Many individuals have likely faced or are currently facing situations where they entered into a contract with another party but that party did not honor the agreement. The first question an individual needs to consider in these situations is whether or not they had a legally valid contract.
Legally valid contracts exist where there is:
- A valid offer;
- An acceptance of that offer; and
- An exchange of some type of consideration.
Offers are required to be:
- Clear;
- Definite; and
- Unambiguous.
For example, an individual who posts an ad to sell their guitar which is signed by a famous musician is not a valid offer to form a contract. This is because that offer is not being made directly to another individual and does not have a set monetary amount which the individual is seeking. In other words, a request to seek an offer is not itself an offer.
The acceptance of an offer is required to be clear and not change the terms of the offer. Therefore, an individual cannot accept an offer while also adding extra conditions for the other party.
Both sides must provide consideration. Consideration means each party will confer a benefit on the other party or will suffer a detriment. For example, a buyer will pay $1,000 for the signed guitar.
It is a common misconception that all contracts are required to be drafted in writing. Oral contracts can also be considered valid.
It is important to note, however, that oral contracts are more difficult to enforce. If one party violates an oral contract by failure to perform, a court may consider the party to have breached the contract and award damages to the non-breaching party.
To review, the elements required for a valid contract include:
- An offer that is clear, definite, and unambiguous;
- An acceptance which is clear and does not change offer terms; and
- Consideration with the offer that conveys some type of benefit for one party.
Are There Ways to Get Out of a Valid Contract?
Yes, even if an individual enters into a valid contract, there may be certain circumstances under which they are excused from performing their end of the agreement. The validity of a contract itself is often the basis for legal disputes.
However, there are also other issues which may cause the contract to be deemed void. Contact laws and courts have recognized several situations where one party may be excused from performing their portion of the contract, including:
- The contract is illegal. While this may seem obvious, a contract which is entered into for an illegal purpose, such as purchasing controlled substances, is not a valid contract;
- The contract was entered into by incompetent parties. Contracts may be deemed void if one party is incompetent for reasons such as:
- being under the age of 18; or
- mental incompetence;
- The contract was induced by a threat. An individual is not required to perform their responsibilities under a contract if they were threatened to enter into the contract;
- Public policy. If a contract is beyond social norms, a court will likely not enforce it. For example, contracts for surrogate parenting;
- Misunderstanding of material contract terms. In some cases, a mistake regarding the terms of a contract may be an excuse for performance;
- The contract is impossible. Impossibility may be an excuse based on:
- a change in circumstances, such as one party passes away; or
- the discovery of pre-existing circumstances which makes performance of the contract impossible. For example, if a party contracts to paint a house and that house burns down, they cannot complete their obligations under the contract.
There are also other circumstances and situations where contracts may be deemed void or voidable, and an individual’s performance may be excused.
What are the Consequences of Violating a Contract?
If a party violates a valid contract and they do not have a legal excuse, the non-breaching party, or the party who did not violate the contract, may sue for damages. The damages available will depend on the type of breach, whether it is a material breach or a minor breach.
If the breach is minor, the non-breaching party will still be required to perform their obligations under the contract but they may be able to sue for damages they suffered due to the breach. For example, if the contract does not specify that time is of the essence for the delivery of goods and the other party was supposed to deliver the goods on Monday but were delayed until Tuesday by a storm, it will likely be considered a minor breach due to a reasonable delay.
If, however, the breach is a material breach, which means it involves the major provisions of the contract, the non-breaching party may be excused from performing their obligations and can sue the breaching party immediately. For example, if an individual ordered 50 footballs but they received 50 baseballs, it would be considered a material breach and the receiving party would not be required to accept or pay for those items.
The most common remedies for a breach of contract may include:
- Monetary damages;
- Specific performance; or
- Cancellation and restitution.
Monetary damages can include the following types of damages:
- Compensatory damages, which seek to put the non-breaching party in the position that they would have been if the breach had not occurred. For example, if they would have received $100 worth of baseballs from the contract, the compensation would be $100;
- Punitive damages, which are payments the breaching party makes that are above and beyond the point that would fully compensate the non-breaching party. These damages are meant to punish the breaching party, and are rarely awarded in a business setting;
- Nominal damages, which are symbolic damages awarded when a breach occurred, but no actual money loss was proven by the non-breaching party; or
- Liquidated damages, which are specific damages identified in the contract itself, where the contract specified damages in the event that the contract is breached. These damages are required to be reasonably related to the actual damages that might result from a breach.
If monetary damages are not considered an adequate remedy, the non-breaching party can seek other types of remedies, such as specific performance. Specific performance is where a court orders the breaching party to perform their obligations under the contract.
This remedy is typically only ordered when the subject matter of the agreement is unique or rare and monetary damages would not be adequate. Restitution is intended to put the non-breaching party back in the position they were in prior to the breach in addition to cancellation of the contract, which will completely void the contract and relieve both parties from their obligations.
Should I Hire an Attorney if I Violated a Contract?
It is essential to have the assistance of a contract attorney for any issues, questions, or concerns you may have related to contract violations. Contract violations may lead to serious legal consequences and repercussions.
It is important to contact your attorney as soon as possible if a dispute or violation arises. Your attorney will help protect you from legal liability and represent you when you have to appear in court.
