Contract Discharge or Termination: the Key Differences

onIn the ideal business world, contracts will end when they are supposed to end, which is usually at the time that all obligations under the contract have been performed. This means that all parties to the contract have fulfilled their duties as outlined in the contract and as agreed upon at the time that the contract was drafted. Unfortunately, the business world is often messy and complicated, and all sorts of contracts end up falling apart for various reasons. There are different ways of characterizing the end of a contract, depending on the circumstances under which the contract ceases to exist as originally drafted. Here are a few of those ways and the differences between them:

Discharge

When a contract ends because all of the parties to the agreement have performed or completed all of their contractually stipulated duties and obligations as negotiated, it is usually said that the contract has been discharged. This is clearly the ideal course of action, as it means that the contract has been performed in full and is merely ending because the agreed upon activities have been performed as required.

Rescission

In the event that a contract is created under fraudulent circumstances, the party that was defrauded will not be expected to fulfill the contract. The fraud may involve overt, intentional fraud, a misrepresentation of facts or circumstances, or a material omission. Regardless of the type and scope of the fraud, the other party to the agreement may end the contract without consequence. This sort of ending to a contract is generally considered a rescission, as the very contract itself is essentially invalid.

Termination

Although the completion of a contract may be called a termination when it is actually due to discharge or rescission, there are certain circumstances under which a party to a contract may elect to terminate the agreement, even when there are duties and obligations remaining. In many contracts, there will be a list of triggering events that will allow one or more parties to terminate the agreement, such as in the event that one of the parties to the contract is purchased by another entity or perhaps attempts to assign its rights under the contract to another party. In addition, if a party breaches a contract and it is found to be a material breach that resulted in substantial damages, the parties may be given the opportunity to terminate.

Of course, a termination will not always occur under acrimonious conditions, as the parties may make a mutual decision to terminate a contract if there are circumstances that warrant it, such as unexpected production cost changes or new government regulations that affect the industry.