How To Terminate a Contract: The Many Ways to End a Legally Binding Relationship

How To Terminate a Contract: The Many Ways to End a Legally Binding Relationship

Jan 18, 2020 | Business Law, Real Estate Law

There are many reasons you may want or even need to terminate a contract and there are several legal ways that you can terminate a contract. But remember, if you decide to terminate a contract, you should make sure that the termination is going to result in the least amount of monetary damages and legal exposures for you.

Contract Provisions With Termination Clause

The first item on which you could legally cancel or terminate a contract is to look at the contract provisions. There are conditions called termination clauses, and many contracts have termination clauses to give you the steps required if you want to terminate a contract.

Notice to Cancel a Contract

A common termination clause would require that an individual in the contract would have to notify the other party of their intent to do so. Usually, this notice should be in writing and it should be provided to the other party within so many days of the date that they want to end the contract.

Terminate Long-Term Contracts or a Contract With No End Date

A common area concerns longer-term contracts which will have termination clauses in them, but if you don’t exercise the termination clause, the contract will be automatically renewed. Another item for termination clauses that I see a lot of is in leases. In Michigan, a tenant can terminate a lease without penalty if they’re medically determined incapable of living on their own. What they have to do is provide the landlord with a notice period. It’s sixty days in the state of Michigan. They have to notify the landlord that they are incapable of living on their own. There are some other conditions as well. But the point is to illustrate that early termination clauses are available. Look at your contract.

Fees to Cancel a Contract

Termination clauses often have fees for early termination or cancelation. So read your contract or at least have your attorney do so.

Unable to Perform Obligations of the Contract

Another way to terminate a contract is that it may be impossible for a party to perform under that contract. So if you’re unable to perform your obligations due to some type of impossibility, then you have a legal right to terminate the contract. You can’t handle the actual circumstances that you caused yourself to be in a position unable to perform. It’s usually an item or an event that’s outside your control. It’s either the fault of somebody else, or it could be the result of an act of nature, such as a tornado or a storm. That’s when impossibility comes into play.

Failure of Condition Precedent

Another area for terminating a contract is what is called a failure of a condition precedent. If one party fails to fulfill his end of a contract, that lack of performance may allow the second party to terminate his end of a contract. You have to do this termination before the other party engages in the contract. It’s really important.

Negotiate a Contract Change

The most common way to terminate a contract, it’s just to negotiate the termination. If you want to get out of a contract, you just contact the other party involved and you negotiate an end date to that contract. There may be a fee to pay for cancellation. You might want to offer some type of consideration to cancel. But whatever you do, make sure that you cancel the contract, and that you do so in writing and that it’s mutually agreed to by the other party. You don’t want to do anything verbally because that individual, the other party, can come back and sue you. The best thing to do regarding negotiating the termination of a contract is to have a cancelation fee. Another way to negotiate a termination is to offer to continue on the contract for several months and then end the contract term.

Rescission Clause or Cancelation Period

One other way to terminate a contract is to rescind the contract. Some contracts have a rescission clause or a cancelation period. Canceling the contract returns both parties involved in the contract, back to the way things were before they signed the contract. These rescission clauses are usually found in consumer transactions. Home improvement contracts are a great example. Usually, in a home improvement contract, the homeowner has three days to cancel, but just like the notification or a termination clause, you do need to cancel within three days. You also have to follow the instructions as specified in the contract to cancel it.

In a sales solicitation, or what we call home solicitation documents or contracts for services, they all have cancelation provisions for rescission. 

Written vs. Oral Contracts

In Michigan, certain contracts have to be in writing to be legally enforceable. These types of contracts would include (a) any sales of goods that have a value over, let’s say, $1,000 or $500; (b) the sale of land or real estate; (c) contracts for marriage; and (d) where a contract can’t be completed in one year. The Statute of Fraud requires that these types of contracts have to be in writing. If not, you can terminate a verbal agreement for any of those reasons I listed, since they have to be in writing to be legally enforceable.

Fraud in a Contract

Another way to cancel a contract is to declare the contract fraudulent, or that the other party personally intended to lie about something regarding a part of the contract. You believe the lie and somehow you were injured. So fraud is a reason to terminate a contract, but it has to be something that’s material and that can be proven false. For example, you may have signed a contract on April 1, but really everyone thought that the contract was going to start on April 4. That’s not material unless it’s some type of service contract.

Lack of Capacity to Enter Into a Contract

If people lack capacity, they lack the ability to make certain decisions for themselves. When you lack the capacity to understand, you can’t enter into a legally binding contract. Someone with mental incapacity or age could be a factor, or intoxication that interferes with someone’s ability to sign a contract – these are good reasons to terminate a contract. The party that lacks the capacity is the one who can terminate the contract.

Contract Containing a Mutual Mistake

The last item is when there is a mutual mistake, and a great example of the mutual mistake comes directly from a contract law class I had and is a famous case. That example is where you buy a cow at a low price because you and the seller believe that the cow is infertile and that it can’t bear calves. Later, it turns out that after you get this great price on the cow, that the cow is fertile. Now, this raises the value and price of the cow, and it’s not fair to the other party. In this case, both parties made a mutual mistake thinking that this cow was infertile. It makes the contract unenforceable. A mutual mistake occurs when both parties involved in the contract miscommunicated and never agreed on anything because they didn’t understand what they were agreeing on. We call that meeting of the minds. They lacked the meeting of the minds. These contracts can be voided so long as the other person has not yet fulfilled their part of the contract. Once either one of the parties realizes the mistake, the contract can be terminated.

Whenever you anticipate breaking a legal obligation, you should consider consulting with a contract attorney.

Attorneys have different specialties. You want to make sure you consult with an attorney who specializes in contract law. It should go without saying. Don’t go to a criminal attorney if you have a contract issue.

 

 

If you liked what you read, check out our related YouTube videos

Your Legal Next Steps

Check Out Our Resource Library

We have numerous free books, articles,

and industry checklists for your use.

Join Our 'Office Hours' Q&A Video Call

Join David and his associates

on the 2nd and 4th Friday of each month.

Schedule Your Legal Strategy Session

Sound legal guidance is just a click away.

Get the legal experience you need today!

Meet David Soble

DAVID SOBLE

DAVID SOBLE

Real Estate & Finance Attorney

Subscribe to our newsletter

.

Follow Me on

Get your Free Consulting

We're professional legal problem -solvers, don't wait to contact us today.

Call Now ButtonCall Now