15.09.2023

HOW A CONTRACT IS BROKEN AND WHEN REMEDIES ARE SEEKED

When the debtor under a bilateral contract fails to fulfill his obligation due to a reason for which he is responsible, the creditor may cancel the contract by giving the debtor an appropriate period for performance with a warning that after the expiration of the period he will consider the contract canceled. The warning must be given in writing when the contract is concluded in writing. This is provided by the Law on Obligations and Contracts.

Contracts that transfer, establish, recognize or terminate real property rights over real estate are annulled by court order. If the defendant offers performance during the trial, the court may grant a deadline for doing so, depending on the circumstances. Cancellation of the contract, however, is not allowed when the unfulfilled part of the obligation is insignificant in view of the interest of the creditor.

The annulment of contracts that are subject to registration does not affect the rights acquired by third parties before registration of the claim.

It is also expressly stated that the right to cancel the contract expires with a five-year statute of limitations. Cancellation has a retroactive effect, except for contracts for continuous or periodic performance. The creditor has the right to compensation for the damages caused by the non-performance of the contract.

It is important to point out that a debtor under a bilateral contract who has a demandable claim against his creditor from the same legal relationship from which his obligation arises can refuse to fulfill his obligation until the creditor fulfills his. In such a case, the defendant is sentenced to perform simultaneously with the plaintiff.

In the current Law on Obligations and Contracts, there are also special rules that apply in case of non-performance by a debtor under a contract. For example, if a debtor does not exactly fulfill his obligation, the creditor has the right to demand either the performance together with compensation for the delay, or to demand compensation for non-performance.

It is important to note that when compensation is sought in lieu of performance, the debtor may still offer the original amount owed along with compensation for delay. However, this can be done if the creditor still has an interest in the performance.

There is the possibility that the debtor's obligation is for an action that can be performed by another person. The creditor then has the right to request permission to perform this action at the debtor's expense. When the obligation is not to do something, the creditor may ask to be allowed to remove at the debtor's expense what was done in violation of the obligation.

However, the Law on Obligations and Contracts states that "the debtor is not liable if the impossibility of performance is due to a reason that cannot be attributed to him". It may be force majeure, materials necessary for the work may not have been delivered. Immediately afterwards, however, the law decreed that "the fact that the debtor does not have the funds to fulfill the obligation does not exempt him from responsibility".

The compensation covers the loss suffered and the lost benefit, insofar as they are a direct and immediate consequence of the non-performance and could have been foreseen when the obligation arose. But if the debtor was in bad faith, then he is responsible for all direct and immediate damages.

However, if the default is also due to circumstances for which the creditor is responsible, the court may reduce the compensation or release the debtor from liability. The debtor does not owe compensation for damages that the creditor could have avoided by exercising good stewardship.

Another rule is that when the day for performance of the obligation is fixed, the debtor falls into default after its expiration. But if this day has expired after the death of the debtor, then his heirs fall into default after the expiration of 7 days from the invitation. When there is no fixed day for performance, the debtor falls into default after being invited by the creditor. However, if it is a question of an obligation resulting from a tort, the debtor is considered in default and without invitation.

When the debtor is in arrears, he owes compensation even if performance becomes impossible due to a reason for which he was not previously responsible. The only possibility to get rid of him is if he proves that the creditor would have suffered the damages even with timely execution.

There are also rules if there is non-fulfillment of a monetary obligation. Then the debtor owes compensation in the amount of the legal interest from the day of the delay. For damages actually suffered in a higher amount, the creditor may request compensation in accordance with the general rules.

There is another rule when the debtor under a bilateral contract fails to fulfill his obligation due to a reason for which he is responsible. The creditor can then rescind the contract by giving the debtor an appropriate period of time for performance. This is done with a warning that after the expiration of the term, he will consider the contract void. The warning must be given in writing when the contract is concluded in writing.

The creditor can cancel the contract without giving the debtor a deadline. This can happen, for example, if performance has become impossible in whole or in part. Or if due to the debtor's delay it has become useless, as well as if the obligation had to be fulfilled without fail in the agreed time.