Risk Alerts for Contract Rescission or Termination
Rescission or termination is common in modern commerce. Effective risk control under China’s Civil Code deserves attention from every enterprise and legal professional. This article addresses normal termination, rescission, and unilateral termination.
Normal Termination
Normal termination occurs when all obligations are completed within the agreed term or upon agreed conditions. It is the ideal outcome and ordinarily involves no dispute. Parties should strictly perform their obligations and maintain good communication.
Contract Rescission
Rescission by Mutual Agreement
The parties may agree to rescind a contract through consultation. This flexible and safe method helps avoid disputes. A written rescission agreement should specify the terms and conditions.
Agreed Right of Rescission
The parties may stipulate conditions under which the contract may be rescinded. For example, one party may have a right to rescind if the other fails to perform on time. Such clauses should be clear and avoid ambiguity.
Statutory Rescission
A party may rescind under statutory conditions and procedures, such as after a material breach under the Civil Code. Statutory procedures must be followed strictly to avoid further disputes.
Unilateral Rescission
In certain circumstances one party may rescind unilaterally, including under some special contracts such as leases. The statutory conditions and procedures must be satisfied; otherwise, the rescission may itself constitute breach.
Lawyer’s Note
Legal risks arise throughout formation, performance, and rescission. The following measures are recommended:
1. Contract design: Clearly define rights, obligations, breach liability, and conditions and procedures for rescission.
2. Performance: Strictly perform the contract, communicate effectively, and address problems promptly.
3. Legal advice: Engage a professional lawyer throughout formation, performance, and rescission to protect legality and effectiveness.
Reasonable drafting, strict performance, and professional advice can effectively control risks and support a smooth contractual relationship.