Breaking a Contract: How Deep in Trouble Are You

Apr 21, 2023 | Business Law

A contract is a legally enforceable agreement between two or more parties. When entering into a contract, the parties involved are legally obligated to fulfill their end of the bargain. However, when one party fails to do so, it can result in the termination of the contract. 

Breaking a contract can have serious legal consequences. In this article, our Muskegon business attorney will discuss the different types of contracts and the reasons, consequences, and defenses to breaking them, helping you understand the importance of following a contract and what it means to break one.

Types of Contracts

Express Contracts

An express contract is an agreement between parties in which the terms are explicitly stated in writing or verbally. This is the most common type of contract, often including sales, leases, employment, and service agreements. 

Implied Contracts

Implied contracts are not explicitly stated but are inferred from the parties’ conduct or circumstances. For example, if you hire a plumber to fix a leak in your home, an implied contract is created that the plumber will perform the work in a reasonable and professional manner in exchange for your payment of the service.

Unilateral Contracts

In a unilateral contract, only one party is obligated to perform a specific action. A classic example of this is a reward offer, such as offering a cash prize for finding a lost item. The person who finds the item is under no obligation to do anything, but if they do find it, they are entitled to the reward from the one who made the offer.

Bilateral Contracts

Bilateral contracts, also known as mutual contracts, involve two parties bound to perform their respective obligations. In a car sale, for example, the seller is obligated to transfer ownership of the car to the buyer, who is also obligated to pay for it.

Infographic image of types of contracts

Reasons for Breaking a Contract

Breach of Contract

A breach of contract occurs when one party fails to perform its obligations under the agreed-upon contract terms, resulting in contract termination. In some cases, the breaching party may be obligated to compensate the other party involved, especially if such a condition is included in the contract clauses.

Impossibility of Performance

There are certain circumstances that make it impossible for a party to perform its obligations under the contract. For example, if a hurricane destroys a warehouse full of goods to be delivered, it may be impossible for the seller to fulfill the contract. In such cases, the agreement between the parties may be legally terminated due to the impossibility of performance.

Mutual Agreement

In some instances, both parties may agree to terminate the contract early. This mutual agreement may be due to changes in circumstances or disagreements over the contract terms, and both parties acknowledge that the contract is no longer relevant.

Mistake or Misrepresentation

If one party entered into the contract based on a mistake or was misled by the other party’s misrepresentation, they may be able to break the contract. However, the mistake or misrepresentation must have a significant impact on the contract terms for it to be considered a reasonable ground for termination.

Consequences of Breaking a Contract

Damages

Damages are monetary compensation awarded to the non-breaching party for any losses suffered as a result of the breach of contract.

Specific Performance

If the monetary damages are insufficient, the non-breaching party may seek an alternative breach of contract remedy in the form of specific performance. Under specific performance, the court will issue an order requiring the breaching party to fulfill its contractual obligations.

Restitution

Restitution is another legal remedy for breaking a contract by which the breaching party is ordered to restore the non-breaching party to the position prior to the agreement. This involves returning any property or money that was exchanged under the contract.

Defenses to Breaking a Contract

Duress

A contract requires mutual agreement between the parties involved. However, if a party is forced or coerced into entering into a contract, they can claim the defense of duress to justify the breach of contract. For example, if a party was subjected to a threat of physical harm to sign a contract, the contract may be voidable on the grounds of duress.

Unconscionability

If a contract is found to be unconscionable, meaning that it is excessively one-sided or unfair, a party may be able to use this as a defense for breaking the contract. This defense is typically used when one party has significantly more bargaining power than the other.

Force Majeure

Force majeure is a defense that applies when a party is unable to perform their obligations under the contract due to an unforeseeable event that is beyond their control. Common examples include natural disasters, such as floods or earthquakes, that prevent the performance of the contract.

Statute of Limitations

The statute of limitations is the time limit within which a party is allowed to file a lawsuit. When a party claiming a breach of contract exceeds this timeframe, the other party might employ the defense of the statute of limitations to dismiss the claim.

Can a Landlord Break a Rent-to-Own Contract?

In a rent-to-own contract, the landlord agrees to rent a property to a tenant with an option to buy the property at a later date, usually at a predetermined price. Once the tenant exercises their option to purchase the property, the landlord is obligated to sell the property to the tenant, subject to the contract terms.

However, if the tenant has not yet exercised their option to purchase the property, the landlord may be able to break the rent-to-own contract under certain circumstances that violate the terms of the rental agreement, such as failing to pay rent or causing damage to the property.

Muskegon Business Attorney That Can Help You

Before entering into a contract, it is crucial that you have a clear understanding of the legalities involved to avoid any legal disputes. Hiring an experienced Muskegon business attorney to draft or review a contract can guarantee that the terms are fair and reasonable and in full compliance with Michigan laws.

Bowen Law has a team of Michigan legal professionals who are experts in drafting and reviewing contracts, ensuring that your interests are protected. If you need legal assistance, don’t hesitate to call us at (231)-726-4484 or reach us here.

 

DISCLAIMER:

The information provided on this website does not, and is not intended to, constitute legal advice. All information, content, and materials available on this site are for general informational purposes only.

Only your individual attorney can provide assurances that the information contained herein – and your interpretation of it – is applicable or appropriate to your particular situation.

If you have legal questions, please contact us at: (231) 726-4484

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Disclaimer:

The information provided on this website does not, and is not intended to, constitute legal advice. All information, content, and materials available on this site are for general informational purposes only.

Only your individual attorney can provide assurances that the information contained herein – and your interpretation of it – is applicable or appropriate to your particular situation.

If you have legal questions, please contact us at:
(231) 726-4484

Muskegon Business Law Attorneys of David T. Bowen, P.C. pursue cases of Business Law, Real Estate, and Estate Planning in Muskegon Michigan

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