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Law Offices of JAMES GLASSFORD
BREAK A CONTRACT: Means using your legal right to terminate a contract without liability or with a minimum of liability for the damages claimed by the other party. |
HOW TO BREAK A CONTRACT CLAIM LEGALLY!
Defending against a contact claim has two facets. First, you may want to break a contract with justification. Second, if the other party believes you were not justified in breaking the contract, you may be forced to defend against the claim in court. You can do it legally. Read below about six common ways of fighting a claim.
1. No contract was formed.
One way to break a contract and avoid liability for breach is to show that no contract was formed. To form a contract, a party must show mutual assent, consideration, and terms that are reasonably definite. If any of these elements are missing, you simply do not have a contract that can be enforced against you. Some contracts must be in writing and cannot be enforced unless signed by the party to be charged.
Consider the case of a woman who was dissatisfied with her new false teeth. She was happy with them until she went home and her husband told her they were too flashy. She called her dentist to complain, but he refused to talk to her. She returned the teeth to the dentist after hours by putting them into his mail slot. She then sought legal counsel, wanting her money back. As it turned out, the dentist knew nothing about the return of the teeth and refused to give the woman a refund. She was out her money and her teeth.
Did the woman have a contract? Certainly. The parties gave their mutual assent to the deal. Mutual assent can be shown verbally or by actions. Even where there is no verbal agreement, a service performed and paid for is considered an implied contract. Here, the dentist agreed to make the woman a new set of teeth, and the woman promised to pay for them.
The facts also show that the deal was supported by consideration. Consideration is usually found where the parties agree to an exchange of promises and performances. More to the point, one party agrees to sell goods or a service. The other party agrees to pay. As long as that is what each of the parties was going for, consideration has been shown.
Lastly, a contract must have terms that are reasonably definite. This requirement is necessary so that a court can determine whether a term has been breached or damages can be fixed with reasonable certainty. What is missing in this case is a term that allows the woman to return the teeth for any reason. Such a term would be reasonably definite, but without it, the woman is out of luck.
The woman's contract was fully performed. It was over. The dentist did all that he was required to do. He may have guaranteed reasonable satisfaction, but he had no obligation to refund the money on the flimsy complaint that the teeth were too flashy. The woman had accepted the teeth. If she had any right to reject them, she should have done so at the time they were presented to her. She could see how flashy they were when she got them. She did not need the opinion of her husband.
Did the woman have any rights when she returned her teeth to the dentist? Not really. She was attempting to rescind her contract. A contract can be rescinded for various reasons, such as, fraud, mistake, undue influence, failure of consideration, or by mutual agreement. The only reason that might have applied is mutual agreement.
What the woman was doing by dropping he teeth into the mail slot was making an offer to rescind her contract. The law does not require anyone to respond to an offer. Silence seldom operates as acceptance of an offer. In short, no new contract was made.
In the end, the woman had no legal rights, unless she could establish some statutory obligation on the part of the dentist to safe keep her teeth.
In short, if you can show no contract was formed, you cannot be found in breach of a contract that never existed.
For details about formation excuses, read my article, Six Excuses for Avoiding Contract Liability: Part One.
Consider the case of a woman who was dissatisfied with her new false teeth. She was happy with them until she went home and her husband told her they were too flashy. She called her dentist to complain, but he refused to talk to her. She returned the teeth to the dentist after hours by putting them into his mail slot. She then sought legal counsel, wanting her money back. As it turned out, the dentist knew nothing about the return of the teeth and refused to give the woman a refund. She was out her money and her teeth.
Did the woman have a contract? Certainly. The parties gave their mutual assent to the deal. Mutual assent can be shown verbally or by actions. Even where there is no verbal agreement, a service performed and paid for is considered an implied contract. Here, the dentist agreed to make the woman a new set of teeth, and the woman promised to pay for them.
The facts also show that the deal was supported by consideration. Consideration is usually found where the parties agree to an exchange of promises and performances. More to the point, one party agrees to sell goods or a service. The other party agrees to pay. As long as that is what each of the parties was going for, consideration has been shown.
Lastly, a contract must have terms that are reasonably definite. This requirement is necessary so that a court can determine whether a term has been breached or damages can be fixed with reasonable certainty. What is missing in this case is a term that allows the woman to return the teeth for any reason. Such a term would be reasonably definite, but without it, the woman is out of luck.
The woman's contract was fully performed. It was over. The dentist did all that he was required to do. He may have guaranteed reasonable satisfaction, but he had no obligation to refund the money on the flimsy complaint that the teeth were too flashy. The woman had accepted the teeth. If she had any right to reject them, she should have done so at the time they were presented to her. She could see how flashy they were when she got them. She did not need the opinion of her husband.
Did the woman have any rights when she returned her teeth to the dentist? Not really. She was attempting to rescind her contract. A contract can be rescinded for various reasons, such as, fraud, mistake, undue influence, failure of consideration, or by mutual agreement. The only reason that might have applied is mutual agreement.
What the woman was doing by dropping he teeth into the mail slot was making an offer to rescind her contract. The law does not require anyone to respond to an offer. Silence seldom operates as acceptance of an offer. In short, no new contract was made.
In the end, the woman had no legal rights, unless she could establish some statutory obligation on the part of the dentist to safe keep her teeth.
In short, if you can show no contract was formed, you cannot be found in breach of a contract that never existed.
For details about formation excuses, read my article, Six Excuses for Avoiding Contract Liability: Part One.
2. You did not agree to do that.
Most contracts are full of holes and terms that are vague and ambiguous. If missing, some terms can be implied or added to the contract. If vague, a term can be explained. Courts, however, are reluctant to go outside the four corners of the contract to pin liability on you where you did not agree to a term in writing or a term needs to be explained to give it meaning. Where the other party insists that you perform but the contract is silent or vague and ambiguous about your performance, you may have to break the contract. Do so only with advice of counsel.
Consider the case of a landowner who rightfully terminated an oil and gas lease on his land. The reason was that the wells were not "producing in paying quantities." Although the wells were not producing enough to pay royalties, they were producing a couple of barrels a day. The landowner demanded that the oilman shut down the wells. The cost of shutting down the wells was about $100,000 per well. The lease, however, stated that the landowner must pay the costs for shutting down any "producing" well.
Neither wanted to pay the shutdown costs. Both had good reasons for their positions.
The landowner contended that the oilman should foot the bill for the shutdown of the wells, because they were not "producing in paying quantities." When he used the word "producing" he meant "producing in paying quantities." He thought the oilman should assume the risk of termination of the lease and that included the costs of shutting down the wells. After all, he merely wanted to put the land to a better use to make money.
The oilman said that when he used the word "producing," he meant "producing." It was his hedge against the whims of the landowner and the fluctuations of the market price of oil. The price of oil was low at the time. He expected the price to go up and believed that plenty of oil existed under the ground. When the price of oil went up, the wells could produce at a profit. He kept the wells producing a couple of barrels a day so that the landowner would have to pay for shutdown if he wanted the land back. The oilman was just waiting for the price of oil to go up so he could make a profit and pay royalties to the landowner.
A lawsuit was filed and the case settled on the courthouse steps. A compromise was reached, based upon the strengths and weaknesses of each party's case. Incidentally, that last sentence is the law in a nutshell.
Consider the case of a landowner who rightfully terminated an oil and gas lease on his land. The reason was that the wells were not "producing in paying quantities." Although the wells were not producing enough to pay royalties, they were producing a couple of barrels a day. The landowner demanded that the oilman shut down the wells. The cost of shutting down the wells was about $100,000 per well. The lease, however, stated that the landowner must pay the costs for shutting down any "producing" well.
Neither wanted to pay the shutdown costs. Both had good reasons for their positions.
The landowner contended that the oilman should foot the bill for the shutdown of the wells, because they were not "producing in paying quantities." When he used the word "producing" he meant "producing in paying quantities." He thought the oilman should assume the risk of termination of the lease and that included the costs of shutting down the wells. After all, he merely wanted to put the land to a better use to make money.
The oilman said that when he used the word "producing," he meant "producing." It was his hedge against the whims of the landowner and the fluctuations of the market price of oil. The price of oil was low at the time. He expected the price to go up and believed that plenty of oil existed under the ground. When the price of oil went up, the wells could produce at a profit. He kept the wells producing a couple of barrels a day so that the landowner would have to pay for shutdown if he wanted the land back. The oilman was just waiting for the price of oil to go up so he could make a profit and pay royalties to the landowner.
A lawsuit was filed and the case settled on the courthouse steps. A compromise was reached, based upon the strengths and weaknesses of each party's case. Incidentally, that last sentence is the law in a nutshell.
3. Your duty is conditional.
You may be able to break a contract where your obligation is conditional. Contracts contain promises. Promises are commitments. These commitments create legal duties. In many contracts, duties may be conditioned on the happening of subsequent events. In other words, something must happen before a party must do something promised in the contract. For example, a car owner will take out insurance against collision damage. The insurance company promises to pay for the damage less the deductible. The car owner pays premiums, but the insurance company pays nothing in return, unless the owner has a collision and his car is damaged. The collision is a condition to the insurance company's duty to pay.
Unless excused, a condition in a contract will protect you from liability until the condition is satisfied. If it fails, you may well be free from the contract.
Unless excused, a condition in a contract will protect you from liability until the condition is satisfied. If it fails, you may well be free from the contract.
4. You have defenses.
Defenses allow you to avoid liability under a contract. If you have a defense, you may be able to break the contract.
Defenses come in two flavors: defenses to formation and defenses to performance. For example, if one party induces another into a contract by making a false statement, then the defrauded party may avoid the contract. The fraud is a defense to formation. Another example, if a sports team leases an arena for a year, but an earthquake destroys the arena before the first game, can the sports team sue for damages? If the sports team must lease another arena at higher rent, then the sports team will suffer damages. The owner, however, is off the hook for contract damages. The event of the earthquake made use of the arena impossible. Impossibility is a defense to the enforcement of the claim by the sports team.
If you have a defense, you should be able to escape liability for damages.
For details about performance excuses, read my article, Six Excuses for Avoiding Contract Liability: Part Two.
Defenses come in two flavors: defenses to formation and defenses to performance. For example, if one party induces another into a contract by making a false statement, then the defrauded party may avoid the contract. The fraud is a defense to formation. Another example, if a sports team leases an arena for a year, but an earthquake destroys the arena before the first game, can the sports team sue for damages? If the sports team must lease another arena at higher rent, then the sports team will suffer damages. The owner, however, is off the hook for contract damages. The event of the earthquake made use of the arena impossible. Impossibility is a defense to the enforcement of the claim by the sports team.
If you have a defense, you should be able to escape liability for damages.
For details about performance excuses, read my article, Six Excuses for Avoiding Contract Liability: Part Two.
5. When the other party breaches.
If the other party breached and you did not breach, you may be in a position to terminate the contract. Sometimes it can be very tricky to determine who breached the contract. A material breach by the other party gives you the right to suspend performance. Under these circumstances, suspending performance is not a breach. If the breaching party fails to cure within a reasonable period of time, you may have the right to terminate. Before doing so, legal advice should be sought. If warranted, terminating the contract after an uncured material breach will break the contract.
A breach of contract gives you the right to claim damages and sue the other party in court for your damages. A breach occurs when performance is due and the other party fails to perform. In other words, the other party did not do what he said he would do when he was supposed to do it. A breach can occur when the other party states in no uncertain terms that he will not do what he promised to do. After an uncured material breach, the injured party has the right to terminate.
A breach of contract gives you the right to claim damages and sue the other party in court for your damages. A breach occurs when performance is due and the other party fails to perform. In other words, the other party did not do what he said he would do when he was supposed to do it. A breach can occur when the other party states in no uncertain terms that he will not do what he promised to do. After an uncured material breach, the injured party has the right to terminate.
6. Damages can be elusive.
If you terminate a contract without justification, you might be sued for damages. Though not justified, you still have the right to breach the contract and put an end to it. Sometimes, a party might breach, because of economics. A party may decide that taking advantage of another opportunity would far exceed his liability for damages.
Damages are intended by the law to compensate the injured party for the loss of what he expected under the contract. In other words, the law will put him in the position he would have been in had there been no breach. For example, he had a contract to buy a house worth $700,000. Then you agreed to sell it to him for $600,000. If you breached and he lost the sale, his damages are $100,000.
Damages, however, are subject to several rules of mitigation.
Damages must be foreseeable. If damages occur due to special circumstances, the party in breach will not be liable unless he was aware of the special circumstances when the contract was made.
The doctrine of avoidable consequences may reduce the amount of the damages claimed. The law requires the injured party to take reasonable steps in good faith to avoid damages. This might include finding a substitute for the performance that was promised by the breaching party. Who knows, the injured party might avoid all of his damages. If so, that would make your termination look like a good business decision. This doctrine was offered as a defense in a famous case involving Shirley MacLaine.
Ms. MacLaine agreed to star in a musical screen play called "Bloomer Girl." When the studio cancelled the contract, it offered her another role for the same pay in a dramatic movie called "Big Country, Big Man." She refused and sued the studio for $750,000. The California Supreme Court upheld judgment in her favor, observing that the substitute role was different and inferior. This finding was made even though the substitute role would have paid $750,000. If she had been wrong in turning down the role in "Big Country, Big Man," the studio could have skated with no liability for her claim.
Lastly, damages must be proved with reasonable certainty. They cannot be speculative. Going back to the case of Shirley MacLaine, if she had claimed loss of future residuals, she might have had a big problem proving the amount, if any might have been due her. The future is difficult to foresee with any reasonable certainty.
For more information about handling contract claims, go to MEDIATION AND ARBITRATION OF DISPUTES on this website. For more detailed information about the law relating to contracts, go to Contracts: Promises to Keep or Avoid.
Damages are intended by the law to compensate the injured party for the loss of what he expected under the contract. In other words, the law will put him in the position he would have been in had there been no breach. For example, he had a contract to buy a house worth $700,000. Then you agreed to sell it to him for $600,000. If you breached and he lost the sale, his damages are $100,000.
Damages, however, are subject to several rules of mitigation.
Damages must be foreseeable. If damages occur due to special circumstances, the party in breach will not be liable unless he was aware of the special circumstances when the contract was made.
The doctrine of avoidable consequences may reduce the amount of the damages claimed. The law requires the injured party to take reasonable steps in good faith to avoid damages. This might include finding a substitute for the performance that was promised by the breaching party. Who knows, the injured party might avoid all of his damages. If so, that would make your termination look like a good business decision. This doctrine was offered as a defense in a famous case involving Shirley MacLaine.
Ms. MacLaine agreed to star in a musical screen play called "Bloomer Girl." When the studio cancelled the contract, it offered her another role for the same pay in a dramatic movie called "Big Country, Big Man." She refused and sued the studio for $750,000. The California Supreme Court upheld judgment in her favor, observing that the substitute role was different and inferior. This finding was made even though the substitute role would have paid $750,000. If she had been wrong in turning down the role in "Big Country, Big Man," the studio could have skated with no liability for her claim.
Lastly, damages must be proved with reasonable certainty. They cannot be speculative. Going back to the case of Shirley MacLaine, if she had claimed loss of future residuals, she might have had a big problem proving the amount, if any might have been due her. The future is difficult to foresee with any reasonable certainty.
For more information about handling contract claims, go to MEDIATION AND ARBITRATION OF DISPUTES on this website. For more detailed information about the law relating to contracts, go to Contracts: Promises to Keep or Avoid.
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