The Supreme People’s Court: how to determine the effectiveness of the notice of termination of the contract?

Q: in practice, there are two understandings about the effect of the notice of termination of contract stipulated in article 565 of the Civil Code:

The first opinion is that if a party notifies the other party to terminate the contract according to the provisions of article 565 of the civil code, it must meet the agreed termination conditions specified in paragraph 2 of article 562 or the statutory termination conditions specified in article 563 of the civil code. Otherwise, even if the termination notice reaches the other party, it will not have the effect of termination.

Article 565 of the civil code [procedure for termination of contract]

If one party claims to terminate the contract according to law, it shall notify the other party. The contract is terminated when the notice reaches the other party; If the notice states that the debtor fails to perform his obligations within a certain period of time, the contract shall be automatically terminated. If the debtor fails to perform its obligations within the time limit, the contract shall be terminated upon the expiration of the time limit specified in the notice. If the other party objects to the termination of the contract, either party may request the people’s court or an arbitration institution to confirm the effectiveness of the termination.

Without notifying the other party, one party directly claims to terminate the contract by bringing a lawsuit or applying for arbitration. If the people’s court or arbitration institution confirms the claim, the contract shall be terminated when the copy of the indictment or the copy of the arbitration application is served on the other party.

Article 562 [Termination of contract]

The parties may terminate the contract upon consensus through consultation. The parties may agree on the reasons for one party to terminate the contract. When the cause for terminating the contract occurs, the person with the right to terminate the contract may terminate the contract.

Article 563 [legal termination of contract]

Under any of the following circumstances, A party may terminate the contract: (1) the purpose of the contract cannot be achieved due to force majeure; (2) before the expiration of the time limit for performance, one party clearly indicates or indicates by its own behavior that it will not perform its main debts; (3) one party delays the performance of its main debts and fails to perform within a reasonable period after being urged; （4） A party’s delay in performing its obligations or other breach of contract makes it impossible to achieve the purpose of the contract; (5) other circumstances prescribed by law. For an indefinite contract with the continuous performance of its obligations as the content, the party may terminate the contract at any time, but shall notify the other party before a reasonable time.

The second opinion is that as long as the notice of termination reaches the other party and no objection is filed within the agreed objection period, the effect of termination will occur, regardless of whether it meets the agreed or legal conditions for termination.

A: the above issues should be identified in combination with the relevant provisions of the contract series of the civil code, legislative purposes and legal principles.

First, from the perspective of provisions, the termination of the contract is conditional and cannot be terminated arbitrarily. Second, from the legislative purpose of the contract law, arbitrary termination of the contract violates the spirit of the contract part of the civil code. The legislative purpose of contract series is to make the contract as effective as possible and promote transaction security. The termination of the contract is based on the effectiveness of the contract. Once the contract comes into force, it will be binding on both parties just like the law. Any party who violates the contract will bear the responsibility for breach of contract. If the contracting parties can terminate the contract at will, the purpose of the contract will not be realized, the seriousness of the contract will be damaged, and the economic development and social order will be seriously affected.

Third, from the legal point of view, the party usually obtains the legal right to terminate the contract due to the other party’s breach of contract. This arrangement actually limits the abuse of the right to terminate the contract and protects the interests of the observant party. The first paragraph of article 566 of the contract part of the Civil Code stipulates the consequences of the termination of the contract as follows: “after the termination of the contract, if the contract has not been performed, the performance shall be terminated; if the contract has been performed, according to the performance and the nature of the contract, the parties may require restitution or take other remedial measures, and have the right to claim compensation for losses.”

To sum up, we believe that the effectiveness of the notice of contract termination depends on whether the requirement of contract termination are met, which should not only meet the substantive conditions stipulated in article 564, paragraph 2 and article 565 of the civil code, but also meet the formal requirement of notifying the opposite party. On this basis, if the other party does not raise an objection to the court during the objection period, the notice of termination of the contract shall be deemed to be valid.