How to Get out of a Contract
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What Is a Contract?
If you’d like to get out of a contract, the first step is to determine if the contract you entered is legally valid. If it isn’t, then you may be able to get out of it easily since a court won’t uphold it.
A contract requires certain terms in order to be legally valid. At the very minimum, there must be a "meeting of the minds" for a contract to be valid. Although it is always advisable to put a contract in writing, many oral contracts are valid.
When there’s a dispute as to whether a legal contract has been formed, the court will determine if the following elements exist:
- Consideration (giving something up in order to gain something)
- Legal Purpose (must not be a contract for something illegal)
Can I Get out of the Contract If It Is Valid?
If the contract contains all of the requirements above, it will be considered valid and an issue will arise if one party sues to enforce its terms. This is a common problem, since most people sign some type of document every day. Therefore, it is very important to be focused when signing even the most basic document.
However, there may be some options available if a party decides they want to get out of the contract.
The three-day "cooling off" rule is probably the simplest way to get out of a contract. The three-day rule (72 hours), provides that a party has three days to change their mind. The rule was passed by the Federal Trade Commission (FTC) and applies to all 50 states. The rule is applicable to general purchases over $25. However, there are some notable exceptions when the FTC rule does not apply, including:
- The purchase was made online, by telephone or by mail.
- You already had contact and/or a relationship with the seller.
- The condition of the product has changed since the purchase.
- You waived your right to cancel. Read the fine print before signing!
- The purchase was for something other than personal, family or household use.
- The purchase involved real estate, insurance, securities, or a motor vehicle.
Although the federal three-day rule has certain requirements, states often add more conditions to the use of the rule. For example, in Texas, any purchase for the sale of farm equipment, insurance or real estate must be over $100. Other states have similar variations to the federal rule. It is very important to know your states law before attempting to assert the rule.
What If the Three-Day Rule Does Not Apply?
If 72 hours has passed since the contract was agreed upon, or one of the above exceptions applies, a party may still be able to get out of the contract. The following options may be available:
Write a letter stating the reasons why you want to cancel the contract. Many businesses will allow customers to get out of a contract to sustain their reputation as fair and reasonable. Also, it can be expensive for a seller to sue so it may also be to their benefit to let you out of the contract. Another option is to offer a small amount of money in return for the cancellation, even if there is no early termination fee.
State consumer-protection laws. Consumer-rights laws are often passed by states to protect buyers from a seller’s unfair or abusive practices. For example, California has enacted many protections for consumers. In California, and many other states, these laws protect consumers against "bait and switch", pyramid schemes, telemarketing fraud and the sale of automobiles that do not meet quality and safety standards (aka as "lemon laws).
Should I Contact a Lawyer?
The law of contracts can be complicated and difficult to understand. An attorney can explain your state’s law regarding getting out of a legally valid contract. Additionally, a lawyer can help you with drafting and reviewing contracts before you sign and commit to the terms. An experienced business attorney will ensure that your needs are met.
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Last Modified: 12-18-2014 03:32 PM PST
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