No one should enter a contract with the intention of not fulfilling their end of the agreement. However, not every agreement goes according to plan. Sometimes terminating a contract is necessary but what exactly does this mean and how do you officially terminate a contract? Before starting the contract termination, it is important to be certain of the meaning and purpose of the termination.
You’ll need to identify a reason for the termination and make sure your reason is valid. One of the most common reasons for termination is due to a breach of contract. This happens when a party has failed to meet their commitments or broken the rules set forth by the agreement. For this reason, having a well-written contract initially can save you a lot of time, money, and headaches in the future. A contract lawyer will be able to eliminate as many contract risks as possible and avoid unfavorable terms. Another reason for terminating a contract is when all parties mutually agree to end the contract early. In this instance, the parties may not be receiving value and decide to end the agreement prematurely as a result. This can also occur if the parties find it challenging to work together. Lastly, and rarely, it may be argued that the contract has become impossible for one or more parties to fulfill. The reason for claiming impossibility is usually not due to any of the parties’ actions but instead events outside of their control. This can occur when laws change in an industry or by an act of nature, for example.
When the reason for termination has been identified, the contract that binds the parties should be reviewed for a termination clause. This clause normally permits parties to end an agreement early by giving proper notice. Providing notice of the termination is often overlooked and can cause many problems later on. You might have to fulfill certain requirements or pay a penalty for ending an agreement early as well. The language in a termination clause can vary widely. If you are unsure about your termination rights, you should think about discussing the termination with your business attorney. Attempting to terminate a contract without a valid reason, or terminating it incorrectly, may lead to a wrongful termination. This can lead to the other party filing a claim against you instead of ending the contract. Lastly, once the parties are in agreement about the termination, it may be necessary to issue a mutual release. This document normally cancels the original agreement and “releases” all parties from any future liabilities or claims.
