One sided i.e. unilateral termination clause in a contract; Does this render contract void / unenforceable?

Question

I am a non-lawyer reading a relatively simple contract draft where everything else seems fine and dandy but the termination clause just says the following:

You agree that Company (A) retains the right to terminate this agreement at anytime.

Don't such unilateral termination clauses (sans notice) make a contract void and unenforceable? Just curious.

It's a low stakes contract (somewhat of a formality) so I don't care much either way, but just wanting to get my legal fundamentals right, now that I have a chance.

Edit: (a) Does a clause like this give party A any advantage over the other? As it stands, both parties are allowed to terminate so long as they communicate, right? And without mentioning notice periods or acceptable causes for termination what value does a clause like this add?

(b) More generally what is the utility of a termination clause when it does not add details about notice periods, or acceptable causes etc? A simple termination seems a recourse that is implicitly allowed, in any case, right? Whether I put such a termination clause or not? e.g.

"Both parties have a right to terminate this agreement at any time"

What's the utility of such a clause? Even if I didn't write this explicitly that's what will be the default position?

Answer 1

Unilateral termination clauses are legal and very common

They even have a name: termination for convenience.

However, a contract is not terminated unless and until it is communicated to the other party. Rights and obligations that have accrued up until termination are enforceable.

Answer 2

If the contract states that A can terminate the contract at any time, and it doesn’t state that B can terminate at any time, that means exactly what the contract says: A can terminate, B can’t. Consider that the consequences of contract termination might be hugely different for each side.

Does this give A an advantage? Well, a contract would be negotiated, and B must have been happy with the complete contract, or they wouldn’t have agreed. Might be different if A is a business and B a consumer who had no chance to negotiate.

Answer 3

No, but it also doesn't mean that a party can secretly terminate a contract to the detriment of the other party. Each party is obligated to do A in exchange for the other party doing B: that "quid pro quo" consideration is the foundation for contract enforcement. You rely on them doing A in exchange for you doing B. So if you do B, relying on that promise, they cannot then say "No, we cancelled the contract" (they might try, but then in court you rely on equitable and promissory estoppel, because you've been "harmed" by performing when they won't perform in turn).

Generally speaking, a flaw in a contract doesn't render the contract void or unenforceable: the problem would have to be profound and unremediable. There's no requirement that they say that they will notify you, there's just a requirement that they do so.

Answer 4

You have a number of misconceptions in your question.

Don't such unilateral termination clauses (sans notice) make a contract void and unenforceable?

The clause itself could be unenforceable if B is a consumer. For example, in england-and-wales, section 62 of the Consumer Rights Act 2015 provides:

(1) An unfair term of a consumer contract is not binding on the consumer.

(4) A term is unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties' rights and obligations under the contract to the detriment of the consumer.

The Act also lists some specific scenarios which may be considered unfair, in schedule 2. If your contract has no fixed end date then the following is relevant:

8. A term which has the object or effect of enabling the trader to terminate a contract of indeterminate duration without reasonable notice except where there are serious grounds for doing so.

However, note the effect of section 67:

Where a term of a consumer contract is not binding on the consumer as a result of this Part, the contract continues, so far as practicable, to have effect in every other respect.

Even outside of consumer law the latter point is generally the case i.e. if a clause is unenforceable, and it can be severed from the rest of the contract, then the rest will remain in effect. Severed means that removing it doesn't render the other clause(s) meaningless or absurd.

As it stands, both parties are allowed to terminate so long as they communicate, right?

Not as a general principle, no. There are cases where a contract can be impliedly terminated without relying on an express clause (e.g. if both parties abandon the contract), but you can't just freely terminate at will if the contract doesn't allow you to (unless we are considering a specialised area of law with a statutory right of termination e.g. landlord/tenant law).

And without mentioning notice periods or acceptable causes for termination what value does a clause like this add?

A can terminate without any notice period i.e. it terminates with immediate effect.

More generally what is the utility of a termination clause when it does not add details about notice periods, or acceptable causes etc?

You don't need to have a notice period or acceptable grounds unless you are dealing with a specialised area of law where those are required by statute.

A simple termination seems a recourse that is implicitly allowed, in any case, right? Whether I put such a termination clause or not? e.g. "Both parties have a right to terminate this agreement at any time" What's the utility of such a clause? Even if I didn't write this explicitly that's what will be the default position?

No. There is no implied right to terminate. Again, unless a statute provides otherwise for the area of law.

Answer 5

One-sided termination rights are quite common. For instance, generally insurance policies allow the insured to terminate the policy early (in fact, there are laws requiring in some cases for the insurance company to allow early termination and give a pro rata refund of premiums paid up to them), but the insurance company can't terminate until the policy is up for renewal without cause. People with mortgages can pay off the mortgage early, but the bank generally can't call in the loan early. A professor with tenure can quit. People are generally free to fire their lawyer, but a lawyer quitting in the middle of a case without a very good reason is probably going to be called to an ethics board.

Contracts do require mutual consideration, so a document that allows one party to unilaterally disclaim their obligations in general would not be a valid contract, but a contract can allow one part to unilaterally refuse to incur further obligation. So, for instance, someone can terminate a mortgage by paying the remaining principle and thereby not be obligated to pay further interest, but if they have unpaid interest accrued before they terminate the mortgage, they still owe that interest.

(Side note: given how central precise wording is to law, it's a bit disturbing that the contract uses the word "anytime" as a noun).