(1) The refusal of a permission affecting the validity of the contract renders the contract void. If the refusal affects the validity of some terms only, only such terms are void if, having regard to the circumstances, it is reasonable to uphold the remaining contract. 

 

(2) Where the refusal of a permission renders the performance of the contract impossible in whole or in part, the rules on non-performance apply. 

 

COMMENT

1. Application for permission rejected

 

This Article contemplates the situation where the application for a permission is expressly refused. The nature of the obligation imposed on the responsible party with respect to the application for the permission is such that a refusal under this Article is one which is not subject to an appeal which has a reasonable prospect of success (see Comment 4 on Article 6.1.14). Moreover, means of recourse against the refusal need not be exhausted whenever a final decision on the permission would be taken only after the time at which the contract could meaningfully be performed.

 

2. Legal consequences of a refusal of permission

 

The consequences of a refusal to grant the permission vary depending on whether the permission affects the validity of the contract or its performance.

 

a. Refusal of permission affecting validity of the contract

 

Where the permission affects the validity of the whole contract, a refusal renders the whole contract void, i.e. the contract is considered as never having come into being.

 

Illustration

 

1. A, situated in country X, enters into a contract with B, the validity of which is subject to a public permission to be granted by the authorities of country X. Notwithstanding the fact that A takes all the necessary measures to obtain the permission, A’s application is refused. The contract is considered never to have come into existence.

 
Where, on the other hand, a refusal affects the validity of some terms only of the contract, only such terms are void, while the remaining part of the contract may be upheld provided that such a result is reasonable in the circumstances.

 

Illustration

 

2. A, situated in country X, enters into a contract with B, which contains a penalty clause for delay the validity of which is subject to a public permission to be granted by the authorities of country X. Notwithstanding the fact that A takes all the necessary measures to obtain the permission, A’s application is refused. If it is reasonable in the circumstances, the contract will be upheld without the penalty clause.

 

b. Refusal rendering performance of the contract impossible

 

If the refusal of the permission renders the performance impossible in whole or in part, paragraph (2) of this Article refers to the rules on non-performance embodied in Chapter 7.

 

Illustration

 

3. Under a contract entered into with B, A owes B USD 100,000. The transfer of the sum from country X, where A is situated, to B’s bank account in country Y is subject to a permission by the Central Bank of country X. Notwithstanding the fact that A takes all the necessary measures to obtain the permission, A’s application is refused. The refusal of the permission renders it impossible for A to pay B. The consequences of A’s non-performance are determined in accordance with the provisions of Chapter 7.

 

The refusal of the permission may render the performance of a party impossible only in the State imposing the permission requirement, while it may be possible for that party to perform the same obligation elsewhere. In such cases the general principle of good faith and fair dealing (see Article 1.7) will prevent that party from relying on the refusal of the permission as an excuse for non-performance.

 

Illustration

 

4. The facts are the same as in Illustration 3, except that A has sufficient funds to pay B in country Z, where no such permission requirement exists. A may not rely on the refusal of the permission by the authorities of country X as an excuse for not paying B.