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Disclaimer: I’m not a lawyer and I have no claim that this advice should be taken as legal advice in replacement of seeking out professional help. What I hope to do is educate you over a series of small posts about what constitutes a contract and you should be able to figure out when you might need to see a real lawyer. Although this series is in the Australian context many of the principles apply in other countries.

In the previous installments of the Contracts 101 series the discussion covered the six elements required of a contract: the agreement, consideration, capacity, legality of object, possibility of performance and genuine consent. Following this outline the subject turned to promissory estoppel, the breach of the promise where there is no contract in material terms. This installment of the series looks at five ways that we can end the contract.

1. Breach
2. Frustration
3. Performance
4. Operation of the Law
5. Agreement

1. Breach

The breach occurs in situations where you might contract to have a shed built and the hired party fails to start work in reasonable time thereby leaving you on the completion date with an unbuilt shed. In other words, the breach of contract involves failure to fulfil the actionable details of the contract.

2. Frustration

Frustration occurs in situations where you might sign a contract selling your house to another party. However, prior to the money changing hands a cataclysmic storm makes the house unlivable and it has to be demolished. Frustration means that the contract could not be completed. There was an example within this series of a contract to paint a bridge which got demolished. No bridge = no contract. The possibility to paint the bridge no longer exists and the contract is frustrated.

3. Performance

The ideal ending of a contract is with performance. An example is the sale of a car where the purchaser drives away with signed papers of ownership and the seller has the money in exchange.

4. Operation of Law

Operation of law involves those situations where you might contract a party to do something which, before they can do so, is legislated as illegal. For example, were you to contract a party to create a neon sign for your shop, but before the party can start work on the sign there is a change in the law that forbids such signs being used. Thus, the operation of law ends the contract to make the sign.

5. Agreement

By agreement the contract can be brought to an end such as when somebody is leasing a car for 12 months and they find another person to take over the lease for the remainder of the period. All parties can agree that the original contract is ended and the new arrangement is contracted.

Issues and Items of Note

Performance must be precise and exact… Bolton v Mahadeva (1972), although the exception is when the work is divisible (such as with wages). Where minor omissions or defects exist the court normally allows recovery under the doctrine of substantial performance… Hoenig v Isaacs (1952). And a tender for performance of goods or services (described as an attempt at performance) amounts to discharge of the performance… Startup v Macdonald (1843).

Agreement can only take place where both parties have yet to perform their end of the bargain under the contract (otherwise this would amount to a gift if one person had performed and the other was let go from that responsibility – there would be no consideration).

In defining frustration there must be a supervening event that was not contemplated by either party and therefore performance is no longer possible… Davis Contractors Ltd v Fareham UDC (1956).

It might be worth stressing that one cannot recover for remote losses… Victoria Laundry (Windsor) Ltd v Newman Industries Ltd (1949), meaning that a direct causal link needs to be established rather than a broad brush that may or may not be assumed by the complainant. If your piano is not delivered to Queensland for a concert you can claim that you were unable to perform for your audience, but you would probably lose money trying to claim damages against the transport company because the piano you used instead fell over and broke your leg.

If you are aware that there will be a loss due to a breach you must do your best to mitigate the loss. Further, you cannot recover for loss which is avoided… British Westinghouse Co v Underground Electric Railway Co of London (1912).

On form contracts, liquidated (agreed) damages must be genuine and realistic pre-estimates (as covered in the Hire Purchase legislation).

Remedies for breach of contract most commonly consist of damages to put the innocent party into the same position as though the breach did not occur. Where there is no actual loss then only nominal damages will be awarded (perhaps $1) rather than the full actual cost. The court may also order specific performance or injunction, meaning the court can order either party to carry out the contract, or put in place an injunction to prevent the act from being carried out (both equitable remedies).

It should be obvious that the ending of the contract is an area well worth the business owners time and attention. As ending the contract is the final lesson in the Contracts 101 series the next post will draw some major points and conclusions which will hopefully be of value to the reader.

Note: Resources used for this series are identified in the first installment – Contracts 101 – Part 1: Outline.

Installments in Contracts 101

• Contracts 101 – Part 1: Outline
• Contracts 101 – Part 2: Which Contract?
• Contracts 101 – Part 3: The Six Elements
• Contracts 101 – Part 4: The Agreement
• Contracts 101 – Part 5: The Offer
• Contracts 101 – Part 6: The Acceptance
• Contracts 101 – Part 7: Battle of the Forms
• Contracts 101 – Part 8: Consideration
• Contracts 101 – Part 9: Capacity
• Contracts 101 – Part 10: Legality of Object
• Contracts 101 – Part 11: Possibility of Performance
• Contracts 101 – Part 12: Genuine Consent
• Contracts 101 – Part 13: Promissory Estoppel
• Contracts 101 – Part 14: Ending the Contract
• Contracts 101 – Conclusion: Protect your Business