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.