I. The Court of Appeal found that the parties did indeed enter into contracts of supply, and dismissed as unproved the plaintiff's contention that these contracts were subsequently cancelled. Since the appellant does not contest this finding, we must proceed on the basis that the plaintiff was bound to perform the contracts.

II. The defendant's claim for damages thus depends on whether the plaintiff was in default in performing his obligations. The courts below have found, quite correctly, that the terms of the defendant's letter of 17 October 1960 were sufficient to put the plaintiff in default. The appellant seeks to rebut this by invoking his General Conditions of Business, but we need not decide whether these conditions were incorporated into the relevant contracts, since the plaintiff himself does not claim that the circumstances under which Clause 6 of these Conditions would excuse delay in delivery by the plaintiff had occurred.

III. The Court of Appeal was right to accept that there would have been no default on receipt of the letter of 17 October 1960 if the plaintiff had previously asserted a right to withhold performance under para. 273 BGB on the ground of the defendant's delay in paying sums due under previous contracts, but it was unable to conclude that the plaintiff had done so. The witness A could not recall the proceedings which the plaintiff said had taken place in H, and could not say precisely when the plaintiff had told the defendant in Milan that it would only deliver if the defendant satisfied the claims outstanding against it. It was quite possible, therefore, that the plaintiff's reservations concerned contracts of supply antedating those in dispute. This finding is legally unassailable. The Court of Appeal was thus right to hold that on receipt of the letter of 17 October 1960 the plaintiff was in default.

The appellant contends that the default was terminated by the plaintiff's subsequent assertion of a right to withhold performance. This cannot be accepted. For one thing, it is very doubtful whether there is any factual support for the appellant's view, since in its letter of 12 November 1960 the plaintiff categorically refused to perform the supply contracts of 1959, and such an outright refusal to perform can hardly be construed as an assertion of a defence under para. 273 BGB. Nor is there any basis, even on the appellant's view, for holding that the defence was raised before 12 November 1960. It has already been decided on several occasions that when a debtor who has been put in default subsequently acquires, out of the same legal relationship a counterclaim which gives him the right to withhold performance, neither his acquisition nor his assertion of this right cures the default in which he has been put. In order to terminate his default for the future, the debtor must take steps to cure the delay, in other words, he must, if possible, as it was here, establish a Zug-um-Zug relationship by offering to perform pari passu with counterperformance (RGZ 93, 310; 120, 193, 197; ...)

It makes no difference if, as here, the claims of the debtor who is in default (here the plaintiff) arose before those of the creditor (here the defendant). Thus it does not help the appellant to suggest that the defendant was also in default, even if there were any findings of fact to substantiate this assertion. The result is the same even on the assumption that the defendant was in default regarding payment of sums due under the 1958 contracts.

The mere fact that the defendant was in breach of contract could not prevent the plaintiff's being in default, for the obligations arising out of the different contracts were basically independent. The plaintiff could have taken steps to acquire rights from the defendant's delay just as the defendant later did from the plaintiff's delay. In particular, he could have asserted a right to withhold performance, a step which would, as has already been stated, have prevented him being in default himself. Furthermore, it may be possible in a case of this sort where the duties arising from one contract are balanced by duties from another contract in the same business relationship, to hold that non-performance of one contract constitutes a breach of the other. On this basis the defendant might be barred by the principle of good faith from relying on the plaintiff's delay in performance when he himself was in breach. But this would call for special circumstances which the appellant has failed to adduce. The Court of Appeal's finding that the plaintiff was in default from 17 October 1960 and that this default was not terminated proves unassailable even from the point of view represented by the appellant.

In a case like the present, a subsequent assertion of the right to withhold performance would not terminate the default: default can be ended only by performance or by a real tender of due performance (see OLG Karlsruhe NJW 1955, 504).

This does not mean that a subsequent assertion of the right to withhold performance is without significance. Although it does not put an end to the default, since it is in no way a substitute for performance, yet it does bring about a Zug-um-Zug relationship: it gives the debtor a power to put an end to the default by making an offer to perform Zug-um-Zug against counterperformance. In this indirect manner a debtor who has been put in default may still exact performance from the other party.

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This page last updated Thursday, 01-Dec-2005 11:04:42 CST. Copyright 2007. All rights reserved.