Just as good fences make good neighbors, good contracts can lead to strong business relationships. So, backing out a contract is not something to be done lightly. In addition to exposing your company to legal consequences, your reputation and relationships could suffer. However, defaulting on a contract may be your best – or only – option during the difficult time in which we live. It is just important to do it the right way, which starts by consulting with a business lawyer who understands contract law.
How to Terminate the Contract Gracefully
Some disasters are so widespread you can rest assured that the other parties to your contract are suffering also. As soon as you realize you will not be able to complete the contract, again, talk to your business attorney.
Your legal counsel may:
- Thoroughly review your contract. Many contracts contain provisions about how to terminate the contract. A force majeure clause may be triggered by COVID-19 or other events. Defaulting on a contract because of a natural disaster or act of God could be allowed under the terms of the contract itself.
- Help you communicate with the other parties. In some cases, it may be best to let the other parties know there’s a problem as soon as possible. Simple negotiations might lead to an agreement to postpone certain actions or completely cancel the contract with little or no consequences to you.
- Handle legal disagreements. Sometimes the other party may be unwilling or unable to bend. Threats of legal action may follow. Here, again, your contract may contain language stating how to handle disagreements between the parties. You may be able to settle your dispute through mediation or arbitration. However, if you are sued because of defaulting on a contract, your business lawyer can advise on the best defenses.
It’s usually best to avoid terminating a contract, but sometimes it is unavoidable.
Talk to a Business Lawyer Before Defaulting on a Contract.
Contract law is complex, especially when you are forced to deal with an unprecedented state of emergency. As always, do not sign or default on a contract without discussing the ramifications with an experienced business lawyer.
Attorney Richard Sierra at the Florida Small Business Center assists clients like you with business and litigation matters. As always, Our Goal Is to Help You Succeed™. For an appointment, you may call us at 1-866-842-5202 or use the contact form on our website. We represent clients throughout the State of Florida, including Coral Springs, Coconut Creek, Boca Raton, Delray Beach, Pompano Beach, Sunrise, Fort Lauderdale, Miami, West Palm Beach, Jupiter, Deerfield Beach, Stuart, Port St. Lucie, Orlando, Naples, Fort Myers, Sarasota, Tampa, and surrounding communities.