Contract Termination Terms: Everything You Need to Know
Contract termination terms consist of specific details about how a contract should come to a close once the deal between parties has ended.3 min read updated on February 01, 2023
Updated October 21, 2020
Contract termination terms consist of specific details about how a contract should come to a close once the deal between parties has ended. The exact terms will vary depending on the specifics and nature of the agreement.
What are Contract Termination Terms?
A contract is a legally binding document between two or more parties. The contract requires all parties involved to meet certain obligations outlined in the contract before the agreement is considered complete. In some circumstances, the contract is void when termination occurs, but only those involved in the agreement can decide to terminate the contract.
The termination clause in a contract allows for the agreement to end or otherwise be terminated under certain circumstances specified in the termination clause. In general, contracts can be terminated by mutual party agreement or through the following legal doctrines:
- Termination refers to the ending of a contract before its natural conclusion and for reasons other than a contract breach
- Contract cancellation refers to ending an agreement by destroying its effectiveness, validity, or force, which usually discharges the other party of unperformed obligations because the other party defaulted or breached the contract terms
- The term “rescission” is used in contract termination to refer to the undoing, unmaking, or rescinding of a contract
- Repudiation refers to a party refusing to perform duties or meet contractual obligations owed to the other party
- Revocation refers to a number of situations, such as mutually canceling a contract, withdrawing a contract offer before it's accepted, canceling a document before it becomes legal, or recalling a power of authority
Most contracts include a termination clause, but if there isn't one and you need to terminate a contract, referring to any of the aforementioned legal doctrines can help you end the agreement early. Some contracts also terminate automatically after a certain period or if certain events or actions are completed. In general, all parties involved in a contract are expected to uphold their duties and obligations unless the contract is canceled, terminated, rescinded, or voided.
Never attempt to terminate a contract without consulting the other party or receiving a court order. Attempting to end a contract on your own could lead to a breach of contract and subsequent legal liabilities. Even so, certain contracts may contain a rescission clause that allows one party to unilaterally terminate the contract under certain circumstances.
Check for the contract's termination clause within the “Terms and Conditions” section of the document. If you're writing a contract yourself, include a termination clause in this section so you can let users know what circumstances are grounds for termination. Be sure to include the following information to make your termination clause more thorough:
- How the user can terminate their account
- What circumstances allow the user to terminate their account
- i.e., “if agreement terms are violated,” or “at our discretion for any reason,” etc.
- What happens after a contract is terminated
What are Void Contracts?
Void contracts are agreements that lack essential elements for enforcement or are otherwise unlawful. For example, contracts that haven't been signed by all parties involved, agreements involving minors, fraudulent contracts, or agreements involving the sale of illegal drugs are considered void contracts.
Ways to Terminate a Contract
Every contract requires one or more parties to do something, which the terms refer to as “performance.” If it is impossible to perform the required obligations for the contract, you can terminate the agreement based on an impossibility of performance.
Another way to end a contract early is through breach of contract, which isn't recommended. A breach occurs when one party intentionally fails to meet obligations and the non-breaching party decides to terminate the agreement by giving a written notice of the breach.
You may terminate an agreement if there was a prior agreement with the other party that calls for contract termination. In this case, one party must provide written notice to the other party about the contract termination.
A rescission of contract occurs when a party misrepresents themselves, makes a mistake, or acts illegally, which is grounds for termination. For example, if you purchase a house, but you find out that the seller hid its poor condition, you can probably rescind the contract.
Contracts are also terminated once all obligations are fulfilled.
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