Wondering what the end of contract entails?
What is the legal termination of contract?
How can a contract end and what are the reasons for the termination of a contract?
In this article, we discuss the end of contract and the termination of contract in detail!
Are you ready?
Let’s get started…
Table of Contents
End of contract scenarios
In most cases, the end of a contract is the moment in time the obligations between the contracting parties cease.
There are many ways a contract can come to an end.
A party can terminate a contract, resilitate a contract, resolve a contract, cancel a contract or request the rescission of a contract.
In this article, we’ll look at each of these scenarios.
A contract can also end with the passing of time.
We refer to this as the expiration of the contract as of the contract end date.
Termination of contract
The termination of a contract is when a party puts an end to the contract prematurely.
The contract termination can be as a result of a breach of contract, termination for convenience or simply a mutual termination of contract.
Termination for breach of contract
When a party terminates a contract for breach, the non-breaching party considers that the breaching party has materially failed in executing its obligations justifying the termination of the contract.
The breach is so important that the non-breaching party considers that the breaching party cannot perform its obligations and organically bring the contract to term.
To avoid further delays or damages, terminating the contract for breach is the best possible remedy.
Termination for convenience
A contract can be terminated for convenience.
When we say termination for convenience, we are referring to contract termination without cause.
Typically, the contract provides for a “termination for convenience” clause allowing one or both parties to terminate the contract upon notification of a simple notice to this effect.
When the notice is sent, the other party must accept the termination notice.
Mutual termination of contract
A contract can also be terminated based on the mutual agreement of the parties.
In this context, whether or not the contract provides for a specific termination clause, the parties reach an agreement to terminate the contract and will fix the contract end date.
In the context of a mutual termination of the contract, the parties can define the contract end date, their obligations following the termination and define any transitional services needed during the termination period.
Cancellation of contract
The cancellation of a contract is another way a contract can end.
The contract cancellation is the process where a party puts an end to the effectiveness of the contract.
The party seeking the cancellation of the contract wants to stop the contract from producing legal effects.
In the common jargon, most people refer to the cancellation of a contract when they want to say that they want to terminate the contract.
For example, you cancel your subscription to an online magazine.
Legally speaking, cancelling a contract and terminating a contract is not the same thing.
Cancelling a contract suggests that you are voiding the contract as if it never existed.
Terminating a contract suggests that you consider the contract to be valid for the time it was in effect but you just want it to stop producing legal effects going forward.
Resiliation of contract
If you are in a contract of successive execution, such as a software-as-a-service contract, online magazine subscription, telephone line for your mobile phone, or a lease agreement, you’ll need to resiliate the contract to end it.
Resiliation of contract means the ending of a contract of successive execution.
For example, if you contact your telephone company and ask them to cut your telephone line, you are essentially resiliating your telephone contract.
The contract is of successive execution as the telephone company continually provides you with a telephone line and you continually make monthly payments.
What is the difference between the cancelation and resiliation of a contract?
When you cancel a contract, you consider that the contract is void as if it never existed whereas when you resiliate a contract, you consider the contract to be valid but are looking to have it stop producing continued legal effects.
Resolution of contract
To end a contract of instantaneous performance, we refer to this as the resolution of the contract.
For example, if you are buying a car where you need to make a one-time payment for a one-time delivery of the car, this is a contract of instantaneous performance.
The moment you pay and the car is delivered the obligation of both parties is instantaneously completed.
To end a contract of instantaneous execution, you are resolving your contract.
In this case, the parties will need to restitute the obligations they each performed.
You will return the car and the dealer returns your money.
Expiration of contract
A contract can also end by the mere passing of time.
In this case, we will refer to it as the contract expiration or expiration of the term.
When the parties enter into a contract, often they will mutually agree on the term of the contract.
When the term arrives and the parties do not renew the contract term, the contract expires.
Contract termination clause
Often, contracts will contain one or several termination clauses outlining the different ways of terminating the contract.
Some other contracts will not have an early termination clause and so the only way the contract can end is with the arrival of the term.
We refer to this type of a contract as a “firm” contract term.
Termination for convenience clause
You can have instances where there is language to terminate a contract for convenience.
The termination for convenience clause can be unilateral or mutual.
In other words, either both parties may have the right to terminate the contract for convenience or only one party to the contract may do that.
A terminate for convenience is essentially a contract termination clause for any reason or no reason at all.
A party terminating for convenience must only follow the requirements of the clause.
Generally, a party must notify the other in writing 30, 60 or 90 days in advance.
It could even be longer.
Once you give a notice, the other party must accept your request for termination.
Termination for breach clause
The termination for breach of contract clause or termination for default is a type of clause where the parties agree on what can constitute a default.
If an event defined to be a default in the contract occurs, then the non-defaulting party may terminate the contract.
The early termination of a contract for breach will also allow the non-breaching party to claim damages.
In some other cases, the contract does not specifically define events of default.
In that case, if a party breaches the terms of its contract, the non-breaching party will send a notice of breach requiring the breaching party to cure the breach within a specified period of time.
If the breach is not cured, then the non-breaching party can terminate the contract.
The non-breaching party must be careful to have sufficient grounds for termination of the contract.
If not, the other party can claim damages for an illegal termination of the contract.
How to terminate a contract
There are several ways of terminating a contract.
You can terminate the contract using the termination clause.
If your contract provides for a termination clause, read it carefully to see what steps you need to take to terminate the contract.
Typically, the termination clause will require you to provide the other party with a written notification of your intention to terminate.
You will also need to assess whether the termination clause in your contract allows for termination in specific situations or can you exercise the right to terminate at any time.
Impossibility of performance
The impossibility of performance is when a party is unable to render the services or execute its obligations as it was originally intended.
For example, imagine a company wanted to produce a movie with a specific actor and that actor became ill and could no longer collaborate on the movie set.
This is a scenario where there is an impossibility of performance.
The company needs a specific actor to play a role in the movie and that actor is no longer able to perform its obligations.
In this context, you may be able to terminate the contract on the basis of the impossibility of performance.
Breach of contract
When there is a breach of contract, the non-breaching party can terminate the agreement.
For the breach to justify the termination, it must be important enough to justify the termination of the contract.
In some cases, when a party fails to execute its obligation, others are prevented from executing their obligations and the consequences of a breach can be significant.
For example, if you hired a contractor to build you a house, the contractor needs to rely on different professionals to get the job done.
If the architect does not deliver his report on time, the construction cannot start.
If the electrician does not execute the electrical cabling and installations, the rest of the work cannot continue.
The breach of the electrician can delay the entire project, therefore the contractor may need to terminate the contract with the electrician for breach to avoid further damages.
Every contract will have its own unique considerations.
You should consult a contract lawyer in case you are not sure.
A breach of contract can be established based on the behaviour of a party, their inability to meet important obligations of their contract or they’ve acted in such a way as to trigger a default as defined in the contract.
Ending a contract for breach is can be contentious and lead to litigation.
Rescission or nullity of contract
The nullity of contract results in the cancellation of the contract.
When a contract is null, the law considers the contract never existed.
The contracting parties will need to return whatever they received and restitute what was received.
If, as a result of the nullity of a contract, a party suffers damages, the damages can be claimed in addition to the restitution of the obligations performed.
The nullity of the contract can happen if a contracting party did not have the capacity to enter into the contract.
Alternatively, if a merchant did not follow the formation rules of the consumer protection laws when doing business with a consumer, the law can consider the contract as null and void.
In any context, the parties can mutually agree on an early termination of their contract.
The agreement can be amicable or contentious.
When you mutually agree to end the contract, it may still be useful to disclose your contract termination reasons.
Unilateral termination of contract
Can a contract be unilaterally terminated?
It depends on the type of contract that you signed and the termination rights you have negotiated at the moment you entered into the contract.
In a business to business context or B2B, it’s up to you to ensure you include a termination for convenience clause or another type of unilateral right to terminate the contract.
If you enter into a contract where you commit to a fixed-term without having the ability to opt-out, then you may not necessarily be able to unilaterally terminate the contract.
In some cases, fixed-term contracts may be unilaterally terminated provided you pay the other party what you committed to until the end of the term.
Subject to the payment of a termination fee, you’ll be able to terminate the contract.
In a business to consumer context or B2C, often the law will protect the consumer giving it various rights, including the dissolution of contract.
For example, the termination of a service contract may be done by the consume based on the termination standards of the law.
In this article, we looked at the termination of contract law.
A contract can be terminated in many ways and for different reasons.
You can terminate a contract for convenience, for breach of contract or upon mutual agreement.
Depending on how you terminate your contract, you’ll need to inform the other party of the reasons for termination of the contract, particularly if you are terminating for breach.
The end of contract can also come with the passing of time (the expiration of the contract).
If you are triggering an early termination of your contract, make sure you follow the terms of your contract.
You may also have to respect statutory or legal requirements to cancel a contract if a specific law applies to your contract such as the consumer protection laws.
If you are not sure how to terminate your contract, you should consult a contract lawyer to guide you.
We hope this article was useful to you.
We wish you the best of luck in your contract termination!