Contractual Obligations: Is there a way out?

As a lawyer, a question I am often asked is “Can I get out of a contract that is unprofitable to me?”  In any transaction, there are number of ways for a buyer to terminate a contract or reject a delivery.  If a buyer is looking for a way out of a transaction, they might consider whether the seller has met their obligations outlined in the contract.  This week, we focus on issues to consider when looking to exit a contract and the points to consider when drafting a contract.

Preparation

The best way to prepare is to ensure during negotiations that the contract takes into account the possibility of the contract falling through and the buyer is prevented from defaulting on the contract.

Nomination obligations

A ‘notice of nomination’ is a clause normally present in standard contracts.  It allows the buyer to receive advance notice of incoming deliveries.  Such notice can contain details of the vessel by which products or cargo have been shipped and it may also include the size of the vessel, and the bill of lading.  The notice of nomination will also often list the quantity of the product being shipped and confirm that the vessel used for shipment complies with certain regulations at the shipping and delivery points.

Certain clauses and information within the contract can also be considered as a condition of the contract.  For example, the date and time of the delivery, or date and time when the notice of nomination is to be provided to the buyer.  Breach of either of these conditions, such as lateness in delivering the notice can result in the buyer being released from contractual obligations.

Compliance with delivery periods

Delivery times are the crucial point in contracts.  Any breach of set delivery times will normally automatically result in buyers being released from their contractual obligations.  Unless the contract provides for a remedy to delays, any lateness will allow the innocent party to terminate the contract outright.

Tender of documents

Contracts will usually include clauses where payment is required upon tender of documents.  In unpredictable markets buyers may seek to be released from contractual obligations to take extra time to review and analyse the documents.  This is because at this point buyers will be looking for any small details to lead them to a way out of the contract they are no longer interested in.  Sellers should keep this in mind when drafting documents and contracts.  Consider whether there are any shortcomings in the timing of tender or the content of the documents.

Unforeseen circumstances

Sometimes events will occur that even careful negotiations could not have foreseen.  Ensure that clauses are included in the contract to cover such events.  These clauses should allow the parties to put on hold their obligations due to unforeseen circumstances.  However, keep in mind it is unlikely that the sole fact of instability of the market will be considered a 'force majeure' to allow for suspension of contractual duties.

We suggest to all our readers, whether you are in the shoes of the seller or the buyer, to carefully plan for risky ventures especially in times of uncertain markets.

What Should I Do Next?

Contact us if you would like further legal advice on Contracts.  Our lawyers at You Legal will be happy to assist you in whatever way we can.

* This blog is for general guidance only. Legal advice should be sought before taking action in relation to any specific issues.