Recognizing a Contractual Right to Suspend Performance

Abstract

Consider this rather quotidian situation: a party to an enforceable contract (the injured party) faces a breach by the other party, and the injured party has not yet performed all of its obligations. At common law, the injured party has at most two choices (leaving aside restitutionary and statutory remedies): it may perform its remaining obligations and then claim damages or, in some circumstances, terminate the contract and have both parties’ remaining obligations discharged.There is no middle ground. The common law does not permit injured parties to withhold performance without discharging both parties’ unperformed obligations. In other words, the injured party cannot exert pressure on the breaching party to perform its obligations by temporarily withholding its own performance. This leaves the injured party in a tenuous position: if it performs its remaining obligations, it must then sue for damages, a lengthy, expensive, and uncertain venture (and may also immediately to have purchase substitute goods or services). If, on the other hand, it withholds performance, it risks being held to have repudiated the contract.Although the doctrines differ, all civil law jurisdictions recognize some version of the exceptio non adimpleti contractus, which grants injured parties the right to suspend performance without terminating the contract. Some transnational contract law instruments (such as the UNIDROIT Principles of International Commercial Contracts) also permit injured parties to temporarily suspend performance.This paper discusses the historical reasons why the common law excludes a right to suspend of performance and argues that it ought to recognize such a right. A right to suspend of performance without terminating the contract accords with the intuitive moral conceptions of contracting parties. (“Until you keep your promise, I won’t keep mine.”) In terms of policy, it would promote performance of contractual obligations, would reduce the number of expensive substitute transactions, and would be in line with the common law preference for efficient self-help remedies. The paper canvasses suspension of performance doctrines in different civil law jurisdictions to show various ways in which potential abuses of a right to suspend performance could be addressed.