Many thanks to Rebecca Mordas, Associate Corporate Counsel, National Rural Electric Cooperative Association, who contributed this article.

Breaking Up is Hard to Do

Scenario:  As a procurement pro, things were going great—you negotiated a contract with a reputable vendor with favorable pricing and some attractive terms.  You thought you would be with this vendor for the long haul and, because of the rosy prospects, perhaps agreed to some contract terms you normally wouldn’t.  Unfortunately, bad things happen to good people, and you’d now like to part ways with the vendor.  Realizing that the relationship is no longer desirable, you recognize that the contract needs to be terminated and initiate a conversation with your soon to be ex-vendor, doing the old “it’s not you, it’s me” song and dance.  You feel relieved that the conversation is over and the termination is out in the open— until you recall that the contract contained provisions which survive the termination of the contract.  Oops.  Here’s your dilemma: how can you secure a clean break from the vendor without those surviving provisions coming back to haunt you?

Answer:  Although the law may vary within the particular jurisdiction you’re in, you should consider drafting and having both you and the vendor agree to a robust termination agreement releasing both parties of all future obligations under the initial agreement.  Language pertaining to the contractual release should identify the contract you’re terminating with reference to the commencement and termination date and even the attachment of the initial contract as an exhibit.  If there has been some partial performance of the contract, the termination letter should reference this work as well as document any payments made pursuant to that performance.

It’s then important to describe any continuing obligations the parties may have toward each other in the termination agreement.  For instance, if a confidentiality provision was contained within the initial contract and not as a separate agreement, you may consider it desirable to ensure there remains a confidentiality agreement between the parties.  The termination agreement must then maintain that those referenced obligations are the only remaining obligations of the party to the referenced initial contract.  Following these referenced obligations, your termination agreement should maintain that, in the event of a conflict between the termination agreement and the initial contract, the terms of the termination agreement shall govern and the conflicting terms shall have no effect.

As for the magic words to use when encountered with the scenario referenced above, it appears that both “rescission” and “release” may be technically correct, however “release” appears to accomplish your goal of eliminating those pesky surviving provisions.  The term “rescission” is a term used by lawyers, courts and businessmen in many different ways.  Under the Uniform Commercial Code, if applicable to your set of facts, a “rescission” refers to a mutual decision to discharge all remaining duties of performance.  It is unclear, however, as to whether the word “rescind” on its own would accomplish a clean drama-free break up.    On the other hand, a “release” refers to the act of giving up a right or claim, and can be more or less described as a “bargained-for” settlement providing more certainty to your concern.  For absolute confidence that the relationship is dead and over, the following language or a variation of it may do the trick: “both parties mutually release, cancel, forgive and discharge each other from all actions, claims, damages, demands, and obligations.”Note that the term “void” would not be an appropriate term as it would technically assert that the provisions were never effective.  This, however, we all know to be untrue, because there was a time period in which the provisions were in force.

Keep in mind that the decision to end the relationship may not be a mutual feeling.  In the event that your soon-to-be ex-vendor doesn’t want to terminate, you may have to be creative in crafting a workable release.  Note that this may mean parting with “valuable consideration” (i.e., some money) in exchange for a release of all future claims.

The article above should not be interpreted as legal advice.  Readers are encouraged to speak with their legal advisor to determine appropriate actions when terminating contracts.