Termination of the contract

Mar, 22 2021

Contents:

The law says that the contract fixes the agreement of two or more persons, and creates, changes or terminates their mutual rights and obligations. As a type of civil law transaction, the contract gives rise to the right of claim of one of the parties and the obligation to satisfy this claim by the other party.

There is the so-called principle of freedom of contract, which says that it is possible to conclude any transactions between the parties, the terms of which do not contradict the law of the Russian Federation. If the contractual relationship has already arisen, you can terminate it as follows:

  • On a mutual voluntary basis (by agreement of the parties);
  • By court decision.

It should be noted that the contract can be terminated in court only if there are certain conditions:

  • One of the parties has significantly violated one or more of the terms of the transaction;
  • Other conditions that are described directly in the contract or are fixed at the legislative level.

A material breach of the terms of the transaction is understood as the occurrence of such circumstances in which the second party suffers losses or has suffered other damage, has lost the benefits that it expected to get when entering into this contractual relationship. If there are such violations, the affected party can claim compensation for the damage that it bears in the event of termination of the contract.

Reasons for termination of the contract

As a rule, one of the most common grounds for terminating a contract is that one of the parties has not fulfilled the obligations that it has assumed under the contract.

The most common reasons for terminating contractual relations are the following:

  • Agreement of the parties. In this variant of termination of the contract, the parties must conclude an agreement that describes all the conditions for terminating the contract. This option is suitable for solving the situation if there are no disputes about compensation and its amount. Or, when applying to the court, the payments and costs of the process will be more than the expected compensation.
  • Material breach of the terms of the contract. It is necessary to distinguish it between essential and non-essential violations, since only essential ones are taken into account and must be clearly and unambiguously spelled out in the contract and usually entail circumstances that cause damage.
  • Significant change of circumstances. This means that the circumstances have changed in such a way that one of the parties to the transaction would not want to enter into this agreement at all if it could predict the occurrence of these circumstances. 
  • Unilateral refusal. According to the law, this is permissible if the counterparty has significantly violated the obligations that have been undertaken by it in the contract.

Significant violations of the agreement

Let us consider this aspect on the example of a transaction for the purchase and sale of goods. Thus, according to the law, the goods must be handed over to the buyer of proper quality, and significant violations will be considered goods in which defects are found that cannot be eliminated. Or the cost of eliminating them will be disproportionately large.

What does the buyer have the right to do if there is such a material violation of the terms of the transaction:

  • He can unilaterally refuse to fulfill the terms of the contract of sale, which are spelled out in the document;
  • If the product has already been paid for, he can claim a refund of the amount paid;
  • He also has the right to demand to replace the product with a high-quality one.

Thus, in the event of such a situation, first of all, it is necessary to correctly interpret and state all the nuances with the application of legal norms. This will streamline the relations of the parties and will be able to protect their interests. It should be noted that not every violation of the contract entails the termination of the contractual relationship, since it is not essential. Only if there is an obvious violation of the rights and interests of one of the parties, the violation is considered significant, what can lead to the termination of the contract.

Unilateral refusal to perform obligations

The law provides for the right of one of the parties to the transaction to unilaterally fail to fulfill its obligations under the contract by notifying the other party about it in an official manner. As soon as the notification is received, the transaction can be considered terminated.

Therefore, the reason for the termination of the contract may be a change in the conditions under which the transaction was concluded. 

Neither of the parties can demand performance of obligations that were before the termination of the transaction. If one of the parties receives from the other the fulfillment of obligations in full, and she did not fulfill her obligations or not in an equivalent amount, the law on unjustified enrichment will be applied to this situation.

Unilateral termination of the contract in the event of unforeseen circumstances

When making any transaction, it is assumed that both parties have thought through and laid down all possible risks. What to do if the circumstances have changed dramatically for one of the parties, and these circumstances could not be predicted, and now there is a need to terminate such a contract.

One option is to send the other party a notice of termination of the contract, and if the counterparty agrees to such conditions, prepare an agreement.

 If one of the parties is not satisfied with the current situation in any way, and is not ready to resolve the issue peacefully, it is possible to apply to the court, which in its decisions will rely on Article 415 of the Civil Code of the Russian Federation and the terms of the contract itself.

Settlement of disputes on termination of the contract in pre-trial order

If the contract is terminated voluntarily, the agreement is prepared in the same form as the contract. To file a claim in court, you must first receive a refusal from the second party in response to the offer to resolve everything peacefully. Also, the response may not be received at all within the period specified in the offer, and if such a period is not specified, then after 30 calendar days.

The pre-trial process of termination of the contract has its own mandatory procedure, which is fixed by law. This option of resolving the situation allows you to solve all the problems without going to court, which greatly facilitates the process of contract’s termination.

Stages of pre-trial settlement of the dispute on termination of the contract:

  • Legal assessment of the situation;
  • Referral of the claim;
  • Waiting for a response to a claim;
  • In case of a positive response – the stage of negotiations and discussion of nuances;
  • If no response has been received or the party does not agree with the claims, an appeal is sent to the court.

It is important to remember that all documents that were used during the pre-trial settlement should be preserved.

Consequences of termination of the contract

If the terms of the transaction were changed or the transaction was terminated, the obligations under the agreement are also canceled or changed from the moment the parties conclude the agreement. If the decision was made in court – from the moment the court decision comes into force.

As soon as the transaction is considered terminated, the debtor is relieved of the obligation to fulfill the terms of the contract in the future, since it is no longer there, it is canceled. 

If the contract provides for a penalty for non-performance or late performance of the terms of the contract, then all these amounts are accrued until the date of termination of obligations, that is, until the termination of the contract.

If there are conditions in the transaction that apply after the termination of the contractual relationship or are intended to regulate the relations of the parties after the termination of the transaction, then such conditions remain in force.

Termination of cooperation by agreement of the parties

If a positive response was received from the other party when sending a notice of termination of the contractual relationship, the parties prepare an agreement. There is no single sample of this document, so the parties draw it up without taking into account special requirements. Thus, the parties resolve their dispute in a pre-trial manner without applying to the courts.

It should be noted that the detailed drafting of the contract greatly facilitates the resolution of controversial issues.

Termination of the contract in court

To resolve a dispute about the termination of the contract in court, you should perform a number of certain actions:

  • Send the defendant a well-written and justified claim with a proposal to terminate the contract and terminate the contractual relationship;
  • Collect a full set of documents that clearly indicates and proves that the claims are justified, and the actions of the applicant are legitimate;
  • Take into account the current legislation of the Russian Federation to make a statement of claim for the court;
  • Calculate the state fee taking into account the requirements stated in the statement of claim and pay the required amount;
  • Send the defendant a copy of the statement of claim;
  • Submit the collected set of documents to the court.

The full package of documents is submitted through the court’s office or by registered mail. 

Obligations of the parties after the termination of the contract

If the contractual relationship was terminated by agreement of the parties or unilaterally, all obligations under the contract are terminated. However, this does not mean that mutual settlements and offsets are also terminated. In court, even after the termination of the contract, it is possible to collect and pay penalties and various fines.

This is specified in Article 453 of the Civil Code of the Russian Federation, the provisions of which apply if there are no special requirements and norms anywhere in the legislative acts that could regulate the relations of the parties in a certain area.

It should be taken into account that both individuals and legal entities have the so-called freedom in the field of concluding transactions. This means that they can independently determine any terms and conditions of these transactions, including the consequences of termination of the contractual relationship, additional rights and obligations of both parties that may arise in the event of termination of the contract for various reasons.

Termination of the contract as a procedure is not something complicated, but it should be remembered that each of the parties will strive to cover their losses as much as possible and not allow their rights to be violated. If the dispute is resolved in court, then the entire set of circumstances of the case, the interests of each of the parties, whether the terms of the contract were significantly violated or not, will be taken into account at the trial. 

The most important principle when terminating a contract is to properly and competently defend your interests from a legal point of view, while not violating the rights of the other party.

Author of the article
Termination of the contract
Valentina Khlavich
Managing Partner
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