Part 2: How to Terminate a Contract

Welcome to Part 2 how to end a contract. Here we take a close look at how to discharge a contract by agreement, and how a contract becomes discharged by the operation of the law. These are two areas that you should become familiar with so that you understand when your contractual rights and obligations cease.

Discharge by agreement

There are a number of ways that parties to a contract can change or discharge the contract. Some of the ways this can occur include:

• Mutual Discharge – Mutual discharge occurs when the parties to the agreement agree that each party should be released from their contractual obligations before either has undertaken to perform the obligations previously agreed to.
• Unilateral Release – This occurs when one of the parties has fulfilled their obligations under the contract, but still agrees to release the other party, even if the other party has not satisfied their contractual obligations.
• Novation – This occurs when the original contract is replaced with a new contract. This new contract might apply to the original contracting parties or might apply to different parties altogether.
• Merger of informal into formal – This applies when the parties choose to make their agreement more formal and thus, more enforceable. The parties may have entered into a simple, informal agreement and merge this into a more formalised contract or deed.
• Discharge by accord or satisfaction – This occurs when one party has ended up breaching a term of the contract, and the other party has chosen not to enforce the contract and to release the breaching party on a conditional basis. This condition is essentially the fulfilment of a new promise. ‘Discharged by accord’ means that a new promise has replaced the previous contractual obligation. ‘Satisfaction’ refers to the performance of the new promise.
• Waiver – A waiver of the contract means that it is no longer a requirement that the contract be strictly performed. It is important note that, in some cases, one party can still claim strict performance in spite of this waiver.

Discharge by operation of the law

There are a number of circumstances that may lead to a contract being discharged by operation of law. For instance, if the terms of the contract are altered or changed in any way by one of the parties without the consent of the other party, the party whose consent has not been sought may be able to discharge the agreement because of the misconduct in changing the terms by the other party.

Another situation that would lead to the agreement being discharged by operation of law is when one the parties dies and is no longer able to perform the services specified in the contract.

Conclusion

If you find yourself in a contractual conundrum and are confused about your rights or obligations, you should speak with a contract lawyer about your legal position.

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.