Entering into a contract is a good means of making sure that you and the rest of the parties involved are well protected from any dispute and confusion that may arise. There are times, however, when terminating a contract is also deemed to be a necessary action. But how do we do this in a proper manner?
We are here to help you out! We’ve got a couple of tips up our sleeve that we would like to share with you. We also have a couple of templates for termination letters in PDF and in Word Document for your convenience. If you want to find out what we are talking about, make sure that you continue scrolling down!
Mutual Termination of Contract Letter Template
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Free Contract Termination Letter Template
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What Is the Termination of the Contract?
To terminate a contract is basically to end a contract agreement before it is fully performed by the parties involved. Basically, what contract termination aims to achieve is to relieve the parties involved in their duties and responsibilities as stated in the contract. However, if termination of the contract is due to breach, the party who caused the breach is not excused from performing the consequences for breaching the contract. Likewise, the party affected by the breach can sue for damages, if applicable.
Ways to Terminate a Contract
Always keep in mind that you are obligated to fulfill the terms and conditions as well as the roles and responsibilities that are stated in a contract should you choose to enter in one. However, there may be times that arise wherein there might be a need for you to opt out or terminate said contract. If you are looking for ways on how you can do so, check out some of the ways wherein a contract may be terminated legally.
Impossibility to Comply Performance
In a contract, there will always be parties involved. There are times, however, wherein one or all parties involved are not able to perform what is expected of them due to impossible factors and whatnot. If for one or some reasons it is seen that a party or all parties are not able to perform what is assigned to them as stated in the contract due to impossibility, it is what is referred to as impossibility of performance. Should this be the case, it can be concluded that a contract can be terminated.
When one of the parties intentionally do not honor what has been stated in the contract, this is what is referred to as breach of contract. A breach of contract happens when one party fails to meet the obligations set out for him/her or did not fully do his/her obligations as stated in the contract.
When it comes to employment breach of contract, the company or the hiring party may choose to seek out damages. More often than not, a clause regarding breach of contract is clearly stated in a contract. More information regarding employment breach of contract may be read at Breach of Employment Contract Samples.
Looking for ways to remedy a breach of contract? Check out our article regarding Remedies for Contract Breaches. Further discussion about handling a breach of contract can be found at the later part of this article.
A contract may be terminated if there is prior agreement in written form wherein all parties involved call for the termination of the contract. This agreement should contain a detailed explanation as to why there is a need to do so. Said document will also reflect what actions need to take place should one of the parties call for the termination. A ton of times, the party who wishes to end the contract often sends a notice to the other party for the termination. You may check out Notice of Termination Letter Samples & Templates for more information.
A contract rescission occurs when one of the parties have made a mistake, has misinterpreted, or has done an illegal act regarding the contract. It may also occur should one of the parties involved is not of legal age upon contract signing or if one of the parties is considered to be incapable of making legal decisions.
When the obligations stated in a contract have already been fulfilled, the contract is now considered to be terminated. To prove the completion of obligations and duties, documentation is usually presented in order to avoid any possible dispute or misunderstanding that may occur.
Service Contract Termination Letter
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How to Terminate a Contract Using Contract Termination Letters
There’s a wide variety of reasons why you might opt to terminate a contract. Some of the reasons why a contract may be terminated may be due to changes that have occurred as time went on wherein clauses stated in the contract that may not be available anymore. A contract may also be terminated if it was not legal in the first place. Deciding to terminate a contract may be a difficult task but when you decide to do so, make sure that it will result in the least damages between you and the other party.
Since we have given you contract termination letter examples & templates, we would like to give you advice on how you can terminate the contract you are involved in with the use of such letters.
1. Terminating the Contract in a Legal Manner
- Review the Termination Clause. Contracts that are renewed automatically, as well as long-term contracts, will often contain clauses regarding how such contracts can be terminated. The termination clause will give you a step-by-step guide of what you need to do in order to properly terminate the contract. Commonly, a termination clause will ask the party who wants to terminate the contract to give notice to the others involved. A good example would be for employment contracts. For cases wherein the employee wants to end his/her standard employment contract, a termination clause would often include that said employee should give at least a two-weeks notice to the management or his/her direct supervisor prior to leaving his/her job.
- Argue the Contract. As stated earlier, contracts can be terminated if there is an impossibility of performance. Should this be the case, you can opt to end the contract. However, for these cases, you cannot end a contract for impossibilities that it may cause.
- Frustration of Purpose Claims. This circumstance often occurs when the reason for entering the contract is now considered gone. Should this be the case, make sure that all the parties involved are well aware of the purpose why there was a need for the contract to be issued in the first place.
- Failure Condition. Should there be one or more parties involved who are not able to fulfill their duties and responsibilities as stated in the contract, you may opt to end the contract due to this reason.
- Negotiating the Termination. When you want to end a termination, always make sure that you get in touch with the other party/parties involved to ensure that they are well-informed of your intentions to do so. With that being said, should there be anything regarding the termination that you would like to negotiate, make sure that the involved party/parties know about this and said negotiations should also be put into writing sample. Have all parties sign the negotiation.
- Breach of Contract Claim. Should one or more parties intentionally do not perform what is expected of them, a contract may be terminated on such grounds. The party/parties who did not comply with the terms and conditions of the contract has no right to complain as to why you opted to end the contract.
2. Rescinding and Voiding
- Rescinding. To rescind a contract means that the people involved in the contract will put to the way they were before there was any contract. Rescinding is a means of canceling a contract completely. Cancellation clauses are often stated in a contract and are needed to be followed in order to make sure that the process of canceling the contract is valid.
- Statute of Frauds. For a contract to be legally enforceable, some states require a contract to be in writing. Contracts related to sales and those that cannot be completed within a year fall into this category.
- No Cancellation Clause. Sometimes, you will encounter a contract that does not have a cancellation clause. In such cases, you should check with your state laws and see if there is a cancellation to be followed for contracts that do not have cancellation clauses.
- Arrange the Cancellation. Should the contract you are involved in does not have cancellation clauses and cannot be ended by the law, negotiations between the involved should be done. Should you and the other party/parties involved come into an agreement regarding canceling the contract, a cancellation agreement must be put in writing.
- Constructive Fraud. This circumstance occurs when one of the parties involved makes a false claim. Due to this action, the person is usually injured. Damages may be sought after for such situations.
- Actual Fraud. This typically occurs when one of the parties makes an intentional lie regarding the contract. Should the other party believes this and is injured due to the lie, this is considered as actual fraud.
- Lack of Capacity. Intoxicated people, people with mental incapacity, and minors are not allowed to enter contracts. Should one of the parties fall under any of the mentioned, a contract may be canceled.
- Duress. A person who is involved in a contract was forced or blackmailed into entering said contract, the contract is going to be considered as void. Remember that contracts are to be entered on your own free will, otherwise, it is unenforceable.
- Illegal. Contracts entered under illegal terms are considered to be null and void. With this, any of the parties involved can terminate a contract anytime they wish to do so.
- Mutual Mistake. Miscommunication could sometimes result into a mutual mistake between the parties involved with the contract. Once mistakes have been realized by the parties involved, the contract may be terminated.
3. How to Handle a Breach of Contract
- Identify the Breach. You have to first identify whether a breach has occurred or otherwise.
- Recover Materials. This is usually applicable of contracts that involve sales. Should there be an identified breach of contract, you are entitled to recover what is rightfully yours.
- Mitigate Damages. Seek for replacement goods should you be the non-breaching party in order to lessen the damages that was caused by the breaching party.
- Refusal for Performance. Should you opt to refuse to perform your obligations due to certain circumstances, it will be considered as a breach of contract. Before going forth with this decision, it best to seek legal advice first.
- File a Lawsuit. Filing a lawsuit against the breaching party can help to resolve the issues at hand and ensure that everything regarding the termination of contract ends up fair and square.
For more information regarding contract termination letters, check out Sample Contract Termination Letters.
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