(1) Termination of the contract releases both parties from their obligation to effect and to receive future performance.
(2) Termination does not preclude a claim for damages for non-performance.
(3) Termination does not affect any provision in the contract for the settlement of disputes or any other term of the contract which is to operate even after termination.
1. Termination extinguishes future obligations
Paragraph (1) of this Article states the general rule that termination has effects for the future in that it releases both parties from their duty to effect and to receive future performance.
2. Claim for damages not affected
The fact that, by virtue of termination, the contract is brought to an end, does not deprive the aggrieved party of its right to claim damages for non-performance in accordance with the rules laid down in Section 4 of this Chapter.
1. A sells B specified production machinery. After B has begun to operate the machinery serious defects in it lead to a shutdown of B’s assembly plant. B declares the contract terminated but may still claim damages (see Article 7.3.5(2)).
3. Contract provisions not affected by termination
Notwithstanding the general rule laid down in paragraph (1), there may be provisions in the contract which survive its termination. This is the case in particular with provisions relating to dispute settlement but there may be others which by their very nature are intended to operate even after termination.
2. The facts are the same as in Illustration 1, except that A discloses to B confidential information which is necessary for the production and which B agrees not to divulge for as long as it does not become public knowledge. The contract further contains a clause referring disputes to the courts of A’s country. Even after termination of the contract by B, B remains under a duty not to divulge the confidential information, and any dispute relating to the contract and its effects are to be settled by the courts of A’s country (see Article 7.3.5(3)).