When a contract is terminated, it usually means that the contracting parties are discharged from having to perform any legal obligations provided for in a contract. It also means that the contract is no longer in effect.
There are plenty of grounds that a contracting party can claim to terminate a contract. Some common grounds or ways to terminate a contract include:
- Breach of contract;
- Impossibility or impracticability of performance;
- Fraud, mistake, or misrepresentation;
- Invalid or illegal contract;
- Frustration of purpose;
- Completion of the contract; or
- Termination by agreement or by a provision in the contract.
After a contract is terminated, its parties will no longer need to fulfill the terms and conditions of their contract. However, if either one of the two following scenarios exist, then the parties may still owe certain obligations to each other in accordance with standard contract principles:
- If one or more of the contracting parties breached the terms of the contract before it was terminated; and/or
- If a contract contains a termination clause that instructs the contracting parties on what to do in the event that their contract is terminated.
For example, if the non-breaching party can prove that a contract was breached before it was terminated, then they may be able to recover remedies, such as a monetary damages award, restitution, or injunctive relief. On the other hand, if a contract has a termination clause, then the parties will be required to follow the steps in that clause to completion.
As you can see, contract termination is not the easiest of processes. Oftentimes, it involves complying with many elaborate legal procedures as well as interpreting various complex laws. Therefore, if you believe that you have grounds to terminate a contract or are involved in a contract dispute, then it may be in your best interest to contact a local contract lawyer for legal advice.
This is especially true for contract disputes that have arisen in the aftermath of COVID-19. For instance, many contractors and subcontractors are unsure of what to do with construction contracts that have been impacted by the pandemic. Business owners, manufacturers, and distributors are confused over how to handle situations, such as delays in shipping, lack of products, and so forth. Thus, a lawyer can be a valuable resource at this time.
What Are the Types of Impossibility of Performance?
As previously mentioned, there are several scenarios that may make it objectively impossible to perform a contract. One type of situation that would lead to impossibility of performance of a contract is if there is a “supervening impossibility.”
For instance, a contracting party may be able to raise the defense of supervening impossibility if before performance was due, but after the contract was already created, legislation was passed that would make it illegal to perform the contract to completion.
In order to successfully raise this defense, however, a contract must not contain any clauses that involve assuming the risk, the supervening impossibility in question must not have been foreseeable at the time the contract was made, and a breaching party must not have contributed to its occurrence.
Some other types of impossibility of performance scenarios include if the subject matter of a contract is no longer available or if weather conditions interfere with contract performance. For example, if a homebuyer enters into a contract to buy a house from a seller, but then an earthquake or hurricane destroys the entire house.
In some cases, even death may qualify as a type of impossibility of performance. For instance, if an individual with special musical talents was hired to perform at a concert, but suddenly dies after contracting COVID-19.
In contrast, if a party is claiming impossibility of performance due to going bankrupt as a result of COVID-19, this may not excuse them from having to perform the contract. Again, it will depend on the jurisdiction, the circumstances surrounding a particular case, and the terms of each individual contract.
One other issue that might arise in connection with impossibility of performance of a contract is the distinguishing characteristics between a “true impossibility” and an “objective impossibility.”
A true impossibility refers to an incident that has occurred and that would make it factually impossible to satisfy the obligations assigned in the contract. The definition of this term is the same as the one provided for an objective impossibility, but it is only used in a handful of states.
Additionally, while an objective impossibility essentially has the same meaning as a true impossibility, there is one slight difference. In general, an objective impossibility is used as a comparison against the subjective conditions contained in the affirmative contract defense of impracticability of performance.
What Do Impracticability and Frustration Mean?
Similar to an event that would lead to the impossibility of performance of a contract, impracticability of performance also involves an unforeseen event that occurs after a contract has been formed, but before performance of a contract has been completed in full.
The difference between the two, however, is that unlike impossibility of performance which means that it is objectively impossible to complete the contract, impracticability of performance means that there is a slight chance that performance is still possible, but only with unreasonable or extreme difficulty and/or expense.
On the other hand, a frustration of purpose refers to an incident that would undermine or “frustrate” a contracting party’s intentions for entering into a contract. An example of a situation in which frustration of purpose might arise may include when an unforeseen event destroys the sole purpose of the contract or if a person or object that is necessary to performance of the contract is not available.
The differences between frustration of purpose and impracticability or impossibility of performance is that the latter is concerned with the duties specified in the terms of a contract, whereas the former focuses on the reasons as to why the parties formed the contract in the first place.
It is important to note that if a party wants to use frustration of purpose as a defense in a case that involves a COVID-19 issue, then they may only be able to temporarily suspend the contract or they may have to render the portion of the contract that is still possible.
For example, if a business was instructed by a state government to cease operations due to COVID-19 and thus was unable to execute its duties under the contract, then it may need to continue to fulfill its obligations again once the government order is lifted.
When Is Impossibility or Impracticability Not a Defense?
A defendant in a breach of contract case may be able to raise impracticability or impossibility of performance as an affirmative defense against the plaintiff’s claim. In order to raise either one of these affirmative defenses properly, the defendant must cite the defense in their initial answer to the complaint.
The defendant will then have the burden of proving the necessary elements of whichever affirmative defense that they choose to raise and fits the facts of their case. However, if a defendant fails to raise impracticability or impossibility of performance in their initial answer or cannot prove the necessary elements, then the defendant will not be able to raise either affirmative defense against the plaintiff’s claim.
In addition, the affirmative defense of impossibility of performance can fail to protect the defendant against a breach of contract claim if certain conditions are present. For instance, impossibility of performance will not be available as an affirmative defense when a promisor assumes the risks associated with a contract.
Another example of a scenario in which this particular defense might fail is if the event that causes the contract to be impossible to fulfill was reasonably foreseeable at the time the contract was formed.
As for the other affirmative defense, impracticability of performance, it will not be available to a defendant whose actions resulted in the condition of making the contract impracticable to fulfill. Similarly, impracticability of performance will also not apply if the events that led to the impracticable conditions were reasonably foreseeable or if the contracting parties assumed the risk of impracticability of performance at the time the contract was formed.
Thus, while these defenses would appear to be available to persons who entered a contract prior to the pandemic, the same may not hold true for persons who signed a contract either during or after the pandemic. Again, this will depend on the facts of each individual case and the terms of a specific contract.
What if the Impossibility or Impracticability is Due to COVID-19 Issues?
In most cases, a contract will usually contain a “force majeure” clause, which will provide instructions on what to do in the event that unforeseen circumstances make contract performance impossible or impracticable. Depending on the jurisdiction and what the parties agreed to in the contract, COVID-19 issues may be covered by such a clause.
On the other hand, in the rare instance where a contract does not contain a “force majeure” provision, then the parties may consider impossibility or impracticability of performance as another option to resolve a contract dispute.
If a party is unable to prove the elements for either of these affirmative defenses or if their contract does not permit them to raise such defenses, then they should consider including a clause that specifically addresses contract issues that arise as a result of COVID-19.
Also, while it would be best if this provision is included before the parties sign a contract, they can always agree to negotiate and insert a new clause in their contract that deals with COVID-19 situations. A contract lawyer will be able to assist contracting parties with drafting and reviewing such provisions.
Do I Need a Lawyer for Assistance With Grounds for Contract Termination?
Terminating a contract is often difficult to accomplish without facing any consequences. Unless you can definitively prove that it is primarily not your fault or that the circumstances that led to terminating the contract were beyond your control, then you will most likely have to pay another interested party some amount of monetary damages. This is especially true in lawsuits that stem from COVID-19 issues.
As such, if you are involved in a dispute over a contract and would like to terminate the agreement, then it is strongly recommended that you consult a local contract lawyer for further advice. An experienced contract lawyer will be able to inform you of the various grounds for terminating a contract as well as can discuss the potential consequences in applying each of those grounds to your particular contract matter.
In addition, your lawyer can review the terms of your contract to ensure that it is valid and complies with the relevant laws. For instance, your lawyer will be able to walk you through the requirements for terminating a contract in accordance with state or local statutes in your area, and can give you more guidance on the contract principles of impossibility and impracticability and how they apply to contract cases that are a result of COVID-19 issues.
Your lawyer can also make sure that you raise any defenses that may be available to you in a timely manner and can discuss the various remedies that you could potentially recover from a contract termination lawsuit. Your lawyer can examine your contract and other supporting documentation to determine whether there are other grounds or defenses against contract termination as well.
Finally, your lawyer can also assist you in settling your contract dispute out of court, or alternatively, will be able to provide legal representation in court should it become necessary.