A contract is a legal document that binds at least two parties to one another and requires them to meet certain obligations detailed in the contract. In some instances, contract termination can occur that will make the contract void of legal binding. Only the parties involved in the agreement may terminate a contract.
Impossibility of Performance
A contract typically requires one or more parties to do something, which is called performance. For example, a company may hire and sign a contract to have a public speaker talk at a company event. Once the public speaker fulfills his duties agreed upon in the contract, it is called performance. If for some reason it is impossible for the public speaker to fulfill his duties, it is called impossibility of performance or sometimes “frustration.”
For example, if the speaker were seriously injured and no one could replace him, that would be impossibility of performance. The company has the right to terminate the contract in this scenario.
Breach of Contract
When a contract is intentionally not honored by one party, it is called a breach of contract and is grounds for contract termination. A breach of contract may exist because one party failed to meet his obligations at all or did not meet his obligations fully. For example, if you purchased a product that did not arrive until a day after the agreed upon delivery date, that is an immaterial breach of contract. However, if your order did not come until two weeks after the delivery date and it affected your business, then that is a material breach of contract.
Generally, with a material breach of contract, the injured party has the right to seek monetary damages for his losses as well as cancel the agreement.
Termination By Prior Agreement
You may terminate a contract if you and the other party have a prior written agreement that calls for a contract termination because of a specific reason. The usual name for this type of provision is a break clause. The agreement must give the details of what qualifies as a reason for contract termination. It should also state what actions need to take place for one of the parties to terminate the contract. In most cases, one party must submit a written notice to the other party to terminate the contract.
Rescission of the Contract
A rescission of a contract is when a contract is terminated because an individual misrepresented themselves, acted illegally – fraud, for example – or made a mistake. For example, if you bought a house but after further inspection you discover that the seller intentionally hid the poor physical condition of the home, you may possibly rescind the contract. A contract rescission may take place if one party is not old enough to enter a contract or if a elderly person is not able to make legal decisions because of incapacity.
Completion of the Contract
A contract is essentially terminated once the obligations outlined in the contract are completed. Parties should keep documentation showing that they fulfilled their contract duties. Documentation is helpful if the other party tries to later dispute the fulfillment of your contract obligations. A court of law will require proof of contract fulfillment if a dispute occurs.