Whether you are buying a car or buying a house, you will have to sign a contract at some point in your life. A contract can be between two or more parties and will contain their promise to perform specific services or to provide certain goods.
It can be as simple as a paragraph or complex with multiple pages, so long as the contract clearly reflects their interests and outlines how they will carry out their responsibilities.
The elements of a contract must be established before the court will enforce it. There must be evidence that the parties mutually agreed about entering into a contract under the terms indicated.
These agreements are legally binding and can have significant economic consequences for the person who fails to perform their responsibilities as outlined in the contract. Therefore, while contracts can also be oral, it is best to create a contract in writing to prevent disputes arising from a party’s confusion or disagreement about the terms of the contract.
A party who fails to perform under the contract can be sued for breach of contract and under other legal theories. Damages may be specified under the contract or otherwise available under the law. For example, a court can order that the breaching party perform the terms of the contract or pay the other party compensatory damages or punitive damages.
Notwithstanding careful planning before entering into a contract, one or more of the parties may determine they don’t want to continue with the contract. Here are some common ways parties may end a contract:
- Invalid Contract: In the first instance, a party who wishes to get out of a contract can do so if there is no valid contract—there was no offer, acceptance or consideration.
- Illegal Contract: Every contract must be entered into for a legal purpose. For example, entering into a contract for the exchange of prostitution services would be illegal even if it can be proven there was an offer, acceptance and consideration.
- Infirmed Capacity: The parties must have the capacity to enter into a contract for it to be binding. Minors, for example, are generally not allowed to enter into contracts and people who are found incompetent don’t have the ability to form a contract.
- Undue Stress: Also known as duress, a party to a contract cannot induce the other party to enter into a contract through force.
- As an example, a homeowner is told to sign over their property or else the other party will release embarrassing pictures of them. A court will likely not enforce such a contract as it was entered into under duress.
- Misrepresentation or Fraud: Let’s imagine that someone falsely claims to own a piece of property and enters into a sales agreement to sell the property.
- The person who buys the property will have a good argument against enforcement of the contract in this case because the seller misrepresented their authority to sell the property.
- In another instance, you agree to purchase a boat but later find out the boat is not seaworthy. A court may void the contract since the whole reason for purchasing the boat was so you could sale it.
- Impossibility: The parties typically enter into an agreement because they believe they can fulfill the promises contained in the agreement.
- However, if something beyond the control of the parties makes it impossible to complete, then the contract may be voided by the court. By way of illustration, you enter into an agreement for the shipment of electronics from California to be transported by trucks.
- However, the factory where the electronics are manufactured was destroyed by an earthquake, making both the manufacture and shipment of the electronics impossible.
- Cooling-off Period: There is a Federal Trade Commission rule that permits a buyer to cancel a sale. This rule is commonly referred to as the buyer’s remorse rule.
- Let’s say that you are up late at night watching some home shopping network and decide you must purchase the set of cookware advertised. This cooling off rule can allow you to cancel the purchase.
- However, keep in mind that this rule is very limited and excludes some big-ticket purchases, such as those involving real estate, insurance and cars.
It is always a good idea to consult with a local business attorney before you sign any legal document. Getting out of a contract after you have entered into one can be very difficult and costly for you. They can be especially useful in helping you to understand your options for cancelling the contract and the consequences for doing so.