Termination of a contract for non-performance

Termination of a contract for non-performance
Published on: 27 March 2024

Table of contents

Is it possible to terminate a contract if one of the parties does not comply with the terms of the contract? The answer, according to the Civil Code and case law, is yes, although not in all cases. Therefore, here we would like to delve into this issue and resolve all your doubts.

The contract is a source of obligations for both parties.

A contract, whether verbal or written, is a document that reflects the will of two or more persons establishing a relationship of obligation between them.

A very simple example is a mortgage contract. Through it, the bank undertakes to offer the user the money needed to buy a house. In exchange, the other party is obliged to repay the amount within the agreed period and with the agreed interest.

Obviously, the above is also a good example of the fact that a contract does not always have to be signed on the basis of equal negotiation between the parties. However, in no case does this give the right to breach the agreement.

Termination of contract for breach of contract by one of the parties

Breach of contract means the failure of one party to perform its obligations under a contract. When this happens, the other party is entitled to terminate the contract and to claim damages.

However, not all breaches give the right to terminate the contract. Current case law establishes that, in order to be able to do so, it is necessary that the non-performance be:

  • Of a serious nature.
  • It refers to the essential agreements agreed upon.
  • That it has a real impact on the economy of both parties.
  • There must be bad faith, i.e. the defaulting party must have the intention of undermining the interests of the other party.

Therefore, the intention to breach what was agreed in the contract plays a key role in this matter. This is reflected in Ruling 162/2012, of 29 March, of the Supreme Court.

Are there other options beyond terminating the contract for breach?

The answer is yes. In fact, we find it explained in Article 1124 of the Civil Code. It specifies that the aggrieved party may require the non-performing party to perform its obligations. In this case, he is also entitled to claim damages.

How is the termination of a contract carried out?

In the event that the aggrieved party decides to terminate the contract, it may proceed with enforcement in any way it sees fit. The only exception is in the case of a document setting out obligations in the purchase and sale of real estate, in which case the law requires that a notarial or court summons be issued, as the case may be.

The most common is to issue a burofax or similar means of communication that accredits the content and verifies that it has been received. For example, consider your car insurance. If you decide not to renew your policy with your current company, you can notify your company by these means. Your decision will be effective when the time comes without you having to do anything else.

But what happens if the other party does not accept the termination of the contract? In that case, only a court can determine whether or not to terminate the contract.

In short, breach of contract, provided that there is bad faith and there is an injury to the other party, can be terminated unilaterally and, in addition, entitle the other party to recover the damages that are deemed appropriate. We hope we have helped you to clarify all your doubts in this regard. We cannot finish without reminding you that, if you are faced with a problem of this type, it is best to seek the advice of a lawyer who is an expert in civil law.

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