This is part one of a series of articles focusing on the remedies for breach of contract under Italian law. The goal is to help international clients have a better understanding on the available remedies if their counterpary is in breach of its obligations under a contract governed by Italian law.
In this first article of the series, we will cover:
What can be considered breach of contract under Italian law?
Under Italian law a breach of contract occurs when the performance is not carried out in accordance with the terms of the agreement.
A breach of contract can be:
total, when a party fails to perform the obligation (e.g., the debtor fails to pay by the relevant deadline), or
partial, also referred to as incorrect performance, when the party has performed its obligation, but not in accordance with the terms of the contract. The inaccuracy may be related to the time, place, or manner in which the obligation was performed.
Additionally, the breach of contract under Italian law can also be:
absolute (or final) if the creditor is no longer interested in a late performance of the contractual obligation (for example, a seller fails to supply the goods needed for a specific event), or
relative (or delayed), if the obligation has not yet been performed but could still be performed in the future. In this case, the creditor is still interested in receiving a late performance.
Proving a breach of contract claim in Italy
In accordance with the Italian case law that has dealt with the burden of proof in a breach of contract claim, the claimant who is seeking to terminate the contract, requesting damages, or specific performance must:
provide evidence of the contract, and
demonstrate the existence of a prescribed deadline for performance.
Once the claimant has provided proof of the above, the burden of proof falls on the defendant who is then required to prove that the obligation was in fact performed in accordance with the terms of the contract. This is due to the fact that the defendant is much closer to the proof than the claimant is.
As a matter of fact, it is easier for the defendant to prove that a payment obligation has been performed (e.g., by producing proof of payment) than it is for the claimant to prove that no payment has been made.
It’s important to outline that if the contract relates to a negative obligation (i.e., a party to the contract must refrain from doing something) the burden of proof lies on the claimant. Indeed, with regard to negative obligations it’s the claimant who is closer to the proof and who should provide evidence that a breach has occurred.
Limitation of actions under Italian law
According to the Italian Civil Code every right is extinguished for prescription if it is not exercised within a certain time-limit determined by law (Article 2934 of the Italian Civil Code). As a general rule, the time begins to run from the day the right can be exercised.
The time for the innocent party to initiate legal proceedings for breach of contract or give the notice of the claim to the defaulting party begins to run from the day of the breach. Failure to exercise the right within the time-limit set by the law will extinguish the claimant’s right.
Unless otherwise provided for by the law, every right is extinguished for prescription if not exercised within 10 years. There are however different limitation periods depending on the type of action.
For example, the law provides for a shorter limitation period of:
for the annulment of a voidable contract
action founded on tort
payments relating to leasing agreements
payment of invoices for the provision of recurring services
payment of invoices relating to professional services (e.g., lawyers)
for actions related to insurance contracts.
Under Italian law, the running of time can be either suspended (e.g., if a legal proceeding is filed) or interrupted (e.g., by sending a written notice to the defaulting party).
It is important to underline that party autonomy cannot derogate to the limitation period provided for by the law. Any agreement that aims to derogate to the limitation period before it has expired will be deemed null and void. However, the relevant party can decide to withdraw its right to invoke the prescription once the limitation period has expired, for example, by performing the obligation.
Available remedies for breach of contract under Italian law?
Italian law provides for a number of remedies to the innocent party against breach of contract.
The system of remedies available to the innocent party is rather complex. To simplify it to a certain degree, the available remedies are usually divided into two categories:
conservative remedies if the remedy is aimed at rebalancing the contractual relationship, and
termination remedies if they aim at the dissolution of the contractual relationship.
They can also be divided in:
special remedies if certain remedies are available only for certain types of contracts, and
general remedies if the remedies are available for all types of contracts without distinction.
Among the general remedies available to the innocent party, we can include:
action for damages
right to terminate
Each remedy has its own set of rules the innocent party must abide to and will therefore be covered in a separate and more in-depth article of the series.
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