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GUIDE TO ARTICLE 82

Comparison with Principles of European Contract Law (PECL)


Match-up of CISG Article 82 with PECL Article 9-309
CISG Article 82

(1) The buyer loses the right to declare the contract avoided or to require the seller to deliver substitute goods if it is impossible for him to make restitution of the goods substantially in the condition in which he received them.

(2) The preceding paragraph does not apply: (a) if the impossibility of making restitution of the goods or of making restitution of the goods substantially in the condition in which the buyer received

PECL Article 9:309 [Recovery for Performance that Cannot be Returned]
(complete and revised version 1998)

On termination of the contract a party which has rendered a performance which cannot be returned and for which it has not received payment or other counter-performance may recover a reasonable amount for the value of the performance to the other party.

them is not due to his act or omission; (b) if the goods or part of the goods have perished or deteriorated as a result of the examination provided for in article 38; or (c) if the goods or part of the goods have been sold in the normal course of business or have been consumed or transformed by the buyer in the course of normal use before he discovered or ought to have discovered the lack of conformity.
Definitions

For the PECL definition of "reasonable", go to PECL art. 1:302 [Reasonableness] and the comment and notes that accompany this provision. For the CISG counterpart to the PECL concept of "termination", see "avoidance".


Editorial remarks

Commentary on CISG Article 82 and PECL Article 9:309

Francesco G. Mazzotta [*]
February 2003

  1. The operation of CISG Article 82
  2. The operation of PECL Article 9:309
  3. Differences between the two regimes
  4. Conclusions

1. The operation of CISG Article 82

Article 82 of the Convention belongs to Section IV of the Convention, entitled Effects of avoidance.[1] According to the provisions contained in CISG Article 82,[2] the buyer loses the right to avoid the contract or to demand substitute goods when it is impossible[3] for him to make restitution of the goods in a condition substantially [4] similar to that in which he received them.[5] However, the buyer retains the right to avoid the contract if: the damages to the goods are not due to the buyer's act or omission [Article 82(2)(a)]; the deterioration or consumption of the goods results from the examination as required by CISG Article 38 [see Article 82(2)(b)]; or 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 [(Article 82(2)(c)].

The general rule of the Convention, i.e., that the contract may be avoided only if the goods can be returned substantially in the condition in which the buyer received them, is stated in Article 82(1).[6] However, Article 82(2), provides three considerable exceptions to that rule. Paragraph 2 in Article 82, therefore, deals with the allocation of the risk of loss of the goods before avoidance.[7]

In particular, according to Article 82(2)(a), the seller, whose breach determined the exercise of the buyer's right to avoid the contract, is responsible for any circumstances that lead to the loss of the goods, unless these circumstances are due to the buyer's act or omission.[8]

Under Article 82(2)(b), if the contract is avoided due to the seller's breach, the seller bears the risk and consequences of the examination made according the relevant provisions contained in CISG Article 38.[9]

Under Article 82(2)(c), the seller bears the risk of the resale, consumption or transformation of defective goods.[10] However, in this case, the seller bears the risk only until the time the buyer discovered or should have discovered the defect. In this case, the provisions of Article 84(2) also apply. There are no express rules as to the loss and impairment of the goods after the avoidance. However, it is understood that once the buyer is aware or should be aware of the lack of conformity he is also responsible for the goods that he received.[11]

While the construction of Article 82(2)(b)[12] and 82(2)(c)[13] is rather straightforward, some explanation is required as to Article 82(2)(a). It is generally understood that under Article 82(2)(a), the buyer is responsible for damages caused by acts or omissions by his personnel and by third persons, if he made it possible, by means of acts or omissions, for them to damage the goods.[14] In particular, as to damages provoked by third persons, it is deemed that "that the buyer must not merely have provided the opportunity for third persons or force majeure to affect the goods, but also have increased this chance by his act or omission".[15]

Finally, it must be noted that the buyer will retain other remedies even he loses his right to avoid the contract.[16]

2. The operation of PECL Article 9:309

PECL Article 9:309, entitled Recovery for Performance that Cannot be Returned, belongs to the Principles of European Contract Law, in Chapter 9, entitled "Particular Remedies for Non-Performance", under Section 3, entitled Termination of the Contract.[17]

According to PECL Article 9:309, recovery for performance that cannot be returned, is subject to the following requirements: (i) that there is a termination of the contract; (ii) that a party has rendered performance and has not received payment or counter-performance for it; and (iii) that performance cannot be returned by the other party.

If those requirements are met, the entitled party may recover a reasonable amount for the value of the performance rendered to the other party. In calculating this amount, the PECL Comment on Article 9:309 provides that, upon termination of a contract, the party that received the benefit, which cannot be returned and was not paid for, "should not be required to pay the cost to the other of having provided it, if the net to it is less, since it is only enriched by the latter amount,"[18] whereas, if the net benefit to the recipient is greater than the cost of providing it, the recipient "should not be liable under this article for more than an appropriate part of the contract price."[19]

3. Differences between the two regimes

The two sets of rules contained in the respective regimes of the Sales Convention and the Principles of European Contract Law are quite different. CISG Article 82 deals exclusively with whether avoidance is still possible even when goods cannot be returned. As a general rule in the Convention, avoidance of the contract is not possible, unless one of the exceptions listed in CISG Article 82(2) occurs. As already mentioned earlier, avoidance of a contract is available regardless of whether the party which rendered the goods received the performance or other counter-performance.

On the other hand, as a general rule the PECL "only give a restitutionary 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 (9:309)."[20] In particular, PECL Article 9:309 provides that, when restitution cannot be made, the party who delivered the goods may recover a reasonable amount for the value of the goods to the other party if it has not received payment for them or counter-performance. Therefore, PECL Article 9:309 addresses the issue of restitution, but only to set the rules on how to calculate the amount of recovery.

4. Conclusions

Pursuant to CISG, if the buyer cannot make restitution for what he received, the contract cannot be avoided unless one of the exceptions set by CISG Article 82(2) is met. The PECL do not require any restitution as a condition for avoidance. Therefore, while under the CISG restitution is an obligatory step toward the avoidance of a contract, under the PECL restitution is only a possible consequence of the avoidance of a contract. In fact, a restitution remedy arises only where there was a performance for which payment was not made. Thus, PECL Article 9:309 cannot be used as an aid to construe CISG Article 82 because the two sets of rules adopt different approaches to the issue of avoidance. However, although PECL Article 9:309 cannot be useful for that purpose, it is arguable that limiting the recovery where the party did not get what it bargained for may be a good way to reduce possible disputes between parties over issues related to restitution and/or the reasonable amount of the value of performance.[21]

[See also commentary by the author on this subject in: John Felemegas ed., An International Approach to the Interpretation of the United Nations Convention on Contracts for the International Sale of Goods (1980) as Uniform Sales Law, Cambridge University Press (2006) 514-518.]


FOOTNOTES

* 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.

1. In that Section of the CISG, the basic rule on contractual avoidance is contained in CISG Article 81, which provides that an avoidance of the contract allows parties to terminate their respective obligations arising out of the contract. 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).

2. In general, among others, for monographs and anthologies that should be considered in construing the meaning and operation of CISG Article 82, visit < http://www.cisg.law.pace.edu/cisg/text/mono82.html>.

3. It has been suggested that "[t]he possibility for the buyer of making restitution must be apprised objectively, according to the understanding of the reasonable person referred to in Article 8(2)" (footnote omitted), see Hans G. Leser, Annotations 1-29 on Article 82, in COMMENTARY ON THE UN CONVENTION ON THE INTERNATIONAL SALE OF GOODS 632, 645 (Peter Schlechtriem, ed.) (1998).

4. 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], Pace Law School Institute on International Commercial Law, Guide to CISG Article 82, at <http://www.cisg.law.pace.edu/cisg/text/secomm/secomm-82.html> (visited October 27, 2001): "It is not necessary that the goods be in the identical condition in which they were received; they need be only in 'substantially' the same condition. Although the term is not defined, it indicates that the change in condition of the goods must be of sufficient importance that it would no longer be proper to require the seller to retake the goods as the equivalent of that which he had delivered to the buyer even though the seller had been in fundamental breach of the contract." See also Denis Tallon, COMMENTARY ON THE INTERNATIONAL SALES LAW 601, 608 (Massimo C. Bianca & Michael Joachim Bonell eds.) (1987); Hans G. Leser, supra note 3, at 646.

5. See M.C. Capponi, Comment on Article 81, in COMMENTARIO BREVE AL CODICE CIVILE 1443, 1531(Guido Alpa & Paolo Zatti eds., 1999), who states as follows: "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). For relevant jurisprudence see, e.g., LG Ellwangen, 21 August 1995, infra note 10; BGH, 25 June 1997, infra note.

6. See, e.g., Germany, 10 February 1994 Appellate Court Düsseldorf [6 U 119/93], CLOUT Case No. 82, also at <http://cisgw3.law.pace.edu/cases/940210g2.html >, where it was held that the buyer had lost the right to declare the contract avoided on the ground that he had sold further the goods bought, thus having made restitution of the goods impossible (article 82(1) CISG).

7. Hans G. Leser, supra note 3, at 644.

8. See, e.g., Germany, 27 September 1991 Appellate Court Koblenz, CLOUT Case No. 316, also available at <http://cisgw3.law.pace.edu/cases/910927g1.html>. In this case, the change in the condition of the goods (marble slabs) had been caused by the buyer's own act and had not been the result of the examination of the goods under article 38 CISG; rather it had arisen after the discovery of lack of conformity (the buyer had started to work on and with the marble plates after discovery of lack of conformity of the goods). Thus, the Court held that the buyer had lost its right to declare the contract avoided (article 49 CISG) pursuant to article 82(1) CISG. Furthermore, the buyer had not met the requirements of article 82(2) CISG in order to exclude the application of article 82(1).

For a mention of this case in the context of a an excellent discussion of the right of avoidance under the CISG, see Anna Kazimierska, "The Remedy of Avoidance under the Vienna Convention on the International Sale of Goods", Pace Review of the Convention on Contracts for the International Sale of Goods, Kluwer (1999-2000) 79-192, also at <http://www.cisg.law.pace.edu/cisg/biblio/kazimierska.html>.

9. See, e.g., Germany, 25 June 1997 Supreme Court, CLOUT Case No. 235, also available at <http://cisgw3.law.pace.edu/cases/970625g2.html>, where the impossibility of restoring the goods to their original condition did not disqualify the buyer from avoiding the contract under article 82(1) CISG. Both parties were aware that the goods had to be processed before any non-conformity could be discovered. Moreover, the buyer was entitled to declare the contract avoided if upon examination it was discovered that the goods had perished or deteriorated [(CISG article 82(2)(b)].

10. See, e.g., Germany, 21 August 1995 District Court Ellwangen, Case No. 1 KfH O 32/95, also available at <http://cisgw3.law.pace.edu/cases/950821g2.html>, where the Court discussed the operation of the rule in Article 82: "According to Art. 82(1) CISG, the buyer loses the right to declare the contract avoided if it is impossible for her to make restitution of the goods substantially in the condition in which she received them. This rule does not apply if the goods or part of the goods have perished or deteriorated as a result of the examination provided in Article 38 - or if the goods or part of the goods have been sold in the normal course of business or transformed by the buyer in the course of normal use before she discovered or ought to have discovered the lack of conformity (Art. 82(2)(b) and (c) CISG). These requirements are met in the present case. [] In the period between the delivery and the point in time when [buyer] obtained knowledge of the maintained non-conformity, the [buyer] packed the delivered goods in small amounts and delivered them to various warehouses (cf. [buyer's] notice to [seller's representative] in the letter of 16 January 1995). This conduct represents a normal course of business in the meaning of Art. 82(2) CISG."

11. H.G. Leser, supra note 3, at 647.

12. See, e.g., LG Ellwangen, 21 August 1995, supra note 10.

13. It has been noted that such an exception sounds surprising: in fact, the buyer retains the right to declare the contract avoided and claim for compensation even though the goods cannot be returned. In these cases the reason why buyer elects to avoid a contract rather than to recover damages should lie in the fact that, through Article 81, the buyer is enabled to obtain damages without proving them. See also Denis Tallon, supra note 4, at 609; John O. Honnold, UNIFORM LAW for INTERNATIONAL SALES UNDER THE 1980 INTERNATIONAL SALES LAW 502, 512 (3rd ed. 1999).

14. See Peter Schlechtriem, UNIFORM SALES LAW - THE UN CONVENTION ON CONTRACTS FOR THE INTERNATIONAL SALE OF GOODS 106 (1986) also available at <http://www.cisg.law.pace.edu/cisg/biblio/schlechtriem.html> .

15. Id. See also Denis Tallon, supra note 4; Hans G. Leser, supra note 3, at 648. It has been suggested that the standard to be used to establish whether an act or omission is wrongful should be based on the Convention rather than domestic tort law, see John O. Honnold, supra note 9, at 511.

16. See CISG Article 83, paragraph 2. See also Hans G. Leser, supra note 3, at 646.

17. The relevant provisions in the PECL that deal with the effects of termination are to be found in Articles 9:305 (effects of termination in general); 9:306 (property reduced in value); 9:307 (recovery of money paid); 9:308 (recovery of property) and 9:309 (recovery of performance that cannot be returned).

18. See Comment on PECL Article 9:309 available at Pace Law School Institute of International Commercial Law, Guide to CISG Article 82 <http://www.cisg.law.pace.edu/cisg/text/peclcomp82.html> (visited October 27, 2001).

19. Id.

20. See Comment PECL Article 9:307 available at Pace Law School Institute of International Commercial Law, Guide to CISG Article 81, at <http://www.cisg.law.pace.edu/cisg/text/peclcomp81.html> (visited October 27, 2001).

21. See PECL Article 9:309. For the definition of the term reasonableness recited in the Principles of European Contract Law and further references to the concept of reasonableness in Continental and Common Law domestic rules, doctrine and jurisprudence, go to PECL Article 1:302 and the Comment and Notes prepared for this provision, available at <http://www.cisg.law.pace.edu/cisg/text/reason.html#def>.

PECL Article 1:302, states: "Under these Principles reasonableness is to be judged by what persons acting in good faith and in the same situation as the parties would consider to be reasonable. In particular, in assessing what is reasonable 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."

Reasonableness is one of the Convention's most recognised general principles; it is specifically mentioned in numerous provisions of the CISG and clearly alluded to elsewhere in the Uniform Sales Law. As a general principle of the Convention reasonableness is to be read into each Article of the CISG whether or not specifically mentioned in the CISG. For overview comments on reasonableness as a general principle of the CISG and further references and confirming citations (establishing an arguable correlation between the PECL's definition of reasonableness and the evident same meaning of this term in specific CISG provisions and as a general principle of the CISG), see Albert H. Kritzer, Editorial Remarks, available at <http://www.cisg.law.pace.edu/cisg/text/reason.html#over>.


Comment and notes on PECL 9:309

Like the commentary to the UNIDROIT Principles and the U.S. Restatements, the comments to the PECL help explain the text. The PECL notes identify civil law and common law antecedents and related domestic provisions. With the permission of the Commission on European Contract Law, these comments and notes are presented below. The source of this material is Ole Lando & Hugh Beale eds., Principles of European Contract Law: Parts I and II, Kluwer Law International (2000) 425-429.


COMMENT AND NOTES: PECL Article 9:309: Recovery for Performance that Cannot be Returned

On termination of the contract a party which has rendered a performance which cannot be returned and for which it has not received payment or other counter-performance may recover a reasonable amount for the value of the performance to the other party.

Comment

A. General

It frequently happens that after a contract has been terminated one party is left with a benefit which cannot be returned - either because the benefit is the result of work which cannot be returned, or because property which has been transferred has been used up or destroyed - but for which it has not paid. The other party may have a claim for the price, but this will depend upon the agreed payment terms and the price may not yet be payable. It may have a claim for damages, but the party which has received the benefit may be the aggrieved party, or, though it is the one which has failed to perform, it may not be liable for damages because its non-performance was excused under Article 8:108. It would be unjust to allow it to retain this benefit without paying for it, and Article 9:309 requires it to pay.

Illustration 1: A contract to build a garage onto a house provides that the builder is to be paid only upon completion of the work. After doing two-thirds of the work, the builder becomes insolvent and stops work. The employer gets another builder to finish the garage. The amount the employer has to pay the second builder plus compensation for the employer's inconvenience is less than the original contract price and the employer receives a net benefit. Under Article 9:309 it must pay the first builder a reasonable sum for the work done: in this case the reasonable sum would be the net benefit the employer received from the first builder's work.

Illustration 2: A farmer employs a contractor to lay drain pipes in her field for a lump sum of 10,000. The contractor lays some of the pipes which drain part of the field. Then exceptionally bad weather causes the remaining parts of the field to become waterlogged and, because the contractor's machinery will churn up the field and damage it, the farmer tells the contractor to stop work temporarily. After serving a notice under Article 8:106, the contractor terminates. Although the farmer is not liable in damages because her non-performance was excused under Article 8:108, the contractor may recover for the pipes already laid under Article 9:309.

B. Calculating the benefit

The party which has received the benefit should not be required to pay the cost to the other of having provided it, if the net benefit to it is less, since it is only enriched by the latter amount.[page 425]

Illustration 3: [A]s [in] Illustration 2, but the contractor has not yet installed enough pipe to carry off a significant amount of water and it has used its own special type of pipe so that the drainage system cannot be completed by another contractor. The net benefit to the farmer is nil and she should not have to pay anything under Article 9:309.

Occasionally it may happen that the net benefit to the recipient is greater than the cost of providing it. Then the recipient should not be liable under this article for more than an appropriate part of the contract price.

Illustration 4: The holder of an oil concession in a foreign country employs an exploration company to make a geological survey of the concession for 250,000. After the exploration company has worked for only a short time it is prevented from completing the survey by the government of the foreign country nationalising the concession, but in that time it has found oil and because of this the owner is paid millions in compensation by the government. The exploration company should recover only a proportionate part of the exploration fee, not a proportion of the compensation.

NOTES [Match-ups with Continental and Common Law domestic rules, doctrine and jurisprudence]

These notes covers Articles 9:305 - 9:309, which together govern the effects of termination.

The various legal systems exhibit great differences in concepts and terminology in this area. The differences in the practical results obtained are not so great but are still significant.

The most apparent difference is between systems such as the FRENCH which treats résolution as essentially retrospective and those such as the COMMON LAW which sees termination (or "rescission for breach") as essentially prospective (see Treitel, Remedies 282-283). However, as the differences are sometimes more apparent than real it may be helpful to consider the effect of "termination" in the various systems in a number of factual situations:

1. Effect on claims by either party which arose before the date of termination

In "prospective" systems such as the COMMON LAW these claims are largely unproblematic: they are not affected by subsequent termination, except that if money due but as yet unpaid would in any event have to be repaid after termination, it will for obvious reasons cease to be payable (see Treitel, Contract 911). It seems likely that other systems would reach the same result even if in theory termination was retrospective; for instance, in FRENCH law for a contract à exécution successive only résiliation for the future might be ordered (see note 4 below).

In GERMAN law it used to be said that Rücktritt had a retrospective effect but this view is no longer accepted. Contractual claims for damages which arose before termination are now treated as surviving termination which is said only to end the primary duty to perform and the right to damages for loss of expectation (see, Larenz I 404; Treitel, Remedies 282 and refs. there).

In DUTCH law termination does not have a retroactive effect: BW art. 6:269. In SPANISH law some writers favour prospective termination (Diez-Picazo, II, 724), others maintain the traditional, retrospective approach (Lacruz-Delgado, II, 1, 26.206 and Albadejo II, 1, 24.45) The Supreme Court, 28 June 1977, has adopted prospective termination when past performances were unaffected. See also Unidroit art 7.3.1

2. Damages for the non-performance itself

The conceptual difficulties felt in some systems in awarding full damages for breach of a contract which has been terminated are discussed above, see note to Article 8:102. Most systems now allow full damages despite termination.

3. Effect on contract clauses intended to apply even after termination

All systems now accept that termination will not affect the application of clauses such as arbitration [page 426] clauses which were intended to apply despite termination. Eg COMMON LAW: Heyman v. Darwins [1942] A.C. 356, H.L.; FINLAND: Aurejärvi 106; FRANCE: clause compromissoire (NCPC art. 1466) and penalty clause (Malaurie & Aynès, Obligations no. 543); GERMANY, see Stein-Jonas (-Schlosser) 1025 No. 00; GREEK law, see Kerameus 171-173, with further refs, and Papanicolaou in Georgiadis & Stathopoulos II art. 389 no. 14 (1979); ITALIAN law: no specific text but see Satta 852; Cass. 5 Aug.1968 n. 2803, in Foro It., 1969, I c.445 and Cass. 27 May 1981 n. 3474, in Foro It., 1982, I c.199; NETHERLANDS BW art. 6:271; PORTUGUESE CC art. 434(1); SPANISH Arbitration Act 1988 (see Bercovitz, Arbitraje, art. 1, 17 ff. and Unidroit art. 7.3.5(3)..

4. Effect on previously performed parts of a contract for successive performances

All systems now accept that where a contract for performance in successive parts or instalments is terminated after some parts of it have been performed, it may be terminated for the future without the need to undo the completed parts (see Treitel, Remedies 283). In FRENCH, BELGIAN and LUXEMBOURG law, résolution is only retroactive when the contract is to be performed at one time: for a contract à exécution successive the contract is treated as disappearing only from the date at which the debtor ceased performing or was given notice of termination by the aggrieved party. In this context the process is often termed résiliation (Malaurie & Aynès, Obligations nos. 743 and 744). In ITALIAN law termination is in principle retrospective but for contracts involving continuous or periodic performance see CC art. 1458. In PORTUGUESE law termination does not affect performances already rendered unless they are affected by the non-performance, CC art. 434(2). In SPANISH law termination is not necessarily retroactive and does not affect past performance if this is not rendered useless by the non-performance, see note 1 above.

5. Property already received and reduced in value by the subsequent non-performance

Most systems also recognise the rule embodied in Article 9:306 that the aggrieved party may reject property which has already been delivered to him, and which was itself in conformity to the contract, if the subsequent non-performance has rendered it of no use or interest to him. For instance, in GERMAN law, if the performances are inter-related either party can demand return of the earlier-delivered part. In ENGLISH and IRISH law, where a part of the goods to be delivered are defective, the buyer may reject the whole (U.K. Sale of Goods Act 1979, s. 30; for Ireland, see Forde 1.192), and this will apply even if the goods are to be delivered in instalments provided that the instalments are similarly inter-connected and thus the contract is not severable (see Gill & Dufus SA v. Berger & Co Inc [1983] 1 Lloyd's Rep. 622, reversed without reference to this point [1984] A.C. 382, H.L.; Atiyah 452). The position with severable contracts is less clear but probably there is a right to reject instalments already received if they are rendered useless by the later breach (Atiyah 455; Forde 1.198). The DANISH Sale of Goods Act, 46, and the FINNISH and SWEDISH Sale of Goods Acts 43 and 44 (see Ramberg, Köplagen 462), provide that a buyer who has received a defective instalment can reject instalments received earlier if the instalments are so inter-connected that it would be detrimental to the buyer to have to keep the earlier ones. In ITALIAN law there is no general provision but under CC art. 1672 when a construction contract is terminated the purchaser has only to pay for work done so far as it is of value to him.

6. Inability to restore property may be a bar to termination

Under some systems a party who has received property may not be permitted to terminate either the contract as a whole, where it was for a single performance, or, where it was by instalments, in relation to the part already received, if he cannot return what he has received, for instance because he has consumed or resold it. Generally this rule applies where the inability to restore is attributable to the acts of the party who received the goods: DANISH Sale of Goods Act, 57 and 58; FINNISH and SWEDISH Sale of Goods Acts, 66 (see Ramberg, Köplagen 637 f.); BELGIAN case law, e.g. C.A. Gent 22 Oct. 1970, R.W. 1970-71, 893; C.A. Liège 10 Nov. 1982, J.L. 1983, 153; GERMAN law, BGB 351; GREEK CC arts. 391-394. It does not apply when the defect constitutes a non-performance: FRENCH CC art. 1647(1); GERMAN law, BGB 351 and Enneccerus & Lehmann 169, 445-446; ENGLISH law, Rowland v. Divall [1923] 2 K.B. 500, C.A. When the inability is due to accidental destruction, solutions differ: see the discussion in Treitel, Remedies 285.

With services, in contrast, the usual rule seems to be that the fact that there is nothing to be returned does not prevent termination (ibid.). Systems differ as to whether the aggrieved party must make restitution of the value of what he received (see below).

The Principles, like AUSTRIAN and FRENCH law (see Malaurie & Aynès 762) and the DUTCH BW, do not follow this distinction. In neither case is inability to restore a bar to termination; the aggrieved party will however be expected to pay for benefits received, see below. In this the Principles differ from CISG art. 82.

7. Action for price may be the only remedy

In some systems, e.g. the COMMON LAW, there is a rule that if the claiming party has completed its [page 427] performance, or a severable part of it, the only remedy is an action for the agreed price. Thus a seller of goods who has delivered them to the buyer but has not been paid cannot terminate the contract and recover the goods but can only bring an action for the price. The only exception is if the property in the goods has not passed to the buyer, for instance because the contract provided that property would not pass until the goods were paid for (see Aluminium Industrie v. Romalpa Aluminium [1976] 1 W.L.R. 676, C.A.). DANISH Sale of Goods Act 28(2), FINNISH and SWEDISH Sale of Goods Acts, 54(4) and GREEK CC art. 531 provide the same rule and so does GERMAN BGB 454 where the seller has allowed time for payment of the purchase price. The AUSTRIAN Commercial Code is to the same effect, 4. EVHGB Art. 8 No. 21.

The Principles do not adopt this rule, but they do not deal with the rights of creditors and other third parties to oppose restoration of property delivered, see below.

8. Effect of termination on performances already received

Assuming that the right to terminate exists, what effect will termination have on performances made already? Most systems require that each party returns benefits received from the other or makes restitution of their value. However the situation is complex and the remainder of this note is devoted to it.

The position is simpler under systems which regard termination as retroactive, for then restitution of benefits appears as a natural concomitant of termination: eg FRENCH, BELGIAN and LUXEMBOURG CC arts. 1379 and 1380 read with art. 1184; GREEK CC art. 389(2); AP 661/1974, NoB 23 (1975) 275, 276 I; AP 696/1982, NoB 31 (1983) 659-660; PORTUGUESE CC arts. 434(1) and 289; SPANISH law, see note 1 above.

Other systems under which termination is not retrospective nonetheless recognise a general duty to make restitution: DUTCH BW art. 6:271. For SCOTTISH law, under which there may be restitution of unreciprocated performances, see MacQueen 1996 Acta Juridica 176. In GERMAN law it is now held that Rücktritt does not retrospectively do away with the contract but it creates general obligations of restitution, BGB 346. In AUSTRIA ABGB 921 provides that as a result of a notice of termination because of late performance or non-performance, any consideration previously given must be returned or refunded in such a manner that neither party profits from any losses the other may suffer.

In contrast, the COMMON LAW allows only partial restitutionary remedies.

It may be helpful to consider each of the three situations covered by Articles 9:307 to 9:309 in turn.

(a) Money paid

If money has been paid before the date of termination, and assuming that it was not paid as a deposit or on terms that it would be forfeited if the contract was not performed, systems in which termination is seen as retroactive will normally allow the money to be recovered. It does not matter whether the party seeking to recover the money is the aggrieved party or the non-performing party: FRENCH law, Malaurie & Aynès, Obligations no.376 and FRENCH and BELGIAN CC arts. 1376 - 1377; ITALIAN CC arts. 1458, 2033 and, for sales, arts. 1479(2) and 1493(1). For GERMAN, GREEK, PORTUGUESE and SPANISH law see above; DANISH law see Sale of Goods Act 57 and Ussing, Køb 164-165; FINNISH and SWEDISH law see Sale of Goods Acts, 64 and Ramberg, Köplagen 614 ff.

The COMMON LAW is more restrictive. Except in cases of frustration (now governed by Law Reform (Frustrated Contracts) Act 1943, s. 1(2)), it allows recovery by the aggrieved party only where there has been "a total failure of consideration" and by the non-performing party only where the party who had received the money can be restored to his original position (see Treitel, Remedies 284; Treitel, Contract 822-824, 906-907, and 911.

ULIS art. 78(2) and CISG art. 81(2) take the same broad approach to restitution as the Principles.

(b) Property transferred

If the property remains in the possession of the party to whom it was transferred, and is not claimed by a third party, the "retroactive" systems allow the transferor to recover it: e.g. FRENCH law, Malaurie & Aynès, Obligations no. 376 and FRENCH and BELGIAN CC art. 1379; ITALIAN CC arts. 1458(2) and 1493(2) (sales); FINNISH and SWEDISH Sale of Goods Act 64(2).

Systems differ where a third party such as a creditor of the recipient claims the property. In GERMAN law the right to the return of the property is only a "contractual" one and third parties' interests will not be affected. See also AUSTRIAN ABGB 921, second sentence; SPANISH law (Albaladejo, II, 1, 20.4.U: Supreme Court 1 October 1986); GREEK CC art. 393. The result is the opposite in FRENCH law, where the effect is in principle (but subject to important restrictions) "proprietary" (see Malaurie et Aynès, Obligations, No. 143; Nicholas, 245-246; Treitel, Remedies 282). The Principles follow ULIS and CISG in leaving the question of whether the right to restitution enables the claiming party actually to recover the goods in the face of competing claims by third parties to the law applicable to the issue.[page 428]

(c) Restitution for services

"Retroactive" systems again have little difficulty in allowing either party upon termination to recover the value of services rendered under the principle of unjust enrichment. On FRENCH law, see Ghestin, Jamin & Billiau 482 ff.; BELGIAN law, Cass. 27 March 1972, Arr. Cass. 707; ITALIAN law, where there is no provision as to contracts in general (but see CC art. 1672 and Cass. 5 Aug. 1988 no. 4849, in Mass. Foro It., 1988; Cass. 23 June 1982 no. 3827, in Mass. Foro It., 1982; Cass. 13.1.1972 n.106 in Rassegna Avvocatura Stato, part I, 1972, 161); PORTUGUESE CC arts. 434(1) and, when the performance cannot be returned, 289(1); for SCOTTISH law, see Graham v. United Turkey Red Co. 1922 S.C. 583.

For this case GERMAN law has a special rule that where the counter-performance has been fixed in money this amount shall be paid: BGB 346 sent. 2 (see further Treitel, Remedies 284). GREEK law reaches the same result: Gasis in Erm.AK II/1, art.389 no. 11 (1949). In DANISH law the party who has rendered a performance which cannot be returned is not entitled to its value or the enrichment which the other party has received if he can claim the counter-performance or damages, Ussing, Alm. Del. 98. Under DUTCH BW art. 6:272 the party who has rendered performance is entitled to its value.

In SCOTLAND if a contract is frustrated the obligations of the parties under the contract cease but there may be an equitable adjustment of the rights of the parties under the principles of unjust enrichment (Cantiere San Rocco v. Clyde Shipbuilding and Engineering Co 1923 S.C. (H.L.) 105).

The COMMON LAW provides, as already mentioned, that if the claiming party has completed its performance, or a severable part of it, the only remedy is an action for the agreed price. In the situation of partial performance it distinguishes between cases of frustration (impossibility) and cases of breach. Where the contract has been frustrated, the court has discretion under Law Reform (Frustrated Contracts) Act 1943, s. 1(3) to award what are basically restitutionary awards (see the judgment of Robert Goff J in BP Exploration Co (Libya) Ltd v. Hunt [1979] 1 W.L.R. 783, though see also Lawton LJ in [1981] 1 W.L.R. 232, C.A.). Where the contract is terminated for breach, the aggrieved party may recover a reasonable sum; the defaulting party may recover nothing (see Treitel, Contract 696-699, 592).

Again the Principles follow ULIS, CISG and Unidroit art. 7.3.6(1) in taking a broad flexible approach.

Thus the Principles are broadly in accordance with those systems which take a liberal approach to restitution after termination and thus enable the court or arbitrator to order full restitution of benefits received. This normally achieves a just settlement on the facts.[page 429]

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Pace Law School Institute of International Commercial Law - Last updated January 8, 2007
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