of goods even though buyer's check for payment of the price had been dishonoured, seller's claim for restitution of the refund was not governed by art. 81(1) because art. 81(1) is limited to restitution of what is supplied or paid under the contract; seller's "refund" had not been made under the contract); but see CLOUT case No. 136 [GERMANY Oberlandesgericht [Appellate Court] Celle 24 May 1995, available online at <http://cisgw3.law.pace.edu/cases/950524g1.html>] where the tribunal appears to apply article 81(2) even though the parties terminated the contract by mutual consent. See also the discussion of applying article 81 to fill gaps in the parties' termination agreement in [AUSTRIA Oberster Gerichtshof [Supreme Court] 29 June 1999, available online at <http://cisgw3.law.pace.edu/cases/990629a3.html>].

4. [RUSSIA Arbitration Award case No. 82/1996 of 3 March 1997; available online at <http://cisgw3.law.pace.edu/cases/970303r1.html>]; [AUSTRIA Oberster Gerichtshof [Supreme Court] 29 June 1999, available online at <http://cisgw3.law.pace.edu/cases/990629a3.html>].

5. [RUSSIA Arbitration Award case No. 82/1996 of 3 March 1997; available online at <http://cisgw3.law.pace.edu/cases/970303r1.html>].

6. [AUSTRIA Oberster Gerichtshof [Supreme Court] 29 June 1999, available online at <http://cisgw3.law.pace.edu/cases/990629a3.html>].

7. For general statements regarding the parties' release from their obligations upon avoidance see, e.g., [AUSTRIA Oberster Gerichtshof [Supreme Court] 29 June 1999, available online at <http://cisgw3.law.pace.edu/cases/990629a3.html>]; CLOUT case No. 2 [GERMANY Oberlandesgericht [Appellate Court] Frankfurt 17 September 1991, available online at <http://cisgw3.law.pace.edu/cases/910917g1.html>] (see full text of the decision); CLOUT case No. 261 [SWITZERLAND Bezirksgericht [District Court] Sanne 20 February 1997; available at <http://cisgw3.law.pace.edu/cases/970220s1.html>]; [ICC Court of Arbitration, case No. 9887 of August 1999, available online at <http://cisgw3.law.pace.edu/cases/999887i1.html>].

8. CLOUT case No. 235 [GERMANY Bundesgerichtshof [Supreme Court] 25 June 1997, available online at <http://cisgw3.law.pace.edu/cases/970625g2.html>] (partial avoidance); CLOUT case No. 248 [SWITZERLAND Bundesgericht [SupremeCourt] 28 October 1998, available online at <http://cisgw3.law.pace.edu/cases/981028s1.html>]; CLOUT case No. 2 [GERMANY Oberlandesgericht [Appellate Court] Frankfurt 17 September 1991, available online at <http://cisgw3.law.pace.edu/cases/910917g1.html>] (see full text of the decision); [ICC Court of Arbitration, case No. 7645 of March 1995, available online at <http://cisgw3.law.pace.edu/cases/957645i1.html>]. See also [GERMANY Landgericht [District Court] Krefeld 24 November 1992, available online at <http://cisgw3.law.pace.edu/cases/921124g1.html>] English abstract available in the Unilex database (implying that in partial avoidance situation the buyer was released from its obligation to pay for the portion of the goods subject to avoidance); CLOUT case No. 214 [SWITZERLAND Handelsgericht [Commercial Court] Zürich 5 February 1997; available at <http://cisgw3.law.pace.edu/cases/970205s1.html>] (in partial performance situation, court appears to presume that buyer's avoidance released both parties from remaining executory duties).

9. [ICC Court of Arbitration, case No. 9887 of August 1999, available online at <http://cisgw3.law.pace.edu/cases/999887i1.html>].

10. CLOUT case No. 261 [SWITZERLAND Bezirksgericht [District Court] Sanne 20 February 1997; available at <http://cisgw3.law.pace.edu/cases/970220s1.html>]. See also [SWITZERLAND Zurich Chamber of Commerce Arbitration award no. ZHK 273/95 of 31 May 1996, available online at <http://cisgw3.law.pace.edu/cases/960531s1.html>], where the tribunal indicates that the buyer's action for avoidance and damages for non-delivery was an alternative to its action to require seller to deliver.

11. In the following cases, the tribunal indicated that the buyer was not released from its obligation to pay because it had failed to avoid the contract: CLOUT case No. 284 [GERMANY Oberlandesgericht [Appellate Court] Köln 21 August 1997, available online at <http://cisgw3.law.pace.edu/cases/970821g1.html>]; [GERMANY Landgericht [District Court] München 20 March 1995, available online at <http://cisgw3.law.pace.edu/cases/950320g1.html>]; CLOUT case No. 229 [GERMANY Bundesgerichtshof [Supreme Court] 4 December 1996, available online at <http://cisgw3.law.pace.edu/cases/961204g1.html>]; CLOUT case No. 79 [GERMANY Oberlandesgericht [Appellate Court] Frankfurt 18 January 1994, available online at <http://cisgw3.law.pace.edu/cases/940118g1.html>]. See also CLOUT case No. 81 [GERMANY Oberlandesgericht [Appellate Court] Düsseldorf 10 February 1994, available online at <http://cisgw3.law.pace.edu/cases/940210g1.html>] (implying that, because buyer did not validly avoid the contract it was not released from its obligation to pay) and CLOUT case No. 83 [GERMANY Oberlandesgericht [Appellate Court] München 2 March 1994, available online at <http://cisgw3.law.pace.edu/cases/940302g1.html>] (same). It has also been found that a seller who fails to validly avoid the contact is not released from its obligation to deliver the goods. [SWITZERLAND Zurich Chamber of Commerce Arbitration award no. ZHK 273/95 of 31 May 1996, available online at <http://cisgw3.law.pace.edu/cases/960531s1.html>].

12. CLOUT case No. 229 [GERMANY Bundesgerichtshof [Supreme Court] 4 December 1996, available online at <http://cisgw3.law.pace.edu/cases/961204g1.html>] (buyer did not have right to avoid because its notice of lack of conformity was not sufficiently specific to satisfy article 39); [GERMANY Landgericht [District Court] München 20 March 1995, available online at <http://cisgw3.law.pace.edu/cases/950320g1.html>] (buyer lost right to avoid because it did give sufficient notice of lack of conformity under article 39 and its notice of avoidance was untimely under article 49(2)); CLOUT case No. 81 [GERMANY Oberlandesgericht [Appellate Court] Düsseldorf 10 February 1994, available online at <http://cisgw3.law.pace.edu/cases/940210g1.html>] (buyer lacked right to avoid because its notice of lack of conformity was not timely under article 39) (see full text of the decision); CLOUT case No. 83 [GERMANY Oberlandesgericht [Appellate Court] München 2 March 1994, available online at <http://cisgw3.law.pace.edu/cases/940302g1.html>] (buyer did not have right to avoid because its declaration of avoidance was untimely under article 49(2)); [ICC Court of Arbitration, case No. 9887 of August 1999, available online at <http://cisgw3.law.pace.edu/cases/999887i1.html>] (seller's delivery of non-conforming goods did not release buyer from its obligation to pay because buyer did not give notice declaring the contract avoided as required by article 49(2)(b)(i) (although seller's subsequent avoidance released both parties from their obligations)).

13. CLOUT case No. 284 [GERMANY Oberlandesgericht [Appellate Court] Köln 21 August 1997, available online at <http://cisgw3.law.pace.edu/cases/970821g1.html>] (buyer lacked right to avoid because it either failed to prove or had waived its right to complain of lack of conformity); CLOUT case No. 79 [GERMANY Oberlandesgericht [Appellate Court] Frankfurt 18 January 1994, available online at <http://cisgw3.law.pace.edu/cases/940118g1.html>], (buyer did not have right to avoid for late delivery because it did not fix an additional period of time for seller to perform under Articles 47 and 49(1)(b), and buyer lacked right to avoid for lack of conformity because it failed to proved the defects constituted a fundamental breach) (see full text of the decision); CLOUT case No. 83 [GERMANY Oberlandesgericht [Appellate Court] München 2 March 1994, available online at <http://cisgw3.law.pace.edu/cases/940302g1.html>] (buyer had no right to avoid because the inferior quality of the goods did not constitute a fundamental breach); [SWITZERLAND Zurich Chamber of Commerce Arbitration award no. ZHK 273/95 of 31 May 1996, available online at <http://cisgw3.law.pace.edu/cases/960531s1.html>] (seller lacked right to avoid because buyer's failure to make one installment payment did not constitute a fundamental breach of the contract, buyer had not committed an anticipatory repudiation of the contract, and seller had not fixed an additional deadline period under article 64 for buyer to pay); [ICC Court of Arbitration, case No. 9887 of August 1999, available online at <http://cisgw3.law.pace.edu/cases/999887i1.html>] (seller's late delivery did not release buyer from its obligation to pay because buyer did not grant seller additional time for performance under article 47(1) (although seller's subsequent avoidance released both parties from their obligations)).

14. [AUSTRIA Oberster Gerichtshof [Supreme Court] 29 June 1999, available online at <http://cisgw3.law.pace.edu/cases/990629a3.html>]; see also [GERMANY Landgericht [District Court] Düsseldorf 11 October 1995, available online at <http://cisgw3.law.pace.edu/cases/951011g1.html>] (stating that avoidance "changes the contractual relationship into a restitutional relationship [winding up]").

15. CLOUT case No. 253 [SWITZERLAND Cantone del Ticino [Appellate Court] Lugano 15 January 1998, available online at <http://cisgw3.law.pace.edu/cases/980115s1.html>] (see full text of the decision); CLOUT case No. 345 [GERMANY Landgericht [District Court] Heilbronn 15 September 1997; available at <http://cisgw3.law.pace.edu/cases/970915g1.html>] ; CLOUT case No. 214 [SWITZERLAND Handelsgericht [Commercial Court] Zürich 5 February 1997; available at <http://cisgw3.law.pace.edu/cases/970205s1.html>]; [AUSTRIA Oberster Gerichtshof [Supreme Court] 29 June 1999, available online at <http://cisgw3.law.pace.edu/cases/990629a3.html>]; [SWITZERLAND Zurich Chamber of Commerce Arbitration award no. ZHK 273/95 of 31 May 1996, available online at <http://cisgw3.law.pace.edu/cases/960531s1.html>]; CLOUT case No. 166 [GERMANY Hamburg Arbitration award case of 21 March / 21 June 1996; available at <http://cisgw3.law.pace.edu/cases/960321g1.html> / <http://cisgw3.law.pace.edu/cases/960621g1.html>] (see full text of the decision).

16. CLOUT case No. 166 [GERMANY Hamburg Arbitration award of 21 March / 21 June 1996; available at <http://cisgw3.law.pace.edu/cases/960321g1.html> / <http://cisgw3.law.pace.edu/cases/960621g1.html>] (see full text of the decision).

17. CLOUT case No. 23 [UNITED STATES Filanto v. Chilewich Federal District Court [New York] 14 April 1992 available online at <http://cisgw3.law.pace.edu/cases/920414u1.html>] (see full text of the decision).

18. [ICC Court of Arbitration, case No. 9978 of March 1999, available online at <http://cisgw3.law.pace.edu/cases/999978i1.html>].

19. [AUSTRIA Oberster Gerichtshof [Supreme Court] 29 June 1999, available online at <http://cisgw3.law.pace.edu/cases/990629a3.html>].

20. Id.

21. See Digest article 82.

22. See infra Digest article 84(2).

23. See infra Digest article 84(1).

24. [ICC Court of Arbitration, case No. 9978 of March 1999, available online at <http://cisgw3.law.pace.edu/cases/999978i1.html>]; but see also [GERMANY Landgericht [District Court] Landshut 5 April 1995, available online at <http://cisgw3.law.pace.edu/cases/950405g1.html>], where the court apparently held a breaching seller liable for failing to make restitution to a buyer that had properly avoided the contract (although the remedy granted for this liability, if any, is unclear).

25. CLOUT case No. 293 [GERMANY Hamburg Arbitration award of 29 December 1998 available online at <http://cisgw3.law.pace.edu/cases/981229g1.html>] ("The claimant's claim as buyer under Art. 81(2) first sentence CISG for reimbursement of the prepayment first requires contract avoidance (article 81(1) first sentence CISG)") (see full text of the decision); CLOUT case No. 214 [SWITZERLAND Handelsgericht [Commercial Court] Zürich 5 February 1997; available at <http://cisgw3.law.pace.edu/cases/970205s1.html>] (see full text of the decision); [GERMANY Landgericht [District Court] Düsseldorf 11 October 1995, available online at <http://cisgw3.law.pace.edu/cases/951011g1.html>] (denying buyer restitution because it had not properly avoided the contract); CLOUT case No. 345 [GERMANY Landgericht [District Court] Heilbronn 15 September 1997; available at <http://cisgw3.law.pace.edu/cases/970915g1.html>] ; [RUSSIA Arbitration Award case No. 1/1993 of 15 April 1994; available online at <http://cisgw3.law.pace.edu/cases/940415r1.html>]; [GERMANY Landgericht [District Court] Krefeld 24 November 1992, available online at <http://cisgw3.law.pace.edu/cases/921124g1.html>]; but see [MEXICO Compromex Arbitration Award 4 May 1993, available online at <http://cisgw3.law.pace.edu/cases/930504m1.html>] (invoking article 81(2) to justify the seller's claim for the price of delivered goods where it does not appear the contract was avoided).

26. [GERMANY Landgericht [District Court] Düsseldorf 11 October 1995, available online at <http://cisgw3.law.pace.edu/cases/951011g1.html>].

27. [RUSSIA Arbitration Award case No. 1/1993 of 15 April 1994; available online at <http://cisgw3.law.pace.edu/cases/940415r1.html>]; CLOUT case No. 302 [ICC Court of Arbitration, case No. 7660 of 1994, available online at <http://cisgw3.law.pace.edu/cases/947660i1.html>] (see full text of the decision); CLOUT case No. 312 [FRANCE Cour d'appel [Appellate Court] Paris 14 January 1998, available online at <http://cisgw3.law.pace.edu/cases/980114f1.html>] (see full text of the decision); [CHINA CIETAC Arbitration Award case of 30 October 1991; available online at <http://cisgw3.law.pace.edu/cases/911030c1.html>]; CLOUT case No. 345 [GERMANY Landgericht [District Court] Heilbronn 15 September 1997; available at <http://cisgw3.law.pace.edu/cases/970915g1.html>] ; CLOUT case No. 253 [SWITZERLAND Cantone del Ticino [Appellate Court] Lugano 15 January 1998, available online at <http://cisgw3.law.pace.edu/cases/980115s1.html>] (see full text of the decision); CLOUT case No. 214 [SWITZERLAND Handelsgericht [Commercial Court] Zürich 5 February 1997; available at <http://cisgw3.law.pace.edu/cases/970205s1.html>]; CLOUT case No. 103 [ICC Court of Arbitration, case No. 6653 of 26 March 1993, available online at <http://cisgw3.law.pace.edu/cases/936653i1.html>] (without citing art. 81); CLOUT case No. 136 [GERMANY Oberlandesgericht [Appellate Court] Celle 24 May 1995, available online at <http://cisgw3.law.pace.edu/cases/950524g1.html>]; [FRANCE Cour d'appel [Appellate Court] Aix-en-Provence 21 November 1996, available online at <http://cisgw3.law.pace.edu/cases/961121f1.html>] (affirmed in CLOUT case No. 315 [FRANCE Cour de Cassation [Supreme Court] 26 May 1999, available online at <http://cisgw3.law.pace.edu/cases/990526f1.html>]; [GERMANY Landgericht [District Court] Düsseldorf 11 October 1995, available online at <http://cisgw3.law.pace.edu/cases/951011g1.html>]; [FINLAND Käräjäoikeus [District Court] Kuopio 5 November 1996, available online at <http://cisgw3.law.pace.edu/cases/961105f5.html>]; [ICC Court of Arbitration, case No. 9978 of March 1999, available online at <http://cisgw3.law.pace.edu/cases/999978i1.html>]; CLOUT case No. 293 [GERMANY Hamburg Arbitration award of 29 December 1998 available online at <http://cisgw3.law.pace.edu/cases/981229g1.html>] (awarding restitution of the buyer's prepayment for a delivery because "[t]he rendered prepayment is, in the meaning of art. 81(2) first sentence CISG, performance of the contract on the part of the claimant as buyer") (see full text of the decision).

28. See [GERMANY Landgericht [District Court] Landshut 5 April 1995, available online at <http://cisgw3.law.pace.edu/cases/950405g1.html>] (ordering breaching seller to make restitution of price to avoiding buyer concurrently with buyer making restitution of goods to seller); [CHINA CIETAC Arbitration Award case of 30 October 1991; available online at <http://cisgw3.law.pace.edu/cases/911030c1.html>]; CLOUT case No. 165 [GERMANY Oberlandesgericht [Appellate Court] Oldenburg 1 February 1995, available online at <http://cisgw3.law.pace.edu/cases/950201g1.html>] (stating that buyer who avoided contract for the purchase of furniture must make restitution of defective furniture it received under the contract) (citing art. 84) (see full text of the decision). See also article 82 (stripping a buyer of the right to avoid the contract if it cannot make restitution of the goods substantially in the condition in which it received them, unless one of the exceptions in art. 82(2) applies). Article 82 is discussed in the next section of this Digest.

29. [GERMANY Landgericht [District Court] Krefeld 24 November 1992, available online at <http://cisgw3.law.pace.edu/cases/921124g1.html>].

30. CLOUT case No. 308 [AUSTRALIA Roder v. Rosedown [Federal Court] Adelaide 28 April 1995, available online at <http://cisgw3.law.pace.edu/cases/950428a2.html>] (see full text of the decision).

31. CLOUT case No. 261 [SWITZERLAND Bezirksgericht [District Court] Sanne 20 February 1997; available at <http://cisgw3.law.pace.edu/cases/970220s1.html>]; CLOUT case No. 308 [AUSTRALIA Roder v. Rosedown [Federal Court] Adelaide 28 April 1995, available online at <http://cisgw3.law.pace.edu/cases/950428a2.html>] (see full text of the decision).

32. CLOUT case No. 288 [GERMANY Oberlandesgericht [Appellate Court] München 28 January 1998, available online at <http://cisgw3.law.pace.edu/cases/980128g1.html>].

33. [GERMANY Landgericht [District Court] Landshut 5 April 1995, available online at <http://cisgw3.law.pace.edu/cases/950405g1.html>].

34. CLOUT case No. 312 [FRANCE Cour d'appel [Appellate Court] Paris 14 January 1998, available online at <http://cisgw3.law.pace.edu/cases/980114f1.html>].

35. CLOUT case No. 295 [GERMANY Oberlandesgericht [Appellate Court] Hamm 5 November 1997, available online at <http://cisgw3.law.pace.edu/cases/971105g1.html>] (see full text of the decision).

36. [AUSTRIA Oberster Gerichtshof [Supreme Court] 29 June 1999, available online at <http://cisgw3.law.pace.edu/cases/990629a3.html>].

37. CLOUT case No. 302 [ICC Court of Arbitration, case No. 7660 of 1994, available online at <http://cisgw3.law.pace.edu/cases/947660i1.html>].

38. [CHINA CIETAC Arbitration Award of 30 October 1991; available online at <http://cisgw3.law.pace.edu/cases/911030c1.html>] (ordering avoiding buyer to return goods and breaching seller to return price); see also [FRANCE Cour d'appel [Appellate Court] Aix-en-Provence 21 November 1996, available online at <http://cisgw3.law.pace.edu/cases/961121f1.html>] ("the avoidance of the sale has, as a consequence, the restitution of the goods against restitution of the price").

39. [GERMANY Landgericht [District Court] Landshut 5 April 1995, available online at <http://cisgw3.law.pace.edu/cases/950405g1.html>].

40. CLOUT case No. 308 [AUSTRALIA Roder v. Rosedown [Federal Court] Adelaide 28 April 1995, available online at <http://cisgw3.law.pace.edu/cases/950428a2.html>] (see full text of the decision).

41. [UNITED STATES Usinor Industeel v. Leeco Steel Products, Inc. Federal District Court [Illinois] 28 March 2002 available online at <http://cisgw3.law.pace.edu/cases/020328u1.html>].

42. CLOUT case No. 308 [AUSTRALIA Roder v. Rosedown [Federal Court] Adelaide 28 April 1995, available online at <http://cisgw3.law.pace.edu/cases/950428a2.html>] (see full text of the decision).

Reprinted by special permission of Northwestern University School of Law. 34 Northwestern Journal of International Law and Business (Winter 2004) 299-440.[*]

[...]

4. Effects of Avoidance: Articles 81-84

The effects of avoidance are set forth in Articles 81, 83, and 84. [799] Avoidance of the contract releases both parties from their obligations subject to any damages attributed to them.[800] Additionally, a party who has wholly or partially performed the contract may claim restitution from the other party consisting of whatever has been paid or supplied under the contract.[801] Articles 83 and 84 also contain provisions setting forth specific [page 426] rights and liabilities of buyers and sellers. For example, if it is impossible to return the goods in the same condition in which the buyer received them, a buyer is not entitled to avoid the contract.[802] A buyer who has lost the right to declare the contract avoided or to require the seller to deliver substitute goods in accordance with Article 82 retains all other remedies set forth in the contract and under the provisions of the CISG.[803]

As discussed in the coverage of notice of non-conformity,[804] a party must declare a contract avoided in a timely fashion. This duty of timely avoidance can be implied from Article 49's language that the non-breaching party must declare avoidance "within a reasonable time."[805] A German court looked to the general principles of the CISG in fashioning the principle of timely avoidance. It held that a plaintiff's attempt to declare a contract avoided after 2 years was a violation of the principle of good faith contained in Article 7(1) CISG.[806]

Under Article 83, the loss of the right to declare the contract avoided or to require the seller to deliver substitute goods does not deprive the buyer of the right to claim damages, to require that any defects be cured, or to declare a reduction in price.[807] In addition, Article 84 states that if the seller is required to refund the price "he must also pay interest from the date on which the price was paid."[808] Despite this reference to the payment of interest, the CISG does not specify how the applicable interest rate is to be determined.[809] A Swiss court offered a reasonable answer by holding the rate of interest the seller had to pay was determined on the basis of the prevailing rate of interest at the seller's place of business.[810] [page 427]

[...]

FOOTNOTES

* For a subsequent text on this subject by these authors, see Larry A. DiMatteo, Lucien Dhooge, Stephanie Greene, Virginia Maurer & Marisa Pagnattaro, "International Sales Law: A Critical Analysis of CISG Jurisprudence", Cambridge University Press (2005) 241 p.

[...]

799. CISG, supra note 4, at arts. 81, 83-84. For a general discussion of notice and avoidance, see Ericson P. Kimbel, Nachfrist Notice and Avoidance Under the CISG, 18 J.L. & Com. 301 (1999). See also Secretariat Commentary to art. 81, available at <http://cisgw3.law.pace.edu/cisg/text/secomm/secomm-81.html>.

800. CISG, supra note 4, at art. 81(1).

801. Id. at art. 81(2). Note that if both parties are required to make restitution, they must do concurrently. Id. A classic illustration of this situation took place when a German buyer entered into a contract with a French seller for the delivery of sunflower oil. The buyer paid a timely installment for the first delivery, yet the seller did not ship the goods. Accordingly, the seller had to refund the price paid. OLG München 7 U 1720/94, supra note 701. This was also the case in a dispute involving multiple shipments of machines. OLG Celle 20 U 76/94, supra note 481. Because the first shipment contained only half of the machines specified by the contract, and the buyer had already paid a considerable part of the contract price before the shipment, the court found that the parties mutually terminated the contract. Accordingly, it found that the buyer's repayment claim was justified under Article 81(2). Id. See also ICC Court of Arbitration no. [9978], Mar. 1999, available at [<http://cisgw3.law.pace.edu/cases/999978i1.html>] [English text] (tribunal found that the buyer was allowed to avoid the contract since non-delivery was a fundamental breach of contract and awarded restitution under Article 82, along with interest under Article 84).

802. CISG, supra note 4, at art. 82(2). See generally, OLG Koblenz 2 U 1899/89, Sept. 27, 1991 (F.R.G.), available at <http://cisgw3.law.pace.edu/cases/910927g1.html>.

803. CISG, supra note 4, at art. 83.

804. Supra Part V.B.1.

805. CISG, supra note 4, at art. 49(2).

806. OLG München 7 U 1720/94, supra note 701.

807. CISG, supra note 4, at arts. 45(a)(b), 46, 50 and 83.

808. Id. at art. 84(1). See generally OLG Celle 20 U 76/94, supra note 481. However, contrary to this provision with regard to the time of accrual of interest, an Italian court held that interest was payable from the date of avoidance of the contract. Foliopack Ag v. Daniplast S.p.A., Pretura circondariale [Court of First Instance] [PR] di Parma, sez. di Fidenza Nov. 24, 1989, 77/89 (It.), available at <http://cisgw3.law.pace.edu/cases/891124i3.html> [English translation by Hanz G. Chiappetta, translation edited by Angela Maria Romito].

809. ICC International Court of Arbitration no. 7197, supra note 745.

810. HG Zürich, HG 950347, Feb. 5, 1997 (Switz.), CLOUT Case No. 214, available at [<http://cisgw3.law.pace.edu/cases/970205s1.html>].

[...]

Go to complete text of Analysis of Fifteen Years of CISG Jurisprudence

1. Similarities between the counterpart provisions on the effect of contractual avoidance in the CISG and the PECL
   a. The operation of CISG Article 81
   b. The operation of PECL Article 9:305
2. Differences between the two regimes
3. Conclusions

1. Similarities between the counterpart provisions on the effect of contractual avoidance in the CISG and the PECL

      a. The operation of CISG Article 81

In Section IV of the Convention, entitled Effects of avoidance, Article 81 provides that an avoidance of the contract allows parties to terminate their respective obligations arising out of the contract.[2] "Avoidance is a process through which an aggrieved party, by notice to the other side, terminates the contractual obligations of the parties. If the contract is not avoided, the Convention contemplates that the basic exchange of goods and price will be completed despite a breach, with damages or other remedies to compensate for defects in the exchange."[3]

"The primary effect of the avoidance of the contract by one party is that both parties are released from their obligations to carry out the contract. The seller need not deliver the goods and the buyer need not take delivery or pay for them".[4] However, avoidance of a contract does not affect [5] any provision of the contract that governs the rights and obligations of the parties subsequent to the avoidance of the contract, nor does it eliminate the right to seek damages for breach of the contract.[6] Furthermore, the enumeration in Article 81(1) of two typical contract clauses that are not terminated by the avoidance of the contract is not exhaustive.[7] Some continuing obligations are set forth in other CISG provisions,[8] while others may be found in the contract itself [9] or may arise out of fairness considerations.[10]

As a result of the avoidance, both parties are released from their obligations [CISG Art. 81(1)]. However, it is likely that either party might be left with property that has been transferred or payment that has been made by the other. In this case, each party that has performed its own obligation can claim restitution of whatever was paid (price) or supplied (goods or something ancillary to them) under the contract, and if both parties have to make restitution, it must be done concurrently;[11] [see CISG Art. 81(2)]. Although the Convention provides that both parties may declare the contract avoided, it has been argued by commentators that the general structure of the Convention as to the buyer's obligation to return the goods may create some problems.[12]

It should be noted that the right of either party to require restitution as recognized by CISG Article 81(2) may 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 may prevent the transfer of the goods or money to the demanding party in a foreign country. Such limitations, however, may reduce the value of the claim for restitution, but do not affect the validity of the rights between the parties.[13]

      b. The operation of PECL Article 9:305

The PECL provisions that are relevant to this comparative analysis are to be found in Chapter 9, entitled "Particular Remedies for Non-Performance", in Section 3, entitled Termination of the Contract.[14]

The principal provisions are to be found in PECL Article 9:305, entitled Effects of Termination in General, which basically provides, much like CISG Article 81, that termination [15] releases both parties to the contract from their obligation to effectuate and receive future performance [PECL Art. 9:305(1)],[16] but that does not affect any provision of the contract for the settlement of disputes or any other provision which is to operate even after termination [PECL Art. 9:305(2)].

However, except for these basic textual similarities, the two sets of rules differ distinctly in their application.

2. Differences between the two regimes

The ability to return the goods received in substantially the condition in which one received them is "a prerequisite for avoiding a contract or demanding substitute goods. If, because he cannot return the goods, the buyer is barred from avoiding the contract or demanding substitute goods, his other remedies under the contract or the Convention (damages, reduction of price) remain unaffected."[17] CISG Article 81(2) "incorporates the idea that, as regards restitution, the avoidance of the contract undermines the basis on which either party can retain that which he has received from the other party."[18] In other words, the Convention clearly requires that whatever is exchanged between the parties because of the contract must be returned, and if this is not possible, subject to the exceptions considered by CISG Article 82, avoidance of the contract is no longer an option.[19]

PECL Articles 9:305, 9:307, 9:308 do not adopt the above approach of the Convention. Firstly, the PECL also takes into consideration contracts for services, which are beyond the scope of the CISG. Secondly, the PECL introduces the idea that there are circumstances in which it might be inappropriate to make the restitution.[20] Such an idea is not shared with the CISG. The general approach adopted by the PECL is that, upon termination of a contract, both parties are released from their duties to effect and to receive performance (PECL Art. 9:305). A restitution duty, which does not affect the right to terminate the contract, may arise only where one party has conferred a benefit on the other party without receiving the promised counter-performance in exchange.[21]

To understand how the two approaches differ, it is important to study the PECL comment on Article 9:305, which states: "It would be also inconvenient to treat a contract which as being retrospectively cancelled in the sense that performances received must be returned or restitution made of their value. This is not appropriate where the contract was to be performed over the period of time when there can be termination for the future without undoing what has been achieved already […] Even though termination is forward looking in the way just explained, there are situations in which it is appropriate to "undo" what has taken place before termination. Thus the aggrieved party may need the right to reject a performance already received if termination means that it is of no value to it; either party may need to recover money already paid to the other party if nothing has been received in return; and either may need to be able to recover other property which has been transferred."[22]

PECL Article 9:306 provides for cases where the aggrieved party received from the other party some property whose value has been fundamentally reduced because of the other party's non-performance or because, as a result of the termination, it cannot secure the remaining performance. Restitution of the property will occur where it is useless for the party that received it. This rule clearly is not compatible with the CISG set of rules.

Also inconsistent with the CISG principles, is the rule set forth in PECL Article 9:307, which deals with the recovery of money paid. PECL Article 9:307 states: "On termination of the contract a party may recover money paid for a performance which it did not receive or which it properly rejected." Article 9:308 introduces the same principle although it deals with property other than money. Both PECL Articles 9:307 and 9:308 subject the restitution to the instance where one party has conferred a benefit but has not received the promised counter-performance. Moreover, it should be also noted that PECL Articles 9:307 and 9:308 also apply to situations, such as service contracts, where the CISG cannot be applied.

It should be noted that the PECL refers to "termination" whereas the CISG refers to "avoidance". In the comparison between CISG Article 81 and the PECL Articles 9:305, 9:307, and 9:308, the two words do have the same meaning. However, it has to be noted that the PECL also uses the term "avoidance" but in a different context. In fact, the relevant PECL provision which deals with validity issues, provides that "[i]f a ground of avoidance affects only particular terms of a contract, the effect of an avoidance is limited to those terms unless, giving due consideration to all the circumstances of the case, it is unreasonable to uphold the remaining contract."[23]

Finally, it should be also be mentioned that neither the Convention nor the PECL have any specific provisions dealing with: (i) the expenses incurred in making restitution;[24] (ii) the rights acquired by third parties;[25] (iii) the location where the restitution must be made [26] and (iv) the buyer's responsibility when the goods that must be returned are destroyed after the effective date of a declaration of avoidance.[27]

3. Conclusions

The PECL rules do not add any tool that is useful for the construction of CISG Article 81. Instead, the PECL introduces a set of rules - the PECL rule according to which the restitution of the goods is available only if the goods do not have any value for the party who received them (9:306); the principle that restitution of the money paid is subject to the circumstance that the party who paid for a performance did not receive it or it was properly rejected (9:307); and the rule according to which the party who performed will be entitled to restitution, where possible, only in absence of payment or counter-performance by the other party - which are incompatible with the CISG.

As stated by the Commentary on PECL Article 9:307, "the Principles only give a compensatory remedy after termination, where one party has conferred a benefit on the other party but has not received the promised counter-performance in exchange. The benefit may consist of money paid (Article 9:307), other property which can be returned (Article 9:308) or some benefit which cannot be returned, e.g. services or property which has been used up (Article 9:309)."[28]

On the other hand, the CISG clearly requires restitution of whatever received as a condition to avoid the contract.[29] Such differences arise out of the different understanding regarding the retroactivity concept. While both the Sales Convention and the Principles of European Contract Law provide that avoidance of a contract does not have retroactive effect, since both expressly exclude that a terminated contract should be treated as never made, the CISG and the PECL differ on what survives after avoidance and on the regime to be applied to the performances made under the contract. These are major differences that must to be taken into consideration when comparing the CISG and PECL. It is beyond the scope of this commentary to explore which of the sets of rules might work better, although the difference between them is clear: 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.

FOOTNOTES

1. The author is an Associate in the New York office of Zini & Associates and an Associate of the Institute of International Commercial Law of the Pace University School of Law.

2. Note, however, that is "subject to any damages that may be due" [Article 81(1)]. Section IV of the Convention also includes the provisions of Article 82 (which deals with issues and effects of impossibility of restitution by buyer), Article 83 (preserving "all other remedies under the contract and the [CISG]" for a buyer who lost the right to avoid the contract) and Article 84 (obligating the seller to pay interest on the refund of price and the buyer to account for any benefits derived from the goods).

3. See Harry M. Flechtner, Remedies Under the New International Sales Convention: The Perspective from Article 2 of the U.C.C., 8 J.L. & Com. 53, 56 (1988), also available at <http://www.cisg.law.pace.edu/cisg/biblio/flecht.html>. For literature specifically relevant to the provisions of CISG Article 81 visit <http://www.cisg.law.pace.edu/cisg/text/mono81.html>.

4. See Commentary on the Draft Convention on Contracts for the International Sale of Goods, prepared by the Secretariat, U.N. Document A/CONF.97/5, Article 66 (draft counterpart of CISG Article 81), available at Pace Law School Institute of International Commercial Law, Guide to C.I.S.G. Article 81 <http://http://www.cisg.law.pace.edu/cisg/text/secomm/secomm-81.html> (visited October 27, 2001) [hereinafter Secretariat Commentary]. According to CISG Articles 51 and 73, partial avoidance is also possible: "Partial avoidance of the contract under Article 47 or 64 [draft counterpart of CISG Article 51 or 73] releases both parties from their obligations as to the part of the contract which has been avoided and give rises to restitution under paragraph (2) [CISG Article 81(2)] as to that part." Id.

5. The Convention only provides that these provisions will survive the avoidance of the contract, but it does not say that such clauses are valid. In fact, the validity of such provisions must be assessed according to the applicable law. See Denis Tallon, COMMENTARY ON THE INTERNATIONAL SALES LAW 601, 603 (Massimo C. Bianca & Michael Joachim Bonell eds.) 603 (1987); Jelena Vilus, INTERNATIONAL SALES OF GOODS: DUBROVNIK LECTURES 255, 256 (Petar Sarcevic & Paul Volken eds.) 1986, also available at <http://www.cisg.law.pace.edu/cisg/biblio/vilus.html> .

6. See Peter Schlechtriem, UNIFORM SALES LAW - THE UN CONVENTION ON CONTRACTS FOR THE INTERNATIONAL SALE OF GOODS 107 (1986), also available at <http://www.cisg.law.pace.edu/cisg/biblio/schlechtriem.html>, who states "[a]n avoidance only 'redirects' the main obligations of the contract; it does not void 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 an avoidance (Article 81 sentence 2)." See also Filanto S.p.A. v. Chilewich International Corp., U.S. District Court, Southern District of New York, April 14 1992, available at <http://cisgw3.law.pace.edu/cases/920414u1.html>.

7. The clauses mentioned regard provisions for settlement of disputes or governing the rights and obligations of the parties consequent upon the avoidance of the contract See Secretariat Commentary supra note 4. See also Hans G. Leser, Annotations 1-20 on Article 82, in COMMENTARY ON THE UN CONVENTION ON THE INTERNATIONAL SALE OF GOODS 638, 640 (Peter Schlechtriem ed.) (1998).

8. See, e.g., CISG Articles 81(2), 84 and 86(1).

9. See Secretariat Commentary, supra note 4.

10. Id.

11. As to the mechanism of a "concurrent restitution" in Article 81(2), see Flechtner supra note 3, at 80. See also Denis Tallon supra note 5, at 605 who states " [t]he rule governing the suspension of the performance (Article 71) are applicable by analogy. The buyer can refuse to restore the goods if the seller does not offer to restitute the price and vice-versa by virtue of the principle that a party may suspend the performance of his obligation if … it becomes apparent that the other party will not perform a substantial part of his obligations"; Hans G. Leser, supra note 7, at 641. As to the restitution/refund duty, see, e.g., HG Zürich, February 5, 1997, case HG 95 0347, available at <http://cisgw3.law.pace.edu/cases/970205s1.html>; Bezirksgericht der Saane (Zivilgericht), February 20, 1997, case T 171/95, available at <http://cisgw3.law.pace.edu/cases/970220s1.html>.

12. See Hans G. Leser, supra note 7, at 642.

13. See Secretariat Commentary, supra note 4. See also Harry M. Flechtner, supra note 3, at 67 and 81; Micheal A. Tessitore, "The U.N. Convention on International Sales and Seller's Ineffective Right of Reclamation Under the U.S. Bankruptcy Code", 35 Willamette L. Rev. 367 (1999); David Frisch, "Commercial Common Law, the United Nations Convention on the International Sale of Goods, and the Inertia of Habit", 74 Tul. L. Rev. 495; Denis Tallon supra note 5, at 606; Jelena Vilus supra note 5, at 256.

14. The relevant PECL provisions are to be found in Articles 9:305, 9:306, 9:307, 9:308 and 9:309.

15. "Termination" is the PECL's counterpart to the CISG term "Avoidance". See Comments and Notes to the PECL Articles, [hereinafter PECL Comments] also available at <http://www.cisg.law.pace.edu/cisg/text/peclcomp81.html> (visited October 27, 2001).

16. "[B]ut, subject to Articles 9:306 to 9:308, does not affect the rights an liabilities that have accrued up to the time of termination", PECL Article 9:305(1).

17. Id. at 106.

18. See Secretariat Commentary supra note 4. See M.C. Capponi, infra note 24, who states: "L'adozione del principio per cui la possibilità di operare la restituzione della prestazione ricevuta costituisce presupposto necessario della risolubilità del contratto è sembrata ispirarsi alla Saldotheorie tedesca." (The adoption of the rule that requires restitution as a necessary requirement for avoidance of a contract seems to be drawn from the German Saldotheorie). See also Giardina, in Nuove Leggi Civili Commentate 322 (1989).

19. See, e.g., OLG Koblenz, September 27, 1991, case 2 U 1899/89, available at <http://cisgw3.law.pace.edu/cases/910927g1.html>; OLG Frankfurt, September 17, 1991, case 5 U 164/90, available at <http://cisgw3.law.pace.edu/cases/910917g1.html>; OLG Düsseldorf, February 10, 1994, case 6 U 119/93, available at <http://cisgw3.law.pace.edu/cases/940210g2.html>.

20. PECL Article 9:306 states: "A party which terminates the contract may reject property previously received from the other party if its value to the first party has been fundamentally reduced as a result of the other party's non-performance." See PECL Comments, supra note 15.

21. See PECL Articles 9:307 (recovery of money paid); 9:308 (recovery of property which can be returned) and 9:309 (recovery of reasonable amount for the value of performance that cannot be returned).

22. See PECL Comments, supra note 15.

23. See PECL Article 4:116.

24. It is understood that the breaching party is liable not only for his own expenses in carrying out the restitution of the goods or money, but also for the expenses of the other party. Such expenses would constitute damages for which the party in breach is liable. However, it should be noted that Article 77 provides that the "party who relies on a breach must take such measures as are reasonable in the circumstances to mitigate the loss." If this party fails to take such measures, the breaching party may claim a reduction of the damages that may be recovered. See Peter Schlechtriem, supra note 6, at 106. See also M.C. Capponi, Comment on Article 81, in COMMENTARIO BREVE AL CODICE CIVILE 1443, 1531 (Guido Alpa & Paolo Zatti eds., 1999); Denis Tallon, supra note 5 at 605; Hans G. Leser, supra note 7.

25. The Convention, as well as the PECL, does not provide for rights acquired by third parties. See CISG Article 4. See M.C. Capponi, id., who explains that CISG "non tratta dei diritti acquistati dai terzi, tale disciplina [Article 81] ha riguardo soltanto ai rapporti istituiti tra le parti, e alle conseguenze della loro cancellazione" (The CISG is not concerned with rights acquired by third parties as it only concerns the rights and obligations arising between the parties and the results of the avoidance of the contract). See also Alpa & Bessone, Foro It. 1980, V, 252. Comment on PECL Article 9:308 expressly states that it "deals exclusively with the relationship between the parties and not with the effect which the contract may have on the property in goods sold or bartered. Whether a creditor of the buyer, the buyer's receivers in bankruptcy, or bona fide purchaser may oppose the restitution of goods sold is to be determined by the applicable national law." See PECL Comments, supra note 15.

26. See Peter Schlechtriem, supra note 6, at 108, who states that the "place of performance for transactions following avoidance of the contract should be determined according to the provisions governing the performance of contract obligation" (footnote omitted). See also Hans G.Leser, supra note 7.

27. Id. Professor Schlechtriem proposes the following solution: "the gap-filling rules of Article 7(2) should be preferred to a hasty retreat domestic law. Articles 82 and 84(2)(b) make it clear that the impossibility or inability to make restitution are matters governed by the Uniform Law for International Sales."

28. See PECL Comments, supra note 15.

29. See Commentary on the Draft Convention on Contracts for the International Sale of Goods, prepared by the Secretariat, Article 67 [draft counterpart of CISG Article 82] also available at Pace Law School Institute on International Commercial Law, at <http://www.cisg.law.pace.edu/cisg/text/secomm/secomm-82.html> (visited October 27, 2001). The Comment clarifies that "[t]he rule in paragraph (1) [82(1)] recognizes that the natural consequences of the avoidance of the contract or the delivery of substitute goods is the restitution of that which has been already delivered under the contract. Therefore, if the buyer cannot return the goods, or cannot return them substantially in the condition in which he received them, he loses his right to declare the contract avoided under Article 45 [draft counterpart of CISG Article 49] or to require the delivery of substitute goods under Article 42 [draft counterpart of CISG Article 46]."