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Terminating contracts for convenience

When a business owner or representative enters into a contract with another organization in Milford, they likely feel a certain amount of security due to the nature of such an agreement. After all, a party cannot end a contractual agreement without first having cause to do so. Yet is that assumption entirely correct? There is a legal principle known as “termination for convenience” which allows companies to get out of contracts when they believe it to be in their best interest to do so. The question then becomes when and how are companies afforded such a privilege.

According to the Congressional Research Service, common reasons to cite termination for convenience include:

  • A breakdown in the business relationship between contracted parties
  • The company receiving goods or services acquiring the ability to provide them in-house
  • One party to a contract being unwilling to renegotiate its terms

Government agencies are automatically afforded the right to terminate contracts for their convenience; private organizations can only do it when the right is afforded to them through the contracts themselves.

In most cases, a company that has had a contract terminated by a partner for that partner’s convenience can only collect whatever is owed to it for services rendered up to that point. However, if it is able to show that the partner initially negotiated the agreement in bad faith, it may be able to seek damages for breach of contract. Per the Judicial Education Center, two types of damages are available in such a case: compensatory and punitive. Compensatory damages are to compensate for any expenses the aggrieved party has already incurred; punitive damages are meant to service as a penalty for breaching the terms of the contract.