What to Do If a Client Wants to Cancel a Contract
What to Do If a Client Wants to Cancel a Contract
What to Do If a Client Wants to Cancel a Contract
By Stephen Fishman April 14, 2020

A client informs you it wants to a cancel a contract. What should you do? 

Read Your Contract

Take a careful look at your agreement. It efines your rights and responsibilities.

Pay particular attention to what the contract says about termination. Some contracts have a termination for convenience clause that gives both parties an unfettered right to cancel at any time for any reason or for no reason. Typically, the cancelling party just has to give a certain amount of advance notice. Here’s an example: “This Agreement may be terminated prior to the completion of the services to be performed by either party giving 30 days' written notice.”

If your contract has a clause like this, your client has the legal right to cancel it. The only question is how much you should be paid for any services you’ve already performed. Often, this is addressed in the termination clause. Or, your contract may provide for a cancellation fee or permit you to retain a deposit. Even if the contract doesn’t mention this issue, you should be paid for work actually performed before you receive notice of termination. Discuss this with the client and make arrangements to deliver any completed work and return any materials the client has provided.

Are There Legal Grounds for the Client to Cancel the Agreement?

If your contract lacks a termination for convenience clause, the client can’t cancel it just because it feels like it. It must have legal grounds to cancel.

You have Breached Your Contract: A client has the legal right to cancel your agreement and sue you for damages if you’re in breach of contract. The beach must be “material” (serious) to justify cancellation. A breach is material when it defeats the purpose of making the contract in the first place. Missing a deadline by a day is probably not material. Missing a deadline by weeks may be.

Does your client have a legitimate claim you haven’t performed adequately? Read the contract specifications. You have no duty to do work that isn’t set forth in the contract.

Impossibility or Frustration of Purpose: Even if you haven’t done anything wrong, a client could have the legal right to cancel an agreement under the “doctrine of frustration” or impossibility. Under this legal rule a contract automatically comes to and end if an event occurs after it is formed that:

  • is not the fault of either party
  • was not foreseen by them, and
  • makes it physically or commercially impossible to fulfil the contract.

This doctrine can come into play where events like the coronavirus pandemic occur that seriously disrupt a client’s business. But, it is generally not enough that circumstances make living up to the contract less economically advantageous for the client. Rather, it must really be impossible for the client to go through with the contract.

Negotiate

It’s always best to reach an amicable resolution with the client. Don’t rely on email. Call or meet with the client. If it wants to cancel simply because its pressed for cash right now, you may consider reducing your fee or giving the client longer to pay. If the client is unhappy with your work, find out what if there’s anything you can reasonably do to cure the problem.

If you both decide to go your separate ways, the client should pay you for your work as provided in the contract. If the contract is silent on payment upon cancellation, you still should be paid for the work you did before you were notified of the cancellation. Make arrangements to deliver any completed work and return any materials the client has provided--but you should do so only after the client pays what it owes.

Going to Court

If you and the client can’t work things out, legal action is your final option. Again, read your contract. It may contain a provision specifying how the contract may be legally enforced. For example, you may be required to enter into arbitration instead of suing the client in court. It may also contain a provision requiring the losing party in such a legal action to pay the winner’s attorney fees. If so, it can make it much easier for you to hire a lawyer. It can also make the client more willing to settle your claim.

If you do go to court, small claims court can be your best option. In most states you can sue for up to $10,000 or more and you don’t need a lawyer.