Contracts are legally binding agreements. While they can be oral or written, most contracts that play important roles in our lives and businesses are written down and signed by both parties. These include, for example, employment contracts, real estate purchase contracts, and insurance contracts.

Sometimes, however, contracts need to be broken. In some cases, this is because they fail to meet certain legal requirements. In other cases, they were invalid from the start. In situations like these, courts will "void" the contracts, essentially rendering them destroyed.

A Contract That's Impossible to Fulfill

When people do what the contract calls for, it is called called performance. For example, you make a contract to perform at a concert. You appear and perform. The other party pays you. That's it. The contract is completed. Similarly, you could make a contract to sell your house for a certain amount of money. If the buyer fails to pay, he has not performed, and you do not need to sell your house.

Sometimes, however, something happens making it impossible to do what is called for in the contract. This is called impossibility of performance. If it is impossible to do what the contract calls for, either party can break the contract. For example, you contract with a famous painter to do your portrait and then the famous painter dies. A dead painter obviously cannot paint. The contract to paint your portrait is terminated by impossibility of performance.

A Contract Based on Fraud, Mistake, or Misrepresentation

You may be able to break a contract if the other party does something improper. You can also break it if you and the other party both made the same mistake in making the contract.

For example, imagine that you made a contract to buy a rare Picasso painting owned by your friend. However, before the sale, you both learn that the painting was not actually by Picasso. The contract was clearly based on a mistake of fact, and you are no longer obligated to proceed with the sale. Breaking a contract for these reasons is called rescission.

Being tricked into making a contract by the other side is another reason you can rescind the contract. Fraud and misrepresentation are similar reasons allowing to you get out of a contract.

Sometimes, a person can escape a contract because the law says he or she is not of age or sound mind to make one in the first place. Say your 13-year-old child signs a contract to buy a used car. The contract is voidable because minors (usually under 18 years old) are not old enough to make them.

Or imagine that your mom is elderly and has lost the capacity to understand what she is doing. A contract she makes to buy a vacation property can be rescinded, because she was not mentally capable of understanding its terms.

Breach of Contract

If the other side breaches your contract, you do not need to do your part of the bargain. A breach happens if one side:

• refuses to do his or her part
• does something he or she was not supposed to, or
• blocks you from doing what you are supposed to.

Not all breaches of contract end up in court. A breach has to be serious, or "material," to mean anything.

• You can sue someone who makes a material breach of your contract. A material breach goes to the heart of the contract. For example, you hire a violinist to perform at a concert. She shows up, but plays the accordion. You have to refund the ticket prices to angry fans. The violinist materially breached the contract. You would probably get a judgment against the violinist for the amount of money needed to put you in the same financial position as if the violinist had not breached the contract.
• An immaterial breach of contract is one that does not matter or go to the heart of the agreement. Say you hire someone to inspect your heating system once a month. The contract says it should be inspected on the first Monday of the month. But the contractor comes on the first day of the month instead. In all likelihood, this is not a breach, unless for some reason the inspections really had to be done on the first Monday.

Prior Agreement to End a Contract

Contracts can also be ended by prior agreement. The contract may say it can be ended by either party giving written notice to the other party. The contract would contain a provision about how it can be terminated and as long as those conditions are met, the contract is ended. Be sure to be specific, because interpreting unclear language could lead to a lawsuit.

You cannot read every contract you come across in life. For the most important ones, such as employment, living arrangements, or even medical treatment, it pays to have an attorney review it before signing. An attorney with a careful eye can warn you about some of the potential contractual problems described in this article.

Questions for Your Attorney

• An orchard agreed to sell me a ton of Granny Smith apples. They said a fungus ruined them and delivered a ton of Golden Delicious instead. Must I take them?
• I sold my car to a minor who showed me his older brother's ID. Now his dad is demanding I take back the car and refund the money. Must I do so?
• My landlord wouldn't let me review the lease before signing it, but it is very unfavorable to me. How can I get out of it?