Legal Consequences of Arrears and Debtor Default

Legal Concepts of Arrears

Delay in Performance

An obligation is required where the creditor can effectively demand payment from the debtor. This can be done from the moment the obligation arises, unless there is an initial term or a condition precedent; in such cases, the creditor must wait for the deadline or for the condition to be met.

The mere delay in the performance of the obligation does not automatically lead to the responsibility of the debtor. For this to occur, it is necessary that the delay does not prevent the subsequent performance of the duty, because if it did, it would constitute a total default.

Default by the Debtor

This can be defined as a delay in the breach of the obligation by the debtor that does not preclude or render late compliance useless. For a debtor to be declared delinquent, the following conditions must be met:

• The obligation must be liquidated and due.
• Payment must be claimed through the courts or out of court, provided the creditor has proof that such an order was made.

There are cases in which a summons is not required of the debtor, specifically where the contractors had previously agreed to it.

Effects of Debtor Default

When effects are produced, the defaulting debtor is not relieved of the obligation to be fulfilled and is responsible for the damages incurred by such a delay. Consequently, the creditor has the benefit of perpetuatio obligationis; the debtor is responsible for the loss of the item even if it is due to a cause not imputable to them.

If, by law or by the creditor's initiative, the debtor is given a new term (a moratorium), the effects of the previous default are canceled. If the failure of the debtor is followed by the creditor being in default, this overrides the debtor's status, a process called the purging of the delay.

Arrears of the Creditor

Default of the creditor occurs when the obligation cannot be met because the creditor unreasonably refuses to receive the performance. When the provision matches the originally planned program—at the time and place indicated—and the creditor refuses it, the creditor is in default. This results in:

• Purging the debtor's default.
• Prevention of subsequent default by the debtor.
• Extinguishment of the obligation if any subsequent loss of the item occurs by accident, exempting the debtor.