Ending a contract occurs when the parties perform all their necessary obligations in accordance with the terms set out in the contract. It can also end by mutual agreement.

In other cases, a contract may end before both parties have fulfilled their obligations. There are a variety of reasons why a party may terminate a contract, such as:

  • breach;
  • repudiation; or
  • frustration of the contract. 

Termination will release both parties from all future obligations under the contract. This article will outline the different ways that ending a contract can occur.

Process of Termination

Where there is a breach or repudiation giving rise to a right to terminate, the aggrieved party can either:

  • terminate the contract; or 
  • continue the contract.

Termination brings an end to the parties’ future obligations to perform under the contract. If the aggrieved party continues or affirms the contract, they may be able to retain the right to claim damages for loss caused by the breach. When a party breaches a contract, the aggrieved party may have some remedies available, including:

Ending a Contract

There are various ways that a contract may come to an end. 

Performance

If the parties have performed all of their obligations under the contract in accordance with its terms, the contract will therefore come to an end.

Termination by Agreement

A contract may come to an end by mutual agreement between the parties. This agreement may be expressed or implied.

Express mutual agreement would usually be in writing, outlining that the parties intend for the contract to end. A contract will usually contain provisions concerning how the parties may terminate the contract.

An example of implied mutual agreement to terminate is if the conduct of the parties shows that neither intends that the contract should be further performed. Here, the parties have abandoned the contract.

Breach

Failing to perform your obligations under a contract gives rise to serious consequences and allows the innocent party to terminate the contract. Otherwise, the contract will remain on foot, and the innocent party will only have recourse in damages.

A breach of contract occurs when a party to a contract fails to fulfil its promises in accordance with the provisions of the agreement. There are three main ways a party might be liable for a breach of contract:

  • actual breach, where the parties agreed that the contract is to be performed by a certain time, any failure to completely perform the contract at the agreed time, will constitute an actual breach. An actual breach gives the non-breaching party the right of termination;
  • repudiatory breach, where one party indicates unwillingness or inability to perform their obligations under the contract. This may occur if the breaching party explicitly notifies the other party that they will not fulfil their obligations under the contract. Once the non-breaching party is notified, they have the right to termination; and
  • minor breach, where a party fails to perform some part of their obligation. In this case, the party has not breached the entire contract. Here, the non-breaching party may only be able to pursue a legal remedy if they can prove the breach resulted in financial loss.

Frustration

A contract is frustrated if subsequent to its formation, without either fault of the parties, it is incapable of being performed due to an unforeseen event or circumstances (e.g. natural disaster, war) resulting in the obligations under the contract being different from those contemplated by the parties. When a contract is found to be frustrated, it is automatically terminated at the point of frustration.

Termination for Delay and Time Stipulations

Delays in performance may give rise to a right to terminate a contract. If the contract does not expressly specify the time which a party must perform an obligation, they must perform it within a reasonable time.

Where Time Is of the Essence

If time is of the essence, any delay amounting to a breach of the time stipulation will entitle the aggrieved party to terminate the contract.

Where Time Is Not of the Essence

Where time is not of the essence, a breach of a time stipulation will not (of itself) gives a right to terminate. In the absence of notice, termination is only justified where there is delay amounting to repudiation, and possibly for a serious breach of an intermediate term.

Key Issues

Some key issues surrounding breach of contract include that:

  • after a repudiatory breach, the contract does not automatically end. The innocent party may elect to accept the breach, or treat all future obligations as discharged;
  • when terminating for breach, the first step is identifying the term the other party may have breached, then determine whether the term is essential, and the nature of the breach; and
  • an innocent party is entitled to compensation for losses suffered due to a breach of contract. However, not every loss caused by a breach will be compensated.

Frequently Asked Questions about Contract Termination

Q: What is repudiation?

A: Repudiation occurs when one party is unwilling or unable to perform the entire contract; a condition of the contract; or where the unwillingness or inability to perform is fundamental to the contract.

Q: What is a misrepresentation?

A: A misrepresentation is a false statement made expressly or impliedly by one party (the representor) to another (the representee) that acts as an inducement to the latter to enter into a contract with the former.

Q: What happens if one of the parties dies?

A: Death of the offeror or death of the offeree will terminate the offer. If the offeree is aware of the offeror’s death before acceptance, then the offer lapses.

Q: When is a contract unfair?

A: In deciding whether a term in a standard form consumer contract is unfair, the court will look at three limbs:

How Can LegalVision Help Me?

If you have any questions about reviewing or ending a contract, get in touch with LegalVision’s contract lawyers, who can provide specialist advice. Contact with our team on 1300 544 755 or fill out the form on this page.

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