Official Comments
 Article #  

 
7.3.7
(Restitution with respect to long-term contracts)

(1) On termination of a long-term contract restitution can only be claimed for the period after termination has taken effect, provided the contract is divisible.
(2) As far as restitution has to be made, the provisions of Article 7.3.6 apply.


 
Official Comment
 1. Long-term contracts

Unlike the rule in paragraph (1) of Article 7.3.6 with respect to contracts to be performed at one time, paragraph (1) of this Article provides that, on termination of a long-term contract, restitution can only be claimed for the period after termination has taken effect, provided the contract is divisible. Indeed, because under such contracts performance might have been made over a long period of time before the contract is terminated, it may be inconvenient to unravel that performance. Furthermore, termination is a remedy with prospective effect only (see Article 7.3.5). Restitution can, therefore, only be claimed in respect of the period after termination.


Illustration

1. A contracts to service B’s computer hardware and software for a period of five years. After three years of regular service A is obliged by illness to discontinue the services and the contract is terminated. B, who has paid A for the fourth year, can claim restitution of the advance payment for that year but not for the money paid for the three years of regular service.

Since contracts are terminated only for the future, any outstanding payments for past performance can still be claimed. This Article does not prevent a claim for damages being brought

Illustrations

2. Company A leases equipment to company B for three years at a rental of EUR 10,000 a month. B pays punctually for the first two months but then fails to make any further payments despite repeated requests by A. After a lapse of five months A terminates the lease. A is entitled to retain the EUR 20,000 already received (see Article 7.3.7 (1)) and to recover the EUR 50,000 accrued due (on the basis of the contract of lease which is terminated only for the future), together with whatever damages for breach it has sustained (see Article 7.3.5 (2)).

3. A, a hospital, engages B to carry out cleaning services for the hospital, the contract to run for three years. After a year B informs A that it cannot continue with the cleaning services unless the price is doubled. A refuses to agree and B ceases to provide the service. On terminating the contract A can recover damages for any additional expense it incurs in hiring another cleaning firm (see Article 7.4.1 in conjunction with Article 7.3.5 (2)), while B is entitled to retain the payments it has received for services already provided (see Article 7.3.7 (1)).

The rule that restitution can only be claimed for the period after termination has taken effect does not apply if the contract is indivisible.

Illustration

4. A undertakes to paint ten pictures depicting one and the same historical event for B’s festival hall. After delivering and having been paid for five paintings, A abandons the work. In view of the fact that the decoration of the hall is supposed to consist of ten paintings to be painted by the same painter and showing different aspects of one historical event, B can claim the return of the advances paid to A and must return the five paintings to A.

2. Restitution

This Article is a special rule which, for long-term contracts, excludes restitution for performance made in the past. To the extent that there is restitution under this Article, it is governed by the provisions of Article 7.3.6.