Basics of a Contract
A contract can be generally defined as an agreement between two or more parties that is enforceable by law. The essential elements of a legally binding contract include the presence of offer and acceptance, consideration, and the mutual consent of the both or all parties. One party offers to do something or pay a sum of money, and the receiving party accepts the offer and commits to performance. Both parties may be individuals or two or more organizations .
Offer: A specific proposal that must be accepted by one or more persons.
Acceptance: To agree to a proposal or offer that has been made.
Consideration: Something of value given of one party to another in exchange for a promise or a thing.
Mutual consent: The coming together or agreeing together of parties on the terms of a contract.
Concerned about how to get out of a contract? Then you need to know how to legally exit a signed contract.
Legitimate Reasons to End a Contract
For most people, the most frequently used legal ground for termination of contract is breach of the terms of the subject contract. A statutory breach of a term of contract can be the basis upon which the injured party will sue for breach of contract. Today however I want to touch on some additional grounds for termination of contract which you may use to exit the contract.
Fraud
Fraud is an intentional act of deception by the other party to the contract that induced the non-breaching party to enter into the contract. Fraud can be proven by showing that the other party had an alternative motive in addition to carrying out the terms of the contract. This alternative motive can be established if the other party cannot provide a reasonable explanation of the circumstances. In a successful case of fraud, the contract will be terminated, and the deceived party will be entitled to be put in the same position as if the contract had never been entered into.
Misrepresentation
Misrepresentation differs from fraud in that it does not require proof of an intentional or malicious act. A misrepresentation arises when one party makes an explicit statement to the other party with the intent of inducing the other party to enter into the contract. If this statement is found to be false, the contract can be set-aside.
Undue Influence
This ground for exit from the contract is one which you would use if the other party exerted a position of dominance over you such that you were not free to make your own independent decision about whether you should form the contract or not. Undue influence may be established where you can show that the bargaining power of the parties or the relationship had an effect on the willingness of the parties to enter into the contract.
All these grounds for exit of contract are mostly technical and semi-invalidating grounds. What this means is that unless you are willing to face the legal costs of trying to fight the case against the other party who will most certainly mount a defense especially if the contract is a large contract, it is best to terminate amicably. The safest way to terminate a contract is always a mutual termination agreement even when there are grounds to exit the contract.
Examining the Contract’s Language
Reviewing the Contract Terms and Conditions: The critical detail that needs to be examined after the decision is made to terminate a contract and before quitting the deal entirely is to find out and understand what the agreement says about termination. For instance: Are there any outright cancellation: or termination fees? How much is your potential cost? Are there any notice requirements: how many days notice must be given and in what form in order to ensure that you part ways in compliance with the contract. If the contract is worth it may be financially worth it to pay the cancellation fee or the damage claim, if any.
Is there an escape clause or right to cancel for breach? What does the law say: Is there common law or statutory right to cancel in this type of case? Is there any basis for "rescission" of the contract under state law, including statutory law for specific transactions like insurance? No matter how strong or weak the contract is with respect to any potential claim for damages, one thing is important to find out: Does the contract require a notice period to avoid liability? If so, does terminating without such a notice expose the terminating party to risks of loss, or claims for damages by the other party? There are probably pros and cons of each option and that ideal approach should be decided upon after close consideration of all of the contract’s provisions.
How to Negotiate the Separation
Often, the most effective tool you have when you need to get out of a contract without incurring significant loss or liability is negotiation. Even if the terms of your contract are already concretely defined, the other party may be willing to negotiate an exit strategy based on a variety of factors. If your timing is right, if you approach them in the proper way, you may be able to work out a mutually-acceptable plan that allows you to exit the contract without the risk of negative repercussions.
In many cases, simply demonstrating good communication skills can go a long way toward getting the other party to renegotiate the terms of your contract or agree to amend them. The effectiveness of your communication efforts will be greatly influenced by your approach—if you come across as aggressive or demanding, the other party will likely feel the need to defend itself and will therefore be less inclined to compromise than it would be if approached by someone who asks questions, listens to its reasons for wanting to renegotiate and tries to find a reasonable middle ground.
While there are times when you have no choice but to request amendments to the contract using a firm, no-tolerance approach, this is the exception rather than the rule. Most contracts will allow you to renegotiate in a way that is positive for both you and the other party.
Getting Legal Representation
A business should never hesitate to seek legal advice to determine what options may exist for escaping a signed contract. Lawyers can assist in negotiating the terms of a contract exit and/or litigating it if necessary . An early consultation with a lawyer is often critical in reaching an agreement that is reasonable and equitable, and to avoid future legal battles.
Strategies for Documenting the Separation
Properly documenting the actions you take in an effort to exit a contract you have already signed is important, and having the appropriate paper trail can help avoid or minimize any backlash from your actions. In an ideal world, though, securing the exit you seek will be relatively quick and easy. If that is not the case, then you have to keep in mind your options and rights under the agreement, as well as the law, as to how to effect your exit.
The first step to take in documenting the exit is to prepare written communications to the other party or parties to the contract explaining the breach of which you believe they are guilty and your planned actions. This communication should also state a date by which you will consider them to still be in breach before potentially exercising self-help rights, if you are entitled to such rights. It should also provide them a date by which they need to cure their breach, if a cure is available, or you will consider them to be in breach and take other action. It is smart to prepare a written notice of default to the other party to which you may send at the time you actually take other steps to exit the contract. This gives you an extra layer of protection following the initial written communications.
If the breach is significant and not capable of being resolved to your satisfaction through an acceptable cure, or no cure is possible, then you may need to take other actions to exit the contract. The most extreme of these options would be to pursue a judicial determination to get out of the contract, such as through the rehabilitative process described above. However, that process is usually a last resort. Instead, you will want to have vetted the process for mutual settlement or buyout of the other party in an amicable way. That can be done through private communications by counsel to each side or even through some neutral third-party facilitator.
One often muffled consideration in this process is how long does an individual or entity wait after discovering a potential exit possibility before taking steps to act on it. Doing nothing can often be easier, and sometimes legal exposure is heightened if you do something before you legally have to act.
Avoiding Future Contract Disputes
A wise old adage asserts that an ounce of prevention is worth a pound of cure. This is true to the utmost in the field of contracts, as good lawyers and people often work to craft solid agreements, leaving little room for misinterpretation or loopholes on either side of the transaction. In addition , including a clear termination clause will allow you to terminate the contract under certain terms, rather than leaving it open-ended. These sound provisions, maintained with clear and solid records of contractual discussions, will allow you to avoid the confusion that comes with poorly written agreements and potential contractual disputes.