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Termination of Agreements

A termination of agreement is mainly used to terminate business contracts between buyers and sellers of either goods or services. When any of the business party is not satisfied with agreement they have made either on fulfilment point of view or quality point of you they send this letter to terminate the agreement. Such termination can not only be used for business agreements but any agreement.

How to use it?

We provide a termination of agreement format used by one party to the agreement to terminate the agreement for his specific reasons to do so. Such agreement can be drafted on the plain paper or also can be on the companies letterhead addressed to the other party with whom the agreement is done, signed and authorized by the owner.

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Following remedies may be pursued for if there is a termination of the contract: 

  1. Suit for breach of contract: A suit for breach of contract can be instituted when either party breaches an enforceable agreement. The remedies can be obtained in the form of damages, restituting the suffering party, rescinding the contract, or ordering the breaching party to perform the contract. These damages shall include the compensation given for financial losses caused by a breach of contract.
  2. Damages: Under Section 73 of the Indian Contract Act, any party can claim compensation for loss or damages caused to them in the normal course of business if the other party breaches it. The liquidated damages are pre-decided by the parties while forming the contract. The unliquidated damages are assessed and determined by the courts or appropriate authorities after the contract is breached. The general aim of an award of damages for breach of contract is to compensate the innocent party for the actual loss suffered and to put the party back in the same position as it was before the formation of the contract. The damages incurred are assessed as at the date of the breach of contract. These damages may be for the pecuniary loss, non-pecuniary, and nominal damages. 
  3. Specific Performance: Specific performance is an equitable and discretionary remedy given by the court in case of breach of contract, which compels the breaching party to perform a contractual obligation. It is generally awarded when the required obligation is unique and difficult to value. It may be ordered when the property is not an ordinary article of commerce or consists of goods which are not easily obtainable in the market. 
  4. Injunction: Injunctive relief is a legal order that either makes it mandatory for the defaulting party to perform specific obligations or prohibits the defaulting party from performing certain tasks. It is also at the discretion of the court and can be ordered on an interim basis or a final basis. A common instance of interim injunctive relief is an order restraining the party from dealing in certain property until the substantive dispute has been concluded. 
  5. Indemnity: Indemnity clauses are the contractual provisions that allow the parties to manage the risks attached to a contract by making one party compensate for the loss suffered by the other, due to specific events. An indemnity may be claimed for losses arising on account of the conduct of a third party. The damages, the amount paid under the terms of the agreement, legal costs of judgment, are some of the claims which Indemnity holders can include in its claims. 

Purpose of Termination of Agreement

Sometimes, contractual duties and obligations simply don't work out. You might be dissatisfied with the way the other party is fulfilling their duties, or you might not need their services any longer. In these situations, you can send a termination agreement to make it clear that the contract is canceled. Termination agreements set forth obligations that survive the termination. Parties in the original contract must sign a termination agreement.

These agreements specify that the involved parties have come to a mutual conclusion to end the contract. They may include an optional mutual release of claims. A business termination agreement formally ends a business relationship. It usually involves a business and an individual or two enterprises.

In a termination agreement, you'll include information such as:

  • The involved parties
  • The relationship between the contractual parties
  • The results of the termination
  • Any consequences arising from the termination


In many cases, termination agreements are mutually agreed upon between the involved parties. These agreements are part of good business practice and should protect the best interests of all involved.

There are different reasons for terminating a business relationship, such as:

  • Irreconcilable differences
  • A new provider enters the picture, offering better services and/or prices

You should use a notice of contract termination to notify the other contractual party that you're terminating your agreement. Give them an effective date of termination in this notice, as well

Details in Termination Agreement

Termination agreements specify who's involved in the termination, the reasons for the cancellation, and how and when the termination takes place. When applicable, you may also include a detailed scope of severance pay. The agreement sets a date for termination. It also includes the parties involved and the signing date of the original contract.

A notice of contract termination contains terms under which you can cancel the agreement. When you send a notice of contract termination, it creates a record that you provided notice to the other contractual party about the termination and the date it becomes effective. This gives you proof of notice, which may be needed if the other party says something different in the future.

You can also use a notice of contract termination as a courtesy to others to thank them for their service. This is one way you can preserve your relationship with them. Note that contractual parties are only obligated for duties intended to survive the end of the contract's term.

Do you have time to back out of a Contract?

Just because you sign a contract doesn't always mean it goes into effect immediately. A lot depends on the specific terms and conditions contained in the agreement. You may have a set period of time to back out of the contract.

In some states, this is known as a “cooling-off period.” It often applies to canceling transactions that take place somewhere other than the seller's permanent location. This includes trade show sales and door-to-door sales.

Your state may have different rules pertaining to cooling-off periods. You need to know what your state's contract regulations are because certain types of contracts don't recognize cooling-off periods. Seek professional legal advice if you have questions about this.

An effective date on a Termination Agreement

In general, termination agreements become effective on the date that the involved parties specify. Sometimes, these agreements are triggered by other means, such as:

  • Delivery by an agent
  • Hand delivery
  • A set number of days after being mailed


Contractual parties may agree to postdate termination agreements so that the effective date falls on a specific future date.

Sometimes, you have the option to back out of a contract within a certain window. It's important to understand your contractual obligations before you sign an agreement. If you have any questions about a contract's terms, conditions, provisions, and language, consult with a legal professional first. This can protect you from legal repercussions in the future.

If you need help with a termination agreement, you can post your legal need to TAXAJ.

Damages related to Termination?

Damages available to the non-breaching party following its termination of the contract or in response to a wrongful termination by the other party include direct damages, consequential damages, and all other damages necessary to place the non-breaching party in the same position it would have been in should the contract have been completely performed by the parties. In the context of a contractor wrongfully terminating its contract with an owner, the owner would be entitled to recover from the contractor the costs of hiring a replacement contractor to finish the Work, costs associated with delay of completion of the project including lost profits from use of the completed project, any additional costs for completion due to the termination, and any additional costs related to administration of the project, including additional costs for project management.

On the other side, in response to an owner’s wrongful termination of a construction contract, the contractor would be entitled to recover the cost of its work to the point of termination plus all overhead incurred, plus lost profits and overhead. In the event of an owners’ wrongful termination of the contractor following substantial completion, the contractor would be entitled to recover the contract amount less the actual cost the contractor would have incurred in completing the balance of the project.

Conclusion

Contract termination is a drastic step and should be avoided, if possible. However, there are times when termination is appropriate, such as when the terms of the contract or the law allow for termination and it would also be the best way to mitigate damages. Under these circumstances, the contract should be terminated with caution and with good legal advice.