Keep an eye out for these 8 common mistakes that can terminate your business contracts.

Lack of Consideration

In legal terms, “consideration” refers to something of value given by both parties to a contract that induces them to enter into the agreement. If there has been no consideration, or bargained-for exchange, a court will deem the contract invalid and it can be terminated.

Lack of Capacity

A court will not observe the contractual obligations of an individual that lacks capacity (e.g. minor or someone deemed mentally incompetent). Although a court does not recognize minors, a contract made by an adult to a child is accepted. A person is considered mentally incompetent if he lacks the ability to understand the agreement.

Statute of Frauds

Most oral contracts are enforceable.  However, there are certain contracts that need to be in writing to be enforceable. Some examples of this include marital agreements, service agreements that cannot be performed within a year, land contracts, and contracts for goods of $500 dollars or more. Even though these contracts must be written and signed, a court can determine whether informal writings such as emails, invoices and letters meet the statute of fraud requirement.

Mutual Mistake

If both parties involved in a contract are mistaken about the same facts, the contract may be voidable.

Misrepresentation

A misrepresentation is a false statement of facts that encourages a person to sign the contract.

Breach

A breach arises when a party fails to perform any term of a contract absent a legal excuse. However, for a contract to be terminated the contract must be considered in major breach.  To determine whether a breach was major or minor, the courts will look 6 guidelines including:

1) The extent to which the breaching party has already performed,

2) Whether the breach was intentional, negligent or the result of an innocent mistake,

3) How certain it is that the breaching party will perform the rest of the contract,

4) How much of the benefit of the contract the non-breaching party has gotten despite the breach,

5) The extent to which the innocent party can be compensated and,

6) How difficult it would be on the breaching party if the court were to decide that the breach was material and that the innocent party was under no obligation to perform his side of the bargain

Discharge by Frustration

A contract may be frustrated where there exists a change in circumstances, after the contract was made, which is not the fault of either of the parties, which renders the contract either impossible to perform or deprives the contract of its commercial purpose.

Impossibility of Performance

A contract can be cancelled under what is called an “impossibility theory”. Types of impossibility theories observed by the court include acts of God, death, or legal impossibility.

Of course, it is always a good idea to have your contracts looked over by a lawyer.  Book an appointment with us to have your contracts reviewed to ensure your business is protected!

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