Termination of a Contract

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Termination refers to the legal ending of a contract. Once a contract is terminated, the rights and obligations of the parties come to an end.

Reasons for a Termination of Contract

There are four main reasons why a contract may be terminated:

Performance
Agreement
Frustration
Breach

1. Performance

The contract ends when both parties carry out their agreed obligations fully and correctly. This is the most common method of termination.

The contract is considered complete.
No further obligations exist.
Example: A painter finishes painting a house as agreed, and the customer pays the full amount.

2. Agreement

A contract can also end by mutual agreement, where both parties voluntarily agree to cancel the contract.

This can happen before or during performance.
Neither party can sue once they've agreed to end it.
Example: A couple hires a wedding photographer for a summer wedding. Months before the event, they decide to cancel the wedding. They contact the photographer, and both parties agree to cancel the contract with no penalty.
Key Point: This must be a mutual decision—one party cannot unilaterally withdraw without consequences unless the other agrees.

3. Frustration

A contract may be terminated due to frustration when an unforeseen event arises that makes it impossible to carry out the contract, and neither party is at fault.

The event must be beyond anyone's control.
Performance becomes impossible, illegal, or radically different from what was agreed.
Examples:
- A venue burns down before a concert can be held.
- A supplier dies or becomes seriously ill, and no one else can perform the service.
- A new law bans the sale of the contracted goods.

4. Breach of Contract

A contract is terminated if one party fails to carry out their side of the agreement or fails to do so properly. This is known as a breach of contract.

The breach must be serious and affect an essential term of the contract (a condition, not a warranty).
The innocent party may end the contract and seek a legal remedy (such as damages).
Example: A company agrees to deliver 500 custom-printed T-shirts for a music festival by Friday. The supplier delivers them the following Tuesday—after the event has taken place. Because the timing was a critical term of the contract, this is a breach of condition, and the festival organiser can terminate the contract and sue for losses.

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Remember!

In any legally binding contract, the terms can be divided into two categories: conditions and warranties.

Condition

A condition is a fundamental term of the contract. It goes to the very heart of the agreement.
If a condition is breached, the injured party is entitled to treat the contract as terminated and may also seek damages.
Example: A customer orders a new laptop with a specific processor. If the company delivers a different model without that processor, the customer can reject the product and cancel the contract.

Warranty

A warranty is a less important term of the contract. It is not central to the agreement.
If a warranty is breached, the injured party cannot cancel the entire contract but may still claim compensation (damages).
Example: A customer buys a car and is promised it will include new floor mats. The car is delivered without them. This is a breach of warranty—the customer cannot reject the car but can seek compensation for the missing mats.

Termination of a Contract Simplified Revision Notes for Leaving Cert Business