Termination of contract
(Правовое руководство по составлению строительных контрактов)
It is desirable for the contract to include a termination clause in order to provide for an orderly and equitable procedure in the event of circumstances which make it prudent or necessary to terminate the contract. Before the contract is terminated, it would be in the interests of both parties to resort to other measures or remedies provided by the contract in order to deal with the circumstances. In addition, it may, in many cases, be desirable for the contract to require that a party wishing to terminate the contract notify the other party that there exists a situation which justifies termination and to allow the other party a period of time to overcome or cure the situation before entitling the first party to terminate (the two-notice system). In drafting a termination clause, the parties should take account of any mandatory legal rules on the subject of the law applicable to the contract, and should be aware of any non-mandatory rules (paragraphs 1 to 6).
The parties may wish to provide for termination of the contract in respect of obligations which have not yet been performed, as well as in respect of obligations which have been performed defectively (paragraph 7).
The contract might entitle the purchaser to terminate in certain situations involving a failure of the contractor to perform, a violation by the contractor of restrictions on the transfer of the contract and, possibly, a violation of restrictions on subcontracting (paragraphs 8 to 10).
It may be advisable for the contract to entitle the purchaser to terminate the contract in the event that the contractor is adjudicated bankrupt. The parties may wish to consider whether the institution of bankruptcy proceedings in respect of the contractor should entitle the purchaser to terminate the contract (paragraphs 11 to 14). The parties may also wish to consider whether the purchaser should be entitled to terminate the contract in the event of proceedings similar or related to bankruptcy proceedings in respect of the contractor, or in the event of bankruptcy or similar or related proceedings in respect of a guarantor (paragraphs IS and 16).
The parties may wish to consider whether the purchaser should be entitled to terminate the contract for his convenience (paragraphs 17 and 18).
The contract might entitle the contractor to terminate in certain situations involving a failure of the purchaser to perform, the purchaser's interference with or obstruction of the contractor's work, and bankruptcy or similar or related proceedings in respect of the purchaser (paragraphs 19 to 21).
If the performance of obligations under the contract is prevented by an exempting impediment, the parties may wish to entitle either party to terminate if the impediment persists for a specified amount of time, or if the cumulative duration of two or more impediments exceeds a specified amount of time (paragraph 22).
The contract may specify the rights and obligations of the parties upon termination. It would be desirable for the contract to provide that, upon termination by either party, the contractor must cease construction and vacate the site. The contract might give the purchaser the option to use the contractor's construction equipment and tools, perhaps upon payment of a reasonable rental, and to purchase from the contractor equipment and materials to be incorporated in the works (paragraphs 23 to 25). In the event of termination, the contract may obligate the purchaser to take over the portions of the works which have already been constructed and which are not subject to the termination. However, an exception may be made in some cases where the contractor terminates due to failure by the purchaser to perform (paragraph 26).
The parties may wish to consider obligating the contractor to transfer to the purchaser his contracts with subcontractors and suppliers, in cases where the contract is terminated for grounds attributable to the contractor. It may be desirable for the contract expressly to authorize the purchaser to make payment of sums owed by the contractor directly to subcontractors and suppliers, and entitle the purchaser to recover those payments from the contractor (paragraphs 27 and 28).
In some cases, where the contract is terminated by the purchaser for reasons other than those attributable to the purchaser, the contract may obligate the contractor to deliver to the purchaser such drawings, descriptive documents and similar items relating to the works as are in his possession, and provide for the production of items which have not yet been produced and delivery of them to the purchaser (paragraph 29).
The contract may specify the payments which are to be made by one party to the other in the event of termination. Whether payments are to be made, and the extent of the payments, may depend on the cause for the termination (paragraphs 30 to 35). The contract may specify those provisions which are to survive the termination and continue to bind the parties (paragraph 36).