5 Ways To Terminate A Contract
Whenever you enter a legal contract, the last thing on your mind is how things can go sour.
Nevertheless, there is always a possibility for an agreement to fall short of expectations.
There is a silver lining, though: if a contract’s obligations aren’t met, it can be terminated. We are going to mention just a few ways you can legally terminate a contract, and hopefully, go through the ordeal with the least amount of trouble possible.
Check your contract thoroughly first
Before we discuss how to end a contract, there is something you need to do first — analyze your contract.
Look for termination clauses present in the agreement, including any notice provisions. This will give you a good idea about your options, how you should approach contract termination, or how and when you should give the notice to the other party.
To make sure everything checks out, we recommend using software for legal documents to simplify this process. Contract review tools such as Loio use AI to scan your entire document, giving you easy access to important details such as parties, dates, and even clauses. You won’t need to look through your contract manually, so you can save a lot of time while also ensuring nothing important falls through the cracks.
Now that we have this out of the way, here are 5 ways you can end a contract:
Breach of contract
The breach of contract happens when one of the parties fails to deliver on their contractual obligations. If a breach occurs, you are within legal rights to terminate the contract. There are four main types of breaches of contract:
- Material breach is a failure to perform obligations in the contract or not performing them on time.
- Partial breach occurs when the breaching party fails to complete a part of its obligations.
- Anticipatory breach happens when one party notifies the other that they won’t fulfill their obligations or when there is evidence that the breaching party is going to breach the contract.
- Fundamental breach means that one party hasn’t fulfilled the fundamental obligation that’s so important that the other party cannot complete their responsibilities.
Most contracts can only be terminated on a basis of a breach if a material or a fundamental breach occurred as the anticipatory and partial breach allow you to sue for damages. That’s why it’s important to include termination clauses that address the potential breaches long before they take place.
Impossibility of performance
If an unforeseen event makes it impossible for one party to fulfill their contractual obligations, a contract can be terminated due to the impossibility of performance. It also applies to the scenario in which an event has affected the obligations of the parties to an extent where the original intention of entering a contract is no longer apparent.
The unforeseen event in question needs to be out of the control of both parties. For example, the contract can be terminated if one of the parties declares bankruptcy and is unable to fulfill their contractual obligations or if the law has changed in a way that made a party unable to complete the commitment.
A contract can be recessed if the other party is liable for:
- Misinterpretation: if one party entered the contract based on false information from the other party.
- Undue influence: if one party is persuaded to enter an agreement by a different individual.
- Mistake: if a party is mistaken about the terms of the contract and the other party was aware of the mistake.
Provided you can demonstrate that the contract was signed in these circumstances, you may be able to terminate the contract.
Termination by agreement
A contract can also be terminated if there is an agreement between both parties that allows for a termination out of a specific reason. This is accomplished through the provision known as a break clause. For example, a lease contract might contain a break clause that allows the parties to end the lease early. This clause should describe in detail what occurrences allow for the parties to terminate the contract, and should also outline how and when the written notice of the termination should be submitted.
The contract can also be terminated through mutual agreement by both parties if they agree that the terms of the contract are no longer beneficial or no longer relevant.
Termination out of convenience
If there is a termination for convenience clause in the contract, the parties can terminate a contract without a ‘’legitimate’’ reason while it’s still in effect.
This clause is useful if one of the parties is unsure whether their plans will change in the future or if they get an opportunity to get into a different agreement that might be more beneficial.
It all boils down to how effective your contract is. You should always draft a contract with the worst in mind. That will help you get the best outcome when thinking about how to terminate a contract.
These are only some of the ways that a contract can be terminated, though. There are additional clauses that can be written in that can help you protect your interests and avoid a costly litigation process. In the end, having a termination in mind from the very beginning will go a long way in ensuring both you and the other party end the relationship with the least amount of damage.