Termination of a Contract – Law Essay Example

wished to terminate the contract. Sumpter’s claim was not successful.

The contract was a lump sum or an entire contract, and its price could not be recovered until the work was done.The builder could not claim for part payment under a quantum meruit as the owner was not responsible for the builder’s failure to complete, nor part performance, because there was no evidence of agreement by the owner to part performance and no agreement by the owner to terminate the contract at this stage. This rule could clearly result in harsh and unjust decisions being made and thus led the courts to develop exceptions to the rule. Termination by agreement The contract may be terminated by agreement between the parties concerned, called bilateral discharge.

Bilateral discharge may also be accompanied by a new agreement. Here both parties agree to terminate original contract and to replace it with an entirely new contract (Latimer, 2002). In the case McMahon’s (Transport) Pty Ltd v Ebbage , Ebbage sent a cheque to McMahon’s Transport stating ‘in full and final settlement of all claims’. The cheque was for a lessor amount of what McMahon expected. McMahon banked the cheque and was still able to claim the difference owed to him by Ebbage because he had not agreed to the smaller amount.In other works, there was no binding contract for the smaller amount.

Discharge by Operation of Law There are rules of law, which will bring about a discharge of a contract in certain circumstances. Likelihood for discharge can be death, mergers, insolvency or alteration of written documents (Vermeesch & Lindgren, 1983). Termination by Lapse of time A contract may be discharged

by the passage of time, in accordance with various statutory provisions covering the limitation of actions. The contract is not discharged by the legislation, but is made unenforceable by it.Each State and Territory has a Limitation Act , which provides that a right to sue must be enforced within a fixed period such as six years.

This legislation makes clear that the right to sue cannot be exercised outside this limitation period (Latimer, 2002). Discharge by Breach A contract may be discharged when one party fails to comply with any of the obligations imposed by the contract. A party may indicate in advance that their part of the contract will not be performed when the time for performance falls due.This is referred to as anticipatory breach (Khoury & Yamouni, 1998). Such a breach occurred in Hochster v De la Tour .

De la Tour engaged Hochster as a courier in April, with the appointment to take effect on 01 June. Three weeks before commencement, De la Tour informed Hochster that his services were no longer required. This was clear anticipatory breach entitling Hochter to damages for breach of contract, because De la tour had indicated his intention to be no longer bound by his contractual obligations. Discharge by FrustrationThis occurs when the contract cannot be fulfilled due to unexpected events or possibilities that radically change the nature of the contract (Pentony, Graw, Lennard & Parker, 1999). This occurred in Taylor v Caldwell , where Taylor contracted to hire a building for a concert. Shortly before the concert, a fire destroyed the building.

The building was essential to the performance of the contract, and this contract

was terminated by frustration due to there being no building as a result of the fire. Summary A contract is discharged when the obligations created by it cease to be binding.Generally, commercial parties to a contract will avoid going to court and often their contracts will contain arbitration and similar clauses, which enable differences to be settled outside courts but normally with legal assistance. In some instances, the discharge stems from the failure of one of the parties to fulfil his or her obligation under the contract, allowing the other party to treat the contract as discharged.

In other instances, the discharge stems from a cause outside the control of the parties to the contract.