Can I change my mind after entering a contract?
UPDATED: February 20, 2013
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While it is easy to change your mind about entering into a contract, it’s not always as easy to get out of that commitment. However, you do have several options.
Rescission and the “Cooling Off” Rule
Depending on the state, and the type of contract, you may be able to change your mind, or “rescind” the contract if your decision is made within a specific time period. Whether there is a rescission period or not will depend on if there is a rescission clause in your contract. Even if there is no such clause, the laws of your state may allow it. Many state statutes stipulate that you have three days to rescind an offer, even after you agree to all the terms. This is often seen in real estate contracts, for instance. The FTC also has a “cooling off” rule, which allows you to change your mind within 72 hours of a purchase made inside your residence, or a seller’s temporary place of business. The cooling off rule requires the salesperson to explain your cancellation rights at the time of the sale and give you a cancellation form. There are, however, many exceptions to the cooling off rule under the FTC. A common misconception about the cooling off rule is that it applies to cars when there is a temporary dealership set up. While you may be able to buy a cancellation contract from the dealer to get more time to decide, this is based on contract law, not the FTC rule. To learn more about the cooling off rule, go to the FTC website.
If there is no right to rescission, or if you missed the time period in which rescission was allowed, you should ask the other party if they would consider a mutual rescission of the contract. Sometimes this will be a better option for the other party, than to stay in business with someone who does not want to be in business with them. A mutual rescission is done by drafting another contract that voids the first one. Blank mutual rescission templates or forms can be easily found online.
Material Breach of Contract by the Other Party
If the other party has materially breached the contract, this will give you legal grounds to nullify the contract. A material breach means that the breach goes to the heart of the contract. For instance, if you order goods to be delivered by a certain date, and the goods come a week later than promised, this may be a material breach. If you are a seller of goods, and the buyer has breached the contract, your rights are governed by the Uniform Commercial Code (“UCC”). Under the UCC, if a buyer fails to make payment when payment is due, or otherwise breaches a material portion of the contract, the seller may withhold the goods; resell the goods and collect excess damages; recover damages in the amount equal to the difference of the contract price and the market price; or just void the contract.
Duress, Fraud, Impossibility of Performance, and Impracticability
It is also important to remember that a contract entered into by force, or threat of force, can be legally voided. Further, if someone deliberately misrepresents material portions of the contract, that constitutes fraud, and you have the right to cancel the contract, as well as sue the fraudulent party for damages.
“Impossibility of performance” is another legitimate reason under the law to cancel the contract. This means that if you contract with someone to paint your house, and they die before fulfilling the contract, it is impossible for them to perform, and therefore you may void the contract. If you have signed a contract to where you agree to paint someone else's home, though, and fall ill, impossibility of performance will not excuse you from completing the contract. To claim impossibility, it must be impossible for anyone to perform. You must arrange for another party (such as an employee) to undertake your responsibilities or you will be held in breach of contract.
In addition, some courts recognize that contracts may become impracticable. This means that after the contract was formed, extreme circumstances that were unanticipated made it extraordinarily expensive or inconvenient to perform under the terms of the contract. The problem must not be something that should have been anticipated at the time the contract was formed. For example, if a contractor signs an agreement for a certain price based on lumber and materials costs, then costs of those materials increase exponentially, a court will not view the contract as impracticable. The contractor should have anticipated the possibility of increased costs of materials, and will be held responsible for any losses sustained despite the seeming unfairness of the results. If you feel that your situation calls for one of these defenses, you should talk to an attorney to assist you in making your case.
Efficient Breach of a Contract: Sometimes it's Cheaper to Breach the Contract
If there is no other way out of the contract, some people will “efficiently breach” the agreement. An efficient breach is when the party who wants to get out of the contract will lose less if they breach, than if they stay in the contract. Usually in this case, they will pay the “liquidated damages” of the contract. Liquidated damages are usually calculated by determining the actual financial loss by the non-breaching party. The damages amount is often stated in the contract itself. For instance, if you are in a two-year contract with a cell phone company that will charge you $250 in liquidated damages to break your contract, but you want to go to another company that charges $50 less per month, then breaking the two-year contract will save you money in the long run. This is also sometimes seen today when people want to get out of a high-interest mortgage. This can be “efficient” because the breaching party is better off than they were, and the non-breaching party is no worse off than they began. However, while this makes financial sense for some, others see it as an irresponsible or reckless way of doing business.
Whatever your reason may be for wanting to get out of a contract, your first step should be to communicate your feelings to the other party. If the other party refuses to budge, you should contact an attorney for further assistance, and to explore the options you have left.