Written by
Ilyas Omari
Reviewed by
Often situations arise that urge people or businesses to cancel a contract even after they’ve already signed it. This can be for transactions such as cancelling a gym membership or a contract for a new car. Businesses or large corporations also fall victim to this and can have second thoughts about their agreements.
A contract is a legally binding document, which means that once it is signed, both parties agree to be bound by it. So the big question here is if you can cancel a contract once you’ve signed it, which in some cases is a possibility.
In this article, we take you through the steps to legally exit a contract and when you can do it.
Read along.
5 Ways to terminate a contract —legally
1. Have a conversation
The most amicable way to exit a contract is to have a frank and honest conversation with the parties involved. This is an opportunity to share why one cannot proceed with the contract in the first place.
As long as both parties can come to a suitable agreement, then the agreement can be changed or terminated. Have a conversation with the other party and see if there is anything you can compromise on so both parties remain pleased.
Let’s take an example where you sign up for a gym membership, but you cannot continue due to some physical injuries. In many cases, explaining your situation and finding a mid-ground can help you come out of the contract without paying any penalties.
2. Look for the express right to terminate
Sometimes an agreement will contain a clause that allows a party to terminate the contract at will. This is called an express right to terminate.
Express right to terminate a contract refers to a clause or provision included in a contract that allows one or both parties to end the agreement under certain circumstances.
This provision is typically used when one party breaches the contract, fails to perform their obligations, or engages in behaviour that is detrimental to the other party. For example, a software development company may include an express right to terminate a contract if the client fails to pay for services rendered or breaches the confidentiality agreement.
Check to see if your contract contains this clause.
3. Check if the contract complies with legal requirements
Statutory rules set by parliament often govern specific contractual arrangements. For example, if the contract is for the sale of land, it must follow property law. If the rules in the relevant state or territory legislation are not followed, a contract will not be enforceable, and the sale of land will fall through. Another example is where the contract obliges a party do carry out an illegal act. Such a contract would be void under common law.
A cancellation on this basis may be challenged in court. You would have to show the court that the contract breached legislative rules, making it invalid and, therefore, cannot be enforced against you. Therefore, this can be a tricky strategy.
4. Check cooling-off periods
Another legislative tool is the cooling-off period. If a cooling-off period applies to your contractual arrangement, you may still have time to exit without penalty.
Again, this will be specific to certain industries or for selling particular goods and services. The Australian Competition and Consumer Commission (ACCC) advises that a cooling-off period will apply when an unsolicited consumer agreement occurs. This means that for consumer protection to apply, the seller must have approached you first to make an offer, whether that be through telemarketing or door-knocking.
To see when a cooling-off period may apply, look at the ACCC’s list of industries, goods and services. States may also provide a cooling-off period for non-consumer purchases, such as when you purchase property or motor vehicles.
For a better understanding, see NSW’s cooling-off period rules.
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5. Vitiating factors
A vitiating factor is something that causes a contract to be unenforceable because it voids the consent of a party to the contract. If a person abuses their power to influence the other person unduly, holds them under duress to force them into the contract, or engages in unconscionable conduct, a contract will be unenforceable.
Likewise, the contract cannot be enforced if one party misinforms the other by engaging in misleading or deceptive conduct.
If a vitiating factor exists, you can legally cancel a signed contract in a process known as rescission. Both parties will be put back in the position they had been in prior to the contract’s existence.
Contract end by performance
A somewhat different method to end a contract is by performance, which occurs when both parties have fulfilled their obligations under the agreement. This type of contract termination is ideal, as it signals that both parties have satisfied the terms of the contract and can move on amicably.
Finally
Agreeing to a contract is a big commitment. Therefore, it’s no surprise that trying to cancel a contract after it’s already been signed brings difficulties. Overall, understanding how a contract can come to an end is crucial for both parties to protect their interests and ensure a positive outcome.
In saying so, some of these ways to exit your contractual obligations will be easier and less confrontational than others. And if you’re looking for help or guidance, don’t hesitate to hire a lawyer.
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