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Rights Invoked Through Disclaimer In Commercial Contracts

Delivery and receipt of goods is one of the important types of contract. In certain cases, the seller and the buyer have the right to refuse to deliver or receive the goods? The Commercial Law 2005 mentioned this issue but the regulations are scattered and little attention is paid to this issue.

Rejection of goods

In the goods lease contract, the lessee has the right to refuse to receive the leased goods in the following cases:

  • The lessor does not give the lessee reasonable conditions and time to inspect the goods.

The Commercial Law 2005 allows the lessee to inspect the goods before receiving the goods and the lessor is obliged to give a reasonable amount of time for the lessee to inspect the goods. The inspection of goods upon receipt helps the lessee identify goods that are not in accordance with the contract. Commercial laws do not specify how long is considered a reasonable time. Thus, when entering into a contract, the parties should have specific terms in the contract pertaining to this the duration for inspection.

Delivery of goods in accordance with the contract is an obligation of the lessor. The parties may agree on criteria to determine how the actual goods are different from the goods agreed in the contract. In case there is no agreement, it shall be determined as follows:

  • Goods that are not suitable for the normal use of goods of the same type.
  • Goods which are not suitable for a specific purpose which was either informed by the lessee to the lessor or must have been known by the lessor at the time of concluding the contract.
  • Goods which are not of the same quality as the samples that the lessor has delivered to the lessee.

In the sales contract of goods, commercial laws also give the buyer the right to refuse to receive the goods in two cases:

  • Goods not in conformity with the contract:

In addition to the basis for determining how goods do not conform with a contract, if the goods are not preserved or packed in the usual manner for such goods or not suitable for preservation shall also be deemed to be non-conforming to the contract.

(ii) Delivery of excess of goods:

Usually, the parties to the contract have an article on the quantity of goods. In such a case, the parties can determine whether the goods are in excess quantity or not. The buyer only has the right to refuse the excess of goods, but not all of the delivered goods. The buyer can choose to receive such excess of goods and has to pay for the excess of goods received at a different price or at the same price agreed in the contract depending on the negotiation of the parties.

Commercial laws allow the buyer to refuse the goods. It also gives the seller the opportunity to remedy in case the delivery of goods is not in accordance with the contract or if the delivery is lacking. The seller should pay attention to whether the delivery time limit agreed by the parties in the contract remains. If the delivery period remains, the seller has the right to remedy by delivering the missing part or by replacing the goods to conform with the contract and remedy with the remaining goods within the remaining period.

Refusal to deliver

Delivery is the obligation of the seller as clearly defined in the Commercial Law 2005. This law doesn’t mention any cases where the seller has the right to refuse to deliver the goods to the buyer.

However, in practice, the seller often refuses to deliver the goods or refuses to continue delivering the goods in the event the buyer does not pay or is late in payment to the seller. So, is it considered a breach of contract when the seller refuses to deliver the goods in this case?

A fundamental breach is a breach of contract where one party causes damage to the other party to the extent that the other party fails to achieve the purpose of entering the contract. According to the Commercial Law 2005, when one party to a contract violates a fundamental obligation, the other party has the right to pause performance or suspend or cancel the contract.

In the author’s opinion, breach of payment obligation is a fundamental violation because the purpose of entering a contract is to earn profit to secure business capital. Therefore, the seller’s refusal to deliver or continue to deliver the goods can be considered as an effective measure to protect their rights when the buyer violates their payment obligation.

Refusal to perform the contract

While performing the contract, if a force majeure event occurs, the parties may agree to extend the time for performance of contractual obligations. If the parties do not have an agreement or fail to reach an agreement, the time for performance of contractual obligations shall be extended by an additional time equal to the duration of the force majeure event plus a reasonable time to remedy the consequences, but may not extend beyond the following deadlines:

  • Five months when the delivery term is no more than twelve months.
  • Eight months for delivery agreements over twelve months.

If the time period specified in points (i) and (ii) is exceeded, the parties have the right to refuse to perform the contract and neither party has the right to demand compensation from the other party.

In addition to the sales contract and the lease contract specifically mentioned in this article, the Commercial Law 2005 also stipulates other cases such as the right to refuse to buy auctioned goods. Enterprises that sign contracts and want to invoke the right to refusal as mentioned, should consult a lawyer before doing so to avoid breach of contract.

Date of authoring: 15/07/2021.

The article is based on applicable laws at the time noted above and may no longer be relevant at the time the reader approaches this article due to the change in applicable law and the specific case to which the reader wishes to apply. Therefore, the article is for reference only.