Suspension of performance of contracts, Stoppage of performance of contracts or Cancellation of contracts are strict measures applied to contract violations. When these remedies are applied by the aggrieved party, the violating party is not obligated to fulfill the contractual obligations. The party that has fulfilled its obligations has the right to demand payment or reciprocal performance from the other party.
1. Definition of “Stoppage of performance of contracts”
Stoppage of performance of contracts is the termination of one party’s performance of contractual obligations. Where a contract is stopped from performance, it shall be terminated from the date when one party receives the notice on stoppage. The parties are not required to continue fulfilling the contractual obligations. The party that has fulfilled its obligations has the right to request payment or reciprocal performance from the other party.
2. Basis for applying “Stoppage of performance of contracts”
Except for cases of exemption provided in Article 294 of the Commercial Law of 2005, contract performance may be stopped in the following cases:
• Upon commission of a breaching act which serves as a condition for stoppage of the performance of the contract as agreed upon by the parties;
For example, in a sales contract:
The buyer may specify violations by the seller as conditions for stoppage of the contract performance, such as failure to deliver goods, incomplete delivery, late delivery, delivering the wrong type or quality of goods, etc.
The seller may specify violations by the buyer as conditions for stoppage of the contract performance, such as failure to pay the full value of goods on time or refusal to accept the goods, etc.
• When one party breaches a fundamental contractual obligation. A fundamental breach is a breach of the contract by one party that causes significant harm to the other party, preventing the other party from achieving the purpose of entering into the contract. To safeguard interests and limit disputes arising from differences in interpretation, each party should list specific violations deemed as conditions for stoppage of the contract performance.
3. Legal consequences
• Where a contract is stopped from performance, it shall be terminated from the date when one party receives the notice on stoppage. The parties shall not have to further perform their contractual obligations. A party that has performed its contractual obligations may request the other party to pay or perform its reciprocal obligations.
Although the law does not specify the form of the notice on stoppage, it is advisable for the parties to provide notice in writing or via email. In cases where disputes are resolved in the jurisdiction, this notice will be considered as evidence that the parties need to submit to the jurisdiction.
• The aggrieved party may claim damages according to the provisions of the Commercial Law of 2005. An aggrieved party does not lose the right to claim compensation for losses resulting from the other party’s breach of contract when the stoppage of performance of contracts is applied.
4. Notification obligation when stoppage of performance of contracts
The party stopping contract performance must promptly notify the other party of the stoppage. In cases where failure to provide immediate notice causes harm to the other party, the party stopping contract performance is obligated to compensate for the damages.
The above is the article “Commercial remedy: Stoppage of performance of contracts” that TNTP has provided to readers. If you have any issues or need further clarification, please contact TNTP for timely support.