The ending of a contract is a hot issue in discourses, especially in a context where various legal systems are involved: this article takes a look at how contracts end from a civil law perspective.
This issue has been given extensive attention in the common law. However, not much has been said in the civil law context or in situations affecting various jurisdictions.
Under what consequences can one cancel an existing contract? Can one terminate a contract before the date on which it expires? These are issues that a practicing lawyer may also face in real life situations.
The key for the distinction in the civil law are two latin terms: "ex tunc" and "ex nunc". They refer to the legal effect of termination. A contract can "end" either retrospectively, this is what ex tunc refers to, meaning that the contract ends with retrospective effect, as the day of concluding the contract. This is the unmaking of the contract, where the parties are restored to the original condition as if they had never entered into a contract. This is similar to the cancellation and rescission. The difference between the two is that either party can cancel a contract without the consent of the other party, but rescissison is not an act that one can take on its own. Rescission requires some action of the other party. Either a judicial decision or an order under equity, or simply a consent of the other party to ending the contractual relationship, again depending on the law.
On the other hand, a contract can come to an end for the future, "ex nunc", meaning that the parties perform their duties to each other but they have no further obligation to each other in the future. In this case one or both parties decide not to maintain the contractual relationship but put an end to it. In this case, the contractual relationships is said in English to be terminated.
Commercial law regulates termination and 'cancellation" differently. Section 2-106 of Article 2 of the Uniform Commercial Code defines, among other concepts, the ending of the contract, as follows:
"Termination" occurs when either party pursuant to a power created by agreement or law puts an end to the contract otherwise than for its breach. On "termination" all obligations which are still executory on both sides are discharged but any right based on prior breach or performance survives.
A thorough reading of this definition reveals that i) termination is used for ending a contract with mutual agreement, and ii) the contracts ends as of the date of termination, for the future, except that rights arising from the contract will not be affected by the termination.
"Cancellation" occurs when either party puts an end to the contract for breach by the other and its effect is the same as that of "termination" except that the cancelling party also retains any remedy for breach of the whole contract or any unperformed balance.
This typically happens when the contract will not be performed because one party has breached the provisions of the contract in a way that
