26 Apr 2016

Can you get out of a contract?

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What happens if you’ve signed a contract for your small business that you probably shouldn’t have? Or if the circumstances have changed and are you are being asked to perform tasks that you didn’t agree to or are grossly unfair? Is there any way to get out of a contract?

Review the Contract
The first step is to read the contract and study it closely. Does the contract actually obligate you to do what the other party is asking or demanding? Is there a way to terminate the contract? What are the conditions of the contract? Is the other party meeting their side of the contractual agreement?
Read the contract from beginning to end. Have an experienced business attorney review the contract with you and help you understand exactly what is in it and what is required of you.

Is it Enforceable?
The next thing your attorney should do is check to see if the contract is enforceable. In order to be enforceable, a contract must be an agreement between at least two people exchanging something of value (consideration). No consideration, no contract. This is often a legal issue. In addition, the language should be clear and concise. If the language is so muddy or ambiguous that you can’t tell what it means, then the enforcement of the contract is a serious concern.

Is it illegal?
A contract to provide illegal services is void. In addition, there may be something in the contract that is against your state’s public policy, in which case, you can void the contract. Again, a good business attorney will know the details.

Is it unconscionable?
Courts don’t usually uphold contracts that are grossly unfair to one party. A good example is an energy provider who asks you to sign the contract as-is with no negotiation or you can’t have service. If the provider is the only one in the area and charges you three times the national rate, then likely the contract will be considered unfair (unconscionable) because one party has all the power and the other has none. Keep in mind that this mostly protects consumers. Business people are supposed to read and understand their contracts.

Is the other party backing out?
If the other party gives you some indication that he or she is not going to uphold his or her end of the agreement, that is called an anticipatory breach of contract. With the help of an attorney, you may be able to void the contract.

Is it executed correctly?
In some cases, another party may have forged your signature on a contract, in which case, you are not obligated to hold to the contract.

Is it fraudulent?
In general, both parties must understand what they are agreeing to and each side must perform and deliver as promised. For example, you buy a used car and the dealer tells you the vehicle is in excellent condition. However, when you get it home and the motor mount breaks because it has been broken and soldered back together. The dealer has misrepresented and failed to deliver as promised, so you can get out of the contract and hopefully get your money back. In the business context, if the other party made statements or representations that were not true and they knew it and you can prove that, you have a stronger case for getting out of the contract. Proving fraud is not so easy however. You must have “clean and convincing” evidence which is way beyond a hunch that they lied.

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