Forms of contract termination
Termination of a contract, also called cancellation and discharge, may occur for any of the following causes.
- partial performance, if the parties agree
- sufficient performance, if a court determines a party has sufficiently performed the contract, even though not to the full extent of every provision
Infeasibility. An otherwise valid contract can be canceled if it is not possible to perform. Certain personal services contracts, for example, depend on the unique capabilities of one person which cannot be substituted by someone else. If such a person dies or is sufficiently disabled, the contract is cancelable.
Mutual agreement. Parties to a contract can agree to terminate, or renounce, the contract. If the parties wish to create a new contract to replace the cancelled contract, they must comply with the validity requirements for the new contract. Such substitution is called novation.
Cooling-period rescission. Rescission is the act of nullifying a contract. In Florida, parties to certain contracts are allowed a statutory amount of time (usually three days) after entering into a contract, or “cooling period”, to rescind the contract without cause. No reason need be stated for the cancellation, and the cancelling party incurs no liability for performance.
For example, consider the unsuspecting buyer of a lot in a new resort development. Such buyers are often the targets of hard-sell tactics which lead to a completed sales contract and a deposit. The statutory cooling period gives the buyer an opportunity to reconsider the investment in the absence of the persistent salesperson.
Revocation. Revocation is cancellation of the contract by one party without the consent of the other. For example, a seller may revoke a listing to take the property off the market. While all parties have the power to revoke, they may not have a defensible right. In the absence of justifiable grounds, a revocation may not relieve the revoking party of contract obligations.
For example, a seller who revokes a listing without grounds may be required to pay a commission if the broker found a buyer, or reimburse the broker’s marketing expenses if no buyer was found.
Lapse of time. If a contract contains an expiration provision and date, the contract automatically expires on the deadline.
Invalidity of contract. If a contract is void, it terminates without the need for disaffirmation. A voidable contract can be cancelled by operation of law or by rescission.
Breach of contract A breach of contract is a failure to perform according to the terms of the agreement. Also called default, a breach of contract gives the damaged party the right to take legal action.
The damaged party may elect the following legal remedies:
- suit for damages
- suit for specific performance
Rescission. A damaged party may rescind the contract. This cancels the contract and returns the parties to their pre-contract condition, including the refunding of any monies already transferred.
Forfeiture. A forfeiture requires the breaching party to give up something, according to the terms of the contract. For example, a buyer who defaults on a sales contract may have to forfeit the earnest money deposit.
Suit for damages. A damaged party may sue for money damages in civil court. The suit must be initiated within the time period allowed by the statute of limitations. When a contract states the total amount due to a damaged party in the event of a breach, the compensation is known as liquidated damages. If the contract does not specify the amount, the damaged party may sue in court for unliquidated damages.
Suit for specific performance. A suit for specific performance is an attempt to force the defaulting party to comply with the terms of the contract. Specific performance suits occur when it is difficult to identify damages because of the unique circumstances of the real property in question. The most common instance is a defaulted sale or lease contract where the buyer or seller wants the court to compel the defaulting party to go through with the transaction, even when the defaulter would prefer to pay a damage award.