This is the end…

As a project manager, you will often commission a set of mini-projects to be performed as contracts by third parties. 

In those cases, you are the one receiving the project deliverable; and the suitability of that deliverable for your purpose – your acceptance criteria – will determine (among other things) how your project proceeds, and whether or not you pay the producer!

So, having already looked at the processes of contract acquisition, monitoring, and control, now we will review the various ways contracts can end and their implications for your projects.

Performance

When the parties to the contract completely fulfill their obligations to one another, whether by payment of money or by doing something as agreed in the contract, the contract, for most purposes, comes to an end.

This does not mean, however, that legally it is at an end. 

If, for example, goods turn out to be defective, then the contract is still relevant to determine the purchaser’s rights. 

In fact, in many countries, a contract has a life of six years after it has been performed. 

This means that if there is a breach of contract, a party has six years to assert his or her rights stemming from that breach.

Agreement between the parties

A contract, being the result of an agreement, may be completed by further agreement between the parties to end their contractual relationship. 

For example, you may agree to accept an inferior product in return for the vendor agreeing to reduce their price, extend a warranty, or for some other consideration that the parties feel is equitable.

Impossibility of performance

If the performance of a contract becomes impossible, without fault from either party, there will be an automatic discharge of the contract. 

A simple lack of ability of one of the parties to perform the contract is not sufficient. 

The impossibility must be something that renders performance totally impossible or something unexpected that changes the circumstances so radically that the contract would have to become fundamentally different from the original.

Some examples of this may include:

• A key performer gets injured with no one to replace them
• Valuable or irreplaceable property gets lost, stolen, or destroyed
• Weather conditions prevent a performance or competition, or
• Natural disaster prevents the delivery of goods
• A government passes a law or decree that makes contract performance illegal

Termination for breach

Breach of contract by one party may entitle the other party to regard the contract as at an end. 

However, it is rarely as simple as that. 

Some contract breaches do not give the wronged party the right to end the contract but only entitle a claim for monetary damages to make up for any loss suffered.

Other serious breaches may provide the other party with the right to terminate. 

It is often difficult to know whether a particular breach justifies termination unless the contract is clear about this. 

If the term broken is designated an ‘essential’ term (sometimes called a ‘condition’), then a breach of it will justify termination.

Termination must also be acted on.

Assuming a sufficiently serious breach has occurred, the non-defaulting party has a choice: to terminate, or to carry on with the contract. 

If that party does nothing, this will be taken to be choosing not to terminate. 

Once that choice is made, the right to terminate is lost (unless a fresh serious breach is committed). 

Therefore, a party wishing to terminate a contract must act promptly.

The difficulty with termination is knowing whether the breach has occurred is a sufficient trigger for termination. 

Suppose the non-defaulting party terminates and it turns out that he or she did not have sufficient grounds for termination. In that case, that party has committed a serious breach – wrongful termination of the contract. 

The other party may then sue for damages.

If a contract is terminated, it stops at the time of termination. 

This means there was a contract, but it was never completed. 

Any accrued rights, that is, rights that fell due before termination, are enforceable.

It is (too?) easy to terminate a contract. 

All that is required is for one party to indicate clearly, preferably in writing, that the contract is ended. 

Just be aware of the risks, though!

Rescission

Termination can be contrasted with rescission, which voids the contract entirely. 

The act of rescission means that the parties are restored to the states they were in before the contract, and the agreement is treated as never having existed. 

This means that no rights under the contract exist once it has been rescinded.

Rescission is one of the remedies available for misleading or unconscionable conduct. 

It is a discretionary remedy, meaning the party seeking it is not automatically entitled to it. 

A court must decide whether, in all the circumstances, it is a reasonable response to the facts of the case.

Estoppel

Estoppel should be kept in mind in any circumstance where someone has ‘blown hot and cold’. 

The law considers that a person should have a legal remedy if the following has happened:

• A has made a representation to B or has encouraged B to adopt an assumption
• B acted in some material way on the representation or assumption; that is, B relied on the representation or assumption, and
• A then wished to act in a manner that was inconsistent with the representation or assumption and this would adversely affect B because of B’s reliance.

In these circumstances, A may be estopped (or prevented) from acting inconsistently or else must take the consequences of doing so. 

It must be unconscionable for A to act inconsistently, and this is usually the case if B has relied on the representation or assumption in some material way.

The remedy for estoppel is open-ended. 

A court must fashion the remedy so far as possible to undo the detriment suffered by B. 

This may be an order to A to act consistently with the representation or assumption, or it may be an order to pay compensation.

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Uncommon law

The remedies discussed in this topic are the main ones – several others of varying obscurity also exist.

This is because these remedies are not legislated by parliament; they are ‘historical’ precedents agreed on and determined by the courts. 

This is the basis for legal systems in the UK, USA, Canada, Australia, India, New Zealand, and other countries that operate under a system of common law. 

Other countries, especially in Europe, Asia, and the Middle East, have similar remedies, but these are available in civil law, or through legislation.

For that reason, you should look to your specific region or jurisdiction to find the legal options available at any given time, and obviously seek advice if in doubt!

Either way, you should only bring a contract to a premature conclusion after careful consideration and only after all other avenues have been considered. 

It should always be the last resort!

As we have stated throughout, proper planning before entering into the contract, regular monitoring and control of performance, and a willingness to address risks before they become issues (and molehills before they become mountains) should see contracts end satisfactorily (by performance) 99% of the time.