How to foresee a painless termination of the contract: tips for business

Conclusion of the contract is only the first step in business relations. However, sometimes there comes a point when cooperation must be stopped. It is important to foresee the mechanisms of termination of the contract in advance in order to avoid disputes, financial losses and legal risks. In this article, we will tell you how to draw up a contract correctly to facilitate its termination, and what to do if the procedure for terminating cooperation is not provided for in the document.

How to predict the possibility of terminating the contract at the stage of its conclusion?

In order to avoid complications in the future, you should immediately write down the procedure for its termination in the contract. Key points to include:

1. It is necessary to determine the conditions (grounds) for termination

As a rule, civil legislation allows the parties to establish the procedure for terminating the contract in the contract itself. The contract may provide for several grounds for termination:

• By agreement of the parties - a simple and conflict-free way (this clause at least obliges the parties to sit down at the negotiating table to agree on the termination of the contract).
• On the initiative of one party: with or without reason.

1. "without grounds": the desire of one party and notice of termination in the manner specified by the contract is sufficient.
2. "with grounds" : for example, in the case of a minor or significant breach of obligations by the other party, the occurrence of certain circumstances, etc. (note that the legislation usually requires a "substantial" breach of contract, but the parties can agree that even a seemingly minor breach can be grounds for termination, because it was essential for this contract for the parties).

1. Violation of the terms of the contract by one of the parties is not always a reason for its termination

( Decision of the Great Chamber of the Supreme Court dated February 16, 2021 in case No. 910/2861/18 )

According to Part 2 of Article 651 of the Civil Code of Ukraine, the contract may be terminated by a court decision at the request of one of the parties in the event of a significant breach of the contract by the other party. Such a violation is considered significant when, as a result of the damage caused by it, the other party is deprived of what it was counting on when concluding the contract.

The assessment of the violation of the contract as significant is carried out by the court at its own discretion. The criteria for such an assessment are, as a rule:

- a "significant degree" of depriving the party of what he expected at the conclusion of the contract

- the amount of damage caused by the violation (this is not only about the monetary expression of the damage caused, direct losses, but also cases when the injured party will not be able to use the results of the contract)

- the ratio of damage to what the party could expect in case of proper performance of the contract.

For example, considering case No. 910/2861/18 on the termination of an investment contract, the Grand Chamber of the Supreme Court came to the conclusion that non-payment of investment contributions is not a significant violation of such a contract.

In particular, in the Resolution dated 16.02.2021, the Grand Chamber noted: "There is no significant violation of the terms of the contract regarding the customer's non-handover of the land plot as a construction site and non-payment of investment and share contributions. After all, the developer carried out the disputed construction on the land plot, which was transferred for permanent use to the investor, and put the real estate object into operation. The above also indicates the absence of damage caused to the developer, because the latter did not get rid of what he was counting on when concluding the contract and achieved its goal".

That is, the Grand Chamber believes that the only goal and vocation of the developer is construction, which he must carry out even in the absence of financing. At the same time, the right of ownership of the built object will not belong to him, since the owner of such an object can only be the user of the land plot on which this object is built. Even if such a land user did not invest in construction and was not concerned with the construction process in any way. The fairness of the Grand Chamber's conclusions is questionable, but such conclusions should henceforth be applied when resolving similar disputes ( Natalia Mysnyk , senior lawyer at Asters law firm ).

• Due to force majeure - war, natural disasters, changes in legislation, etc.

2. Specifying the order of termination will avoid legal disputes and save money for their support

It is necessary to write down clearly:

• How to notify the other party - in writing, via e-mail or using electronic document management (for example, via the InstaDoc platform).
• The notice period is usually 14, 30 or 60 days, but immediate termination is also allowed.
• Consequences of termination - who and how is obliged to close financial settlements, compensate expenses/losses, return documents, equipment. return or destroy confidential information, etc.

3. Fines and compensations discipline the parties

The person who did not fulfill or improperly fulfilled the obligations is obliged to compensate for all damages, including actual losses and lost profits.

Damages include:

• Direct damages are those that arose directly as a result of a breach of contract.
• Indirect (indirect) damages , if they were foreseen at the time of conclusion of the contract.

If the contract provides for penalties (penalties), the injured party has the right to demand payment of a predetermined amount without the need to prove actual damages. However, the court may reduce the penalty if it is clearly excessive.

Damage compensation can be carried out:

• By way of natural performance - for example, by providing similar services or goods.
• Monetary compensation - payment of the appropriate amount.

Generally, these principles apply in most jurisdictions.

3.1. If the contract does not provide , is it possible to collect a penalty and damages at the same time?

According to the Civil Code of Ukraine (CCU) , if the contract does not provide whether a penalty and damages can be charged at the same time , you should be guided by the general rules of the law.

According to Art. 624 of the Civil Code , if the contract does not contain specific provisions regarding the combination of penalty and compensation for damages, the following rules apply:

1. A penalty (fine, penalty) is a way of ensuring the fulfillment of obligations.
2. If the contract does not stipulate otherwise , the creditor may demand either:
   • only payment of penalty (fine or penalty);
   • or damages in the part not covered by the penalty.

That is, according to the general rule, the penalty and damages are not subject to recovery together in full . However, the creditor may demand compensation for damages in excess of the fine .

4. At what point is the contract considered terminated if it is terminated unilaterally?

The contract can be terminated unilaterally only if it is stipulated in this contract. Otherwise, if the contract does not provide for unilateral refusal and one of the parties does not agree to its termination, this issue must be resolved in court.

That is, the moment of termination of the contract unilaterally is:

• The next day after the end of the term stipulated in the contract after the other party receives a notice of termination of the contract (if the possibility of unilateral termination of the contract is established by the contract).
• The moment when the party terminating the contract received a response to its message with approval to terminate the contract (if the contract does not provide for the possibility of unilateral termination of the contract).
• The date of entry into force of the court decision on termination of the contract.

What to do if the contract does not contain terms of termination?

If the contract does not specify the termination procedure, you will have to be guided by the general rules of the law.

1. General rules for termination of contracts

Depending on the type of contract, the following rules may apply:

• The contract can be terminated by agreement of the parties (requires termination contract or exchange of official letters).
• If one party violates the terms of the contract, the other has the right to terminate it by sending a written notice.
• Some types of contracts can only be terminated through a court.

2. How to act in case of breach of contract by the other party?

If the counterparty violates the terms of the contract, you should proceed gradually:

1. Send a notice of violation - describe what conditions were violated and give a deadline for their correction.
2. Send an official notice of termination of the contract - in case of non-fulfillment of the requirements within the established period.
3. Record all documents, document expenses and correspondence - this may be necessary for legal defense.

3. Judicial termination of the contract

If the other party does not agree to the termination of cooperation, there is still the possibility of going to court. For this you need to have:

• evidence of breach of contract;
• copies of all official letters and messages;
• documents confirming expenses (invoices and confirmation of payments)
• documents confirming mutual financial settlements.

How to facilitate the termination of the contract with the help of electronic document flow?

The InstaCo platform helps to make the contract termination process quick and convenient:

• allows you to automate the exchange of messages about the violation and termination of the contract;
• provides legally meaningful contract templates with correctly written termination conditions;
• provides legally confirmed recording of all actions , which is important in case of disputes.

To avoid problems with termination of the contract, a clear mechanism for termination of cooperation should be provided in advance. If this is not done, you will have to act in accordance with the law: send written notices, prove damages and, if necessary, go to court.

Useful templates

Notice of termination of the land share lease agreement (ukr), Ukraine

Notice of breach of contract (Ukrainian, universal)

Termination agreement is simple, without further obligations and compensations (English, universal)

Notice of termination of the contract (Ukrainian-English, universal)

Using InstaCo simplifies the management of contractual relations and minimizes the risks associated with their termination. See for yourself - try InstaDoc for effective electronic document management.