- Breach and repudiation of a contract may both give rise to a right of contract termination.
- Right of termination will be only available through discharge by breach, repudiation or frustration. Termination will release both parties from all future obligations under the contract from the date of termination. All obligations that accrued up to the time of termination are still enforceable.
- When a contract has been breached, the aggrieved party may have some remedies available including rescission, damages and specific performance.
Process of Termination
Where there is a breach or repudiation giving rise to a right to terminate, the aggrieved party has a choice to either terminate or continue the contract. Termination brings to an end to the parties’ future obligations to perform their obligations under the contract. If the aggrieved party continues or affirms the contract, the aggrieved party may be able to retain the right to claim damages for loss caused by the breach.
Effect of Failure to Perform
A contract ends automatically when the parties have carried out all their obligations. Failure to perform that gives rise to serious consequences allows the innocent party to elect to terminate the contract. Otherwise, the contract will remain on foot and the innocent party will only have recourse in damages.
Termination by Agreement
A contract can be terminated by agreement either expressly, or by implication. Where it is plain from the conduct of parties to a contract that neither intends that the contract should be further performed, the parties are regarded as having so conducted themselves as to abandon the contract.
- A repudiatory breach is triggered by a breach of condition, refusal to perform/renunciate; or a sufficiently serious breach of an intermediate or innominate term. Note that discharge is not automatic – the innocent party may elect either to accept the breach or treat all future obligations as discharged.
- In terminating for breach, the first step is identifying the term alleged to have been breached, followed by determining whether the term is essential and the nature of the breach.
- 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.
Revocation by Offeror
This is where the offeror formally withdraws the offer. The general principle is that the offer can be revoked any time before acceptance. If consideration is paid for an option, the offer cannot be revoked. The revocation must be communicated to the offeree before it becomes effective. If the offeree accepts the offer before they accept the revocation, a binding contract is created.
Rejected by Offeree
This takes place where an offeree rejects an offer and then later changes their mind and tries to accept it. The later acceptance can function as a new offer, and the original offeror can accept or reject.
Termination for Delay and Time Stipulations
Delays in performance may give rise to a right to terminate a contract
Where a contract does not expressly specify the time at which an obligation is to be performed, a term will be implied requiring performance of the obligation within a reasonable time.
Where time is of the essence
Where time is of the essence, any delay amounting to a breach of the time stipulation will entitle the aggrieved party to elect to terminate.
Where time is not of the essence
Where time is not of the essence, a breach of a time stipulation will not (of itself) give 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.
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: 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:
- whether the term would cause a significant imbalance in the parties’ rights and obligations arising under the contract;
- whether the term is reasonably necessary to protect the legitimate interests of the party who would be advantaged by the term; and
- whether the term would cause detriment (financial or otherwise) to a party if it were to be applied or relied on.
Q: What is frustration?
A: Frustration occurs when, without fault by either party, an event occurs after the contract has been entered into (e.g. natural disaster, war) which makes performance of the contract impossible or radically different from what was promised and there has been no allocation of risk to one party of the event occurring.
Q: Can I discharge an agreement?
A: A contract may be discharged by the agreement of the parties, provided there is consideration for the agreement to discharge.
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.
How can LegalVision help me?
We have helped many businesses with drafting, reviewing and terminating contracts and it would be our pleasure to assist you. We provide fixed prices for your certainty and peace of mind. Call LegalVision today on 1300 544 755.