(1) In a case of non-performance the aggrieved party may by notice to the other party allow an additional period of time for performance.
(2) During the additional period the aggrieved party may withhold performance of its own reciprocal obligations and may claim damages but may not resort to any other remedy. If it receives notice from the other party that the latter will not perform within that period, or if upon expiry of that period due performance has not been made, the aggrieved party may resort to any of the remedies that may be available under this Chapter.
(3) Where in a case of delay in performance which is not fundamental the aggrieved party has given notice allowing an additional period of time of reasonable length, it may terminate the contract at the end of that period. If the additional period allowed is not of reasonable length it shall be extended to a reasonable length. The aggrieved party may in its notice provide that if the other party fails to perform within the period allowed by the notice the contract shall automatically terminate.
(4) Paragraph (3) does not apply where the obligation which has not been performed is only a minor part of the contractual obligation of the non-performing party.
This Article deals with the situation where one party performs late and the other party is willing to give extra time for performance. It is inspired by the German concept of Nachfrist although similar results are obtained by different conceptual means in other legal systems.
1. Special characteristics of late performance
The Article recognises that late performance is significantly different from other forms of defective performance. Late performance can never be remedied since once the date for performance has passed it will not occur again, but nevertheless in many cases the party who is entitled to performance will much prefer even a late performance to no performance at all. Secondly, at the moment when a party fails to perform on time it is often unclear how late performance will in fact be. The commercial interest of the party receiving performance may often therefore be that a reasonably speedy completion, although late, will be perfectly acceptable but that a long delayed completion will not. The procedure enables that party to give the performing party a second chance without prejudicing its other remedies.
2. Effects of granting extension of time for performance
The party who grants the extension of time cannot terminate or seek specific performance during the extension time. The right to recover damages arising from late performance is not affected.
The position at the end of the period of extension depends on whether the late performance was already fundamental at the time when the extension was granted. In this situation, if the contract is not completely performed during the extension, the right to terminate for fundamental non-performance simply springs into life again as soon as the extension period expires. On the other hand, if the late performance was not yet fundamental, termination would only be possible at the end of the period of extension if the extension was reasonable in length.
1. A agrees to construct a special bullet-proof body for B’s Mercedes. The contract provides that the body is to be finished by 1 February so that the car can be shipped to B’s country of residence. On 31 January the car is needed but not yet quite finished. A assures B that it will be able to complete the work if given another week and B agrees to a week’s extension of time. If the car is finished within the week B must accept it but may recover any damages, for example extra shipping charges. If the work is not finished within the week, B may refuse to accept delivery and terminate the contract.
2. A, a company in country X, concludes a contract with B, a company in country Y, to build 100 km. of motorway in the latter country. The contract provides that the motorway will be finished within two years from the start of the work. After two years, A has in fact built 85 km. and it is clear that it will take at least three more months to finish the motorway. B gives A notice to complete within a further month. B is not entitled to terminate at the end of the month because the additional period of time is not reasonable; it shall be extended to the reasonable period of three months.