A contract by nature is a legally binding agreement between two or more parties. They are important as they define expectations and requirements between involved parties and stipulate penalties should a breach occur. However, there are times when you need to break a contract.
Sometimes you need to break a contract because it fails to meet legal requirements, while in other cases the contract is an illegal one, to begin with. When a contract comes into question, a court decides whether the document becomes void and canceled.
If you have a contract you would like to break, carefully consider the circumstances under which you can break the contract without penalty. Otherwise, while you may be able to get out of a contract, you may also be subject to certain penalties as stated within the contract.
1. Impossibility of Performance
A performance-based contract is one that calls for someone to perform a service or task in exchange for payment. For example, your contract with a venue to put on a show with your rock band. Once you perform to astounding and rave reviews, you get paid. You have satisfied the requirements of the contract.
However, what if it is an outdoor venue and lightning strikes it? What if your drummer dies in a tragic car accident? In those instances, it is impossible to do what you contracted to do. In these cases, you can legally break a contract without liability. The legal phrase is “impossibility of performance”, meaning that given the circumstances there is no way the contract can be fulfilled.
2. Rescission for Misrepresentation, Fraud or Mistake
You can break a contract if the other party does something fraudulent or improper. For example, if the other party sells you a laptop and you get it home it does not turn on. In this instance, the seller committed fraud by selling you a defective computer. On this basis, you can rescind the contract. An example of a mistake is the selling of a ticket to a concert that cancels because the performer died.
This legal option to cancel a contract is especially important to protect the elderly and the very young. In many instances, minors or the elderly are duped into purchases they did not have the capacity to understand, nor the legal age to sign a contract.
3. Breach of Contract
This is the reason for breaking a contract that everyone is most familiar with. A contract can is void if one or both parties do not do an agreed-upon action, stops you from doing something you were supposed to accomplish, or the other party takes an action that he or she was not supposed to. You can sue someone who does not honor your contract.
4. Contract End by Agreement
Many contracts have escape clauses. These clauses state that either party can end the contract by written notice. There can be conditions attached to this notice and once the conditions are satisfied the contract terminates.
5. Job Transfers
If you are renting an apartment and your job transfers you, it is not your fault. You have little control over where your company sends you, and the law is on your side in this instance. Read your rental contract closely, however, as it may state you can break the contract if the transfer is at least 50 or more miles away.
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6. Military Reasons
Military personnel and their families are subject to transfer. Therefore, if transferred or activated they may have to move quickly and in such instances, the contract for an apartment can be broken. Federal and state laws allow tenants who meet these criteria to do so.
Breaking Oral Agreements
Contrary to popular myth, a contract does not have to be a written document in order to exist as a contract.Oral contracts are legal as well. Oral agreements are binding if they meet the following criteria:
- An offer is made and accepted by two people.
- The purpose is lawful.
- There is an exchange of something valuable.
- There are clear terms agreed to.
- Both parties agree of their own free will.
A good example of this would be a son buying a boat from his uncle for $3000, promising to pay the uncle $200 a month until the boat is paid for.
Verbal agreements are void when considered invalid, to begin with. Each state offers its own spin on verbal agreements, but in general, they all agree a verbal contract is not binding if it pertains to something involving the sale, lease or transfer of property (land). The contract is not binding if the terms will outlast the lifetime of either of the parties. Verbal agreements are limited to a lower dollar amount in most states (approximately $500). Verbal agreements are illegal to use in cases pertaining to marriages or divorces, or a promise of payment for someone else’s debts. Most attorneys suggest when in doubt, write it out.
Mediation and Negotiation
If none of the above situations applies to you, and you need to break a contract then consider working with a mediator. A mediator is a legal representative, usually a lawyer working on the side, who can negotiate on your behalf with the holder of the contract. The lawyer can explain your reasons for wanting to sever the agreement and offer recommendations that will make both parties satisfied. This is called alternative dispute resolution. This legal process is less expensive and helps contract disagreements reach settlements quicker than going through civil court.
The worst course of action is to walk away from the obligation. These types of legal situations follow you if you have a social security number and live in the U.S. Most experts urge people who are considering whether or not to break a contract to first locate their contract and read it carefully to see if an exit option exists. While this may mean paying a penalty, it is better to do so than to skip town owing the debt. It can impact your future ability to find housing, obtain credit or find employment.
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