A contract binds two or more parties to an action. A problem can arise when one party decides he wants to terminate the contract and not perform. The procedure for terminating a contract prior to the start date can differ depending on the specific contract. Some contracts can include a clause for termination, while others may not address the issue. The reasons for termination are not as important as the effect the termination of the contract will have on the other party.
Read your contract. Look for any provisions regarding early termination, rescission or breach of contract. These clauses can designate valid reasons not to perform the contract or the method to terminate the contract. Follow these procedures.
Examine the reason for the termination. Determine whether the reason for the termination is outside your control or an “Act of God.” This can include such things as hurricane damage or fire damage. These situations may be grounds for termination without penalty.
Compose a written letter to the other party as soon as you decide to terminate the contract. Send it certified requiring signature to prove receipt. This provides written notice of the repudiation of contract and can start the period for mitigation of damages.
Contact the other side after the letter is sent. Inform them the contract will be terminated and, if you have a valid reason, let them know at this time. In this situation, suggest the possibility of creating a new contract once the problem is resolved.
Negotiate terms of the termination to prevent a lawsuit. Offer a nominal amount for the inconvenience or delay. Document the offer in writing.
- The other party may file for immediate court action on the contract.
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