Have you ever entered into a contract and changed your mind afterwards? Alternatively, have you signed a contract not knowing all of the terms included in the document? If you want to walk away from an agreement 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 procedure you should take to walk away from a contract properly.
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 found 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 have included it in the written agreement. You also need to look at any additional terms to be complied with during the cooling-off period, such as 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; and
- whether you entered into the contract under duress or undue influence.
Serious Breach by the Other Party
Generally, you may have grounds to terminate the contract if there has been a breach by the other party. 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, delivering a pair of shoes you ordered online late 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 there has been ‘repudiation’ by the other party. Repudiation occurs when the other party:
- refuses their liabilities under a 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, if you enter into a five-year partnership contract with another business that has declared bankruptcy three years in, 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
If the other party has engaged in misrepresentation or fraudulent behaviour, and you would not have entered into the contract if you knew about the real circumstances, your contract may be invalid. Therefore, you may be able to cancel it. This is also the case when you have entered into the contract under duress or undue influence.
Preconditions You Need to Meet 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 it. 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 for termination.
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. Most of the time, they will be willing to cancel the contract or negotiate the terms of the contract for you. However, it is not easy to walk away from a contract. Therefore, you need to think carefully before entering into a contract or agreeing to anything that might contractually bind you. If you have any questions, contact LegalVision’s contract lawyers on 1300 544 755 or fill out the form on this page.
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