Explanation of Article 105
This article addresses the first reason for dissolving the contractual relationship, which is termination by mutual consent. It is an agreement between the two parties, after the contract has been concluded and before it expires, to cancel it. For example, the seller and buyer may agree to cancel the contract after it has been concluded and before execution, or the lessor and lessee may enter into a lease contract for a year and then agree after six months to dissolve the contract for the remaining period.
Termination by mutual consent is recommended because it involves leniency in dealings. In the Hadith of the Prophet (peace be upon him): "Whoever cancels a transaction with a regretful person, Allah will cancel his slip on the Day of Judgment" (7).
Since termination by mutual consent arises from the agreement of two wills to create a legal effect, it is subject to the general conditions and provisions of the contract. It requires the consent of the contracting parties and their capacity to contract. If there is a defect in consent, it can be annulled. It is concluded by an offer and acceptance, either explicitly or implicitly. The offer and acceptance must match and be connected in a customary manner. The party offering the termination may withdraw from it unless acceptance has been issued.
Since termination by mutual consent is based on the agreement of the contracting parties, they may agree to terminate with the same consideration as the original, less, or more, and with the same conditions as the original contract or with modifications. It can apply to all or part of what the contract covered, such as if the sale involves several items and they agree to terminate the sale for some but not others.
The primary effect of termination by mutual consent is retroactive annulment, returning the parties to their pre-contractual state unless they agree otherwise or circumstances indicate their intention for it not to have a retroactive effect. For example, if the contract is a time-based contract like a lease, the termination applies to the future and not the past, or if the request for termination comes after the contract has been executed and expired, it is considered a new contract. Whether the termination has a retroactive effect or not, it does not affect the rights of third parties. A contracting party cannot invoke the termination against the special successor of the other contracting party if the latter has acquired a real right in good faith.
Related To
Article 105
The contracting parties may, by mutual agreement, terminate a contract wholly or partially, and such termination shall be subject to the terms of the contract.