How to Cancel a Contract Agreement


If you walk away from a signed contract without legal justification, you may be sued by the other party. The other party will be entitled to demand not only that you restore any amounts he has lost by performing the contract himself (a down payment, for example), but also that you pay him the value of any profits or benefits that he would have received if you had fully performed the agreement. Fortunately, however, there are legal loopholes that may allow you to walk away without paying damages, or with greatly reduced liability.

Examine your contract carefully for any "no-fault" termination clauses. Some contracts offer termination without grounds if sufficient written notice is given to the other party. If your contract contains such a clause, deliver the required notice to the other party, and terminate your performance under the contract as soon as the notice expires.

Search your contract for any clauses that allow termination if proper grounds are given. If you find such a clause, carefully examine the contract to see if any of these grounds apply to you. You would be wise to rely only on grounds that you can establish with written documentation or other tangible evidence. If you believe you have grounds to terminate, deliver written notice to the other party stating your grounds and notifying him of your intention to terminate the contract.

Determine if the other party committed a "material breach" (serious violation) of the contract. Your contract may even specify that certain actions constitute a material breach. If so, and if the other party committed such an action, you have the right to terminate the contract with written notice. Even if an act (such as delinquent payments) is not defined as a material breach, commission of such an act entitles you to terminate the contract if it is serious enough. Minor breaches (such as a payment tendered one day late) do not entitle you to terminate the contract. Unfortunately, there is no clear legal dividing line between a minor breach and a material breach.

Research state law to see if your state has passed a law entitling consumers to unilaterally cancel purchase contacts within 72 hours of signing them. If so, if you are a consumer, and if your contract is a purchase contract entered into with a merchant, then you may unilaterally terminate the contract (with oral notice followed by written notice) as long as the 72-hour deadline has not expired.

Search for legal grounds to void the contract. The most common justification for voiding a contract is that the other party made misrepresentations to you, and you relied on these misrepresentations to the extent that you would not have signed the contract if you had known the truth. Other reasons include coercion and intoxication. Contract parties who were under 18 at the time they signed a contract may void the contract at any time.

Negotiate a settlement with the other party. Lawsuits are expensive, time-consuming and distracting, and the other party might agree to a settlement for far less than the value of the contract if you can show that litigation would be expensive, and that there is at least some legal doubt as to whether the other party would win a lawsuit against you.

Tips & Warnings

  • If you are forced to negotiate a settlement with the other party, be sure to subtract from the other party's demands any damages that he is capable of mitigating. For example, if you signed a one-year lease on January 1 and unilaterally terminated the lease on March 1, you would owe your landlord two months' rent instead of 10 months' rent if the landlord moved in another tenant on May 1.
  • Unless required by the state Statute of Frauds, contracts do not have to be in writing to be enforceable, as long as the party seeking damages can prove that an oral contract was actually concluded. For this reason, it is unwise to walk away from an oral contract on the assumption that it cannot be enforced.

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