“I will no longer work with this supplier. I’m terminating the contract effective tomorrow.” If the other party isn’t fulfilling its obligations, why should we continue working together? From a legal standpoint, the situation may look different than it does from a business perspective. Not every breach of contract gives the right to unilaterally terminate the contract, and a hasty decision may lead to an unexpected outcome—the party that terminated the contract may be found to be the one in breach.

Therefore, before deciding to terminate a contract, it is important to assess not only whether the other party has committed a breach, but also whether that breach is in fact significant enough to justify the termination of the contractual relationship.

The Principle of the Binding Nature of a Contract on the Parties

A contract that has been lawfully entered into and is in force is binding on the parties. Civil law is based on the principle that contracts must be honored (Latin: pacta sunt servanda); therefore, unilateral refusal to perform a contract is possible only in exceptional cases.

It is no coincidence that the courts refer to contract termination as a last resort (ultima ratio). In other words, a contract should not be terminated simply because the collaboration has become inconvenient or less profitable than expected. There must be a real and legally significant basis for doing so.

When can a contract be terminated?

In most cases, the right to terminate a contract arises when the other party fails to perform the contract or performs it improperly, and the breach is considered material. In practice, the term “material” raises the question of what exactly constitutes a material breach.

For example, if a supplier delivers goods one day late, that does not in itself mean that the contract can be terminated. On the other hand, if the same goods were intended for a specific event or seasonal sales, and the delayed delivery caused them to lose their value to the customer, the situation may be considered a material breach of contract.

Thus, in each case, the assessment focuses not only on the fact that a violation occurred, but also on the consequences it had for the other party.

What is considered a material breach of contract?

The Civil Code sets forth several criteria that must be taken into account. First, it is assessed whether the aggrieved party essentially failed to receive what it reasonably expected when entering into the contract. The greater the discrepancy between the promised result and the actual result, the greater the likelihood that the breach will be deemed material.

The Court of Cassation has repeatedly emphasized in its case law that the most important thing is to determine whether the interests of the aggrieved party were substantially disregarded as a result of the violation.

For example, an advertising campaign may be technically completed, but if it is launched after the most important sales period has already ended, the client does not receive the primary benefit they expected from the contract. In such a case, the formal completion of the actions does not necessarily mean that the contract has been properly performed.

Not every delay or deficiency constitutes grounds for terminating a contract

When assessing the significance of a breach, it is important to take into account the nature of the specific contract. In some contracts, the deadline is of decisive importance. For example, in the supply of perishable goods or the organization of events, even a short delay can destroy the entire economic value of the contract.

In other contracts, failure to meet a deadline may be less significant. For example, when providing long-term consulting or administrative services, a delay of a few days does not necessarily mean that the contract’s objectives have become unattainable.

For this reason, the courts evaluate each situation on a case-by-case basis, taking into account the purpose of the specific contract and the parties’ expectations.

What matters is not only what happened, but also why it happened

When determining the implications of contract termination, the causes of the breach are also relevant. It is clear that a situation in which goods are not delivered due to acts of war, unexpected government restrictions, or other force majeure circumstances differs from a case in which the supplier simply failed to organize its operations properly.

It is equally important to assess the fault of the party at fault. If the supplier knew that the product did not meet the quality requirements specified in the contract but nevertheless delivered it to the buyer and failed to disclose the defects, such conduct may be regarded as a deliberate breach of contractual obligations.

The situation is viewed quite differently when a defect becomes apparent only after the goods have been delivered and the supplier objectively could not have detected it earlier. The greater the fault of the party at fault, the less reason there is to expect that the aggrieved party will be required to continue the contractual relationship.

The biggest mistake is to terminate a contract simply as a formality

In practice, it is not uncommon for a party, seeking to extricate itself as quickly as possible from an unfavorable contractual relationship, to cite a technical breach and announce the unilateral termination of the contract. However, civil law applies the principle of favor contractus—priority is given to preserving and performing the contract rather than terminating it.

Therefore, a mere formal breach is generally not sufficient. If the breach did not result in significant adverse consequences, did not harm the party’s vital interests, and the purpose of the contract is still being achieved, the court may find that there were no grounds for terminating the contract.

In such a case, a paradoxical situation arises in which the contracting party that committed the initial breach does not face the most severe legal consequences, while liability may fall on the party that unjustifiably decided to terminate the contract.

What’s worth remembering?

Before deciding to terminate a contract, it is worth asking yourself: have you actually lost what you entered into the contract for because of the other party’s actions? If the answer is unclear, you should not rush into a decision. Case law consistently shows that terminating a contract is considered an exceptional measure; therefore, the grounds for termination must be genuine, proven, and sufficiently significant.

Otherwise, an attempt to take advantage of an alleged breach could turn into a dispute in which the party that unjustifiably terminated the contract—rather than the party that failed to perform it—would be found to be in breach.

Gabija Jonaitytė, “Leagus” Law Firm