Breach of Contracts in Costa Rica
In Costa Rica, most contracts are governed by the principle of autonomy of will (autonomía de la voluntad). This principle allows the parties to freely agree upon the terms and conditions of their legal relationships. As long as the agreement does not violate the law, public order, or good customs, it will be valid and enforceable.
This freedom of contract ensures legal certainty for individuals and businesses. What the parties agree becomes law between them. However, this autonomy also implies responsibility. Once consent is given and obligations are clearly established, the parties must act in good faith (pacta sunt servanda).
When a breach occurs, the injured party may seek protection through the civil courts. They can demand specific performance, damages, or contract resolution. For this reason, retaining a qualified business lawyer is essential for proper drafting, negotiation, and enforcement of your contracts under Costa Rican civil law.
Why proper contract drafting matters in Costa Rica:
Many disputes in Costa Rica start with poorly written or incomplete contracts. A document that seems clear to the parties may later prove unenforceable because it was not drafted according to local law. Small omissions, such as failing to identify the parties correctly, describing the object imprecisely, or omitting the price, can make the contract invalid or impossible to execute in court.
Proper legal drafting ensures that the agreement can be enforced before the Costa Rican civil courts. It also protects both parties from later misunderstandings and unnecessary litigation. Working with a licensed Costa Rican attorney helps verify the applicable law, required formalities, and legal language to make your contract valid and effective.
How are contracts in Costa Rica defined?
Under Costa Rican law, a contract is a legally binding agreement between two or more people. Each party assumes one or several obligations. These obligations can be to do something, to give something, or to refrain from doing something.
The purpose of a contract is to create a lawful obligation that can be enforced by the courts. Once a valid contract is formed, the law recognizes the duties that each party has promised to perform.
For a contract to be valid, the object and the cause must be lawful. In simple terms, contracts with illegal purposes or impossible objects are null and void. Courts will not enforce an agreement that violates civil law, public policy, or good morals.
The Civil Code defines a contract as an act where one or several persons agree to give, do, or not do something. This highlights the central role of consent in Costa Rican private law. A contract is born from the free will of the parties and represents the meeting of their intentions under the principle of autonomy of will.
Contracts that meet all legal requirements are protected under Costa Rica’s civil and commercial laws. When properly drafted, they provide both parties with legal certainty and judicial protection in case of breach.
How are contracts formed and perfected in Costa Rica?
In Costa Rica, a contract is perfected by consent. The agreement becomes binding from the moment both parties freely express their will to be bound. In most cases, no special formalities are required. The law recognizes contractual freedom as the general rule.
Once the essential elements are present—capacity, lawful object, lawful cause, and consent—the contract is legally formed. This applies to most private agreements, such as leases, services, or sales.
However, some contracts are solemn. In these cases, the law requires a specific form for the contract to be valid. A clear example is a donation, which must be executed through a public deed before a notary public. Without this formality, the donation is void.
In other cases, the written form or public deed is not essential for validity but serves other purposes. For example, in a real estate sale, the contract becomes perfect once the parties agree on the property and the price. The public deed and registration at the National Registry are required only to make the transfer effective toward third parties.
Although many contracts can exist verbally, having them in writing is highly advisable. A written document provides legal certainty, clear evidence of obligations, and protection in case of disagreement. Hiring a business lawyer in Costa Rica to draft or review your contracts helps prevent disputes and ensures compliance with the law.
Can contracts be annulled or executed through litigation?
Yes. Under Costa Rican civil law, contracts may be annulled or enforced through judicial proceedings depending on the defect or type of breach involved.
When a contract fails to meet essential legal requirements—such as capacity, lawful object, or lawful cause—it may be declared null or voidable. A contract is absolutely null when one of these elements is missing, or when it violates mandatory legal norms or public order. In those cases, the judge can declare the nullity even if the parties do not request it.
A voidable contract, on the other hand, is one that was validly formed but has an irregularity that affects only the private interests of the parties. This could result from a defect in consent or a relative incapacity. The affected party must claim this nullity within four years.
When the contract was validly formed but one of the parties fails to perform, the situation is different. The non-breaching party may file a civil lawsuit seeking specific performance (execution of the obligation) or contract resolution. The Civil Code allows the creditor to demand either the fulfillment of the contract or its judicial termination with damages.
Court actions of this nature are filed through the ordinary civil process before the civil courts. Judges can order the delivery of property, payment of a debt, or the dissolution of the agreement with full restitution of damages. These proceedings ensure that valid agreements are executed and that defective or unlawful contracts are annulled according to the law.
What law governs contracts in Costa Rica?
The Civil Code governs most contracts in Costa Rica. It establishes the rules for formation, validity, performance, and termination of civil obligations. It applies to all private agreements unless a special law provides otherwise. The Civil Code protects the autonomy of will and recognizes that parties are free to set their own terms as long as they do not violate the law or public order.
Commercial contracts are subject to the Commercial Code, which applies to merchants, companies, and business transactions. While both codes share the same principles, the Commercial Code includes special rules about form, evidence, and liability. It also establishes shorter limitation periods for enforcing rights derived from commercial contracts.
For example, most civil actions prescribe after ten years, but many commercial claims expire in four years. This shorter limitation reflects the dynamic nature of commerce and the need for faster resolution of disputes. Because of this, identifying whether a contract is civil or commercial determines which law and deadlines apply.
Some contracts fall under specialized jurisdictions. Agricultural or rural production contracts are resolved by the Agrarian Courts, while agreements with the State or public entities belong to the Administrative Jurisdiction. These courts apply specific procedural rules in addition to other specific laws that govern these jurisdictions.
Knowing which law governs your contract is essential to protect your rights. A qualified attorney can advise whether your agreement falls under civil, commercial, agrarian, or administrative law, and what remedies or limitation periods apply.
Contractual Breach and Remedies in Costa Rica:
When one party fails to comply with a valid contract, the situation is a breach of contract. This failure may involve non-payment, delay, defective delivery, or violation of agreed duties. The Civil Code provides several remedies to protect the rights of the non-breaching party.
Contract Resolution (Resolución Contractual):
The first remedy, is contract resolution (resolución contractual). This allows the non-breaching party to ask the court to conclude the contract with retroactive effects. Compensation for damages can also be requested and awarded by the Civil Judge, under “restitutio in integrum”.
Specific Performance (Ejecución Forzosa):
This is the another remedy in case of breach of contract. The creditor may ask the court to compel the breaching party to fulfill the obligation exactly as agreed. Judges can order the delivery of goods, payment of money, transfer of property, or completion of services. If compliance is no longer possible, the creditor may request contract termination instead.
Damages and Compensation under Costa Rican Law:
In Costa Rica, damages are intended to restore the injured party to the position they would have occupied if the breach had not occurred. This principle is known as restitutio in integrum, or full compensation. The goal is not to punish the breaching party but to compensate the loss suffered by the creditor.
The Civil Code divides damages into two main categories: actual loss (daño emergente) and lost profits (lucro cesante). Actual loss refers to the direct and immediate financial harm suffered, such as unpaid sums or costs incurred to remedy the breach. Lost profits correspond to the earnings the creditor would have obtained if the contract had been properly fulfilled.
Courts may also recognize moral damages, which compensate for non-material harm such as stress, humiliation, or damage to reputation. Although moral damages are more common in tort cases, Costa Rican jurisprudence has admitted them in contractual disputes when the breach causes emotional or psychological injury.
Interest on late payments is another form of compensation often claimed in contractual lawsuits. It may be conventional (agreed upon by the parties) or legal (set by law when not specified in the contract). Interest continues to accrue until full payment is made.
When calculating damages, Costa Rican judges apply the principle of foreseeability: only losses that were foreseeable or naturally derived from the breach at the time of contracting are recoverable. For this reason, precise drafting and clear clauses on penalties, default interest, and indemnification are crucial to strengthen your position in court.
How are breaches of contract actions filed in Costa Rica?
Breach of contract actions are usually filed through the ordinary civil process before the civil courts. In commercial cases, the same principles apply, but the limitation periods are shorter. Well-drafted contracts make these remedies easier to enforce, while vague or incomplete agreements often complicate litigation.
An experienced Costa Rican attorney can evaluate the breach, calculate damages, and choose the most effective legal strategy—whether to enforce the contract, seek its resolution, or negotiate a settlement before trial.
Dr. Christopher Pirie Gil.