You may occasionally enter into a contract and later change your mind. Alternatively, you may sign a contract not knowing all the terms it includes. If you want to walk away from a contract you have agreed to, you should be aware of the situations in which you can do so. Simply walking away is not a good idea. You may face adverse consequences for not fulfilling your legal obligations. This article explains the process you should follow to properly walk away from a contract.
Is There a Cooling-off Period?
Some contracts have a cooling-off period, so you have time to cancel it if you change your mind. This is typically the case in contracts of sale for high-value items such as properties. If the seller tells you that your contract has a cooling-off period, you should check that they include it in the written agreement. You will need to check how long the cooling-off period is. Generally, it can vary from as few as 2 business days to 14 business days. Additionally, you should look at:
- any additional terms to comply with during the cooling-off period;
- your rights and obligations once the cooling-off period expires; and
- whether any deposits you have paid will be refunded.
Are There Grounds for Termination?
If there are grounds for termination, you will be able to walk away from the contract. Grounds for termination include:
- a serious breach by the other party;
- repudiation by the other party;
- misrepresentation or fraudulent behaviour by the other party;
- whether you entered into the contract under duress or undue influence; and
- the frustration of the contract.
Serious Breach by the Other Party
You may have grounds to terminate the contract if the other party breaches the agreement. However, not all types of breaches allow you to do so. Only serious breaches of important terms of the contract will be sufficient grounds for termination. What amounts to a serious breach depends on the particular circumstances you are in. For example, suppose you order a pair of shoes online, and the seller delivers them late. This may not be a serious breach by the seller.
Repudiation by the Other Party
You may also be able to walk away from a contract if the other party repudiates the contract. Repudiation occurs when the other party:
- is unwilling or unable to perform their obligations under the contract;
- no longer wants to be bound by the contract; or
- shows an intention to fulfil the contract in a manner substantially inconsistent with their obligations.
For example, suppose you enter into a five-year partnership contract with another business. However, they declared bankruptcy three years in. Accordingly, you may have grounds to terminate the contract because you know the other party will not be able to perform their obligations. Effectively, they will then be in breach of your contract.
Misrepresentation, Fraud, Duress or Undue Influence
Suppose the other party misrepresents material facts or engages in fraudulent behaviour. If you would not have entered into the contract knowing the real circumstances, your contract may be invalid. Therefore, you may be able to cancel it. This is also the case when you enter the contract under duress or undue influence.
Frustration
A contract has been frustrated when an event occurs, without any fault from either party, that causes the performance of the contract to be substantially different to what you agreed upon or impossible to carry out. Not all circumstances that make a contract difficult to perform are sufficient to frustrate the contract. However, some circumstances may include:
- a change in the law, making the performance of a contract illegal;
- excessive delay in performance due to unforeseen circumstances (such as the COVID-19 pandemic);
- physical destruction of the subject matter of the contract;
- death of one of the parties to the contract;
- natural disasters;
- war; and
- terrorist attacks.
Preconditions Before Cancelling Your Contract
A contract will not automatically terminate due to a breach or repudiation by one of the parties. To walk away from a contract, you must elect to terminate the contract based on that breach or repudiation.
You should communicate this to the other party as soon as you find out about their breach or repudiation. Remaining silent may be taken as your acceptance of the breach, and you may lose the right to terminate at a later date for that breach. It is also important to make sure that you are not in breach of your obligations under the contract before you elect to terminate.
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Key Takeaways
There are ways to terminate a contract even after you have signed it. The first step is always to ask the other party if termination is possible. They may be willing to cancel the contract or negotiate the terms of the contract for you. However, it is not always simple or easy to walk away from a contract. Therefore, you must think carefully before entering into a contract or agreeing to anything that might contractually bind you.
If you need help ending a contract, our experienced contract lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.
Frequently Asked Questions
A force majeure clause relieves a party from performing its contractual obligations due to an event outside its reasonable control. It may prevent frustration from being established in any circumstances listed in the force majeure clause.
You may be able to claim damages in certain circumstances. If you, as the non-breaching party, terminate the contract, you may be able to claim “expectation damages”, which may include lost profits you expected to get from the contract. You may also claim “reliance damages”, which include wasted expenses, such as the money spent on materials not used in carrying the work promised by the contract.
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