chapter 16
1. the concept of termination
termination of a contract refers to the legal ending of a contract, rendering it no longer binding on the parties involved
a contract can be terminated in two primary ways
by mutual consent
for a cause permitted by law
there are also other special reasons under which a contract may be terminated
a contract contingent on conditions subsequent
a right of withdrawal is explicitly included
revocation or renunciation by one party is permitted under certain conditions
the italian civil code recognizes three specific situations where the termination of a contract may arise due to factors other than parties performing contractual obligations
breach or non-performance: a contract may be terminated if a party fails to perform their obligations
supervening impossibility: occurs when an unforeseen event makes it impossible to perform their obligations
excessive onerousness: if, due to unforeseeable circumstances, the performance of a contract becomes excessively burdensome or onerous for one party, they may request termination
2. dissolution as a result of breach of contract
in contracts for mutual counter-performance, where both parties are obligated to provide performance, the occurrence of a breach by one party offers the innocent party several legal options
→ they can either enforce the contract or dissolve it
regardless of what they do, they are able to seek compensation
conditions for dissolution
proportionality of reaction to the breach: the seriousness of the response to a breach must be proportionate to the seriousness of the breach itself
minor breach: is the breach is of minor importance, the breaching party is liable for damages, but the innocent party cannot seek dissolution
in contracts for mutual counter-performance, each party has the right to withhold their performance if the other party fails to perform or offers to perform their obligations simultaneously
→ withholding performance is not permissible if, under the circumstances, doing so would be against the principle of good faith
the innocent party can demand the dissolution of the contract even after having initially sought performance, however, once an action for dissolution has been initiated, demanding exact performance is no longer an option
3. out-of-court dissolutions for breach
there are three main types of out-of-court dissolutions
notice to perform
in cases of significant breach, the innocent party may issue a notice to perform
→ sending a written notice to the breaching party, stating that they must fulfill their contractual obligation within a specified period
the notice must clearly indicate that failure to render exact performance within the given time frame will result in the dissolution of the contract
the period given is usually no less than 15 days unless justified
if they fail to comply, the contract is automatically dissolved
explicit dissolution clause
the parties to a contract may include an explicit dissolution clause, specifying that the contract will be dissolved if a certain obligation is not performed in the agreed manner
if the innocent party decides to not invoke the clause, the contract remains in effect
essentiality of time for one party
the contract may also be dissolved if the time specified for performance by one of the parties is considered essential to the interests of the other party
if one party intends to rely on this form of dissolution, they must explicitly declare their wish to dissolve the contract
failure to demand performance within three days after the deadline results in the dissolution of the contract unless otherwise agreed or customary
4. dissolution for supervening impossibility
supervening impossibility occurs when the performance of a contractual obligation becomes impossible due to circumstances beyond their control
if the performance of an obligation becomes impossible due to a reason that is not attributable to the debtor, the debtor is released from the obligation to perform
in contracts with mutual obligations, if one’s obligation becomes impossible to fulfill, the other is released from their duty as well
there is no need for formal action
when the performance of an obligation becomes partially impossible, the unaffected party is entitled to a reduction in their own corresponding obligation
→ the unaffected party may also choose to withdraw from the contract altogether if the partial performance does not provide an appreciable benefit or if they have no significant interest in partial performance.
if the impossibility to perform is temporary, the obligation may be suspended until the performance becomes possible again
→ it may be terminated if after that it becomes useless
for contracts that involve the transfer of ownership or the creation/transfer of limited rights in a specific property, the destruction of the property due to a cause not attributable to the transferor does not release the transferee from their obligation to pay
5. dissolution for excessive onerousness
dissolution for excessive onerousness is a legal remedy available in contract where an unforeseen event causes one party’s obligation to become excessively burdensome or difficult to fulfill
in contracts for mutual counter-performance, the economic balance between the parties' obligations is generally determined by their own agreement and judgment
excessive onerousness occurs when the performance of a contractual obligation becomes significantly more burdensome than originally anticipated, to an extent that goes beyond normal business risks
conditions for invoking dissolution for excessive onerousness
extraordinary and unpredictable events
normal business risk excluded
if transportation costs for importing goods from Asia to Europe increase by 50% due to a sudden geopolitical event, this might qualify as excessive onerousness because it is both extraordinary and unpredictable
aleatory contracts don’t count
the party against whom dissolution for excessive onerousness is sought can avoid dissolution by offering to modify the terms of the contract to restore a fair balance
6. rescission of the contract
in the italian legal system, a contract may still be considered valid, yet one of the parties may view its terms as unfair due to a significant economic imbalance
→ the remedy is rescission
generally, the law does not protect individuals from bad business decisions or unequal bargains unless specific legal grounds are met, the fact that a contract is economically imbalanced does not automatically render it invalid
contracts can be annulled if there is a fundamental mistake regarding the quality or quantity of the object or if the imbalance is due to fraud
rescission is possible in specific cases where the economic imbalance arises from the exploitation of a party's vulnerable state, such as state of danger or state of need
→ rescission due to state of danger: when one party assumes obligations under unfair conditions to save themselves or others from imminent and serious personal injury, and the other party knows about this situation
→ rescission due to state of need: when a contract is formed under significantly unfair conditions because one party was in a state of need, and the other party was aware of this at the time of the contract
the economic injury must be substantial, exceeding half the value
the action for rescission must be filed within one year of the contract's conclusion
rescission is not available if the situation does not involve a true economic imbalance