European Civil Law

Common principles and regulations which governs the choice of law in the European Union




Warning: a European civil code is not yet a reality; however, while that does not happen, we expose a set of rules within the European Union to govern choice of law in civil and commercial matters


Law of Obligations





Draft Common Frame of Reference

Book III 
Obligations and corresponding rights 



Chapter 1: General 

III.- 1:101: Scope of Book 

This Book applies, except as otherwise provided, to all obligations within the scope of these rules, whether they are contractual or not, and to corresponding rights to performance. 






III. - 1:102: Definitions 

(1) An obligation is a duty to perform which one party to a legal relationship, the debtor, owes to another party, the creditor. 

(2) Performance of an obligation is the doing by the debtor of what is to be done under the obligation or the not doing by the debtor of what is not to be done. 

(3) Non-performance of an obligation is any failure to perform the obligation, whether or not excused, and includes delayed performance and any other performance which is not in accordance with the terms regulating the obligation. 

(4) An obligation is reciprocal in relation to another obligation if: 

(a) performance of the obligation is due in exchange for performance of the other obligation; 

(b) it is an obligation to facilitate or accept performance of the other obligation; or 

(c) it is so clearly connected to the other obligation or its subject matter that performance of the one can reasonably be regarded as dependent on performance of the other. 

(5) The terms regulating an obligation may be derived from a contract or other juridical act, the law or a legally binding usage or practice, or a court order; and similarly for the terms regulating a right.




III. - 1:103: Good faith and fair dealing

(1) A person has a duty to act in accordance with good faith and fair dealing in performing an obligation, in exercising a right to performance, in pursuing or defending a remedy for non-performance, or in exercising a right to terminate an obligation or contractual relationship. 

(2) The duty may not be excluded or limited by contract or other juridical act. 

(3) Breach of the duty does not give rise directly to the remedies for nonperformance of an obligation but may preclude the person in breach from exercising or relying on a right, remedy or defence which that person would otherwise have.




III. - 1:104: Co-operation 

The debtor and creditor are obliged to co-operate with each other when and to the extent that this can reasonably be expected for the performance of the debtor's obligation.




III. - 1:105: Non-discrimination 

Non-discrimination applies with appropriate adaptations to: 

(a) the performance of any obligation to provide access to, or supply, goods, other assets or services which are available to members of the public; 

(b) the exercise of a right to performance of any such obligation or the pursuing or defending of any remedy for non-performance of any such obligation; and 

(c) the exercise of a right to terminate any such obligation.




III. - 1:106: Conditional rights and obligations 

(1) The terms regulating a right, obligation or contractual relationship may provide that it is conditional upon the occurrence of an uncertain future event, so that it takes effect only if the event occurs (suspensive condition) or comes to an end if the event occurs (resolutive condition).

(2) Upon fulfilment of a suspensive condition, the relevant right, obligation or relationship takes effect. 

(3) Upon fulfilment of a resolutive condition, the relevant right, obligation or relationship comes to an end.

(4) When a party, contrary to the duty of good faith and fair dealing or the obligation to co-operate, interferes with events so as to bring about the fulfilment or non-fulfilment of a condition to that party's advantage, the other party may treat the condition as not having been fulfilled or as having been fulfilled as the case may be. 

(5) When a contractual obligation or relationship comes to an end on the fulfilment of a resolutive condition any restitutionary effects are regulated by the rules in Chapter 3, Section 5, Sub-section 4 (Restitution) with appropriate adaptations.




III. - 1:107: Time-limited rights and obligations 

(1) The terms regulating a right, obligation or contractual relationship may provide that it is to take effect from or end at a specified time, after a specified period of time or on the occurrence of an event which is certain to occur. 

(2) It will take effect or come to an end at the time or on the event without further steps having to be taken. 

(3) When a contractual obligation or relationship comes to an end under this Article any restitutionary effects are regulated by the rules in Chapter 3, Section 5, Sub-section 4 (Restitution) with appropriate adaptations.




III. - 1:108: Variation or termination by agreement 

(1) A right, obligation or contractual relationship may be varied or terminated by agreement at any time. 

(2) Where the parties do not regulate the effects of termination, then: 

(a) it has prospective effect only and does not affect any right to damages, or a stipulated payment, for non-performance of any obligation performance of which was due before termination;

(b) it does not affect any provision for the settlement of disputes or any other provision which is to operate even after termination; and 

(c) in the case of a contractual obligation or relationship any restitutionary effects are regulated by the rules in Chapter 3, Section 5, Sub-section 4 (Restitution) with appropriate adaptations.




III. - 1:109: Variation or termination by notice 

(1) A right, obligation or contractual relationship may be varied or terminated by notice by either party where this is provided for by the terms regulating it. 

(2) Where, in a case involving continuous or periodic performance of a contractual obligation, the terms of the contract do not say when the contractual relationship is to end or say that it will never end, it may be terminated by either party by giving a reasonable period of notice. In assessing whether a period of notice is reasonable, regard may be had to the interval between performances or counter-performances. 

(3) Where the parties do not regulate the effects of termination, then: 

(a) it has prospective effect only and does not affect any right to damages, or a stipulated payment, for non-performance of any obligation performance of which was due before termination;

(b) it does not affect any provision for the settlement of disputes or any other provision which is to operate even after termination; and 

(c) in the case of a contractual obligation or relationship any restitutionary effects are regulated by the rules in Chapter 3, Section 5, Sub-section 4 (Restitution) with appropriate adaptations.




III. - 1:110: Variation or termination by court on a change of circumstances 

(1) An obligation must be performed even if performance has become more onerous, whether because the cost of performance has increased or because the value of what is to be received in return has diminished. 

(2) If, however, performance of a contractual obligation or of an obligation arising from a unilateral juridical act becomes so onerous because of an exceptional change of circumstances that it would be manifestly unjust to hold the debtor to the obligation a court may: (a) vary the obligation in order to make it reasonable and equitable in the new circumstances; or (b) terminate the obligation at a date and on terms to be determined by the court. 

(3) Paragraph (2) applies only if: (a) the change of circumstances occurred after the time when the obligation was incurred;

(b) the debtor did not at that time take into account, and could not reasonably be expected to have taken into account, the possibility or scale of that change of circumstances; 

(c) the debtor did not assume, and cannot reasonably be regarded as having assumed, the risk of that change of circumstances; and 

(d) the debtor has attempted, reasonably and in good faith, to achieve by negotiation a reasonable and equitable adjustment of the terms regulating the obligation. 




III. - 1:111: Tacit prolongation 

Where a contract provides for continuous or repeated performance of obligations for a definite period and the obligations continue to be performed by both parties after that period has expired, the contract becomes a contract for an indefinite period, unless the circumstances are inconsistent with the tacit consent of the parties to such prolongation.




Chapter 2: 
Performance 

III. - 2:101: Place of performance 

(1) If the place of performance of an obligation cannot be otherwise determined from the terms regulating the obligation it is: 

(a) in the case of a monetary obligation, the creditor's place of business; 

(b) in the case of any other obligation, the debtor's place of business. 

(2) For the purposes of the preceding paragraph: 

(a) if a party has more than one place of business, the place of business is that which has the closest relationship to the obligation; and 

(b) if a party does not have a place of business, or the obligation does not relate to a business matter, the habitual residence is substituted. 

(3) If, in a case to which paragraph (1) applies, a party causes any increase in the expenses incidental to performance by a change in place of business or habitual residence subsequent to the time when the obligation was incurred, that party is obliged to bear the increase.




III.- 2:102: Time of performance 

(1) If the time at which, or a period of time within which, an obligation is to be performed cannot otherwise be determined from the terms regulating the obligation it must be performed within a reasonable time after it arises. 

(2) If a period of time within which the obligation is to be performed can be determined from the terms regulating the obligation, the obligation may be performed at any time within that period chosen by the debtor unless the circumstances of the case indicate that the creditor is to choose the time. 

(3) Unless the parties have agreed otherwise, a business must perform the obligations incurred under a contract concluded at a distance for the supply of goods, other assets or services to a consumer no later than 30 days after the contract was concluded. 

(4) If a business has an obligation to reimburse money received from a consumer for goods, other assets or services supplied, the reimbursement must be made as soon as possible and in any case no later than 30 days after the obligation arose.




III. - 2:103: Early performance 

(1) A creditor may reject an offer to perform before performance is due unless the early performance would not cause the creditor unreasonable prejudice. 

(2) A creditor's acceptance of early performance does not affect the time fixed for the performance by the creditor of any reciprocal obligation.




III. - 2:104: Order of performance 

If the order of performance of reciprocal obligations cannot be otherwise determined from the terms regulating the obligations then, to the extent that the obligations can be performed simultaneously, the parties are bound to perform simultaneously unless the circumstances indicate otherwise.




III. - 2:105: Alternative obligations or methods of performance 

(1) Where a debtor is bound to perform one of two or more obligations, or to perform an obligation in one of two or more ways, the choice belongs to the debtor, unless the terms regulating the obligations or obligation provide otherwise.

(2) If the party who is to make the choice fails to choose by the time when performance is due, then: 

(a) if the delay amounts to a fundamental non-performance, the right to choose passes to the other party; 

(b) if the delay does not amount to a fundamental non-performance, the other party may give a notice fixing an additional period of reasonable length within which the party to choose is required to do so. If the latter still fails to do so, the right to choose passes to the other party.




III. - 2:106: Performance entrusted to another 

A debtor who entrusts performance of an obligation to another person remains responsible for performance. 




III. - 2:107: Performance by a third person 

(1) Where personal performance by the debtor is not required by the terms regulating the obligation, the creditor cannot refuse performance by a third person if: 

(a) the third person acts with the assent of the debtor; or 

(b) the third person 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. 

(2) Performance by a third person in accordance with paragraph (1) discharges the debtor except to the extent that the third person takes over the creditor's right by assignment or subrogation. 

(3) Where personal performance by the debtor is not required and the creditor accepts performance of the debtor's obligation by a third party in circumstances not covered by paragraph (1) the debtor is discharged but the creditor is liable to the debtor for any loss caused by that acceptance.




 III. - 2:108: Method of payment 

(1) Payment of money due may be made by any method used in the ordinary course of business.

(2) A creditor who accepts a cheque or other order to pay or a promise to pay is presumed to do so only on condition that it will be honoured. The creditor may not enforce the original obligation to pay unless the order or promise is not honoured.




III. - 2:109: Currency of payment 

(1) The debtor and the creditor may agree that payment is to be made only in a specified currency. 

(2) In the absence of such agreement, a sum of money expressed in a currency other than that of the place where payment is due may be paid in the currency of that place according to the rate of exchange prevailing there at the time when payment is due. 

(3) If, in a case falling within the preceding paragraph, the debtor has not paid at the time when payment is due, the creditor may require payment in the currency of the place where payment is due according to the rate of exchange prevailing there either at the time when payment is due or at the time of actual payment. 

(4) Where a monetary obligation is not expressed in a particular currency, payment must be made in the currency of the place where payment is to be made. 





III. - 2:110: Imputation of performance 

(1) Where a debtor has to perform several obligations of the same nature and makes a performance which does not suffice to extinguish all of the obligations, then subject to paragraph (5), the debtor may at the time of performance notify the creditor of the obligation to which the performance is to be imputed. 

(2) If the debtor does not make such a notification the creditor may, within a reasonable time and by notifying the debtor, impute the performance to one of the obligations. 

(3) An imputation under paragraph (2) is not effective if it is to an obligation which is not yet due, or is illegal, or is disputed. 

(4) In the absence of an effective imputation by either party, and subject to the following paragraph, the performance is imputed to that obligation which satisfies one of the following criteria in the sequence indicated: 

(a) the obligation which is due or is the first to fall due; 

(b) the obligation for which the creditor has the least security; 

(c) the obligation which is the most burdensome for the debtor; 

(d) the obligation which has arisen first. If none of the preceding criteria applies, the performance is imputed proportionately to all the obligations.

(5) In the case of a monetary obligation, a payment by the debtor is to be imputed, first, to expenses, secondly, to interest, and thirdly, to principal, unless the creditor makes a different imputation.




III.- 2:111: Property not accepted 

(1) A person who has an obligation to deliver or return corporeal property other than money and who is left in possession of the property because of the creditor's failure to accept or retake the property, has an ancillary obligation to take reasonable steps to protect and preserve it. 

(2) The debtor may obtain discharge from the obligation to deliver or return and from the ancillary obligation mentioned in the preceding paragraph: 

(a) by depositing the property on reasonable terms with a third person to be held to the order of the creditor, and notifying the creditor of this; or 

(b) by selling the property on reasonable terms after notice to the creditor, and paying the net proceeds to the creditor. 

(3) Where, however, the property is liable to rapid deterioration or its preservation is unreasonably expensive, the debtor has an obligation to take reasonable steps to dispose of it. The debtor may obtain discharge from the obligation to deliver or return by paying the net proceeds to the creditor. 

(4) The debtor left in possession is entitled to be reimbursed or to retain out of the proceeds of sale any costs reasonably incurred.




III. - 2:112: Money not accepted 

(1) Where a creditor fails to accept money properly tendered by the debtor, the debtor may after notice to the creditor obtain discharge from the obligation to pay by depositing the money to the order of the creditor in accordance with the law of the place where payment is due. 

(2) Paragraph (1) applies, with appropriate adaptations, to money properly tendered by a third party in circumstances where the creditor is not entitled to refuse such performance.




III. - 2:113: Costs and formalities of performance 

(1) The costs of performing an obligation are borne by the debtor. 

(2) In the case of a monetary obligation the debtor's obligation to pay includes taking such steps and complying with such formalities as may be necessary to enable payment to be made. 





III. - 2:114: Extinctive effect of performance 

Full performance extinguishes the obligation if it is: 

(a) in accordance with the terms regulating the obligation; or 

(b) of such a type as by law to afford the debtor a good discharge.




Chapter 3: 
Remedies for non-performance 

Section 1: General

III. - 3:101: Remedies available 

(1) If an obligation is not performed by the debtor and the non-performance is not excused, the creditor may resort to any of the remedies set out in this Chapter. 

(2) If the debtor's non-performance is excused, the creditor may resort to any of those remedies except enforcing specific performance and damages. 

(3) The creditor may not resort to any of those remedies to the extent that the creditor caused the debtor's non-performance.




III. - 3:102: Cumulation of remedies 

Remedies which are not incompatible may be cumulated. In particular, a creditor is not deprived of the right to damages by resorting to any other remedy.




III. - 3:103: Notice fixing additional period for performance 

(1) In any case of non-performance of an obligation the creditor may by notice to the debtor allow an additional period of time for performance. 

(2) During the additional period the creditor may withhold performance of the creditor's reciprocal obligations and may claim damages, but may not resort to any other remedy. 

(3) If the creditor receives notice from the debtor that the debtor will not perform within that period, or if upon expiry of that period due performance has not been made, the creditor may resort to any available remedy.




III. - 3:104: Excuse due to an impediment 

(1) A debtor's non-performance of an obligation is excused if it is due to an impediment beyond the debtor's control and if the debtor could not reasonably be expected to have avoided or overcome the impediment or its consequences. 

(2) Where the obligation arose out of a contract or other juridical act, nonperformance is not excused if the debtor could reasonably be expected to have taken the impediment into account at the time when the obligation was incurred. 

(3) Where the excusing impediment is only temporary the excuse has effect for the period during which the impediment exists. However, if the delay amounts to a fundamental non-performance, the creditor may treat it as such. 

(4) Where the excusing impediment is permanent the obligation is extinguished. Any reciprocal obligation is also extinguished. In the case of contractual obligations any restitutionary effects of extinction are regulated by the rules in Chapter 3, Section 5, Sub-section 4 (Restitution) with appropriate adaptations. 

(5) The debtor has a duty to ensure that notice of the impediment and of its effect on the ability to perform reaches the creditor within a reasonable time after the debtor knew or could reasonably be expected to have known of these circumstances. The creditor is entitled to damages for any loss resulting from the non-receipt of such notice.




III. - 3:105: Term excluding or restricting remedies 

(1) A term of a contract or other juridical act which purports to exclude or restrict liability to pay damages for personal injury (including fatal injury) caused intentionally or by gross negligence is void. 

(2) A term excluding or restricting a remedy for non-performance of an obligation, even if valid and otherwise effective, having regard in particular to the rules on unfair contract terms in Book II, Chapter 9, Section 4, may nevertheless not be invoked if it would be contrary to good faith and fair dealing to do so.




III. - 3:106: Notices relating to non-performance 

(1) If the creditor gives notice to the debtor because of the debtor's nonperformance of an obligation or because such non-performance is anticipated, and the notice is properly dispatched or given, a delay or inaccuracy in the transmission of the notice or its failure to arrive does not prevent it from having effect. 

(2) The notice has effect from the time at which it would have arrived in normal circumstances. 




III. - 3:107: Failure to notify non-conformity 

(1) If, in the case of an obligation to supply goods, other assets or services, the debtor supplies goods, other assets or services which are not in conformity with the terms regulating the obligation, the creditor may not rely on the lack of conformity unless the creditor gives notice to the debtor within a reasonable time specifying the nature of the lack of conformity. 

(2) The reasonable time runs from the time when the goods or other assets are supplied or the service is completed or from the time, if it is later, when the creditor discovered or could reasonably be expected to have discovered the non-conformity. 

(3) The debtor is not entitled to rely on paragraph (1) if the failure relates to facts which the debtor knew or could reasonably be expected to have known and which the debtor did not disclose to the creditor. (4) This Article does not apply where the creditor is a consumer.




III. - 3:108: Business unable to fulfil consumer's order by distance communication 

(1) Where a business is unable to perform its obligations under a contract concluded with a consumer by means of distance communication, it is obliged to inform the consumer immediately and refund any sums paid by the consumer without undue delay and in any case within 30 days. The consumer's remedies for non-performance remain unaffected. 

(2) The parties may not, to the detriment of the consumer, exclude the application of this Article or derogate from or vary its effects.




Section 2:
Cure by debtor of non-conforming performance 

III. - 3:201: Scope 

This Section applies where a debtor's performance does not conform to the terms regulating the obligation. 




III. - 3:202: Cure by debtor: general rules 

(1) The debtor may make a new and conforming tender if that can be done within the time allowed for performance. 

(2) If the debtor cannot make a new and conforming tender within the time allowed for performance but, promptly after being notified of the lack of conformity, offers to cure it within a reasonable time and at the debtor's own expense, the creditor may not pursue any remedy for non-performance, other than withholding performance, before allowing the debtor a reasonable period in which to attempt to cure the nonconformity. 

(3) Paragraph (2) is subject to the provisions of the following Article.




III. - 3:203: When creditor need not allow debtor an opportunity to cure 

The creditor need not, under paragraph (2) of the preceding Article, allow the debtor a period in which to attempt cure if: 

(a) failure to perform a contractual obligation within the time allowed for performance amounts to a fundamental non-performance; 

(b) the creditor has reason to believe that the debtor's performance was made with knowledge of the non-conformity and was not in accordance with good faith and fair dealing; 

(c) the creditor has reason to believe that the debtor will be unable to effect the cure within a reasonable time and without significant inconvenience to the creditor or other prejudice to the creditor's legitimate interests; or 

(d) cure would be inappropriate in the circumstances.




III. - 3:204: Consequences of allowing debtor opportunity to cure 

(1) During the period allowed for cure the creditor may withhold performance of the creditor's reciprocal obligations, but may not resort to any other remedy. 

(2) If the debtor fails to effect cure within the time allowed, the creditor may resort to any available remedy. 

(3) Notwithstanding cure, the creditor retains the right to damages for any loss caused by the debtor's initial or subsequent non-performance or by the process of effecting cure.




III. - 3:205: Return of replaced item 

(1) Where the debtor has, whether voluntarily or in compliance with an order under III. ' 3:302 (Enforcement of non-monetary obligations), remedied a non-conforming performance by replacement, the debtor has a right and an obligation to take back the replaced item at the debtor's expense. 

(2) The creditor is not liable to pay for any use made of the replaced item in the period prior to the replacement.




Section 3: 
Right to enforce performance 

III. - 3:301: Enforcement of monetary obligations 

(1) The creditor is entitled to recover money payment of which is due. 

(2) Where the creditor has not yet performed the reciprocal obligation for which payment will be due and it is clear that the debtor in the monetary obligation will be unwilling to receive performance, the creditor may nonetheless proceed with performance and may recover payment unless: 

(a) the creditor could have made a reasonable substitute transaction without significant effort or expense; or 

(b) performance would be unreasonable in the circumstances.




III. - 3:302: Enforcement of non-monetary obligations 

(1) The creditor is entitled to enforce specific performance of an obligation other than one to pay money 


(2) Specific performance includes the remedying free of charge of a performance which is not in conformity with the terms regulating the obligation. 

(3) Specific performance cannot, however, be enforced where: 

(a) performance would be unlawful or impossible; 

(b) performance would be unreasonably burdensome or expensive; or 

(c) performance would be of such a personal character that it would be unreasonable to enforce it. 

(4) The creditor loses the right to enforce specific performance if performance is not requested within a reasonable time after the creditor has become, or could reasonably be expected to have become, aware of the non-performance. 

(5) The creditor cannot recover damages for loss or a stipulated payment for non-performance to the extent that the creditor has increased the loss or the amount of the payment by insisting unreasonably on specific performance in circumstances where the creditor could have made a reasonable substitute transaction without significant effort or expense.




III. - 3:303: Damages not precluded 

The fact that a right to enforce specific performance is excluded under the preceding Article does not preclude a claim for damages.




Section 4: 
Withholding performance 

III. - 3:401: Right to withhold performance of reciprocal obligation 

(1) A creditor who is to perform a reciprocal obligation at the same time as, or after, the debtor performs has a right to withhold performance of the reciprocal obligation until the debtor has tendered performance or has performed. 

(2) A creditor who is to perform a reciprocal obligation before the debtor performs and who reasonably believes that there will be non-performance by the debtor when the debtor's performance becomes due may withhold performance of the reciprocal obligation for as long as the reasonable belief continues. However, the right to withhold performance is lost if the debtor gives an adequate assurance of due performance. 

(3) A creditor who withholds performance in the situation mentioned in paragraph (2) has a duty to give notice of that fact to the debtor as soon as is reasonably practicable and is liable for any loss caused to the debtor by a breach of that duty. 

(4) The performance which may be withheld under this Article is the whole or part of the performance as may be reasonable in the circumstances.




Section 5: 
Termination 

III. - 3:501: Scope and definition 

(1) This Section applies only to contractual obligations and contractual relationships. 

(2) In this Section 'termination' means the termination of the contractual relationship in whole or in part and 'terminate' has a corresponding meaning.




Sub-section 1: 
Grounds for termination 

III. - 3:502: Termination for fundamental non-performance 

(1) A creditor may terminate if the debtor's non-performance of a contractual obligation is fundamental. 

(2) A non-performance of a contractual obligation is fundamental if: 

(a) it substantially deprives the creditor of what the creditor was entitled to expect under the contract, as applied to the whole or relevant part of the performance, unless at the time of conclusion of the contract the debtor did not foresee and could not reasonably be expected to have foreseen that result; or 

(b) it is intentional or reckless and gives the creditor reason to believe that the debtor's future performance cannot be relied on.




III. - 3:503: Termination after notice fixing additional time for performance 

(1) A creditor may terminate in a case of delay in performance of a contractual obligation which is not in itself fundamental if the creditor gives a notice fixing an additional period of time of reasonable length for performance and the debtor does not perform within that period. 

(2) If the period fixed is unreasonably short, the creditor may terminate only after a reasonable period from the time of the notice.




III. - 3:504: Termination for anticipated non-performance 

A creditor may terminate before performance of a contractual obligation is due if the debtor has declared that there will be a non-performance of the obligation, or it is otherwise clear that there will be such a non-performance, and if the non-performance would have been fundamental.




III. - 3:505: Termination for inadequate assurance of performance 

A creditor who reasonably believes that there will be a fundamental nonperformance of a contractual obligation by the debtor may terminate if the creditor demands an adequate assurance of due performance and no such assurance is provided within a reasonable time.




Sub-section 2: 
Scope, exercise and loss of right to terminate 

III. - 3:506: Scope of right to terminate 

(1) Where the debtor's obligations under the contract are not divisible the creditor may only terminate the contractual relationship as a whole. 


(2) Where the debtor's obligations under the contract are to be performed in separate parts or are otherwise divisible, then: 

(a) if there is a ground for termination under this Section of a part to which a counter-performance can be apportioned, the creditor may terminate the contractual relationship so far as it relates to that part; 

(b) the creditor may terminate the contractual relationship as a whole only if the creditor cannot reasonably be expected to accept performance of the other parts or there is a ground for termination in relation to the contractual relationship as a whole.




III. - 3:507: Notice of termination 

(1) A right to terminate under this Section is exercised by notice to the debtor. 

(2) Where a notice under III. ' 3:503 (Termination after notice fixing additional time for performance) provides for automatic termination if the debtor does not perform within the period fixed by the notice, termination takes effect after that period or a reasonable length of time from the giving of notice (whichever is longer) without further notice.




III. - 3:508: Loss of right to terminate 

(1) If performance has been tendered late or a tendered performance otherwise does not conform to the contract the creditor loses the right to terminate under this Section unless notice of termination is given within a reasonable time. 

(2) Where the creditor has given the debtor a period of time to cure the non-performance under III. ' 3:202 (Cure by debtor: general rules) the time mentioned in paragraph (1) begins to run from the expiry of that period. In other cases that time begins to run from the time when the creditor has become, or could reasonably be expected to have become, aware of the tender or the non-conformity. 

(3) A creditor loses a right to terminate by notice under III. ' 3:503 (Termination after notice fixing additional time for performance), III. ' 3:504 (Termination for anticipated non-performance) or III. ' 3:505 (Termination for inadequate assurance of performance) unless the creditor gives notice of termination within a reasonable time after the right has arisen.




Sub-section 3: Effects of termination 

III. - 3:509: Effect on obligations under the contract 

(1) On termination under this Section, the outstanding obligations or relevant part of the outstanding obligations of the parties under the contract come to an end. 

(2) Termination does not, however, affect any provision of the contract for the settlement of disputes or other provision which is to operate even after termination.

(3) A creditor who terminates under this Section retains existing rights to damages or a stipulated payment for non-performance and in addition has the same right to damages or a stipulated payment for non-performance as the creditor would have had if there had been non-performance of the now extinguished obligations of the debtor. In relation to such extinguished obligations the creditor is not regarded as having caused or contributed to the loss merely by exercising the right to terminate.




Sub-section 4: 
Restitution 

III. - 3:510: Restitution of benefits received by performance 

(1) On termination under this Section a party (the recipient) who has received any benefit by the other's performance of obligations under the terminated contractual relationship or terminated part of the contractual relationship is obliged to return it. Where both parties have obligations to return, the obligations are reciprocal. 

(2) If the performance was a payment of money, the amount received is to be repaid. 

(3) To the extent that the benefit (not being money) is transferable, it is to be returned by transferring it. However, if a transfer would cause unreasonable effort or expense, the benefit may be returned by paying its value. 

(4) To the extent that the benefit is not transferable it is to be returned by paying its value in accordance with III. ' 3:512 (Payment of value of benefit). 

(5) The obligation to return a benefit extends to any natural or legal fruits received from the benefit. 




III. - 3:511: When restitution not required 

(1) There is no obligation to make restitution under this Sub-section to the extent that conforming performance by one party has been met by conforming performance by the other.

(2) The terminating party may elect to treat performance as non-conforming if what was received by that party is of no, or fundamentally reduced, value to that party because of the other party's non-performance. 

(3) Restitution under this Sub-section is not required where the contract was gratuitous.




III. - 3:512: Payment of value of benefit 

(1) The recipient is obliged to: 

(a) pay the value (at the time of performance) of a benefit which is not transferable or which ceases to be transferable before the time when it is to be returned; and 

(b) pay recompense for any reduction in the value of a returnable benefit as a result of a change in the condition of the benefit between the time of receipt and the time when it is to be returned. 

(2) Where there was an agreed price the value of the benefit is that proportion of the price which the value of the actual performance bears to the value of the promised performance. Where no price was agreed the value of the benefit is the sum of money which a willing and capable provider and a willing and capable recipient, knowing of any non-conformity, would lawfully have agreed. 

(3) The recipient's liability to pay the value of a benefit is reduced to the extent that as a result of a non-performance of an obligation owed by the other party to the recipient: 

(a) the benefit cannot be returned in essentially the same condition as when it was received; or 

(b) the recipient is compelled without compensation either to dispose of it or to sustain a disadvantage in order to preserve it. (4) The recipient's liability to pay the value of a benefit is likewise reduced to the extent that it cannot be returned in the same condition as when it was received as a result of conduct of the recipient in the reasonable, but mistaken, belief that there was no non-conformity.




III. - 3:513: Use and improvements 

(1) The recipient is obliged to pay a reasonable amount for any use which the recipient makes of the benefit except in so far as the recipient is liable under III. ' 3:512 (Payment of value of benefit) paragraph (1) in respect of that use.

(2) A recipient who has improved a benefit which the recipient is obliged under this Section to return has a right to payment of the value of improvements if the other party can readily obtain that value by dealing with the benefit unless: 

(a) the improvement was a non-performance of an obligation owed by the recipient to the other party; or 

(b) the recipient made the improvement when the recipient knew or could reasonably be expected to know that the benefit would have to be returned.




III. - 3:514: Liabilities arising after time when return due 

(1) The recipient is obliged to: 

(a) pay the value (at the time of performance) of a benefit which ceases to be transferable after the time when its return was due; and 

(b) pay recompense for any reduction in the value of a returnable benefit as a result of a change in the condition of the benefit after the time when its return was due. 

(2) If the benefit is disposed of after the time when return was due, the value to be paid is the value of any proceeds, if this is greater. 

(3) Other liabilities arising from non-performance of an obligation to return a benefit are unaffected.




Section 6: 
Price reduction 

III. - 3:601: Right to reduce price 

(1) A creditor who accepts a performance not conforming to the terms regulating the obligation may reduce the price. The reduction is to be proportionate to the decrease in the value of what was received by virtue of the performance at the time it was made compared to the value of what would have been received by virtue of a conforming performance. 

(2) A creditor who is entitled to reduce the price under the preceding paragraph and who has already paid a sum exceeding the reduced price may recover the excess from the debtor.

(3) A creditor who reduces the price cannot also recover damages for the loss thereby compensated but remains entitled to damages for any further loss suffered. 

(4) This Article applies with appropriate adaptations to a reciprocal obligation of the creditor other than an obligation to pay a price.




Section 7: Damages and interest 

III. - 3:701: Right to damages 

(1) The creditor is entitled to damages for loss caused by the debtor's nonperformance of an obligation, unless the non-performance is excused. 

(2) The loss for which damages are recoverable includes future loss which is reasonably likely to occur. 

(3) 'Loss' includes economic and non-economic loss. 'Economic loss' includes loss of income or profit, burdens incurred and a reduction in the value of property. 'Non-economic loss' includes pain and suffering and impairment of the quality of life.




III. - 3:702: General measure of damages 

The general measure of damages for loss caused by non-performance of an obligation is such sum as will put the creditor as nearly as possible into the position in which the creditor would have been if the obligation had been duly performed. Such damages cover loss which the creditor has suffered and gain of which the creditor has been deprived.




III. - 3:703: Foreseeability 

The debtor in an obligation which arises from a contract or other juridical act is liable only for loss which the debtor foresaw or could reasonably be expected to have foreseen at the time when the obligation was incurred as a likely result of the non-performance, unless the non-performance was intentional, reckless or grossly negligent.




III. - 3:704: Loss attributable to creditor 

The debtor is not liable for loss suffered by the creditor to the extent that the creditor contributed to the non-performance or its effects.




III. - 3:705: Reduction of loss 

(1) The debtor is not liable for loss suffered by the creditor to the extent that the creditor could have reduced the loss by taking reasonable steps. 

(2) The creditor is entitled to recover any expenses reasonably incurred in attempting to reduce the loss.




III. - 3:706: Substitute transaction 

A creditor who has terminated a contractual relationship in whole or in part under Section 5 and has made a substitute transaction within a reasonable time and in a reasonable manner may, in so far as entitled to damages, recover the difference between the value of what would have been payable under the terminated relationship and the value of what is payable under the substitute transaction, as well as damages for any further loss.




III. - 3:707: Current price 

Where the creditor has terminated a contractual relationship in whole or in part under Section 5 and has not made a substitute transaction but there is a current price for the performance, the creditor may, in so far as entitled to damages, recover the difference between the contract price and the price current at the time of termination as well as damages for any further loss.




III. - 3:708: Interest on late payments 

(1) If payment of a sum of money is delayed, whether or not the nonperformance is excused, the creditor is entitled to interest on that sum from the time when payment is due to the time of payment at the average commercial bank short-term lending rate to prime borrowers prevailing for the currency of payment at the place where payment is due. 

(2) The creditor may in addition recover damages for any further loss.




III. - 3:709: When interest to be added to capital 

(1) Interest payable according to the preceding Article is added to the outstanding capital every 12 months. 

(2) Paragraph (1) of this Article does not apply if the parties have provided for interest upon delay in payment.




III. - 3:710: Interest in commercial contracts 

(1) If a business delays the payment of a price due under a contract for the supply of goods, other assets or services without being excused under III. ' 3:104 (Excuse due to an impediment), interest is due at the rate specified in paragraph (4), unless a higher interest rate is applicable. 

(2) Interest at the rate specified in paragraph (4) starts to run on the day which follows the date or the end of the period for payment provided in the contract. If there is no such date or period, interest at that rate starts to run: 

(a) 30 days after the date when the debtor receives the invoice or an equivalent request for payment; or 

(b) 30 days after the date of receipt of the goods or services, if the date under (a) is earlier or uncertain, or if it is uncertain whether the debtor has received an invoice or equivalent request for payment. 

(3) If conformity of goods or services to the contract is to be ascertained by way of acceptance or verification, the 30 day period under paragraph (2) (b) starts to run on the date of acceptance or verification. 

(4) The interest rate for delayed payment is the interest rate applied by the European Central Bank to its most recent main refinancing operation carried out before the first calendar day of the half-year in question ('the reference rate'), plus seven percentage points. For the currency of a Member State which is not participating in the third stage of economic and monetary union, the reference rate is the equivalent rate set by its national central bank. 

(5) The creditor may in addition recover damages for any further loss.




III. - 3:711: Unfair terms relating to interest 

(1) A term whereby a business pays interest from a date later than that specified in the preceding Article paragraph (2) (a) and (b) and paragraph (3), or at a rate lower than that specified in paragraph (4), is not binding to the extent that this would be unfair. 

(2) A term whereby a debtor is allowed to pay the price for goods, other assets or services later than the time when interest starts to run under the preceding Article paragraph (2)(a) and (b) and paragraph (3) does not deprive the creditor of interest to the extent that this would be unfair. 

(3) Something is unfair for the purposes of this Article if it grossly deviates from good commercial practice, contrary to good faith and fair dealing.




III. - 3:712: Stipulated payment for non-performance 

(1) Where the terms regulating an obligation provide that a debtor who fails to perform the obligation is to pay a specified sum to the creditor for such non-performance, the creditor is entitled to that sum irrespective of the actual loss. 

(2) However, despite any provision to the contrary, the sum so specified in a contract or other juridical act may be reduced to a reasonable amount where it is grossly excessive in relation to the loss resulting from the non-performance and the other circumstances.




III. - 3:713: Currency by which damages to be measured 

Damages are to be measured by the currency which most appropriately reflects the creditor's loss.




Chapter 4: 
Plurality of debtors and creditors 

Section 1: 
Plurality of debtors 

III. - 4:101: Scope of Section 

This Section applies where two or more debtors are bound to perform one obligation.




III. - 4:102: Solidary, divided and joint obligations 

(1) An obligation is solidary when each debtor is bound to perform the obligation in full and the creditor may require performance from any of them until full performance has been received. 

(2) An obligation is divided when each debtor is bound to perform only part of the obligation and the creditor may claim from each debtor only performance of that debtor's part. 

(3) An obligation is joint when the debtors are bound to perform the obligation together and the creditor may require performance only from all of them together.




III. - 4:103: When different types of obligation arise 

(1) Whether an obligation is solidary, divided or joint depends on the terms regulating the obligation. 

(2) If the terms do not determine the question, the liability of two or more debtors to perform the same obligation is solidary. Liability is solidary in particular where two or more persons are liable for the same damage. 

(3) The fact that the debtors are not liable on the same terms or grounds does not prevent solidarity.




III. - 4:104: Liability under divided obligations 

Debtors bound by a divided obligation are liable in equal shares.




III. - 4:105: Joint obligations: special rule when money claimed for non-performance 

Notwithstanding III. - 4:102 (Solidary, divided and joint obligations) paragraph (3), when money is claimed for non-performance of a joint obligation, the debtors have solidary liability for payment to the creditor.




III. - 4:106: Apportionment between solidary debtors 

(1) As between themselves, solidary debtors are liable in equal shares. 

(2) If two or more debtors have solidary liability for the same damage, their share of liability as between themselves is equal unless different shares of liability are more appropriate having regard to all the circumstances of the case and in particular to fault or to the extent to which a source of danger for which one of them was responsible contributed to the occurrence or extent of the damage.




III. - 4:107: Recourse between solidary debtors 

(1) A solidary debtor who has performed more than that debtor's share has a right to recover the excess from any of the other debtors to the extent of each debtor's unperformed share, together with a share of any costs reasonably incurred. 

(2) A solidary debtor to whom paragraph (1) applies may also, subject to any prior right and interest of the creditor, exercise the rights and actions of the creditor, including any supporting security rights, to recover the excess from any of the other debtors to the extent of each debtor's unperformed share. 

(3) If a solidary debtor who has performed more than that debtor's share is unable, despite all reasonable efforts, to recover contribution from another solidary debtor, the share of the others, including the one who has performed, is increased proportionally.




III. - 4:108: Performance, set-off and merger in solidary obligations 

(1) Performance or set-off by a solidary debtor or set-off by the creditor against one solidary debtor discharges the other debtors in relation to the creditor to the extent of the performance or set-off. 

(2) Merger of debts between a solidary debtor and the creditor discharges the other debtors only for the share of the debtor concerned.




III. - 4:109: Release or settlement in solidary obligations 

(1) When the creditor releases, or reaches a settlement with, one solidary debtor, the other debtors are discharged of liability for the share of that debtor. 

(2) As between solidary debtors, the debtor who is discharged from that debtor's share is discharged only to the extent of the share at the time of the discharge and not from any supplementary share for which that debtor may subsequently become liable under III. ' 4:107 (Recourse between solidary debtors) paragraph (3). 

(3) When the debtors have solidary liability for the same damage the discharge under paragraph (1) extends only so far as is necessary to prevent the creditor from recovering more than full reparation and the other debtors retain their rights of recourse against the released or settling debtor to the extent of that debtor's unperformed share.




III. - 4:110: Effect of judgment in solidary obligations 

A decision by a court as to the liability to the creditor of one solidary debtor does not affect: (a) the liability to the creditor of the other solidary debtors; or (b) the rights of recourse between the solidary debtors under III. ' 4:107 (Recourse between solidary debtors). 





III. - 4:111: Prescription in solidary obligations 

Prescription of the creditor's right to performance against one solidary debtor does not affect: 

(a) the liability to the creditor of the other solidary debtors; or 

(b) the rights of recourse between the solidary debtors under III. ' 4:107 (Recourse between solidary debtors).




III. - 4:112: Opposability of other defences in solidary obligations 

(1) A solidary debtor may invoke against the creditor any defence which another solidary debtor can invoke, other than a defence personal to that other debtor. Invoking the defence has no effect with regard to the other solidary debtors. 

(2) A debtor from whom contribution is claimed may invoke against the claimant any personal defence that that debtor could have invoked against the creditor.




Section 2: 
Plurality of creditors 

III.- 4:201: Scope of section 

This Section applies where two or more creditors have a right to performance under one obligation. 





III. - 4:202: Solidary, divided and joint rights 

(1) A right to performance is solidary when any of the creditors may require full performance from the debtor and the debtor may perform to any of the creditors. 

(2) A right to performance is divided when each creditor may require performance only of that creditor's share and the debtor owes each creditor only that creditor's share. 

(3) A right to performance is joint when any creditor may require performance only for the benefit of all the creditors and the debtor must perform to all the creditors.




III. - 4:203: When different types of right arise 

(1) Whether a right to performance is solidary, divided or communal depends on the terms regulating the right. 

(2) If the terms do not determine the question, the right of co-creditors is divided.





III.- 4:204: Apportionment in cases of divided rights 

In the case of divided rights the creditors have equal shares.




III. - 4:205: Difficulties of performing in cases of joint rights 

If one of the creditors who have joint rights to performance refuses to accept, or is unable to receive, the performance, the debtor may obtain discharge from the obligation by depositing the property or money with a third party according to III. ' 2:111 (Property not accepted) or III. ' 2:112 (Money not accepted).




III. - 4:206: Apportionment in cases of solidary rights 

(1) In the case of solidary rights the creditors have equal shares. 

(2) A creditor who has received more than that creditor's share has an obligation to transfer the excess to the other creditors to the extent of their respective shares.




III.- 4:207: Regime of solidary rights 

(1) A release granted to the debtor by one of the solidary creditors has no effect on the other solidary creditors. 

(2) The rules of III. ' 4:108 (Performance, set-off and merger in solidary obligations), III. ' 4:110 (Effect of judgment in solidary obligations), III. ' 4:111 (Prescription in solidary obligations) and III. ' 4:112 (Opposability of other defences in solidary obligations) paragraph (1) apply, with appropriate adaptations, to solidary rights to performance.




Chapter 5: 
Change of parties 

Section 1: 
Assignment of rights 

Sub-section 1: 
General 

III. - 5:101: Scope of Section 

(1) This Section applies to the assignment, by a contract or other juridical act, of a right to performance of an obligation. 

(2) It does not apply to the transfer of a financial instrument or investment security where such transfer is required to be by entry in a register maintained by or for the issuer or where there are other requirements for transfer or restrictions on transfer.




III. - 5:102: Definitions 

(1) An 'assignment' of a right is the transfer of the right from one person (the 'assignor') to another person (the 'assignee'). 

(2) An 'act of assignment' is a contract or other juridical act which is intended to effect a transfer of the right. (3) Where part of a right is assigned, any reference in this Section to a right includes a reference to the assigned part of the right.




III. - 5:103: Priority of provisions on proprietary securities and trusts 

(1) In relation to assignments for purposes of security, the provisions of Book IX apply and have priority over the provisions in this Chapter. 

(2) In relation to assignments for purposes of a trust, or to or from a trust, the provisions of Book X apply and have priority over the provisions in this Chapter.




Sub-section 2: 
Requirements for assignment 

III. - 5:104: Basic requirements 

(1) The requirements for an assignment of a right to performance are that: 

(a) the right exists; 

(b) the right is assignable; 

(c) the person purporting to assign the right has the right or authority to transfer it; 

(d) the assignee is entitled as against the assignor to the transfer by virtue of a contract or other juridical act, a court order or a rule of law; and (e) there is a valid act of assignment of the right. 

(2) The entitlement referred to in paragraph (1)(d) need not precede the act of assignment. 

(3) The same contract or other juridical act may operate as the conferment of an entitlement and as the act of assignment. 

(4) Neither notice to the debtor nor the consent of the debtor to the assignment is required.




III. - 5:105: Assignability: general rule 

(1) All rights to performance are assignable except where otherwise provided by law. 

(2) A right to performance which is by law accessory to another right is not assignable separately from that right. 




III. - 5:106: Future and unspecified rights 

(1) A future right to performance may be the subject of an act of assignment but the transfer of the right depends on its coming into existence and being identifiable as the right to which the act of assignment relates. 

(2) A number of rights to performance may be assigned without individual specification if, at the time when the assignment is to take place in relation to them, they are identifiable as rights to which the act of assignment relates. 




III. - 5:107: Assignability in part 

(1) A right to performance of a monetary obligation may be assigned in part. 

(2) A right to performance of a non-monetary obligation may be assigned in part only if: 

(a) the debtor consents to the assignment; or 

(b) the right is divisible and the assignment does not render the obligation significantly more burdensome. 

(3) Where a right is assigned in part the assignor is liable to the debtor for any increased costs which the debtor thereby incurs.




III. - 5:108: Assignability: effect of contractual prohibition 

(1) A contractual prohibition of, or restriction on, the assignment of a right does not affect the assignability of the right. 

(2) However, where a right is assigned in breach of such a prohibition or restriction: (a) the debtor may perform in favour of the assignor and is discharged by so doing; and (b) the debtor retains all rights of set-off against the assignor as if the right had not been assigned. 

(3) Paragraph (2) does not apply if: 

(a) the debtor has consented to the assignment;

(b) the debtor has caused the assignee to believe on reasonable grounds that there was no such prohibition or restriction; or 

(c) the assigned right is a right to payment for the provision of goods or services. 

(4) The fact that a right is assignable notwithstanding a contractual prohibition or restriction does not affect the assignor's liability to the debtor for any breach of the prohibition or restriction.




III. - 5:109: Assignability: rights personal to the creditor 

(1) A right is not assignable if it is a right to a performance which the debtor, by reason of the nature of the performance or the relationship between the debtor and the creditor, could not reasonably be required to render to anyone except that creditor. 

(2) Paragraph (1) does not apply if the debtor has consented to the assignment. 




III. - 5:110: Act of assignment: formation and validity 

(1) Subject to paragraphs (2) and (3), the rules of Book II on the formation and validity of contracts and other juridical acts apply to acts of assignment. 

(2) The rules of Book IV.H on the formation and validity of contracts of donation apply to gratuitous acts of assignment. 

(3) The rules of Book IX on the formation and validity of security agreements apply to acts of assignment for purposes of security.




III. - 5:111: Right or authority to assign 

The requirement of right or authority in III. ' 5:104 (Basic requirements) paragraph (1)(c) need not be satisfied at the time of the act of assignment but has to be satisfied at the time the assignment is to take place.




Sub-section 3: 
Undertakings by assignor 

III. - 5:112: Undertakings by assignor 

(1) The undertakings in paragraphs (2) to (6) are included in the act of assignment unless the act of assignment or the circumstances indicate otherwise.

(2) The assignor undertakes that: 

(a) the assigned right exists or will exist at the time when the assignment is to take effect; 

(b) the assignor is entitled to assign the right or will be so entitled at the time when the assignment is to take effect. 

(c) the debtor has no defences against an assertion of the right; 

(d) the right will not be affected by any right of set-off available as between the assignor and the debtor; and (e) the right has not been the subject of a prior assignment to another assignee and is not subject to any right in security in favour of any other person or to any other incumbrance. 

(3) The assignor undertakes that any terms of a contract or other juridical act which have been disclosed to the assignee as terms regulating the right have not been modified and are not affected by any undisclosed agreement as to their meaning or effect which would be prejudicial to the assignee. 

(4) The assignor undertakes that the terms of any contract or other juridical act from which the right arises will not be modified without the consent of the assignee unless the modification is provided for in the act of assignment or is one which is made in good faith and is of a nature to which the assignee could not reasonably object. 

(5) The assignor undertakes not to conclude or grant any subsequent act of assignment of the same right which could lead to another person obtaining priority over the assignee. 

(6) The assignor undertakes to transfer to the assignee, or to take such steps as are necessary to complete the transfer of, all transferable rights intended to secure the performance which are not already transferred by the assignment, and to transfer the proceeds of any non-transferable rights intended to secure the performance. 

(7) The assignor does not represent that the debtor has, or will have, the ability to pay.




Sub-section 4: 
Effects of assignment 

III. - 5:113: New creditor 

As soon as the assignment takes place the assignor ceases to be the creditor and the assignee becomes the creditor in relation to the right assigned.




III. - 5:114: When assignment takes place 

(1) An assignment takes place when the requirements of III. ' 5:104 (Basic requirements) are satisfied, or at such later time as the act of assignment may provide. 

(2) However, an assignment of a right which was a future right at the time of the act of assignment is regarded as having taken place when all requirements other than those dependent on the existence of the right were satisfied. 

(3) Where the requirements of III. ' 5:104 (Basic requirements) are satisfied in relation to successive acts of assignment at the same time, the earliest act of assignment takes effect unless it provides otherwise.




III. - 5:115: Rights transferred to assignee 

(1) The assignment of a right to performance transfers to the assignee not only the primary right but also all accessory rights and transferable supporting security rights. 

(2) Where the assignment of a right to performance of a contractual obligation is associated with the substitution of the assignee as debtor in respect of any obligation owed by the assignor under the same contract, this Article takes effect subject to III. ' 5:302 (Transfer of contractual position).




III. - 5:116: Effect on defences and rights of set-off 

(1) The debtor may invoke against the assignee all substantive and procedural defences to a claim based on the assigned right which the debtor could have invoked against the assignor. 

(2) The debtor may not, however, invoke a defence against the assignee: (a) if the debtor has caused the assignee to believe that there was no such defence; or (b) if the defence is based on breach by the assignor of a prohibition or restriction on assignment.

(3) The debtor may invoke against the assignee all rights of set-off which would have been available against the assignor in respect of rights against the assignor: 

(a) existing at the time when the debtor could no longer obtain a discharge by performing to the assignor; or 

(b) closely connected with the assigned right.




III. - 5:117: Effect on place of performance 

(1) Where the assigned right relates to an obligation to pay money at a particular place, the assignee may require payment at any place within the same country or, if that country is a Member State of the European Union, at any place within the European Union, but the assignor is liable to the debtor for any increased costs which the debtor incurs by reason of any change in the place of performance. 

(2) Where the assigned right relates to a non-monetary obligation to be performed at a particular place, the assignee may not require performance at any other place.




III. - 5:118: Effect of initial invalidity, subsequent avoidance, withdrawal, termination and revocation 

(1) This Article applies where the assignee's entitlement for the purposes of III. ' 5:104 (Basic requirements) paragraph (1)(d) arises from a contract or other juridical act (the underlying contract or other juridical act) whether or not it is followed by a separate act of assignment for the purposes of paragraph (1)(e) of that Article. 

(2) Where the underlying contract or other juridical act is void from the beginning, no assignment takes place. 

(3) Where, after an assignment has taken place, the underlying contract or other juridical act is avoided under Book II, Chapter 7, the right is treated as never having passed to the assignee (retroactive effect on assignment). 

(4) Where, after an assignment has taken place, the underlying contract or other juridical act is withdrawn in the sense of Book II, Chapter 5, or the contractual relationship is terminated under any rule of Book III, or a donation is revoked in the sense of Book IV. H Chapter 4, there is no retroactive effect on the assignment. 

(5) This Article does not affect any right to recover based on other provisions of these model rules.




Sub-section 5: 
Protection of debtor 

III. - 5:119: Performance to person who is not the creditor 

(1) The debtor is discharged by performing to the assignor so long as the debtor has not received a notice of assignment from either the assignor or the assignee and does not know that the assignor is no longer entitled to receive performance.

(2) Notwithstanding that the person identified as the assignee in a notice of assignment received from the assignor is not the creditor, the debtor is discharged by performing in good faith to that person. 

(3) Notwithstanding that the person identified as the assignee in a notice of assignment received from a person claiming to be the assignee is not the creditor, the debtor is discharged by performing to that person if the creditor has caused the debtor reasonably and in good faith to believe that the right has been assigned to that person.




III. - 5:120: Adequate proof of assignment 

(1) A debtor who believes on reasonable grounds that the right has been assigned but who has not received a notice of assignment, may request the person who is believed to have assigned the right to provide a notice of assignment or a confirmation that the right has not been assigned or that the assignor is still entitled to receive payment. 

(2) A debtor who has received a notice of assignment which is not in textual form on a durable medium or which does not give adequate information about the assigned right or the name and address of the assignee may request the person giving the notice to provide a new notice which satisfies these requirements. 

(3) A debtor who has received a notice of assignment from the assignee but not from the assignor may request the assignee to provide reliable evidence of the assignment. Reliable evidence includes, but is not limited to, any statement in textual form on a durable medium emanating from the assignor indicating that the right has been assigned. 

(4) A debtor who has made a request under this Article may withhold performance until the request is met.




Sub-section 6: 
Priority rules 

III.- 5:121: Competition between successive assignees 

(1) Where there are successive purported assignments by the same person of the same right to performance the purported assignee whose assignment is first notified to the debtor has priority over any earlier assignee if at the time of the later assignment the assignee under that assignment neither knew nor could reasonably be expected to have known of the earlier assignment. 

(2) The debtor is discharged by paying the first to notify even if aware of competing demands.




III. - 5:122: Competition between assignee and assignor receiving proceeds 

Where the debtor is discharged under III. ' 5:108 (Assignability: effect of contractual prohibition) paragraph (2)(a) or III. ' 5:119 (Performance to person who is not the creditor) paragraph (1), the assignee's right against the assignor to the proceeds has priority over the right of a competing claimant so long as the proceeds are held by the assignor and are reasonably identifiable from the other assets of the assignor.




Section 2: 
Substitution and addition of debtors 

III. - 5:201: Scope 
This Section applies only to the substitution or addition of a new debtor by agreement. III. - 5:202: Types of substitution or addition 

(1) A new debtor may be substituted or added: 

(a) in such a way that the original debtor is discharged (complete substitution of new debtor); 

(b) in such a way that the original debtor is retained as a debtor in case the new debtor does not perform properly (incomplete substitution of new debtor); or 

(c) in such a way that the original debtor and the new debtor have solidary liability (addition of new debtor). 

(2) If it is clear that there is a new debtor but not clear what type of substitution or addition was intended, the original debtor and the new debtor have solidary liability.




III. - 5:203: Consent of creditor 

(1) The consent of the creditor is required for the substitution of a new debtor, whether complete or incomplete. 

(2) The consent of the creditor to the substitution of a new debtor may be given in advance. In such a case the substitution takes effect only when the creditor is given notice by the new debtor of the agreement between the new and the original debtor. 

(3) The consent of the creditor is not required for the addition of a new debtor but the creditor, by notice to the new debtor, can reject the right conferred against the new debtor if that is done without undue delay after being informed of the right and before it has been expressly or impliedly accepted. On such rejection the right is treated as never having been conferred.




III. - 5:204: Complete substitution 

A third person may undertake with the agreement of the creditor and the original debtor to be completely substituted as debtor, with the effect that the original debtor is discharged.




III. - 5:205: Effects of complete substitution on defences, set-off and security rights 

(1) The new debtor may invoke against the creditor all defences which the original debtor could have invoked against the creditor. 

(2) The new debtor may not exercise against the creditor any right of setoff available to the original debtor against the creditor. 

(3) The new debtor cannot invoke against the creditor any rights or defences arising from the relationship between the new debtor and the original debtor. 

(4) The discharge of the original debtor also extends to any personal or proprietary security provided by the original debtor to the creditor for the performance of the obligation, unless the security is over an asset which is transferred to the new debtor as part of a transaction between the original and the new debtor. 

(5) Upon discharge of the original debtor, a security granted by any person other than the new debtor for the performance of the obligation is released, unless that other person agrees that it should continue to be available to the creditor.




III. - 5:206: Incomplete substitution 

A third person may agree with the creditor and with the original debtor to be incompletely substituted as debtor, with the effect that the original debtor is retained as a debtor in case the original debtor does not perform properly.




III.- 5:207: Effects of incomplete substitution 

(1) The effects of an incomplete substitution on defences and set-off are the same as the effects of a complete substitution. 

(2) To the extent that the original debtor is not discharged, any personal or proprietary security provided for the performance of that debtor's obligations is unaffected by the substitution. 

(3) So far as not inconsistent with paragraphs (1) and (2) the liability of the original debtor is governed by the rules on the liability of a provider of dependent personal security with subsidiary liability.




III. - 5:208: Addition of new debtor 

A third person may agree with the debtor to be added as a debtor, with the effect that the original debtor and the new debtor have solidary liability.




III. - 5:209: Effects of addition of new debtor 

(1) Where there is a contract between the new debtor and the creditor, or a separate unilateral juridical act by the new debtor in favour of the creditor, whereby the new debtor is added as a debtor, the new debtor cannot invoke against the creditor any rights or defences arising from the relationship between the new debtor and the original debtor. Where there is no such contract or unilateral juridical act the new debtor can invoke against the creditor any ground of invalidity affecting the agreement with the original debtor. 

(2) So far as not inconsistent with paragraph (1), the rules of Book III, Chapter 4, Section 1 (Plurality of debtors) apply.




Section 3: 
Transfer of contractual position 

III. - 5:301: Scope 

This Section applies only to transfers by agreement. 





III.- 5:302: Transfer of contractual position 

(1) A party to a contractual relationship may agree with a third person, with the consent of the other party to the contractual relationship, that that person is to be substituted as a party to the relationship. 

(2) The consent of the other party may be given in advance. In such a case the transfer takes effect only when that party is given notice of it. 

(3) To the extent that the substitution of the third person involves a transfer of rights, the provisions of Section 1 of this Chapter on the assignment of rights apply; to the extent that obligations are transferred, the provisions of Section 2 of this Chapter on the substitution of a new debtor apply.




Section 4: 
Transfer of rights and obligations on agent's insolvency 

III. - 5:401: Principal's option to take over rights in case of agent's insolvency 

(1) This Article applies where an agent has concluded a contract with a third party on the instructions of and on behalf of a principal but has done so in such a way that the agent, and not the principal, is a party to the contract. 

(2) If the agent becomes insolvent the principal may by notice to the third party and to the agent take over the rights of the agent under the contract in relation to the third party. 

(3) The third party may invoke against the principal any defence which the third party could have invoked against the agent and has all the other protections which would be available if the rights had been voluntarily assigned by the agent to the principal.




III. - 5:402: Third party's counter-option 

Where the principal has taken over the rights of the agent under the preceding Article, the third party may by notice to the principal and the agent opt to exercise against the principal the rights which the third party has against the agent, subject to any defences which the agent has against the third party.




Chapter 6: 
Set-off and merger 

Section 1: 
Set-off

III. - 6:101: Definition and scope 

(1) 'Set-off' is the process by which a person may use a right to performance held against another person to extinguish in whole or in part an obligation owed to that person. 

(2) This Chapter does not apply to set-off in insolvency.




III. - 6:102: Requirements for set-off 

If two parties owe each other obligations of the same kind, either party may set off that party's right against the other party's right, if and to the extent that, at the time of set-off: 

(a) the performance of the first party is due or, even if it is not due, the first party can oblige the other party to accept performance; 

(b) the performance of the other party is due; and (c) each party has authority to dispose of that party's right for the purpose of the set-off.




III. - 6:103: Unascertained rights 

(1) A debtor may not set off a right which is unascertained as to its existence or value unless the set-off will not prejudice the interests of the creditor. 

(2) Where the rights of both parties arise from the same legal relationship it is presumed that the creditor's interests will not be prejudiced.




III. - 6:104: Foreign currency set-off 

Where parties owe each other money in different currencies, each party may set off that party's right against the other party's right, unless the parties have agreed that the party declaring set-off is to pay exclusively in a specified currency.




III. - 6:105: Set-off by notice 

Set-off is effected by notice to the other party. 





III. - 6:106: Two or more rights and obligations 

(1) Where the party giving notice of set-off has two or more rights against the other party, the notice is effective only if it identifies the right to which it relates. 

(2) Where the party giving notice of set-off has to perform two or more obligations towards the other party, the rules on imputation of performance apply with appropriate adaptations.




III. - 6:107: Effect of set-off 

Set-off extinguishes the obligations, as far as they are coextensive, as from the time of notice.




III. - 6:108: Exclusion of right of set-off 

Set-off cannot be effected: 

(a) where it is excluded by agreement; 

(b) against a right to the extent that that right is not capable of attachment; and 

(c) against a right arising from an intentional wrongful act.




Section 2: Merger of debts 

III. - 6:201: Extinction of obligations by merger 

(1) An obligation is extinguished if the same person becomes debtor and creditor in the same capacity. 

(2) Paragraph (1) does not, however, apply if the effect would be to deprive a third person of a right.




Chapter 7: 
Prescription 

Section 1: 
General provision 

III. - 7:101: Rights subject to prescription 

A right to performance of an obligation is subject to prescription by the expiry of a period of time in accordance with the rules in this Chapter.




Section 2: 
Periods of prescription and their commencement 

III. - 7:201: General period 

The general period of prescription is three years.




III. - 7:202: Period for a right established by legal proceedings 

(1) The period of prescription for a right established by judgment is ten years. 

(2) The same applies to a right established by an arbitral award or other instrument which is enforceable as if it were a judgment.




III. - 7:203: Commencement 

(1) The general period of prescription begins to run from the time when the debtor has to effect performance or, in the case of a right to damages, from the time of the act which gives rise to the right. 

(2) Where the debtor is under a continuing obligation to do or refrain from doing something, the general period of prescription begins to run with each breach of the obligation. 

(3) The period of prescription set out in III. ' 7:202 (Period for a right established by legal proceedings) begins to run from the time when the judgment or arbitral award obtains the effect of res judicata, or the other instrument becomes enforceable, though not before the debtor has to effect performance.




Section 3: 
Extension of period 

III. - 7:301: Suspension in case of ignorance 

The running of the period of prescription is suspended as long as the creditor does not know of, and could not reasonably be expected to know of: 

(a) the identity of the debtor; or 

(b) the facts giving rise to the right including, in the case of a right to damages, the type of damage.




III. - 7:302: Suspension in case of judicial and other proceedings 

(1) The running of the period of prescription is suspended from the time when judicial proceedings to assert the right are begun. 

(2) Suspension lasts until a decision has been made which has the effect of res judicata, or until the case has been otherwise disposed of. Where the proceedings end within the last six months of the prescription period without a decision on the merits, the period of prescription does not expire before six months have passed after the time when the proceedings ended. 

(3) These provisions apply, with appropriate adaptations, to arbitration proceedings, to mediation proceedings, to proceedings whereby an issue between two parties is referred to a third party for a binding decision and to all other proceedings initiated with the aim of obtaining a decision relating to the right. 

(4) Mediation proceedings mean structured proceedings whereby two or more parties to a dispute attempt to reach an agreement on the settlement of their dispute with the assistance of a mediator.




III. - 7:303: Suspension in case of impediment beyond creditor's control 

(1) The running of the period of prescription is suspended as long as the creditor is prevented from pursuing proceedings to assert the right by an impediment which is beyond the creditor's control and which the creditor could not reasonably have been expected to avoid or overcome. 

(2) Paragraph (1) applies only if the impediment arises, or subsists, within the last six months of the prescription period.

(3) Where the duration or nature of the impediment is such that it would be unreasonable to expect the creditor to take proceedings to assert the right within the part of the period of prescription which has still to run after the suspension comes to an end, the period of prescription does not expire before six months have passed after the time when the impediment was removed. 

(4) In this Article an impediment includes a psychological impediment.




III. - 7:304: Postponement of expiry in case of negotiations 

If the parties negotiate about the right, or about circumstances from which a claim relating to the right might arise, the period of prescription does not expire before one year has passed since the last communication made in the negotiations.




III. - 7:305: Postponement of expiry in case of incapacity 

(1) If a person subject to an incapacity is without a representative, the period of prescription of a right held by or against that person does not expire before one year has passed after either the incapacity has ended or a representative has been appointed. 

(2) The period of prescription of rights between a person subject to an incapacity and that person's representative does not expire before one year has passed after either the incapacity has ended or a new representative has been appointed.




III. - 7:306: Postponement of expiry: deceased's estate 

Where the creditor or debtor has died, the period of prescription of a right held by or against the deceased's estate does not expire before one year has passed after the right can be enforced by or against an heir, or by or against a representative of the estate.




III. - 7:307: Maximum length of period 

The period of prescription cannot be extended, by suspension of its running or postponement of its expiry under this Chapter, to more than ten years or, in case of rights to damages for personal injuries, to more than thirty years. This does not apply to suspension under III. - 7:302 (Suspension in case of judicial and other proceedings).




Section 4: 
Renewal of period 

III. - 7:401: Renewal by acknowledgement 

(1) If the debtor acknowledges the right, vis-'-vis the creditor, by part payment, payment of interest, giving of security, or in any other manner, a new period of prescription begins to run. 

(2) The new period is the general period of prescription, regardless of whether the right was originally subject to the general period of prescription or the ten year period under III. - 7:202 (Period for a right established by legal proceedings). In the latter case, however, this Article does not operate so as to shorten the ten year period.




III. - 7:402: Renewal by attempted execution 

The ten year period of prescription laid down in III. - 7:202 (Period for a right established by legal proceedings) begins to run again with each reasonable attempt at execution undertaken by the creditor.




Section 5: 
Effects of prescription 

III. - 7:501: General effect 

(1) After expiry of the period of prescription the debtor is entitled to refuse performance. 

(2) Whatever has been paid or transferred by the debtor in performance of the obligation may not be reclaimed merely because the period of prescription had expired.




III. - 7:502: Effect on ancillary rights 

The period of prescription for a right to payment of interest, and other rights of an ancillary nature, expires not later than the period for the principal right.




III. - 7:503: Effect on set-off 

A right in relation to which the period of prescription has expired may nonetheless be set off, unless the debtor has invoked prescription previously or does so within two months of notification of set-off.




Section 6: 
Modification by agreement 

III. - 7:601: Agreements concerning prescription 

(1) The requirements for prescription may be modified by agreement between the parties, in particular by either shortening or lengthening the periods of prescription. 

(2) The period of prescription may not, however, be reduced to less than one year or extended to more than thirty years after the time of commencement set out in III. ' 7:203 (Commencement)