CONTENTS
- 1. Rescission and Termination of Contract | Definition
- - What Is a Contract?
- 2. Rescission and Termination of Contract | The Legal Structure of Contract Rescission
- 3. Rescission and Termination of Contract | The Legal Structure of Contract Termination
- 4. Rescission and Termination of Contract | Practical Issues and Points to Note
- - Methods of Response
- 5. Rescission and Termination of Contract | Key Issues
1. Rescission and Termination of Contract | Definition
Rescission and termination of contract refer to a juristic act that ends a contractual relationship.
They share the common feature of extinguishing the effect of a contract by a declaration of intent of one party.
However, depending on their legal effects, the objects to which they apply, and their timing, the following differences exist.
▶Termination: an act that extinguishes the effect of a contract going forward, so that the contractual relationship up to the present remains valid, but the effect of the contract after termination disappears.
The difference in the effects of the two is also confirmed by whether there is a duty of restitution.
In the case of rescission, each party must return to its original state, whereas with termination, only the future effect is lost, so no separate duty of restitution arises.
What Is a Contract?
A contract is a juristic act in which two or more parties form an obligatory relationship by aligning their declarations of intent.
Under the Civil Act, contracts are divided into nominate contracts (such as sale and lease) and innominate contracts, and they are also classified as bilateral and unilateral contracts, onerous and gratuitous contracts, consensual and real contracts, among others.
A contract is usually formed when two declarations of intent, an offer and an acceptance, are aligned, and after a contract is formed, each party comes to bear certain obligations on the premise of performance of the contract.
If a cause such as non-performance or the inability to achieve the purpose of the contract arises, one party comes to consider rescinding or terminating the contract.
2. Rescission and Termination of Contract | The Legal Structure of Contract Rescission
Within rescission and termination of contract, let us first examine the legal structure of contract rescission.
▶Statutory right of rescission and contractual right of rescission
-Contractual right of rescission: a right exercised when the requirements for rescission arise under the contract or under specific contractual provisions
-Statutory right of rescission: a right that a party naturally holds under the Civil Act when certain legal requirements are met
▶Requirements for the statutory right of rescission to arise
1. Delay in performance: if the debtor does not perform the obligation within the deadline, the other party may set a certain period and demand performance, and if there is no performance, may rescind the contract.
2. Inability to achieve the purpose once the deadline passes: where performance at a specific time is necessary under the contents of the contract, non-performance within the deadline immediately becomes a ground for rescission.
3. Impossibility of performance: where performance has become impossible due to causes attributable to the debtor, the other party may rescind the contract.
▶Exercise and extinction of the right of rescission
-Rescission is effected by a declaration of intent toward the other party, and once exercised, the declaration of intent of rescission cannot be withdrawn.
-The right of rescission must be exercised within the exclusion period, and if it is not exercised within a reasonable period, it may be extinguished upon the other party's demand
▶Representative types of rescission
-When one party fails to perform its obligation without any explanation
-When a party fails to perform even though the purpose of the contract cannot be achieved unless performance is made within a certain period
-When performance has become impossible due to a cause for which the debtor is responsible
3. Rescission and Termination of Contract | The Legal Structure of Contract Termination
Within rescission and termination of contract, let us first examine the legal structure of contract termination.
▶The concept of termination
‘Termination' means ending, on a going-forward basis, a contract that continues to have effect over time, such as a lease or an employment contract.
That is, once termination occurs, the contract up to now remains valid but the effect of the contract disappears going forward, which differs from rescission, under which the entire contract is retroactively treated as never having existed.
▶Requirements for the arising and exercise of the right of termination
The right to terminate may arise in the following cases.
-Where the contract specifies conditions under which termination is possible
Where the termination requirements set by law are satisfied
① Where one or both of the parties has the right to terminate or rescind by virtue of the contract or the provisions of law, such termination or rescission shall be made by a declaration of intent toward the other party.
② The declaration of intent under the preceding paragraph may not be withdrawn.
▶The effect of termination
The contract loses its effect from the point of termination onward.
That is, the effect that has arisen from the contract up to now remains valid, but going forward the effect disappears.
Separately from termination, the right to claim damages is still recognized.
For example, if you terminated the contract due to the other party's fault, you may claim compensation for the damage resulting from it.
4. Rescission and Termination of Contract | Practical Issues and Points to Note
Rescission and termination of contract do not take legal effect through a mere notice or declaration alone; the requirements and procedures must be met.
In particular, the following issues frequently become the cause of disputes in practice, so sufficient understanding and preparation in advance are necessary.
▶Whether a legitimate ground for rescission or termination exists
Where a contract is unilaterally ended without a clear attributable cause, it may lead to a claim for damages by the other party.
Therefore, it is important to determine whether there is an actual impossibility of performance and whether the requirements for rescission are met.
▶Confirming whether the right of rescission or termination has been extinguished
Where the right of rescission has been extinguished after the other party's demand notice, or where the object has already been damaged so that the right of rescission cannot be exercised, the rescission of the contract may be treated as void.
▶Compliance with formal requirements and methods
To prevent disputes, the declaration of intent must be clearly delivered in writing or by a method that produces legal effect (such as certified mail).
▶Damages and the issue of concurrent performance
When a contract is rescinded, a duty of restitution arises for each party, and a claim for damages may also be made at the same time.
At this point, whether the duties of restitution and of damages stand in a relationship of concurrent performance must also be considered.
Methods of Response
Let us examine how to respond on your own in relation to rescission and termination of contract.
✅ 1. Confirming whether the requirements for rescission or termination are met
First, you must confirm whether the legal requirements for you to rescind or terminate the contract are met.
[Rescission requirements checklist]
-Did the other party fail to perform a contractual obligation without a legitimate reason?
-Does the contract contain a clause stating ‘rescission is possible upon non-performance within a specific deadline'?
-Has it become impossible to achieve the purpose of the contract?
-Has performance of the contract become impossible due to a cause for which the other party is responsible?
[Termination requirements checklist]
-Does the contract fall under a ‘continuing contract' (such as a lease or employment)?
-Does the contract specify that termination is possible when certain conditions are met?
-Is the contract structured so that it can be ended on a going-forward basis?
✅ 2. Preparing the notice of rescission or termination
To rescind or terminate, you must make a clear declaration of intent to the other party, and giving notice only verbally becomes a cause of disputes.
Referring to the items below, you should prepare the notice in document form (such as certified mail).
[Basic drafting elements]
-Title: Notice of Contract Rescission (or Contract Termination)
-Information on the notifying party and the recipient
-The date the contract was concluded and a summary of the contents of the contract
-Statement of the grounds for rescission/termination
-Clear expression of the intent to rescind/terminate
-Date of notice, signature or seal
✅ 3. Method of notice: certified mail or email
The safest method is ‘certified mail.'
-Sent from the post office as certified mail plus registered mail
-Can be used as evidence that the declaration of intent to rescind or terminate was made in any later legal dispute
If email is used as an alternative means, a receipt confirmation log (a return mail or read receipt) must remain.
✅ 4. Demanding/performing restitution or damages
In the case of rescission, because the contract is deemed never to have existed from the beginning, the following follow-up measures may be necessary.
[Restitution examples]
-Return of the down payment received
-Recovery of the consideration for goods already delivered or services already provided
-Inclusion of interest when returning money
[Damages examples]
-Expenses incurred in expectation of performance of the contract
-Actual losses such as opportunity costs
※ For the fact and amount of the damage, you must secure materials that can prove them (account transfer records, receipts, email records, etc.).
✅ 5. If the other party does not comply: certified mail + preparing for civil litigation
If the other party does not agree to the rescission or termination of the contract or refuses the return or compensation, you may proceed through the following steps.
-Sending additional certified mail: re-requesting performance
-Consultation with the Korea Legal Aid Corporation or assistance from an attorney
5. Rescission and Termination of Contract | Key Issues
Rescission and termination of contract are not a matter that ends with a simple declaration of intent.
As they involve the exercise of a formative right that extinguishes the effect of a contract, strict legal requirements are necessary, and the possibility of disputes that follow is also high.
For rescission and termination of contract, depending on the requirements under the Civil Act and the interpretation in case law, the very existence of the right of rescission or termination is often unclear, and the other party's response is also difficult to predict.
In particular, where complex civil law principles such as a claim for damages, the issue of restitution, and the defense of concurrent performance are intertwined, it can realistically be difficult for an individual to accurately determine the legal requirements on their own and respond strategically.
At our firm, civil litigation attorneys provide a one-stop legal service that responds comprehensively, from analyzing the clauses within the contract and determining whether the requirements are met, to the dispute response strategy, and through to subsequent litigation.
We operate branch offices in regions across the country and provide an emergency consultation system available 24 hours a day, 365 days a year, as well as a non-face-to-face video consultation service, so please contact us in whichever way is convenient for you.
