The Effect of Termination of a Primary Contract on Subsequent Transactions

The explicit meaning of the binding precedent No. 810, dated 2021-05-25, rendered by General Board of the Supreme Court is that if multiple transactions are subsequently concluded on a real estate and the initial  transaction is discharged by applying an option to terminate a contract due to violation of an agreed-upon condition (failure to pay the price installments within the stipulated dates), the first seller may terminate the initial contract and return the real estate from the next sellers on the grounds of the existence of an implied condition that the real estate remains with the seller and is not transferred to someone else, by operation of custom which is part of a contract and deemed as a condition mentioned in a contract, and because the buyer is actually or presumably aware of the right of option to cancel the contract and the possibility of returning the real estate to the seller. From the argument contained in the judgment and its contrario argument, it is understood that if the initial  contract was verbal and there was no possibility of informing the buyer of an option to terminate a contract due to violation of an agreed-upon condition or that it is possible to terminate the contract due to violation of agreed-upon condition or after concluding the initial  contract, in the form of an independent agreement or a clause added to a contract without it being stated in the initial contract, the dissolution of the initial  contract does not affect the subsequent contracts. However, mutual consent to terminate the initial contract does not invalidate subsequent ones. Also, the content of the binding precedent does not exclusively apply to "sale contract" and "an option to terminate a contract due to violation of an agreed-upon condition," rather, it is applicable to "all transactions" and "all options to terminate a transaction based on contracts" as well as to the case of "resolutory condition";  However, in options to terminate a contract based on law, the dissolution of the initial contract does not invalidate or automatically terminate the subsequent ones; A result that many Imami jurists and certain legal experts have confirmed, and it is also understood from the criteria of scattered articles of the Civil Act. In addition, although in the decision of binding precedent, the status of subsequent transactions in case of dissolution of the initial contract is not specified, in case there are options to terminate a transaction based on contracts, the subsequent transactions should be considered subject to observing the rights of others, and in case the initial contract is dissolved subsequent contracts become void from the time the first seller rejects the contract.