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Contract termination for non-performance: what it is and how it works

Published in: Disputes and Compensation
by Arlo Canella
Home > Contract termination for non-performance: what it is and how it works

Termination for non-performance is a legal mechanism that allows one party to terminate a contract if the other party has not fulfilled its contractual obligations. Contract termination for non-performance is a crucial issue in Italian law and requires a thorough understanding of the applicable legal rules and principles. In this article we will briefly address:

What is contract termination for non-performance?

Termination of a contract for non-performance is a legal institution that allows the parties to a contract to dissolve the contract due to non-performance.

In fact, the first paragraph of Article 1453 of the Italian Civil Code provides that: “in contracts for consideration, when one of the parties to the contract fails to perform its obligations, the other may at its option demand the performance or termination of the contract, without prejudice, in any case, to compensation for damages.”

Termination of a contract for non-performance is distinguished from consensual termination, in which the parties mutually agree to dissolve the contract, and from termination due to supervening impossibility, in which the performance of the contract becomes impossible due to unforeseeable events beyond the parties’ control.

For example, if one party fails to fulfill its contractual obligations, the other party can request termination through a letter of notice. Let’s see how it works.

How does the "notice to comply" work?

La diffida ad adempiere rappresenta uno strumento importante per garantire la tutela della parte lesa in caso di inadempimento del contratto. La risoluzione del contratto per inadempimento può essere richiesta dalla parte lesa, ossia quella che sta subendo un danno a causa dell’inadempimento dell’altra par

The notice to perform is an important tool to ensure the protection of the injured party in case of breach of contract. Termination of the contract for non-performance can be requested by the injured party, i.e., the one who is suffering damage due to the other party’s non-performance.

Article 1454 of the Italian Civil Code provides that if one of the parties fails to fulfill its obligations, the other party may give written notice, by means of a letter of formal notice, to comply within a reasonable period of time.

The defaulting party has a period of time, not less than fifteen days unless otherwise agreed by the parties or unless, by the nature of the contract or according to custom, a lesser period is congruous, to fulfill its obligations.

If the period expires unnecessarily, the contract is deemed to be terminated as of right, without the need for further notice or judicial intervention. However, it must be a “serious” breach, let’s see what this means.


L’art. 1454 del Codice Civile Italiano prevede che, qualora una delle parti non adempia alle proprie obbligazioni, l’altra parte possa intimare per iscritto, mediante una lettera di diffida, di adempiere entro un congruo termine.

La parte inadempiente ha un termine di tempo, non inferiore a quindici giorni salvo diversa pattuizione delle parti o salvo che, per la natura del contratto o secondo gli usi, risulti congruo un termine minore, per adempiere alle proprie obbligazioni. 

Decorso inutilmente il termine, il contratto s’intende risolto di diritto, senza necessità di ulteriori comunicazioni o interventi giudiziari. Deve trattarsi però di un inadempimento “grave”,  vediamo cosa significa.

When can the default be considered "serious"?

Termination of a contract is a very drastic remedy that should be used only in cases of serious breach. Article 1455 of the Italian Civil Code states that “The contract cannot be terminated if the non-performance of one of the parties is of little importance, having regard to the interest of the other.”

The norm is inspired by the general principle of preservation of contractual relations, which in turn rests on the principle of contractual good faith. However, the rule does not specify exactly when non-performance is considered of minor importance, so it can be difficult to determine when termination is justified.

To figure out whether the breach is minor or not, one must assess the effect it has to the other party’s interest. If the non-performance causes harm to the creditor, but still does not prevent the realization of the goal that the parties had intended by the contract, then termination is not justified. In other words, the significance of the breach must be assessed in relation to the objectives of the contract.

For example, if a party fails to perform by the agreed deadline, the severity of the non-performance will depend on the residual utility of the performance performed after the agreed deadline. On the other hand, if the performance was performed inexactly, the severity of the non-performance will need to be assessed by considering all relevant circumstances.

According to the Italian Supreme Court, “the seriousness of non-performance within the meaning of Article 1455 of the Italian Civil Code is to be commensurate with the interest that the performing party had or could have had in the proper performance of the contract and not with the convenience, for said party, of the demand for termination as opposed to the demand for an order for performance” [Italian Supreme Court of Cassation, Sec. III, ord. no. 4022 of 2018].

What remedies are available to the parties involved?

When you are involved in a situation where the other party to the contract is not fulfilling its obligations, it is important to act promptly to avoid further damage.

The basic steps to follow are:

  • Check the terms of the contract – Before proceeding to terminate the contract, it is important to carefully check the terms of the agreement to see if indeed the other party has breached its obligations.
  • Transmit a letter of legal notice – Once you have ascertained with the help of a lawyer that the other party is indeed violating the agreements made, you should communicate in writing what your intentions are, specifying the reasons.
  • Claim for damages – The breaching party, if the legal requirements exist, can claim compensation for the damages suffered (it is important to document the damages suffered accurately in order to make a claim supported by adequate evidence).
  • Resort to assisted negotiation, mediation or the courts – If the other party does not agree to termination or if no agreement is reached on damages, ritual proceedings can be initiated to resolve the dispute.

In conclusion, termination of default is indispensable to protect oneself in case of non-performance of contractual obligations. With this article, we wanted to provide only some preliminary information on the definition, current practices, and consequences of termination for default.

However, this article cannot represent complete legal advice; we invite you to contact us for further study or for personalized assistance in the event of breach of contract.

© Canella Camaiora Sta. All rights reserved.
Publication date: 10 March 2023
Last update: 7 September 2023

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Avv. Arlo Cannela

Avvocato Arlo Canella

Managing Partner of the Canella Camaiora Law Firm, member of the Milan Bar Association, passionate about Branding, Communication and Design.
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