Today's contract tip is a technique for getting out of your contracts without terminating them.
It is important that commercial lawyers and contract professionals understand this technique. You can use it as a customer or may want to prevent its use as a vendor.
Here's how it works.
Most commercial contracts limit the parties’ right to terminate for convenience. The parties may terminate only after the other side breaches the agreement.
But there are ways around this restriction.
For vendors, the easiest way is to stop accepting orders.
Ordering provisions usually say, “After Buyer issues purchase orders to Seller, Seller must accept or reject within three days.”
The contract says the vendor does not have to accept orders. Unless the contract includes an obligation to sell, the vendor can end its supply obligations without terminating.
The same on the customer side. The customer can stop issuing purchase orders. There is no need to declare the vendor in default or go through the complex termination for cause process.
If you are a customer and want to prevent this kind of escape path, require the vendor to accept all purchase orders that meet certain parameters.
If you are a vendor, you also can require customers to buy a minimum amount.
Don't leave this back door open in your contracts if locking in the supply or sale is important.
Have you ever seen this technique used? Are there other techniques that you use in these situations?