Humber/Ontario Real Estate Course 1 Exam Practice

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If a contract is mutually terminated before the work starts due to unavoidable circumstances, what is the legal implication?

The contractor is liable for breach of contract
The contract becomes enforceable upon release
The contract is enforceable only within 30 days
The contract is terminated by mutual agreement
The services are reassigned to another contractor automatically
The contract continues unless formally voided

The correct answer is: The contract is terminated by mutual agreement

In this scenario, when both parties agree to mutually terminate a contract before any work has commenced, the legal implication is that the contract is terminated by mutual agreement. This means that both parties come to a consensus that they will no longer be bound by the terms of the contract. Mutual termination is often the most straightforward resolution in cases where circumstances prevent the execution of the contract, especially before any performance has begun. This cooperative decision effectively eliminates any claims for breach of contract, as neither party is seen as having failed to uphold their contractual obligations. It also allows for a clean exit without ongoing liabilities, making it a practical solution when faced with unavoidable circumstances.