Right of Retention
1. Subject matter and purpose
A right of retention is mainly relevant if the debtor also has a claim against the creditor. The right of retention offers him security with regard to his own claim: he only has to perform his obligation if he receives the performance owed to him. Thus, a right of retention puts pressure on the other party to perform because he will not otherwise receive what is due to him. Furthermore, it enables the party entitled to it not to perform before the other party. Thus rights of retention are closely related to set-off; in practice, they are relied on where set-off fails because the two obligations are not of the same kind.
The connection required between the two obligations may vary. It is closest if both obligations are of a reciprocal nature. If both obligations only have to be based on the same legal relationship (connectivity), it is considerably looser. Finally, a right of retention may also be granted without the two obligations having any connection beyond the debtor of the first obligation being the creditor of the second obligation and vice versa.
A right of retention does not necessarily require the debtor to have a claim against the creditor. For instance, the debtor who has to surrender an object may be entitled to retain it until he has been compensated for his expenditure on the item in question, even if he does not have a claim for reimbursement. In this case, the person entitled to claim surrender of the item can choose: he can either request surrender, but then has to reimburse the debtor’s expenditure; or he can give up the object and thus avoid reimbursement (eg § 1000 Bürgerliches Gesetzbuch (BGB)). Another example is provided by situations of compensatio lucri cum damno (equalization of benefits; see Comment C and note 4 to Art 9:502 PECL and also Art VI.-6:103 DCFR). If, for instance, a tort not only caused loss to the victim, but also conferred a benefit on him, and loss and benefit are of a different kind, the tortfeasor is granted a right of retention so that he has to compensate the victim for the loss only if the victim in turn surrenders the benefit he received.
In cases of a right of retention, both parties have to perform simultaneously (Zug um Zug) (see §§ 274(1), 322(1) BGB; § 756 ZPO). A problem arises if one of the parties refuses to accept the other party’s performance; in such case the first party must not be entitled to retain his own performance because it is due to his conduct alone that he did not receive the second party’s performance. Therefore, although the second party has not yet performed, his claim must be enforceable as long as he has tendered performance (eg Art III.-3:401(1) DCFR), or if the first party is in mora creditoris (see § 274(2) BGB; § 756 ZPO).
A right of retention may be independent of the value of the two performances, or a party may be entitled to withhold his own performance only insofar as the value of this performance does not exceed the value of his claim (see § 320(2) BGB; Art III.-3:401(4) DCFR). The creditor may be allowed to avert the debtor’s right of retention by providing security (see §§ 273(3), 320(1)3 BGB). The right of retention may be coupled with a right to satisfaction, which allows the party entitled to it in certain cases to seek satisfaction for his own claim from the object retained (§ 371 HGB).
If a party has a right of retention, he cannot be held liable for a delay in performance. In this regard, either the mere existence of a right of retention can suffice, or the debtor may have to invoke that right. As to procedural law, a right of retention may be taken into account ex officio, or only if the debtor relies on it.
2. Tendencies in legal development
a) General right of retention
In Roman law, there was no general right of retention. A debtor who had to surrender an object and could request the creditor to reimburse expenses or to compensate for loss sustained was granted a ius retentionis if the expenses or the loss were connected to the object in question; this right of retention was independent of whether the debtor was granted a claim for reimbursement or compensation. No connectivity was required in case of the pignus Gordianum, which allowed the pledgee to retain the pledge even after satisfaction of the obligation for which it had been given if the pledgee had further, unsecured claims against the pledgor (C. 8,26,1,2 f). A right of retention could not be averted by providing security.
Only in the 19th century was a right of retention granted beyond the cases recognized in Roman law, and a general concept was developed which was shaped by the requirement of connectivity. The pignus Gordianum was received by the ius commune and included, for instance, in the French Code civil (Art 2082(2), repealed by Ordonnance no 2006-346) and in the Codice civile (Art 2794(2)), but not in the BGB. It was disputed whether or not the right of retention could be averted by providing security.
§ 273 BGB provides for a general right of retention in the case of claims originating from the same legal relationship (connectivity) and in cases of expenses for an object which is to be returned, or damages caused by it. The creditor may avert the right of retention by providing security (with the exception of security by suretyship). According to § 274 BGB, the right of retention does not lead to the creditor’s action being dismissed, but to a judgment ordering the debtor to perform against receiving the creditor’s performance.
In Austrian law, § 471 ABGB allows the debtor to retain an object that he has to surrender until he is compensated for expenses made on that object and for damages caused by it, unless retention is excluded by § 1440, 2 ABGB. The creditor can avert the right of retention by providing security (with the exception of security by suretyship).
In the common law, similar results are achieved by means of a property right: the lien. It allows the lienee not to return an object to the owner until his claims in connection with the object have been satisfied. For instance, the innkeeper is allowed to retain, as security for payment, personal property that the guest has brought into the inn, and the carrier is allowed to retain the cargo until payment of the shipping costs.
In French law, there is no general provision on rights of retention, but the Code civil contains specific rights of retention against claims for surrender (eg Arts 862, 1948 Code civil). The courts have acknowledged additional rights of retention against claims for surrender, each of which requires connectivity. The Codice civile also contains only some selective rules.
b) Defence of unperformed contract
While in Roman law the reciprocal obligations arising from a contract were initially independent of each other, in classical law it was considered to be contrary to good faith to claim the other party’s performance without performing oneself. The glossators and commentators protected the debtor by granting him a defence (exceptio non adimpleti contractus), and in the usus modernus reciprocal contracts were ultimately established as a special category. In the second half of the 19th century, the opinion prevailed in Germany that the exceptio constituted a ‘true’ defence which the judge was not to consider ex officio. By rendering a judgment that ordered the debtor to perform against receiving the reciprocal performance, the courts—at first without any foundation in procedural law—avoided dismissing the action.
The defence of unperformed contract can be found in most European legal systems (eg § 320 BGB, §§ 1052, 1, 1062 ABGB, Art 1651 Code civil, ss 28, 39 Sale of Goods Act 1979), sometimes as a general rule, sometimes only for specific cases and supplemented by case law. If the debtor has to perform before the creditor, he obviously cannot rely on this defence. Many legal systems protect such a debtor by allowing him to withhold performance if, after the conclusion of the contract, it becomes apparent that his claim for counter-performance is jeopardized (defence of uncertainty). Such rules often require a substantial deterioration of the creditor’s financial circumstances (eg § 1052, 2 ABGB, Art 1613 Code civil, Art 1461 Codice civile), while § 321 BGB in its revised version does not differentiate according to the reason for the creditor’s inability to perform.
3. International uniform law and international model laws
The sets of rules of international uniform law and the international model laws do not contain provisions on a general right of retention, but instead (with the exception of two special cases in the CISG) recognize only the defence of unperformed contract and the defence of uncertainty.
a) CISG
Art 58(1) 2 CISG (sale of goods, international (uniform law)) allows the seller to make payment a condition for handing over the goods or the documents if no other specific time for payment has been determined. If the contract involves the carriage of the goods, the seller may dispatch the goods on terms whereby the goods or documents will not be handed over to the buyer except against payment of the price (Art 58(2) CISG). However, according to Art 58(3) CISG, the buyer is in general only bound to pay if he has had an opportunity to examine the goods. Many authors also grant the seller a right of retention if the buyer does not perform other contractual obligations which are not merely of minor importance. Conversely, unless otherwise agreed upon, the buyer is not bound to pay until the goods or documents are placed at his disposal because, according to Art 58(1) CISG, the price is not due beforehand.
Art 71 CISG entitles each party to suspend 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—be it that he is not able to (eg due to a lack of creditworthiness), or be it that he is not willing to. If the seller has already dispatched the goods, he may prevent the handing over of the goods to the buyer. Performance must be continued if the other party provides adequate assurance of his performance. The right to refuse performance is independent of whether or not the creditor is excused under Art 79 CISG.
Art 85, 2 CISG allows the seller to retain the goods until he has been reimbursed for his rea- sonable expenses for preserving them during the buyer’s mora creditoris; several legal writers are in favour of allowing the buyer to avert this right of retention by providing security. Article 86(1) 2 CISG grants a corresponding right of retention to a buyer who has received the goods and then exercises a right to reject them.
Many scholars advocate using Art 71 CISG as basis for a general right of retention, which would allow the buyer to retain the price if the seller has delivered non-conforming goods. Others derive such a right from Art 80 CISG or from the general principles on which the CISG is based (Art 7(2) CISG).
b) International model laws
Art 7:104 Principles of European Contract Law (PECL) provides that, unless the circumstances indicate otherwise, the parties have to perform a synallagmatic contract (see that Article’s Comment) simultaneously. Article 9:201(1) PECL grants a right of retention to a party who is not bound to perform before the other party; whether the party entitled to the right may retain the whole of his performance, or only part of it, depends on what is reasonable under the circumstances. According to Comment A, the provision envisages reciprocal obligations and takes no view on whether further rights of retention exist. In case of the creditor’s non-performance, the debtor may invoke the right of retention even if he has allowed the creditor an additional period of time for performance (Art 8:106(2) 1 PECL). The right of retention is excluded if the debtor himself caused the creditor’s non-performance (Art 8:101(3) PECL).
Arts 6.1.4(1) and 7.1.3 UNIDROIT Principles of International Commercial Contracts (PICC) 2010 recognize a similar right of retention; however, the UNIDROIT PICC 2010 do not contain a provision whether performance may be retained in whole or in part. The right of retention is excluded if the creditor’s non-performance was caused by the debtor, or by an event as to which the debtor bore the risk (Art 7.1.2 UNIDROIT PICC 2010), but not if the debtor allowed the creditor an additional period of time for performance (Art 7.1.5(2)1 UNIDROIT PICC 2010).
As for the defence of uncertainty, the PECL contain graduated rules. Performance may be withheld as long as it is ‘clear’ that there will be a non-performance by the other party (Art 9:201(2) PECL). If the debtor reasonably believes that there will be a ‘fundamental’ non-performance by the other party, he may withhold performance until he receives adequate assurance of due performance (Art 8:105(1) PECL). The reason for the performance being jeopardized is immaterial; it may, for instance, be due to the creditor’s lack of money or to a fire in his plant. What constitutes an adequate assurance depends on the circumstances; in some cases the creditor’s declaration of an intention to perform may suffice, in other cases it may be necessary to provide security. The UNIDROIT PICC 2010 contain only a provision equivalent to Art 8:105 PECL (Art 7.3.4, 1 UNIDROIT PICC 2010), but none equivalent to Art 9:201(2) PECL.
The Draft Common Frame of Reference (DCFR), too, limits rights of retention to reciprocal obligations. Hence the Annex defines ‘withholding performance’ as the right of one party to a contract to decline to render a counter-performance that is due until the other party has tendered performance or has performed. Article III.-3:401(1) DCFR gives the debtor a right of retention if he is not bound to perform before the creditor. If the debtor is to perform before the creditor, he is entitled to withhold performance for as long as he reasonably believes that there will be non-performance by the creditor; he loses this right if the creditor gives an adequate assurance of due performance (Art III.-3:401(2) DCFR). According to Art III.-3:401(4) DCFR, it depends on what is reasonable under the circumstances whether performance may be withheld in whole or in part. The right of retention exists even if the debtor has allowed the creditor an additional period of time for performance (Art III.-3:103(2) DCFR), but not if the debtor caused the creditor’s non-performance (Art III.-3:101(3) DCFR). In addition to these general rules, the DCFR contains several special rights of retention. For instance, a debtor who on reasonable grounds is in doubt whether the obligation has been assigned may request adequate proof of assignment or, conversely, an adequate confirmation that the obligation has not been assigned, and he may withhold performance until his request has been met (Art III.-5:120 DCFR). In cases of construction contracts, the client may withhold part of the price if, after having received control of the structure, work remains to be done (Art IV.C.-3:107(2) DCFR).
Literature
Wolfgang van den Daele, Probleme des gegenseitigen Vertrages (1968); Wolfgang Ernst, Die Einrede des nichterfüllten Vertrages (2000); Christoph Kern, ‘Ein einheitliches Zurückbehaltungsrecht im UN-Kaufrecht?’ (2000) 8 ZEuP 837; Wolfgang Witz, ‘Zurückbehaltungsrechte im internationalen Kauf—eine praxisorientierte Darstellung zur Durchsetzung des Kaufpreisanspruchs im CISG’ in Festschrift Peter Schlechtriem (2003) 291; Felix Hartmann, ‘Ungeschriebene Zurückbehaltungsrechte im UN-Kaufrecht’ [2006] Internationales Handelsrecht 182; Peter Gröschler, ‘§§ 273–274. Zurückbehaltungsrecht’ in Mathias Schmoeckel, Joachim Rückert and Reinhard Zimmermann (eds), Historisch-kritischer Kommentar zum BGB, vol II/1 (2007); Martin Pennitz, ‘§§ 320–322. Der gegenseitige Vertrag und das Prinzip der Zug-um-Zug Leistung’ in Mathias Schmoeckel, Joachim Rückert and Reinhard Zimmermann (eds), Historisch-kritischer Kommentar zum BGB, vol II/2 (2007); Caroline Cauffman, ‘The Relationship between Transfer Rules and Rules on Creditor’s Avoidance of Debtor’s Transactions’ in Wolfgang Faber and Brigitta Lurger (eds), Rules for the Transfer of Movables (2008) 123, 132 ff; Florian Mohs, Art 58 in Peter Schlechtriem and Ingeborg Schwenzer (eds), Commentary on the UN Convention on the International Sale of Goods (3rd edn, 2010); Christiana Fountoulakis, Art 71 in Peter Schlechtriem and Ingeborg Schwenzer (eds), Commentary on the UN Convention on the International Sale of Goods (3rd edn, 2010).
