Terminate Contract: Everything You Need to Know
If you need to terminate a contract, you must follow the required steps to end the terms legally.3 min read
Updated November 16, 2020:
If you need to terminate a contract, you must follow the required steps to end the terms legally.
Reasons for Terminating a Contract
You may wish to terminate a contract for convenience, which may be done if the agreement includes a clause titled “termination for any reason by notice.” If this applies to your contract, read through that section carefully to figure out what the required term is before you start the process. A common notice period is 30 days, but your contract should outline the required notice period. If your contract doesn't include the option to terminate for any reason by notice, you cannot legally terminate a contract just because it doesn't meet your needs.
Before you agree to the terms of a contract, think about the importance of being able to get out of it if the need or desire arises. Another reason you might need to terminate a contract is if the other involved party is no longer able to pay their debts or hold up their end of the agreement. When this happens, it may be possible to terminate the contract for insolvency. Failing to take care of a critical contract element or term could also be a valid reason for termination. This is called "termination for cause."
If the term of the contract is for a set amount of time, and the time has ended or expired, the contract is terminated automatically unless it is renewed. Termination might become necessary if the obligations are now impossible to maintain due to events that are beyond the control of the involved parties. These events might include an act of war, a riot, or major weather issues. This is referred to as a “force majeure,” or termination for reasons outside of either party's control. If both parties choose to terminate, this action can legally end the contract.
Before you can terminate a contract for cause, go through the following checklist to make sure you can do so legally:
- Does the problem relate to a crucial part of the agreement, and if so, is it sufficiently serious?
- Is a problem with the contract caused by the other involved party?
- If your contract includes a required notice period, have you given enough warning?
- Could any of your actions be taken as encouragement or acceptance of the behavior of the other party?
Ways to Terminate a Contract
The first way to terminate a contract is referred to as "impossibility of performance." A standard contract usually requires at least one of the parties to take action, which is referred to as "performance. " For example, a party might choose to sign a contract to hire a public speaker to give a speech at a business event. After completing the requirements outlined in the contract, the speaker would have met the requirements for performance.
If the speaker wasn't able to fulfill the requirements of the contract, this is referred to as "impossibility of performance." The company that hired the speaker can terminate the contract if impossibility of performance occurs. If one party intentionally doesn't honor the terms of the contract, this is referred to as a breach of the contract. You can take legal action and terminate the contract.
A contract breach could also happen if one of the involved parties didn't fully meet the obligations or didn't meet any of the obligations outlined in the agreement. If the breach of contract is considered material, the hiring party can seek damages. An immaterial contract breach limits the possibility of seeking monetary damages.
A contract is an agreement between two or more parties that legally binds them together. At least one of the involved parties must meet all obligations outlined in the contract before it can be considered complete. One exception to this rule is terminating the contract, which voids the legal terms. Many situations could arise that would cause the need or desire to void a contract.
You can choose to terminate a contract if any of the conditions or terms have changed since it was signed. If a contract wasn't legal to start with, it could be voided as well. Before making the decision to terminate a contract, it's important to be sure that the process of termination won't bring a substantial amount of damages.
If you need help to terminate a contract, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.