Contract terms have become irrelevant: when it is allowed to change or terminate it

Life circumstances, financial difficulties, changes in business conditions, or non-fulfillment of agreements by one of the parties often force a review of already concluded contracts. Ukrainian legislation provides mechanisms that allow legally changing the terms of a contract or terminating its effect altogether. "Judicial and Legal Newspaper" reviewed the Ministry of Justice's explanation and compiled the main rules governing such procedures.

When it is possible to change or terminate a contract

The Ministry of Justice reminded that the Civil Code of Ukraine provides for the possibility of changing or terminating a contract to adapt the agreements to new circumstances or to end obligations between the parties.

The general rule is that changing or terminating a contract is allowed only by mutual consent of the parties, unless otherwise provided by the contract itself or by law.

At the same time, a contract may be changed or terminated by a court decision at the request of one of the parties in case of a material breach of the contract by the other party or in other cases established by law or contract terms.

According to Article 651 of the Civil Code of Ukraine, a material breach is considered such a violation of the contract as a result of which the other party is significantly deprived of what it expected when concluding the contract.

Also, every person has the right to protect their civil rights and interests in court in case of their violation, non-recognition, or dispute.

Separately, the legislation allows unilateral refusal of the contract in whole or in part if such a right is expressly provided by the contract or law. In such a case, the contract is considered accordingly terminated or changed.

Material change of circumstances as a basis for contract review

One of the grounds for changing or terminating a contract is a material change of circumstances that the parties relied on when concluding it.

This refers to situations where circumstances have changed so significantly that the parties would not have concluded the contract at all or would have agreed to different terms if they could have foreseen such changes in advance.

In such cases, the parties may independently agree on changing the contract terms or terminating it.

If no agreement is reached, the interested party may apply to the court. The court may terminate the contract if several conditions are met simultaneously:

• at the time of concluding the contract, the parties assumed that such changes would not occur;
• the changes occurred for reasons that the party could not eliminate even with due diligence and care;
• further performance of the contract would significantly violate the property interests of the parties and deprive the interested party of the expected result;
• from the nature of the contract or business customs, it does not follow that the risk of such changes is borne by this party.

When the court may not terminate but change the contract

As a general rule, in case of a material change of circumstances, the court considers the issue of terminating the contract. However, Article 652 of the Civil Code of Ukraine provides exceptional cases when the court may change the contract terms.

This is possible if terminating the contract would contradict public interests or cause the parties significantly greater losses than performing the contract under terms changed by the court.

In case of contract termination due to a material change of circumstances, the court may also determine the procedure for a fair distribution between the parties of the expenses they incurred during the contract performance.

Consequences of changing or terminating a contract

After changing the contract, the parties' obligations continue to operate but under new terms. This may concern the subject of the contract, deadlines, place of performance, or other provisions.

If the contract is terminated, the parties' obligations cease.

At the same time, the parties cannot demand the return of what has already been performed under the contract before its change or termination unless otherwise provided by law or the contract itself.

Moreover, if the contract was changed or terminated due to a material breach of its terms by one of the parties, the other party has the right to claim compensation for damages caused.

From what moment the contract is considered changed or terminated

If the parties independently reached an agreement, the change or termination of obligations takes effect from the moment of concluding the respective agreement, unless otherwise specified by the contract or the nature of the changes.

In case of court proceedings, the change or termination of obligations takes effect from the moment the court decision on changing or terminating the contract becomes legally binding. These rules are established by Article 653 of the Civil Code of Ukraine.

In what form the change or termination of a contract is formalized

According to Article 654 of the Civil Code of Ukraine, changing or terminating a contract must be carried out in the same form as the contract itself.

A different procedure is possible only in cases where it is expressly provided by law, the contract, or follows from business customs.

Thus, the legislation allows parties to respond flexibly to changes in circumstances or breaches of agreements, but to change or terminate a contract, it is necessary to follow the procedures defined by law. In case of a dispute, the final decision regarding the further fate of the contract may be made by the court.

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