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Can contracts be terminated at a party’s convenience?

On Behalf of | Mar 10, 2020 | Business Law |

The confidence that comes with having contracts with your business partners lies in knowing that absent any failures on your company’s part to fulfill its terms, that partner cannot simply walk away from your agreement. Yet what if one tries to do just that? There is a legal right to terminate contracts for a party’s convenience, yet that right (and who is allowed to exercise it) is fairly tightly controlled. 

According to information shared by the Congressional Research Service, government agencies are automatically entitled to exercise the right of termination for convenience. This risk is often the trade-off you are forced to live with when working with what would normally be such a reliable partner. Something as simple as a deterioration in your business relationship with such an organization may lead to this, or it could be that the agency cultivates the ability to provide the goods and/or services that your company offers on its own. 

Private companies, on the other hand, are only allowed to terminate contracts for their convenience if that right is afforded to them by the terms of a contract. Some might wonder why you would concede such a right when negotiating a contract, yet such a benefit may be a selling point you choose to offer in order to secure an agreement with a renowned and reputable partner. Whatever your reasons, your organization would not be blindsided if the partner later chooses to exercise that right. 

When a business partner lawfully chooses to end a contract for its convenience, you are typically entitled to any payments or expenses incurred up to that point, plus the cost of ending your service. Damages for breach of contract can only be collected if you can show an element of bad faith was involved in the contract negotiation.