Italian Law Quickguides: The Express Termination Clause

Purpose of the express termination clause

Under Italian law, a contract may not be terminated if non-performance is unimportant having regard to the other party’s interest (article 1455 Italian Civil Code). This produces ambiguity as it enables the judge to evaluate the gravity of the breach of contract and assess the non-defaulting party’s interest to the obligation.

To avoid any uncertainty deriving from this provision, the contracting parties can agree on the inclusion of an express termination clause. By doing so they are able to set out in advance in which case non-performance of a specified obligation will certainly lead to the termination of the agreement (check out also Termination of Lease Agreements in Italy). The judge is therefore unable to decide upon the importance of the non-performance, even at a party’s request.

Requirements under Italian law

Italian law provides that the express termination clause must refer to a specific obligation or a number of obligations. To this regard, a generic reference to the obligations set out in the contract determines the invalidity of the clause and the application of the general rules on termination of contracts. If the contracting parties want to make all contractual obligations subject to the express termination clause, a specific reference should be made to each and every specific obligation.

Moreover, the clause can be contained in a separate agreement and concluded at a different date than that of the contract. The Italian Civil Code does not require the separate agreement to be in a particular form. In this case it is commonly required for the separate agreement to take the same form as the contract it refers to.

Additionally, Italian law does not consider the express termination clause to be on par with the unfair terms as regulated to in article 1341 of the Italian Civil Code. Therefore, it is not necessary for the parties to accept it in writing.

Termination rights after non-performance

After the occurrence of a breach the non-defaulting party has the right to terminate the contract by notifying its intention to its counterparty. Article 1456 of the Italian Civil Code does not provide a specific form. It is therefore deemed valid a notification made verbally, although it is advisable for it to be in writing. The notification should be made in a timely manner as it will produce no effect if made after the counterparty has performed its obligation, albeit after the deadline.

The non-defaulting party should make specific reference to the express termination clause in the contract when exercising its right to terminate the agreement. A generic reference to the agreement that contains the clause is deemed to be insufficient according Italian case law.

Conclusions

The express termination clause has the merit of expediting the termination process. In its absence parties can still resort to the general rules regarding contractual termination.

Lastly, it must be underlined that even though the judge cannot evaluate the gravity of the breach or assess the non-defaulting party’s interest to the obligation, the court has the power to verify if a breach has occurred and if non-performance is attributable to the debtor.