A written contract is very vital when entering into any business transaction. Other than making your business relationship strong and reliable, a signed contract also acts as a future reference. Whether you are running a startup business or an established one, it’s always advisable that you sign a contract to make your relationship legally binding. However, even as you sign into a contract, always bear in mind that you may face unprecedented issues that may lead to the contract’s premature termination.
Therefore, if you are planning to terminate your contract due to unnamed reasons, it’s sensible that you write the other party a contract termination letter. This will save you from litigations associated with contract termination and professionally make your exit.
A Contract Termination Letter refers to a legal document that is used to cancel a contract before it is fully performed by the parties involved.
In other words, the document seeks to terminate the contract before all parties perform their respective obligations as originally required by the contract. Usually, there are many reasons why an individual may decide to opt out of a contract. Whichever the reason, you need to notify the other party that you care about your plans to cancel your contract with them.
Top Reasons Why an Individual May Terminate a Contract
However, much beneficial they are, sometimes contracts need to be broken. Therefore, the following are some of the reasons why an individual can reverse their decision on an already signed contract.
When the contract is impossible to fulfill
Upon entering a contract, every party is supposed to perform their rightful duties. This practice is often referred to as performance. An individual may realize that they cannot fulfill the duties assigned in the contract. When such impossibilities occur, the individual can be allowed to cancel such a contract by writing a formal contract termination letter. Let’s say, for example, a company X gets into a contract with a guitarist to perform for a night vigil. However, one day before the show, the very same stage catches fire and burns to ashes. The guitarist is therefore left with no option of performing. In such cases, they can terminate the contract without fear of legal liability.
Contract termination due to fraud
The other reason why most contracts are terminated is because of fraud- fraudulent acts or misrepresentation. A better example is when you agree to buy a second-hand vehicle at a price of $400,000. While going to your first road test, you realize that the engine transmission has a problem. The seller tried to sell you a car with a malfunctioning engine without telling you. When you find yourself in such a situation, know that you can terminate the contract by sending a contract termination letter for fraudulence.
Breach of contract
While entering into a contract, there are rules and regulations that need to be observed by each party. However, if one party fails to perform their duties or does something they aren’t supposed to do, you can go ahead and write them a contract termination letter. Still, on the same, your partner may behave or act in a manner that prevents you from fulfilling your duties. For instance, you may be waiting for their signature before you proceed with your supplies. In that case, if they fail to sign on time, you are allowed to cancel the contract using a termination letter.
There are often cases where you find individuals getting into a contract without knowing the exact facts about the contract. Such cases are always termed as mutual mistakes and happen based on assumptions. Mutual mistakes happen every now and then.
Violation of terms
Failure to observe the contract’s specific tenets is another reason why an individual may want to terminate their contract. However, before sending your contract termination letter due to a breach, always make sure to prove the breach.
Sample Contract Termination Letter
Director of Procurement and Supplies
09 West Street
Free Town, SC 45046
September 30, 2020
10001 West Street
Tucson, AR 34231
Dear Mr. Harrison,
We regret to inform you that we are ending your contract number 12345. Kindly note that the contract for supplying steel metals will take effect on Monday, 1st October 2020. After checking for steel prices within the region, we have noted that your prices are way higher than the market price. Owing to the current economic depression, we decided to terminate our contract with you so as to pursue other cheaper options.
Other than the prices, we also noted that your employees are rude when handling their delivery. On several occasions, they’ve been parking wrongfully on the driveway while offloading their delivery. Therefore, pursuant to the contract termination clause No.435, we are canceling the contract based on:
Fraudulence- you wrongfully quoted your prices above the market price.
Breach of terms and conditions- your staffs were rude and disrespectful.
Note that you are entitled to return any of the company’s materials or documents you had during our contract period. Additionally, the orders made before this letter will be delivered expectedly. However, we will no longer make new orders to that effect. We will clear any outstanding balance on our side before the date [mention the dates].
Kindly confirm the receipt of this letter as a termination of our contract. If you have any other questions, you can reach us at [phone number]. We thank you for your services and wish you the best in your future endeavors.
Templates & Examples
Before you start writing one, it is good that you use samples to guide you. They will ensure that you are not writing blindly but will also impart more ideas on what the contract termination letter should contain.
They also reduce time wastage as most of the time they are already drafted, so all you have to do is make the necessary adjustments. Once you do so, you can send them or make a new one according to the sample format. They help reduce errors you would have done when doing it on your own. Through them, you can create a more straightforward document.
Things to Remember When Drafting the Letter
- Always make sure that you use a business format and professional tone when writing a contract termination letter. This will help build on your reputation.
- Make sure you provide a legitimate reason as to why you are terminating the contract.
- Ensure you mention the dates on the termination letter which you would want the contract termination to take effect.
- Let the reader know that your termination is in accordance with which specific clause regarding contract termination,
- Express your gratitude and appreciation in the termination letter to those who were involved in the contract. Also, you can wish them well in their future endeavors.
Just like the definition points out, a contract termination letter is mostly put into use when one side wants to inform the other about agreement termination. It also indicates a new date on which that will take effect. Nonetheless, the most important purpose that it serves is it acts as proof that you had notified the other party about the termination just in case they bring up claims they had no idea of the cancellation. Also, it ensures that both sides had a say in termination hence maintaining a healthy future relationship between them.