How to Get out of a Contract

Whether you buy a car, buy a house, or sign a job agreement, you will probably have to sign a contract at some point in your life.

A contract can be between two or more parties and will contain their promises to perform specific services or provide certain goods. It can be as simple as a paragraph or complex with multiple pages. It can be oral or written. The job of a contract is to reflect the parties’ interests and outline how they will carry out their responsibilities.

What Are the Elements of a Contract?

The elements of a contract must be established before the court will enforce it. In general, there must be evidence that the parties agreed to enter into a contract under the terms indicated. Four necessary elements must be true before a contract can be enforced:

1. Offer – One of the parties made a promise to do or not do some specific future action
2. Consideration – Something of value was promised for the specified action or nonaction. This can be money, a promise to perform work or service, or anything else that will compensate the other party. Consideration is what induces the parties to enter into the contract.
   • The existence of consideration is what differentiates a contract from a gift. A gift is a property transfer from one person to another without something of value promised in return. Failure to follow through on a promise to make a gift is not enforceable as a breach of contract precisely because there is no consideration for the promise.
3. Acceptance: The offer must have been accepted through words, deeds, or performance of what is called for in the contract. If the acceptance changes any of the terms of the offer, the acceptance is viewed as a rejection and a counteroffer.
   • If the contract involves a sale of goods between merchants, then the acceptance does not have to mirror the terms of the offer for a valid contract to exist unless:
     • the terms of the acceptance significantly alter the original contract or
     • the offeror objects within a reasonable time
4. Mutuality – The contracting parties had “a meeting of the minds” regarding the agreement. This means the parties understood and agreed to the basic substance and terms of the contract.

What are the Consequences of Failing to Follow a Contract?

Contracts are legally binding and can have significant economic consequences for those who fail to perform their responsibilities. Therefore, while contracts can be oral, it is best to create a contract in writing to prevent disputes arising from a party’s confusion or a disagreement between the parties about the terms of the contract.

A party who fails to perform under the contract can be sued for breach of contract. The contract may specify the damages in advance (e.g., “if the contractor does not finish the project by July 1, $250 per day will be deducted from the amount the homeowner owes the contractor.”) If the damages are not specified in the contract, then the court will impose one or more of the following:

• Compensatory damages: Compensatory damages are monetary damages that are awarded to compensate the non-breaching party for any losses suffered due to a contract breach. They are not designed to punish the breaching party but merely make the party that was breached against “whole again,” as commonly phrased.
• Punitive damages: Punitive damages are designed to punish a breaching party and deter parties from committing breaches. Such damages are rarely awarded for contract breaches, although they may be awarded in some tort or fraud cases that overlap contract cases.
• Specific performance: This could include, but is not limited to, forcing the breaching party to perform their end of the contract.

These are not the only types of damages available – there are many. For more information about what damages may be available in your particular case.

How Can Parties Get Out of a Contract?

Notwithstanding careful planning before entering into a contract, one or more of the parties may determine they don’t want to continue. Here are some common ways parties may end a contract:

• The contract is Invalid: A party who wishes to get out of a contract can do so if there is no valid contract—there was no offer, acceptance, or consideration
• The contract was for an Illegal Contract Purpose: Every contract must be entered into for a legal purpose. For example, in every state except Nevada, entering into a contract for the performance of prostitution services would be illegal even if it can be proven there was an offer, acceptance, and consideration
• Infirmed Capacity: The parties must be able to enter into a contract for it to be binding. Minors, for example, are generally not allowed to enter into contracts, and people who are found incompetent can’t form a contract
• Undue Stress: Also known as duress, a party to a contract cannot induce the other party to enter into a contract through force. For example, a homeowner is told to sign over their property, or else the other party will release embarrassing pictures of them. A court will likely not enforce such a contract as it was entered into under duress.
• Misrepresentation or Fraud: Examples – someone falsely claims to own a piece of property and enters into a sales agreement to sell the property. In this case, the buyer will have a good argument against the enforcement of the contract because the seller misrepresented their authority to sell the property. In another example, you agree to purchase a sailboat but later find out the boat is not seaworthy. A court may void the contract since the whole reason for purchasing the boat was so you could sail it
• Impossibility: The parties enter into a contract believing they can each fulfill the promises contained in the agreement. However, if something beyond the parties’ control makes it impossible to complete, then the court may vape the contract.
  • By way of illustration, you enter into a contract for the shipment of electronics from California to be transported by trucks. However, the factory where the electronics are manufactured was destroyed by an earthquake, making both the manufacture and shipment of the electronics impossible.
• Cooling-off Period: A Federal Trade Commission rule permits a buyer to cancel a sale. This rule is commonly referred to as the buyer’s remorse rule. Let’s say you are up late at night watching some home shopping network and decide you must purchase the set of advertised cookware. This cooling-off rule can allow you to cancel the purchase. However, keep in mind that this rule is very limited and excludes some big-ticket purchases, such as those involving real estate, insurance, and cars.

Should I Hire an Attorney If I Want to Get Out of a Contract?

First, It is always a good idea to consult with a local contract attorney before you sign any legal document. Next, getting out of a contract after entering one can be very difficult and costly for you. An attorney can be especially useful in helping you understand your options for canceling the contract and the consequences for doing so.