Legal Remedies in the Event of Non-Performance

Legal Remedies in the Event of Non-Performance

In the Principles of European Contract Law (PECL)

Non-performance

The Principles of European Contract Law rules governing breach of contract are close to those enshrined in the United Nations Convention on Contracts for the International Sale of Goods (CISG), common law and the Nordic legal systems but in their systematic intervention they differ in some respects from the German system. In the Principles of European Contract Law, breach of contract is called non-performance. Under the Principles of European Contract Law system, non-performance occurs when a party fails to perform any one of its obligations under the contract. The non-performance may consist in a defective performance or in a failure to perform at the due time, whether the debtor fulfils his obligation too early, too late or not at all. It includes a violation of an accessory duty such as the duty not to disclose the other party’s trade secrets. Where a party has a duty to receive or accept the other party’s performance a failure to do so will also constitute non-performance.

Remedies

The remedies available for non-performance essentially depend upon whether the non-performance is not excused, is excused or results from the other party’s behaviour (see Principles of European Contract Law, Article 8:101). The text reads as follows: “(1) Whenever a party does not perform an obligation under the contract and the non-performance is not excused under Art. 8:108, the aggrieved party may resort to any of the remedies set out in Chapter 9. (2) Where a party’s non-performance is excused under Art. 8:108, the aggrieved party may resort to any of the remedies set out in Chapter 9 except claiming performance and damages. (3) A party may not resort to any of the remedies set out in Chapter 9 to the extent that its own act caused the other party’s non-performance.”

A non-performance which is not excused may give the aggrieved party the right to claim performance, to claim damages, to withhold his own performance, to reduce his own performance or to terminate the contract. A non-performance which is excused does not give the aggrieved party the right to claim damages or performance. However, the other remedies mentioned above may be available to him. Non-performance is excused if the defaulting party proves that it is due to an impediment which is beyond his control and that he could not reasonably have been expected to take the impediment into account when concluding the contract or to have avoided or overcome the impediment or its consequences (see Article 8:108 of the Principles of European Contract Law). If the non-performance is caused by the obligee’s act – or omission – he may not resort to any of the remedies. He has no remedies against the obligor if he is unable to receive the performance, even when this is due to an impediment beyond his control. His failure to receive performance may in itself be a non-performance which may give the other party remedies such as the right to terminate the contract.

Termination for fundamental non-performance

Like the United Nations Convention on Contracts for the International Sale of Goods and several of the Member States’ systems of contract law, the Principles of European Contract Law requires fundamental non-performance as a condition for termination of the contract by an aggrieved party (see Articles 8:103 and 9.301). Article 8:103 of the Principles of European Contract Law defines fundamental non-performance. The text reads as follows: “A non-performance of an obligation is fundamental to the contract if: (a) strict compliance with the obligation is of the essence of the contract; or (b) the non-performance substantially deprives the aggrieved party of what it was entitled to expect under the contract, unless the other party did not foresee and could not reasonably have foreseen that result; or (c) the non-performance is intentional and gives the aggrieved party reason to believe that it cannot rely on the other party’s future performance.”

Article 9:301(1) provides that a party may terminate the contract if the other party’s non-performance is fundamental. Article 8:103(a) gives effect to an agreement between the parties that strict adherence to the terms of the contract is essential and that any deviation from the obligation goes to the root of the contract so as to entitle the other party to be discharged from his obligations under the contract. Thus, if in a commercial leasing transaction it is stipulated that the object leased has to be made available on a certain date, when the lessee will come and pick it up, delivery on that day is of the essence of the contract, and any delay will constitute a fundamental non-performance. However, the principle of good faith enshrined in Article 1:201 may come into operation. If the non-performance is so slight that it would be unreasonable for the aggrieved party to terminate the contract, he shall not be entitled to do so.

Article 8:103(b) lays emphasis on the gravity of the consequences of the non-performance for the aggrieved party. It is the importance of the detriment which he suffers that matters. The model Article 25 of the CISG, which defines fundamental breach as a breach which “results in such detriment to the other party as substantially to deprive him of what he is entitled to expect under the contract”. Art 8:103(c) applies to an intentional non-performance which gives the aggrieved party reason to believe that he cannot rely on the other party’s future performance.

Other grounds for termination of a contract

A party’s fundamental non-performance is not the only reason for termination. Article 9:301(2) provides that, in the event of a delayed performance by the other party, the aggrieved party may terminate the contract after having given notice fixing an additional period of time of reasonable length and if, at the end of that period, the other party has not performed his obligations (see Article 8:106(3)). In his notice the aggrieved party may provide that, if the other party does not perform within the period fixed by the notice, the contract shall terminate automatically. The model for this procedure is the United Nations Convention on Contracts for the International Sale of Goods (Articles 49(1)(b) and 64(1)(b); see also Articles 47 and 63). The United Nations Convention on Contracts for the International Sale of Goods procedure, for its part, has its origin in the Nachfrist (grace period) principle in German law.

Source: Ole Lando, European Parliament

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