A contract is typically discharged when it has been fulfilled and all parties have performed the main obligations under the contract. In contrast, an unfulfilled contract can be terminated in several ways. First, the parties to a contract can mutually agree to cancel or terminate it. Another method is by way of court order, where a judge rules that a contract is terminated. A third way is if a party to a contract commits a material breach. A material breach is a failure to carry out a major part of the contract. It authorizes the nonbreaching party to terminate the contract. Finally, if the purpose of a contract has been frustrated (that is, an unforeseen event makes the performance impossible), the contract may also be terminated.
If a person enters a contract to paint someone's bedroom for $500, the contract will be discharged when the person paints the entire room and receives the $500 payment. Once both parties to the agreement have fully performed, they have no further obligations, and the contract is complete.
Alternatively, suppose that a person agreed to cut someone's lawn for $200. Before any work is started, the lawn cutter changes his mind and decides that he does not want to go forward with the agreement. In that case, there are several options. First, both parties could agree to terminate the agreement and walk away. If this is not possible, the lawn cutter could try to obtain a court order terminating the agreement. In addition, given the anticipatory breach—that is, the indication that he will not complete the work as promised—by the lawn cutter, the property owner could consider the contract terminated. Finally, if the purpose of the contract has been frustrated, the contract could be deemed terminated—for example, the lawn cutter would not be able to do the work if the property flooded.
The various ways to terminate a contract depend on the specific facts and circumstances of a case. It is important to understand these methods because terminating a contract improperly or without an appropriate legal basis can lead to a lawsuit or legal proceeding.