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Some Tips on Getting Out of a “Bad” Contract

In general, San Diego and California businesses want to honor their contracts. But, maybe you ended up signing a “bad” contract. Every business does it at some point; it is nearly inevitable. The contract can be bad for any number of reasons – too low a price, impossible to get the materials now, the timing is wrong, or any number of other problems. The first tip for getting out of a bad contract is to hire a good San Diego corporate attorney who has the skills and experience to review the contract and give you advice and counsel. Here are a few additional tips.

San Diego Business Law: Read the Contract Again

The next tip is to read the contract again. As noted, it is now essential to have an excellent business attorney review the contract, too. The first question to be determined: What is your business actually obligated to do under the contract? Sometimes, the problem is a misunderstanding and a careful review of the contract shows that performance is possible and the contract is not as “bad” as you thought. Similarly, maybe the contract provides an “easy fix” — like more time to perform if you provide notice to the other party. Under these types of circumstances, there is no need to breach and the contract can be completed.

San Diego Business Law: Termination Provisions

Next, it is important to review the contract with a particular focus on provisions related to termination. Some contracts have termination provisions requiring certain types of notice with certain deadlines, etc. If the contract allows for that, then, with the guidance of legal counsel, the solution can be to follow the steps required to terminate the contract.

San Diego Business Law: Default Provisions and Assessing the Cost of Breaching

Next, read and review the provisions related to default under the contract; that is, what was agreed in the event of non-performance? Sometimes, the best way to exit a bad contract is to accept the consequences of breaching. If, for example, the contract requires payment of certain damages by the breaching party, sometimes it might be better — that is, less costly — to pay what is required. Under these circumstances, the decision whether to breach an existing contract is a business decision that is informed by good legal advice. Essentially the question is this: Does it cost less to my business to breach the contract than to perform the contract?

In evaluating the “cost of breach,” other important possible provisions in the contract must be considered. For example, is there an attorney’s fees provision that requires the breaching party to pay the other party’s attorneys’ fees in the event of litigation? If yes, then those potential costs must be included in the calculation.

It is also important to consider the nature of the contract and whether the non-breaching party might be required to mitigate their damages. For example, if the contract is for provision of goods and products, then maybe provisions of the Uniform Commercial Code will help. Under some circumstances, if you are the seller, the buyer must first seek an alternative source for the goods and products. If the buyer can find the same product — say, apples — at the same price, time, and quantity, then there can be no lawsuit by the buyer (or, at least, the claimed damages might be minimal).

San Diego Business Law: Begin Negotiations/Send an Attorney Letter

The next step is to begin negotiations for canceling the contract. The best strategy here is to have your trusted corporate counsel send a letter describing the problem, proposing a solution, and providing legal argument. An attorney letter shows that you are taking the problem seriously and that you have an understanding of your legal rights and obligations.

Contact San Diego Corporate Law Today

For further information, please contact Michael Leonard, Esq. of San Diego Corporate Law. Mr. Leonard can assist and can review any contract and might be able to help if there is a need to cancel the contract. Contact Mr. Leonard via email or by calling (858) 483-9200. Mr. Leonard has been named a “Rising Star” three years running by SuperLawyers.com and “Best of the Bar” by the San Diego Business Journal.