Breaking Contract: Everything You Need To Know
When breaking contract, it means that one party is not fulfilling the end of the agreement entered into. Before doing so, you should understand legal rights.3 min read
Updated July 7, 2020:
When breaking contract, it means that one party is not fulfilling his or her end of the agreement entered into. Before doing so, you should understand your legal rights.
What Is a Contract?
A contract is when two or more parties create an agreement with certain terms and conditions. Most contracts are written and then signed by both parties.
What Is a Breach of Contract?
A broken contract can also be called a breach, where one party fails to hold his or her part of the bargain. This includes if one party doesn't complete the terms on time, correctly, or at all.
How to Break a Contract
To get out of a contract, which commonly happens, you must first look at your copy of the agreement and carefully examine the language. Often, cancellation of the contract is conditional, but you may find a loophole or an escape clause.
Reasons to End or Terminate Contracts
The legal system finds one-sided contracts, called unconscionable agreements, unfavorable because terms are outrageous. Fraud may be another reason to end a contract because, for example, one was sold a product that the seller knew was in an unfavorable condition.
How Does a Breach of Contract Impact a Small Business?
Contract breaches are bad for all individuals and businesses, cause frustration, and create a loss of money and time. Not all breaches are the same, so you will need to determine if a contract suit is necessary based on the criteria of the following four breaches:
- Material breach is when one party fails to perform the terms of the contract.
- Fundamental breach is when you can sue the breaching party for damages.
- Anticipatory breach is when you can state the contract is broken because you know the other party won't complete the terms in time.
- Minor or partial breach.
To be successful in a contract suit, you must prove there was a contract and that it was broken. In addition, you have to prove who the breaching party is and how much money you lost.
Remedies for a Breach of Contract
If there is a breach of contract, there are a few remedies to resolve the issue.
- Payment of damages includes compensatory, punitive, nominal, and liquidated damages.
- If you feel damages won't resolve the breach, you can seek specific performance.
- You may also cancel the contract, making the terms void, and sue for restitution, which helps put you back in the position you were in before the breach.
- Rescission is when the contract is canceled, money is returned to you, and the situation is dropped like nothing happened.
- Reformation is when the agreement gets a rewrite, somewhat like a “do-over.”
Remedy options are typically included in contracts, so you may need to carefully review the agreement.
How to Get Out of an Employment Contract
An employment contract details the terms and conditions that pertain to the employer-employee relationship.
Most states have written employment contracts, but some states allow implied contracts. It's important for you to fully read the contract and pay attention to the clauses and language used before signing the document. Check to see if there are any circumstances where one party can end the agreement or if there are consequences to breaking the contract. There are some contracts with start and end dates for your work. Therefore, if you've worked with someone for a long time, it's possible the contract has expired.
Some situations allow you to prove the contract is void, such as:
- If the other party committed fraud, you can end the contract without a problem.
- If both parties made a mistake that's important in the contract, it's void.
- Undue influence happens if one party places terms that are unfavorable to the other, causing the contract to be void.
- A one-sided contract that favors one party more than the other may be voided because it contains ridiculous terms.
Some states need contracts to be written and set for a definite amount of time. The contract can be rescinded if both parties find they are unhappy with the current agreement. If your employer doesn't want to end the contract, you can negotiate the terms of it. A mediator or neutral third party can be helpful in negotiating terms for contract termination, which is less expensive than going to court.
If you need help with breaking contract, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies such as Google, Menlo Ventures, and Airbnb.