Do you want to end a contract with another party? Does the other side say that you have breached the contract? Has the other party breached an essential term of the agreement and you wish to terminate the contract? Perhaps both parties have reached a mutual agreement to end the contract, and you’re not sure how to end it.  You are likely to want to ensure that your rights and obligations under the contract do not continue after ending the contract.

Contract law can affect a number of areas in our day-to-day life. Contract law governs the commercial relationships we enter into, even if the agreement has been formalised in writing. In fact, the law of contracts plays a vital role in our daily interactions, and the majority of these agreements are performed without any problem. However contractual disputes often arise by misunderstanding, or because one party wishes to renege on their contractual responsibilities.

How can a contract be ended?

A contract can be ended in any number of ways, including by:

  • Frustration;
  • Mutual Agreement;
  • Performance of the Contract;
  • Operation of law; or
  • Election after breach.

It is worth noting that the most common way for a contract to conclude is the fulfilment of all contractual obligations. This is known as performance of the contract, and the contract ends with both parties having performed their obligations.

Are there exceptions to performance?

It is a common misunderstanding that in order for a contract to be fully performed, every single aspect of the agreement needs to be satisfied. This used to be the legal position in the past.  The key case was Sumpter v Hedges [1898] 1 QB 673, whereby a contractor was only able to complete part of the work he had been contracted to complete. The contract stipulated the payment of a lump sum of 565 pounds, but the plaintiff was only able to carry out a portion of the work to the value of 333 pounds. The defendant did not pay anything. The plaintiff was upset about not receiving any payment for the work done, so sued the defendant on quantum meruit. This is a Latin term that means as much as he or she has earned. The plaintiff was appealing a trial judge’s decision that the plaintiff be paid the cost of materials he used, but nothing extra for the work done.

Unfortunately for the plaintiff, the Court of Appeal upheld this decision, as the contract was for a lump sum and the plaintiff had not shown any evidence to show that part performance formed part of the contract.

However more recent case law is likely to uphold the idea that businesses can be paid for part work completed.  This depends on a number of factors including the terms of the contract. For example, did they specify an hourly rate, or payments with milestones, or only one lump sum at the end.

There are many exceptions where a business can be paid for part performance. These exceptions include:

  • Divisible contracts;
  • Time for performance;
  • Substantial performance;
  • Trivialities;
  • When performance becomes impossible; and
  • Acceptance of partial performance.

Conclusion

Now that you know there are a number of exceptions to the old ‘lump sum’ rule that used to apply in Sumpter, you might wonder where you stand in your contractual matters. Stay tuned for Parts 2 and 3 where we elaborate on how the different methods for ending a contract operate in practice.

LegalVision has a team of great contracts lawyers. Please call our office on 1300 544 755. We will happily provide you with a fixed-fee quote and an obligation-free consultation.

Ursula Hogben

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