Judgment No. 4205 of 3 March 2016 of the Supreme Court, Second Division, gives us the opportunity to provide a brief overview of the different opinions expressed by courts and legal commentators regarding the possibility to waive the termination effect of a notice to perform.
1. The subject at issue
If, in a contract involving mutual obligations, a party fails to perform the obligation it is required to perform, the non-defaulting party may seek performance by court order or enforce its termination right. Termination for non-performance can occur either by court order or “by operation of law”. Termination by operation of law occurs without having to apply for a declaratory court ruling. Amongst the cases of termination by operation of law expressly regulated by the Italian Civil Code, is the case of a notice to perform whereby a creditor urges a debtor to perform its debt within a reasonable period, with the warning that, otherwise, the contract shall be terminated. Notice to perform is regulated by Article 1454 of the Italian Civil Code, which provides as follows: “[I] Where a party fails to perform an obligation, the other party may serve on it written notice to do so within a reasonable time, stating that if, at the end of that period, the notice has not been complied with, the contract shall simply be considered terminated. [II] Such period may not be less than two weeks, unless the parties agree otherwise or a shorter period is sufficient by reason of the type of contract or common usage. [III] If the contract has not been performed within that period, it shall be terminated by operation of law.”. In this regard, the question has arisen of whether a non-defaulting party be entitled or not to waive the termination effect of a notice to perform, when the specified time expires without the contract having been performed. There is no unanimity of opinion on this issue amongst courts and scholars, as is briefly illustrated below.
2. The opinions of courts
In spite of the wording of Article 1454 of the Italian Civil Code, certain court precedents considered that the termination effect can be waived. It was argued, inter alia, that a notice to perform gives an option to the non-defaulting party in that, after the specified time expires without the contract having been performed, the notifying party may waive its effect – also by adopting a conduct implying an intent– (see Supreme Court, Second Division, No. 9317 of 9 May 2016). Furthermore, a notice to perform has a nature as a legal transaction, which means it cannot produce any effect against and beyond the willingness of its author, who can therefore opt for not enforcing the termination that has already occurred (see Supreme Court, Second Division, No. 23315 of 8 November 2007). If the notifying party files a court application, following the expiry of the time specified in the notice to perform, expressly and clearly emphasising that the specified time has expired without performance, asking the court to ascertain and declare termination of contract, the termination effect is related to such application (which would prevent a judge from declaring termination of contract automatically, in the absence of a specific application for that purpose, as a result of the expiry of the time specified in the notice to perform without performance): in that regard, the Supreme Court, Second Division, in judgment No. 4535 of 18 May 1987, stated that “the expression “terminated by operation of law” under Article 1454 of the Italian Civil Code means only that the relevant court decision has a mere nature of declaring termination, not that a judge can order termination automatically”. Remarkably, an opposite view was expressed by the Supreme Court en banc, by judgment No. 553 of 14 January 2009, stating that the waiver by the non-defaulting party of the termination effect is not admissible as such effect cannot be disposed of by the contracting party – as appears from the voluntas legit.
3. The opinion of legal commentators: the termination effect of a notice to perform cannot be disposed of
By contrast, according to the prevailing view of legal commentators, the notifying party is not entitled to waive termination which occurred by operation of law, by cancelling its effects, revoking it, by submitting a new notice to perform or having recourse to other protection remedies. Such view is based on the argument that, also when looking at the wording of Article 1454 of the Italian Civil Code, termination operates without a court action being necessary. In this regard, the necessity was underlined to defend the debtor, who is interested in the certainty of its position and relies on the impossibility of having to perform after the expiry of the specified time period.
4. Judgment No. 4205 of 3 March 2016 by the Supreme Court, Second Division
By judgment No. 4205/2016, the Supreme Court incidentally stated that, if the notifying party does not file a court application for termination by operation of law for non-performance within the time specified, but serves a new notice to perform, termination by operation of law shall occur only as a result of such latter notice (provided that it is valid). Service of a new notice to perform relates to the notifying party’s interest in the other party’s late performance, with a new time period being given for performance. This does not however exclude that non-performance is deemed to exist from the expiry of the time specified in the earlier notice to perform.