Last updated: 2 July 2018
Have you concluded a commercial contract which, for various reasons, has become a real nuisance and you want to terminate it? Any professional or natural person has been at least once in such a situation…
In this context, you have to know that there are various legal methods to terminate a contract, the choice of which depends on the actual situation and on the particularities of the contract.
General regulation of contract termination
In accordance with contractual law, a validly concluded contract has the force of a law between the contracting parties and must, thus, be fully complied with. Therefore, the contract is, in principle, irrevocable and can only be terminated by mutual agreement of the parties or in cases expressly stipulated by the law. Among the “cases allowed by the law” are: rescission, unilateral termination, fortuitous impossibility to perform etc.
After the termination of the contract, the parties are released from their obligations. However, they can be obliged, if necessary, to pay compensation for damages or to return the services received following the conclusion of the contract.
The "classic" reasons for which one party wishes to withdraw from a contract are (i) the other party’s failure to comply with the contractual obligations - in this case, the contract can be rescinded; or (i) the fact that the contract is no longer deemed appropriate by the party wishing to terminate it - in such case, the contract may be unilaterally terminated under certain conditions.
The partner’s fault? – Contract rescission
If your partner fails to perform or improperly performs its contractual obligations, you may request the rescission of the contract, namely its termination for the partner's fault. You are also entitled to damages if you can prove that the non-performance or improper performance of the contract has caused you damages.
The precise means and formalities related to rescission can be agreed upon through the contractual clauses; for example, provision may be made for the possibility of declaring the contract unilaterally rescinded by one of the parties by a simple written notice.
Theoretically, rescission can be either (i) approved by the Court at the request of the non-liable party, (ii) declared or acknowledged by the parties, (iii) or automatic, in accordance with the provisions of the contract. However, in practice, most of the time rescission must be acknowledged by the Court because of disagreements between the parties as to the contractual clauses or the effects of rescission.
How to unilaterally terminate a contract
Unilateral termination of the contract by one of the parties signifies, in fact, that the person in question has “changed his/her mind”. Thus, termination is not based on the partner’s liability or on extraordinary circumstances, but rather on usual and subjective circumstances or on opportunity for one of the parties. Thus, termination does not imply the fault of one of the parties; normally, its effect is only the termination of the contract and the parties do not have the possibility to obtain compensation for damages.
The rules applicable to unilateral termination differ depending on the duration of the contract: for fixed-term contracts, termination is not allowed, unless a contractual clause provides otherwise. On the contrary, for contracts without a fixed term, unilateral termination is allowed in all cases, but with a reasonable notice period.
Please note that if the law or contract that you can rely on allows unilateral termination, you should pay special attention to the formalities to be performed (sending the termination letter allowing acknowledgement of receipt, granting the partner a reasonable "notice period", allowing him to find a new partner etc.).
Other special cases when a contract can be terminated
In 2011, the Romanian Civil Code has introduced the legal concept of “hardship”. This means that if the performance of the contract has become excessively onerous for one of the parties due to an exceptional change of circumstances, the affected party may apply in Court for the termination of the contract. Contractual imbalance is caused, in most cases, by the change in the economic context or currency fluctuations. Thus, if such an imbalance has occurred in the contract to your detriment, you can try to invoke hardship and ask the Court to approve termination of the contract.
Moreover, contrary to the general beliefs and clauses usually introduced in contracts, the opening of insolvency proceedings against a company does not result in the termination of the contracts concluded by it, which remain in force. On the contrary, these contracts are maintained and any contrary clause is deemed null and void.
According to our practical experience in contractual matters, the most common misunderstandings between parties refer to contract termination. That is why we insist that the means of termination must be well detailed in the contractual clauses, especially since the law provides us with effective legal instruments in this regard.