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Are you bound once you sign a contract?

The general answer to this question is 'yes'. This is true even if you did not read the contract, or were unsure what it meant. To be safe, you should never sign a contract unless you have read it, fully understand it, and want to be legally bound to do what it says. If you are unsure, you should not sign, but should get legal advice. Once you sign it, the other party can take you to court to force you to carry it out, or to pay for their loss if you do not go ahead.

However, there can be exceptional cases where you are not bound, even though you have signed.

  • Cooling-off periods: In contracts to buy land, door-to-door sales contracts, and contracts to enter a retirement village, the law sets a cooling-off period for you to reconsider after signing. During this period you can legally opt out of the contract. This only applies to these special contracts, not to all. You should receive a notice of your cooling-off rights at the time of signing. Only a short time is allowed - for land contracts, 2 days, for door-to-door sales, 10 days, and for retirement villages, 15 days. If during this time you decide that you do not want to go ahead, you need to give the other party a written notice telling them this. (Just saying you have changed your mind is not enough.) Once they get the notice, you have no further legal obligations under the contract. If you do not give a notice within the period, you are legally bound by the contract and your right to get out of it no longer exists.

  • If the other person, or someone on their behalf, gave you a false impression about the nature of the document you were signing, or the terms in it, you may not be bound by the document. However, this can be hard to establish if the document itself clearly tells you what the true situation was.

  • If it should have been obvious to the trader from your conduct when you signed that you had no idea of the real nature of the document, for example because you are unable to read, or it was written in a foreign language, you may not be bound. In exceptional cases, there may be a defence known as non est factum (which means 'it is not her or his deed'). This is where a person has signed a contract without any idea of its nature. However, this defence is not available just because the person was not careful and did not read the contract. It must be shown that, for example, through the person's illiteracy or poor vision the document signed was radically different in practical effect from the document the person believed she or he was signing.

Even where grounds exist to rescind a contract, courts are extremely reluctant to set aside the transaction if it would affect people other than the parties themselves.

Agreement not to be bound

Of course, it is also possible for the parties to a contract to agree not to go ahead with it. Even after signing, if both sides agree that they do not want to go ahead as promised, they can agree to let each other out of the contract. For example, if a trader has not yet given delivery of the goods to the buyer, and the buyer has changed their mind about buying the goods because they are unable to pay for them, the buyer may ask the trader to agree to let them out of the contract. The trader may prefer to find a buyer who can pay, and may agree to end the contract. However, the trader does not have to do this, and nothing can be done to force them. They are unlikely to agree if the goods have been used by the buyer, as their value will have been affected.

Are you bound once you sign a contract?  :  Last Revised: Fri Dec 11th 2009
The content of the Law Handbook is made available as a public service for information purposes only and should not be relied upon as a substitute for legal advice. See Disclaimer for details. For free and confidential legal advice in South Australia call 1300 366 424.