Cancellation

Key Takeaways

• Cancellation ends a contract going forward because both parties agree to stop performing, so neither side is in breach.
• Rescission and cancellation are different remedies: rescission unwinds the deal and tries to put the parties back where they started, while cancellation only stops future obligations.
• In Washington an agency relationship ends at the earliest of completed performance, expiration of the agreed term, mutual agreement, or notice from either party (RCW 18.86.070).
• When a purchase agreement is cancelled, a Washington firm may release trust funds as the agreement itself provides, and otherwise only with a written release signed by both the buyer and the seller (WAC 308-124E-110).

What It Means

Cancellation is the ending of a contract by the agreement of the people who signed it. Both sides decide to stop performing, and both are released from what they still owed each other. Nobody has to be at fault. That is what separates cancellation from a breach, where one party simply fails to perform and the other party can sue.

Real estate courses group cancellation with the other ways a contract is discharged without a breach: full performance, expiration of the agreed term, and a written release. Cancellation is also different from Rescission. Rescission treats the contract as if it never existed and aims to restore each party to the position it held before signing, which usually means giving back money and property. Cancellation looks forward instead. It stops future duties without necessarily reversing what already happened, so a fee already earned or a service already delivered may stay where it is.

Because cancellation depends on agreement, it is normally put in writing and signed by every party. Washington listing and purchase forms carry a termination section that spells out who signs, what notice is required, and what happens to money the firm is holding.

How It Works in Washington

Washington writes cancellation into its agency statute. Under RCW 18.86.070 the agency relationship between a firm and its principal ends at the earliest of four events: the broker completes performance, the term the parties agreed on expires, the parties terminate the relationship by mutual agreement, or either party gives notice to the other. Mutual agreement is the cancellation path, and notice is the one sided path. The same statute keeps two duties alive after the relationship ends. The broker must still account for all money and property received, and must still keep the principal's confidential information confidential.

Money is the other half of the picture. If a Listing Agreement or a purchase agreement is cancelled while funds sit in the firm's real estate trust account, WAC 308-124E-110 controls the payout. When the agreement terminates under its own terms, the firm disburses as the agreement provides, with no separate release needed. In any other situation, nothing leaves the trust account before closing without a written release from both the purchaser and the seller. A signed cancellation that says who gets the deposit is what turns a dispute into a routine disbursement.

Example

Marisol Reyes signs a six month exclusive listing with Cascade Ridge Realty on March 1 to sell her Tacoma house for $565,000. In May her employer cancels the transfer that prompted the move, so she calls her broker, Dev Patel, and asks to end the listing early. No sale closed and no commission was earned, so Dev and Marisol sign a written cancellation dated May 12. That is termination by mutual agreement under RCW 18.86.070. The listing is over four months ahead of schedule and neither side is in breach.

There is a loose end. Two weeks earlier Marisol had accepted an offer that fell apart, and the buyer's $10,000 Earnest Money deposit is still in Cascade Ridge's trust account. Because that purchase agreement ended by a signed mutual cancellation rather than under its own financing contingency, Dev cannot simply mail the check back. He collects a written release signed by both Marisol and the buyer, then returns the $10,000 to the buyer and files the release in the transaction record.

Common Mistakes and Exam Traps

• Cancellation is not rescission. Rescission returns the parties to their pre-contract positions, while cancellation only ends future obligations.
• Cancellation is not a breach. A breach is one party failing to perform, and cancellation requires the agreement of both parties.
• Mutual agreement is only one of four endings in RCW 18.86.070. Notice from either party alone also ends a Washington agency relationship.
• A broker's duties do not all disappear when the relationship ends. RCW 18.86.070 keeps the duty to account for money and the duty of confidentiality alive.