Contract Cancellation Basics in Texas
In the context of contract law, cancellation means a mutual or unilateral termination of the legal obligations between the parties to an agreement. While the circumstances under which a contract may be canceled will vary based upon the specific terms of the agreement at hand, generally, under Texas law a party may cancel a legal instrument before the instrument is due if certain types of "conditions precedent" occur before the conditions set forth in the contract are performed. For example, contracts may impose conditions which must be fulfilled before a party is obligated to perform under the contract. In this context, a party is not obligated to perform its duties under the contract until the conditions are satisfied. The Texas law on contract cancellation and cancellation of instrument, including the applicable Chapter, Section, and Subsection of the Texas Property Code, provides that a contract may be cancelled "by written agreement executed by the party entitled to performance of the promise discharged by the cancellation." If a cancellation has been signed , it may be filed for record with the County Clerk where the original agreement was recorded. Under Texas law, cancellation of a contract may be implied as well as expressed. A cancellation is complete upon notice to another party but, under Texas Property Code ยง 41.003, is also effective on filing, even if the party against whom the cancelling instrument is effective has no notice of the cancellation. An express cancellation will usually be upheld unless based upon fraud, coercion, or other factors that would involve a higher standard of proof for a valid contract. A cancellation may nevertheless be implied from the conduct of the parties to the contract. For example, if the parties act in a manner that is inconsistent with the original contract, they may be found to have cancelled the contract. Depending on the circumstances, acceptance of performance of a portion of a contract may impose a duty upon the party accepting the performance to continue to perform the contract in accordance with its terms.
Grounds for Contract Cancellation
In Texas, a contract can be canceled under a number of legally recognized circumstances. When filing a lawsuit to cancel a contract, Texas law requires that the plaintiff prays for the cancellation of the contract as a form of relief. Specifically, Texas courts recognize the following circumstances as sufficient to justify a contract cancellation:
Fraud and Misrepresentation
When one party enters into an agreement based on the material misrepresentation of another party, the victim may seek recovery for damages or a contract cancellation. Fraud applies when one party makes a false promise, misstatement or representation with the intent of causing the other party to act, refrain from acting or otherwise change their position to their detriment. Alternatively, misrepresentation sets forth a false statement of material fact that induces the other party to enter into an agreement.
Mutual Mistake
A mutual mistake occurs when the parties come together to agree to a contract and the subject matter of that agreement is fundamentally flawed because each of them was under the same false impression as to the material facts regarding the subject matter of the contract.
Undue Influence
When one party to an agreement involves another individual in the decision-making process to the point that they dominate or control the other party, the agreement may be subject to cancellation. Under the circumstances, the party whose judgment was dominated had diminished capacity to be free and voluntary in the transaction.
Under Duress
When one party to a contract threatens to do or take action that would cause serious injury or loss to the person or property of another unless that other person agrees to the terms of the contract, the victim may seek legal relief through injunctive relief or monetary compensation at law.
Minority
Minors – those who have not reached age 18 – are not considered "of age" to enter into a valid contract. While they may enter into contracts for necessaries such as food, clothing or shelter, many claims for breach of contract in Texas involve minors alleging that they were the subject of fraudulent claims with respect to contracts entered into with adult parties without the required consent of their parents.
Mental Incapacity
When a party to an agreement is partially or completely ruled out by mental incompetence, incapacity or insanity, the contract is voidable to the extent of the individual’s lack of capacity.
A contract cancellation can be a valuable remedy in an otherwise difficult decision by an individual or business. Getting legal advice as early as possible and getting it from a qualified Houston attorney is essential.
How to Cancel a Texas Contract
The process for cancelling a contract in Texas depends on the specific basis for cancellation. In many instances, cancelling a contract may require neither litigation nor the involvement of outside attorneys. Instead, the parties may mutually agree to rescind the contract. If they can do so in good faith, an agreement to cancel a contract will be binding on both parties.
Parties may also agree to cancel a contract in exchange for some sort of compensation, such as another, different, and more favorable contract. Texas courts have held that when parties have the legal right to cancel a contract it is in fact reasonable and implicit that they could do so, regardless of specific language in the contract. Post, p. 709. Just because a party has made advances in facilitating a contract the court will not find that cancellation was not intended. Id.
Where parties to a contract cannot mutually agree to cancel often requires litigation to obtain a judicial ruling that rescinds the contract, even if the contract itself does not expressly provide for rescission, MEI General Contractors, Inc. v. Trinity Universal Insurance Company, 39 S.W.3d 654, 659 (Tex. App. Dallas 2001, no pet.). A claim for rescission is in equity. Jones v. Kelley, 614 S.W.2d 95, 102 (Tex. 1981). Rescission gives the parties a new action that was not originally contemplated by the original contract, T.H.B. Realty Ltd. Partnership v. Dynamic World Communications Partners, L.P., 2000 WL 1521259, *2 (Tex. App. Dallas Oct. 13, 2000, pet. denied).
If the proper basis for cancelling a contract is a mutual mistake of fact, the process of cancelling the contract requires a finding on the part of the court that there was a mutual mistake, Alabama-Coushatta Indian Tribe v. United States, 757 F. Supp. 999, 1005 (E.D. Tex. 1990) or justifiable reliance by parties to the contract in order to have legal standing to cancel the contract. Meade v. Pfeil, 50 S.W.3d 735, 740 (Tex. App.- El Paso 2001, pet. denied).
Protective Measures for Guaranteed Contract Cancellation
While a person should be able to cancel a contract without penalty, some states have enacted laws that allow consumers to cancel certain types of contracts. These statutes are usually not a part of contract law. Instead, they are consumer protection statutes that limit the ability of sellers to tie consumers into a contractual relationship. In Texas, one such statute allows consumer in the real estate or used car industries to cancel a contract to sell such property located in Texas. Unlike some other consumer protection statutes , this one does not apply to contracts of sale for real property worth more than $250,000. Another consumer protection statute allows consumers to cancel and receive a full refund for telemarketing contracts less than $50,000 that are made over the phone. This law requires the seller to inform the consumer of their right to cancel and return the property.
Actions of Improper Contract Cancellation
As previously mentioned, once you cancel a contract you are both back where you started. The contract is void, ineffective and unenforceable. However, if either party has not fulfilled its obligations under the contract up to the point of cancellation, that party may be in breach of the contract. This is why it’s so important to cancel a contract correctly. Otherwise, if it is found that you did not have the right to cancel, you may have breached the contract. If you have breached the contract, you may face monetary damages.
The damages for which you might be liable are calculated according to the type of contractual promise that you broke. Generally, there are three types of contractual promises: (1) express, meaning the promise is specifically stated in the contract; (2) implied-in-fact, meaning the promise is implied from your actions; and (3) implied-in-law, meaning the promise is by operation of law. Under Texas contract law, the damages for your breach will be precisely or naturally caused by your breach and which parties can sue you for breach are entirely dependent on the type of promise you broke. If you are found liable for breach of contract, the other party may be able to recover the following types of damages in a lawsuit:
If your actions were intentional, you may also face punitive damages. to punish the breaching party and deter similar future conduct by others. However, punitive damages are not available in breach-of-contract actions unless the breach is also a tort.
Working With An Attorney On Your Contract
Consulting with a legal professional is generally essential when you are considering your options for canceling a contract in Texas . Not only can an experienced lawyer help you identify whether you have legal grounds to cancel your contract, but a knowledgeable attorney can help ensure you do so in a way that is compliant with Texas law and that best protects your interests.