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CONTRACTS: IS THERE EVER A WAY OUT?

Fortunately, or unfortunately depending your point of view, contracts are a part of our everyday life. Whether you are hiring a general contractor, a real estate agent, an attorney, etc., contracts will be involved. Contracts are a great thing as they dictate what needs to be done, who will do it, how much it will cost, and a host of other topics. However, to some people contracts are scary, evil things that they do not understand, and believe there is no way out once signed. Well, good news for you, I am here to let you in on a secret…you may be able to get out of contracts.

How Is a Contract Formed?

Before we can discuss how to get out of a contract, let’s talk about how a contract is formed. A contract consists of four parts:

1.     Offer: One of the parties offered to do or not do something. For example, I offered to paint your house for $400.

 2.     Consideration: Something of value was offered in exchange for the offer. I offered to paint your house and in exchange for that you pay me $400.

 3.     Acceptance: The offer was accepted. This can be done by words, deeds or performance. The acceptance must mirror the offer. If the acceptance does not mirror the offer, then the offer was rejected and a counteroffer was proposed. In the example, I offered to paint your house for $400 and you accepted verbally.

 4.     Mutual Assent: The parties must have what we call a “meeting of the minds.” This simply means that both parties were aware of the contract terms, understood the terms, and agreed to the general structure of the contract.

If all four of the aforementioned elements are present, then there is most likely[1] a contract.

Avenues to Get Out of a Contract

 California Civil Code provides possible avenues to get out of a contract. California Civil Code § 1567 which states, “APPARENT CONSENT, WHEN NOT FREE. An apparent consent is not real or free when obtained through: duress; menace; fraud; undue influence; or mistake.” Each of these factors are a blog post by themselves. So, for the time being, these are ways to dispute consent. Consent, or acceptance in this case, is one of the four elements which create a contract. If you accept my proposal to paint your house for $400 while I am physically threatening you with a gun, then you are under duress, and your acceptance may, in fact most likely will, be found as invalid.

Unlike section 1567, which discusses consent in general, Section 1689 specifically addresses how to rescind a contract. Section 1689 of the California Civil Code states:

(b) A party to a contract may rescind the contract in the following cases:

(1) If the consent of the party rescinding, or of any party jointly contracting with him, was given by mistake, or obtained through duress, menace, fraud, or undue influence, exercised by or with the connivance of the party as to whom he rescinds, or of any other party to the contract jointly interested with such party.

(2) If the consideration for the obligation of the rescinding party fails, in whole or in part, through the fault of the party as to whom he rescinds.

(3) If the consideration for the obligation of the rescinding party becomes entirely void from any cause.

(4) If the consideration for the obligation of the rescinding party, before it is rendered to him, fails in a material respect from any cause.

(5) If the contract is unlawful for causes which do not appear in its terms or conditions, and the parties are not equally at fault.

(6) If the public interest will be prejudiced by permitting the contract to stand.

As you can see, both sections discuss very similar topics. Section (b)(1) of 1689, incorporates the duress, menace, fraud, and undue influence found in Section 1567. However, Section 1689 takes it a step further and discusses the consideration specifically and the terms of the contract.  

Let’s discuss the terms of the contract. Subsection (b)(5) explicitly discusses if the contract is unlawful. When would this apply? Well, if you were contacted by someone to threaten/physically harm another person for a certain sum of money, that contract would be void. It would be void because the underlying principal of the contract violates the law, and you cannot have a contract to violate the law.

Conclusion

Contracts are not ironclad. Contracts are simply four key elements, sometimes reduced to writing, which govern the actions and duties of the parties. You can avoid the duties of a contract if the contract, its terms, considerations, or totality of the circumstances show that the contract should be voided. Contracts can become very complicated. I used a very easy example to illustrate the general points of this article.

 

All information provided in this article is for educational purposes only, and does not constitute legal advice. Each situation is dependent on the specific facts and must be evaluated on a case-by-case basis. If you’d like to discuss the specifics of your situation, please call our office at (213) 784-3640.


[1] I say most likely, because sometimes it appears that all four factors are accomplished when in fact one or more of the elements fall short according to the law which is generally discussed in this post, but will be expanded in a later post.