Definition of the Termination of a Contract
Under contract law, a party's duty to perform under a contract may come to an end in a number of ways. The law generally does not speak of contracts being "terminated," rather, parties somehow discharge their duties to perform under the contract. The most obvious way to discharge one's duty is to fully and completely perform all contract duties; however, the law also recognizes numerous other means of discharge. Those contemplating an attempt to "terminate" a contract should seek legal advice.
Other People Are Reading
-
Impossibility and Impracticability
-
Courts may find that a party has discharged its duty to perform in cases in which events unforeseen at the time of execution of the contract make performance substantially more difficult. The law recognizes discharge by impossibility (no one could perform the party's duties in the present circumstances), and discharge by impracticability (when the party to perform can prove an unreasonable and unforeseen difficulty or expense in performing).
Illegality of Contract
-
Contract law does not allow the formation of contracts for illegal purposes. Should the subject matter of a contract be inherently illegal (for instance, a contract whereby one party promises to steal something for the other), a court will not enforce the parties' duty to perform. Should the subject matter of the contract become illegal in the interval between execution of the contract and the time of performance, courts will generally find the parties' duties discharged as well.
-
Rescission
-
If all parties to a contract wish to discharge their duties without performing, they can make a mutual agreement to rescind the contract. Rescission is accomplished by all parties to the original contract making a separate contract in which they agree to rescind. However, rescission may not be available when a third party's rights under the original contract have vested (for instance, in a real estate contract between parties A and B, in which B also agrees to lease the property to C).
Operation of Law
-
Discharge by operation of law occurs when one party to a contract obtains a legal judgment against the other, based on the other's failure to perform under the contract. Since the complaining party has theoretically received the "value" of the other party's performance via the judgment, the law finds that the other party's duty to perform under the contract is "merged" into the judgment. This merger effectively discharges the other party's duties.
Frustration of Purpose
-
Courts will often find contractual duties discharged when one party complains that the entire purpose of the contract has now become moot due to to some event. However, this frustration of the contract's purpose must be the result of an unforeseen event that is not the complaining party's fault.
For instance, A contracts to sell a ship to B. The ship is docked in an area that has never had a hurricane, but a hurricane comes from nowhere and wrecks the ship. Unless the contract specifically stipulated that one party bore the risk of hurricanes, a court might grant B's claim that the purpose of the contract has now been frustrated, so party B shouldn't have to pay the purchase price of the ship.
-
References
Resources
- Photo Credit firma contract 20309 image by pablo from Fotolia.com
