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Performance and termination



A contract may be discharged in a number of ways; most commonly through performance, by the parties, of their contractual obligations. As a general rule, for a contract to be discharged by performance the contractual obligations must be performed completely and exactly; it is not sufficient to 'substantially' perform a contract. There are, however, some exceptions to the rule that exact performance is required. The parties may also modify this requirement - by expressly or implicitly providing that exact performance is not required. Determining the relevant level of performance will, therefore, depend on proper construction of the contract involved.


Discharge by Agreement

Parties are free to terminate their contract by agreement. This might take the form of a termination provision in the contract itself or through a new and separate contract.


Discharge for Breach

Breach of contract may give the non-breaching party a right to terminate a contract. The non-breaching party may terminate a contract for breach if (a) a provision of the contract permits discharge for breach in the circumstances (eg, it might provide that in the event of failure to supply goods on a specific date the other party may terminate the contract), (b) if the other party repudiates the contract - that is, renounces their obligations under it (eg, they say that will not perform the contract); or (c) the breach is sufficiently serious (minor or technical breaches will generally not allow the non-breaching party to terminate)


Discharge by Frustration

In some cases a contract will be brought to an end because of a supervening event that is beyond the control of the parties; for example, a contract between A and B, whereby B agrees to hire A's theatre on a particular night may be frustrated if, as a result of a terrorist act the theatre is destroyed prior to the date for performance of the contract (see Taylor v Caldwell (1863) 3 B & S 826).

The doctrine of frustration applies only in a limited range of circumstances - generally where the event renders performance of the contract something fundamentally different from that anticipated by the parties. The courts are likely to be unsympathetic if the event could have been anticipated and therefore provided for by the parties in their contract.

Where frustration is established the contract is terminated automatically (in futuro); there is no option to discharge or to perform and, at common law, the loss resulting from the termination lies where it falls (although there are limited exceptions to that rule). Statutory modification means that in most cases the harshness that might result from that common law rule is avoided (see eg, Fair Trading Act 1999 (Vic) Part 2C)