Renege on Contract: Everything You Need to Know
Renege on contract refers to a situation in which the terms of a verbal contract are not met. Businesses enter into contracts in their day-to-day operations.3 min read
Renege on contract refers to a situation in which the terms of a verbal contract are not met. Businesses enter into contracts, both verbal and written, in their day-to-day business operations. In both situations, whether the agreement is formal or informal, the obligations are expected to be met.
When reneging on a contract, it is important to handle the situation delicately, especially when there are no complications or problems with meeting the obligation. A person who declared bankruptcy would have a valid reason to renege on a contract, but if someone were to back out of their contractual obligations due to personal reasons, they run the risk of having the contract disputed and possibly losing in a courtroom.
Example of a Reneging on a Contract
Say a tenant agrees to a tenancy arrangement for a vacation home rental in Texas. The contract begins in July, and the tenant has agreed to pay $800 a month for the home. After making the agreement, the tenant loses their employment and the expected income that goes with it, making their household finances strained. Due to the circumstances, the tenant notifies the renter that they will be unable to afford the rental.
Even though they had a valid reason to renege on the contract, the renter still decides to sue. The tenant wins the court case because the reasons for the renege were reasons of "impossibility" and "frustration," so the reneging of the contract was considered to be acceptable by the court.
Tenancy is controlled by statutory rules, so if you default on an agreement, you must be able to prove there were mitigating circumstances. If there are not serious mitigating reasons for violating the agreement, the court will often side with the plaintiff and enforce the suit for a broken contract.
Can You Change Your Mind After Entering a Contract?
Many people change their mind after entering into a contract, though getting out of their obligations is not as easy as changing your mind. There are multiple options you can try if you have entered into a contract that you no longer wish to fulfill.
- Rescission or Cooling Off Rule — In some states, you may be granted an opportunity to rescind your contract if it is done within a specified period of time. The period to rescind will usually be stated in your contract. Additionally, the Federal Trade Commission will allow you to change your mind on a purchase you have made within the first 72 hours if the purchase was made inside your residence or a temporary seller's business, such as a trade show. If your state does not have a cooling off period, you should see if the other party is willing to agree to a mutual rescission.
- A Materials Breach of Contract by the Other Party — A material breach is considered going against the heart of the contract. For example, if you are supposed to receive your goods by a certain date, and they are not delivered until weeks later, it is considered a material breach. In the event of a material breach, you might have sufficient grounds to legally renege your contract.
- The Event of Fraud, Duress, Impracticality, or the Impossibility of Performance — If a contract is entered into due to force, intimidation, or the threat of force, it is no longer legally binding and can be broken. Additionally, if either party makes a deliberate misrepresentation of any of the material portions of the contract, it will be deemed fraud, and the contract can be canceled. Another legitimate reason for reneging a contract is called "impossibility of performance" which means the other party is unable to fulfill its obligations. This could include the providing party dying before the job can be completed. Your contract can also be canceled if it is determined to be impractical, with extreme circumstances that make obligations too expensive or extremely inconvenient to be fulfilled.
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