Withholding Performance

Withholding Performance

Buyer’s Right to Withhold Performance of Contract under the UN Sales Convention

Introduction

Concept of the Right to Withhold Performance

Withholding performance under the Convention, as in English law, means that the buyer is entitled to refuse to perform his obligation without being required or even being entitled to terminate [avoid] the contract. Obviously, if the requisites for the latter remedy are met and the buyer, before fulfilling his obligations, has declared the contract avoided in accordance with Arts. 49, 51, 72 or 73 of the Convention, he is no longer obliged to perform his obligations (Art. 81(1)). But such requisites may not be met or the buyer may not wish to declare the contract terminated, but rather demand goods fully conforming with the contract.

In the provisions regulating the buyer’s remedies for seller’s breach, although the Convention gives specific rights to withhold performance in certain cases, it does not make a general statement that the buyer is entitled to withhold performance of his obligations.[1] The question is, therefore, whether the buyer has a general right to withhold performance of his obligations under the contract where the seller has performed his delivery obligations in a way which does not correspond with the contract or the Convention.

In this respect, some commentators have tried to infer from the Convention’s provisions that the buyer should be given a general right to refuse to take delivery.[2] But it seems that they have failed to distinguish between the buyer’s right to refuse to recognise goods the seller delivers as the contract goods and his right to refuse to take delivery and, consequently, they have relied on the provisions which concern the former rather than the latter. It is probably for the reason that the Convention does not expressly impose, as English law does, on the buyer a duty to accept what the seller delivers as the contract goods. It is, however, proposed to examine these two possible rights separately. Although in practice both may often arise at the same time, in some cases, the right to refuse to accept arises where the buyer has already performed his duty to take over the goods as defined in Art. 60.

Importance of the Right to Withhold Performance

From the buyer’s point of view, the existence of the right to refuse to recognise the goods offered as the contract goods seems important, since the buyer will thus be entitled to resort to the remedies provided under Art. 46(2) or (3). But what significance follows from the right to refuse to take delivery? It seems that the existence of the right to refuse to take delivery would also be significant for the buyer, not only in respect of the link between delivery and payment (Art. 58(1), (2)), but also in regard to the passing of the risk (at least where the case falls into the scope of Art. 69). That is to say, as long as the seller does not deliver the goods in accordance with the contract and the Convention, the buyer can refuse to take delivery and thereby return the risk to the seller. The seller would face delay, and in order to avoid the undesirable consequences of delay, he would strengthen his efforts to perform. Since taking delivery and payment of the price generally are linked, the buyer would have the further advantages of paying later and not for non-conforming goods, for the seller who wants to obtain payment must take action against the buyer.

More importantly, the right will be significant where the seller fails to fulfil his obligations with respect to the place of delivery (Art. 31),[3] or to specify the goods by notice (Art. 32(1)).[4] The significance of the right is for the reason that the remedy prescribed under Art. 46(2), (3) does not apply here, since it only relates to the seller’s obligation to deliver conforming goods under Art. 35 and probably Arts. 41 and 42. In such cases, if the buyer has such a right he can refuse to take delivery and subsequently require performance according to Art. 46(1), and fix an additional period of time in accordance with Art. 47(1).[5]

The remedy will also be significant for the buyer where the seller partially or fully fails to perform his obligations relating to the quantity, quality and other description required by the contract (Art. 35) or fails to fulfil his duty under Arts. 41 and 42, that is where the goods delivered are not free of the rights or claims of third parties. In such cases, the right to refuse to take delivery would be useful for the buyer where he wishes to require the seller to repair the non-conformity under Art. 46(3). In such situations, the buyer can, if he is entitled, by turning the risk of the goods to the seller persuade him to cure the non-conformity as quickly as possible. Accordingly, in the case of the seller’s failure to deliver goods in accordance with Arts. 35, 41 and 42, the buyer is not required to take delivery of them in order to have them cured later, but he can refuse to take delivery until cure is made.

Having considered the concept and importance of the remedy, the following discussion will try first to answer the question whether the Convention has recognised a general right to withhold performance and then to ascertain how the given right will work in different types of failure by the seller to perform his obligations.

Withholding Performance as a General Right?

A close examination of the Convention provisions clearly shows, it is suggested, that the Convention has recognised the right to withhold performance for an aggrieved buyer in some occasions. However, in some cases the Convention has expressly applied the rule and in others it has impliedly recognised it.

Prospective Non-Performance

The Convention has expressly applied the right to withhold performance in Art. 71(1) under the heading of the right to “suspend the performance of obligations.”[6] Under this provision, whenever it is apparent that a party, say the seller, will not be able to deliver goods or documents, the buyer is given a right to suspend the required steps leading to payment, such as the establishment of a letter of credit (Art. 54). However, the provision comes into operation only where it becomes apparent that the seller is about to commit non-performance of a substantial part of his obligations;[7] it does not concern where the seller has performed his delivery obligations in a way which does not correspond with the contract requirements.

For the provision to be applied, certain requirements are to be satisfied.

First, the inability to perform must be “apparent” after the conclusion of the contract. If it was already apparent at the time of making the contract that one party would not be able to perform, the other party is not entitled to suspend his obligations.

Second, the appearance of prospective failure to perform must be caused by either a serious deficiency in the ability to perform, or in creditworthiness, or by conduct in preparing to perform or actually performing the contract (Art. 71(1)(a) and (b)).

Third, the expected failure must relate to a “substantial part” of the obligations of the party who is about to commit the breach. There is, thus, no right to suspend where the prospective breach only relates to a minor part of the obligations.

Actual Non-Performance

The right to withhold performance is also impliedly recognised by Art. 58(1)[8] of the Convention. Under this provision, where the contract is silent as to the time of payment, the buyer is under the duty to pay only when the seller places the goods or the documents controlling their disposition at the disposal of the buyer. Hence, where the seller has failed to place the goods or documents at the buyer’s disposal, the latter is entitled to refuse to pay as long as the seller’s failure continues.

Similarly, it seems that the Convention has also accepted the right to withhold performance where the seller has delivered non-conforming goods. In that event, the buyer is impliedly given a right to refuse to recognise the seller’s non-conforming delivery as a conforming delivery. The buyer’s entitlement to refuse to accept the seller’s non-conforming delivery can be inferred when it is proved that under the Convention the buyer is under a further duty to accept what the seller delivers in performance of the contract. The Convention provides no clear provision for this purpose. It simply provides: “The buyer must pay the price for the goods and take delivery of them as required by the contract and the Convention” (Art. 53).

What is certain is that recognising the goods delivered as conforming to the contract is not the same as taking delivery, or even taking over the goods as prescribed by Art. 53. The duty to take delivery is defined by Art. 60. Under this Article the buyer’s duty to take delivery consists of two elements: The first element is that he must do “all the acts which could reasonably be expected of him in order to enable the seller to make delivery.” For example, if the contract requires him to arrange for the carriage of the goods (as is often the case under the terms of an f.o.b. contract), he is bound to make the necessary contracts of carriage in order to enable the seller to deliver (hand the goods over to the first carrier for transmission to the buyer (Art. 31(a)). The second element of the buyer’s duty to take delivery is to take over the goods. It is the case where the seller is bound under the contract to make delivery by placing the goods at the buyer’s disposal at a particular place or at the seller’s place of business (Art. 31(b) and (c). In such cases, the buyer will be regarded as having taken delivery when he has physically removed the goods from that place.[9]

As is seen, taking delivery, as defined under Art. 60, is not inconsistent with the case where the buyer has done all the acts which enabled the seller to make the delivery but the buyer is nonetheless required to accept the goods in the sense that he is not allowed to reject them. This is where the buyer after receiving the goods when examining them (Art. 38) has realised that they are in conformity with the contract and the Convention. Accordingly, taking delivery does not include what is called here the duty to accept the goods. Under this interpretation, the buyer is under two separate duties: to take delivery of the goods and to accept (not reject) them if they are in conformity with the contract.

This duty is clearly inferable from the provisions of Arts. 46(2) and 49(1)(a). The first provision gives the buyer a right to require the seller to tender replacement goods, and the second entitles him to avoid the contract provided that the seller’s breach amount to a fundamental breach. Similarly, Art. 46(3) enables the buyer to demand that the seller repair the lack of conformity where it is reasonable having regard to all the circumstances. Beyond these circumstances, the buyer is not entitled to resort to these remedies but he has to accept them as the contract goods, otherwise he will be in breach of the contract. Accordingly, the buyer is under the duty to accept the seller’s delivery where the lack of conformity does not fall into the foregoing circumstances.

Assuming that the buyer is under a reciprocal duty to accept the seller’s delivery where it accords with the contract and the Convention, he will be entitled to refuse to accept where it does not conform to the contract terms and the Convention.[10] This right not only corresponds with commercial practice,[11] but can clearly be inferred from the provisions allowing the buyer to require the seller to tender substitute goods or to repaire them (Art. 46(2) and (3)). These provisions, by allowing the buyer to require the seller to make a fresh tender or cure the non-conformity by way of repair (as the case may be) where the seller has delivered goods which do not conform with the contract and this Convention, presuppose that the buyer is entitled to refuse to accept them as the contract goods. Accordingly, it is quite possible for the buyer to retain his right under Art. 46(2), (3) after having taken delivery or taken the goods over. This is the reason why Art. 86(1) speaks of the buyer’s right to reject after he has received the goods from the seller.

Early or Excessive Delivery

A further application of the right to withhold performance can be found under Art. 52.[12] Under this provision, where the seller has made an early delivery, the buyer is entitled to refuse to take delivery of such a delivery (Art. 52(1)). He is also given a right to refuse to take delivery of the excess quantity where the seller has delivered greater than the contract quantity (Art. 52(2)).

Buyer’s Right to Refuse to Take Delivery as a General Remedy

Although the refusal to take delivery under this Article is mentioned in the catalogue of the buyer’s remedies in Art. 45, it can only be exercised in reference to the special case of early or excess quantity delivery under Art. 52. No clear provision is provided by the Convention to determine whether the buyer is entitled to refuse to take delivery of the goods delivered to him by the seller where they do not accord with the contract terms and the Convention, such as the cases where the seller has failed to perform his duty under Arts. 31, 32(1), 35, 41 and 42.

Some commentators, as already pointed out, have suggested [13] that such a right, to some extent, can be inferred from the interpretation of the relevant provisions of the Convention. In justifying the view, they argue that this rule can be inferred not only from the express granting of that right under Art. 52 for cases of early delivery and delivery of excess quantity, but also from the fact that Art. 86(1) presupposes the existence of a right to reject.[14] The advocates of the existence of this general remedy have also resorted to the link between payment and delivery (Art. 58(1), (2)) and the right of the buyer to examine the goods under Art. 58(3),[15] and to Arts. 46(1)[16] and 47(1)[17] by saying that they are at least consistent with the assumption of the buyer’s right to refuse the taking delivery under certain conditions.[18]

However, it seems that, although the view can be supported under the Convention, the provisions referred to above do not help to establish such a rule. This is because, first, although the first paragraph of Art. 52 can be relied on for this purpose, it is only applied to the case of early delivery. The second paragraph is entirely irrelevant. It simply provides that the buyer can refuse to accept the seller’s offer of an extra quantity where he has delivered a quantity of goods greater than that provided for in the contract. It does not say that the buyer is entitled to refuse to take delivery of the whole goods the seller has delivered as contract goods. Secondly, Art. 86 presupposes that the buyer who has received the goods which do not correspond with the contract requirements is entitled to reject them. Such a statement, as indicated previously, is consistent with the principle that he can refuse to accept them as contract goods, not that he is entitled to refuse to take delivery which this Article presupposes has taken place in advance. This is the reason why these two Articles used different terminologies.

Nevertheless, it can be said that the Convention has impliedly recognised a right to refuse to take delivery for an aggrieved buyer under certain circumstances. This rule is inferable from taking into consideration the question in the light of the principles of the Convention upon which it is based. Under these principles, it might be concluded that the buyer is not obliged to take delivery where the seller’s delivery is not in conformity with the contract and the Convention. For it is one of the principles of the Convention that the seller has to deliver in full conformity with his obligations and the buyer is only required to take delivery of such a performance. This principle can be inferred through the examination of the relationship between the main duties of the parties under the Convention. The essential duties of both the seller and the buyer, i.e., delivery, taking delivery of the goods and payment of the price, are provided by Arts. 30 and 53 of the Convention. Although the relationship between the buyer’s duty to take delivery and the seller’s obligation to deliver goods is not expressly defined by the Convention, it seems that these two duties are interdependent. Some commentators have argued that such a relationship can be inferred from Art. 58(1) and (2) by saying that this Article qualifies the buyer’s duty to pay the price to the condition that the seller’s delivery is to be in accordance with the contract and the Convention.[19]

However, it seems that Art. 58 is provided only to state that the seller’s duty to deliver and the buyer’s duty to pay the price are concurrent obligations and they are to be performed at the same time when the contract is silent as to the time of payment. It is not intended to define the main duties of the parties. The main obligations of the parties are defined by Arts. 30 and 53. Although these two Articles do not expressly refer to each other, it is suggested that they must be read in connection with each other. Thus, the seller is obliged to deliver the goods, provided that the buyer is ready and willing to pay the price for the goods and take delivery of them “as required by the contract and this Convention”, and the buyer is bound to pay and take delivery, provided that the seller is ready and willing to deliver the goods “as required by the contract and this Convention.” Accordingly, the buyer’s duty under Art. 53, i.e., taking delivery and paying in exchange for the seller’s delivery, is conditioned by the qualification that the seller’s delivery conforms with the terms of the contract and this Convention. In accordance with this interpretation. the buyer’s duty to take delivery and pay the price under Art. 53 may be re-phrased as follows:

It is the buyer’s duty to take delivery of goods delivered to him by the seller provided they are delivered in accordance with the terms of the contract and this Convention.

On this interpretation, where the seller has delivered goods in a way which does not conform with the contract terms and the Convention, the buyer is not in principle bound to take delivery of them. In more clear words, as long as the seller has not fulfilled his duty to deliver in accordance with the contract and the Convention, the buyer’s duty to take delivery has not indeed arisen. He is, therefore, under no obligation to perform his duty to take delivery under Art. 53.

Grounds for the Right

In the absence of an express statement by the Convention, in describing the right, its legal basis must be identified by interpreting the provisions of the Convention and taking into account the general principles upon which it is based. As pointed out above, the Convention, when supplying the provision regulating the timing of the performance, has at least implicitly referred to the interdependence of the seller’s obligation to deliver and the buyer’s duty to pay. In that case, Art. 58(1) provides that the buyer, unless otherwise agreed, “must pay the price when the seller places either the goods or the documents controlling their disposition at the buyer’s disposal in accordance with the contract and this Convention.” It seems that this sub-paragraph intends to state that the seller’s obligation to deliver the goods and hand over the documents controlling their disposition and the buyer’s duty to pay the price are tied together so that failure of one party to perform his duty would entitle the other to rely on the rule. A close examination of Arts. 46, 52, 58 and 71 of the Convention leads one to the conclusion that the Convention has based the right to withhold performance on the theory of “reciprocal obligations.” It is under this rule that the obligations are to be exchanged for each other’s performance at the same time, and refusal of one party justifies the other party’s refusal to perform as long as the defaulting party continues his refusal.

The question which arises here is: What degree of lack of conformity enables the buyer to refuse to perform his duty to accept and take delivery of the goods? No clear provision can be found under the Convention for this purpose. It can be said, however, that since the buyer by refusing to accept and take delivery of the non-conforming performance simply refuses to perform his counter-obligation, his option to do so need not be based on a showing of “fundamental breach.” He is only required to demonstrate that the seller’s delivery is not in accordance with the contract and the Convention. This is because the right of refusal is based on the theory of reciprocity of the parties’ obligation rather than the theory of fundamental breach.[20]

However, in granting the right to refuse, one cannot be generous. Accordingly, the substance and the limits of the right to refuse to accept and take delivery have to be determined in detail according to the system of the buyer’s remedies under the Convention. The proposition would not, therefore, be acceptable that the goods should be in conformity of the contract in every aspect, otherwise there shall seemingly be a right of refusal.[21] Such a broad proposition seems to undermine the system of remedies prescribed by the Convention. In one case, the Convention has referred to the criterion upon which the buyer may withhold performance (Art. 71(1)). In that case, it provides that the buyer will be entitled to do so where the seller’s non-performance relates to a “substantial part of his obligations.” However, it is not clear what lack of conformity will enable the buyer to refuse to accept the goods in the case of delivery of non-conforming goods. It seems that the buyer is certainly not entitled to refuse to accept the goods for minor non-conformity. This right may be available for him where the seller’s failure to perform his obligations in accordance with the contract terms and the Convention has attained a certain degree of seriousness.[22] Close consideration of Arts. 46(2), (3) and 71(1) of the Convention supports this restriction. Moreover, it accords with the principles of good faith (Art. 7(1))[23] and mitigation (Art. 77).[24]

Special Cases

Partial Delivery and Partial Non-Conforming Delivery

Although Art. 52(2) entitles the buyer to refuse to take delivery of the excess quantity, it does not make clear whether the buyer has the right to refuse to take delivery where the seller delivers less than the contract quantity. Read more on Non-Conforming Delivery here.

Tender of Non-Conforming Documents

Although the Convention has referred to the seller’s duty to deliver goods and documents in accordance with the contract terms (Arts. 30 and 34), it does not deal properly with the issue. Read more on Non-Conforming Documents here.

By Mirghasem Jafarzadeh, LLB (University of Tehran), LLM (University of Shahid Beheshti, Tehran-Iran, and, Sheffield University, Sheffield-England) and PhD (Sheffield University, Sheffield-England). Senior lecturer at the Department of Law, Faculty of Law, University of Shahid Beheshti, Tehran-Iran.

Resources

Notes

  1. As a matter of terminology, the Convention, in different places, speaks of the right of “suspension” – in the case of prospective non-performance (Art. 71(1)) -, the right to “refuse” – in the case of early or excess quantity delivery – (Art. 52) and the right to “reject” (Art. 86(1)) -, but in this study the right is described by “withholding performance.” All of these expressions are in fact particular instances of the application of a general right to withhold performance.
  2. Maskow in: Bianca, C. M.; Bonell, M. J., (1987) at 390 and seq.; Enderlein; F.; Maskow, D., (1992) at 229 and seq.
  3. Art. 31: “If the seller is not bound to deliver the goods at any other particular place, his obligation to deliver consists: (a) if the contract of sale involves carriage of the goods – in handing the goods over to the first carrier for transmission to the buyer; (b) if, in cases not within the preceding subparagraph, the contract relates to specific goods, or unidentified goods to be drawn from a specific stock or to be manufactured or produced, and at the time of the conclusion of the contract the parties knew that the goods were at, or were to be manufactured or produced at, a particular place – in placing the goods at the buyer’s disposal at that place; (c) in other cases – in placing the goods at the buyer’s disposal at the place where the seller had his place of business at the time of the conclusion of the contract.”
  4. Art. 32(1): “If the seller, in accordance with the contract or this Convention, hands the goods over to a carrier and if the goods are not clearly identified to the contract by markings on the goods, by shipping documents or otherwise, the seller must give the buyer notice of the consignment specifying the goods.”
  5. See also, Maskow in: Bianca, C. M.; Bonell, M. J., (1987) at 390, 391.
  6. Art. 71(1): “A party may suspend the performance of his obligations if, after the conclusion of the contract, it becomes apparent that the other party will not perform a substantial part of his obligations as a result of: (a) a serious deficiency in his ability to perform or in his creditworthiness; or (b) his conduct in preparing to perform or in performing the contract.”
  7. See e.g.,, the statement of Bulgaria in: Official Records, (1981) at 375 para. 57; Secretariat Commentary, (1979) at 52-53; Bennett in: Bianca-Bonell, (1987) at 518; Honnold, (1990) at 484. See generally, Strub, M. G., (1989) 475.
  8. Art. 58(1) provides: .”.. the buyer … must pay it (the price) when the seller places either the goods or documents controlling their disposition at the buyer’s disposal ….”
  9. See Secretariat Commentary, (1979) at 47.
  10. See also, Enderlein; F.; Maskow, D., (1992) at 229.
  11. In the event of a tender of non-conforming goods or documents, the buyer may very well want to keep the contract alive, even be entitled to terminate the contract, but at the same time not be interested in accepting the actually tendered goods or documents.
  12. Art. 52 provides: “(1) If the seller delivers the goods before the date fixed, the buyer may take delivery or refuse to take delivery. (2) If the seller delivers a quantity of goods greater than that provided for in the contract, the buyer may take delivery or refuse to take delivery of the excess quantity….”
  13. Enderlein; F.; Maskow, D., (1992) at 229 and seq.; Maskow in: Bianca-Bonell, (1987) at 389 and seq.
  14. Art. 86(1) provides “If the buyer has received the goods and intends to exercise any right under the contract or this Convention to reject them (italic supplied),…”
  15. Art. 58(3) provides “The buyer is not bound to pay the price until he has had an opportunity to examine the goods …”
  16. Art. 46(1): “The buyer may require performance by the seller of his obligations unless the buyer has resorted to a remedy which is inconsistent with this requirement.”
  17. Art. 47(1): “The buyer may fix an additional period of time of reasonable length for performance by the seller of his obligations.”
  18. Enderlein; F.; Maskow, D., (1992) at 229; Maskow in: Bianca-Bonell, (1987) at 390, 391.
  19. Ibid.
  20. The view can be supported by Arts. 71(1) and 72(1). Under these Arts. the Convention has differentiated between the right to suspend and that of avoidance. A buyer will be entitled to resort to the remedy under Art. 71(1) if the seller’s prospective non-performance relates to a ‘substantial part of his obligation’, whereas for avoidance it must be ‘fundamental’ (Art. 72(1). The legislative history of these provisions shows that it must be, at least in theory, assumed that such a differentiation is possible. This is because the Egyptian proposal to make the right to suspend conditional on a prospective ‘fundamental breach’, was rejected by the delegations (see, Official Records, (1981) at 129 para. 10, 419-422 and 431-433. See also, Schlechtriem, (1986) at 93 and 95-96; Bennett in: Bianca-Bonell, (1987) at 521; Strub, M. G., (1989) at 494; Kritzer, Albert H., (1989) at 457.
  21. Tercier, cited in Enderlein; F.; Maskow, D., (1992) at 230.
  22. See also, Enderlein; F.; Maskow, D., (1992) at 201 and 230; Maskow in: Bianca-Bonell, (1987) at 392.
  23. Art. 7(1) provides: “In the interpretation of this Convention, regard is to be had to its international character and to the need to prompt uniformity in its application and the observance of good faith in international trade.”
  24. See also, Maskow in: Bianca-Bonell, (1992) at 392.

Comments

One response to “Withholding Performance”

  1. international

    Importantly, this article helps to know if there a time limit to deliver goods after buyer decides to cure, as in the case of information on buyer’s remedies for breach of contract.

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