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Small Businesses Beware-Voiding a Bad Contract May Not Be as Easy as You Think!

Posted on September 9, 2016 at 9:45 PM

As a small business owner, one of your worst fears may be entering into a bad contract.  Unfortunately,  this is not an uncommon occurance. Many small business owners find themselves overwhelmed and don’t properly look over contracts. Many don’t know that some very common words used in everyday life have EXTREMELY different meanings when they are used in a legal contract. Many find themselves pressured or pushed into a contract for all sorts of reasons. In any case, a business owner can easily finds him or herself in the position of wanting, or needing, to void a contract.

Unfortunately, many small business owners don’t understand just how difficult it can be to void a contract. There are a lot of false or incorrect beliefs when it comes to voiding a contract floating around the small business community. Never forget, a contract is a legally binding agreement. You cannot void a contract simply because you don’t like the terms or can’t afford it anymore! But there are a few exceptions that can, in some cases, void a contract. Anyone about to enter a contract, has an existing contract or is thinking of entering a contract, would be wise to familiarize themselves with these exceptions. Remember, entering into a bad contract may force you to spend time and money that you just don’t have- which can lead to devastating consequences for your business!

So here are some legally recognized ways to void a contract:

• Modification of the existing contract by agreement. This is obvious. Any written and approved changes to the original contract can void existing terms.

• 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 condition that could probably fill hundreds of blog articles, but I will try and simplify it. Basically, if you enter into a contract based on deceptive terms or based on mistaken facts, the contract can be voidable. Additionally, an illegal contract, such as a contract that contains terms that violate the law or a contract for services that violate the law, is not enforceable. Also, a minor or person ruled mentally unfit cannot enter into a contract. But the list goes on and on.

• The parties’ intent regarding terms in the contract are open to more than one interpretation. This exception can apply when a contract is not specific enough to clearly represent the understanding of each of the parties to a contract. For example, if there is a contract for parking spaces, the number of spaces should be spelled out.

• 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.

• The existence of a prior, valid agreement, which is incorrectly reflected in the written instrument in question. In simpler terms, this is a contract that references another contract incorrectly. For example, the new contract says the old contract called for 15 units, when it only called for 12, can be voided.

NOW, please go back and take note of how many times the word ‘can’ is used above. Just because there are exceptions does not mean they will apply to a contract binding your business. Each contract you enter into is different and may require special examination. It is always in the best interests of your business to understand all factors involved, which may require you to retain the assistance of an attorney who practices contract law. In many instances, this type of assistance is relatively inexpensive and well worth the cost. Spending some money to ensure you understand the risks and benefits of a contract before you enter into a generally binding legal agreement may very well save you a lot more of your hard earned money in the end.

 

*The material contained in this article is for informational purposes only and does not constitute legal advice. The material is not guaranteed to be correct, complete, or up to date. Information provided by or cited to third parties does not necessarily reflect the opinions of Carrie Brosnan Taylor (CBT) or her clients.

 

 

 

 

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