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Contracts play a huge role in our daily lives. It is almost impossible to avoid a contract, whether it be verbal or non verbal. Ideally, when signing a contract, we hope everything goes to plan. However, this is not always the case.
In some instances, we may not be able to perform our end of the contract or a certain part of it. There are several things worth considering when this arises.
What Are Contractual Obligations?
Contractual obligations are the legally binding terms we agree to when we sign a contract. This is usually what we need to ‘perform’ in order to keep our end of the deal.
A contractual obligation could be anything from ensuring you come into a particular office during specific hours and complete a certain set of duties, to selling someone a car for a certain price. The scope and extent of the obligations will depend on the contents of the contract in question.
Contractual obligations are legally binding when you sign a contract which contains those terms (this applies to e-signatures, too!). However, signing a contract isn’t always legally binding. For example, if you are a minor, you may not need to perform certain contractual obligations.
Breach Of Contractual Obligations
A breach of contractual obligations means that one of the parties to that contract has not honoured one or more of the terms of that contract. For example, if you were no longer able to sell that car in the same condition as something has happened to it, this would be considered a breach of contractual obligations.
Legal Consequences/Penalties
A breach of contract can inflict consequences. The severity of the consequences will depend on the situation. Oftentimes, the contracts themselves will contain a clause detailing what happens in the event one party is unable to uphold their end of the contract. In some cases, the matter goes to court and it’s up to the law to decide.
The penalties for breach of contract can include paying certain fines (such as damages) or being forced to complete a certain task (known as specific performance). In some serious cases, you can also face jail time.
How Do I Release Myself From My Contractual Obligations?
In order to avoid a hefty punishment, it’s worth exploring different ways you can excuse yourself from performing certain contractual obligations.
Termination Clause
A termination clause (or a Deed of Termination) is found within a contract regarding the release of both parties from the contract. It can also be referred to as a severance clause.
This part of a contract will usually detail the circumstances and conditions under which the contract can be terminated. For example, an employment contract may state that upon working there, an employee may terminate their contract with two weeks notice and be entitled to pay for that time period. If a contract does not include a termination clause, then general laws regarding the matter will apply.
Mutual Agreement
When both parties mutually agree to end their contractual relationship prior to the end date of the contract, a mutual release applies. In this case, none of the parties to the contract are required to fulfill their contractual obligations.
| Example 1 Let’s say Sierra and Mac enter into a contract where Sierra agrees to sell Mac her laptop for $1,500. Prior to the exchange taking place, Mac finds a better deal and Sierra decides she would rather keep her laptop anyway. Both parties agree to a mutual release where neither of them are required to fulfill their part of the contract and no damages have occurred to either party as a result of this termination. |
Mutual releases can occur when one party decides to release the other party from the contract or performing part of the contract.
| Example 2 Let’s say Jane is a wedding florist. She’s agreed to provide the flowers for Mark and Dan’s wedding including the table centrepieces, decorations and the wedding arch. The contract specified yellow tulips as one of the flowers. However, Jane’s vendor has provided her with hundreds of orange tulips. Jane calls Dan and Mark explaining the situation. Dan and Mark decide that the tulips aren’t an issue with them, and instruct Jane to forgo the tulips altogether. Incidentally, they have released Jane from fulfilling a certain contractual obligation. |
In the case of mutual release, a Deed of Termination or a Deed of Release is also applicable. We’ll cover this in more detail below.
Performance
Simply put, getting out of your contractual obligation could be done by performing them. The easiest and usually most uncomplicated way of ending a contract is to uphold your own end of the deal. Once both parties have performed their respective duties, a contract is discharged by performance. However, sometimes this is not entirely possible. This is when other options should be explored.
Breach
If one party has breached the terms of the contract, then this can form grounds to end the contract.. The general rule is that a party failing to perform the contract in the time that was agreed upon, entitles the other party to end the contract altogether.
Contract law can vary on what can be considered a legitimate breach. For example, if a party has performed their part of the contract, but not in the way expected by the other party, then a breach may or may not be eligible. It’s always best to consult a legal professional prior to declaring something a breach yourself to avoid legal proceedings.
Notice
There are times (with due notice) where a contract could be terminated and the obligations no longer need to be fulfilled. Some contracts will contain a clause that allows one of the parties to terminate the contract. For example, let’s look at how this would play out in the context of an Employment Contract.
| Example 3 John currently works as a computer programmer, but has recently come across a new opportunity that offers him better pay and hours. His current employment contract extends for another year. However, a termination clause on the agreement states that with three weeks notice, John is able to terminate their agreement. The contractual obligation here would be to continue providing services as the employee at his current company. However, following the execution of the termination clause, John would be free of this obligation, and can move somewhere else. So, John hands in his three weeks notice and begins working at his new job. |
What About Unfair Contract Terms?
If the terms of a contract are considered unfair, then it may not be a valid contract under the Australian law. If the contractual obligations are considered unlawful, the contract can be declared void.
For example, a contractual term can be considered ‘unfair’ if it is one of the following:
- It causes a significant imbalance to the rights and obligations of the parties to the contract
- It is unnecessary to protect the interests of the party receiving the contractual benefit
- It causes detriment if a party or business relies on it
Depending on the seriousness of the potential illegality, there could also be consequences. If you feel your contract might have unlawful terms, then don’t hesitate to contact a legal professional.
Can I Use A Deed Of Release?
A Deed of Release is essentially a new agreement that terminates the old one. If all the parties to the contract agree to terminate the contract early, you may want to consider having a lawyer draft a deed of release for you.
What Does A Deed Of Release Include?
The deed of release will state the obligations the parties to the contract are being released from, the date the release will be effective from, it will state any financial payments that need to be made and may include confidentiality requirements.
A deed of release, much like a contract, is catered to the situation unique to it. Therefore, your deed of release will include anything else you find necessary to be included when ending your contract.
Types Of Release
There are multiple types of deeds of release as they can be used in various ways. These include:
- Settlements: Where both parties agree to end the contracts.
- Financial release: Loans and debts are ended through a release agreement.
- Employment: Employment agreements can be ended through a release agreement.
- Personal guarantee: This release is for individuals to ensure they are no longer held liable.
Next Steps
If you’re feeling trapped in a contract or simply want to explore your options, there are plenty of roads you can consider taking. It’s always best to consult a legal professional before making any decisions in order to ensure you can find the perfect solution for yourself.
If you would like a consultation on your options going forward, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.
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