Contract Termination

Everyday people enter into contracts for all kinds of goods and services. Most times the contracts are signed without even a glance at the contract or its terms. This often results in the parties later deciding they don’t like the terms of the contract and wanting to terminate the contract. So the simple question we often receive is how do I get out of this contract? While the question is simple, the answer is not.

First, I must point out that simply because you no longer like the terms of the contract, or no longer want the goods or services you obtained in the contract, can you simply terminate the contract. This is true even if the contract is of an ongoing nature. If you were to simply decide to terminate the contract you would be in breach of the contract and subject to legal ramifications.

However, there are certain arguments to terminate a contract that may benefit you, depending upon your facts and circumstances. A few of the examples of reasons to terminate a contract are: reasons of rescission, breach, or impossibility of performance.

Rescission

The first reason to terminate a contract is by rescission. Under some circumstances one party may have a unilateral right to rescind the contract. For example, a minor can have legal rights to rescind a contract or there are some purchase contracts that have an automatic right of rescission to cancel the contract. This is often a three day, or some similar time frame, right to cancel a contract. This could be included as a term of the contract or in State laws.

A contract can also be rescinded by both parties agreement. Obviously this is not an option unless both sides decide to terminate the contract.

Breach of Contract

You also have the right to terminate a contract if the other side has breached the contract. If the other party has failed to perform an obligation as expected under the contract the contract can be terminated by the other party. However, the terms of the contract should be reviewed because there may be a cure period in the contract before the contract can be terminated. A breach may occur when a party:

  • Refuses to perform the contract
  • Does something that the contract prohibits, or
  • Prevents the other party from performing its obligations

Not all breaches of contract can result in the right to terminate the contract. The law distinguishes between material and immaterial breaches of contract.

  • material breach of contract gives rise to a cause of action in court or the right to terminate the contract. A material breach is a serious one; it is a breach that goes to the heart of the contract. The injured party can seek damages; that is, a money payment adequate to cover economic losses resulting from the breach of contract. For example, a band shows up at a concert but doesn’t bring any instruments to play during the concert. The band has materially breached the contract to perform if they cannot play.
  • An immaterial breach of contract is a trivial breach of contract and does not invalidate the contract. For example, assume a service contract for pest control provides that the service is to be performed on the first Thursday of each month. Contrary to the contract, the service person arrives on a Wednesday. This act is a technical breach of the contract but it is immaterial, unless for some reason the service needed to be done on Thursday as opposed to any other day.

Impossibility of Performance

Impossibility of performance is also a reason to terminate a contract. However, this is a rarely used reason and is often difficult to use as the requirements are very stringent. The impossibility standard is a true impossibility standard. More difficult than expected, or more costly than expected do not qualify as impossible. Simple put difficult is not enough. The performance must truly be impossible. For example, you contract with a famous painter to do your portrait and the famous painter dies. The obligation to paint your portrait cannot be completed. The contract to paint your portrait is terminated by impossibility of performance. It is this type of contract that can be terminated by the impossibility of performance doctrine.

These are simply a few of the reasons to terminate a contract. There are other reasons that a party may be able to terminate a contract depending upon the particular terms of the contract and the facts and circumstances surrounding the contract. To see if you have any legal rights to terminate a contract you should consult with an attorney who is experienced in contract law. Or, ideally, contact that attorney before you enter into the contract and need to terminate the contract. Early involvement of an attorney can often save you substantial time, headache, and money.

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