Contract Cancellation due to a Breach of Contract
18 May 2007
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There are many ways to terminate the obligations of a contract. Most often, parties conclude their contract obligations by performing them. However, sometimes problems arise and parties cannot or will not complete their obligations under the contract. When this occurs, contracts may be terminated by reasons of rescission, breach, or impossibility of performance, (Bennett, 2007). The purpose of this paper is to discuss contract cancellations due to a breach of contract.
Definition of a Contract
A contract is a legally enforceable agreement between two or more parties which creates a duty for each party to do something (e.g., to provide goods at a certain price according to a specified schedule) or a duty not to do something (e.g., to divulge an employer's trade secrets or financial status to third parties), (Binder, 2001). If one party fails to act as promised, and the other party has fulfilled the duties under the contract, that party is entitled to legal relief. For example, Company A agrees to pay Company B $16,000 for computer equipment. Company B provides the equipment as required in the contract. Company A admits that the equipment meets the contract specifications but fails to pay within a timely manner. Company B can sue for damages.
Generally, the non-breaching party's remedy for a breach of contract is money damages that will put the non-breaching party in the position that it would have had if the contract had been performed. However, under special circumstances, a court will order the breaching party to perform its contractual obligations, (Radcliff, 1999).
While each state in the US has slightly different criteria as to how to create an enforceable agreement, all are essentially identical in their basic requirements. First, the parties must have intended to create a binding obligation - meaning, there must have been an offer and an acceptance. (In the previous scenario the offer was $16,000 for computer equipment; the acceptance was Company A's willingness to pay that amount). Second, the parties must have contracted to perform a legal act. Third, each party must have agreed either to give up something or transfer some benefit to the other party, which is called the "consideration," (in our scenario the $16,000). Fourth, the parties must have had the ability to enter a legal contract (meaning that they must have been of legal age and of a sober and sound mind). And lastly, the basic essential terms of the contract must be agreed upon between the parties. If one of these basic requirements is lacking, an agreement may be unenforceable or "void," (Binding Contracts, 2000).
Advantages of Contracts
Contracts offer many advantages. First, they give rise to a legally enforceable agreement which will be protected by the court. Second, they offer the advantages of providing certainty, predictability and economic efficiency. Third, properly drafted contracts, which accurately express the intention of the parties, will avoid the expense of a lengthy litigation and the loss of a company's or a person's reputation. And lastly, contracts can serve to deter a breach of contract providing remedies to enforce obligations voluntarily assumed, (Radcliff, 1999).
For example, using the first scenario, if after agreeing to accept $16,000 for the computer equipment, Company B is offered considerably more money by Company C for the same...
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