Can a contract be cancelled after it has been signed?

The legal position

No general cooling-off right. The consumer protection legislation currently in force confers no general right to cancel a contract. The Electronic Transactions Act contains one limited right. A consumer may rescind an electronic contract within thirty days where the supplier failed to provide certain prescribed information, provided that the consumer has received no material benefit from the transaction (s 57). That provision is contained in Part VIII of the Act, which has not yet been brought into force.

Contractual rights of cancellation. Many contracts contain a cancellation or termination clause. The clause should be examined for the notice required, the manner in which notice must be given, any time limit, and any charge. A charge payable for exercising a right of cancellation conferred by the contract is ordinarily payable as agreed. The rule against penalties applies only to sums payable upon a breach of contract.

Discharge by agreement. Where obligations remain to be performed on both sides, the parties may discharge the contract by agreement, each releasing the other. Where one party has already performed in full, the other's release requires a deed or fresh consideration. The law does not generally require such an agreement to be in writing, but it should be recorded in writing.

Repudiatory breach. The innocent party may terminate the contract where the other party breaches a condition, commits a breach so serious that it deprives the innocent party of substantially the whole benefit of the contract, or renounces the contract.

Vitiating factors. A contract induced by misrepresentation, duress or undue influence is liable to be set aside. The same is true of contracts affected by certain kinds of mistake, and of many contracts made by minors.

Frustration. Where a supervening event, for which neither party is responsible, renders performance impossible or radically different from what was contemplated, the contract is discharged automatically. See What happens when events beyond the parties' control make performance impossible?

Hire purchase. A hirer may terminate a hire-purchase agreement at any time before the final payment falls due, by giving notice of termination in writing (Hire Purchase Act, s 6). The Act and the agreement determine the sums payable upon termination.

Unilateral cancellation. A purported cancellation by a party that has no right to cancel does not, of itself, bring the contract to an end. It constitutes a breach, and the contract continues unless the other party accepts the repudiation.

Practical implications

A party that enters into a contract and wishes, shortly afterwards, to withdraw from it ordinarily has no statutory right to do so. Its options are confined to the terms of the contract and to such exit as it can negotiate. This applies to contracts for membership services, telecommunications, the purchase of a motor vehicle and the hire of a venue alike.

A party that withdraws without a right to do so may forfeit its deposit and become liable for the other party's loss. In many cases the other party cannot simply continue to perform and claim the full contract price, because performance requires the co-operation of the party in breach. Once the innocent party treats the contract as at an end, it must take reasonable steps to mitigate its loss, for example by re-letting a venue or reselling goods. Sums that had already fallen due, and any early termination charge provided for in the contract, may nonetheless remain payable. A party able to perform without the other's co-operation may, in some circumstances, keep the contract in force and claim the price.

Returns policies for goods are matters of contract, determined by the seller's terms, and not a general legal entitlement. The exception is defective goods, in respect of which the buyer has statutory rights. See What rights does a buyer have when goods are defective?

Recommended steps

The cancellation clause should be examined first, with particular attention to the manner of notice (which must often be in writing), the time limit and any charge.

A party wishing to withdraw should seek a negotiated termination and record it in writing. A short deed or agreement of release should state that the contract is terminated, what is to happen to any deposit, and that neither party has any further claim.

A party that believes it was induced to contract by misrepresentation or pressure should notify the other party in writing and without delay, since delay may result in the loss of the right to set the contract aside.

Legal advice should be obtained before performance is withheld. A party that wrongly treats a contract as terminated becomes the party in breach.