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3 Ways to Get Out of a Business Contract

By Brett Snider, Esq. | Last updated on

Ending a business contract isn't always pleasant experience, but getting out of one shouldn't be the end of the world.

Situations often change, and business owners may have to break contracts in order to protect their interests. Being prepared can help make the process easier.

Knowing that the life of your business will contain more than a few curveballs, here are three potential ways to get out of a business contract:

1. Ask the Other Party to Cancel the Contract

Sometimes the answer is as simple as asking the other party, in writing, to cancel the contract.

Business owners know that sometimes goodwill between business partners is worth more than suing partners in a contract for breach, so it is possible to get out of a contract for a small fee -- or possibly for free.

Remember when requesting a cancellation that you abide by any cancellation or termination clauses contained in the contract.

2. Take Advantage of Your State's "Cooling Off" Period

Many states have "cooling-off" laws which allow for cancellation of a contract if it is done within a certain timeframe, such as within three days (72 hours) of signing.

In Texas, for example, a business can cancel a contract if it was signed outside the regular place of business and for goods and services more than $25, as Demand Media explains.

Because state laws vary, you'll want to check the laws where you live to see if this is a viable option for you.

3. Breach the Contract

Breaching a contract does not make you a bad person; it is a completely amoral action. But you will likely have to pay for it.

You can choose to breach a contract by simply not performing your obligation under the agreement. This might mean not paying for a purchase or not performing a service.

When you breach, a court (or more likely an arbitrator) will determine what the breaching party owes for the contract. This can include:

  • Compensatory damages, the amount paid to the non-breaching party to get the job done elsewhere;
  • Restitution, in which you give back any money you didn't earn through working to fulfill your obligation; or
  • Liquidated damages, a contract provision that calls for you to pay a certain amount when you breach.

Even if your contract contains a liquidated damages clause, it's possible that a court may find the clause to be unenforceable for a variety of reasons. You may want to contact an experienced contracts lawyer to review your agreement and help determine the best way to get out of your business contract.

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