Person Pulling Termination Letter Out of Envelope

Terminating a Business Contract

David H. Schwartz, INC May 23, 2023

If you operate a business, it is common to enter into agreements – called contracts, whether they’re written or oral – with other people or entities to supply products or services you need to run your enterprise. These contracts can vary from a cleaning crew to maintaining the appearance of your store to accountants supervising your payroll.  

Contracts are legally binding, so long as they contain the necessary elements, which include offers, acceptance, consideration, mutuality of obligation, and competency and capacity.   

Say you open a store to sell office products. You engage with a supplier to deliver routers needed for the Internet. You offer to pay a certain amount for each router, and the supplier accepts those terms. The dollar amount is the consideration. Mutuality of obligation means that both parties have to abide by the terms of the agreement. Otherwise, there can be a breach. Competency and capacity mean that both parties are of legal age and mental state to engage in a contract.  

However, as time goes on, it becomes clear that customers don’t like the particular brand of router you’ve contracted to provide. How do you get out of the contract? That can be a tricky issue. If you and your business are locked into a contract that isn’t working in or around San Francisco, California, contact the Law Offices of David H. Schwartz, INC.   

The business litigation attorney at the Law Offices David H. Schwartz, INC has more than 45 years of experience in tackling issues that threaten the future of your enterprise. His office proudly serves clients in the Greater San Francisco Bay Area and San Jose, Santa Clara, San Mateo, and throughout Alameda County. 

Ways to Terminate a Contract 

Of course, the primary reason to terminate a contract legally is if the other party fails to live up to their obligation. This could be because of a breach – in our example, the entity simply quits providing the agreed-upon number of routers, or perhaps your tax accountant fails to pay what’s owed to the state and federal government. Whatever the circumstance, the mutuality of obligation has been broken.  

Another reason for terminating a contract can arise from the impossibility of performance. Performance is the word used to describe the obligations of both parties in a contract. Say the supplier of routers can no longer get the products you need because the company they relied on goes out of business. You can then end the contract because of the “impossibility of performance.” Another term for this is “frustration.”    

If you craft the contract carefully, you can have an “out” or “break” clause included in the wording. This would give you a legal trigger point to end the contract. For instance, you may be able to break the contract if you decide you no longer need to sell routers because customers have shifted to 5G wireless that they obtain from their cellular provider. 

A contract can also be subject to rescission if one party misrepresented themselves or acted illegally, perhaps by committing fraud. Your router supplier may have promised a certain type of product but delivered an inferior product or one that failed to perform as promised. The point is that the contracted entity is doing something you didn’t agree to. 

How an Attorney Can Help in Terminating a Contract 

The best legal advice is to protect yourself when you agree to a contract. Make sure it’s in writing and contains clauses that provide for a “break” or termination of the agreement. An oral contract is also legally binding but becomes a matter of who agreed to what, a variation of “he said/she said” when the case goes to court. Get everything in writing. 

Business Litigation Attorney Serving the San Francisco Bay Area 

If you and your business are on either side of a contract dispute, contact the Law Offices of David H. Schwartz, INC. to resolve the situation. The firm's attorney has the knowledge and experience to help you successfully protect your interests and propel your business forward, even if a contract has turned sour on you.