Ending a Contract

A breach or repudiation of a contract can provide affected party with the right to terminate that contract. The right to terminate a contract can only be granted through a discharge caused by the contract being breached, discharged, or repudiated.

Termination of a contract releases the parties from future obligations from the date the contract was terminated. Obligations accrued before the termination remain enforceable.

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If a contract has been breached, the affected party is entitled to remedies including damages, rescission, and specific performance.

Process of termination

Where a breach or repudiation has occurred, the affected party may either continue the contract by enforcing it, or terminate the contract. Termination ends the requirements of both parties to fulfill future obligations under the terminated contract.

Effect of failure to perform

A contract is automatically ended when its parties have fulfilled all contractual obligations. If a party fails to fulfill these obligations, this is failure to perform. If one party fails to perform, the other party may terminate the contract or seek to enforce it.

Termination by agreement

Express or implied agreement by parties to end a contract is suitable grounds for termination. This agreement may be implied by the conduct of the parties, for example. 

Key issues

A repudiatory breach occurs if a condition, or in-nominate/intermediate term is breached, or refusal to perform has occurred. The affected party may then decide whether they want to accept the breach or discharge the contract.

When carrying out the termination process the breached term must first be identified. This will allow the affected party to decide on the importance of that term in relation to the overall contract. The affected party may then try to obtain damages for losses resulting from the breach; however, not all breaches are compensated.

Revocation by offeror

This occurs when an offer is formally withdrawn by the party who made the offer. Generally, an offer can be only be revoked before it is accepted. If an offer is accepted, and consideration is paid, then that offer cannot be revoked. If a party accepts an offer before accepting a revocation, then a binding contract has been created and the offer cannot be revoked.

Rejection by offeree

This is where an offeree rejects an offer, but later changes their mind and tries to accept the offer. The offeror may treat this later acceptance as a new offer, and choose to accept or reject it.

Termination for delay and time stipulations

If the performance of a contract is delayed, this may be sufficient grounds for the termination of that contract. If the time for performance is not specified in a contract, it may be implied by the amount of time it would reasonably take to perform that obligation.

Where time is of the essence

If time is of the essence, a delay in performance may constitute a breach of time stipulations. This would provide the affected party with the option to terminate. 

Where time is not of the essence

If time is not of the essence, the breach of a time stipulation will not give the right to terminate. Only in the event that a delay amounts to repudiation or the breach of a term would this provide grounds for termination.

Frequently Asked Questions

What is repudiation?

Repudiation is when a party is unable or unwilling to perform an entire contract, or a condition of that contract, and that the ability to do so is fundamental to the contract.

When is a contract unfair?

A court will examine three things when determining if a contract is fair or not:

Whether a term or terms of the contract would cause a significant imbalance or detriment to the party who has obligations under the contract.

Whether a term or terms of the contract are actually necessary to protect the legitimate interests of whichever party is advantaged by the term.

Whether the term’s application would be detrimental (financially or otherwise) to a party if it were applied.

What is frustration?

Frustration has occurred when unforeseen circumstances prevent the performance of a contract, and that those unforeseen circumstances arose after the contract had been entered into. In order to qualify for frustration, neither party must have been able to reasonably foresee the circumstances that resulted in the frustration. An example of such a circumstance may be a major war. 

Can I discharge an agreement?

A contract can be discharged through the agreement of its parties as long as consideration is provided as part of this agreement.

What is a misrepresentation?

For the purposes of contract law, a misrepresentation is a statement made falsely, whether implied or expressly state and this false statement results in one party entering a contract under false pretenses.

What happens if one of the parties dies?

Death of either party will terminate the contract. If an offer has been made, the death of either party will terminate that offer.

If you are in a situation where you need expert legal advice on ending a contract, contact LGM Advisors today on (03) 9832 0608 or by email at marketing@lgmadvisors.com.au.