Cancel agreement? Check for default!

Sometimes a dispute between contracting parties runs so high that they want to get out of the agreement. For example, if agreements are not kept or the quality of what has been delivered is far below par. Dissolution of the agreement may then be an option. But, that comes close, however. After all, there must be a deficiency and of absence. Lawyer Robert van Ewijk explains how.

Default and default on rescission of contract

To be able to rescind a contract, there must be a default to begin with. The other party then fails to fulfill the contract, properly or on time. In principle, the contract can then be dissolved. However, if performance is still possible, the other party must first be in default. Default occurs, for example, if a fatal deadline is exceeded or if it appears from a communication from the other party that it will be in default. If these cases do not occur, first a summons needed before absenteeism occurs.

Dissolve in case of imminent default

In some cases, dissolution can also occur earlier, namely if it is certain that the other party cannot comply in time. This is also referred to as anticipatory breach. Article 6:80 BW namely, gives the possibility to anticipate an upcoming shortcoming of the other party. For this purpose, the law lists three cases, which give the right to dissolution even before the claim or performance is due. These are:

1. the case where it is established that performance without default is impossible;
2. the case where you have to infer from a communication from your counterparty that it will fall short, or;
3. If you have good reason to fear that your counterpart will fall short.

In the latter case, however, you must still send a written demand letter asking for confirmation of compliance. In that reminder, you must also state the reasons you fear your counterparty will not comply. Only if the reminder is not complied with will the consequences of non-compliance take effect. With the other two grounds it is immediately.

Wrongful or premature rescission can lead to default

Rescission of a contract can also carry risks. If the contract is terminated too soon, if it is terminated without the existence of a default or if the existence of a default is difficult to prove, the court may rule that the termination was unjustified. In that case, not the other party, but the party that dissolved is in default. And that in turn leads to the possibility of that other party (rightly) dissolving the contract.

An interesting (but fierce) consequence is if you dissolve a construction contract without giving the contractor an opportunity to repair the defects. This is because then there is no default and you have, despite possible botched work, not entitled to damages.

Undoing on rescission of contract

The consequences of a dissolution can be great. This is because the basic principle is that the services already rendered must be undone. In the case of a sale, what has been delivered must be returned and the purchase price refunded. The rule about undoing does not apply if the nature of the contract makes it impossible. For example, in the case of a building contract parties usually cannot be required to tear down what has already been built. However, the duty to compensation to pay than exist.

Compensation in case of dissolution of contract

In addition, the other party of the one who rightly dissolves and agreement must compensate the other party for the damages. Such damages may include, for example, the costs incurred in connection with the dissolution, as well as the additional costs of having the contract performed by a third party.

Special provision in purchase agreement home

For the dissolving a sales contract of an immovable property are usually subject to special provisions. Not only for how the purchase agreement rescinded should be, but also for when absenteeism occurs. In addition, the most commonly used model contracts (the NVM purchase agreement whether it model of the Circle of Amsterdam notaries) specific provisions on the penalty due upon rescission. In those models, moreover, there is in addition to a fine, also entitled to damages. Therefore, always check what the purchase agreement says about this or get advice from a lawyer.