Contracts are binding agreements that dictate the terms and conditions between parties involved in a transaction. While contracts are often legally enforceable, there are circumstances where one may seek to break them without facing legal consequences.
If you or one of your business partners wishes to break a contract, caution is necessary. Even a legal exit from a binding agreement can have the potential for commercial litigation.
Grounds for breaking a contract
Breaking a contract may be legally justified under certain conditions. Common reasons include a breach of contract by the other party, impossibility of performance or mutual agreement to terminate. Be sure to thoroughly review the contract to identify any breaches and assess the validity of claims.
Breach of contract
If one party fails to fulfill the obligations outlined in the contract, it may constitute a breach. In such cases, the non-breaching party may have the right to terminate the contract without repercussions. Documentation of the breach and its impact can establish a solid legal position.
Impossibility of performance
If circumstances render it impossible for either party to fulfill their contractual obligations, breaking the contract may be permissible. Events such as natural disasters or government interventions fall under this category.
Mutual agreement to terminate
Sometimes, both parties may agree to terminate the contract willingly. This requires clear communication and a written agreement to avoid misunderstandings. Ensuring mutual understanding and consent is vital in these situations.
Commercial litigation risks
While legally breaking a contract is possible under specific circumstances, both parties should be aware of the risks associated with commercial litigation. If the other party disputes the termination, it may lead to a legal battle. Litigation can be time-consuming and costly, potentially outweighing the benefits of breaking the contract.
Statistics suggest that 9% of contracts lead to claims, disputes or litigation. Contracts that provide a legal way to “break” the agreement can mitigate this, but professionals should always consider the possibility of contention when one side wishes to exit the agreement.