If you want to get out of a contract, the first place to look is the express terms of the contract.
It may be the case that the contract will include a term which allows you to terminate the contract. Contracts often include express terms allowing a party to terminate the contract when the other party is in breach of the contract.
The contract may also include a term allowing a party to terminate the contract without needing to establish fault on the part of the other party. If there is a non-fault termination term, it will usually provide that the party wishing to terminate the contract must give written notice to the other party.
Contracts also often include a right for one party to terminate the contract on the occurrence of a specified event, such as the insolvency of the other party.
There is also a common law right to terminate a contract if the other party is in repudiatory breach of their obligations under the contract. Not all breaches of the contract will be repudiatory breaches. Generally speaking, a repudiatory breach is one that goes to the root of the contract and deprives the injured party of their intended benefit under the contract.
You do not have to give the defaulting party the opportunity to remedy their breach and you may lose your right to terminate if you delay in taking action. However, it is often not entirely clear whether the injured party will have the right to terminate the contract. The defaulting party’s breach may not necessarily give rise to a right to terminate the contract or it may be the case that the right to terminate has subsequently been lost. If you look to terminate the contract when you do not have the right to do so, you may be in breach of the contract yourself and the other party may accept that breach, terminate the contact and sue you for damages. In the circumstances, it is important to seek legal advice if you wish to rely on the other party’s breach to terminate the contract.
Generally speaking, parties to contracts will be held to the agreement that they entered into, even where they have not read the contract, misunderstood its terms or their legal effect. However, if one party misleads the other party, the contract may be voidable and set aside by the injured party.
The courts may in some circumstances correct a mistake in a contract in line with what the parties actually intended. This can be done by interpretation (i.e. the court interprets the express terms of the contract in a specific way) or by rectification (i.e. by amending the express wording of the contract).
In many commercial contracts, there will be a ‘force majeure’ clause. A force majeure clause excuses one or both parties from performing their contractual obligations in the event of a specific event which is beyond the parties’ control.
Force majeure clauses often make express provision for (amongst other things) natural disasters, war, terrorist activities and government sanctions.
The effect of a force majeure clause will depend on its wording. A force majeure clause may:
- Entitle one or both of the parties to terminate the contract;
- Excuse a party from performing their obligations under a contract in whole or in part; or
- Entitle a party to suspend performance or to claim an extension of time for performance.
A contract may be frustrated when there is a supervening event (without default of either party and where the contract makes no provision for such event) which:
- renders it impossible to perform the obligations under the contract; or
- significantly changes the nature of the outstanding contractual rights/obligations (i.e. transforms them into something ‘radically different’ from what was intended) so that it would be unjust to require the parties to carry out the contractual obligations in light of the new circumstances.
Recognised frustrated events include (but are not limited to):
- a change in the law;
- wars which render performance of the contractual obligations illegal;
- cancellation of an expected event;
- abnormal delay which could not have been anticipated by the parties;
- death; and
- illness or incapacity (where personal service is required).
If a contract is frustrated, then it is ended and both parties are released from carrying out their obligations under the contract. If one party has already received monies under the contract, it may be required to repay the same to the paying party.
You may be able to rescind a contract if it was entered into as a result of (amongst other things) fraudulent misrepresentation, bribery, duress or mental incapacity.
The effect of rescinding a contract is different to terminating a contract. Essentially, if you rescind a contract, it is treated as never having existed. The rights and obligations under the contract are extinguished and each party must (so far as is possible) be put in the position they were in before the contract was entered into.
You may lose the right to rescind a contract if you continue to perform the contract after you become aware of the facts giving rise to the right of rescission or by suing the other party for damages under the contract.
If you wish to terminate a contract or have concerns that the other party to a contract intends to terminate a contract, then please contact myself or my colleague Rebecca Taylor (Solicitor) on 0161 832 3304.