The Termination of Bilateral Obligations (in Spanish Law)

As mentioned above, the creditor can ask for the debtor to recomplete the obligation of the contract if the debtor has not done so or done so properly. But if the obligation is bilateral, the creditor can terminate the contract. According to article 1.124 p.1 CC, bilateral obligations can be terminated if one of the parties does not carry out their side of the contract.

For the Termination of Bilateral Obligations, the Spanish Supreme Court has established these requirements:

1. It has to be a bilateral obligation as the interdependence entails that both parties are responsible for each other’s obligations.
2. The party who claims for the termination has to have carried out their part of the contract, has to be in a position to be able to carry out their contract or their misconduct has been caused by another parties’ misconduct.
3. The other party has to have not carried out their obligations completely or properly. In this case, the Supreme Court has stated that the partial or defective performance has to be of importance in order to accept the possibility of termination. Therefore, the misconduct is deemed important when it affects the satisfaction of the creditor’s interest or leads to the failure of the contract’s aim.
4. The type of obligation at the base of the claim is very important: it has to be a principal obligation and has to be expired. Moreover, the misconduct of the party has to affect a principal obligation as if it is an accessory obligation, the action for termination may not be successful, unless the accessory obligations are vital in the purpose of the contract.

Supreme Courts states that there may be a possibility to ask for a termination if there is a sudden impossibility of performance. But if the acts of the debtor are the cause of the termination, the creditor can also ask for compensation for the damages caused.

Article 1.124 p.2 CC protects the damaged creditor, as it gives:

• The possibility to choose between the agreed performance in the contract or the termination of the agreement, with compensation for damages in both cases.
• And allows the creditor to ask for termination if they ask for agreed performance of the debtor but this has now become impossible. The scenario of choosing to terminate when the performance was the first option is called ius variandi.
• This article does also not require a judicial claim for the termination of the obligation, rather it can be done extra-judicially by the creditor sending a notice to the liable party stating that due to the lack of performance the contract is now terminated.

Termination Period:

The Civil Code does not establish a time frame within which a party has to ask for the termination, so it shall be the general term of Article 1.964 CC which states that the extinction of the action is of 15 years.

Effects of Termination:

• Retroactive effects
  • The contract including its obligations is extinguished; the effects of the obligation are undone as soon as the termination has been carried out.
• Restitutory effects:
  • The parties have to return to each other anything that they had exchanged during the contractual relationship, as a consequence of the termination.