Contract Termination
There are a number of circumstances where a contract can be terminated. For example, if a contract termination clause is triggered or a breach of the contract has occurred. The consequences for terminating a contract vary depending on the cause of the termination.
Various remedies exist for contract termination, including damages, specific performance, and rescission. A contract lawyer will be able to advise you of any remedies such a breach may entitle you too under the circumstances.
Before a contract is terminated, it is important for all the parties involved to seriously consider what options exist for continuing to perform the contract.
Causes of Contract Termination
Performance of the contract
This is the most common cause of contract termination. For a contract to have been performed, all parties to the contract must have fulfilled all their contractual obligations. One these obligations are satisfied, the contract ends.
Frustration
For the purposes of contract law, frustration describes a situation where a contract cannot be performed due to unanticipated circumstances. Frustration can be sufficient grounds for termination of a contract so long as neither party is the cause of the frustration, and neither party could have anticipated the frustration.
Mutual agreement
Mutual agreement or mutual discharge occurs when both parties agree to cancel a contract without performing it. One party may also release another party from their contractual obligations.
For example, in a situation where a contract has been breached by one party, the other party may decide not to enforce the contract but to release the party that carried out the breach.
Operation of law
In some situations, the operation of the law may terminate a contract and release its parties from their obligations. An example is that if a party to the contract dies, the contract will be terminated.
Breach
Breaches of a certain severity may warrant the termination of a contract. A good contract should make allowances for minor breaches or disputes, but serious breaches, such as the breach of an important condition, refusal to perform contractual obligations, or the breach of a significant term can pave the way for that contract to be terminated. A contract lawyer will be able to determine the appropriate action according to the circumstances.
Key considerations
- Informal contracts can be formalised in order to make them more enforceable.
- It is important to quickly correct any flaws or mistakes in a formal contract, as failing to act could be seen as affirmation of the incorrect contract.
- Mistakes do not always affect a contract’s validity. Courts will seek to determine whether or not it is possible to perform the contract, regardless of the mistake.
Breaches that can terminate a contract
Actual breach
Occurs when one of a contract’s important terms are not satisfied according to the obligations of a party. Essential terms, those that are able to trigger termination should they not be performed, are usually specified as such in the contract. If such a term is breached, the affected party is able to claim damages and terminate that contract.
Anticipatory breach
This occurs when a party makes it clear through their conduct or actions that they will not be willing or able to perform their contractual obligations. Such a situation does not warrant an automatic termination of the contract, the affected party will be able to decide what to do next, such as enforcing the contract or terminating it.
Frequently Asked Questions
What is novation?
Novation refers to the replacement of an original contract with a new contract. The new contract can apply to either the parties to the original contract, or to parties who were not involved with the first contract.
Is it possible to discharge a contract before it is breached?
As mentioned above, an anticipated breach may provide grounds for a contract to be discharged.
What is rescission?
Rescission is the retrospective avoidance of a contract that is voidable.
Are there consequences for breaching a non-essential term?
If these breaches are sufficiently serious, they may be grounds for termination of the contract.