Contract Termination

There are many ways to terminate the obligations of a contract. Most often, parties conclude their contract obligations by performing them. However, sometimes problems arise and parties cannot or will not complete their obligations under the contract. Therefore, contracts may be terminated by reasons of rescission, breach, or impossibility of performance.

Impossibility of Performance

Performance means that each party to the contract has performed its obligations; the exchange of promises has been completed and each side has received what it has bargained for. Once the contract has been completed, neither party owes the other party any further obligation. For example, if you make a contract to perform at a concert, and you appear, perform, and get paid, ordinarily the obligations of the parties to the contract are over.

Impossibility of performance can terminate a contract if an unforeseen contingency prevents the performance of the contract. 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.

Rescission

Rescission may terminate the obligations of a contract in a variety of circumstances. One party may have the legal right to rescind the contract, or the parties together agree to terminate the contract. For example, a minor has the right to rescind contracts because a minor lacks competence to make them.

Breach of Contract

Breach of a contract may terminate the obligations of the contract. Either one party or both parties have failed to perform an obligation as expected under the contract. 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 end up in court. The law distinguishes between material and immaterial breaches of contract.

• A material breach of contract gives rise to a cause of action in court. 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 violinist who shows up at a concert but doesn't bring his violin has materially breached the contract to perform if he cannot play.
• An immaterial breach of contract is a trivial breach of contract and does not kill the contract. For example, assume a service contract for a heating system under which the service person agrees to inspect the system each month on Thursday. Contrary to the contract, the service person makes inspections on Mondays. This act is a technical breach of the contract but it is immaterial, unless for some reason the inspections needed to be done on Thursday as opposed to any other day.

Notice of Termination

Notice of the termination of a contract may be given according to the terms of the contract. For example, the parties may agree in a contract that it can be terminated in a particular way, such as one party giving the other party written notice that the contract is terminated. Following the provision contained in a contract as to how it can be terminated will ordinarily terminate the contract.

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