Civil Transactions
Civil Transactions Law (12): Formal Notice of Default in Compensation-Based Enforcement
The Civil Transactions Law clarifies that compensation-based enforcement applies in cases where performance of the obligation becomes impossible. For instance, if the debtor delays performance to the extent that it no longer benefits the creditor, the creditor may compel the debtor to pay compensation. The creditor may also set a reasonable period for performance, and if the debtor fails to perform within that period, compensation may be sought, provided the non-performance was not due to a reason beyond the debtor’s control.
It is important to note that compensation is not due unless the debtor has been formally notified, unless there is an agreement or legal provision to the contrary.
Notice to the debtor (formal notice of default) is not required in the following situations
- If the parties expressly or implicitly agree that the debtor shall be deemed in default upon the due date.
- If performance of the obligation becomes impossible or futile due to an act of the debtor.
- If the obligation arises from damages caused by a wrongful act (tort).
- If the obligation is to return something the debtor received unlawfully while being aware of its illegitimacy.
- If the debtor has declared in writing that they will not perform the obligation.
Notice (formal warning) may be given by any means agreed upon by the contracting parties, or by any legally recognized method of notification, including filing a lawsuit or initiating any judicial proceeding. Additionally, the parties may agree in advance on the amount of compensation, either in the contract itself or in a subsequent agreement, unless the obligation involves the payment of a monetary sum, in which case compensation becomes due without the need for prior notice.
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