Contract Termination Letter

A contract termination letter can be written for many purposes, such as the termination of a contract between a vendor and producer, or a termination of contract between a creditor and a businessman, etc. Some examples of such letters include, a letter written to terminate the employment or a consultancy contract, or a letter terminating a business related contract in some cases, construction contracts are also terminated by this means, though it tends to be pretty costly.

The termination letter, must be crafted very carefully and should not have loop holes, that might lead to controversies or legal issues. The contract termination letter must also be in accordance with the original contract. In most of the contracts, the terms and conditions regarding the termination of the contract are specified in detail. According to these conditions, the contract termination procedure may or may not be conducted on the basis of a notice period that is provided by both the parties. One must remember that this letter is as important as the contract itself, as it is a proof that both or more parties that were party to the contract have accepted the termination. It is also extremely essential that both the parties have the authentication rights and the authorized originals and copies of the termination letters as well as the related documents.

Legal Premise and Implications

A contract termination letter chiefly ends the agreement or a contract. When such a letter is written, the contract itself enters a whole new premise. Legally speaking, the common contract laws list 5 important things which can lead to the termination or breaking up of a contract. These go as follows:

1. Breach of Contract: A breach can take place when either party refuses to perform or does not perform, his or her end of the contract (technically it's known as fulfillment of promise). Such a breach can also be anticipatory or can take place on the day, when the contract was supposed to be performed.
2. Fraudulent Nature or Mistake: A contract can also come to a complete halt, in cases where either party has a fraudulence approcah towards the agreement. In such cases intentional misrepresentation is also observed. Contract laws do not list unintentional mistake to be an element which would lead to the termination or invalidity of contract. However, remedy in the form of monetary compensation against the damages occurring due to mistakes is usually provided, as per the operation of the law.
3. Prior Agreement: Now the third way to end a contract is by the agreement to end the contract between the two parties. Simple enough, the parties to the contract sit down and reach a proper conclusion. Some contracts also have a clause which empowers either or both party to initiate such a procedure.
4. Impossibility to Perform: In some cases either of the parties faces a situation wherein it becomes totally impossible to execute the contract. For example, tourism company cannot take tourists to Iraq, during its invasion. Basically, the elements of impossibility needs to be present.
5. Termination Letter: Now this one is quite similar to the prior agreement. The only difference is that the two parties do not sit down to have a talk or negotiate. One party takes the gentleman's way and simply writes the letter and provides the other party with a bank check which is used to compensate the other party with all losses that they have or are going to incur as a result of the non-performance of the contact. Now there is a possibility that this situation may revert to the 'prior agreement'. The probability though is pretty low. It must be noted that proper termination letter can have the elements of both, 'Impossibility to Perform' and 'Prior Agreement'. The element of 'Prior Agreement' are observed due to the fact the several, or rather almost all contract documents have a termination clause.

From the legal point of view, such a letter, chiefly indicates that the contract is not breached, or not performed and the party which is communicating through the letter is basically indicating that, he/she/it (it; is a reference to artificial legal personalities such as companies and corporations) would not be able to perform or execute the contract.

How to Write a Contract Termination Letter?

The contract termination letter should be short, polite and very specific. The following are some of the most essential points that have to be covered in the letters, so as to make the letter a foolproof indication to the fact, that the contract has been terminated.

• The names and other specifications of the other parties, who were party to the given contract.
• The terms and conditions of the contract that empower the parties to terminate the contract.
• In the case where the termination takes place at the cost of monetary penalty or compensation, mention the mode of payment that you plan to use.
• In the case of many contracts, like an employment contract, it is essential to mention the code of the letter, by which the notice period of the termination of the contract was communicated.
• Last but not the least, all kinds of dates, such as the date of the contract, the date to due performance and the date on which the letter was drafted need to be clearly mentioned.

Now please note that when you write such a letter, reading the contract document in itself is of essence. This is due to the fact that you yourself, will understand whether terminating the contract would prove to be a wise move or not, it will basically reinforce your decision to terminate the contract. Next off, there is always a clause where the instructions and implications of termination are provided. In the absence of such a case, you will have to follow the common procedure which has been prescribed by the law. In certain cases where a concluding termination is not reached, arbitration by holding a meeting is also done.

Sample Contract Termination Letter

Dear Sir, This letter is in reference to the contract, signed, 28th of May, 2009. We wish to inform you that according to the Clause 7 of the contract mentioned above, we wish to terminate the contract, as we find ourselves in a position where we find it impossible to deliver and meet the performance, as stated in the contract. We are very sorry for the inconvenience caused. According to the Clause 8, we shall be forwarding you the monetary compensation, which shall be deposited in your bank account within the next 3 days. The total amount which will be credited to your account has been computed as follows: Particulars Compensation Amount Basic Penalty (As per Clause 8 of the contract) ... Compensation for Logistics ... Compensation for Advance Payment ... Compensation for Business Damages (Goodwill, etc) ... Compensation for Urgent Reorder cost and time ... Damages ... Liquidated Damages ... Contract Price (prepaid amount reimbursed) ... Total Restitution ... I again apologize for the inconvenience caused. I also look forward to doing business with you in near future. Yours sincerely, (your name, signature and seal)

Tips for Writing a Contract Termination Letter

In order to write a really good termination letter, there are three important tips and tricks that one needs to bear in mind. Note that these 3 aspects are to be projected in the language, tone and flow of the letter.

• It is extremely important that when one maintains a very polite and humble tone in such a letter.
• Apology is also another very important aspect, that you should bear in mind while writing such a letter. Since the other party of the contract has been caused a reasonable amount inconvenience, it is best to apologize at least two times, sincerely.
• One must also make a good ending statement, that indicates that you are willing to do business with the party in future.

Remember to put in the emotion, that you are sorry for the inconvenience caused and termination of the contract. Also, brush up on your negotiation skills, in order to have better options at hand in the case of a termination. Another very important need, is to write a contract agreement very carefully. Termination of a contract with such a letter always tends to be a pretty difficult job and it also harms your image in a certain industry, bushiness or sector considerably, hence the first thing you must try is, not terminating the contract.