Can I refuse to pay if the other party did not fulfill the contract? The exception of non-performance of contract according to the Supreme Court of Justice

I. The Problem Faced by Many Companies

This is a common situation in Dominican commercial practice: a company engages a service provider, contractor, or supplier, pays part of the agreed price in advance, and when the other party fails to perform or performs inadequately, nevertheless receives a claim for the outstanding balance. The client then wonders whether it is required to pay for something it did not receive, or whether it may legitimately withhold payment until the other party performs its obligations.

Dominican law provides an answer to this question through a long-standing principle, consistently recognized by the Supreme Court of Justice, known as the exceptio non adimpleti contractus, or exception of non-performance.

II. An Illustrative Case

Consider the following example. A company hires a contractor to remodel its commercial premises for an agreed total price, payable in two installments: half at the beginning of the work and the remaining half upon completion and delivery of the finished project. The company pays the initial installment. A few weeks later, the contractor abandons the project, leaving the work unfinished and with visible defects. Shortly thereafter, the company receives a formal demand for payment of the outstanding balance, under threat of legal action.

The company has not received what it contracted for. However, it also does not want to place itself in the position of being the defaulting party in potential legal proceedings. What can it do?

III. What Is the Exception of Non-Performance?

In bilateral or sinalagmatic contracts—those in which both parties assume reciprocal obligations—each party’s obligation is supported by the obligation assumed by the other party. This reciprocity leads to a logical consequence: a party that has failed to perform its own obligations cannot demand that the other party perform theirs.

The Combined Chambers of the Supreme Court of Justice have defined this principle as “the prerogative granted to one of the parties to a bilateral contract not to perform its obligation while the other party has failed to perform its own” (SCJ-SR-22-00024, dated May 19, 2022).

It is therefore not a means of releasing a party from the contract, but rather a defense mechanism that preserves the balance between the parties’ reciprocal obligations and encourages the other party to perform.

Although the Dominican Civil Code does not establish this principle in a single specific provision, legal doctrine and case law derive it from the principle of reciprocity governing bilateral contracts, as well as from specific provisions such as the seller’s right to withhold delivery of the goods until the buyer pays the purchase price.

IV. Requirements for Validly Invoking the Exception

In each case, the court will examine whether the contract is in fact bilateral; whether the other party’s breach concerns an essential obligation rather than a merely ancillary one; whether there is proportionality between the other party’s breach and the performance being withheld; and whether the party invoking the exception was not itself the first to breach the contract or was not contractually required to perform first.

In the case described above, these requirements are met: the contract is bilateral, the obligation to complete the work is essential, the balance being withheld corresponds precisely to the portion of the services that was not performed, and the contract provided that such balance would be paid upon delivery, placing the contractor under an obligation to perform first.

V. A Critical Warning: The Exception Does Not Apply Automatically

This is the aspect that most often surprises clients and that can determine the outcome of a case. The Supreme Court of Justice has established that the exception of contractual non-performance is “a power available to the party against whom performance of its obligations is demanded, which it may invoke or not depending on what is beneficial to its defense,” and that “the judge cannot raise it ex officio; rather, the parties must bring the matter before the court so that it may issue a ruling thereon.” Consequently, “if, based on the circumstances of the case, a contracting party may invoke such exception but fails to do so, it may be ordered to perform its obligation, even where the other contracting party has failed to perform” (First Chamber, Judgment No. 296, dated March 24, 2021, B. J. No. 1324).

In practical terms: being right is not enough. If the company in our example is sued for payment of the outstanding balance and its defense does not formally raise the exception, the court cannot apply it on its own initiative, and the company may ultimately be ordered to pay for work it never received.

VI. How the Client Should Act to Protect Its Position

The most common mistake is simply to withhold payment and remain silent. Such conduct may be interpreted as a breach by the company itself and, as explained above, does not by itself produce any favorable legal effect. Withholding payment should be accompanied by a structured course of action.

First, it is essential to document the breach through photographs, technical reports, written communications between the parties, and, where appropriate, verification by a notary or judicial officer.

Second, it is advisable to formally notify the other party of the identified breach, requiring it to perform its obligation within a reasonable period of time (formal notice of default).

Third, the company should expressly state that it is prepared to pay the outstanding balance as soon as the work is completed in accordance with the agreed terms.

Finally, if the claim reaches the courts, the exception must be expressly and timely raised as a defense, supported by the evidence gathered during the preceding stages.

With these elements in place, the company may not only successfully oppose the payment claim, but may also be in a position to seek termination of the contract and compensation for the damages and losses caused by the abandonment of the project.

VII. Conclusion

The exception of non-performance is a legitimate and effective legal tool for companies facing payment claims for contractual obligations or services they did not receive. Its success, however, depends on three factors: that it be invoked under the appropriate circumstances, that it be supported by adequate evidence, and that it be expressly raised before the court, since the court cannot apply it on its own initiative.

At Alburquerque Abogados – Consultores, we assist companies and individuals in reviewing their contracts, responding to formal demands and payment claims, and defending and enforcing their rights before the courts. If your company is facing a similar situation, our Litigation Department can review your case and advise you on the most appropriate legal strategy.

Deferred Entry into Force of the Corporate Criminal Liability Regime

The corporate criminal liability regime set forth in Articles 8, 9, 10 and 11 of the new Dominican Criminal Code will not become effective together with the remainder of the Code. Article 31 of Law No. 44-26, dated July 27, 2026, postpones the entry into force of these provisions for an additional three months following the general effective date of the Code, which is August 5, 2026. Accordingly, the corporate criminal liability provisions will become enforceable on November 5, 2026.

This transition period represents the actual window of time available for companies to assess their criminal risks and adapt their compliance programs before the new legal standard becomes applicable.

The Compliance Program Expands from Four to Eleven Mandatory Components

Article 8 continues to base corporate criminal liability on the failure to fulfill duties of management, control, or supervision over corporate bodies, representatives, or subordinates. The most significant change lies in the minimum requirements that a corporate compliance program must now satisfy.

Under the previous framework, a compliance program was required to include four essential elements: (i) the identification of criminal risks; (ii) an independent compliance body or department with sufficient autonomy to oversee the program; (iii) protocols designed to address identified risks; and (iv) periodic review of the program.

Paragraph VI of the new Article 8 retains these four elements while introducing seven additional mandatory components:

• A policy or code of conduct clearly establishing the obligations of corporate bodies, representatives, and employees;
• Specific control measures addressing identified criminal risks;
• Ongoing training and awareness programs, including education on human rights and non-discrimination;
• Financial and accounting procedures designed to prevent unlawful payments, transactions, or benefits;
• Anonymous internal reporting channels that protect whistleblowers and prohibit retaliation;
• Clear procedures for investigating internal reports; and
• Documentary traceability of the entire compliance system.

In addition, the law expressly requires that the compliance program be effective, genuine, measurable, and continuously updated. A written code of conduct, without evidence of implementation, communication, monitoring, and enforcement, no longer satisfies the statutory standard.

Responsibility for maintaining an effective compliance program is no longer confined to the legal department. It now directly involves the Finance, Accounting, Internal Audit, and Human Resources functions, reflecting a broader enterprise-wide governance responsibility.

A More Comprehensive Mitigating Circumstances Regime

Paragraph III of Article 8 establishes five circumstances that may mitigate a company’s criminal liability:

• The existence and effective implementation of a compliance program prior to the commission of the offense;
• The adoption of remedial measures after the offense, even where the pre-existing compliance program was incomplete;
• Compensation for damages in offenses subject to public prosecution;
• Voluntary disclosure of the relevant facts to the competent authority before the company becomes formally aware of the investigation; and
• Effective cooperation with the authorities through the preservation or delivery of evidence and the identification of the individuals involved.

The law no longer evaluates only whether a company had a compliance program in place at the time the offense occurred, but also how the company responded once the violation took place or was detected.

Exemption from Liability: The Standard Remains Stringent

An effective compliance program that is fraudulently circumvented continues to constitute a ground for exemption from corporate criminal liability. However, the company must establish both of the following conditions:

• That the compliance program had been effectively adopted and implemented but was circumvented through fraudulent conduct; and
• That the offense was committed by subordinates or individuals outside the company’s management through fraudulent schemes that prevented senior management from detecting the misconduct.

Paragraph V introduces two additional grounds for exemption from liability:

• Where the offense was committed exclusively to the detriment of the company, without any direct or indirect benefit to the company; and
• Where damages have been fully repaired in offenses subject to private prosecution or public prosecution initiated upon a private complaint.

Corporate Groups: A Higher Evidentiary Standard Under Article 11

The amendment to Article 11 significantly strengthens the requirements for extending criminal liability among affiliated companies. It is no longer sufficient to demonstrate the existence of a parent-subsidiary control relationship.

Instead, it must be proven that the controlling entity:

• Participated in the commission of the offense;
• Ordered, directed, authorized, or tolerated the unlawful conduct;
• Knowingly benefited from it;
• Created a serious organizational defect that facilitated the commission of the offense; or
• Failed to fulfill its own duties of management, supervision, and control.

This amendment requires parent companies to reassess their intra-group corporate governance policies and the actual level of supervision exercised over their operating subsidiaries in the Dominican Republic, particularly where the parent company participates in management or operational decision-making.

MSMEs: Proportionality Rather Than a Simplified Compliance Regime

Under the previous legal framework, micro, small, and medium-sized enterprises (MSMEs) could assign compliance responsibilities directly to their governing body.

The new legislation replaces this approach with an express principle of proportionality. Compliance systems and risk management measures must now be implemented in a manner proportionate to the nature of the business, its size, operational complexity, and level of risk.

A microenterprise is not expected to maintain the same compliance infrastructure as a large multinational corporation. Nevertheless, every company must implement controls that are appropriate to its actual risks. The complete absence of a compliance system is no longer supported by law.

Direct Criminal Exposure for Directors and Senior Officers

The reform extends well beyond corporate entities themselves.

Article 250 expressly applies the corporate criminal liability regime established in Articles 8 through 11 to offenses involving fraud against the State, mass fraud schemes, bankruptcy offenses, and fraudulent pyramid schemes.

With respect to insolvency proceedings, Article 248 specifies that the chairman, de facto or de jure directors, managers, corporate officers, and the owner, manager, or attorney-in-fact of a single-member limited liability company may incur personal criminal liability for either negligent or fraudulent bankruptcy when they organize or cause the suspension of payments of the entity they manage, whether through negligence or intentional misconduct.

Corporate entities found liable for serious or very serious offenses may be subject to fines ranging from fifty (50) to one thousand five hundred (1,500) public-sector minimum wages, depending on the gravity of the offense.

Additional sanctions include:

• Judicial dissolution of the company;
• Temporary closure of business establishments for up to three years;
• Revocation of licenses or administrative authorizations;
• Disqualification from participating in public procurement procedures; and
• Prohibition from raising funds through public offerings.

These sanctions directly affect a company’s operational continuity, rather than merely imposing financial penalties.

What Companies Should Review Before November 5, 2026

Companies should begin by identifying the criminal risks associated with their specific business activities—including financial, environmental, labor, data protection, and procurement-related risks—as the foundation for designing a proportionate and defensible compliance program.

Based on that assessment, companies should:

• Update or develop their code of conduct and related policies, ensuring that employees receive and understand them;
• Design or strengthen anonymous whistleblowing channels, including whistleblower protection mechanisms and anti-retaliation rules;
• Establish formal investigation procedures supported by comprehensive documentary records;
• Review financial and accounting controls designed to prevent unlawful payments, transactions, or improper benefits, in coordination with the finance and internal audit functions;
• Implement continuous, measurable compliance training rather than relying solely on the distribution of written manuals; and
• Where operating within a corporate group, reassess intra-group supervision policies and the parent company’s actual involvement in the management of its subsidiaries.

Companies should treat November 5, 2026 as the internal deadline by which their compliance program must be fully implemented—not merely drafted.

Conclusion

The new Dominican Criminal Code shifts the focus of corporate compliance away from the mere formal existence of internal policies toward the demonstrable ability to prevent, detect, investigate, and remediate criminal misconduct.

Companies that already maintain mature compliance structures have an additional three-month transition period to strengthen their programs in light of the new eleven-component standard. Those without an effective compliance program will face significantly greater criminal exposure beginning on November 5, 2026, both for the corporate entity itself and for its directors and senior management.

At Alburquerque Abogados, we assist our clients in assessing corporate criminal risks, designing and implementing effective compliance programs, and reviewing corporate governance structures to ensure alignment with this new legal framework.

The entry into force of Law No. 74-25 is scheduled for August 3, 2026, although that date could be postponed by three (3) months. However, any extension of the implementation timeline does not change the fundamental shift introduced by the Law: for the first time, a commercial company may be investigated, prosecuted, and held criminally liable for failures attributable to its own organizational structure.

The focus will no longer be limited to determining the liability of the manager, representative, or employee who committed the offense. Authorities will also examine whether the company failed to fulfill its duties of management, supervision, and control.

As the effective date approaches, the National Congress approved thirty-two (32) amendments to the Law, including revisions to Articles 8 and 11, which govern the criminal liability of legal entities. The bill was submitted to the Executive Branch on July 22, 2026, and is currently awaiting enactment.

Against this backdrop, many companies are asking the same question:

Should we wait until the final version of the Law is officially published before taking action?

The answer is no.

While certain provisions may still be modified, the new corporate criminal liability framework will remain in place. More importantly, the principal defense recognized by the Law requires that the company has already implemented genuine compliance and prevention measures before any offense occurs. That defense cannot be developed after the fact or improvised once an investigation has begun.

How Will Courts Apply Corporate Criminal Liability?

Article 8 does not impose criminal liability on a company merely because one of its employees commits an offense. Liability arises when the act or omission of a corporate body, representative, or subordinate is also the result of an organizational failure or a breach of the company’s duties of management, supervision, or control.

Accordingly, the central question in a criminal investigation will not simply be:

Who committed the offense?

It will also be:

What had the company done to prevent it?

The scope of this new regime is significant. Corporate criminal liability may exist independently of any conviction of the individual involved, may survive certain corporate reorganizations, and may, under the conditions established by law, extend to controlling companies.

Potential sanctions include:

• Monetary fines;
• Suspension of business activities;
• Closure of establishments;
• Disqualification from contracting with the government; and
• In the most serious cases, judicial dissolution of the company.

The Scope of Corporate Criminal Liability

As a general rule, the new framework allows criminal liability to be attributed directly to the company, independently of the liability that may correspond to its directors, officers, representatives, or employees.

This means that criminal proceedings and sanctions may be directed not only against the individual who engaged in the unlawful conduct but also against the legal entity itself.

Moreover, the scope of liability extends beyond the formal legal existence of the company. Criminal liability may continue even if the individual involved is never convicted, may survive dissolution in certain circumstances, and may extend to companies exercising effective control over the offending entity.

The sanctions applicable to legal entities range from fines to suspension of activities, closure of facilities, disqualification from public procurement, and, in the most serious cases, corporate dissolution.

A Compliance Manual Sitting on a Shelf Will Not Protect Your Company

The Law provides a complete defense where a company can objectively demonstrate that it had an adequate compliance program in place and that the offense was committed through fraudulent circumvention of that program.

It also recognizes mitigating circumstances where the compliance system is demonstrably implemented and measurable in practice, or where partial compliance can be established.

The key concepts are:

Verifiable. Measurable. Operational.

The mere existence of a compliance manual will not be sufficient.

A signed, bound, and archived document does not prove that the company has effectively managed its criminal risks.

Instead, companies will need to demonstrate that their compliance program functioned in practice through evidence such as:

• Employee training programs;
• Reports received, investigated, and resolved;
• Internal controls actually performed;
• Decisions processed through established approval protocols;
• Disciplinary measures enforced;
• Internal investigations conducted;
• Corrective actions implemented; and
• Periodic reviews properly documented.

These records cannot be created retroactively once criminal proceedings begin. They must result from the continuous operation of an effective compliance system.

This has also been the experience in jurisdictions such as Spain, Chile, and Italy, which introduced corporate criminal liability years earlier. Courts in those countries have consistently looked beyond the formal existence of compliance programs to evaluate:

• Whether the program was appropriate;
• Whether it was genuinely implemented;
• Whether the compliance function operated independently; and
• Whether internal controls were truly effective.

Where a compliance program exists only on paper, its defensive value is substantially diminished.

What Your Company Should Already Have in Place

Although the Law establishes minimum requirements, formal compliance alone will not be enough.

Every company should implement a prevention system tailored to its industry, organizational structure, governance model, and risk profile.

At a minimum, four essential components should be addressed.

1. A Criminal Risk Assessment Tailored to the Business

There is no universal compliance program.

The risks faced by a supermarket, construction company, financial institution, transportation company, or government contractor are fundamentally different.

The assessment should identify:

• Where criminal risks may arise;
• Who participates in critical business processes; and
• Which controls exist to prevent or detect misconduct.

2. An Independent Compliance Function

The compliance officer—or compliance body—must possess genuine authority, sufficient resources, and direct access to the company’s highest governing body.

A formal appointment alone is insufficient.

The compliance function must be able to:

• Conduct oversight;
• Request information;
• Issue alerts;
• Recommend corrective measures; and
• Operate without undue interference.

3. Decision-Making Protocols and an Effective Disciplinary System

Companies should clearly define:

• Who is authorized to make decisions;
• Which approvals are required;
• How sensitive transactions are documented; and
• What consequences apply when internal controls are violated.

A disciplinary system that is never enforced is unlikely to demonstrate effectiveness.

4. Ongoing Documentation and Traceability

Every training session, report, investigation, internal control, decision, corrective action, and program update should generate verifiable records.

In any future criminal investigation, what cannot be documented will be extremely difficult to use as evidence of due diligence.

The Real Cost of Waiting

Building a meaningful criminal compliance program takes time.

It requires:

• Assessing business operations;
• Identifying criminal risks;
• Designing appropriate controls;
• Obtaining the necessary corporate approvals;
• Training personnel; and
• Beginning to generate documentary evidence of implementation.

A company that acts only after receiving a subpoena may be able to present a compliance manual.

A company that acts beforehand will be able to present a documented history of prevention, oversight, and corrective action.

That distinction may prove decisive in obtaining a complete defense, mitigating liability, or facing a criminal investigation with credible evidence of due diligence.

The real question, therefore, is not simply:

How much does it cost to implement a criminal compliance program?

The better question is:

How much could it cost your company to face criminal proceedings without being able to demonstrate that it took reasonable measures to prevent them?

How We Can Help

At Alburquerque Abogados – Consultores, we assist Dominican and international companies in designing, implementing, and reviewing criminal compliance programs tailored to their industry, corporate structure, and risk profile.

As a starting point, we offer a preliminary criminal exposure assessment with a clearly defined scope, timeline, and fixed professional fees.

This assessment enables companies to:

• Identify the specific criminal risks affecting their operations;
• Evaluate existing internal controls;
• Detect deficiencies in governance, supervision, and documentation; and
• Prioritize the measures that should be implemented before the first inquiry from any authority.

The Law’s entry into force may be postponed.

Your company’s preparation should not be.

Request a Preliminary Criminal Exposure Assessment for your company today.

Alburquerque Abogados – Consultores
Torre Piantini, 13th Floor
Corner of Abraham Lincoln Avenue and Gustavo Mejía Ricart Avenue
Santo Domingo, Dominican Republic
Tel.: +1 (809) 549-4646