When may you suspend your payment obligation – and when may you not?

Is your contracting party not fulfilling its agreements? Then, under certain conditions, you can temporarily postpone your own obligations. We call this suspension. Suspension is often used as a means of exerting pressure and ensuring that the other party still fulfills its obligations. But be careful. You cannot simply suspend your own obligations if you yourself have not fulfilled your obligations on time. This is an important principle, but is sometimes overlooked in practice.

What is suspension?

Suspension means that a party may temporarily postpone its obligation if the other party fails to fulfill its own obligation. For example: a buyer can refuse to pay as long as the seller has not yet delivered the agreed product, even though according to the agreement this should have already happened. As soon as the other party still fulfills its obligation, the right of suspension expires and you yourself must again fulfill your obligations.

To invoke suspension, the following conditions must be met:

1. Performance of the contract must still be possible. If the other party is no longer able to fulfill its obligations at all, you cannot suspend your own obligations. Suppose a product you were to receive is no longer available, then there is no point in temporarily postponing payment. Suspension is intended as a means of pressure to enforce performance, but if performance is impossible, that purpose is lost.
2. A due obligation. You cannot simply refuse to pay without a valid reason. The other party must have failed to fulfill the obligation owed to him in time or properly.
3. Sufficient consistency. Suspension is possible only if there is a clear and direct relationship between the obligations of both parties. For example, you cannot stop paying your rent because a webshop is late delivering your order. It must involve the same parties. But it doesn’t have to involve obligations mutually arising from the same agreement, as long as there is consistency
4. Proportionality. The suspension must be proportionate to the other party’s default. You cannot refuse full payment because of a small mistake. Suppose the other party delivers 8 out of 10 products ordered, you cannot suspend payment for all 10 products.

Notice. In some cases, the contract or general terms and conditions may state that suspension is not allowed. This means that even if the other party fails to fulfill its obligations, you may not simply defer your own obligations. It is therefore important to check contractual agreements and general terms and conditions carefully beforehand.

No suspension if the party itself is in default

If you want to invoke suspension, you must do so in good time. Do you want to suspend your payment obligations, but you are already late in paying? Then you cannot afterwards argue “I am not paying because the other party has not/not properly fulfilled its obligations.” This is because your right of suspension expires as soon as you yourself are in default.

Example: You have ordered products from a supplier, but upon delivery it turns out that the products do not meet the agreed quality requirements. You report this to the supplier and together you look for a solution. Meanwhile, the supplier sends you invoices with a payment term. You do not pay these invoices within the set deadline and not even after the supplier has reminded you. Only later – when the payment deadlines have long passed – do you indicate that you do not want to pay because of the defective products and invoke suspension.

Is this still possible?

No, this is no longer possible. Because you have paid the invoices late, you yourself have defaulted. And because you are in default, you can no longer invoke suspension. So it is very important to act quickly when your counterparty does not comply with the agreement and immediately invoke suspension.

What if a party wrongfully invokes suspension?

Do not simply suspend your payments, but first check whether suspension is allowed under the agreement and general terms and conditions and whether you meet all legal requirements. After all, an unjustified invocation of suspension can have major consequences. In that case, you wrongly fail to fulfill your own obligations, which can lead to default and further legal consequences:

1.  You become in default yourself. If you suspend your obligations without a valid reason, from that moment you yourself are in default. This means that the other party can demand interest on the amount you owe and you may also have to pay collection costs.
2.  You may have to pay damages. If your failure to fulfill your obligations causes damage to the other party, that party may hold you liable and seek damages.
3. The other party may terminate the contract. If your wrongful suspension is severe enough, the other party can terminate the agreement. This may mean that you still have to pay or that you yourself are left without the agreed performance.

Conclusion

Suspension of a (payment) obligation must be timely and explicit. There are consequences attached to a wrongful invocation of suspension. Do you doubt whether you meet the requirements? Then seek legal advice to avoid unpleasant consequences.

Questions?

Do you have questions as a result of this article or other questions about suspension? Contact one of our attorneys by email, phone or fill out the contact form for a free initial consultation.  We are happy to think along with you.