Contracts may be terminated for a number of reasons. A contract may be terminated due to each party's completion of contractual obligations. It may be terminated if the contract is invalid or one or both parties accepted the contract in duress. Parties may agree to terminate a contract. A contract may also spell out conditions in which it may be terminated. This guide will address the other three reasons for contract termination: fraud, breach of contract, and impossibility to perform.
Contract termination due to fraud
A contract may be terminated if one party knowingly misrepresents the facts to get the other party to accept the contract. The misrepresentation can include a false statement or a failure to disclose a hidden defect. An action meant to misrepresent the facts (e.g., a car dealer resets the odometer on a car and sells it as new) may also result in fraud. The party who accepts the terms of a fraudulent contract may rescind the contract or sue for damages caused by the fraud.
It's important to note that although a party may misrepresent a fact, the misrepresenting party may not be found guilty of fraud if the truth is readily available.
Contract termination due to an impossibility to perform
Parties in a contract are bound to fulfill their obligations. However, when performance of an obligation becomes literally impossible or commercially impractical, there may be valid grounds for contract termination.
A performance is impossible when a party dies or some element of the exchange is destroyed. A performance is commercially impractical when an unanticipated circumstance occurs that prevents an obligation from being completed without extreme or unreasonable difficulty, expense, injury, or loss. The unanticipated circumstance preventing performance must have occurred after the contract was accepted, and both parties must have assumed the unexpected event couldn't occur.
Contract termination due to a breach of contract
A breach occurs when either one or both parties refuse to meet their contractual obligations. The breaching party may fail to perform the terms of the contract, prevent the other party from performing his or her part, or violate a provision of the contract.
The nonbreaching party may sue for breach of contract in small claims court or civil court within a statute of limitations. The nonbreaching party may also cancel the contract, sue for restitution, and be relieved of any further contractual obligations.