1. Ways to Terminate a Contract
2. Right to Cancel

When wondering how do you cancel a contract, it's important to remember a contract is a document that legally binds two or more parties together. It requires one or both parties to meet certain obligations outlined in the contract. Canceling a contract is permissible in some instances, making it void of legal binding. Only the parties involved in the contract can cancel it.

Ways to Terminate a Contract

Primarily, there are five ways to cancel a contract.

  1. Impossibility of Performance - This type of contract usually requires one or more parties to do something in particular, otherwise known as performance. For example, a company may sign a contract to have someone speak at their next corporate event. As soon as the speaker fulfills his duties outlined in the contract, it's considered a performance. If for some reason, it becomes impossible for the speaker to fulfill his duties, it becomes an impossibility of performance and the company has the right to terminate the contract.
  2. Breach of Contract - A breach of contract happens when someone intentionally dishonors a contract. The breach is grounds for cancellation. A breach may occur when a party fails to meet the obligations of the contract or does not fully meet them. A material breach of contract may allow the hiring party to seek out monetary damages while an immaterial breach does not. For example, if you purchased a product and it was delivered a day late, that would be considered an immaterial breach of contract. However, if you purchased a product and it was delayed two weeks, negatively impacting your business, that would be considered a material breach of contract.
  3. Prior Agreement - If you and another party have a prior agreement that includes a provision for canceling an agreement for a specific reason, you may terminate the contract. The agreement must detail the qualifications for a termination. It should also outline the actions required for a party to terminate the contract. The termination notice is typically put into writing.
  4. Rescission of the Contract - Terminating a contract by rescinding it a happens when a misrepresentation, an illegal action, or a mistake occurs. For example, if you bought a house and the seller intentionally withheld its poor physical condition, you can attempt to rescind the contract.
  5. Completion of the Contract - A contract will be terminated as soon as the obligations are met. Each party should maintain records proving they fulfilled their duties. These records will be crucial if the other party disputes that you fulfilled the obligations. A court of law will require proof that you've fulfilled the requirements being disputed by the other party.

Right to Cancel

As soon as you sign a contract, you are bound to it. Therefore, you will not have the right to cancel a contract. Because of this, it's wise to shop around for the best deal and take time to think things through. Always remember to read the entire contract before you sign it. Question any terms you don't understand or agree with.

Certain contracts may be canceled within a few days. Federal law includes "cooling-off" rules that allow you to cancel certain types of contracts. Often, these include:

  • certain home improvement contracts
  • contracts that involve a lien or mortgage on your house
  • contracts with credit repair clinics
  • contracts with health clubs
  • contracts with membership campgrounds
  • door-to-door sales
  • timeshares

Usually, door-to-door contracts must be canceled in writing. The seller must provide written notice indicating your right to cancel the agreement, along with two copies of a cancellation form. You can mail in or hand-deliver the cancellation form to the address provided. If the salesperson did not provide a form, you can draft your own letter. Just be sure to keep a copy for your records.

Know that you have the right to cancel an agreement to purchase goods or services costing more than $25 under the following conditions:

  • if the agreement was made because the seller visited your home
  • if the agreement was made in any location other than the seller's place of business
  • if the agreement was made over the phone from your home.

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