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A situation where one party goes back on a promise or breaks an agreement or contract that they had previously accepted

What is Reneging?

Reneging refers to a situation where one party goes back on a promise or breaks an agreement or contract that they had previously accepted. Every day, individuals and businesses enter into verbal and written contracts that are expected to be met. However, there are situations when one party may decide to renege on an agreement against the wishes of the other contractual party.




For example, a party that had entered into a contract to supply internet services for the next two years can renege on the contract when they file for bankruptcy before the contract is terminated. However, if the internet service provider breaks the agreement on the ground that one of the directors is unsatisfied with the terms of the contract, the customer can sue them in a court of law and seek damages for any losses incurred.


Reneging on a Contract

When a business decides to renege on a contract, it should only do so when there are strong grounds for not honoring the contract. If there are no complications or difficulties in meeting the contract, it should avoid breaking the agreement since it would mean getting involved in legal disputes that may result in the business losing the case in the courtroom and having to pay hundreds and thousands of dollars in damages.

If a business is in a contract that it no longer wishes to pursue, it can try the following alternative options:


1. Cooling-off period

It is a period when an individual or business is allowed to renege on an existing contract without having to deal with the consequences of contract cancellation. The Federal Trade Commission allows a cooling off period of 72 hours for purchases made at a temporary business location (such as an exhibition or trade show).

Also, there are states that allow their residents to renege on a contract as long as the contract documents contain a clause allowing such actions.


2. In the event of fraud or duress

If a contract is entered into due to the threat of force or intimation, the contract is not legally binding, and the party can opt out of the contract without any legal consequences. A party can also opt out of a contract if, at the time of entering into the contract, the other party intentionally misrepresented some material information about the contract or omitted certain material information that is deemed important to both parties.


3. Breach of contract

If one of the parties in the contract breaches one of the agreements in the contract, the other party can use that as a legal ground for reneging on the contract. For example, if the contract was for the delivery of machine-cut stones at a construction site, and the seller fails to deliver by the agreed date and has shown no commitment in making the delivery, the buyer can cancel the contract. In such a case, the seller cannot seek damages from the buyer for opting out of the contract.


Reneging on a Job Offer

Reneging can also apply in the workplace when a candidate turns down a job offer that they had previously accepted. Taking into account the tedious and long hiring process, rejecting a previously accepted job offer is a difficult experience for most people. As long as the candidate has not signed an employment contract with the employer, there are no legal consequences for reneging on the job offer.

Here are some considerations you can make when turning down a job offer you had accepted:


1. Read through the contract

Before turning down an offer you had accepted, you should read through the contract to make sure that there are no legal repercussions from turning down the offer. Some employment contracts usually provide a timeline when an employee can rescind on the job offer or provide a notice of their intentions to reject the job offer. After the expiry of the allowed period, the employer can take legal action against the employee.


2. Form of communication

Rejecting an already accepted job offer is a delicate issue since the employers spend a lot of time and resources in the recruitment process, and rejecting the job offer would be taking them a few steps back. The best way to handle the situation is to communicate your decision in a formal way, either in person or via phone so that you can explain to the employer the reason for rejecting the offer.

It allows you to maintain a positive relationship with the employer even after leaving the company. If you are not willing to speak to the employer on the phone or in person, you can send a formal letter that explains the reasons for rejecting the job offer.


3. Be straightforward and concise

When communicating with the employer about the change of heart, you should be straightforward and state the specific reasons for the decision. Whether it’s a family emergency, disagreements with other employees, or better job opportunity, you should inform the employer of the reason without getting into too many details.

Also, when communicating the decision, you should be courteous and avoid using insulting or vulgar language. If the reason for reneging on the job offer is another better paying job, the employer may try to negotiate the terms of the job to try and retain you in the company. Make a decision beforehand if you decide to reconsider the job offer and the terms that you would accept.


4. Understand the consequences

Turning down a previously accepted offer comes with its own consequences, which you should be ready to face. Depending on how you communicate the decision, you may have a hard time getting a job with the same employer in the future.

The employer may also contact other recruiters to discourage them from recruiting you into the company. Approach the conversation with civility and express your gratitude to the employer for offering you an opportunity.


More Resources

CFI is the official provider of the Financial Modeling and Valuation Analyst (FMVA)™ certification program, designed to transform anyone into a world-class financial analyst.

To keep learning and developing your knowledge of financial analysis, we highly recommend the additional resources below:

  • Communication
  • Letter of Commitment
  • Loan Covenant
  • Promissory Estoppel

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