Definition

• A termination of contract is the ending of a business contract. It legally ends a business arrangement.
  
  

The Termination Letter

• Ideally, a termination of contract involves a formal termination of contract letter. The letter formally indicates that the business agreement is over. A termination of contract letter summarizes the terms of the original contract, the names of the parties involved and the contract date and term length. It states that one or more parties involved is dissolving the business arrangement. These letters also specify the reasons for dissolving the arrangement. Often businesspeople forgo a contract termination letter if everyone has lived up to their end of the agreement, simply letting the contract expire. People tend to use termination of contract letters more often when contracts have been violated in some way. If a party receives a termination of contract letter that includes an allegation of not living up to the original contract, the party might fight the termination in court.
  
  

Why Termination Happens

• Termination of contracts may occur naturally; that is, the original contract expires after the parties involved have performed as agreed in good faith. Termination of contracts also happens when one or more parties misrepresents themselves, their services or products. Another reason for termination is that it becomes impossible to meet the conditions in the contract. For example, if someone hires a roofer to fix her house and the roofer gets involved in a serious car accident through no fault of his own, he may not be able to complete the work he agreed to do because of injuries and can ask for contract termination. Sometimes mistakes made by both parties are grounds for termination. Fraud also is reason to terminate a contract. A contract can also be terminated if one or more parties refuses to meet obligations in some way, does something that isn't supposed to be done or prevents another party from meeting your obligations. This is called breach of contract. Most states have laws that allow minors to terminate contracts, as minors don't always understand the conditions and consequences of the contracts into which they enter.
  
  

Terms in the Original Contract

• Usually, when people make a business agreement that involves a contract, they stipulate directly in the contract the terms and conditions under which one or more of the parties may terminate the contract. The goals of these termination clauses are to clarify what is significant enough to end the contract and to indicate the rights of those involved. If one or more parties receives a termination notice with which they do not agree, they may refer to the termination clause to make a case that termination is not allowed.