There can be a variety of reasons why you'd like to terminate your contract. For example, maybe you're just not happy with the person providing services, or it's become too expensive for you, or you're just done and they need to move on. Whatever the reason, when it comes time to terminate a contract, we need to figure out how we can do it. What's the proper way to do it? The reason you want to do it the correct way is if you don't you can find yourself in a lawsuit.
Four Common Ways to Terminate a Contract
There are four common ways to terminate a contract:
- Breach the Contract ~ One party doesn't fulfill its obligations under that contract. For example, if one party is supposed to pay some money for let's say, widgets, and the other party has to provide them, well, if the one-party says I'm just not going to pay for the widgets, they're breaching the contract, and that can be the end of the contract. However, if that's the path you choose, you should know that you're probably going to end up in some kind of a dispute, possibly a lawsuit over breaching the contract and why you didn't pay the money for the widgets. We also have to look when we're breaching a contract at how significant the term was that you breached, not paying for something that can be a very significant reason to breach of contract. However, if you're ordering widgets that were supposed to be silver, and the ones that show up are actually gray. The question is whether that's a material breach of the contract. If these widgets are going to be placed inside a computer, let's say no one's ever going to see the color. Chances are that won't be as vital as let's say, I'm purchasing a car and silver and they send me a gray car instead. Because you wanted the silver car, that's a material breach of your contract.
- Conclusion of the Contract. So oftentimes, your contract will say how long it will last, or what will be the start of it and what will be the end of it. So we know under the contract, how that contract is made to end. Now you have to be very careful because a lot of contracts will have a provision that says within 30 or 60 or 90 days of the end of the contract, the contract can be automatically renewed, and maybe there needs to be a notice to do that. Or maybe it automatically renews unless you tell them that you don't want it to be renewed. So this is where it's important to read your contract and focus on that provision that says term, the term of the contract, how long it lasts, and whether or not there's an automatic renewal clause.
- Agreement to End It. So let's say you're not happy with the contract. The other party that contract isn't happy either. Everyone's just unhappy. Nobody wants to do anything more with this contract. If the two of you can agree on how we can end this contract in a way that everyone is satisfied with, you can enter into what's called an agreement to end the contract, and that will then terminate your contract.
- Force Majeure Clause. So the force majeure clause is something we've talked about before and it's when some unexpected event some huge event happens, that frustrates your ability to fulfill the contract. The last few years we've seen this pretty commonly happened with the supply chain issues. If you're supposed to be getting items from China, let's say your items from overseas, they're just not being delivered. anymore. Or there's some reason why you just cannot get those items for your contract. Well, that can be a force majeure clause kicking in, but you may need to make sure you have the right clause in there. So if you're operating a restaurant that has certain contracts, you may want a force majeure clause that relates to if the health department shuts everybody down. So for example, when that we had the shutdowns in March of 2020, and no one could be open, does your contract have some kind of provision that covers what happens in those instances? Back in the old days, we just looked at terrorist acts and acts of God these days, we usually want to expand those acts to include things like the pandemic and other supply chain issues.
Minnesota Contracts with a Cooling-Off Period
If you're in Minnesota, some types of contracts actually have what's called a "Cooling-Off" period. There are certain types of contracts that allow for a three-day cooling-off period, meaning you can sign a contract on Monday, and you have up to Thursday to review the contract and decide you don't want to actually be in this contract. It's not going to be in every contract, but if you're in a certain type of contract, you can look for this provision. Minnesota's Attorney General website offers you a set of contracts that are automatically provided with a cooling-off period:
- Home Solicitation Sales
- Life Insurance Policies
- Hearing Aids
- Extended Car Warranties
- Military Personnel
- Debt Management and Debt Settlement Contracts
- Foreclosure Consultant Contracts
- Credit Services Contracts
- Membership Travel Contracts
- Health Clubs, Social Referral Clubs, and Buying Clubs
- Reverse Mortgages
- Roofing and Siding Contracts
- Agricultural Contracts
If you're not sure if your contract qualifies for one of those, you can go to the Attorney General's website and look through the list of those contracts.
If you're ready to get started, if you want to look at that contract and see whether or not you can actually end it, let's set up a Legal Strategy Session and we can set up a time that is convenient for both of us to discuss your contract and what are the next steps if you'd like to terminate it.