Cancellation of contract
Cancellation of a fixed-term contract
You can cancel a fixed-term contract at any time. However, the merchant may charge a cancellation indemnity. The indemnity cannot exceed a certain amount.
The calculation for determining the maximum cancellation indemnity amount that can be charged varies depending on whether or not the merchant granted you a rebate on the sales price of goods necessary for the use of the service.
Did you receive a rebate?
If you were granted a rebate on the sales price of goods necessary for the use of the service, the following example illustrates the calculation of the cancellation indemnity:
- Upon entering into a 36-month cell phone service contract, you received a free phone valued at $350. Therefore, the rebate granted on the goods necessary for the use of the service, i.e. the phone, is equivalent to $350. During the 22nd month, you cancel the contract. To calculate the maximum cancellation indemnity that the merchant can charge, you should use the following formula:
- maximum cancellation indemnity = [rebate on the price of the goods] - [rebate on the price of the goods x number of completely elapsed months ÷ term of the contract], i.e.:
- $350 - ($350 x 22 ÷ 36), i.e. $350 - $213.89 = $136.11. Consequently, you may have to pay the merchant an indemnity that cannot exceed $136.11.
What if you did not receive a rebate?
If the merchant did not grant you a rebate on the sales price of goods necessary for the use of the service, the maximum cancellation indemnity that the merchant can charge corresponds to the lesser of the following amounts: :
- $50 or;
- an amount representing at most 10% of the price of the services provided for in the contract that have not been supplied to you.
The following example illustrates the calculation of the cancellation indemnity:
- You entered into a 36-month cell phone service contract at a monthly cost of $30. However, the merchant did not grant you a rebate on the price of the phone. During the 12th month after you entered into the contract, you cancel it. The price of the services provided for in the contract that were not supplied to you therefore correspond to $720 (24 months [number of months remaining in the contract] x $30 [monthly rate]).
- The merchant cannot charge you a cancellation indemnity exceeding $50 since $50 is less than $72 ($720 x 10%).
Cancellation of an indeterminate-term contract
If you cancel an indeterminate-term contract, the merchant cannot charge you a cancellation indemnity.
There is, however, an exception. The merchant can charge a cancellation indemnity if he agrees that the goods you purchased in consideration of the indeterminate-term service contract (a phone, for example) be paid only at the time of cancellation of the service contract and that the amount due for the goods is progressively reduced with each month that elapses on the contract.
In such instances, the cancellation indemnity cannot exceed the amount that you did not have to pay at the time the contract was entered into (i.e. the balance of the sales price of the goods) minus the amount obtained by multiplying 1/48 of this balance by the number of months of the contract that have elapsed.
The following example illustrates the calculation of the cancellation indemnity.
At the time the indeterminate-term service contract is entered into, a cell phone service provider gives you a phone worth $150, which will only be payable when you terminate the service contract. Each month, the service provider reduces the $150 balance by a certain amount. During the 22nd month after entering into the contract, you cancel the contract.
To calculate the maximum cancellation indemnity that the merchant can charge you, the merchant must apply the following formula:
- $150 (balance on the phone sales price) minus [1/48 x $150 (balance on the phone sales price) x 22 (number of months of the contract that have elapsed)], i.e., $150 - $68.75 = $81.25.
- Therefore, the merchant cannot charge an indemnity exceeding $81.25.