Get Out of a Contract Legally

Maybe you entered into a contract with a service provider to provide your business certain services over a given period of time.  Can you get out of such a contract before the contract term has expired?  When a contract for services has a term of a given number of months, the general rule is that the contract will remain in effect during the entire term.  For example, if the contract provides for a 12-month term, the contract does not expire until 12 months have transpired.  Whether the contract can be terminated before the end of the 12-month period depends on whether the contract provides for early termination or otherwise has an “escape clause.”  Such early termination provision would state something about one or both parties having the right to terminate prior to the expiration of the contract term.  Sometimes the early termination provision is limited to when one party has committed a material breach of the contract.  But even if the contract does not contain a termination provision, one may still be able to terminate if the other party breached its obligations under the contract (did they fail to deliver on what they promised?).

Whether or not the contract can be terminated early, one should give, within the required time (check the contract language for time limits), proper notice that the contract will not be renewed at the end of the 12 months and that it will be terminated at such time.  This way the contract is not automatically renewed for another 12-month period.

If the other party threatens legal action, such action may need to be brought in small claims court if the amount at issue (e.g. $400 per month for 6 months) is not enough for the case to be brought in superior court.  But in any case, the other party could sue for damages in the amount that the contract would have paid them over the full term if not for the improper termination.  To avoid this, it may be worth asking if the contract can be terminated early in return for payment of an early termination fee that is less than the full fees that would be payable over the balance of the contract term.  If an early termination fee can be arranged, it is important to have a settlement and release agreement in place so that the other party cannot sue later for a balance due.

This discussion is not legal advice, a solicitation of you as a client, nor the engaging in the practice of law in any jurisdiction.  This discussion is merely for information/education and should not be relied upon for legal advice by anyone because the facts discussed may be different from your own situation.  If you need legal advice, consult a qualified attorney.  For more information please visit my website at www.palacioslawoffice.com.

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About Elio Palacios, Jr.

Attorney Elio Palacios, Jr., represents individuals, corporations, entrepreneurs, small businesses, startups and early stage businesses, physicians, dentists, and healthcare businesses in corporate, business and commercial transactions and litigation. He also counsels employers and individuals on visa, immigration and naturalization matters. Visit www.PalaciosLawOffice.com to learn more.
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