Imagine for a moment that your business has entered into a bad contract. (You have no excuse with our flat rate contract review, but just imagine). This is actually quite common. Many small business owners find themselves overwhelmed and don’t properly look over contracts. Other find themselves pressured or pushed into a contract by an incessant salesperson. Either way, the business owner finds him or herself wanting to void a contract.
Can your business leave this contract and survive?
Sadly there is a lot of misinformation when it comes to voiding a contract. Yes, exceptions exist that can void a contract. No, they are not what you think. Recall our prior article on the ‘parol evidence rule‘. A contract is a legally binding agreement, and should express both parties intents fully. You cannot void a contract because you do not like it anymore.
The point of this article is to discuss the exceptions that can void a contract and (hopefully) correct some of the misinformation out there. This is particularly useful for anyone who is about to enter a contract, has an existing contract or is thinking of entering a contract. It really does not matter what side of the contract you are on, you should familiarize yourself with these exceptions. So without further ado:
- Subsequent modification of the contract. This is obvious. Any written and approved changes to the original contract can void existing terms.
- A related agreement, if it does not contradict or change the main contract.
- A condition that had to occur before contract performance was due. For example, if a contract stipulates that a remodel to a commercial space must occur before the lease starts but no remodel occurs, the contract could be voided.
- Defects in the formation of the contract (such as fraud, duress, mistake or illegality). This is a very complicated caveat that could probably fill hundreds of blog articles. We will try to simplify it. Basically an illegal contract is not enforceable. A minor or person ruled mentally unfit cannot enter into a contract. The list goes on and on.
- The parties’ intent regarding ambiguous terms in the contract. Basically, make sure everything in the contract is spelled out. If a contract specifies building parking, spell out how many spaces. If there is wi-fi included, ask the bandwidth limits.
- Problems with the consideration. For example, a contract can be reliant on a payment. If that payment does not occur, the contract could be voided.
- A prior valid agreement that is incorrectly reflected in the written instrument in question. A contract that references another contract incorrectly (ex: the new contract says the old contract called for 15 units, when it only called for 12) can be voided.
I want you to take note of how many times the word ‘can’ is used here. Each contract is different and requires special consideration. Just because there are exceptions does not mean they will apply to your business. Far too often we see small businesses operating under confirmation bias, only looking for information that will support their point of view. In a delicate situation, it pays to understand all factors involved. If you have any questions, I highly encourage you to contact us or comment below.