10.5 COMBINED APPROACH: PECL ART. 9:302

It is said that Art. 51 was created to promote one of the fundamental tenets of the CISG - to keep contracts "on foot". An unintended consequence has been competition with CISG Art. 73. In this respect, The PECL does not draw a distinction between rights of the seller and buyer in the same manner as the CISG.  ⁵³⁷  In this instance, the most comparable counterpart is PECL Art. 9:302, which reads: "If the contract is to be performed in separate parts and in relation to a part to which a counter-performance can be apportioned, there is a fundamental non-performance, the aggrieved party may exercise its right to terminate under this Section in relation to the part concerned. It may terminate the contract as a whole only if the non-performance is fundamental to the contract as a whole."

The Official Comment to PECL Art. 9:302 makes its general principle clear: "Where the contract calls for a series of performances by one party, each with a matching counter-performance (typically, a separate price for each performance), the contract may be seen as divisible into a series of units. If one party fails to perform one unit, the other may want to put an end to its obligation to accept performance of that unit: for instance, in a contract for services it may want to arrange for someone else to do the work. However, it may not be appropriate for the aggrieved party to have the right to terminate the whole contract because the failure may not be fundamental in relation to the whole. The unit not performed may not affect the rest of the contract significantly, and the non-performance may not be likely to be repeated. In these circumstances, it is appropriate to allow the aggrieved party to terminate in relation to the part not performed, leaving the rest of the contract untouched. Only if the non-performance is fundamental to the whole contract should the aggrieved party be entitled to terminate the whole."  ⁵³⁸  In addition, sometimes one party's obligation to perform consists of distinct parts, and the non-performance affects only one of those parts, but the payment to be made for them is not split up into equivalent sums. If nonetheless the first party's performance is really divisible and the payment can be properly apportioned, Art. 9:302 applies and termination is allowed in respect of the part affected.  ⁵³⁹ 

It is clearly found that PECL Art. 9:302 only allows termination in instances where there has been fundamental non-performance, or to use the CISG terminology a fundamental breach. In doing so, the PECL is similarly promoting the notion of keeping contracts "on foot".  ⁵⁴⁰  Two crucial terminologies in PECL Art. 9:302 must be given further details. On the one hand, PECL Art. 9:302 allows termination of the contract in relation to the part concerned where non-performance is fundamental and if the contract is to be performed in separate parts and in relation to a part to which a counter-performance can be apportioned. Termination "in relation to the part concerned" of the contract is a slightly awkward phrase, as the contract is not terminated, but it has the advantage that the general rules on termination (such as the need to give notice under Art. 9:303) applies. CISG Art. 73 takes the same approach.  ⁵⁴¹ 

On the other hand, PECL Art. 9:302 allows the aggrieved party to terminate the contract as a whole where the non-performance is fundamental to the contract as a whole non-performance is fundamental to the contract as a whole. However, "contract as a whole" does not, as it might initially appear, mean the entire contract. PECL Art. 9:305 describes the effect of termination as it applies to all references to this word within the PECL. With two exceptions, termination of a contract as a whole will only relieve the parties of their future obligations. The article specifically leaves intact the rights and liabilities that have accrued at the date of termination. The two exceptions are where the value of property already delivered has been fundamentally reduced (PECL Art. 9:306) and where recovery of property already delivered can be made (PECL Art. 9:308).  ⁵⁴² 

By contrast with the CISG approach, the drafters of the PECL have avoided the competition between CISG Arts. 51 and 73 by not including a specific provision that explicitly directs the parties to act in the same manner as CISG Art. 51. At first glance, PECL Article 9:302 is most comparable to CISG Article 73 as it considers a failure of performance in the situation where "the contract is to be performed in separate parts and in relation to a part to which counter performance can be apportioned".  ⁵⁴³  Although using the same language of CISG Art. 51, i.e., "parts", a plain reading of PECL Art. 9:302 does only allow termination as to the part where there has been fundamental non-performance. Therefore, with the exclusion of this linguistic argument, PECL Art. 9:302 does represent a shorter restatement of CISG Art. 73.  ⁵⁴⁴ 

However, it is important not to immediately assume that the PECL promotes the rights and remedies afforded by CISG Art. 73 and by its silence condemns the approach of CISG Art. 51. It is suggested that the better view, although in this instance the omission of the PECL to explicitly address a CISG Art. 51 scenario does not in and of itself suggest a criticism of the approach, is that the combined PECL articles promote the CISG Art. 51 position in two ways - by providing a restrictive definition of termination, and by requiring fundamental non-performance.  ⁵⁴⁵  In other words, PECL Art. 9:302 does not exclude those circumstances contemplated by CISG Art. 51,  ⁵⁴⁶  when considering PECL Arts. 9:302, 9:305 and 9:306 together and in context, it is possible to see that the same philosophy that drives CISG Art. 51 emerges.  ⁵⁴⁷