Right of Retention in Contracts
Under Iranian law, the explicit term “right of retention” is mentioned only in Article 371 of the Commercial Code. According to this provision, a commission agent is entitled to exercise a right of retention against the principal to recover outstanding claims relating to the goods subject to the transaction or the received price.
In other legal contexts, similar concepts are expressed through terms such as refusal to perform marital obligations, refusal to deliver the sold goods, refusal to perform contractual obligations, and refusal to deliver merchandise, as used in other statutory provisions.
Legal Effects of Exercising the Right of Retention
Concept of the Right of Retention
The right of retention is an option granted to the parties to a contract, allowing each party to suspend performance of their own obligation until the other party fulfills their corresponding obligation. For example, in a contract of sale, the buyer may condition payment of the price upon delivery of the goods, while the seller may condition delivery of the goods upon receipt of the price.
In this manner, exercising the right of retention results in the suspension of contract performance without terminating the contract itself.
Most legal systems recognize the right of retention, and it is also addressed in international conventions and treaties. For instance, under Article 58 of the United Nations Convention on Contracts for the International Sale of Goods of 1980, the seller is entitled to withhold delivery of the goods or related documents until the buyer pays the price.
Pursuant to Article 377 of the Iranian Civil Code, both the seller and the buyer have the right to refuse delivery of the goods or the price until the other party is ready to perform their obligation. Many legal scholars contend that this provision is not limited to contracts of sale and that the right of retention applies to all synallagmatic, or reciprocal, contracts under Iranian law. Others, however, consider it an exception to the general rule and limit its application to cases expressly provided by law.
The right of retention relates only to the principal reciprocal obligations of a contract and does not extend to ancillary or secondary obligations. For example, in a lease agreement, the tenant may condition payment of rent upon delivery of the leased property, but may not refuse to pay rent for reasons such as a failure to repair a faucet.
The right of retention also applies in cases of mutual rescission of contracts, since rescission itself constitutes a reciprocal agreement. In such cases, each party may refuse to return the subject matter until the other party fulfills its corresponding obligation.
Extinction of the Right of Retention in Contracts
The right of retention is most commonly discussed in contracts of sale, although many jurists extend its application to all reciprocal contracts. Some scholars even argue that it exists in all contracts, whether reciprocal or gratuitous. In certain situations, the parties may expressly or implicitly waive the right of retention. For example, if one party specifies a definite time for performance of their obligation, the right of retention is extinguished, unless the time for performance of both obligations is set simultaneously for a future date.
If the law requires one party to perform earlier than the other, the right of retention no longer applies. For instance, wages payable to workers or fees payable to commission agents are customarily paid after completion of the work, and therefore, the right of retention does not apply in such cases.
Conditions for the Existence of the Right of Retention
For the right of retention to remain effective for both parties, no deadline or term must be specified for performance of either of the reciprocal obligations.
If, at the time of concluding the contract or thereafter, a deadline is set for one of the principal obligations, the right of retention is extinguished for the party whose obligation is deferred.
Accordingly, the existence of the right of retention requires simultaneity of obligations. This means that either both obligations must be immediately due and not deferred, or, if deferred, both must be subject to the same term.
Exceptions to the Right of Retention
In certain cases, the conditions for exercising the right of retention are modified or subject to exceptions. For example, the United Nations Convention on Contracts for the International Sale of Goods introduces exceptions to the general rule of simultaneous payment and delivery.
Pursuant to paragraph three of Article 58 of the Convention, the first exception applies where the buyer has the contractual right to examine the goods before payment of the price. In such cases, the buyer may withhold payment until the examination is completed.
According to Article 75 of the Convention, the second exception applies where goods are sold on credit. This exception reflects the fundamental condition for exercising the right of retention: the reciprocal obligations must not be deferred. In credit sales, payment of the price is deferred; therefore, the right of retention does not apply in full.
Frequently Asked Questions Regarding the Right of Retention in Contracts
The right of retention allows each party to a contract to condition performance of their obligation upon performance by the other party. For example, the buyer may withhold payment until delivery, and the seller may withhold delivery until payment is made.
The right of retention primarily arises in contracts of sale, but many legal scholars consider it applicable to all reciprocal contracts. It applies only to the principal obligations of the contract and not to ancillary obligations.
The right of retention is extinguished when a specific time for performance is set by the parties or imposed by law. For example, wages or commission fees payable after completion of work are not subject to the right of retention.
The obligations of both parties must be simultaneous. If one obligation is deferred while the other is immediately due, the right of retention is extinguished for the party whose obligation is deferred.
Exercising the right of retention suspends performance of the contract without terminating it. This principle is widely recognized in domestic legal systems and international instruments such as the Convention on the International Sale of Goods.
Exceptions apply where the buyer has the right to inspect the goods before payment, or where the goods are sold on credit. In such cases, payment or delivery is subject to agreed terms, and the right of retention is limited.
In cases of mutual rescission, each party may withhold delivery of their property until the other party performs their corresponding obligation, since rescission is itself a reciprocal agreement. What does the right of retention in contracts mean?
In which contracts does the right of retention apply?
When is the right of retention extinguished?
What are the conditions for exercising the right of retention?
What are the legal effects of exercising the right of retention?
What are the exceptions to the right of retention?
How does the right of retention apply in mutual rescission of contracts?
