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THE UNIDROIT PRINCIPLES OF INTERNATIONAL COMMERCIAL CONTRACTS
PREAMBLE
CHAPTER 1 -- GENERAL PROVISIONS
CHAPTER 2 -- FORMATION
CHAPTER 3 -- VALIDITY
CHAPTER 4 -- INTERPRETATION
CHAPTER 5 -- CONTENT
CHAPTER 6 -- PERFORMANCE
CHAPTER 7 -- NON-PERFORMANCE
The Need for Universal Principles of Commercial Contracts
As commercial dealings increasingly are international in their scope, so the contracts under which those dealings are conducted must have an international - rather than a purely national - character.
A number of efforts have been made, many of them successful and widely-used, to provide universally-accepted contractual forms, trade and other terms (such as INCOTERMS), and legal standards (such as the U.N. Convention on Contracts for the International Sale of Goods or "CISG") for adoption by private contracting parties. These have often proven to be immeasurably valuable for the ready negotiation of international contracts among parties from different countries. Nonetheless, there are gaps in the coverage of each of these measures which create lacunae in the applicable legal standards applicable to them. These lacunae are not always inadvertent omissions of the drafters. It is commonly the case that drafters have been unable to agree on mutually-acceptable legal standards or have agreed that there must be a limit to the scope of their efforts which falls short of the creation of a complete code of commercial law. Article 7, Subparagraph (2), of CISG, for example, provides, "Questions concerning matters governed by this Convention which are not expressly settled in it are to be settled in conformity with the general principles on which it is based or, in the absence of such principles, in conformity with the law applicable by virtue of the rules of private international law."
It is also true that the above measures are frequently intended to be used in contracts of a specific type or dealing with a specific subject. They are not always applicable, nor were they intended to be applicable, to every type of international contract. Consequently, contracting parties have had to resort to a search for general and internationally-accepted commercial contractual legal standards, sometimes called lex mercatoria, to govern and interpret their contracts where there were legal lacunae in these measures or where the legal standards applicable to a particular international contract were not governed by these measures.
There was much dispute among scholars, and consequently much uncertainty for contracting parties, regarding precisely what this lex mercatoria is or even if it existed.
The International Institute for the Unification of Private Law ("UNIDROIT"), based in Rome, Italy, performed a valuable service in formulating these principles of international commercial contract law in 1994. They may be formally adopted by parties in their contracts or may be argued to constitute applicable law in contractual disputes where the applicable legal standards are lex mercatoria, general principles of law, and the like.
PREAMBLE
(Purpose of the Principles)
These Principles set forth general rules for international commercial contracts.
They shall be applied when the parties have agreed that their contract be governed by them.
They may be applied when the parties have agreed that their contract be governed by general principles of law, the lex mercatoria, or the like.
They may provide a solution to an issue raised when it proves impossible to establish the relevant rule of the applicable law.
They may be used to interpret or supplement international uniform law instruments.
They may serve as a model for national and international legislators.
CHAPTER 1 -- GENERAL PROVISIONS
Article 1.1 Freedom of Contract
The parties are free to enter into a contract and to determine its content.
Article 1.2 No Form Required
Nothing in these Principles requires a contract to be concluded in or evidenced by writing. It may be proved by any means, including witnesses.
Article 1.3 Binding Character of Contract
A contract validly entered into is binding upon the parties. It can only be modified or terminated in accordance with its terms or by agreement or as otherwise provided in these Principles.
Article 1.4 Mandatory Rules
Nothing in these Principles shall restrict the application of mandatory rules, whether of national, international, or supranational origin, which are applicable in accordance with the relevant rules of private international law.
Article 1.5 Exclusion or Modification by the Parties
The parties may exclude the application of these
Principles or derogate from or vary the effect
of any of their provisions, except as otherwise
provided in the Principles.
Article 1.6 Interpretation and Supplementation
of the Principles
(1) In the interpretation of these Principles,
regard is to be had to their international
character and to their purposes including the
need to promote uniformity in their application.
(2) Issues within the scope of these Principles
but not expressly settled by them are as far as
possible to be settled in accordance with their
underlying general principles.
Article 1.7 Good Faith and Fair Dealing
(1) Each party must act in accordance with good faith and fair dealing in international trade.
(2) The parties may not exclude or limit this duty.
Article 1.8 Usages and Practices
(1) The parties are bound by any usage to which they have agreed and by any practices which they have established between themselves.
(2) The parties are bound by a usage that is widely known to and regularly observed in international trade by parties in the particular trade concerned except where the application of such a usage would be unreasonable.
Article 1.9 Notice
(1) Where notice is required it may be given by any means appropriate to the circumstances.
(2) A notice is effective when it reaches the person to whom it is given.
(3) For the purpose of paragraph (2) a notice "reaches" a person when given to that person orally or delivered at that person's place of business or mailing address.
(4) For the purpose of this article "notice" includes a declaration, demand, request or any other communication of intention.
Article 1.10 Definitions
In these Principles
- "court" includes an arbitral tribunal;
- where a party has more than one place of
business the relevant "place of business" is
that which has the closest relationship to the
contract and its performance, having regard to
the circumstances known to or contemplated by
the parties at any time before or at the
conclusion of the contract;
- "obligor" refers to the party who is to
perform an obligation and "obligee" refers to
the party who is entitled to performance of that
obligation;
- "writing" means any mode of communication that
preserves a record of the information contained
therein and is capable of being reproduced in
tangible form.
CHAPTER 2 -- FORMATION
Article 2.1 Manner of Formation
A contract may be concluded either by the
acceptance of an offer or by conduct of the
parties that is sufficient to show agreement.
Article 2.2 Definition of Offer
A proposal for concluding a contract constitutes
an offer if it is sufficiently definite and
indicates the intention of the offeror to be
bound in case of acceptance.
Article 2.3 Withdrawal of Offer
(1) An offer becomes effective when it reaches
the offeree.
(2) An offer, even if it is irrevocable, may be
withdrawn if the withdrawal reaches the offeree
before or at the same time as the offer.
Article 2.4 Revocation of Offer
(1) Until a contract is concluded an offer may
be revoked if the revocation reaches the offeree
before it has dispatched an acceptance.
(2) However, an offer cannot be revoked
(a) if it indicates, whether by stating a fixed
time for acceptance or otherwise, that it is
irrevocable; or
(b) if it was reasonable for the offeree to rely
on the offer as being irrevocable and the
offeree has acted in reliance on the offer.
Article 2.5 Rejection of Offer
An offer is terminated when a rejection reaches
the offeror.
Article 2.6 Mode of Acceptance
(1) A statement made by or other conduct of the
offeree indicating assent to an offer is an
acceptance. Silence or inactivity does not in
itself amount to acceptance.
(2) An acceptance of an offer becomes effective
when the indication of assent reaches the
offeror.
(3) However, if, by virtue of the offer or as a
result of practices which the parties have
established between themselves or of usage, the
offeree may indicate assent by performing an act
without notice to the offeror, the acceptance is
effective when the act is performed.
Article 2.7 Time of Acceptance
An offer must be accepted within the time the
offeror has fixed or, if no time is fixed,
within a reasonable time having regard to the
circumstances, including the rapidity of the
means of communication employed by the offeror.
An oral offer must be accepted immediately
unless the circumstances indicate otherwise.
Article 2.8 Acceptance within A Fixed Period of
Time
(1) A period of time for acceptance fixed by the offeror in a telegram or a letter begins to run from the moment the telegram is handed in for dispatch or from the date shown on the letter or, if no such date is shown, from the date
shown on the envelope. A period of time for acceptance fixed by the offeror's means of
instantaneous communication begins to run from the moment that the offer reaches the offeree.
(2) Official holidays or non-business days occurring during the period for acceptance are
included in calculating the period. However, if a notice of acceptance cannot be delivered at
the address of the offeror on the last day of the period because that day falls on an official
holiday or a non-business day at the place of business of the offeror, the period is extended
until the first business day which follows.
Article 2.9 Late Acceptance, Delay in Transmission
(1) A late acceptance is nevertheless effective as an acceptance if without undue delay the
offeror so informs the offeree or gives notice to that effect.
(2) If a letter or other writing containing a late acceptance shows that it has been sent in
such circumstances that if its transmission had been normal it would have reached the offeror in due time, the late acceptance is effective as an acceptance unless, without undue delay, the offeror informs the offeree that it considers
the offer as having elapsed.
Article 2.10 Withdrawal of Acceptance
An acceptance may be withdrawn if the withdrawal reaches the offeror before or at the same time as the acceptance would have become effective.
Article 2.11 Modified Acceptance
(1) A reply to an offer which purports to be an acceptance but contains additions, limitations
or other modifications is a rejection of the
offer and constitutes a counteroffer.
(2) However, a reply to an offer which purports
to be an acceptance but contains additional or
different terms which do not materially alter
the terms of the offer constitutes an
acceptance, unless the offeror, without undue
delay, objects to the discrepancy. If the
offeror does not object, the terms of the
contract are the terms of the offer with the
modifications contained in the acceptance.
Article 2.12 Writings in Confirmation
If a writing which is sent within a reasonable
time after the conclusion of the contract and
which purports to be a confirmation of the
contract contains additional or different terms,
such terms become part of the contract, unless
they materially alter the contract or the
recipient, without undue delay, objects to the
discrepancy.
Article 2.13 Conclusion of Contract Dependent on
Agreement on Specific Matters or in A Specific
Form
Where in the course of negotiations one of the
parties insists that the contract is not
concluded until there is agreement on specific
matters or in a specific form, no contract is
concluded before agreement is reached on those
matters or in that form.
Article 2.14 Contract With Terms Deliberately
Left Open
(1) If the parties intend to conclude a
contract, the fact that they intentionally leave
a term to be agreed upon in further negotiations
or to be determined by a third person does not
prevent a contract from coming into existence.
(2) The existence of the contract is not
affected by the fact that subsequently
(a) the parties reach no agreement on the term;
or
(b) the third person does not determine the
term,
provided that there is an alternative means of
rendering the term definite that is reasonable
in the circumstances, having regard to the
intention of the parties.
Article 2.15 Negotiations in Bad Faith
(1) A party is free to negotiate and is not
liable for failure to reach an agreement.
(2) However, a party who negotiates or breaks
off negotiations in bad faith is liable for the
losses caused to the other party.
(3) It is bad faith, in particular, for a party
to enter into or continue negotiations when
intending not to reach an agreement with the
other party.
Article 2.16 Duty of Confidentiality
Where information is given as confidential by
one party in the course of negotiations, the
other party is under a duty not to disclose that
information or to use it improperly for its own
purposes, whether or not a contract is
subsequently concluded. Where appropriate, the
remedy for breach of that duty may include
compensation based on the benefit received by
the other party.
Article 2.17 Merger Clauses
A contract in writing which contains a clause
indicating that the writing completely embodies
the terms on which the parties have agreed
cannot be contradicted or supplemented by
evidence of prior statements or agreements.
However, such statements or agreements may be
used to interpret the writing.
Article 2.18 Written Modification Clauses
A contract in writing which contains a clause
requiring any modification or termination by
agreement to be in writing may not be otherwise
modified or terminated. However, a party may be
precluded by its conduct from asserting such a
clause to the extent that the other party has
acted in reliance on that conduct.
Article 2.19 Contracting under Standard Terms
(1) Where one party or both parties use standard
terms in concluding a contract, the general
rules on formation apply, subject to Articles
2.20-2.22.
(2) Standard terms are provisions which are
prepared in advance for general and repeated use
by one party and which are actually used without
negotiations with the other party.
Article 2.20 Surprising Terms
(1) No term contained in standard terms which is
of such character that the other party could not
reasonably have expected it, is effective unless
it has been expressly accepted by that party.
(2) In determining whether a term is of such a
character regard is to be had to its content,
language and presentation.
Article 2.21 Conflict Between Standard Terms And
Non-Standard Terms
In case of conflict between a standard term and
a term which is not a standard term the latter
prevails.
Article 2.22 Battle of Forms
Where both parties use standard terms and reach
agreement except on those terms, a contract is
concluded on the basis of the agreed terms and
of any standard terms which are common in
substance unless one party clearly indicates in
advance, or later and without undue delay
informs the other party, that it does not intend
to be bound by such a contract.
CHAPTER 3 -- VALIDITY
Article 3.1 Matters Not Covered
These Principles do not deal with invalidity
arising from
(a) lack of capacity;
(b) lack of authority;
(c) immorality or illegality.
Article 3.2 Validity or Mere Agreement
A contract is concluded, modified or terminated
by the mere agreement of the parties, without
any further requirement.
Article 3.3 Initial Impossibility
(1) The mere fact that at the time of the
conclusion of the contract the performance of
the obligation assumed was impossible does not
affect the validity of the contract.
(2) The mere fact that at the time of the
conclusion of the contract a party was not
entitled to dispose of the assets to which the
contract relates does not affect the validity of
the contract.
Article 3.4 Definition of Mistake
Mistake is an erroneous assumption relating to
facts or to law existing when the contract was
concluded.
Article 3.5 Relevant Mistake
(1) A party may only avoid the contract for
mistake if, when the contract was concluded, the
mistake was of such importance that a reasonable
person in the same situation as the party in
error would only have concluded the contract on
materially different terms or would not have
concluded it at all if the true state of affairs
had been known, and
(a) the other party made the same mistake, or
caused the mistake, or knew or ought to have
known of the mistake and it was contrary to
reasonable commercial standards of fair dealing
to leave the mistaken party in error; or
(b) the other party had not at the time of
avoidance acted in reliance on the contract.
(2) However, a party may not avoid the contract
if
(a) it was grossly negligent in committing the
mistake; or
(b) the mistake relates to a matter in regard to
which the risk of mistake was assumed by or,
having regard to the circumstances, should be
borne by the mistaken party.
Article 3.6 Error in Expression or Transmission
An error occurring in the expression or
transmission of a declaration is considered to
be a mistake of the person from whom the
declaration emanated.
Article 3.7 Remedies for Non-Performance
A party is not entitled to avoid the contract on
the ground of mistake if the circumstances on
which that party relies afford, or could have
afforded, a remedy for non-performance.
Article 3.8 Fraud
A party may avoid the contract when it has been
led to conclude the contract by the other
party's fraudulent representation, including
language or practices, or fraudulent
non-disclosure of circumstances which, according
to reasonable commercial standards of fair
dealing, the latter party should have disclosed.
Article 3.9 Threat
A party may avoid the contract when it has been
led to conclude the contract by the other
party's unjustified threat which, having regard
to the circumstances, is so imminent and serious
as to leave the first party no reasonable
alternative. In particular, a threat is
unjustified if the act or omission with which a
party has been threatened is wrongful in itself,
or it is wrongful to use it as a means to obtain
the conclusion of the contract.
Article 3.10 Gross Disparity
(1) A party may avoid the contract or an
individual term of it if, at the time of the
conclusion of the contract, the contract or term
unjustifiably gave the other party an excessive
advantage. Regard is to be had, among other
factors, to
(a) the fact that the other party has taken
unfair advantage of the first party's
dependence, economic distress or urgent needs,
or of its improvidence, ignorance, inexperience
or lack of bargaining skill; and
(b) the nature and purpose of the contract.
(2) Upon the request of the party entitled to
avoidance, a court may adapt the contract or
term in order to make it accord with reasonable
commercial standards of fair dealing.
(3) A court may also adapt the contract or term
upon the request of the party receiving notice
of avoidance, provided that that party informs
the other party of its request promptly after
receiving such notice and before the other party
has acted in reliance on it. The provisions of
Article 3.13(2) apply accordingly.
Article 3.11 Third Persons
(1) Where fraud, threat, gross disparity or a
party's mistake is imputable to, or is known or
ought to be known by, a third person for whose
acts the other party is responsible, the
contract may be avoided under the same
conditions as if the behavior or knowledge had
been that of the party itself.
(2) Where fraud, threat or gross disparity is
imputable to a third person for whose acts the
other party is not responsible, the contract may
be avoided if that party knew or ought to have
known of the fraud, threat or disparity, or has
not at the time of avoidance acted in reliance
on the contract.
Article 3.12 Confirmation
If the party entitled to avoid the contract
expressly or impliedly confirms the contract
after the period of time for giving notice of
avoidance has begun to run, avoidance of the
contract is excluded.
Article 3.13 Loss of Right to Avoid
(1) If a party is entitled to avoid the contract
for mistake but the other party declares itself
willing to perform or performs the contract as
it was understood by the party entitled to
avoidance, the contract is considered to have
been concluded as the latter party understood
it. The other party must make such a declaration
or render such performance promptly after having
been informed of the manner in which the party
entitled to avoidance had understood the
contract and before that party has acted in
reliance on a notice of avoidance.
(2) After such a declaration or performance the
right to avoidance is lost and any earlier
notice of avoidance is ineffective.
Article 3.14 Notice of Avoidance
The right of a party to avoid the contract is
exercised by notice to the other party.
Article 3.15 Time Limits
(1) Notice of avoidance shall be given within a
reasonable time, having regard to the
circumstances, after the avoiding party knew or
could not have been unaware of the relevant
facts or became capable of acting freely.
(2) Where an individual term of the contract may
be avoided by a party under Article 3.10, the
period of time for giving notice of avoidance
begins to run when that term is asserted by the
other party.
Article 3.16 Partial Avoidance
Where a ground of avoidance affects only
individual terms of the contract, the effect of
avoidance is limited to those terms unless,
having regard to the circumstances, it is
unreasonable to uphold the remaining contract.
Article 3.17 Retroactive Effect of Avoidance
(1) Avoidance takes effect retroactively.
(2) On avoidance either party may claim
restitution of whatever it has supplied under
the contract or the part of it avoided, provided
that it concurrently makes restitution of
whatever it has received under the contract or
the part of it avoided or, if it cannot make
restitution in kind, it makes an allowance for
what it has received.
Article 3.18 Damages
Irrespective of whether or not the contract has
been avoided, the party who knew or ought to
have known of the ground for avoidance is liable
for damages so as to put the other party in the
same position in which it would have been if it
had not concluded the contract.
Article 3.19 Mandatory Character of the
Provisions
The provisions of this Chapter are mandatory,
except insofar as they relate to the binding
force of mere agreement, initial impossibility,
or mistake.
Article 3.20 Unilateral Declarations
The provisions of this Chapter apply with
appropriate adaptations to any communication of
intention addressed by one party to the other.
CHAPTER 4 -- INTERPRETATION
Article 4.1 Intention of the Parties
(1) A contract shall be interpreted according to
the common intention of the parties.
(2) If such an intention cannot be established,
the contract shall be interpreted according to
the meaning that reasonable persons of the same
kind as the parties would give to it in the same
circumstances.
Article 4.2 Interpretation of Statements and
Other Conduct
(1) The statements and other conduct of a party
shall be interpreted according to that party's
intention if the other party knew or could not
have been unaware of that intention.
(2) If the preceding paragraph is not
applicable, such statements and other conduct
shall be interpreted according to the meaning
that a reasonable person of the same kind as the
other party would give to it in the same
circumstances.
Article 4.3 Relevant Circumstances
In applying Articles 4.1 and 4.2, regard shall
be had to all the circumstances, including
(a) preliminary negotiations between the
parties;
(b) practices which the parties have established
between themselves;
(c) the conduct of the parties subsequent to the
conclusion of the contract;
(d) the nature and purpose of the contract;
(e) the meaning commonly given to terms and
expressions in the trade concerned;
(f) usages.
Article 4.4 Reference to Contract or Statement
as a Whole
Terms and expressions shall be interpreted in
the light of the whole contract or statement in
which they appear.
Article 4.5 All Terms To Be Given Effect
Contract terms shall be interpreted so as to
give effect to all the terms rather than to
deprive some of them of effect.
Article 4.6 Contra Proferentem Rule
If contract terms supplied by one party are
unclear, an interpretation against that party is
preferred.
Article 4.7 Linguistic Discrepancies
Where a contract is drawn up in two or more
language versions which are equally
authoritative there is, in case of discrepancy
between the versions, a preference for the
interpretation according to a version in which
the contract was originally drawn up.
Article 4.8 Supplying An Omitted Term
(1) Where the parties to a contract have not
agreed with respect to a term which is important
for a determination of their rights and duties,
a term which is appropriate in the circumstances
shall be supplied.
(2) In determining what is an appropriate term
regard shall be had, among other factors, to
(a) the intention of the parties;
(b) the nature and purpose of the contract;
(c) good faith and fair dealing;
(d) reasonableness.
CHAPTER 5 -- CONTENT
Article 5.1 Express And Implied Obligations
The contractual obligations of the parties may
be express or implied.
Article 5.2 Implied Obligations
Implied obligations stem from
(a) the nature and purpose of the contract;
(b) practices established between the parties
and usages;
(c) good faith and fair dealing;
(d) reasonableness.
Article 5.3 Co-Operation Between The Parties
Each party shall co-operate with the other party
when such co-operation may reasonably be
expected for the performance of that party's
obligations.
Article 5.4 Duty To Achieve A Specific Result -
Duty of Best Efforts
(1) To the extent that an obligation of a party
involves a duty to achieve a specific result,
that party is bound to achieve that result.
(2) To the extent that an obligation of a party
involves a duty of best efforts in the
performance of an activity, that party is bound
to make such efforts as would be made by a
reasonable person of the same kind in the same
circumstances.
Article 5.5 Determination of Kind of Duty
Involved
In determining the extent to which an obligation
of a party involves a duty of best efforts in
the performance of any activity or a duty to
achieve a specific result, regard shall be had,
among other factors, to
(a) the way in which the obligation is expressed
in the contract;
(b) the contractual price and other terms of the
contract;
(c) the degree of risk normally involved in
achieving the expected result;
(d) the ability of the other party to influence
the performance of the obligation.
Article 5.6 Determination of Quality of Performance
Where the quality of performance is neither
fixed by, nor determinable from, the contract a
party is bound to render a performance of a
quality that is reasonable and not less than
average in the circumstances.
Article 5.7 Price Determination
(1) Where a contract does not fix or make
provision for determining the price, the parties
are considered, in the absence of any indication
to the contrary, to have made reference to the
price generally charged at the time of the
conclusion of the contract for such performance
in comparable circumstances in the trade
concerned or, if no such price is available, to
a reasonable price.
(2) Where the price is to be determined by one
party and that determination is manifestly
unreasonable, a reasonable price shall be
substituted notwithstanding any contract term to
the contrary.
(3) Where the price is to be fixed by a third
person, and that person cannot or will not do
so, the price shall be a reasonable price.
(4) Where the price is to be fixed by reference
to factors which do not exist or have ceased to
exist or to be accessible, the nearest
equivalent factor shall be treated as a
substitute.
Article 5.8 Contract For An Indefinite Period
A contract for an indefinite period may be ended
by either party by giving notice a reasonable
time in advance.
CHAPTER 6 -- PERFORMANCE
Section 1: Performance in General
Article 6.1.1 Time of Performance
A party must perform its obligations:
(a) if a time is fixed by or determinable from the contract, at that time;
(b) if a period of time is fixed by or determinable from the contract, at any time within that period unless circumstances indicate that the other party is to choose a time;
(c) in any other case, within a reasonable time after the conclusion of the contract.
Article 6.1.2 Performance At One Time Or In Installments
In cases under Article 6.1(b) or (c), a party must perform its obligations at one time if that
performance can be rendered at one time and the circumstances do not indicate otherwise.
Article 6.1.3 Partial Performance
(1) The obligee may reject an offer to perform in part at the time performance is due, whether or not such offer is coupled with an assurance as to the balance of the performance, unless the obligee has no legitimate interest in so doing.
(2) Additional expenses caused to the obligee by partial performance are to be borne by the obligor without prejudice to any other remedy.
Article 6.1.4 Order of Performance
(1) To the extent that the performances of the parties can be rendered simultaneously, the parties are bound to render them simultaneously unless the circumstances indicate otherwise.
(2) To the extent that the performance of only one party requires a period of time, that party is bound to render its performance first, unless the circumstances indicate otherwise.
Article 6.1.5 Earlier Performance
(1) The obligee may reject an earlier performance unless it has no legitimate interest
in so doing.
(2) Acceptance by a party of an earlier performance does not affect the time for the performance of its own obligations if that time has been fixed irrespective of the performance of the other party's obligations.
(3) Additional expenses caused to the obligee by
earlier performance are to be borne by the
obligor, without regard to any other remedy.
Article 6.1.6 Place of Performance
(1) If the place of performance is neither fixed
by, nor determinable from, the contract, a party
is to perform:
(a) a monetary obligation, at the obligee's
place of business;
(b) any other obligation, at its own place of
business.
(2) A party must bear any increase in the
expenses incidental to performance which is
caused by a change in its place of business
subsequent to the conclusion of the contract.
Article 6.1.7 Payment By Check Or Other
Instrument
(1) Payment may be made in any form used in the
ordinary course of business at the place for
payment.
(2) However, an obligee who accepts, either by
virtue of paragraph (1) or voluntarily, a check,
any other order to pay or a promise to pay, is
presumed to do so only on condition that it will
be honored.
Article 6.1.8 Payment By Funds Transfer
(1) Unless the obligee has indicated a
particular account, payment may be made by a
transfer to any of the financial institutions in
which the obligee has made it known that it has
an account.
(2) In case of payment by a transfer the
obligation of the obligor is discharged when the
transfer to the obligee's financial institution
becomes effective.
Article 6.1.9 Currency of Payment
(1) If a monetary obligation is expressed in a
currency other than that of the place for
payment, it may be paid by the obligor in the
currency of the place for payment unless
(a) the currency is not freely convertible; or
(b) the parties have agreed that payment should
be made only in the currency in which the
monetary obligation is expressed.
(2) If it is impossible for the obligor to make
payment in the currency in which the monetary
obligation is expressed, the obligee may require
payment in the currency of the place for
payment, even in the case referred to in
paragraph (1)(b).
(3) Payment in the currency of the place for
payment is to be made according to the
applicable rate of exchange prevailing there
when payment is due.
(4) However, if the obligor has not paid at the
time when payment is due, the obligee may
require payment according to the applicable rate
of exchange prevailing either when payment is
due or at the time of actual payment.
Article 6.1.10 Currency Not Expressed
Where a monetary obligation is not expressed in
a particular currency, payment must be made in
the currency of the place where payment is made.
Article 6.1.11 Costs of Performance
Each party shall bear the costs of performance
of its obligations.
Article 6.1.12 Imputation of Payments
(1) An obligor owing several monetary
obligations to the same obligee may specify at
the time of payment the debt to which it intends
the payment to be applied. However, the payment
discharges first any expenses, then interest due
and finally the principal.
(2) If the obligor makes no such specification, the obligee may, within a reasonable time after
payment, declare to the obligor the obligation to which it imputes the payment, provided that the obligation is due and undisputed.
(3) In the absence of imputation under paragraphs (1) or (2), payment is imputed to that obligation which satisfies one of the following criteria and in the order indicated:
(a) an obligation which is due or which is the first to fall due;
(b) the obligation for which the obligee has least security;
(c) the obligation which is the most burdensome for the obligor;
(d) the obligation which has arisen first;
If none of the preceding criteria applies, payment is imputed to all the obligations proportionately.
Article 6.1.13 Imputation of Non-Monetary Obligations
Article 6.1.12 applies with appropriate adaptations to the imputation of performance of non-monetary obligations.
Article 6.1.14 Application For Public Permission
Where the law of a State requires a public permission affecting the validity of the contract or its performance and neither that law nor the circumstances indicate otherwise
(a) if only one party has its place of business
in that State, that party shall take the
measures necessary to obtain the permission;
(b) in any other case the party whose
performance requires permission shall take the
necessary measures.
Article 6.1.15 Procedure In Applying For
Permission
(1) The party required to take the measures
necessary to obtain the permission shall do so
without undue delay and shall bear any expenses
incurred.
(2) That party shall whenever appropriate give
the other party notice of the grant or refusal
of such permission without undue delay.
Article 6.1.16 Permission Neither Granted Nor
Refused
(1) If, notwithstanding the fact that the party
responsible has taken all measures required,
permission is neither granted nor refused within
an agreed period or, where no period has been
agreed, within a reasonable time from the
conclusion of the contract, either party is
entitled to terminate the contract.
(2) Where the permission affects some terms
only, paragraph (1) does not apply if, having
regard to the circumstances, it is reasonable to
uphold the remaining contract even if the
permission is refused.
Article 6.1.17 Permission Refused
(1) The refusal of a permission affecting the
validity of the contract renders the contract
void. If the refusal affects the validity of
some terms, only such terms are void if, having
regard to the circumstances, it is reasonable to
uphold the remaining contract.
(2) Where the refusal of a permission renders
the performance of the contract impossible in
whole or in part, the rules on non-performance
apply.
Section 2: Hardship
Article 6.2.1 Contract To Be Observed
Where the performance of a contract becomes more
onerous for one of the parties, the party is
nevertheless bound to perform its obligations
subject to the following provisions on hardship.
Article 6.2.2 Definition Of Hardship
There is hardship where the occurrence of events
fundamentally alters the equilibrium of the
contract either because the cost of a party's
performance has increased or because the value
of the performance a party receives has
diminished, and
(a) the events occur or become known to the
disadvantaged party after the conclusion of the
contract;
(b) the events could not reasonably have been
taken into account by the disadvantaged party at
the time of the conclusion of the contract;
(c) the events are beyond the control of the disadvantaged party; and
(d) the risk of the events was not assumed by the disadvantaged party.
Article 6.2.3 Effects of Hardship
(1) In case of hardship the disadvantaged party is entitled to request renegotiations. The request shall be made without undue delay and shall indicate the grounds on which it is based.
(2) The request for renegotiation does not in tself entitle the disadvantaged party to withhold performance.
(3) Upon failure to reach agreement within a reasonable time either party may resort to the court.
(4) If the court finds hardship it may, if reasonable,
(a) terminate the contract at a date and on terms to be fixed; or
(b) adapt the contract with a view to restoring its equilibrium.
CHAPTER 7 -- NON-PERFORMANCE
Section 1: Non-Performance in General
Article 7.1.1 Non-Performance Defined
Non-performance is failure by a party to perform any of its obligations under the contract, including defective performance or late performance.
Article 7.1.2 Interference By The Other Party
A party may not rely on the non-performance of the other party to the extent that such non-performance was caused by the first party's act or omission or by another event as to which the first party bears the risk.
Article 7.1.3 Withholding Performance
(1) Where the parties are to perform
simultaneously, either party may withhold
performance until the other party tenders its
performance.
(2) Where the parties are to perform
consecutively, the party that is to perform
later may withhold its performance until the
first party has performed.
Article 7.1.4 Cure By Non-Performing Party
(1) The non-performing party may, at its own
expense, cure any non-performance, provided that
(a) without undue delay, it gives notice
indicating the proposed manner and timing of the
cure;
(b) cure is appropriate in the circumstances;
(c) the aggrieved party has no legitimate
interest in refusing cure; and
(d) cure is effected promptly.
(2) The right to cure is not precluded by notice
of termination.
(3) Upon effective notice of cure, rights of the
aggrieved party that are inconsistent with the
non-performing party's performance are suspended
until the time for cure has expired.
(4) The aggrieved party may withhold performance
pending cure.
(5) Notwithstanding cure, the aggrieved party
retains the right to claim damages for delay as
well as for any harm caused or not prevented by
the cure.
Article 7.1.5 Additional Period For Performance
(1) In a case of non-performance the aggrieved
party may by notice to the other party allow an
additional period of time for performance.
(2) During the additional period the aggrieved
party may withhold performance of its own
reciprocal obligations and may claim damages but
may not resort to any other remedy. If it
receives notice from the other party that the
latter will not perform within that period, of
if upon expiry of that period due performance
has not been made, the aggrieved party may
resort to any of the remedies that may be
available under this Chapter.
(3) Where in a case of delay in performance
which is not fundamental the aggrieved party has
given notice allowing an additional period of
time of reasonable length it may terminate the
contract at the end of the period. If the
additional period allowed is not of reasonable
length, it shall be extended to a reasonable
length. The aggrieved party may in its notice
provide that if the other party fails to perform
within the period allowed by the notice the
contract shall automatically terminate.
(4) Paragraph (3) does not apply where the
obligation which has not been performed is only
a minor part of the contractual obligation of
the non-performing party.
Article 7.1.6 Exemption Clause
A clause which limits or excludes one party's
liability for non-performance or which permits
one party to render performance substantially
different from what the other party reasonably
expected may not be invoked if it would be
grossly unfair to do so, having regard to the
purpose of the contract.
Article 7.1.7 Force Majeure
(1) Non-performance by a party is excused if
that party proves that the non-performance was
due to an impediment beyond its control and that
it could not reasonably be expected to have
taken the impediment into account at the time of
the conclusion of the contract or to have
avoided or overcome it or its consequences.
(2) When the impediment is only temporary, the
excuse shall have effect for such period as is
reasonable having regard to the effect of the
impediment on the performance of the contract.
(3) The party who fails to perform must give
notice to the other party of the impediment and
its effect on its ability to perform. If the
notice is not received by the other party within
a reasonable time after the party who fails to
perform knew or ought to have known of the
impediment, it is liable for damages resulting
from such non-receipt.
(4) Nothing in this article prevents a party
from exercising a right to terminate the
contract or to withhold performance or request
interest on money due.
Section 2: Right to Performance
Article 7.2.1 Performance of Monetary Obligation
Where a party who is obliged to pay money does
not do so, the other party may require payment.
Article 7.2.2 Performance of Non-Monetary
Obligation
Where a party who owes an obligation other than
one to pay money does not perform, the other
party may require performance, unless
(a) performance is impossible in law or in fact;
(b) performance or, where relevant, enforcement is unreasonably burdensome or expensive;
(c) the party entitled to performance may reasonably obtain performance from another source;
(d) performance is of an exclusively personal character; or
(e) the party entitled to performance does not require performance within a reasonable time after it has, or ought to have, become aware of the non-performance.
Article 7.2.3 Repair And Replacement Of Defective Performance
The right to performance includes in appropriate cases the right to require repair, replacement, or other cure of defective performance. The provisions of Articles 7.2.1 and 7.2.2 apply accordingly.
Article 7.2.4 Judicial Penalty
(1) Where the court orders a party to perform, it may also direct that this party pay a penalty
if it does not comply with the order.
(2) The penalty shall be paid to the aggrieved party unless mandatory provisions of the law of
the forum provide otherwise. Payment of the penalty to the aggrieved party does not exclude any claim for damages.
Article 7.2.5 Change Of Remedy
(1) An aggrieved party who has required performance of a non-monetary obligation and who has not received performance within a period fixed or otherwise within a reasonable period of time may invoke any other remedy.
(2) Where the decision of a court for performance of a non-monetary obligation cannot be enforced, the aggrieved party may invoke any other remedy.
Section 3: Termination
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 have reasonably
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.
Article 7.3.2 Notice Of Termination
(1) The right of a party to terminate the
contract is exercised by notice to the other
party.
(2) If performance has been offered late or
otherwise does not conform to the contract the
aggrieved party will lose its right to terminate
the contract unless it gives notice to the other
party within a reasonable time after it has or
ought to have become aware of the offer or of
the non-conforming performance.
Article 7.3.3 Anticipatory Non-Performance
Where prior to the date for performance by one
of the parties it is clear that there will be a
fundamental non-performance by that party, the
other party may terminate the contract.
Article 7.3.4 Adequate Assurance Of Due
Performance
A party who reasonably believes that there will
be a fundamental non-performance by the other
party may demand adequate assurance of due
performance and may meanwhile withhold its own
performance. Where this assurance is not
provided within a reasonable time the party
demanding it may terminate the contract.
Article 7.3.5 Effects Of Termination In General
(1) Termination of the contract releases both
parties from their obligation to effect and to
receive future performance.
(2) Termination does not preclude a claim for
damages for non-performance.
(3) Termination does not affect any provision in
the contract for the settlement of disputes or
any other term of the contract which is to
operate even after termination.
Article 7.3.6 Restitution
(1) 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.
If restitution in kind is not possible an
appropriate allowance should be made in money
whenever reasonable.
(2) 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.
Section 4: Damages
Article 7.4.1 Right To Damages
Any non-performance gives the aggrieved party a
right to damages either exclusively or in
conjunction with any other remedies except where
the non-performance is excused under these
Principles.
Article 7.4.2 Full Compensation
(1) The aggrieved party is entitled to full
compensation for harm sustained as a result of
the non-performance. Such harm includes both any
loss which it suffered and any gain of which it
was deprived, taking into account any gain to
the aggrieved party resulting from its avoidance
of cost or harm.
(2) Such harm may be non-pecuniary and includes,
for instance, physical suffering or emotional
distress.
Article 7.4.3 Certainty Of Harm
(1) Compensation is due only for harm, including
future harm, that is established with a degree
of certainty.
(2) Compensation may be due for the loss of a
chance in proportion to the probability of its
occurrence.
(3) Where the amount of damages cannot be
established with a sufficient degree of
certainty, the assessment is at the discretion
of the court.
Article 7.4.4 Foreseeability Of Harm
The non-performing party is liable only for harm
which it foresaw or could reasonably have
foreseen at the time of the conclusion of the
contract as being likely to result from its
non-performance.
Article 7.4.5 Proof Of Harm In Case Of
Replacement Transaction
Where the aggrieved party has terminated the
contract and has made a replacement transaction
within a reasonable time and in a reasonable
manner it may recover the difference between the
contract price and the price of the replacement
transaction as well as damages for any further
harm.
Article 7.4.6 Proof Of Harm By Current Price
(1) Where the aggrieved party has terminated the
contract and has not made a replacement
transaction but there is a current price for the
performance contracted for, it may recover the
difference between the contract price and the
price current at the time the contract is
terminated as well as damages for any further
harm.
(2) Current price is the price generally charged
for the goods delivered or services rendered in
comparable circumstances at the place where the
contract should have been performed or, if there
is no current price at that place, the current
price at such other place that appears
reasonable to take as a reference.
Article 7.4.7 Harm Due In Part To Aggrieved
Party
Where the harm is due in part to an act or
omission of the aggrieved party or to another
event as to which that party bears the risk, the
amount of damages shall be reduced to the extent
that these factors have contributed to the harm,
having regard to the conduct of each of the
parties.
Article 7.4.8 Mitigation Of Harm
(1) The non-performing party is not liable for
harm suffered by the aggrieved party to the extent that the harm could have been reduced by the latter party's taking reasonable steps.
(2) The aggrieved party is entitled to recover any expenses reasonably incurred in attempting to reduce the harm.
Article 7.4.9 Interest For Failure To Pay Money
(1) If a party does not pay a sum of money when it falls due the aggrieved party is entitled to interest upon that sum from the time when payment is due to the time of payment whether or not the non-payment is excused.
(2) The rate of interest shall be the average bank short-term lending rate to prime borrowers prevailing for the currency of payment at the place for payment, or where no such rate exists at that place, then the same rate in the State of the currency of payment. In the absence of such a rate at either place the rate of interest shall be the appropriate rate fixed by law of the State of the currency of payment.
(3) The aggrieved party is entitled to additional damages if the non-payment caused it a greater harm.
Article 7.4.10 Interest On Damages
Unless otherwise agreed, interest on damages for non-performance of non-monetary obligations accrues as from the time of non-performance.
Article 7.4.11 Manner Of Monetary Redress
(1) Damages are to be paid in a lump sum. However, they may be payable in installments where the nature of the harm makes this appropriate.
(2) Damages to be paid in installments may be indexed.
Article 7.4.12 Currency In Which To Assess Damages
Damages are to be assessed either in the currency in which the monetary obligation was expressed or in the currency in which the harm was suffered, whichever is more appropriate.
Article 7.4.13 Agreed Payment For Non-Performance
(1) Where the contract provides that a party who does not perform is to pay a specified sum to the aggrieved party for such non-performance, the aggrieved party is entitled to that sum irrespective of its actual harm.
(2) However, notwithstanding any agreement to the contrary the specified sum may be reduced to a reasonable amount where it is grossly excessive in relation to the harm resulting from the non-performance and to the other circumstances. |
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