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Many businesses often wonder whether they can end a contract early. However, ending a contract is often complicated. This is because you typically cannot change your mind and walk away from a legally binding agreement. There can be serious consequences if a party breaks the contract before they have performed their obligations under it. However, there are a number of ways in which you can legally end a contract. This article will outline what they are. 

When Can You Legally End a Contract?

There are a number of situations in which you can end a contract legally, including if:

  • the parties have all performed their obligations under the contract;
  • the other party to the contract fails to perform;
  • performance is no longer possible due to an unforeseen situation; 
  • the contract becomes legally invalid; or
  • all the parties agree to end the contract.

All Parties Have Performed Their Obligations

A contract will come to an end if all parties have performed what they had promised to do under the contract in accordance with the contract’s terms. 

The Other Party Fails to Perform Their Obligations

If the other party fails to perform their obligations in accordance with the contract, they have breached the contract. In this case, if you are the non-breaching party, you may be able to seek damages. However, unless the contract expressly states that parties may terminate the contract upon a breach occurring, the contract will not automatically end. Therefore, the obligations under the contract will continue to be binding.

That is why it is always important to clearly set out in the contract when the contract may be terminated. For example, if the other party is in breach of its privacy or confidentiality obligations.

If the breach is a breach of an essential term, the innocent party will have the right to either terminate the contract or keep it going. If the party chooses to terminate, they may be required to provide the other party with a notice to remedy a breach before terminating the contract.

Repudiation

If a party is not willing to perform their obligations under the contract, that party’s conduct may amount to an act of repudiation. This is known as a repudiatory breach.

Once the breaching party notifies the non-breaching party that they will not fulfil their obligations, the non-breaching party may accept the repudiation and can then elect to end the contract. Repudiation itself does not end the contract but simply allows the innocent party to choose to: 

  • continue with the contract; or
  • terminate the contract. 

Performing the Contract is No Longer Possible

If an unexpected event or circumstance arises, making the performance of a contract impossible, this may end the contract. This is known as frustration of the contract. Such circumstances may include a natural disaster or warfare. 

If this happens, neither party is considered to have breached the contract. This may be because requiring performance of the obligations would either be impossible or result in an outcome that is entirely different to what the parties originally agreed upon. 

It is also worth noting that for frustration of a contract to occur, the circumstance causing the frustration must not have been caused by the party who wants to rely on the circumstance to end the contract.

The Contract Becomes Legally Invalid

Finally, in some instances the law may deem a contract invalid. This can occur in situations where:

  • there is a material mistake in the terms of the contract;
  • there is no consideration (intention to be bound) under the agreement, or the consideration is unlawful;
  • a party did not have the capacity to enter into the contract; or
  • the contract deals with illegal activity or is against public policy. 

Also known as a void contract, this is simply a contract that cannot be enforced as it was never legally created.

Distinct from a void contract, a voidable contract is one that one party may void (and not the other) as a result of either:

  • a misrepresentation of facts in the contract; or
  • the party not entering into the contract by their own free will or under undue influence.

All Parties Agree to End a Contract

Parties to a contract are free to end a contract via a mutual agreement in writing. They can also end a contract by replacing it with a new one. If the actions of each party indicates that they do not intend to perform their obligations under the contract, the contract can also be considered as discharged.

Key Takeaways

Generally, ending a contract is difficult as it is a legally binding agreement that you cannot simply walk away from. However, the circumstances discussed above provide for some ways in which a party can legally end a contract. If you would like to end a contract, or you are having difficulty with a party to your contract, contact LegalVision’s contract lawyers on 1300 544 755 or fill out the form on this page. 

Frequently Asked Questions

What is repudiation?

Where a party is not willing to perform their obligations under the contract, this may amount to an act of repudiation, also known as a repudiatory breach. The non-breaching party may accept the repudiation and can then elect to end the contract, or they can choose to continue with the contract.

What is frustration?

Frustration of a contract occurs where an unexpected event or circumstance arises that makes the performance of a contract impossible. Examples may include a natural disaster or warfare. 

What is the difference between a void and voidable contract?

A void contract is one that cannot be enforced as it was never legally created. A voidable contract is one that may be voided by one party (and not the other) as a result of either a misrepresentation of facts in the contract or
the party not entering into the contract by their own free will or under undue influence.

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