12.5 RESTITUTION

12.5.1 In General

Termination may involve nothing for the aggrieved party more than refusing his own performance or refusing future performance from the other party, where nothing has been done by either party, or where any performance made has already properly been rejected, or where the contract is to be performed in successive parts and the parts already performed are not affected. But either party may be left with property transferred by the other, or with a payment made by the other. If this is the case, then a third situation arises: Either party may wish to rid itself of a performance already received, to recover money transferred to the other party and/or to recover property, or its value, transferred to the other party; in other words, in some sense to "undo" what has taken place before the date of termination.  ⁶⁵¹ 

Indeed, even though termination is forward having no retroactive effect in general, 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.  ⁶⁵²  These points are dealt with in CISG Arts. 81(2), 82, 83 and 84; UPICC Art. 7.3.6 and PECL Arts. 9:306, 9:307 and 9:308 respectively.

12.5.2 Entitlement of Parties to Restitution on Termination

Under the Convention, if the contract is avoided after one party has performed his obligations in whole or in part, Art. 81(2) entitles that party to claim restitution of what he has supplied or paid and requires the other party to make restitution: "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." This provision differs from the rule in some countries that only the party who is authorized to avoid the contract can make demand for restitution. Instead, it 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.  ⁶⁵³  In other words, the party who is obligated to make restitution after avoidance does not have to be the breaching party. Whoever has received performance must make restitution in accordance with the Convention and/or any contractual provisions.  ⁶⁵⁴ 

Usually, the avoidance of the contract is at the same time accompanied by a claim to return that which has been supplied or paid.  ⁶⁵⁵  It is, however, a condition for the claim to return what has been supplied or paid that the right to such return is asserted. This is justified because the parties may wish to leave what has been supplied or paid, respectively, with the other party.  ⁶⁵⁶  In other words, the parties are free to claim restitution as they may wish to leave what has been supplied or paid with the other party. In the case of a contract for delivery and payment of goods by installment, they may agree to retain what they received prior to the avoidance.  ⁶⁵⁷  On the other hand, subject to Art. 82(2), the party who makes demand for restitution must also make restitution of that which he has received from the other party. "If both parties are required to make restitution, they must do so concurrently" (Art. 81(2), sentence 2), unless the parties agree otherwise.  ⁶⁵⁸ 

In other words, if both the seller and the buyer have received performance in whole or in part from one another, then they must make restitution concurrently.  ⁶⁵⁹  However, the rule of concurrent performance does not apply to restitution by the buyer who only demands substitute goods (instead of declaring an avoidance). The seller cannot make a delivery of substitute goods dependent on whether the buyer returns the delivered goods. A Norwegian proposal, which, contrary to trade practices, aimed towards this goal and would have permitted the buyer to keep defective goods until the seller delivers substitute goods, was rejected by a large majority (O.R., p. 136). The question of whether the buyer's restitution obligations to the seller can prevail over claims of his other creditors are matters to be decided by domestic law. Domestic law also governs the details of the transfer in restitution. Its special restrictions are not displaced by Art. 81(2).  ⁶⁶⁰ 

In any event, however, the non-performing party may be required by the other party to cover all costs incurred to return that which has been supplied or paid. This rule, although not provided in the Convention, is acknowledged by the doctrine.  ⁶⁶¹  It is supported in the Secretariat Commentary, which states as: "The person who has breached the contract giving rise to the avoidance of the contract is liable not only for his own expenses in carrying out the restitution of the goods or money, but also the expenses of the other party. Such expenses would constitute damages for which the party in breach is liable. However, the obligation under article 73 [draft counterpart of CISG article 77] of the party who relies on the breach of the contract to 'take such measures as are reasonable in the circumstances to mitigate the loss' may limit the expenses of restitution which can be recovered by means of damages if physical return of the goods is required rather than, for example, resale of the goods in a local market where such resale would adequately protect the seller at a lower net cost (OFFICIAL RECORDS, p. 57)."  ⁶⁶² 

Under the UNIDROIT Principles, the relevant provision is Art. 7.3.6(1), which provides for a right for each party to claim the return of whatever it has supplied under the contract provided that it concurrently makes restitution of whatever it has received.  ⁶⁶³  In this respect, sentence 1 of Art. 7.3.6(1) UPICC reads as: "On termination of the contract either party may claim restitution of whatever it has supplied, provided that such party concurrently makes restitution of whatever it has received." The present article also applies to the situation where the aggrieved party has supplied money in exchange for property, services etc. (which are beyond the scope of the CISG), which it has not received or which are defective. Money returned for services or work which have not been performed or for property which has been rejected should be repaid to the party who paid for it and the same principle applies to custody of goods and to rent and leases of property.  ⁶⁶⁴  At first glance, the UNIDROIT Principles follow the approach established under CISG Art. 81. However, as to be shown infra. 12.5.5, this is not the case. Except for the basic textual similarities, the two sets of rules differ distinctly in their application. In this point, the PECL approach goes further and thus deserves a separate discussion below (infra. 12.5.3) with details to be developed.

Finally, it is to be recalled that if the contract is partially avoided, the rules governing its effects are relevant to that part of the contract, which has been avoided.  ⁶⁶⁵  Similarly, in the case of a partial avoidance this restitution, naturally, applies only insofar as the performance already made is concerned.  ⁶⁶⁶ 

12.5.3 Restitution under the PECL

As already discussed earlier, Art. 9:305 states the general rule that termination of a contract has no retroactive effect. It does not follow from the fact that the contract has been terminated that the party which has performed can get restitution of what it has supplied.  ⁶⁶⁷  Nonetheless, the PECL introduces a set of rules dealing with restitution - 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 (Art. 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 (Art. 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 (Art. 9:308).  ⁶⁶⁸ 

12.5.3.1 Property reduced in value: Art. 9:306

Under many different types of contract there is a possibility that the aggrieved party may have received from the other some property which is of no value to it because of the other party's non-performance itself or because it has terminated the contract and will therefore not receive the rest of the performance. In such cases it should have the right to reject the useless property.  ⁶⁶⁹  PECL Art. 9:306 provides for such cases as: "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."

This Article may also apply where the contract is to be performed in distinct installments, if failure to deliver a later installment makes the earlier installments useless. In all the cases suggested the aggrieved party could in the alternative claim damages or reduction in price for the reduced value that the property received now has to it. However it will often be more convenient for it simply to return the unwanted property than to have to dispose of it some other way and, since it is by definition the aggrieved party, it seems appropriate to give it the right to reject. There will be a considerable advantage in rejecting the property if it has not yet paid for it, as it can thus avoid having to pay even a reduced price.  ⁶⁷⁰  Most systems also recognise the rule embodied in Art. 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.  ⁶⁷¹ 

12.5.3.2 Recovery of money paid and property: Arts. 9:306, 9:307

PECL Art. 9:307 deals with the recovery of money paid and states as: "On termination of the contract a party may recover money paid for a performance which it did not receive or which it properly rejected." 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. The COMMON LAW is more restrictive. Except in cases of frustration, 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.  ⁶⁷²  With this regard, the PECL follows a broad approach to restitution as CISG Art. 81(2). Under Art. 9:307 a party may claim back money which it has paid for a performance which it did not receive. This rule has general application where a party which has prepaid money rightfully rejects performance by the other party or where the latter fails to effect any performance. It applies equally to contracts of sale, contracts for work and labour and contracts of lease. The party claiming restitution for money paid may also claim interest.  ⁶⁷³ 

On the other hand, when it deals with property other than money, Art. 9:308 states that: "On termination of the contract a party which has supplied property which can be returned and for which it has not received payment or other counter-performance may recover the property." In other words, Art. 9:308 provides restitution after termination where a party has supplied a performance other than money without receiving the counter-performance, and the performance can be restored. If the contract is terminated it may claim back what it has supplied under the contract.  ⁶⁷⁴  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. However, systems differ where a third party such as a creditor of the recipient claims the property. The PECL follows the 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.  ⁶⁷⁵  Art. 9:308 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 a bona fide purchaser may oppose the restitution of goods sold is to be determined by the applicable national law.  ⁶⁷⁶  However, where the defaulting party has transferred property to the aggrieved party before termination and if the aggrieved party can restore the property but does not do so, the court may order it to restore it or its value under Art. 9:308.  ⁶⁷⁷ 

Among other things, it is to be noted that a contract for the sale or assignment of stocks, shares, investment securities, negotiable instruments and debts is often performed by delivering the warrant certificate or other instrument which gives evidence of the right. If the contract is terminated the seller or assignor should be entitled to recover the paper irrespective of whether this paper is a negotiable instrument or not, subject to third party rights.  ⁶⁷⁸  On the other hand, if a contract for the assignment of a product of the mind is terminated literal restoration of the intangible is sometimes not possible. However, the assignment of patents, trade marks, and other legally protected intangible rights may be called off by a formal declaration or other act of the assignee and thereby returned to the assignor. Furthermore, restoration is possible of things which attach to the intangible. Know-how and literary works are written on paper, paintings are made on canvas, sculptures cast in bronze. Tangible things which in this way materialize the product of the mind may be restored when the contract is terminated. These things often have a value.  ⁶⁷⁹  Moreover, it should be also noted that PECL Arts. 9:307 and 9:308, much like the UNIDROIT Principles, also apply to situations, such as service contracts, where the CISG cannot be applied.

12.5.3.3 Concluding remarks

As it indicates, when the effects of termination on performance already received are concerned, the PECL follows CISG Art. 81(2) and UNIDROIT Principles Art. 7.3.6(1) in taking a broad flexible approach. Thus the PECL is 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.  ⁶⁸⁰ 

However, it is noted that restitution of the property under PECL Art. 9:306 will occur where it is useless for the party that received it. This rule clearly is not compatible with the CISG set of rules. On the other hand, both PECL Arts. 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. Thus, unlike the CISG, where 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 (infra. 12.5.5), 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.  ⁶⁸¹ 

In other words, as to be discussed in more details infra. 12.5.5, 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 (Art. 9:307), other property which can be returned (Art. 9:308) or some benefit which cannot be returned, e.g. services or property which has been used up (Art. 9:309).  ⁶⁸²  Nonetheless, it does not matter that the property is worth more than was to be paid for it so that by obtaining restitution the aggrieved party escapes a bad bargain. In other words, the restitution rule also applies when the aggrieved party has made a bad bargain.  ⁶⁸³ 

12.5.4 Restitution of Benefits Received

Restitution of accruing benefits such as interests or other benefits derived from the performance appears as a natural concomitant of restitution of performances already received. The Convention, under Art. 84, provides for additional rules requiring restitution of benefits received by the parties.  ⁶⁸⁴  In this respect, Art. 84 reads as: "(1) If the seller is bound to refund the price, he must also pay interest on it, from the date on which the price was paid. (2) The buyer must account to the seller for all benefits which he has derived from the goods or part of them: (a) if he must make restitution of the goods or part of them; or (b) if it is impossible for him to make restitution of all or part of the goods or to make restitution of all or part of the goods substantially in the condition in which he received them, but he has nevertheless declared the contract avoided or required the seller to deliver substitute goods."

Going beyond the obligation to restitute the goods under Art. 81(2), this Article stipulates that the benefits have to be accounted for which the party having to restitute the goods obtained from the performances in goods or in price, have to be returned.  ⁶⁸⁵  Where the seller is under an obligation to refund the price, he must pay interest from the date of payment to the date of refund. The obligation to pay interest is automatic because it is assumed that the seller has benefited from being in possession of the purchase price during this period. Since the obligation to pay interest partakes of the seller's obligation to make restitution and not of the buyer's right to claim damages, the rate of interest payable would be based on that current at the seller's place of business.  ⁶⁸⁶  This rule proceeds on the assumption that the seller, within the period in which he has disposal over the price, has a benefit from it, at least in the form of interest, and, therefore, sets the date of the payment as the date from which on interest begins to run. This is the day when the payment is actually made according to the contractually or legally (Arts. 57 and 58) provided procedure; also in cases where the seller in individual cases had disposal of the means only later. Interest runs until the demand for the restitution of the price lapses, in particular by performance or effective setting off.  ⁶⁸⁷ 

Where the buyer must return the goods, it is less obvious that he has benefited from having had possession of the goods. Therefore, paragraph (2) specifies that the buyer is liable to the seller for all benefits which he has derived from the goods only if (1) he is under an obligation to return them or (2) it is impossible for him to make restitution of the goods or part of them but he has nevertheless exercised his right to declare the contract avoided or to require the seller to deliver substitute goods (O.R., p. 58).  ⁶⁸⁸  Basically, the buyer does not have to return the equivalent of the benefits which he omitted to draw. This again does not exclude that the seller may assert claims for damages because of loss in value of the goods delivered where the avoidance is based on a breach of contract by the buyer and/or the latter restitutes belatedly. These claims for damages may indeed come close to benefits not drawn. The benefits do not have to be returned in kind, but according to the requirements of international trade, in money.  ⁶⁸⁹ 

In sum, Art. 84 reflects the principle that a party who is required to refund the price or return the goods because the contract has been avoided or because of a request for the delivery of substitute goods must account for any benefit which he has received by virtue of having had possession of the money or goods. Where the obligation arises because of the avoidance of the contract, it is irrelevant which party's failure gave rise to the avoidance of the contract or who demanded restitution.  ⁶⁹⁰  Thus, Art. 84 obligates the parties to return all benefits of possession (profits and advantages of use). If the seller is obligated to refund the price, he must also pay interest -- in an amount to be determined by domestic law -- from the date on which the price was paid. In contrast to the seller who is bound to pay interest on the refundable price, the buyer is only obligated to return benefits that he actually derived from using the goods. In addition, Art. 84(2) restricts the duty to return benefits in subparagraphs (a) and (b) to those cases in which the buyer either must return part or all of the goods or the buyer derived benefits before the goods were destroyed, and (complete) restitution therefore has become impossible.  ⁶⁹¹ 

12.5.5 Exceptions: Restitution Not Possible or Appropriate

12.5.5.1 CISG approach: making restitution a prerequisite for avoidance

In some cases restitution will not be possible, for instance, restitution of the received goods. This, however, could not occur with respect to the seller's duty to refund the received price. In such exceptional cases the provisions of Art. 82 of the Convention shall apply. According to the provisions contained in CISG Art. 82, 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 (Art. 82(1)). However, the buyer retains the right to avoid the contract: 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 them is not due to his act or omission(Art. 82(2)(a)); if the goods or part of the goods have perished or deteriorated as a result of the examination provided for in article 38(Art. 82(2)(b)); or 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 (Art. 82(2)(c)). One should note that the norm relates merely to the right of the buyer to avoid the contract.

Art. 82(1) simply recognizes the effect of natural causes on the condition of the delivered goods.  ⁶⁹²  This point is made clear in the Secretariat Commentary: "The rule in paragraph (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 already been 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]."  ⁶⁹³  Thus, 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 Art. 82(1).  ⁶⁹⁴  In other words, the right to avoid the contract lapses when the goods can no longer be restituted.  ⁶⁹⁵  The ability to return the goods is, therefore, 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 (Art. 83).  ⁶⁹⁶ 

However, the goods to be returned do not have to be the same goods that were received; rather they must be "substantially in same the condition in which" the goods were received.  ⁶⁹⁷  "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 'substantially' 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."  ⁶⁹⁸  Moreover, loss or damage to the goods does not in all cases eliminate the right to avoid the contract or to demand substitute goods. On the one hand, according to Art. 82(1), insubstantial damage is irrelevant. Normal wear and tear of the goods would not be in the way of their restitution. It would be different, however, in the case of greater damage which has its cause in the improper use or maintenance of the goods by the buyer. The latter can insofar not rely on grounds for exemption. They would only refer to claims for damages.  ⁶⁹⁹ 

On the other hand, Art. 82(2), provides three considerable exceptions to that rule: "The buyer should be able to avoid the contract or require substitute goods even though he cannot make restitution of the goods substantially in the condition in which he received them (1) if the impossibility of doing so is not due to his own act or omission, (2) if the goods or part of them have perished or deteriorated as a result of the normal examination of the goods by the buyer provided for in article 36 [draft counterpart of CISG article 38], and (3) if 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 the lack of conformity with the contract was discovered or ought to have been discovered."  ⁷⁰⁰  Paragraph (2) in Art. 82, therefore, deals with the allocation of the risk of loss of the goods before avoidance.  ⁷⁰¹  A fourth exception to the rule states in Art. 82(1) is to be found in Art. 70 which states that if the seller has committed a fundamental breach of contract, the passage of the risk of loss under Art. 67, 68 or 69 does not impair the remedies available to the buyer on account of such breach (O.R., p. 58).  ⁷⁰² 

While the construction of Arts. 82(2)(b) and 82(2)(c) is rather straightforward, some explanation is required as to Art. 82(2)(a). In any case, under Art. 82(2)(a), the buyer is presumably responsible for the acts or omissions of his personnel. On the one hand, in Schlechtriem's opinion, the acts of third persons can only be attributed to the buyer if his act or -- especially -- his omission has made it possible for the third persons to affect the goods. These questions do not turn on whether the buyer was at fault.  ⁷⁰³  It is generally understood that under Art. 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.  ⁷⁰⁴  On the other hand, more than mere physical causation is probably required before the buyer's remedies are lost. Otherwise, destruction caused by an accident or force majeure could be attributed to the buyer -- e.g., his taking possession unless the goods would have been destroyed while under the seller's control as well. The words "due to", however, permit the restrictive interpretation 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.  ⁷⁰⁵ 

Finally, it is to be noted that the Secretariat Commentary points out that the right of either party to require restitution may be thwarted by other rules which fall outside the scope of the international sale of goods. In this context it is stressed: "If either party is in bankruptcy or other insolvency procedures, it is possible that the claim of restitution will not be recognized as creating a right in the property or as giving a priority in the distribution of the assets. 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. These and other similar legal rules may reduce the value of the claim of restitution. However, they do not affect the validity of the rights between the parties."  ⁷⁰⁶  It may thus be concluded that there are so many important exceptions to this principle (of restitution) that the principle itself should constitute an exception.  ⁷⁰⁷ 

12.5.5.2 UPICC/PECL approach: focusing on the allowance upon impossible restitution

Under the UNIDROIT Principles, the relevant provision is sentence 2 of Art. 7.3.6(1), which reads: "If restitution in kind is not possible or appropriate allowance should be made in money whenever reasonable." Thus, if the non-performing party cannot make restitution it must make allowance in money for the value it has received.  ⁷⁰⁸ 

The Official Comment states with this regard as follows: There are instances where instead of restitution in kind, allowance in money should be made. This is the case first of all where restitution in kind is not possible. Allowance in money is further envisaged by para. (1) of this article whenever restitution in kind would not be "appropriate". This is so in particular when the aggrieved party has received part of the performance and wants to retain that part. The purpose of specifying that allowance should be made in money "whenever reasonable" is to make it clear that allowance should only be made if, and to the extent that, the performance received has conferred a benefit on the party claiming restitution.  ⁷⁰⁹ 

Under the PECL, the closest counterpart is Art. 9:309, entitled Recovery for Performance that Cannot be Returned, which reads: "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." According to this Article, 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.  ⁷¹⁰ 

As stated in the Comment to this Article, 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 Art. 8:108. It would be unjust to allow it to retain this benefit without paying for it, and Art. 9:309 requires it to pay.  ⁷¹¹  In calculating this amount, the PECL Comment on Art. 9:309 provides that, upon termination of a contract, 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. 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.  ⁷¹² 

12.5.5.3 Comparative perspectives

The two sets of rules contained in the respective regimes of the CISG and the PECL (or the UNIDROIT Principles) are quite different. CISG Art. 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 Art. 82(2) occurs. Avoidance of a contract is available regardless of whether the party which rendered the goods received the performance or other counter-performance.  ⁷¹³ 

On the other hand, 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 (Art. 9:307), other property which can be returned (Art. 9:308) or some benefit which cannot be returned, e.g. services or property which has been used up (Art. 9:309).  ⁷¹⁴  In particular, PECL Art. 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 Art. 9:309 addresses the issue of restitution, but only to set the rules on how to calculate the amount of recovery.  ⁷¹⁵  As already demonstrated above, this is also the case for the approach adopted under Art. 7.3.6(1) of the UNIDROIT Principles.

By contrast, the CISG clearly requires restitution of whatever received as a condition to avoid the contract. 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". 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 Art. 82, avoidance of the contract is no longer an option. Thus, 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 Art. 82(2) is met. The UPICC/PECL does not require any restitution as a condition for avoidance. Such differences arise out of the different understanding regarding the retroactivity concept. While both the CISG and the UPICC/PECL 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 UPICC/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 UPICC/PECL.  ⁷¹⁶ 

Therefore, while under the CISG restitution is an obligatory step toward the avoidance of a contract, under the UPICC/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, while the CISG tends to eliminate the consequences of an already partially performed contract, the UPICC/PECL tends to maintain the exchange when it is satisfactory for both parties. 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.  ⁷¹⁷ 

12.5.5.4 Concluding remarks

In many contracts a literal restoration is not possible. This applies to work and labour, services, the hiring out of goods, the letting of premises, and the carriage and custody of goods. A party which has received a performance of this kind cannot give it back. In contracts for sale or barter restoration may become impossible when the goods have perished or have been consumed or resold. In all these situations the party which has received a performance which it cannot return might restore the value of it and various legal systems provide for such a restitution.  ⁷¹⁸ 

As the above analysis indicates, although such cases are dealt with to some extent in CISG Art. 82, the CISG approach unfortunately, in so doing, makes the restitution a prerequisite for avoiding the contract. By contrast, the UPICC/PECL introduces the idea that there are circumstances in which it might be inappropriate to make the restitution. Such an idea is not shared with the CISG.  ⁷¹⁹  As stressed by the Comments to the two sets of Principles, either the rule under the UNIDROIT Principles both in Art. 7.1.3 on the right to withhold performance and Art. 7.2.2 on specific performance of non-monetary obligations, or the rules under the PECL in Chapter 9 Section 1 on right to performance apply mutatis mutandis (with appropriate adaptations) to the claim for restitution of property. Thus the aggrieved party cannot claim the return of goods or other tangibles when it has become impossible or would involve the defaulting party in an unreasonable effort or expense. In such cases the non-performing party must make allowance for the value of the property.  ⁷²⁰ 

Finally, it is noted that 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.  ⁷²¹  In this point, Art. 7.3.6(2) of the UNIDROIT Principles clearly prescribes that: "However, if performance of the contract has extended over a period of time and the contract is divisible, such restitution can only be claimed for the period after termination has taken effect." Thus, if the performance has extended over a period of time, restitution can, in accordance with Art. 7.3.6(2), only be claimed in respect of the period after termination. This rule, however, only applies if the contract is divisible.  ⁷²²  Although no similar counterpart is found in the text of the PECL, its Comment confirms this point: Where a contract is to be performed over a period of time, or in installments, and the performance is divisible, the rule [Art. 9:307] applies to payments made in respect of so much of the performance as was not made or has been rejected. Also, the rule [Art. 9:308] applies to contracts which are to be performed in parts. If the aggrieved party is entitled to terminate in respect of a part of a contract, it may recover a payment made in respect of that part.  ⁷²³