1. The configuration of non-performance in relation to termination of the contract in accordance with an objective model

In all the legal systems, the remedy of termination is a consequence of the synallagma. Thus, in bilateral or reciprocal contracts, each one of the parties is only obliged to render its performance subject to receiving what has been promised to it and consequently, in view of the non-performance of the other party, the aggrieved party has the right to be released from the obligation incumbent on it. However, the possibility to terminate the contract in the case of non-performance clashes with a cardinal principle of the law of contracts: pacta sunt servanda. For this reason, and for other practical and economic reasons, the different legal systems impose more or fewer obstacles and requirements on the remedy of termination of the contract.

The investigation or not of the cause of the non-performance for granting the unsatisfied obligee the possibility to terminate the contract makes the difference between the subjective and objective models of non-performance in relation to termination of the contract in the systems of the Caribbean area.

In the “fault-based” systems the termination appears with a distinct sanctioning nature (termination-sanction of private law), and is conceived as a reproach to the negligent or wilful misconduct of the non-conforming obligor; while the hypothesis of fault-free non-performance is realigned with the doctrine of the risks (e.g. Articles 1.068-1.072 Panamanian Civil Code; Article 1.344 Venezuelan Civil Code). On the other hand, in common law systems, the imputability or not of the non-performance is not conditional on the right to terminate the contract (in the same sense, Article 6:265.1º Dutch and Suriname Civil Code).

In the uniform law, the objective tendency also prevails. In the UP, the unsatisfied obligee has the right to terminate the contract entirely regardless of the criterion of imputation (Articles 7.3.1 et seqq.). In a similar manner, in the CISG the party injured through the non-performance will be able to resort to the remedy of termination, provided that the required conditions are met (fundamental non-performance), regardless of fault (Articles 45 and 61).

For their part, the PECL and the DCFR, despite accepting a unitary and objective concept of non-performance, distinguish in the regulation of the termination of the contract the cases in which the non-performance must be a complete and permanent impediment which the obligor does not have to answer for, in which case the contract is terminated automatically [Articles 9.303 (4) PECL and III-3:104 (4) DCFR]. And in the same vein, this is set out in Article 126 Draft Project of Reform of the French Law of Obligations of 2013.

This last-named solution is the one whose adoption has been preferred for the OHADAC Principles, in accordance with some laws in force in the zone, in which the contract is “automatically destroyed” as a consequence of the impossibility of performance due to force majeure (Article 7.1.8 of these Principles). An objective concept of non-performance of termination is adopted, concerning the specialisations through the concurrence of cause of justification solely for the termination of the contract, which will be ipso iure in this case (paragraph 4 of Article 7.1.8).

2. Serious or fundamental non-performance or the granting of an additional period for performance as requirements for the termination of the contract

The majority of the systems of the civil law tradition, through the influence of Article 1.184 French Civil Code, articulate the termination of the contract for non-performance as an implicit condition for termination of the contract in bilateral or synallagmatic contracts for the case in which one of the obliged parties does not perform what is incumbent on it (Article 1.546 Colombian Civil Code; Article 692 Costa Rican Civil Code; Article 1.184 Dominican Civil Code; Article 1.535 Guatemalan Civil Code; Article 974 Haitian Civil Code; Articles 1.386 Civil Code and 747 Honduran Commercial Codes; Article 1.949 Mexican Civil Code; Article 1.885 Nicaraguan Civil Code; Article 1.009 Panamanian Civil Code; Article 1.077 Puerto Rican Civil Code; Article 141 Venezuelan Commercial Code). Exceptions to the rule are Article 306 Cuban Civil Code, which regulates the termination among the causes of extinction of the obligations; and Article 1.167 Venezuelan Civil Code, which governs it among the effects of the contract, as a specific effect of bilateral contracts. And in the majority of commercial codes it is not regulated in accordance with the pattern of the implicit termination condition either, whether it is foreseen generally (Articles 870 Colombian Commercial Code) or for particular contracts (e.g. Articles 973 and 1.325 Colombian Commercial Code; Article 463 Costa Rican Commercial Code; Article 329 Cuban Civil Code; Article 711 Guatemalan Civil Code; Article 376 Mexican Commercial Code; Article 759 Panamanian Commercial Code; Article 250 Puerto Rican Civil Code)

Due to this lack of coordination of termination of the contract as a remedy in its own right for the non-performance, these codes of the French and Spanish legacy do not limit the criteria for its exercise by constructively requiring, for example, fundamental non-performance. However, that requirement has been claimed by the doctrine and by the court rulings based on grounds of equity (judgment of the Supreme Court of Justice of Colombia 18 December 2009, Exp. 41001-3103-004-1996-09616-01; 22 October 2003, Exp. 7451; and 11 of September of 1984, Gaceta Judicial, volume 176, no. 2415). The Draft Project of Reform of the French Law of Obligations of 2013 (Article 132) also establishes the seriousness of non-performance as a prerequisite of the remedy of termination of the contract.

Traditionally, the English and United States legal systems (and the legal systems under their influence), have adjudicated filters for avoiding indiscriminate recourse to the termination of the contract. In their classic approximation, these laws divide the contractual clauses into conditions and warranties, granting to the injured party only the non-performance of the former the right to terminate the contract (e.g., following the regulations of Section 53 Sale of Goods Act of England: section 53 Sale of Goods Act of Bahamas, Montserrat, Antigua and Barbuda and Trinidad and Tobago, with identical drafting; and secs. 52 and 54 Sale of Goods Act of Jamaica and Belize, respectively).

A contracting party is also permitted to terminate the contract (even though we are not in the presence of a condition) in the case of a renunciation or repudiation of the contract by the other party. One can say that an obligor repudiates the contract if it demonstrates its intention not to perform through its behaviour or words or expressly declares that it will be impossible for it to execute the performance in its fundamental terms.

However, the rigid classification between the contractual terms is made flexible by judicial and legislative means and hence, in some cases, the judges consider that the clause is of an “intermediate” type (intermediate or innominate term), permitting the termination based on an assessment whether the non-performance is sufficiently serious and involves serious consequences for the obligee [Hong-Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd (1962), 2 QB 26]. The introduction of the third category of contractual clauses has served to place emphasis on the termination of the contract in the consequences of non-performance, although such a shift of criterion has been more formal than substantive, since, from the historical and practical point of view, the principle for considering that non-performance grants authority to terminate the contract was that it had seriousness, i.e., its consequences seriously affect the result or benefit that the obligee claimed to obtain with the contract. It is the principle known as substantial failure in performance for United States' Dependent Territories. [Article 2, Particle 7: Remedies UCC; sections 241 and 242 Restatement (Second) of Contracts].

On the other hand, in the Dutch and Suriname Civil Codes, the filter used for avoiding whimsical terminations is the technique of Nachfrist. Thus, while non-performance would even be possible, the obligee will not be able to declare the termination of the contract without a declaration that the obligor is in default beforehand (Article 6:265.2º Dutch and Suriname Civil Code). In consequence, the obligee must notify the obligor in writing, granting it an additional period for rendering the performance. And the termination will take place only after this period has passed in an unsatisfactory manner. Neither the default nor the additional period is required if the parties have agreed a fundamental term (fatale termijn). Also worth noting is that termination without notice if the execution of the performance is temporarily or definitively impossible, without it mattering whether this is due to its fault or force majeure. As a limit related to the institution of non-performance, the cited provision excludes the termination if the non-performance “in view of its minor nature or importance, does not justify the termination and its effects”.

In the same sense, the uniform law uses a combined mechanism of fundamental breach and the technique of Nachfrist. These regulations on termination can be found in Articles 49 and 64 CISG; 7.3.1 UP; 9:301 PECL; III-3:502 DCFR; and 114 and 134 CESL.

Following this line of inspiration, the OHADAC Principles adopt a solution which, although not included in some of the national laws, however, is not alien to them. The power of terminate the contract is granted to the unsatisfied contracting party in the presence of any non-performance, comprising delay and defective performance. In the presence of the fundamental non-performance provided in Article 7.1.2 or in a clause established by the contracting parties, the aggrieved obligee will be able to terminate the contract, without the need to grant an additional period, which in these cases does not make any sense. But, if the performance continues to be possible and useful to the obligee (non-fundamental non-performance, either for delay or for the existence of defects in the performance), will be able grant an additional period, in order to grant it a final opportunity to perform. The regulations provided in Article 7.1.6 imply that the obligee has the right to terminate the contract once the period has passed, although it is non-fundamental non-performance. However, a correction is introduced in order to prevent the opportunist contracting party from using the termination route for escaping from a bad transaction, claiming non-performance of minor importance. For this reason, it is established that the remedy of termination of the contract will not be able to be established if the non-performance is of minor nature, unless, as we have seen, they also include Article 6:265 Dutch and Suriname Civil Code and Directive 1999/44/EC (Article 3.6).