BUSINESS LAW 101
TERMINATION OF A CONTRACT, Part 2
A contract may be terminated if the parties decide to replace the agreement with another agreement. The second contract can act as a nullification of the first. However, if the new contract does not state that it is a replacement of the first, the court must look at the purpose of the agreements. If they are contradictory, the second one will be treated as a replacement of the first. If not, both contracts can be enforced.
A contract also may be ended by replacing the outcome. As an example, let’s say I contract to sell four red chairs. When time to perform arises, I offer to provide four blue chairs. If the offer is accepted, it is called an accord. Once I have actually turned over the four blue chairs, there is an “accord and satisfaction” and the agreement is complete.
How else can a contract be ended? By impossibility. If something happens that makes performance impossible, the contract is over. Let’s say I agree to rent you a house. The week before you are to move in, the house burns down. The contract is over because it would be impossible for me to comply. If there is a mere inconvenience, the contract still is valid. An inconvenience might be if a company’s delivery truck breaks down so it cannot deliver goods on time.
Death or disability of one of the parties will end a contract. I have agreed to mow your lawn, but on my way I’m in a car accident and lose my legs. I can’t perform and therefore the contract is over. Also, if the law changes so the purpose of the agreement becomes illegal, the contract is over.
In the law we have something called the bad bargain rule. This rule states that if a person made a bad bargain, the court will not overrule it. We must live with our agreements. Yet, there are a few times when a person made such a bad bargain that he shouldn’t be stuck with it. Usually these are when things occur that you have no control over. During the oil embargo of the 1970s, people went from paying 25 cents a gallon to paying $1 a gallon in a matter of weeks. This economic change affected many contracts where the contract price included the cost of oil or gas. When circumstances change the outcomes of the contract, it may be terminated.
Finally a contract may be ended by an act of law. If you file for bankruptcy, certain contracts may be ended. If you have not performed and the other side doesn’t institute suit within a specific period of time, the statute of limitation will run and there is no further requirement on the contract. (In Florida, there is a five-year statute of limitation on a written contract; a four-year limitation on a verbal contract; a two-year limitation on an action to recover wages or overtime or damages or penalties concerning payment of wages and overtime; and a one-year limitation on an action for specific performance of a contract.)
Al Kelley is a Florida business law attorney located in Key West and previously taught business law, personnel law and labor law at St. Leo University. He is so the author of “Basics of Business Law” (Absolutely Amazing e-Books). This article is being offered as a public service and is not intended to provide specific legal advice. If you have any questions about legal issues, you should confer with a licensed Florida attorney.
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