A contract is a binding agreement entered into between two or more parties. It sets out not only the individual rights of the parties but also their obligations to which they will be legally bound. Of these obligations, there is an inherent commitment to be bound by the contract. This commitment exists at law. This article outlines the three most common ways to release yourself from contractual obligations:
- Discharge By Performance;
- Discharge By Agreement; and
- Discharge By Breach.
Discharge By Performance
A party can discharge their liability under a contract if they perform their obligations under it. The court will take a strict approach when determining whether a party has performed their duties. Performance must be exact, with no deviation from the contract.
It will be important to determine whether the parties’ obligations under the contract are dependent, independent or concurrent.
- Dependent obligations: An individual will be discharged from their contract if the other party does not perform their end of the bargain. For example, an employer is not required to pay a contractor where they do not complete their work.
- Independent obligations: If the parties’ obligations are independent of each other, each party will be required to perform their duties irrespective of what the other party does.
- Concurrent obligations: Concurrent obligations arise where performance by a party is a pre-condition for the other party to perform. The most obvious example of concurrent obligations relates to the sale of goods. It is a pre-condition for a party to pay before the supply of goods.
The courts will ultimately look to the construction of the contract to determine whether the parties’ obligations are dependent, independent or concurrent.
Discharge By Agreement
The parties to a contract can, at any time, agree to terminate the contract or vary it. Termination or variation of the contract can result in the release of contractual obligations. The parties can agree to:
- Discharge the entirety of an existing contract;
- Discharge an existing contract and replace it with another agreement;
- Discharge part of a contract; or
- Vary the terms contained in their contract
Discharge By Breach
If a party does not perform one of their contractual obligations, they will be in breach of the contract. In certain circumstances, a breach of contract may entitle the innocent party to terminate the contract. Once a contract has been terminated, you may be able to release yourself from contractual obligations.
However, not every breach of contract will result in the termination of the contract. There are three general categories contractual terms can be classified into, each with varying breach consequences:
- Conditions: a violation of a condition will result in the termination of the contract. The innocent party will be entitled to seek damages;
- Warranties: a breach of warranty will not lead to the termination of the contract. However, the innocent party will have the right to seek damages;
- Intermediate terms: breaching an intermediate term will only result in termination of a contract if the breach is sufficiently serious. However, the innocent party will be entitled to seek damages.
If you are unsure as to whether you are, or have been, discharged from your contractual obligations it is important that you seek expert legal advice. LegalVision’s lawyers can provide you with the advice and practical guidance that you need to end your contract. Give us a call today on 1300 544 755.