In the complex world of commercial transactions, it's a common occurrence: a contract is signed, but the other party fails to fulfill its obligations. This situation raises an important question: what steps can you take? Recently, the Belgian law of obligations has undergone significant changes with the introduction of Book 5 in the Civil Code (Law of April 28, 2022), leading to an expansion and renewal of the sanction regime. Here, we discuss the sanctions that a creditor can demand in the event of attributable non-performance under the new law of obligations.
Performance in Kind as the Primary Option
As a creditor, you first have the right to demand the (forced) performance in kind of the obligation from your debtor, unless this is impossible or unreasonable (Article 5.84 BW). This principle is based on the fundamental rule of the law of obligations: "pacta sunt servanda", meaning that agreements must be kept. If a party fails to honor their agreements, as a creditor, you can enforce the fulfillment of the obligations through legal means. You also have the option to immediately demand compensation for damages, unless the debtor subsequently meets their obligations in a manner satisfactory to you.
As a second option, you, as a creditor, can demand restoration of damage either through compensation or restitution in kind (Article 5.86 et seq. BW). This means that the debtor compensates you financially for the suffered damage or provides an equivalent performance. In certain circumstances, a combination of both options can be applied. The new law of obligations also allows for the inclusion of a damage clause in your contract, pre-agreeing on the amount or specific performance due in case of non-fulfillment of obligations (Article 5.88 BW).
Dissolution of the Contract
In severe cases of contractual failure, you as a creditor can demand the dissolution of the contract (Article 5.90 BW). This dissolution means that both parties are freed from their obligations and returned to the situation as if no contract had ever existed. If you opt for dissolution, you can also demand additional compensation for damages.
Price reduction and suspension of own obligations
For less serious failures, you can demand a price reduction, which must be proportional to the failure (Article 5.97 BW). Additionally, you have the right to temporarily suspend your own obligations as a means of pressuring the debtor to fulfill their obligations (Article 5.98 BW).
The revised law of obligations offers a variety of tools to respond to non-performances. However, each sanction has its own application conditions and consequences. It is crucial to choose the most appropriate sanction based on the specific circumstances and the outcome you desire.