Performance and Remedies for Non-performance: Comparative Analysis of the PECL and DCFR

Author:Paul Varul
Position:Professor, University of Tartu

1. Introduction - 2. Performance - 2.1. General remarks - 2.2. Specific rules concerning performance - 3. Remedies for non-performance - 3.1. General remarks - 3.2. The right to enforce performance - 3.2.1. Monetary obligations - 3.2.2. Specific performance of a non-monetary obligation - 3.3. Termination - 3.4. Withholding of performance, price reduction, damages, and interest - 4. Conclusions


Paul Varul

Professor, University of Tartu

Performance and Remedies for Non-performance: Comparative Analysis of the PECL and DCFR

1. Introduction

Surely both performance and remedies for non-performance are among the central categories in the Draft Common Frame of Reference2. A large proportion of disputes arise from the question of how obligations should be duly carried out and which remedies can be taken up in the event of non-performance. The articles concerning performance are contained in DCFR Book III Chapter 2; those governing remedies for non-performance can be found in Chapter 3 of the same book. The DCFR's Books I-III are based on the Principles of European Contract Law3. The same applies to performance and remedies for non-performance - DCFR Book III's Chapters 2 and 3 are expansions of the PECL's Chapters 7, 8, and 9. The changes may be divided into three classes: 1) terminological, 2) structural, and 3) substantive. Most of the substantive changes and corrections have been made in DCFR Book III Chapter 3, concerning remedies for non-performance; there are relatively few changes in Chapter 2 concerning performance in comparison to the PECL. The fact that fewer substantive changes were needed in such important parts as the material on performance and remedies for non-performance shows the high quality level of the PECL material, which has indeed stood the test of time.

On the basis of Estonia's experience, we can assure that the PECL articles have justified themselves in real situations. The PECL served as one of the main sources for the Estonian Law of Obligations Act 4 , which, in turn, is the most important and the lengthiest part of Estonia's new Civil Code5. The Law of Obligations Act, the General Part of which is based on the PECL, has been in force since 2002. Considerable judicial practice has developed since then, proving that no major mistakes, discrepancies, or gaps in the regulation have been revealed in the application of the provisions of the Law of Obligations Act, which are similar to the PECL articles. Therefore, on the basis of Estonia's experience, we can recommend the DCFR as a good source, especially for those countries that are now preparing their new civil codes.

The scope of one article does not enable analysis of all articles of the DCFR concerning performance and remedies for non-performance in this paper. Neither will such an analysis be necessary in this case. The paper will focus mainly on the principal substantive changes that have been made in the DCFR as compared to the PECL6.

2. Performance
2.1. General remarks

Since the main purpose of the DCFR is to specify principles, definitions, and model rules, it pays more attention to principles and definitions than the PECL material does. The central concept is 'obligation', which does not only mean a contractual obligation; rather, it has a broader definition - an obligation is a duty to perform that one party to a legal relationship, the debtor, owes to another party, the creditor (DCFR, III.-1:101, paragraph 1).

Performance of an obligation is the doing by the creditor of what is to be done under the obligation or the not doing by the debtor of what is not to be done (DCFR, III.-1:101, paragraph 2). The definition makes it clear that 'performance' covers both positive and negative obligations.

DCFR Book III Chapter 2, 'Performance', is not the only basis for defining due performance of an obligation. Firstly, general principles such as good faith and fair dealing (DCFR III.-1:103) and obligation of co-operation (DCFR III.-1:104) have to be taken as the basis; these principles are also contained in the PECL (articles 1:201 and 1:202). As a new principle, DCFR III.-1:105 sets forth the non-discrimination rule, according to which Chapter 2 ('Non-discrimination') of Book II applies with appropriate adaptations to the performance of any obligation to provide access to, or to supply, goods, services, or other benefits that are available to members of the public.

Another important principle that needs to be taken into account when one is analysing and applying the DCFR articles on performance and remedies for non-performance is the party autonomy principle (DCFR II.-1:102), according to which parties may exclude the application of any of the following rules relating to contracts or other juridical acts, or the rights and obligations arising from them, or derogate or vary their effects, except as otherwise provided.

2.2. Specific rules concerning performance

As mentioned above, the articles of DCFR Chapter 2 are largely based on the relevant provisions of PECL Chapter 7. The most important rules concerning performance are those regulating the place, time, and order of performance, and the method of payment. The place of performance has been defined in the DCFR's article II.-2:101 in accordance with the same main rule as in the PECL - if the place of performance of an obligation cannot be otherwise determined from the terms regulating the obligation, it is:

  1. in the case of a monetary obligation, the creditor's place of business and;

  2. in the case of any other obligation, the debtor's place of business.

    Naturally, it should be kept in mind that very often the place of performance is fixed or otherwise determinable by a contract. When compared to the PECL article 7:101, DCFR III.-2:101 contains an additional rule: if a party causes any increase in the expenses incidental to performance by change in place of business or habitual residence subsequent to the time when the obligation was incurred, that party must bear the increase. However, the parties may agree otherwise.

    When it comes to the time of performance, the wording of DCFR III.-2:102 is somewhat different from that of PECL article 7:102, but the content has remained unchanged; the same applies to early performance - a creditor may reject an offer to perform before performance is due unless the early performance would not cause the creditor unreasonable prejudice (DCFR III.-2:103 and PECL article 7:103).

    The DCFR has no essential changes when compared to the PECL as regards the order of performance (DCFR III.-2:104 and PECL article 7:104) and alternative performance (DCFR III.-2:105 and PECL article 7:105).

    The provisions governing performance by a third party (DCFR III.-2:107 and PECL article 7:106) have been somewhat changed. The basic rule remains the same - where personal performance by the debtor is not required, the creditor cannot refuse performance by a third party, if:

  3. the third party acts with the assent of the debtor; or

  4. the third party has a legitimate interest in performing and the debtor has failed to perform or it is clear that the debtor will not perform at the time performance is due.

    The rule that performance by a third party discharges the debtor also remains the same; however, the DCFR sets forth a new exception to this rule, that the debtor will remain not discharged to the extent that the third party takes over the creditor's right by assignment or subrogation. Another new provision is DCFR III.-2:107, paragraph 3, according to which, if personal performance by the debtor is not required and the creditor accepts performance of the debtor's obligation by a third party, although the creditor could refuse such performance, the debtor is discharged but the creditor is liable to the debtor for any loss caused by that acceptance. Whether the third party who discharges the debtor's obligation has any recourse against the debtor will depend on the circumstances and on other rules on benevolent intervention and the law on unjustified enrichment.

    The rules on method of payment and on currency of payment, as well as imputation of performance, property not accepted, money not accepted, and costs of...

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