The global COVID-19 pandemic and resulting social distancing regulations have changed nearly every aspect of people’s lives. Most notably, certain activities involving human contact are either discouraged or banned outright. For this and other pandemic-related reasons, it has become impractical or even impossible to perform certain contractual terms.
If you find yourself with no other choice but to break a contract during this crisis, it will be important to do it legally. Otherwise, you could be held liable for breach of contract. There are a few basic ways to legally break a contract, including some that are more specific to the current crisis. We’ll answer some questions you may have about contracts and how to break them in a lawful manner.
Free Force Majeure Notice
Invoke the force majeure clause to renegotiate or terminate your contract.
What is a contract?
A contract is an agreement between two or more people that creates a legal duty of performance. This means you’re legally required to perform the terms indicated in the contract, and failure to do so is a breach.
The three necessary components for a contract are:
- Offer. A clear offer outlining the terms of the contract (i.e., the responsibilities and expectations of each party involved)
- Acceptance. Second party agrees to the terms presented in the offer either in writing (preferred) or orally
- Consideration. The actual performance of the terms of the contract: a bargain for exchange, such as money, a trade of goods or services, etc.
Does a contract have to be written to be valid?
Oral contracts are as valid as written contracts. Obviously, if there is confusion or disagreement between the parties on the terms of the contract, it is best to have a written document to reference.
What is the simplest way to break a contract?
Before you decide to break a contract, you may consider simply postponing your obligations. If you want to maintain your professional relationship, proposing a Contract Amendment may be a helpful first step to take before ending the contract altogether. If you and the other party have good rapport, you may be able to renegotiate the terms of your agreement to support your new circumstances. A Force Majeure Notice can help you kickstart the conversation.
If the other party also cannot perform their end of the contract or you aren’t able to postpone to a future date, then you might consider terminating the agreement. You can use a Notice of Contract Termination to document and communicate this decision.
Whatever the case, both parties can mutually agree to amend or terminate the contract. Just make sure you have the changes documented in writing.
What if the other party wants to hold me liable?
Often, the best way to manage a contract dispute is to talk to a lawyer. Before that, you can also check your contract to see what the terms and conditions are regarding termination. Most contracts do contain terms around cancellation, but even if there is no such clause, there still may be a loophole or “escape clause” built into the agreement. For example, a force majeure clause may excuse you from your obligations due to an “act of God.”
Force majeure is a common phrase found in legal documents that releases parties from their contract if an extraordinary event or circumstance occurs that prohibits them from fulfilling their contractual performance. However, just because this clause is in your contract does not mean it is automatically enforceable. There are many factors for a court to consider before excusing a party. Here are a few items to consider if the contract is broken due to COVID-19:
- Does the force majeure clause specifically have the words “pandemic,” “disease,” “epidemic,” or any other similar wording? These clauses are narrowly construed by courts.
- When was this contract drafted? At the time of drafting and signing, had any state or country declared a state of emergency?
- Is the performance legally barred or impossible to perform, or is the cost of performance just more expensive?
- Is the non-performance of the contract directly caused by COVID-19?
If you are considering breaking a contract, it is important to understand the terms of your specific agreement. A lawyer can help to interpret your contract terms and explain your rights.
What if my contract obligations aren’t reasonable?
A court can find a contract to be “unconscionable” if it contains terms so outrageous that they shock the conscious. A court would look at many factors of the contract to try and determine this, including the parties’ bargaining power or unfair terms in the agreement.
In many of these cases, one party to the contract clearly has all of the power and might use it to make money while hurting the other side. If you have questions about the specific terms in your contract, ask a lawyer.
When does a contract become void?
Contracts depend on clear expectations, definite terms, and transparency. If there are misrepresentations or impossible terms, a court may find it void. A void contract is one that is invalid and unable to be enforced at the state or federal level.
Other reasons a contract may be voidable include:
- Fraud or misrepresentation of facts
- Vague or impossible to perform terms
- Severely one-sided terms
- The contract involves criminal activity
- A party was forced to sign
- One of the parties lacked the capacity to sign (e.g., One party lacked mental capacity or was under the age of 18 at the time of signing.)
To find out if your specific contract may be voidable, ask a lawyer.
Need help breaking a contract legally?
Since every situation is unique, you may need additional legal advice for how to proceed with a contract dispute or negotiation. The coronavirus pandemic has made it difficult or impossible for countless parties to fulfill their contractual obligations, so you’re not alone. But if you have to break a contract, make sure you do it properly. For more help, you can access free legal advice and key documents in the Rocket Lawyer Coronavirus Legal Center, or call our support team toll-free at (877) 885-0088, Monday through Friday, from 6 am – 6 pm PST.