Confirming Termination of a Contract Due to Death, Incapacity, or Bankruptcy
2024-07-08
Legal Basis of the Request
A construction-participation (joint-build) contract is a binding (lazem) contract and is not extinguished by the death, bankruptcy, or legal incapacity (hajr) of one of the parties. On the other hand, where such circumstances occur for one of the parties -- particularly the developer -- performance of the contract is, in most cases, halted, and this halt causes loss to the other party. For this reason, the contract may stipulate that, in the event of the death, bankruptcy, or incapacity of one of the parties, the other party may terminate the contract.
If either party, relying on the right of termination set out in the construction-participation contract, terminates the contract after one of the above circumstances has occurred, that party may seek the court's confirmation of the termination.
Parties to the Lawsuit
Whichever of the owner or the developer terminated the contract files the lawsuit as plaintiff, and the lawsuit must, as applicable, be brought against the heirs, the legal guardian, or the bankruptcy and liquidation office of the other party to the contract.
Competent Court
Since the construction-participation contract relates to immovable property, these lawsuits are heard in the court of the place where the property is located.
Method of Enforcing the Judgment
Judgments confirming termination are merely declaratory in nature and do not require the issuance of a writ of execution.
Some Key Points Related to This Lawsuit
The nature of such a right of termination is a contractual option (khiyar-e shart) and is governed by the rules of the contractual option, which differ from the option arising from breach of a stipulated condition. The authority to terminate the contract may be assigned to a third party, such as an arbitrator. Instead of a right of termination, the contract may include a clause providing that, upon the death, bankruptcy, incapacity, or disability of one of the parties, the contract is automatically dissolved -- in which case, upon the occurrence of one of the above circumstances, the contract dissolves on its own, without the need for a new declaration of intent; however, including this kind of clause in a construction-participation contract is not recommended. If the subject matter of the contract has already been performed, termination of it no longer has any meaning. In connection with this lawsuit, other claims may also be raised.