NEW CONTRACT LAW COMING SOON – CHAPTER 3: LEGISLATURE EMBEDS CREDITOR’S RIGHT TO DISSOLVE CONTRACT (OR TO HAVE IT DISSOLVED) ON GROUNDS OF FUTURE BREACH
Book 5 “Obligations” of the new Civil Code was published in the Belgian State Gazette on 1 July 2022. This means the new contract law enters into force on 1 January 2023.
A new striking element it introduced is anticipatory breach. This entitles the creditor to dissolve the contract (or have it dissolved) under certain conditions if the debtor prematurely fails to satisfy it.
This new legal concept provides a solution to the creditor’s problem, which is when the creditor realizes that an obligation, which is not yet due, will not be fulfilled. What should you do when a buyer of a product realizes before the agreed delivery date that the manufacturer will not be able to deliver the product on time or at all, or if it has good reasons to fear that this will happen? Dissolution on grounds of premature non-performance is thus advantageous because if you can, with a sufficient degree of certainty, establish that the contract will not be performed, you won’t waste anymore time. The buyer can dissolve the contract and get its supply from elsewhere.
Naturally, the risk is that if the creditor seeks this new sanction too soon, it will cause its contracting party to run into problems. Article 5.90, second para. of the new Civil Code, therefore requires that dissolution on grounds of an anticipatory breach meet strict conditions.
First, after the creditor has demanded performance from the debtor, it must give the debtor reasonable time to provide adequate assurances for the proper performance of its obligation. Therefore, a written and reasoned notification to the debtor will be important.
Second, the legislature stipulated that the presence of exceptional circumstances is a requirement for dissolution on grounds of premature non-performance. Examples of these are urgent situations or events that will cause imminent harm or loss.
Third, the premature non-performance must be clear to a sufficient degree. The legislative background will still have to explain what this notion means. Perhaps the creditor must prove that any other reasonable person would have established (anticipated) the future breach by the debtor.
Finally, it is important to know that Article 5.90, second para. of the new Civil Code is not mandatory law. Parties to a contract can define or remove the requisite conditions, such as the exceptional circumstances. The remedy of seeking dissolution on grounds of anticipatory breach can even be excluded completely.
We’re standing by to assist you, whether you’re the debtor or creditor, if you’re faced with this new sanction under Belgian contract law.