Contract Cancellation: Everything You Need to Know
A contract cancellation is not an unusual event in the life of a contractual agreement. 3 min read
2. What Is a Contract?
3. Notice of Contract Termination Basics
4. 5 Ways to Terminate a Contract
Updated October 30, 2020:
A contract cancellation is not an unusual event in the life of a contractual agreement. There could be any number of reasons why a contract needs to be terminated, both good and bad. It is crucial that the possibility of a termination be built into the contract itself so that all parties are aware of their rights to the termination if necessary.
What Is a Contract?
A contract can be defined as any legal document that is used to bind a minimum of two parties together. It requires that at least one of the parties meet certain obligations discussed in the contract before the terms are up.
Contract termination can happen, voiding the document’s legal binding in some cases. Only those parties involved in the agreement can terminate a contract.
Notice of Contract Termination Basics
There are some instances where things do not go as planned. You could be dissatisfied with how one party is handling their end of the contract. You could no longer require the services outlined in the contract. In these cases, a Notice of Contract Termination spells out how a contract can be cancelled.
A Notice of Contract Termination is a formal declaration that you give to another party that says you intend to cancel the contract.
You can use this document if:
- You need to notify the party of the contract that it is being terminated, and you wish to let them know the termination date
- You want to ensure you keep a good relationship later on just in case you want to work together again
5 Ways to Terminate a Contract
- Impossibility of Performance: A contract requires that at least two parties work together. This collaboration is referred to as a performance. A company can hire a person to perform a function. Once that person completes the job agreed to in the contract, they have performed their part. If the person cannot perform the job for some reason, this is referred to as the impossibility of performance. A company can terminate a contract in a case like this.
- Breach of Contract: If a contract is deliberately not honored by someone in the contract, it is referred to as a breach of contract and can result in the termination of the contract. A breach can happen if one or more parties do not meet the agreed-upon obligations. A material breach lets the hiring party sue for money. An immaterial breach does not let anyone sue for money.
- Prior Agreement: You can terminate a contract if all parties have a written agreement that requires a termination under certain circumstances. This agreement has to provide the details of which events will qualify for the termination of a contract. It also should state which actions have to happen for one party to end the contract. Typically, one party has to provide a written reason why the termination is needed.
- Rescission of the Contract: A rescission of contract is when the contract is terminated due to the misrepresentation on behalf of at least one person in the agreement. This is also needed if someone party to the contract has done something illegal or makes a mistake. For instance, when you purchase a home and find that the seller has intentionally hidden severe damage, you could terminate the contract on these grounds. A contract rescission can also happen if an older adult is incapacitated and cannot make decisions or if one of the parties is a minor.
- Completion of the Contract: Once all the elements of the contract have been carried out, it is considered terminated since all of the obligations have been met. The parties to the contract need to hold on to all documentation that shows they kept their end of the bargain. This can be useful if someone later tries to dispute that you fulfilled your obligations. If you are taken to court, this documentation will serve as your proof that you did all you were supposed to do. The case will then likely be thrown out.
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