Business Law

Reasons to End or Terminate Contracts

Updated by Brian Farkas, Attorney
There are a number of ways contracts can end legally without the parties going to court.

Contracts are legally binding agreements. While they can be oral or written, most contracts that play important roles in our personal and professional lives are written down and signed by both parties. These include, for example, employment contracts, real estate purchase contracts, and insurance contracts.

Sometimes, however, contracts need to be broken. In some cases, this is because they fail to meet certain legal requirements. In other cases, the contracts were illegitimate from the start. In situations like these, a court can "void" the contract, essentially rendering it destroyed. When might this occur?

The Contract Is Impossible to Fulfill

When people do what the contract calls for, it is called "performance." For example, imagine that you make a contract to perform violin at a concert of the local Philharmonic Society for $500. You appear and perform. The other party pays you. Both sides have performed. The contract is completed.

Sometimes, however, something happens that makes it impossible to do what is called for in the contract. This is called impossibility of performance. If it's impossible to do what the contract calls for, either party can break the contract without fear of legal liability. In the example above, imagine that the concert venue burned to the ground the week before the show. The Philharmonic Society is voidable, as it is no longer possible to perform.

Similarly, imagine that you contract with a famous painter to paint your portrait, but the famous painter dies. A dead painter obviously cannot paint. The contract to paint your portrait is terminated by impossibility of performance.

Breaking a Contract Due to Fraud, Mistake, or Misrepresentation

You may be able to break a contract if the other party does something improper, such as commit fraud or make a misrepresentation regarding a matter that's material to the contract. You can also break it if you and the other party both made the same mistake in making the contract. Breaking a contract for these reasons is called rescission.

For example, imagine that a person agrees to sell you her computer for $1,000. You take the computer, but realize that it does not turn on; the seller tried to give you a broken machine. You can rescind the contract, on the basis of fraud and misrepresentation.

Similarly, imagine that someone agrees to sell you her ticket to a major concert. But unbeknownst to both of you, the concert has been cancelled because the performer passed away. Again, the contract can be rescinded based upon mutual mistake.

Another important category of voidable contracts involves minors. Sometimes a person can get out of a contract because the law says he or she is not of age to make one in the first place. Say your 13-year-old child signs a contract to buy a used car. The contract is not valid, because minors (usually under 18 years old) are not old enough to make them.

Along the same lines, imagine that your mom is elderly and lost the capacity to understand her surroundings. A contract she makes to buy a vacation property can be rescinded, because she was not mentally able to understand its terms.

Ending Performance on a Contract That Has Been Breached

If the other side materially breaches your contract, you do not have to do your part. A breach happens if one side:

  • refuses to do his or her part
  • does something he or she was not supposed to, or
  • blocks you from doing what you are supposed to.

Not all breaches of contract end up in court. A breach has to be serious, or "material," to be legally significant.

You can sue someone who makes a material breach of your contract. A material breach goes to the heart of the contract. For example, imagine that you hire a violinist to perform at a concert. She shows up, but plays the accordion. You have to refund the ticket prices to angry fans. The violinist materially breached the contract. You would probably get a judgment against the violinist for the amount of money needed to put you in the same financial position as if the violinist had not breached the contract.

An immaterial (sometimes called "partial) breach of contract is one that does not go to the heart of the contract. Say you hire someone to inspect your heating system once a month. The contract says it should be inspected on the first Monday of the month. But the contractor comes on the first day of the month instead. In all likelihood this is not a breach, unless for some reason the inspections really had to be done on the first Monday, such as to comply with the terms of a court order.

Ending a Contract by Prior Agreement

Contracts can also be ended by prior agreement. The contract may say it can be ended by either party giving written notice to the other party. The contract would contain a provision about how it can be terminated and that, as long as those conditions are met, the contract is ended.

If drafting a contract, be sure to be specific about such matters, because interpreting unclear language could lead to a lawsuit. You probably cannot read every contract you come across, but for the most important ones, such as employment, living arrangements, and medical treatment, it's best to have an attorney review it before signing.

Questions for Your Attorney

  • An orchard agreed to sell me a ton of Granny Smith apples. They said a fungus ruined them and delivered a ton of Golden Delicious instead. Must I take them?
  • I sold my car to a minor who showed me his older brother's ID card. Now his dad is demanding I take back the car and refund the money. Must I do so?
  • My landlord wouldn't let me review the lease before signing it, but it is very unfavorable to me. How can I get out of it?
  • My parent, who has Alzheimers', signed a contract to buy major furniture on installment. What can I do to end the contract?

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