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UNIDROIT Principles of International Commercial Contracts with Official Commentary [1994]

FOREWORD

INTRODUCTION

THE UNIDROIT GOVERNING COUNCIL [in 1994]

MEMBERS OF THE WORKING GROUP [1994]

OTHER PARTICIPANTS IN THE PROJECT

PREAMBLE

PREAMBLE - (Purpose of the Principles)

Preamble - (Purpose of the Principles)
COMMENT
1. "International" contracts
2. "Commercial" contracts
3. The Principles and domestic contracts between private persons
4. The Principles as rules of law governing the contract
a. Express choice by the parties
b. The Principles applied as lex mercatoria
5. The Principles as a substitute for the domestic law otherwise applicable
6. The Principles as a means of interpreting and supplementing existing international instruments
7. The Principles as a model for national and international legislators

CHAPTER 1 - GENERAL PROVISIONS

ARTICLE 1.1 - (Freedom of contract)

Article 1.1 - (Freedom of contract)
COMMENT
1. Freedom of contract as a basic principle in the context of international trade
2. Economic sectors where there is no competition
3. Limitation of party autonomy by mandatory rules

ARTICLE 1.2 - (No form required)

Article 1.2 - (No form required)
COMMENT
1. Contracts as a rule not subject to formal requirements
2. Possible exceptions under the applicable law
3. Form requirements agreed by the parties

ARTICLE 1.3 - (Binding character of contract)

Article 1.3 - (Binding character of contract)
COMMENT
1. The principle pacta sunt servanda
2. Exceptions
3. Effects on third persons not dealt with

ARTICLE 1.4 - (Mandatory rules)

Article 1.4 - (Mandatory rules)
COMMENT
1. Mandatory rules prevail
2. Mandatory rules applicable in the event of mere incorporation of the Principles in the contract
3. Mandatory rules applicable if the Principles are the law governing the contract
4. Recourse to the rules of private international law relevant in each individual case

ARTICLE 1.5 - (Exclusion or modification by the parties)

Article 1.5 - (Exclusion or modification by the parties)
COMMENT
1. The non-mandatory character of the Principles
2. Exclusion or modification may be express or implied
3. Mandatory provisions to be found in the Principles

ARTICLE 1.6 - (Interpretation and supplementation of the Principles)

Article 1.6 - (Interpretation and supplementation of the Principles)
COMMENT
1. Interpretation of the Principles as opposed to interpretation of the contract
2. Regard to the international character of the Principles
3. Purposes of the Principles
4. Supplementation of the Principles

ARTICLE 1.7 - (Good faith and fair dealing)

Article 1.7 - (Good faith and fair dealing)
COMMENT
1. "Good faith and fair dealing" as a fundamental idea underlying the Principles
Illustrations
2. "Good faith and fair dealing in international trade"
Illustrations
3. The mandatory nature of the principle of good faith and fair dealing

ARTICLE 1.8 - (Usages and practices)

Article 1.8 - (Usages and practices)
COMMENT
1. Practices and usages in the context of the Principles
2. Practices established between the parties
Illustration
3. Agreed usages
4. Other applicable usages
Illustration
Illustration
5. Application of usage unreasonable
Illustration
6. Usages prevail over the Principles

ARTICLE 1.9 - (Notice)

Article 1.9 - (Notices)
COMMENT
1. Form of notice
2. Receipt principle
3. Dispatch principle to be expressly stipulated
4. "Reaches"

ARTICLE 1.10 - (Definitions)

Article 1.10 - (Definitions)
COMMENT
1. Courts and arbitral tribunals
2. Party with more than one place of business
3. "Obligor" - "obligee"
4. "Writing"

CHAPTER 2 - FORMATION

ARTICLE 2.1 - (Manner of formation)

Article 2.1 - (Manner of formation)
COMMENT
1. Offer and acceptance
2. Conduct sufficient to show agreement
Illustration

ARTICLE 2.2 - (Definition of offer)

Article 2.2 - (Definition of offer)
COMMENT
1. Definiteness of an offer
Illustration
2. Intention to be bound
Illustrations

ARTICLE 2.3 - (Withdrawal of offer)

Article 2.3 - (Withdrawal of offer)
COMMENT
1. When an offer becomes effective
2. Withdrawal of an offer

ARTICLE 2.4 - (Revocation of offer)

Article 2.4 - (Revocation of offer)
COMMENT
1. Offers as a rule revocable
2. Irrevocable offers
a. Indication of irrevocability contained in the offer
Illustrations
b. Reliance by offeree on irrevocability of offer
Illustrations

ARTICLE 2.5 - (Rejection of offer)

Article 2.5 - (Rejection of offer)
COMMENT
1. Rejection may be express or implied
Illustration
2. Rejection only one cause of termination of an offer

ARTICLE 2.6 - (Mode of acceptance)

Article 2.6 - (Mode of acceptance)
COMMENT
1. Indication of assent to an offer
2. Acceptance by conduct
3. Silence or inactivity
Illustrations
4. When acceptance becomes effective
Illustrations
ARTICLE 2.7 - (Time of acceptance)
COMMENT

ARTICLE 2.8 - (Acceptance within a fixed period of time)

Article 2.8 - (Accpeptance within a fixed period of time)
COMMENT

ARTICLE 2.9 - (Late acceptance. Delay in transmission)

Article 2.9 - (Late acceptance. Delay in transmission)
COMMENT
1. Late acceptance normally ineffective
2. Offeror may nevertheless "accept" late acceptance
Illustration
3. Acceptance late because of delay in transmission
Illustration

ARTICLE 2.10 - (Withdrawal of acceptance)

Article 2.10 - (Withdrawal of acceptance)
COMMENT

ARTICLE 2.11 - (Modified acceptance)

Article 2.11 - (Modified acceptance)
COMMENT
1. Acceptance with modifications normally to be considered a counter-offer
2. Modifications which do not alter the nature of the acceptance
Illustrations

ARTICLE 2.12 - (Writings in confirmation)

Article 2.12 - (Writings in confirmation)
COMMENT
1. "Writings in confirmation"
Illustrations
2. Writing in confirmation to be sent within a reasonable time after conclusion of the contract
3. Invoices

ARTICLE 2.13 - (Conclusion of contract dependent on agreement on specific matters or in a specific form)

Article 2.13 - (Conclusion of contract dependent on agreement on specific matters or in a specific form)
COMMENT
1. Conclusion of contract dependent on agreement on specific matters
Illustration
Illustration
2. Conclusion of contract dependent on agreement in a specific form
Illustrations

ARTICLE 2.14 - (Contract with terms deliberately left open)

Article 2.14 - (Contract with terms deliberately left open)
COMMENT
1. Contract with terms deliberately left open
2. Open terms not in themselves an impediment to valid conclusion of contract
Illustration
3. Failure of mechanism provided for by parties for determination of open terms
Illustration

ARTICLE 2.15 - (Negotiations in bad faith)

Article 2.15 - (Negotiations in bad faith)
COMMENT
1. Freedom of negotiation
2. Liability for negotiating in bad faith
Illustrations
3. Liability for breaking off negotiations in bad faith
Illustration

ARTICLE 2.16 - (Duty of confidentiality)

Article 2.16 - (Duty of confidentiality)
COMMENT
1. Parties in general not under a duty of confidentiality
Illustration
2. Confidential information
Illustrations
3. Damages recoverable

ARTICLE 2.17 - (Merger clauses)

Article 2.17 - (Merger clauses)
COMMENT

ARTICLE 2.18 - (Written modification clauses)

Article 2.18 - (Written modification clauses)
COMMENT
Illustration

ARTICLE 2.19 - (Contracting under standard terms)

Article 2.19 - (Contracting under standard terms)
COMMENT
1. Contracting under standard terms
2. Notion of "standard terms"
3. General rules on formation apply
Illustrations

ARTICLE 2.20 - (Surprising terms)

Article 2.20 - (Surprising terms)
COMMENT
1. Surprising terms in standard terms not effective
2. Terms "surprising" by virtue of their content
Illustration
3. Terms "surprising" by virtue of their language or presentation
Illustrations
4. Express acceptance of "surprising" terms

ARTICLE 2.21 - (Conflict between standard terms and non-standard terms)

Article 2.21 - (Conflict between standard terms and non-standard terms)
COMMENT

ARTICLE 2.22 - (Battle of forms)

Article 2.22 - (Battle of forms)
COMMENT
1. Parties using different standard terms
2. "Battle of forms" and general rules on offer and acceptance
3. The "knock-out" doctrine
Illustration
Illustrations

CHAPTER 3 - VALIDITY

ARTICLE 3.1 - (Matters not covered)

Article .1 - (Matters not covered)
COMMENT

ARTICLE 3.2 - (Validity of mere agreement)

Article 3.2 - (Validity of mere agreement)
COMMENT
1. No need for consideration
2. No need for cause
Illustration
3. All contracts consensual
Illustration

ARTICLE 3.3 - (Initial impossibility)

Article 3.3 - (Initial impossibility)
COMMENT
1. Performance impossible from the outset
2. Lack of legal title or power

ARTICLE 3.4 - (Definition of mistake)

Article 3.4 - (Definition of mistake)
COMMENT
1. Mistake of fact and mistake of law
2. Decisive time

ARTICLE 3.5 - (Relevant mistake)

Article 3.5 - (Relevant mistake)
COMMENT
1. Serious mistake
2. Conditions concerning the party other than the mistaken party
Illustration
3. Conditions concerning the mistaken party
Illustration

ARTICLE 3.6 - (Error in expression or transmission)

Article 3.6 - (Error in expression or transmission)
COMMENT
1. Relevant mistake
Illustration
2. Mistakes on the part of the receiver

ARTICLE 3.7 - (Remedies for non-performance)

Article 3.7 - (Remedies for non-performance)
COMMENT
1. Remedies for non-performance preferred
2. Actual and potential conflicts
Illustration

ARTICLE 3.8 - (Fraud)

Article 3.8 - (Fraud)
COMMENT
1. Fraud and mistake
2. Notion of fraud

ARTICLE 3.9 - (Threat)

Article 3.9 - (Threat)
COMMENT
1. Threat must be imminent and serious
2. Unjustified threat
Illustration
3. Threat affecting reputation or economic interests
Illustration

ARTICLE 3.10 - (Gross disparity)

Article 3.10 - ()
COMMENT
1. Excessive advantage
2. Unjustifiable advantage
a. Unequal bargaining position
Illustration
c. Other factors
3. Avoidance or adaptation

ARTICLE 3.11 - (Third persons)

Article 3.11 - (Third persons)
COMMENT
1. Third person for whom a party is responsible
2. Third person for whom a party is not responsible

ARTICLE 3.12 - (Confirmation)

Article 3.12 - (Confirmation)
COMMENT

ARTICLE 3.13 - (Loss of right to avoid)

Article 3.13 - (Loss of right to avoid)
COMMENT
1. Performance of the contract as understood by the mistaken party
2. Decision to be made promptly
3. Loss of right to avoid
4. Damages

ARTICLE 3.14 - (Notice of avoidance)

Article 3.14 - (Notice of avoidance)
COMMENT
1. The requirement of notice
2. Form and content of notice
Illustration
3. Notice must be received

ARTICLE 3.15 - (Time limits)

Article 3.15 - (Time limits)
COMMENT

ARTICLE 3.16 - (Partial avoidance)

Article 3.16 - (Partial avoidance)
COMMENT
Illustrations

ARTICLE 3.17 - (Retroactive effect of avoidance)

Article 3.17 - (Retroactive effect of avoidance)
COMMENT
1. Avoidance generally of retroactive effect
2. Restitution
Illustration

ARTICLE 3.18 - (Damages)

Article 3.18 - (Damages)
COMMENT
1. Damages if ground for avoidance known to the other party
2. The measure of damages
Illustration

ARTICLE 3.19 - (Mandatory character of the provisions)

Article 3.19 - (Mandatory character of the provisions)
COMMENT

ARTICLE 3.20 - (Unilateral declarations)

Article 3.20 - (Unilateral declarations)
COMMENT

CHAPTER 4 - INTERPRETATION

ARTICLE 4.1 - (Intention of the parties)

Article 4.1 - (Intention of the parties)
COMMENT
1. Common intention of the parties to prevail
2. Recourse to the understanding of reasonable persons
3. How to establish the common intention of the parties or to determine the understanding of reasonable persons
4. Interpretation of standard terms

ARTICLE 4.2 - (Interpretation of statements and other conduct)

Article 4.2 - (Interpretation of statements and other conduct)
COMMENT
1. Interpretation of unilateral acts
2. How to establish the intention of the party performing the act or to determine the understanding of a reasonable person

ARTICLE 4.3 - (Relevant circumstances)

Article 4.3 - (Relevant circumstances)
COMMENT
1. Circumstances relevant in the interpretation process
2. "Particular" and "general" circumstances compared
Illustrations
Illustrations
3. "Merger" clauses

ARTICLE 4.4 - (Reference to contract or statement as a whole)

Article 4.4 - (Reference to contract or statement as a whole)
COMMENT
1. Interpretation in the light of the whole contract or statement
Illustration
2. In principle no hierarchy among contract terms

ARTICLE 4.5 - (All terms to be given effect)

Article 4.5 - (All terms to be given effect)
COMMENT
Illustration

ARTICLE 4.6 - (Contra proferentem rule)

Article 4.6 - (Contra proferentem rule)
COMMENT
Illustration

ARTICLE 4.7 - (Linguistic discrepancies)

Article 4.7 - (Linguistic discrepancies)
COMMENT
Illustration
Illustration

ARTICLE 4.8 - (Supplying an omitted term)

Article 4.8 - (Supplying an omitted term)
COMMENT
1. Supplying of omitted terms and interpretation
2. When omitted terms are to be supplied
3. Criteria for the supplying of omitted terms
Illustration
Illustration

CHAPTER 5 - CONTENT

ARTICLE 5.1 - (Express and implied obligations)

Article 5.1 - (Express and implied obligations)
COMMENT

ARTICLE 5.2 - (Implied obligations)

Article 5.2 - (Implied obligations)
COMMENT
Illustrations

ARTICLE 5.3 - (Co-operation between the parties)

Article 5.3 - (Co-operation between the parties)
COMMENT
Illustrations

ARTICLE 5.4 - (Duty to achieve a specific result Duty of best efforts)

Article 5.4 - (Duty to achieve a specific result Duty of best efforts)
COMMENT
1. Distinction between the duty to achieve a specific result and the duty of best efforts
2. Distinction provides criteria for determining whether a party has performed its obligations
Illustrations

ARTICLE 5.5 - (Determination of kind of duty involved)

Article 5.5 - (Determination of kind of duty involved)
COMMENT
1. Criteria for determining the nature of the obligation
2. Nature of the obligation as expressed by the contract
Illustration
3. Price or other terms of the contract
4. Degree of risk in performance of an obligation
Illustrations
Illustration

ARTICLE 5.6 - (Determination of quality of performance)

Article 5.6 - (Determination of quality of performance)
COMMENT
Illustration
1. Performance must be of average quality
Illustration
2. Performance must be reasonable
Illustration

ARTICLE 5.7 - (Price determination)

Article 5.7 - (Price determination)
COMMENT
1. General rule governing price determination
Illustrations
2. Determination of price by one party
3. Determination of price by third person
4. Determination of price by reference to external factors
Illustration

ARTICLE 5.8 - (Contract for an indefinite period)

Article 5.8 - (Contract for an indefinite period)
COMMENT
Illustration

CHAPTER 6 - PERFORMANCE

SECTION 1: Performance in General

ARTICLE 6.1.1 - (Time of performance)

Article 6.1.1 - (Time of performance)
COMMENT
Illustrations

ARTICLE 6.1.2 - (Performance at one time or in instalments)

Article 6.1.2 - (Performance at one time or in instalments)
COMMENT
Illustrations

ARTICLE 6.1.3 - (Partial performance)

Article 6.1.3 - (Partial performance)
COMMENT
1. Partial performance distinguished from performance at one time or in instalments
Illustration
2. Obligee entitled in principle to reject partial performance
Illustration
3. Obligee's right to reject partial performance conditional on its legitimate interest in so doing
Illustration
4. Additional expenses entailed by partial performance to be borne by obligor
Illustration

ARTICLE 6.1.4 - (Order of performance)

Article 6.1.4 - (Order of performance)
COMMENT
1. Simultaneous performance to be made when possible
lllustration
2. Exception where performance requires a period of time
Illustration
3. Relation of order of performance to withholding of performance

ARTICLE 6.1.5 - (Earlier performance)

Article 6.1.5 - (Earlier performance)
COMMENT
1. Obligee in principle entitled to reject earlier performance
Illustration
2. Obligee's right to reject earlier performance conditional on its legitimate interest in so doing
Illustration
3. Effect of acceptance by obligee on its own performance of earlier performance of the other party's obligations
Illustrations
4. Additional expenses entailed by earlier performance to be borne by the performing party
Illustration

ARTICLE 6.1.6 - (Place of performance)

Article 6.1.6 - (Place of performance)
COMMENT
1. Place of performance fixed by, or determined from, the contract when possible
2. Need for suppletive rules
Illustrations
3. Consequences of change in a party's place of business subsequent to conclusion of contract
Illustrations

ARTICLE 6.1.7 - (Payment by cheque or other instrument)

Article 6.1.7 - ()
COMMENT
1. General rule regarding form of payment
Illustration
2. Presumption that payment will be honoured a condition for acceptance
Illustration

ARTICLE 6.1.8 - (Payment by funds transfer)

Article 6.1.8 - (Payment by funds transfer)
COMMENT
1. Admissibility of funds transfers
Illustration
2. Time at which the obligor's obligation is discharged by a funds transfer
Illustration

ARTICLE 6.1.9 - (Currency of payment)

Article 6.1.9 - (Currency of payment)
COMMENT
1. Monetary obligation expressed in currency different from that of place for payment
Illustrations
2. Impossibility for obligor to make payment in currency in which obligation is expressed
Illustration
3. Determination of applicable rate of exchange
Illustration

ARTICLE 6.1.10 - (Currency not expressed)

Article 6.1.10 - (Currency not expressed)
COMMENT
Illustration

ARTICLE 6.1.11 - (Costs of performance)

Article 6.1.11 - (Costs of performance)
COMMENT
Illustration

ARTICLE 6.1.12 - (Imputation of payments)

Article 6.1.12 - (Imputation of payments)
COMMENT
Illustration

ARTICLE 6.1.13 - (Imputation of non-monetary obligations)

Article 6.1.13 - (Imputation of non-monetary obligations)
COMMENT
Illustration

ARTICLE 6.1.14 - (Application for public permission)

Article 6.1.14 - (Application for public permission)
COMMENT
1. Scope of the permission requirement
a. Broad notion of "public permission"
b. Timing of public permission
c. Public permission may affect the contract in whole or in part
d. Public permission may affect the validity or performance of a contract
2. Duty to inform of the existence of a public permission requirement
3. Which party is bound to take measures to obtain a public permission
a. Party with place of business in State requiring public permission
b. Party whose performance requires public permission
Illustration
c. Suppletory nature of provisions on public permissions
Illustration
4. Nature of obligation to take the "necessary measures"
Illustration

ARTICLE 6.1.15 - (Procedure in applying for permission)

Article 6.1.15 - (Procedure in applying for permission)
COMMENT
1. Time for filing an application
2. Expenses
3. Duty to give prompt notice of the grant or refusal of the permission
4. Duty to give notice "whenever appropriate"
5. Consequences of the failure to inform
Illustrations

ARTICLE 6.1.16 - (Permission neither granted nor refused)

Article 6.1.16 - (Permission neither granted nor refused)
COMMENT
1. No decision taken as regards the permission
2. Termination of the contract
Illustration
3. Permission affecting individual terms only
Illustration

ARTICLE 6.1.17 - (Permission refused)

Article 6.1.17 - (Permission refused)
COMMENT
1. Application for permission rejected
2. Legal consequences of a refusal of permission
a. Refusal of permission affecting validity of the contract
Illustration
Illustration
b. Refusal rendering performance of the contract impossible
Illustration
Illustration

SECTION 2: HARDSHIP

ARTICLE 6.2.1 - (Contract to be observed)

Article 6.2.1 - (Contract to be observed)
COMMENT
1. Binding character of the contract the general rule
Illustration
2. Change in circumstances relevant only in exceptional cases

ARTICLE 6.2.2 - (Definition of hardship)

Article 6.2.2 - (Definition of hardship)
COMMENT
1. Hardship defined
2. Fundamental alteration of equilibrium of the contract
Illustration
a. Increase in cost of performance
b. Decrease in value of the performance received by one party
3. Additional requirements for hardship to arise
a. Events occur or become known after conclusion of the contract
b. Events could not reasonably have been taken into account by disadvantaged party
Illustration
Illustration
c. Events beyond the control of disadvantaged party
d. Risks must not have been assumed by disadvantaged party
Illustration
4. Hardship relevant only to performance not yet rendered
Illustration
5. Hardship normally relevant to long-term contracts
6. Hardship and force majeure
7. Hardship and contract practice

ARTICLE 6.2.3 - (Effects of hardship)

Article 6.2.3 - (Effects of hardship)
COMMENT
1. Disadvantaged party entitled to request renegotiations
Illustration
Illustration
Illustration
2. Request for renegotiations without undue delay
3. Grounds for request for renegotiations
4. Request for renegotiations and withholding of performance
Illustration
5. Renegotiations in good faith
6. Resort to the court upon failure to reach an agreement
7. Court measures in case of hardship
Illustration

CHAPTER 7 - NON-PERFORMANCE

SECTION 1: NON-PERFORMANCE IN GENERAL

ARTICLE 7.1.1 - (Non-performance defined)

Article 7.1.1 - (Non-performance defined)
COMMENT

ARTICLE 7.1.2 - (Interference by the other party)

Article 7.1.2 - (Interference by the other party)
COMMENT
1. Non-performance caused by act or omission of the party alleging non-performance
Illustration
2. Non-performance caused by event for which party alleging non-performance bears the risk
Illustration

ARTICLE 7.1.3 - (Withholding performance)

COMMENT
Illustration

ARTICLE 7.1.4 - (Cure by non-performing party)

COMMENT
1. General principle
2. Notice of cure
3. Appropriateness of cure
4. The aggrieved party's interest
Illustration
5. Timing of cure
6. Proper forms of cure
Illustration
7. Suspension of other remedies
8. Effect of a notice of termination
9. Right of aggrieved party to damages
10. The aggrieved party's obligations
Illustration

ARTICLE 7.1.5 - (Additional period for performance)

COMMENT
1. Special characteristics of late performance
2. Effects of granting extension of time for performance
Illustrations

ARTICLE 7.1.6 - (Exemption clauses)

COMMENT
1. The need for a special rule on exemption clauses
2. "Exemption clauses" defined
Illustration
3. Exemption clauses to be distinguished from forfeiture clauses
4. Exemption clauses and agreed payment for non-performance
Illustration
5. Cases where exemption clauses may not be relied upon
Illustrations
6. Consequence of inability to rely on exemption clauses

ARTICLE 7.1.7 - (Force majeure)

COMMENT
1. The notion of force majeure
Illustration
2. Effects of force majeure on the rights and duties of the parties
Illustration
3. Force majeure and hardship
4. Force majeure and contract practice

SECTION 2: RIGHT TO PERFORMANCE

ARTICLE 7.2.1 - (Performance of monetary obligation)

COMMENT

ARTICLE 7.2.2 - (Performance of non-monetary obligation)

COMMENT
1. Right to require performance of non-monetary obligations
2. Remedy not discretionary
3. Exceptions to the right to require performance
a. Impossibility
b. Unreasonable burden
Illustration
c. Replacement transaction
Illustration
d. Performance of an exclusively personal character
Illustrations
e. Request within reasonable time

ARTICLE 7.2.3 - (Repair and replacement of defective performance)

COMMENT
1. Right to performance in case of defective performance
2. Cure of defective performance
3. Restrictions
Illustration

ARTICLE 7.2.4 - (Judicial penalty)

COMMENT
1. Judicially imposed penalty
2. Imposition of penalty at discretion of the court
3. Beneficiary
4. Judicial penalties distinguished from damages and from agreed payment for non-performance
5. Form and procedure
6. Penalties imposed by arbitrators
7. Recognition and enforcement of decisions imposing penalties

ARTICLE 7.2.5 - (Change of remedy)

COMMENT
1. Aggrieved party entitled to change of remedy
2. Voluntary change of remedy
3. Unenforceable decision
4. Time limits

SECTION 3: TERMINATION

ARTICLE 7.3.1 - (Right to terminate the contract)

COMMENT
1. Termination even if non-performance is excused
Illustration
2. Right to terminate the contract dependent on fundamental non-performance
3. Circumstances of significance in determining whether non-performance is fundamental
a. Non-performance substantially depriving the other party of its expectations
Illustration
Illustration
b. Strict performance of contract of essence
c. Intentional non-performance
d. No reliance on future performance
Illustration
e. Disproportionate loss
Illustration
4. Termination after Nachfrist

ARTICLE 7.3.2 - (Notice of termination)

COMMENT
1. The requirement of notice
2. Performance overdue
3. "Reasonable time"
4. Notice must be received

ARTICLE 7.3.3 - (Anticipatory non-performance)

COMMENT
Illustration

ARTICLE 7.3.4 - (Adequate assurance of due performance)

COMMENT
1. Reasonable expectation of fundamental non-performance
2. Right to withhold performance pending adequate assurance of performance
Illustration
3. Termination of the contract

ARTICLE 7.3.5 - (Effects of termination in general)

COMMENT
1. Termination extinguishes future obligations
2. Claim for damages not affected
Illustration
3. Contract provisions not affected by termination
Illustration

ARTICLE 7.3.6 - (Restitution)

COMMENT
1. Entitlement of parties to restitution on termination
Illustration
Illustration
2. Restitution not possible or appropriate
Illustration
Illustration
3. Contracts to be performed over a period of time
Illustration
Illustration
4. Other rules applicable to restitution
5. Rights of third persons not affected

SECTION 4: DAMAGES

ARTICLE 7.4.1 - (Right to damages)

COMMENT
1. Right to damages in general
2. Damages may be combined with other remedies
3. Damages and pre-contractual liability

ARTICLE 7.4.2 - (Full compensation)

COMMENT
1. Aggrieved party entitled to full compensation
2. Damages cover loss suffered, including loss of profit
Illustrations
3. Damages must not enrich the aggrieved party
Illustration
4. Damages in case of changes in the harm
5. Compensation of non-material harm
Illustration

ARTICLE 7.4.3 - (Certainty of harm)

COMMENT
1. Occurrence of harm must be reasonably certain
2. Determination of extent of harm
Illustration
3. Harm must be a direct consequence of non-performance as well as certain

ARTICLE 7.4.4 - (Foreseeability of harm)

COMMENT
Illustrations

ARTICLE 7.4.5 - (Proof of harm in case of replacement transaction)

COMMENT
1. Amount of harm presumed in case of replacement transaction
2. Further damages recoverable for additional harm
Illustration

ARTICLE 7.4.6 - (Proof of harm by current price)

COMMENT
1. Amount of harm presumed when no replacement transaction
2. Determination of "current price"
3. Further damages recoverable for additional harm

ARTICLE 7.4.7 - (Harm due in part to aggrieved party)

COMMENT
1. Contribution of the aggrieved party to the harm
2. Ways of contributing to the harm
Illustrations
3. Apportionment of contribution to the harm
Illustrations
4. Contribution to harm and mitigation of harm

ARTICLE 7.4.8 - (Mitigation of harm)

COMMENT
1. Duty of aggrieved party to mitigate harm
Illustrations
2. Reimbursement of expenses
Illustrations

ARTICLE 7.4.9 - (Interest for failure to pay money)

COMMENT
1. Lump sum compensation for failure to pay a sum of money
2. Rate of interest
3. Additional damages recoverable
Illustration

ARTICLE 7.4.10 - (Interest on damages)

COMMENT

ARTICLE 7.4.11 - (Manner of monetary redress)

COMMENT
1. Lump sum or instalments
Illustrations
2. Indexation
Illustration

ARTICLE 7.4.12 - (Currency in which to assess damages)

COMMENT

ARTICLE 7.4.13 - (Agreed payment for non-performance)

COMMENT
1. Agreed payment for non-performance defined
2. Agreed payment for non-performance in principle valid
Illustration
3. Agreed sum may be reduced
Illustration
4. Agreed payment for non-performance to be distinguished from forfeiture and other similar clauses
Illustrations

Endnotes

Endnotes

Metadata

SiSU Metadata, document information

Manifest

SiSU Manifest, alternative outputs etc.

Principles of International Commercial Contracts, 1994 - UNIDROIT

UNIDROIT

copy @ Lex Mercatoria

UNIDROIT Principles of International Commercial Contracts with Official Commentary [1994]

CHAPTER 7 - NON-PERFORMANCE

SECTION 3: TERMINATION

ARTICLE 7.3.1 - (Right to terminate the contract)

COMMENT
1. Termination even if non-performance is excused
Illustration
2. Right to terminate the contract dependent on fundamental non-performance
3. Circumstances of significance in determining whether non-performance is fundamental
a. Non-performance substantially depriving the other party of its expectations
Illustration
Illustration
b. Strict performance of contract of essence
c. Intentional non-performance
d. No reliance on future performance
Illustration
e. Disproportionate loss
Illustration
4. Termination after Nachfrist

Article 7.3.1 - (Right to terminate the contract)

(1) A party may terminate the contract where the failure of the other party to perform an obligation under the contract amounts to a fundamental non-performance.

(2) In determining whether a failure to perform an obligation amounts to a fundamental non-performance regard shall be had, in particular, to whether

(a) the non-performance substantially deprives the aggrieved party of what it was entitled to expect under the contract unless the other party did not foresee and could not reasonably have foreseen such result;

(b) strict compliance with the obligation which has not been performed is of essence under the contract;

(c) the non-performance is intentional or reckless;

(d) the non-performance gives the aggrieved party reason to believe that it cannot rely on the other party's future performance;

(e) the non-performing party will suffer disproportionate loss as a result of the preparation or performance if the contract is terminated.

(3) In the case of delay the aggrieved party may also terminate the contract if the other party fails to perform before the time allowed it under Article 7.1.5 has expired.

COMMENT

1. Termination even if non-performance is excused

The rules set out in this Chapter are intended to apply both to cases where the non-performing party is liable for the non-performance and to those where the non-performance is excused so that the aggrieved party can claim neither specific performance nor damages for non-performance.

Illustration

1. A, a company located in country X, buys wine from B in country Y. The Government of country X subsequently imposes an embargo upon the import of agricultural products from country Y. Although the impediment cannot be attributed to A, B may terminate the contract.

2. Right to terminate the contract dependent on fundamental non-performance

Whether in a case of non-performance by one party the other party should have the right to terminate the contract depends upon the weighing of a number of considerations. On the one hand, performance may be so late or so defective that the aggrieved party cannot use it for its intended purpose, or the behaviour of the non-performing party may in other respects be such that the aggrieved party should be permitted to terminate the contract.

On the other hand, termination will often cause serious detriment to the non-performing party whose expenses in preparing and tendering performance may not be recovered.

For these reasons para. (1) of this article provides that an aggrieved party may terminate the contract only if the non-performance of the other party is "fundamental", i.e. material and not merely of minor importance. See also Arts. 7.3.3. and 7.3.4.

3. Circumstances of significance in determining whether non-performance is fundamental

Para. (2) of this article lists a number of circumstances which are relevant to the determination of whether, in a given case, failure to perform an obligation amounts to fundamental non-performance.

a. Non-performance substantially depriving the other party of its expectations

The first factor referred to in para. 2(a) is that the non-performance is so fundamental that the aggrieved party is substantially deprived of what it was entitled to expect at the time of the conclusion of the contract.

Illustration

2. On 1 May A contracts to deliver standard software before 15 May to B who has requested speedy delivery. If A tenders delivery on 15 June, B may refuse delivery and terminate the contract.

The aggrieved party cannot terminate the contract if the non-performing party can show that it did not foresee, and could not reasonably have foreseen, that the non-performance was fundamental for the other party.

Illustration

3. A undertakes to remove waste from B's site during 1992. B fails to inform A that B has hired excavators at high cost to begin work on the site on 2 January 1993. B cannot terminate its contract with A on the ground that A had not cleared the site on 2 January.

b. Strict performance of contract of essence

Para. (2)(b) looks not at the actual gravity of the non-performance but at the nature of the contractual obligation for which strict performance might be of essence.

Such obligations of strict performance are not uncommon in commercial contracts. For example, in contracts for the sale of commodities the time of delivery is normally considered to be of the essence, and in a documentary credit transaction the documents tendered must conform strictly to the terms of the credit.

c. Intentional non-performance

Para. (2)(c) deals with the situation where the non-performance is intentional or reckless. It may, however, be contrary to good faith (Art. 1.7) to terminate a contract if the non-performance, even though committed intentionally, is insignificant.

d. No reliance on future performance

Under para. (2)(d) the fact that non-performance gives the aggrieved party reason to believe that it cannot rely on the other party's future performance is of significance. If a party is to make its performance in instalments, and it is clear that a defect found in one of the earlier performances will be repeated in all performances, the aggrieved party may terminate the contract even if the defects in the early instalment would not of themselves justify termination. Sometimes an intentional breach may show that a party cannot be trusted.

Illustration

4. A, the agent of B, who is entitled to reimbursement for expenses, submits false vouchers to B. Although the amounts claimed are insignificant, B may treat A's behaviour as a fundamental non-performance and terminate the agency contract.

e. Disproportionate loss

Para. (2)(e) deals with situations where a party who fails to perform has relied on the contract and has prepared or tendered performance. In these cases regard is to be had to the extent to which that party suffers disproportionate loss if the non-performance is treated as fundamental. Non-performance is less likely to be treated as fundamental if it occurs late, after the preparation of performance, than if it occurs early before such preparation. Whether a performance tendered or rendered can be of any benefit to the non-performing party if it is refused or has to be returned to that party is also of relevance.

Illustration

5. On 1 May A undertakes to deliver software which is to be produced specifically for B. It is agreed that delivery shall be made before 31 December. A tenders delivery on 31 January, at which time B still needs the software, which A cannot sell to other users. B may claim damages from A, but cannot terminate the contract.

4. Termination after Nachfrist

Para. (3) makes reference to Art. 7.1.5, para. (3) of which provides that the aggrieved party may use the Nachfrist procedure to terminate a contract which may not otherwise be terminated in case of delay. See comment 2 on Art. 7.1.5.


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