Supplementary Performance

From Max-EuP 2012

by Peter Huber

1. Definition and purpose

Supplementary performance is a remedy which is primarily relevant in contracts for sales and for services. The remedy applies if the debtor has made a performance which was not in conformity with the contractual requirements. It entitles the creditor to claim either repair (of the non-conforming performance which has already been made) or substitute performance (ie a new performance which is in conformity with the contract).

From a doctrinal perspective, the original claim for performance (specific performance) turns into a claim for supplementary performance when the non-conforming performance is made. Thus, the claim for supplementary performance is basically a modified version of the original claim for performance (specific performance). The transformation from the original performance claim to the claim for supplementary performance will usually lead to changes in the legal regime, eg with regard to prescription.

Supplementary performance may serve two different purposes within a system of contractual remedies. On the one hand, supplementary performance serves as a remedy for the aggrieved party which insists on performance in conformity with the contract. In that context, supplementary performance serves the aggrieved party’s interest in receiving performance in kind, rather than being limited to a claim for compensation in money. On the other hand, supplementary performance may also be used by the breaching party as a right to cure the breach. In that context, supplementary performance lies in the interest of the party in breach which can, by curing the breach, prevent the other party from terminating the contract and thus eventually preserve its own claim to receive the agreed counter-performance (eg the purchase price). Irrespective of these two different perspectives, supplementary performance always reinforces the binding effect of contractual obligations and thus serves the long-standing principle of pacta sunt servanda.

2. Comparative background

Supplementary performance is a remedy which in recent years has gained considerable ground in Europe as a result of the Consumer Sales Directive (Dir 1999/44), at least with regard to consumer sales of movables (see 3. below). Traditionally, however, and outside the scope of the Directive, supplementary performance has not been (and is not) generally accepted as a remedy.

Those legal systems which were largely based on the aedilitian remedies of Roman law, in particular in continental Europe, traditionally regarded supplementary performance in a rather reserved manner. French law, by way of example, traditionally neither accepted a claim for supplementary performance nor a general right to cure, although there were, of course, exceptions (eg with regard to building contracts, or in cases where French courts granted a délai de grâce, ie a supplementary period of grace for the party in breach for making performance).

Before its fundamental reform of 2002, the German Bürgerliches Gesetzbuch (BGB) provided for supplementary performance only in very limited circumstances. In contracts for the sale of generic goods, the buyer had a right to claim delivery of substitute goods (but not repair) if the seller had delivered goods which were not of the required quality. Repair was available if the goods were not free from third party rights or, more generally, in certain types of service contracts. A right to cure was not generally accepted.

The traditional common law, too, did not recognize a general claim for supplementary performance. The remedy of specific performance is a discretionary remedy which will only be granted in exceptional circumstances (see specific performance). The right to cure, by contrast, is viewed somewhat more favourably. Thus, § 2.508 UCC grants the seller a right to cure in certain sets of circumstances. English law, however, seems to be rather reluctant to accept a right to cure after the time for performance has passed.

Other legal systems have been less reluctant to accept supplementary performance. Austrian law has a long-standing tradition of accepting a general right to claim substitute performance or repair in reciprocal contracts (§ 932(1) Austrian ABGB). Moreover, the aggrieved party’s right to terminate the contract was usually subject to the breaching party’s right to cure.

The Scandinavian legal systems originally provided a right to claim substitute performance which was only available if the breach reached a certain degree of seriousness; in that respect they were similar to the rule in the CISG (sale of goods, international (uniform law)). More recently, the remedy of repair found its way into the relevant statutes (§ 78 Danish Sales Act and § 34 of the Nordic Sale of Goods Act). From very early on, however, the Scandinavian legal systems gave the seller a right to cure the breach by repair or by substitute delivery if this did not result in unreasonable inconvenience or costs for the buyer.

Uniform law instruments have always been rather open-minded about the right to claim supplementary performance and the concept of a right to cure. Thus, for example, the first draft of a uniform sales law which was published in 1935 by UNIDROIT and which paved the way for the success story of international sales law as it stands today (see CISG and 3. below) recognized supplementary performance.

From a comparative perspective, it is probably fair to say that both the (buyer’s, client’s, etc) right to claim supplementary performance and the (seller’s, service provider’s, etc) right to cure are gaining ground. This favourable international tendency also has had an impact on the domestic legal systems.

3. The right to claim supplementary performance

The aggrieved party’s right to claim supplementary performance has long been accepted in the development of uniform contract law. Thus, the first draft of a Uniform Sales Law in 1935 had already included such a right. The 1964 Hague Convention (Uniform Law on the International Sale of Goods) gave the buyer the right to claim substitute delivery in contracts for the sale of unascertained goods. It also gave it the right to claim repair of the goods if the contract related to goods to be produced or manufactured by the seller, provided the seller was in a position to remedy the defects (Art 42(1)(a) and (c)); supplementary performance was also possible where the goods were not free from third party rights.

The CISG goes a step further by giving the buyer a claim for repair which is subject only to a reasonableness requirement, and a claim for substitute delivery where the breach of contract was fundamental (Art 46). The insertion of the right to claim repair goes back to a common proposal of several states during the negotiations on the Convention. This proposal argued that it corresponded with international practice to provide for a right of repair, even if this was not accepted in many domestic legal systems. In order to meet concerns by (in particular) the common law states, the right to claim supplementary performance was, however, limited by Art 28 which provides that a court is not bound to enter a judgment for specific performance unless the court would do so under its own law in respect of similar contracts of sale (cf specific performance).

The texts of UNIDROIT PICC, PECL and DCFR on the right to require supplementary performance are almost identical. They provide a right to require supplementary performance if a non-conforming performance has been made. There are, however, a number of exceptions (cf Art 9:102 PECL; Art 7.2.2 UNIDROIT PICC; Art III.-3:302 DCFR) Thus, as a general rule, there is no such right, if supplementary performance is unlawful or impossible, unreasonably burdensome or expensive, or where it would require acts which are of an exclusively personal character. Under some instruments, the right to require supplementary performance may be excluded where the aggrieved party may reasonably obtain supplementary performance from another source. There is also usually a time limit which requires the aggrieved party to bring its claim within a reasonable time.

In the domestic legal systems the right to claim supplementary performance is also gaining ground. This is due in large part to the Consumer Sales Directive which provides in Art 3 that the (consumer) buyer may require the seller to repair the goods or to replace them, in either case free of charge, unless this is impossible or disproportionate. Thus, the domestic legal systems of the EU states must provide for a supplementary performance claim at least for consumer sales which fall under the Directive. This has led some jurisdictions also to introduce a supplementary performance claim for other types of sales contracts. Thus, the new German law of 2002 as a general rule allows claims for supplementary performance for all sales contracts, and in certain types of service contracts (§§ 437 No 1, 439; §§ 634 No 1, 645 BGB).

4. The right to offer supplementary performance (right to cure)

The right to cure is a central element of the international trend to restrict the availability of termination as a remedy (termination of a contract) and as such has been gaining importance in recent years: Where the non-conformity can reasonably be cured, the non-performing party should be given a second chance to perform properly. If the cure is successful, this will avoid the costs and risks that would be associated with the restitutionary claims resulting from a termination of the contract. Article 7.1.4 UNIDROIT PICC is a very good example for the practical operation of the right to cure. Subsection (3) of that provision determines: ‘Upon effective notice of cure, rights of the aggrieved party that are inconsistent with the non-performing party’s performance are suspended until the time for cure has expired.’ Most legal systems would require the non-performing party to take the initiative by offering cure. German law, by contrast, shifts the initiative to the aggrieved party which usually has to fix an additional period of time (Nachfrist) for performance (cure) and can only terminate the contract if this period has expired without effective cure having been made (§ 323 BGB).

PECL (Art 8:104), UNIDROIT PICC (Art 7.1.4) and DCFR (Art III.-3:202–Art III.-3:205) contain provisions on the right to cure, with the latter two instruments being more detailed than the former. All three instruments also set certain limits for the right to cure, albeit with differences in detail. Thus, for example, there may be no right to cure where the delay would be such as to constitute a fundamental non-performance, or where cure would be inappropriate in the circumstances.

Article 48(1) CISG gives the seller a right to cure. This right to cure is, however, ‘subject to’ the buyer’s right to terminate the contract which in turn requires that the delivery of non-conforming goods amounts to a fundamental breach (Art 49(1)(a), 25 CISG). The crucial question therefore is whether the curability of the defect should be taken into account when deciding on the fundamental character of the breach. Nowadays there seems to be growing support for an affirmative answer to that question, unless the buyer has a particular and legitimate interest in being allowed to terminate the contract immediately (ie without waiting for a cure to be effected). The buyer would have such a legitimate interest in immediate termination if, for instance, the basis of trust between the parties has been destroyed or if it appears from the contract that time and conformity were both of the essence of the contract.

Literature

Ernst Rabel, Das Recht des Warenkaufs, vol 2 (1958) 251 ff; Guenter H Treitel, Remedies for Breach of Contract (1988) 370 ff; Christian von Bar and Reinhard Zimmermann (eds), Grundregeln des Europäischen Vertragsrechts (2002) 476 ff; Reinhard Zimmermann, The New German Law of Obligations (2005) 99 ff; Peter Huber, ‘Comparative Sales Law’ in Mathias Reimann and Reinhard Zimmermann (eds), The Oxford Handbook of Comparative Law (2006) 937 ff; Peter Huber and Alastair Mullis, The CISG (2007) 196 ff.

Retrieved from Supplementary Performance – Max-EuP 2012 on 27 January 2022.

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