Where a party who is obliged to pay money does not do so, the other party may require payment.
This Article reflects the generally accepted principle that payment of money which is due under a contractual obligation can always be demanded and, if the demand is not met, enforced by legal action before a court. The term “require” is used in this Article to cover both the demand addressed to the other party and the enforcement, whenever necessary, of such a demand by a court.
The Article applies irrespective of the currency in which payment is due or may be made. In other words, the right of the obligee to require payment extends also to cases of payment in a foreign currency. For the determination of the currency in which a monetary obligation is due or payment may be made, see Articles 6.1.9, 6.1.10 and 7.4.12.
Exceptionally, the right to require payment of the price of the goods or services to be delivered or rendered may be excluded. This is in particular the case where a usage requires a seller to resell goods which are neither accepted nor paid for by the buyer. For the applicability of usages, see Article 1.9.
Where a party who owes an obligation other than one to pay money does not perform, the other party may require performance, unless
(a) performance is impossible in law or in fact;
(b) performance or, where relevant, enforcement is unreasonably burdensome or expensive;
(c) the party entitled to performance may reasonably obtain performance from another source;
(d) performance is of an exclusively personal character; or
(e) the party entitled to performance does not require performance within a reasonable time after it has, or ought to have, become aware of the non-performance.
1. Right to require performance of non-monetary obligations
In accordance with the general principle of the binding character of the contract (see Article 1.3), each party should as a rule be entitled to require performance by the other party not only of monetary, but also of non-monetary obligations, assumed by that party. While this is not controversial in civil law countries, common law systems allow enforcement of non-monetary obligations only in special circumstances.
Following the basic approach of CISG (Article 46) this Article adopts the principle of specific performance, subject to certain qualifications.
The principle is particularly important with respect to contracts other than sales contracts. Unlike the obligation to deliver something, contractual obligations to do something or to abstain from doing something can often be performed only by the other contracting party itself. In such cases the only way of obtaining performance from a party who is unwilling to perform is by enforcement.
2. Remedy not discretionary
While CISG provides that “a court is not bound to enter a judgement for specific performance unless the court would do so under its own law in respect of similar contracts of sale not governed by [the] Convention” (Article 28), under the Principles specific performance is not a discretionary remedy, i.e. a court must order performance, unless one of the exceptions laid down in this Article applies.
3. Exceptions to the right to require performance
A performance which is impossible in law or in fact, cannot be required (sub-paragraph (a)). However, impossibility does not nullify a contract: other remedies may be available to the aggrieved party (see Articles 3.1.3 and 7.1.7(4)).
The refusal of a public permission which is required under the applicable domestic law and which affects the validity of the contract renders the contract void (see Article 6.1.17(1)), with the consequence that the problem of enforceability of the performance cannot arise. When, however, the refusal merely renders the performance impossible without affecting the validity of the contract (see Article 6.1.17(2)), sub-paragraph (a) of this Article applies and performance cannot be required.
b. Unreasonable burden
In exceptional cases, particularly when there has been a drastic change of circumstances after the conclusion of a contract, performance, although still possible, may have become so onerous that it would run counter to the general principle of good faith and fair dealing (see Article 1.7) to require it.
1. An oil tanker has sunk in coastal waters in a heavy storm. Although it would be possible to lift the ship from the bottom of the sea, the shipper may not require performance of the contract of carriage if this would involve the shipowner in expense vastly exceeding the value of the oil (see Article 7.2.2(b)).
The words “where relevant, enforcement” take account of the fact that in common law systems it is the courts and not the obligees who supervise the execution of orders for specific performance. As a consequence, in certain cases, especially those involving performances extended in time, courts in those countries refuse specific performance if supervision would impose undue burdens upon courts.
As to other possible consequences arising from drastic changes of circumstances amounting to a case of hardship, see Articles 6.2.1 et seq.
c. Replacement transaction
Many goods and services are of a standard kind, i.e. the same goods or services are offered by many suppliers. If a contract for such staple goods or standard services is not performed, most customers will not wish to waste time and effort extracting the contractual performance from the other party. Instead, they will go into the market, obtain substitute goods or services and claim damages for non-performance. In view of this economic reality sub-paragraph (c) excludes specific performance whenever the party entitled to performance may reasonably obtain performance from another source. That party may terminate the contract and conclude a replacement transaction (see Article 7.4.5).
The word “reasonably” indicates that the mere fact that the same performance can be obtained from another source is not in itself sufficient, since the aggrieved party could not in certain circumstances reasonably be expected to have recourse to an alternative supplier.
2. A, situated in a developing country where foreign exchange is scarce, buys a machine of a standard type from B, a manufacturer situated in country X, a developed country. In compliance with the contract, A pays the price of USD 100,000 before delivery. B does not deliver. Although A could obtain the machine from another source in country X, it would be unreasonable, in view of the scarcity and high price of foreign exchange in its home country, to require A to take this course. A is therefore entitled to require delivery of the machine from B.
d. Performance of an exclusively personal character
Where performance has an exclusively personal character, enforcement would interfere with the personal freedom of the obligor. Moreover, enforcement of performance often impairs its quality. The supervision of a very personal performance may also give rise to insuperable practical difficulties, as is shown by the experience of countries which have saddled their courts with this kind of responsibility. For all these reasons, sub-paragraph (d) excludes enforcement of performance of an exclusively personal character.
The precise scope of this exception depends essentially upon the meaning of the phrase “exclusively personal character”. The modern tendency is to confine this concept to performances of a unique character. The exception does not apply to obligations undertaken by a company. Nor are ordinary activities of a lawyer, a surgeon or an engineer covered by the phrase for they can be performed by other persons with the same training and experience. A performance is of an exclusively personal character if it is not delegable and requires individual skills of an artistic or scientific nature or if it involves a confidential and personal relationship.
3. An undertaking by a firm of architects to design a row of ten buildings can be specifically enforced as the firm can delegate the task to one of the partners or employ an outside architect to perform it.
4. By contrast, an undertaking by a world-famous architect to design a new city hall embodying the idea of a city of the 21st century cannot be enforced because it is highly unique and calls for the exercise of very special skills.
The performance of obligations to abstain from doing something does not fall under sub-paragraph (d).
e. Request within reasonable time
Performance of a contract often requires special preparation and efforts by the obligor. If the time for performance has passed but the obligee has failed to demand performance within a reasonable time, the obligor may be entitled to assume that the obligee will not insist upon performance. If the obligee were to be allowed to leave the obligor in a state of uncertainty as to whether performance will be required, the risk might arise of the obligee’s speculating unfairly, to the detriment of the obligor, upon a favourable development of the market.
For these reasons sub-paragraph (e) excludes the right to performance if it is not required within a reasonable time after the obligee has become, or ought to have become, aware of the non-performance.
For a similar rule concerning the loss of the right to terminate the contract, see Article 7.3.2(2).
The right to performance includes in appropriate cases the right to require repair, replacement, or other cure of defective performance. The provisions of Articles 7.2.1 and 7.2.2 apply accordingly.
1. Right to performance in case of defective performance
This Article applies the general principles of Articles 7.2.1 and 7.2.2 to a special, yet very frequent, case of non-performance, i.e. defective performance. For the sake of clarity the Article specifies that the right to require performance includes the right of the party who has received a defective performance to require cure of the defect.
2. Cure of defective performance
Under the Principles cure denotes the right both of the non-performing party to correct its performance (see Article 7.1.4) and of the aggrieved party to require such correction by the non-performing party. This Article deals with the latter right.
The Article expressly mentions two specific examples of cure, namely repair and replacement. Repairing defective goods (or making good an insufficient service) is the most common case and replacement of a defective performance is also frequent. The right to require repair or replacement may also exist with respect to the payment of money, for instance in case of an insufficient payment or of a payment in the wrong currency or to an account different from that agreed upon by the parties.
Apart from repair and replacement there are other forms of cure, such as the removal of the rights of third persons over goods or the obtaining of a necessary public permission.
The right to require cure of a defective performance is subject to the same limitations as the right to performance in general.
Most of the exceptions to the right to require performance that are set out in Article 7.2.2 are easily applicable to the various forms of cure of a defective performance. Only the application of sub-paragraph (b) calls for specific comment. In many cases involving small, insignificant defects, both replacement and repair may involve “unreasonable effort or expense” and are therefore excluded.
A new car is sold which has a small painting defect which decreases the value of the car by 0.01 % of the purchase price. Repainting would cost 0.5% of the purchase price. A claim for repair is excluded but the buyer is entitled to require a reduction in the purchase price.
(1) Where the court orders a party to perform, it may also direct that this party pay a penalty if it does not comply with the order.
(2) The penalty shall be paid to the aggrieved party unless mandatory provisions of the law of the forum provide otherwise. Payment of the penalty to the aggrieved party does not exclude any claim for damages.
1. Judicially imposed penalty
Experience in some legal systems has shown that the threat of a judicially imposed penalty for disobedience is a most effective means of ensuring compliance with judgments ordering the performance of contractual obligations. Other systems, on the contrary, do not provide for such sanctions because they are considered to constitute an inadmissible encroachment upon personal freedom.
This Article takes a middle course by providing for monetary but not for other forms of penalty, applicable to all kinds of orders for performance including those for payment of money.
2. Imposition of penalty at discretion of the court
The use of the word “may” in paragraph (1) of this Article makes it clear that the imposition of a penalty is a matter of discretion for the court. Its exercise depends upon the kind of obligation to be performed. In the case of money judgments, a penalty should be imposed only in exceptional situations, especially where speedy payment is essential for the aggrieved party. The same is true for obligations to deliver goods. Obligations to pay money or to deliver goods can normally be easily enforced by ordinary means of execution. By contrast, in the case of obligations to do or to abstain from doing something, which moreover cannot easily be performed by a third person, enforcement by means of judicial penalties is often the most appropriate solution.
Legal systems differ as to the question of whether judicial penalties should be paid to the aggrieved party, to the State, or to both. Some systems regard payment to the aggrieved party as constituting an unjustified windfall benefit which is contrary to public policy.
While rejecting this latter view and indicating the aggrieved party as the beneficiary of the penalty, the first sentence of paragraph (2) of this Article expressly mentions the possibility of mandatory provisions of the law of the forum not permitting such a solution and indicating other possible beneficiaries of judicial penalties.
4. Judicial penalties distinguished from damages and from agreed payment for non-performance
The second sentence of paragraph (2) makes it clear that a judicial penalty paid to the aggrieved party does not affect its claim for damages. Payment of the penalty is regarded as compensating the aggrieved party for those disadvantages which cannot be taken into account under the ordinary rules for the recovery of damages. Moreover, since payment of damages will usually occur substantially later than payment of a judicial penalty, courts may to some degree be able, in measuring the damages, to take the payment of the penalty into account.
Judicial penalties are moreover to be distinguished from agreed payments for non-performance which are dealt with in Article 7.4.13, although the latter fulfil a function similar to that of the former. If the court considers that the contractual stipulation of the payment of a sum in case of non-performance already provides a sufficient incentive for performance, it may refuse to impose a judicial penalty.
5. Form and procedure
A judicial penalty may be imposed in the form of a lump sum payment or of a payment by instalments.
The procedure relating to the imposition of a judicial penalty is governed by the lex fori.
6. Penalties imposed by arbitrators
Since according to Article 1.11 “court” includes an arbitral tribunal, the question arises of whether arbitrators might also be allowed to impose a penalty.
While a majority of legal systems seems to deny such a power to arbitrators, some modern legislation and recent court practice have recognised it. This solution, which is in keeping with the increasingly important role of arbitration as an alternative means of dispute resolution, especially in international commerce, is endorsed by the Principles. Since the execution of a penalty imposed by arbitrators can only be effected by, or with the assistance of, a court, appropriate supervision is available to prevent any possible abuse of the arbitrators’ power.
7. Recognition and enforcement of decisions imposing penalties
Attention must be drawn to the problems of recognition and enforcement, in countries other than the forum State, of judicial decisions and of arbitral awards imposing penalties. Special rules on this matter are sometimes to be found in national law and to some extent in international treaties.
(1) An aggrieved party who has required performance of a non-monetary obligation and who has not received performance within a period fixed or otherwise within a reasonable period of time may invoke any other remedy.
(2) Where the decision of a court for performance of a non-monetary obligation cannot be enforced, the aggrieved party may invoke any other remedy.
1. Aggrieved party entitled to change of remedy
This Article addresses a problem which is peculiar to the right to require performance. The aggrieved party may abandon the remedy of requiring performance of a non-monetary obligation and opt instead for another remedy or remedies.
This choice is permitted on account of the difficulties usually involved in the enforcement of non-monetary obligations. Even if the aggrieved party first decides to invoke its right to require performance, it would not be fair to confine that party to this single option. The non-performing party may subsequently become unable to perform, or its inability may only become evident during the proceedings.
2. Voluntary change of remedy
Two situations must be addressed.
In the first case, the aggrieved party has required performance but changes its mind before execution of a judgment in its favour, perhaps because it has discovered the non-performing party’s inability to perform. The aggrieved party now wishes to invoke one or more other remedies. Such a voluntary change of remedy can only be admitted if the interests of the non-performing party are duly protected. It may have prepared for performance, invested effort and incurred expense. For this reason paragraph (1) of this Article makes it clear that the aggrieved party is entitled to invoke another remedy only if it has not received performance within a fixed period or otherwise within a reasonable period of time.
How much additional time must be made available to the non-performing party for performance depends upon the difficulty which the performance involves. The non-performing party has the right to perform provided it does so before the expiry of the additional period.
For similar conditions which restrict the right of termination in case of delay in performance, see Article 7.3.2(2).
3. Unenforceable decision
Paragraph (2) addresses the second and less difficult case in which the aggrieved party has attempted without success to enforce a judicial decision or arbitral award directing the non-performing party to perform. In this situation it is obvious that the aggrieved party may immediately pursue other remedies.
4. Time limits
In the event of a subsequent change of remedy the time limit provided for a notice of termination under Article 7.3.2(2) must, of course, be extended accordingly. The reasonable time for giving notice begins to run, in the case of a voluntary change of remedy, after the aggrieved party has or ought to have become aware of the non-performance at the expiry of the additional period of time available to the non-performing party to perform; and in the case of paragraph (2) of this Article, it will begin to run after the aggrieved party has or ought to have become aware of the unenforceability of the decision or award requiring performance.