What is a contract?
A contract is a legally binding agreement between two or more parties. This means you are legally required to perform the terms outlined in the contract, and failure to do so is a breach.
Your duty might be to perform certain actions. For example, you might sign a contract for the sale of real estate, agreeing to sign the deed to your house over to a buyer in exchange for a sum of money. Both of you have a duty to perform those actions.
Instead of performing an action, your contractual obligation might be to refrain from performing an action. Many real estate sales include option contracts. If you are the seller, the buyer pays you an option fee, and in exchange, you agree not to sell your home to anyone else for a specified period of time.
A valid contract has three components:
- Offer: One party makes an offer that clearly outlines the terms of the contract. The offer must describe both parties’ responsibilities with as little ambiguity as possible.
- Acceptance: The second party agrees to the terms presented in the offer. Ideally, they do this in writing, but they may also accept the offer orally.
- Consideration: The parties’ contractual obligations must involve an exchange of some sort, such as money, a trade of goods or services, or a promise to perform an action. A contract in which only one party has obligations is invalid because it lacks consideration.
Does a contract have to be written to be valid?
Oral contracts can be just as valid as written ones. However, when disagreements or confusion arise, having a written document provides clarity and a reliable reference for the terms agreed upon.
In some cases, certain contracts must be in writing to be legally enforceable. These requirements, which vary by jurisdiction, typically apply to agreements involving significant obligations or transactions. Understanding whether a contract needs to be in writing is key to ensuring its validity and minimizing potential disputes.
Digital agreements are also legally valid in most situations. As long as an e-signature can be proven authentic, it carries the same legal weight as a traditional ink signature.
What are the best options before breaking a contract?
The best way to break a contract, generally speaking, is to do so without triggering a contract dispute, incurring liability for breach of contract, or damaging a personal or business relationship. You can always try talking to the other party to see if they would be willing to renegotiate or amend your agreement. Mutual agreement is often the best way to avoid legal troubles.
If you know you will not be able to perform your contractual obligations on time, you may consider postponing them. Proposing a Contract Amendment can be a helpful first step before ending the contract altogether. If you and the other party have good rapport, you may be able to renegotiate the terms of your agreement to support your new circumstances.
A Force Majeure Notice can help you kickstart the conversation about amending a contract when circumstances beyond your control prevent your performance. Many contracts have force majeure clauses that excuse non-performance due to a natural disaster or similar event. Even without this kind of clause, you may still be able to defer your contractual duties due to the incident that caused the delay. A force majeure incident may allow you to claim impossibility of performance if there is no way to fulfill your contractual duties.
If the other party also cannot perform their obligations, or if you are not able to postpone to a future date, then you might consider early termination of the contract. You can use a written Notice of Contract Termination to document and communicate this decision.
Whatever the case, both parties can mutually agree to amend or terminate the contract. Just make sure you have the changes documented in writing.
What should I check in my contract before taking action?
When you are considering breaking a contract, you should check whether the terms of the contract support your case. Some of the most commonly overlooked parts of the contract could be the most helpful to you:
- A Force Majeure Clause: A force majeure clause allows you to defer your performance of the contract or cancel the contract entirely due to certain extraordinary events. This might involve a natural disaster, such as an earthquake or hurricane, or other unforeseeable events, like a terrorist attack or act of war. The exact definition of “force majeure” differs from one state to another. The contract can also provide its own definition of the term. For example, it might state that a disaster does not meet the contract’s requirements unless there is an officially declared state of emergency.
- A Termination Clause: A termination clause allows rescission of a contract for other reasons. This type of clause usually specifies the types of events or circumstances that would allow termination of the contract. These might include the insolvency of a party to the contract, inflation above a certain threshold, or other economic shifts.
- An Arbitration Clause: An arbitration clause requires any contract dispute to use a process known as arbitration instead of litigation. Arbitration is a type of alternative dispute resolution that resembles a trial in some ways. An attorney can tell you more about how this clause could affect you.
Even if the terms of the contract do not allow you to break the contract without incurring liability, you might find ways to limit the damages. For example, a contract might state that a non-breaching party must prove a “material breach” to recover monetary damages. “Material” means that the breach must be central to the contract’s purpose. If a breach occurs early enough in the contract’s time frame, the non-breaching party might not suffer as much harm as they would have later. This could result in less liability for damages. An experienced attorney can tell you more about anticipatory breach of a contract.
When can a contract be declared void or unreasonable?
Contracts depend on clear expectations, definite terms, and transparency. If there are misrepresentations or impossible terms, a court may find it void. A void contract is one that is invalid and unenforceable at the state or federal level.
Some states may distinguish between a “void” contract and a “voidable” contract. A void contract is inherently unenforceable, regardless of whether a court has ruled on its validity. A voidable contract, on the other hand, requires a court to find that it is invalid.
Reasons a contract may be void or voidable include the following:
- Fraud or misrepresentation: A party to the contract engaged in fraudulent acts or misrepresented important facts to the other party.
- Undue influence: A party to the contract was manipulated into signing.
- Duress or coercion: A party to the contract was forced to sign it.
- Lack of capacity: A party lacked the legal capacity to agree to the terms of the contract, such as if they were a minor or they were not mentally competent.
- Vagueness: The contract’s terms are too vague to be enforceable.
- Impossibility: It would be impossible to perform some or all of the contract’s obligations.
- Criminality: The contract requires illegal activity.
- Unconscionability: The contract substantially favors one party or shows significant unfairness to a party.
Do I need legal assistance to break a contract?
Every situation is unique. You might need more help than one article can provide. Rocket Lawyer provides many templates for contracts and contractual amendments. To learn more about your rights, responsibilities, and options under contract law where you live, contact a Rocket Legal Pro today to get personalized legal advice.
This article contains general legal information and does not contain legal advice. Rocket Lawyer is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.
