Agreement Cancellation Defined
Contract cancellation? The very idea seems to be a contradiction. How can you enter into an agreement all while knowing that you can easily cancel it at any time? That’s where agreement cancellation comes in. Instead of really canceling the agreement, you’re going through the process of cancelling, and in turn, terminating the contract. Following all of the right procedures will ensure an effective agreement cancellation without much pushback from other parties.
It’s smart to be careful, however. In the heat of the moment, you may cancel an agreement that you realize you need later — a contract or employment agreement that is vital to the growth of your business. While some agreements have dissolution procedures in place, other agreements may not. So when do you go about agreement cancellation and when can you legally do so?
Agreement cancellation is a remedy available to both parties of a contract if one of them is not meeting their end of the deal. The damage resulting from that unfulfilled contract is called breach of contract, and it’s a frequent business solution. To cancel the agreement , the aggrieved party sends an agreement cancellation letter and the agreement is henceforth terminated.
But why would anyone need to cancel the contract at all? Well, as briefed above, canceling an agreement without reason presents a problem. But when a certain party isn’t upholding their end of the bargain, it isn’t uncommon to fire a letter off to call out these issues. When the aggrieved party does this, it opens the door to either resolve the issues or absolve themselves from the contract.
Legal Issues Associated with Agreement Cancellation:
Agreement cancellation isn’t a total walk in the park. Companies can use it for their own protection and it’s important for you to realize that some contracts contain clauses that don’t allow for it. For example, agreements under seal will not allow cancellation because they are sealed until delivered.
If you’re considering agreement cancellation, research the agreement and request certain data that has not been provided. A case-by-case solution is needed to determine whether agreement cancellation is right for your company.
What Your Cancellation Letter Needs to Include
The essential elements of a cancellation letter are: (i) identification of both parties; (ii) identification of the agreement to be cancelled; (iii) the reason for cancellation; and (iv) recitation of any terms of the agreement upon which cancellation is based if any. The cancellation letter may also identify the person to whom it is sent, such as a lender or servicer. All parties to an agreement are usually specifically required to be given notice to exercise a termination right. It is better to be precise and send the cancellation letter to the specific parties identified in the agreement. An effective termination letter is as follows:
Date
To:
Address
Re: Cancellation of [Identifying the agreement]
Gentlemen:
Pursuant to the express provisions of Section __ of the Subject Agreement, or pursuant to the express terms in the Subject Agreement, Buyer hereby terminates the Subject Agreement and demands that the deposit of _______ ($____) being held by Escrowee, be returned. Enclosed, please find a prepaid FedEx for the immediate return of the deposit.
Steps to Create an Agreement Cancellation Letter
When creating an effective cancellation letter, it can be helpful to take a series of steps to ensure it communicates clearly. Essentially, these steps are identical to those you would go through if you were drafting an email, with some notable differences:
1. Choose the appropriate communication method.
Cancelling an agreement is not something you should do over the phone. It’s very important that you keep a record of your dealings with the other party and this is the best way to do so. For this reason, an email or a formal letter is preferable.
2. Choose a light but clear tone.
To keep the cancellation letter from being confrontational, keep the tone light. You want to end the agreement on good terms and avoid doing anything that could push the other party to retaliate.
3. Make sure it is concise.
Agreement cancellation letters don’t need to be extremely long. It is best to keep them at about a page, if possible.
Agreement Cancellation Letter Sample
Dear Jack,
I have received your written request to cancel our agreement dated August 1, 2010, which is referenced in this letter as "THE AGREEMENT" and is prepared to proceed as you have requested. However, THE AGREEMENT specifically states that you must give 30 days written notice in order to properly cancel the agreement. This can be found in section 7c.
"7c. Either party can cancel this Agreement after thirty (30) days of written notice if REAL ESTATE AGENT witnesses unprofessional behavior by CLIENT, including but not limited to verbal or any means of harassment directed towards other agents, staff or employees of the brokerage either in person or in print."
THE AGREEMENT clearly states that I must wait 30 days from the date of your written notice before we will properly cancel our agreement. I will wait until such time for the reasons stated in section 7f. These are:
"7f. I have expended considerable time, funds, and other resources in working to perform my duties under this agreement. In the event this agreement is terminated for any reason, CLIENT agrees to reimburse REAL ESTATE AGENT for said expenditures as liquidated damages. CLIENT further agrees that if CLIENT executes another listing agreement with any other person, any remaining un-reimbursed expenses incurred by REAL ESTATE AGENT under this Agreement will be reimbursed by CLIENT by way of being subtracted from the compensation due and owing to REAL ESTATE AGENT from said new listing agreement, such reimbursement to the full extent first from any other listing or cooperative sale that CLIENT may engage in and net the highest commission to CLIENT."
In closing, I will need 30 days from the date you provided me with your written notice to cancel the agreement. Let me know if you have any questions.
Avoiding Common Errors
There are several pitfalls that inexperienced individuals can fall into when writing a cancellation letter. Below are some common mistakes to avoid:
Failure to Cancel Promptly.
It is important for a party to send a termination letter as soon as possible upon realizing a breach or default. Most states have a "reasonable" time obligation on a party when given a right to terminate a contract, and failing to cancel without undue delay can be detrimental.
Failure to Specify the Reason for the Cancellation.
A cancellation letter must clearly specify the reason for the cancellation or it can be deemed as vague and provide the other party with an opening to possibly dispute the cancellation.
Failure to Accept Responsibility for the Mistake.
If a party discovers they made a mistake in the contract and resent the existing agreement with the correct information , they must expressly accept responsibility for the error and set forth how they will remedy the mistake in the new letter.
Failure to Address Possible Recourse.
If there are other issues that arise from the cancelled contract, the letter must set forth how to address these possible issues. For example, if the party cancels a lease early, they should specify how much notice they must provide, or how much of their deposit they will be required to forfeit.
Failure to Propose a Solution or Request a Resolution.
Above all, in order to prevent conflicts over the cancellation, it is recommended to propose a resolution to your counterparty, so that they know where they stand on the subject and how you plan to proceed. Especially if there are any damages involved or any losses, it is important to preemptively address them so that you both can come to an agreement.
Cancellation of Agreement and Your Rights
When canceling an agreement, it is vital to be aware of the legal implications it may have. Certain agreements may incur cancellation fees for early termination, damages to property, or cancellation fees outside of the applicable grace period. Always consult the terms of the underlying agreement to determine the scope of any fees that will be incurred.
In many cases, particularly with consumer goods, the law provides a specific timeframe in which a customer has a right to rescind. For example, when a landlord enters into a rental agreement with a tenant, the grace period (i.e. a time in which the tenant may rescind the lease) may be anywhere from 24-72 hours. In other circumstances, a person may enter into a contract to purchase a motor vehicle, and be provided the right to cancel the contract within 3 days. Depending on the nature of the agreement, you may have greater or lesser rights to cancel an agreement.
Because these timeframes can vary drastically, and because contract terms differ from agreement to agreement, it is always advisable to seek counsel in the event that you need to cancel an agreement that may implicate issues of liability, fees, or rescission.
Completing Your Cancellation
Once you have drafted your agreement cancellation letter and signed it, you must send it to the other party. Typically, it should be sent to the party’s last known address. A cancellation can become effective when the notice is sent, rather than when it is received by the other party. However, simply leaving a letter in someone’s mailbox is not a cancellation. Rather, if it is dropped off at the party’s place of business, residence, or anywhere else where the letter will be effectively received, it is likely considered effective. The same is true if it is mailed to that address. It is crucial that you keep a record of your cancellation letter. You would want to keep a copy along with the envelope. If the date of mailing is on the postage , then it is good evidence of the date you mailed the letter. If the postmark is unclear or it does not have a postmark, try to keep your receipt so you can show the date you purchased the postage. You would also want to keep the copy of the letter and the envelope together so they are easy to find later. See about getting a receipt if you need to send the cancellation by courier or registered mail, too. It is also important to keep a copy with your records of the original agreement. In the event that an agreement is cancelled, you would want your records to all be in one place.