In entrepreneurial activity, there are situations when the contract is terminated due to the refusal of one of the parties to fulfill it. Far from always this can be easily and enthusiastically received by the other side. In order to maintain a reputation and normal relations with a partner, before terminating the contract, you must weigh the pros and cons. In which cases the refusal is lawful, what is the general procedure and grounds for terminating the contract, as well as some practical conditions and circumstances of the preparation of the notice of termination of the contract, are considered in this article.
The contract must be respected.
It should be noted that unilateral refusal to fulfill an obligation is prohibited, as a general rule. There is a well-known principle of civil law - pacta sunt servanda (“the contract must be respected”). In international legal relations, its provisions are enshrined, in particular, in the UN Convention on the Law of Treaties. This principle is the development of advanced ideas of "natural law" that arose thanks to the theoretical works of lawyers of the 17th-19th centuries, as well as fundamental moral and ethical ideas, originating in the works of Aristotle, Thomas Aquinas. The essence of pacta sunt servanda is that when concluding an agreement, each party has a basic certainty of its fulfillment by the other party, which streamlines activities as a whole, is a condition for a strong relationship, equal and fair partnership.
Grounds for termination
It is for the purpose of implementing the principle of pacta sunt servanda that the law clearly limits cases where partnership becomes impossible. These are unambiguously provided reasons and grounds for terminating the contract, the abuse of which is not allowed. The conditions for termination of the contract are provided for by Art. 450-453 of the Civil Code. Here we are talking about two types:
- termination by agreement of the parties;
- termination in court.
To file a claim for termination of the contract in court, if there is no consent, the party must indicate and justify the basis for such a decision. Such a basis, first of all, is a significant violation by the other party of its obligations and their non-liquidation within the accepted term (as a general rule, a response to a claim must be provided within 30 days from the moment of its receipt). Other grounds for termination of the contract may be provided by the court or the law, or the contract. If a dispute has arisen between the parties, the court, at the request of one of the parties, considers the existence and validity of such grounds, makes an appropriate decision.
Agreement of the parties
Often the termination of the contract occurs as a result of the agreement of the parties. Such an agreement may arise already in the process of fulfilling the contract, when there is no dispute between the parties. In this case, the parties draw up a separate document (additional agreement), in which the agreement of the parties is indicated as the basis for the termination of the contract, and additional conditions may be provided (for example, payment by the debtor of the creditor of fair compensation). The signing of the agreement is often preceded by sending a letter of termination of the contract, in which the initiating party, referring to the relevant grounds, offers the conditions for such termination. As a result, the parties conclude a new agreement on the consequences of failure to fulfill the old.
Cancellation of the contract (termination unilaterally)
The cancellation of the contract is possible only in cases directly specified in the law or the contract. This is the observance of the principle of pacta sunt servanda, since unreasonable refusal to fulfill the obligations assumed under the contract is prohibited. It is nevertheless legally competent to provide in advance, in the text of the contract, the conditions when and in what order the refusal may follow.
Many lawyers devote entire sections of contracts to this, providing for all possible grounds and consequences. These may be cases involving the violation by the other side of its individual, important conditions. The agreement can and should expand, specify the existing general provisions of the law, using the right to freedom of contract. Properly stated provisions can help to avoid a double-digit understanding of certain circumstances, which will eliminate the need to go to court, save money and time. In addition, such conditions of the contract will serve as a legitimate basis for sending a letter of termination of the contract.
If the parties agree, the right to refuse to fulfill it by any party, at their own request, with certain consequences, can be prescribed in the contract. For example, it may look like this: “Each of the parties has the right to refuse to execute the contract by sending a written notice 3 months before the date of termination.” In this case, the possibility of refusing to execute the contract by sending a letter of termination of the lease, for example, has each of the parties.
However, often the parties are in different conditions, and the termination of the contract may be beneficial to one of the parties, but completely disadvantageous to the other. Far from always terminating the contract unilaterally by the lessor will suit the tenant. For example, when it comes to renting a retail space for a store, while the tenant spent significant funds on its preparation and repair, attracted hired personnel and seeks to recoup the investments with profit from sales received during a certain “iron” rental period. Such circumstances should be specified in the preparation of the contract, as an option, it is possible to pay the lessee a proportionate compensation. Then sending and receiving a letter of termination of the lease will mean the beginning of the provided procedure for a civilized "divorce" of the parties.
The possibility of canceling the contract may follow from the provisions of the law
At the same time, the Civil Code and other acts establish cases where a legitimate refusal to fulfill obligations is possible. For example, such a right is provided when a lease has expired, but the actual lease relationship continues. Such an agreement will be considered prolonged for an indefinite period, while each party has the right to refuse it, warning the other at least three months in advance (Article 621 of the Civil Code). The provisions of the law are valid regardless of their indication in the text of the contract.
And in these cases, the refusal to fulfill obligations is made by sending a letter of termination of the contract. In the letter, as a basis, reference is made to the article of the Civil Code, which provides for the corresponding opportunity.
So, if there is a basis and the right to refuse to fulfill the contract, it is necessary to prepare and send a letter to terminate the contract. It is very important to do this legally competently in order to provide legal prerequisites for a reasonable argumentation of one’s position in court.
How to write a letter of termination
The letter is compiled in free form, but you must pay attention to the presence of the following elements:
- Be sure to correctly indicate the addressee in the form as it is referred to in the text of the contract. For the organization must be correctly indicated its name, details.
- The letter should be sent to the address indicated in the text of the contract, taking into account changes that the counterparty may have notified in writing. If there is reason to believe that a mistake has been made in the contract (the address is incorrect), it is better to play it safe and send a letter to two addresses: to the one indicated in the contract and to the Unified State Register of Industrial Enterprises / Unified State Register of Legal Entities.
- Be sure to spell out the number and date of conclusion of the terminated contract.
- Reference to the grounds for termination (clause of the contract, article of the law).
- Indication of the date from which the contract will be terminated. Such a date is, among other things, decisive for the correct reflection of the consequences in accounting. For example, a letter of termination of a service agreement should contain a date from which the service will be discontinued. Based on this date, tax consequences will also be determined (termination of taxable income, VAT).
- In the title of the letter, it is better to directly indicate that this is a notice of termination of a particular contract. In addition, the letter is usually assigned an extension number. This is of practical importance for confirming the fact of sending a letter in court.
- Date of letter and signature (seal) of the sender. The person signing the letter must have the appropriate authority.
Letter direction
The letter is usually sent by mail, a valuable letter, with a description of the attachment. Filling in the mailing list (f. 107), it is necessary to indicate the name contained in the letter. If everything is done correctly, one copy of the inventory received at the hands of the sender with the stamp of the post office and signatures will be reliable legal confirmation of the fact of sending a letter of termination of the contract.
It is also possible to send a letter to the counterparty with confirmation of receipt. However, this is fraught with additional risks of non-recognition in the future of the fact of sending the letter, if for one reason or another, the counterparty will dispute the fact of its receipt. For example, when considering disputes in court, it may be important whether the employee who received the package was authorized to do this. Moreover, the letter can be accepted with a fundamental refusal of a signature to receive. In this case, the sender will not receive legal confirmation of the fact of transmission and receipt of the letter.
Letter of termination of the contract. Sample
The sample below can be used to write a letter to the counterparty.
To individual entrepreneur ------------
address: postcode ------, g. -------, st. ----------,
d. ------ sq. -----
TIN ---------------------------
ref.
NOTIFICATION
on termination of the Commercial Space Lease Agreement No. --- from ----------- 2018
We inform you of the early unilateral termination (refusal to fulfill) of the Lease of Commercial Space No. ------ from ------------ 2018 by our side, on the basis of clause ------ of the specified Contract (the party has the right to terminate the contract prematurely unilaterally, by notifying the other party at least 3 months before the date of termination).
The date of termination of the Agreement is December 25, 2018.
No later than the specified date, you need to vacate the premises and return it to the lessor in the manner prescribed by the terms of the Agreement, with the signing on your part of the Act of acceptance (return), which is an appendix to this letter.
Appendix: Act of acceptance (return) in 2 copies, total - 2 pages
September 5, 2018
position, name of authorized representative
Full name IP
signature, seal (if available)
The given sample letter of termination of the contract refers to cases where the possibility of unilateral termination is determined by agreement of the parties, as indicated in the text of the contract.
Conclusion
In general, as practice shows, most of the problems associated with the termination of contracts can be foreseen and avoided even at the stage of its conclusion. Of course, the negotiation process is quite complicated and there are different situations. Most legal disputes arise precisely in connection with superficial negotiations and insufficient elaboration of contractual conditions, which is largely due to excessive rush, lack of necessary experience, as well as qualified legal support.