Liquidation of Contract: What is it?

Contract liquidation is a record that acknowledges the completion of a particular task, with both participating parties confirming the volume, quality, and any arising issues after the completion of that task, and both parties agreeing to sign.

Economic contract liquidation is a legal term mentioned in the Economic Contract Ordinance 1989 in the past. Since the inception of the Civil Code 2005, the term "economic contract liquidation" is no longer mentioned or regulated. However, in practice, businesses, organizations, and individuals still frequently use the term "contract liquidation" in their civil transactions and contract implementations to terminate and release the rights and obligations arising from the executed contract.

According to the 1989 Ordinance, contract liquidation is carried out in the following cases:

- When the economic contract has been completed;- The validity period of the economic contract has expired, and there is no agreement to extend that period;- The economic contract is suspended or canceled;- When an economic contract is no longer executable, and one of the contracting parties is a legal entity that must dissolve; or- When the assignee is unable to fulfill the economic contract.

Through economic contract liquidation, the parties will confirm the extent of the work agreed upon in the contract, thereby determining the obligations of the parties after the contract liquidation. Simultaneously, the parties will identify asset responsibility and legal consequences arising from the contractual relationship that needs to be liquidated before the economic contract expires. From the time both parties sign the liquidation record, that economic contract relationship is considered terminated. However, the rights and obligations of each party confirmed in the liquidation record remain legally effective until both parties fulfill their obligations.

Essentially, the purpose of contract liquidation is to help the parties reassess to what extent they have fulfilled their rights and obligations under the contract, which responsibilities remain, and what the consequences are. Once determined, the rights and obligations already fulfilled and agreed upon between the parties are considered terminated, except for those remaining obligations not yet fulfilled, which remain effective. Thus, the deeper purpose of contract liquidation is to release the rights and obligations that the parties have performed towards each other, avoiding future disputes over the rights and obligations already performed.

Contract liquidation is often associated with economic contracts.

Signing the contract liquidation is necessary to ensure that the parties clearly understand the progress of the work and, importantly, to avoid future disputes and complaints regarding the matters already liquidated by the parties.

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