Cancellation of Contract
- 195. Ordinary cancellation of contract
(1) A party cancels a contract by making a declaration of cancellation to the other party.
(2) If a party may cancel the contract pursuant to law or the contract, cancellation of the contract shall release both parties from the performance of their contractual obligations. The rights and obligations which arise from the contract before cancellation remain valid.
(3) A contract for the performance of a continuing obligation or recurring obligations (long-term contract) which is entered into for an unspecified term may be cancelled by either party by giving reasonable advance notice unless otherwise prescribed by law or the contract (ordinary cancellation).
(4) If several persons participate in a contract as one party, the persons may only exercise the right of cancellation collectively. If a party cancels a contract where several persons participate as the other party, the first party may cancel the contract only with regard to all such persons collectively.
(5) Upon cancellation of a contract, the parties are only required to return that which has been delivered in advance with respect to the time of cancellation of the contract. The provisions of §§ 189 to 191 of this Act apply mutatis mutandis to the return.
- 196. Extraordinary cancellation of contract
(1) Either party to a long-term contract may cancel the contract with good reason without giving advance notice, in particular if the party cancelling the contract cannot reasonably be expected to continue performing the contract until the due date agreed upon or until expiry of the term for advance notice taking into account all the circumstances and the mutual interests of the parties (extraordinary cancellation).
(2) If non-performance of a contractual obligation by the other party provides good reason for cancelling the contract, the contract may only be cancelled if the other party fails to render a conforming performance within the term granted therefor. Such term need not be granted in the cases provided for in clauses 116 (2) 2) to 4) of this Act.
(3) A person entitled to cancel a contract may cancel the contract only during a reasonable period of time after the person becomes aware of the circumstances substantiating the cancellation.
(4) If a person entitled to cancel a contract is, due to the cancellation, no longer interested in the obligations which have already been performed, the person may also extend the cancellation to such obligations. The provisions of §§ 189 to 191 of this Act apply mutatis mutandis to the return of that which was delivered.
- 197. Definition of set-off
(1) If two persons (parties to a set-off) are required to pay each other a sum of money or perform another obligation of the same type, either party (the party requesting set-off) may set off the claim thereof against the claim of the other party if the party requesting set-off has the right to perform the obligation thereof and to require performance from the other party.
(2) As a result of a set-off, the claims of the parties to the set-off extinguish as of the time they could be set off and to the extent that they overlap unless the parties agree otherwise. If interest has already been paid on one or both of the claims, the set-off shall have retroactive effect only for the last period for which interest was paid.
(3) Monetary claims expressed in different currencies may be set off at an exchange rate calculated as at the date of the set-off at the place of business of the party requesting set-off or, in the absence of a place of business, at the location of the residence or seat of the party. Set-off is not permitted if the exchange rates have not freely developed in the market.
- 198. Declaration of set-off
A claim is set off by making a declaration of set-off to the other party. A declaration which is made conditionally or by setting a term is void.
- 199. Set-off in case of different places of performance
If claims with different places of performance are set off, the party requesting set-off shall compensate the other party for damage caused by the fact that due to the set-off the other party cannot accept performance at the place prescribed or perform the obligation thereof at the place prescribed.
- 200. Restrictions on set-off
(1) The following claims shall not be set off:
1) claims for maintenance, claims for compensation for damage arising from health damage or the death of a person and claims arising from unlawful or intentional causing of damage which the other party has against the party requesting set-off;
2) claims of the other party which pursuant to law cannot be subject to a claim;
3) claims of the other party the set-off of which is prohibited by law.
(2) A party requesting set-off may also set off the claim thereof against the claim of the other party if the claim of the party requesting set-off has expired, on the condition that the right to set off the claim arose before the expiry of the claim.
[RT I, 04.02.2011, 2 – entry into force 23.02.2011]
(3) A party requesting set-off shall not set off a seized claim against the party’s claim against the other party if the party requesting set-off acquired the claim after the seizure or if the claim thereof fell due after the seizure and later than the seized claim.
(4) A party requesting set-off shall not set off a claim against which the other party may set up defences.
- 201. Set-off in case of several claims
(1) If the parties to a set-off have several claims suitable for set-off, the party requesting set-off may determine the claims to be set off. If the claims to be set off are not specified in the declaration of set-off or if the other party immediately objects to the choice of the claims specified in the declaration, the following claims are deemed to be set off:
1) firstly, the obligation which is the first to fall due;
2) secondly, the obligation for which the obligee has the least security;
3) thirdly, the obligation which is the most burdensome for the obligor;
4) fourthly, the obligation which arose first.
(2) If a party requesting set-off is required to pay interest to the other party or compensate the other party for expenses in addition to the performance of the principal obligation, the set-off is deemed to discharge first the expenses, then the interest due and finally the principal obligation. The party requesting set-off shall not determine a different order for the performance of the obligations without the consent of the other party.
(3) The provisions of this section do not apply to set-offs effected under the circumstances specified in § 203 of this Act.
- 202. Restrictions on set-off in case of contract entered into for benefit of third party
In the case of a contract entered into for the benefit of a third party, the party which is to perform an obligation for the benefit of the third party shall not set off a claim filed against such party for the performance of the obligation.
- 203. Current account
(1) If monetary claims and obligations arising for both parties from contracts entered into in the continuing business relationship between the parties are to be calculated in total (current account), the claims and obligations are deemed to be set off by such calculation. In such case, the balance of the claims and obligations is the amount due.
(2) Claims not related to a continuing relationship between the parties shall not be set off pursuant to the procedure specified in subsection (1) of this section.
(3) Claims which may not be set off shall not be entered in a current account.
(4) The entry of a claim in a current account shall not deprive a party of the right to resort to legal remedies with regard to transactions from which the claim arose.
(5) If a claim entered in a current account is secured, the obligee may use the security to the extent of the secured claim in order to secure a claim for payment of the balance for the benefit of the obligee.
(6) The entry of a claim in a current account shall not preclude or restrict the liability of third parties for claims entered in the current account.
(7) Claims entered in a current account shall not be seized or be subject to a claim. Only claims for payment of the balance may be seized or be subject to a claim.
(8) If a claim for payment of the balance is seized for the benefit of the obligee of the party requesting set-off, the entry into a current account of obligations which arise from transactions concluded after the seizure does not apply with regard to the obligee.
- 204. Acts relating to current account
(1) A party requesting set-off who organises the maintenance of a current account shall notify the other party of the balance of the account at the end of each calculation period, indicating the claims which have been entered in the account and of which the other party has not yet been notified. The duration of a calculation period is presumed to be one year.
(2) If the other party does not contest the balance sent to the party within a reasonable period of time, the balance is deemed to be correct. In such case, a negative balance is deemed to be an acknowledgement of an obligation.
(3) Interest shall be paid on the balance as of the receipt of the balance to the party for whom the balance is positive even if interest has already been paid on claims entered in the current account.
(4) A claim for payment of the balance falls due upon notification of the balance.
(5) The limitation period for a claim for payment of the balance shall be five years as of the date when the balance falls due.
- 205. Termination of contract on current account
(1) If a contract on a current account is entered into for an unspecified term, either party may cancel the contract at the end of each calculation period by giving at least 10 days’ notice of the cancellation.
(2) Upon the death of a party to a contract on a current account, the other party and the successors of the deceased party may cancel the contract at any time.
(3) Regardless of the termination of a contract on a current account, payment of the balance may be required only after the end of the calculation period.