There are often many reasons as to why someone is unable to fulfil a contract. Maybe there has been an unforeseen event that now prevents them from doing what they were meant to do? Or maybe they didn’t really intend to do what they said?
These two types of scenarios are called frustration and misrepresentation. They are important legal concepts to be familiar with so you know your rights if it happens to you.
Frustration applies when the other party is unable to do what they promised in the contract. There needs to be a radical change from what the parties initially agreed to that makes performing the contract impossible. Generally, frustration only applies when an outside force is the cause of the other party being unable to meet their part of the contract.
Consider, by way of example, Codelfa Construction Pty Ltd v State Rail Authority of New South Wales. In this case, Codelfa was injuncted while building a railway. This meant that the length and amount of their shifts were reduced and that they could not fulfil the contract as it had originally been entered into by the parties.
The Court held that this amounted to frustration. The parties could not have contemplated the neighbours would seek an injunction. The situation was fundamentally different from that contemplated by the contract.
Misrepresentation applies when one party induces the other to enter into a contract based on something that they represented. This representation can be untruthful or truthful. If it is untruthful, it is called fraudulent misrepresentation. If it is truthful, it is considered innocent misrepresentation.
In Leason Pty Ltd v Princes Farm Pty Ltd, the seller misrepresented the horse’s pedigree in the auction brochure. The purchaser then sought to return the horse to the defendant. The auction house had mistakenly identified the horse’s pedigree, however, had not done so fraudulently. The Court held that where the contract is for a sale of goods, there could be grounds for cancelling the contract for innocent misrepresentation even after the parties fulfil the contract. This requires a close examination of each case’s factual matrix. Both parties were returned to the positions they were in before entering the contract.
In other instances, however, it can be difficult to establish this. More commonly, one or both parties have already met certain aspects of the contract and it is not possible to simply cancel it as if it had never existed. In this situation, it is possible to terminate the contract under the contract’s termination clause. The party can claim that the other party’s inability to fulfil what they had represented in the contract constitutes a breach. They can further claim for contractual damages because of what they have lost in fulfilling their side of the deal.
If you need assistance in understanding your options for terminating a contract, give us a call on 1300 544 755, and one of our contracts lawyers can provide you with tailored advice.