Contract Term in International Transactions

Commencement and Termination of Contract

In international transactions, provisions regarding the duration and termination of the contract are basic conditions. The beginning of the contract (the effective date of the contract) is usually the date of conclusion of the contract (the date of signing of the contract by both parties). The end of the contract is often set for a certain period of time, such as one year from the date of conclusion of the contract, but a specific date (e.g., the end of March 2020) may also be set as the end of the contract.

Automatic Extension

In many cases, a continuous contract stipulates that even if the term of the contract is fixed, the contract will not terminate immediately at the end of the contract, but will be renewed by agreement or automatically unless there is an objection to the renewal.

Term

The length of the contract term is a difficult question. If the transaction is expected to be profitable, the term of the contract should be as long as possible, but in such cases, the contract may not be terminated unless certain termination conditions are met. In the case of a contract where an order form and a purchase order are issued for each transaction, it may be possible to escape from the binding obligation of the contract by simply not placing an order, but in the case where an obligation to pay a certain amount of money arises as long as the contract continues to exist, it may be advantageous to set a short contract term and repeatedly renew the contract. However, if the contract is to remain in force for as long as the contract is in force, it may be advantageous to keep the term short and renew it repeatedly.

Expiration

There are several types of termination of a contract. Termination due to expiration of the term is called “expiration”. The contract is naturally terminated in accordance with the terms of the contract, but some contracts are automatically renewed unless the other party is notified of the termination within six months of the expiration of the term. In this case, if the contract period is passed over in a careless manner, unexpected damages may be incurred.

Cancellation of Contract

Cancellation is a situation in which the contract is nullified due to a problem in the declaration of intent to enter into the contract, etc.

Termination

Termination of a contract in the middle of the contract period due to the occurrence of a certain event specified in the contract is called “termination”. Termination of a contract in the middle of the contract term may occur by agreement between the parties, so when both parties agree to terminate the contract, it is necessary to prepare a Termination Agreement and clarify in writing that the contract is no longer binding.

Termination Clause

Many contracts will provide for various termination grounds as a Termination Clause. A typical termination clause is a default by one party, which allows the other party to terminate the contract immediately upon the occurrence of a default. In some cases, the contract can be terminated immediately when a default occurs. Other termination events (terminating events or triggering events) include the filing of a petition for the commencement of bankruptcy or rehabilitation proceedings, or the occurrence of an event that damages the credit (solvency) of one of the parties.