What Happens if the Contract Fails?

Greg Harney
Originally published in - June 2009
by Greg Harney

Business people enter into agreements every day.

Some of these agreements are recorded in writing, while others are less formal and may either be partly oral and partly in writing, or simply entirely oral.

Even those agreements painstakingly recorded in writing may ultimately be uncertain or incapable of interpretation by the parties at some future date.

Disputes often arise after the striking of a bargain as to the true intent of the agreement and the interpretation of its various provisions.

If the business parties to the agreement cannot resolve the dispute, the agreement will have to be interpreted by a third party to determine whether or not it is enforceable, or whether or not some other mechanism exists to compensate one or the other of the parties for performing services pursuant to the ultimately unenforceable agreement.

Business people should recognize that accuracy and precision in recording the terms of the agreement in writing is always preferable.

However, no matter how exhaustive and careful the parties to an agreement are, it is difficult if not impossible to predict circumstances in the evolution of the business relationship that might impact the contract, or that the terms of the agreement did not foresee.

The law and equity have various mechanisms to assist the parties to a business agreement if it is ultimately determined that the agreement itself is unenforceable or that some of its provisions are uncertain or impossible to interpret clearly.

Lawyers should, and often do, look to alternative remedies when attempting to enforce the agreement to ensure that their clients are compensated if the contract is determined to be unenforceable or uncertain.

The principal mechanism arises from what is known in the common law as equity.

A branch of equity called restitution allows a party to obtain relief or compensation even in the absence of a binding agreement, or if the existing agreement is unenforceable or uncertain.

There are many branches to the area known as restitution, but the basic premise is that a party should be compensated for participation, contribution or efforts devoted to a project or situation even if there is no express enforceable agreement on which to base the claim for relief.

In summary, business persons should attempt to precisely record the bargain to which they are about to commit.  In the absence of an enforceable agreement, and in the event of dispute, business persons should turn to those alternative remedies that are available to compensate for time and effort and financial contribution if the bargain fails.