Contract Rescission Letter: Everything You Need to Know
A contract rescission letter is used to terminate a contract formally in writing.3 min read
A contract rescission letter is used to terminate a contract formally in writing. Terminating the contract is only possible if the conditions of the contract have been altered or when it is determined the contract was never legal. Terminating a contract may result in damages, so steps should be taken to limit the damages to you.
The contract rescission letter must include:
- Addresses of the other party of the contract.
- A subject line that states it is a "letter to rescind."
- An introductory paragraph that includes:
- Where and when the contract was signed.
- What state the contract was signed in.
- Your contact information.
- The purpose of the original contract.
- The reason for rescinding the contract.
- Any additional offers being made as part of the contract rescission.
Ways to Terminate a Contract
Legally terminating a contract can be completed through the following options:
- Use the termination clause that exists in most long-term or auto-renewing contracts. The clause will state the exact steps that need to be taken when the contract is terminated, including providing all parties of the contract notification in writing and within a specified time frame. Termination clauses often include fees for early termination. If you are terminating a contract, be sure you are preferred and able to pay the fees.
- If the contract is impossible, argue what is preventing you from performing the contract obligations. It is legally possible to argue a contract is impossible because of an act of nature, such as a tornado or hurricane. You cannot argue out of a contract if the reason the contract is not completed is due to your own doing.
- Claim a frustration of purpose if all parties know the purpose of the contract. For example, if you sublease space for the sole purpose of participating in a large event, but that event is canceled, termination of the contract is possible if the other party of the contract knows the sublease was specifically to participate in the event.
- If there is a failure or condition, or one party doesn't fulfill his or her end of the contract, there is cause to terminate the contract. For example, if a plumber is hired to fix the bathroom plumbing, but does not start or complete the work, the other party will not be responsible for making payments. The plumber must complete the work to receive payment.
- Claim breach of contract when one of the contract parties has failed to meet his or her end of the contract. If there is proof the contract was breached, the other party has no standing to stop the contract termination.
Rescinding or voiding a contract may be accomplished through the following options:
- Rescission, or cancelation, of a contract returns the contract parties to how they were before the contract was signed. If the contract has a rescission clause, it will list the time frame allowed to cancel the contract. For example, a contract may allow 30 days for the contract to be terminated and allow the parties out of the contract obligations.
- A Statute of Frauds violation exists. In every state, a Statute of Frauds states what contract types must be in writing to be valid and legally enforceable. Contracts that must be in writing may include:
- Sales of goods over $500.
- Sale of real estate or land.
- Contracts that will take over one year to fulfill.
- Check the state statutes to see if cancellation periods exist and are legally enforceable. The contract may not list a termination period, but the state may stipulate a period to cancel the contract. Depending on the law, the period may range from three days to an indefinite period.
- Negotiations should be attempted if there is no rescission clause, and state or federal laws cannot be used to terminate the contract. If a cancellation is agreed upon, any new terms should be put in writing and signed by all parties on the contract.
- Claim constructive fraud, which means a claim has been made by one party unintentionally that negatively impacts another. For example, if a buyer purchases a property believing it was a specific square footage, as relayed by the real estate agent, a court can rule the real estate agent committed constructive fraud. The agent may have to pay damages to the buyer, and the contract will no longer be valid.
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