Most contracts come to an end by being completed. Once everything required under the contract has been done, the parties are discharged from further obligations under it, and it ends. A contract can also be ended by rescission following a breach, by mutual agreement, or where it becomes impossible to carry it out (called frustration).

Discharge following breach

Certain serious breaches of a contract give the innocent party the right to cancel it. If they decide to rescind the contract, they must inform the party as soon as practicable. The contract comes to an end from the moment the party in breach is informed of cancellation. Neither party is bound by the contract from then on. Matters can be become complex where there is a disagreement as to whether a serious breach has in fact occurred.

Discharge by agreement

The parties to a contract can agree at any time to end it. Such an agreement is itself a contract, so there must be consideration. If both parties have obligations under the contract which have not yet been carried out, release from those obligations counts as consideration, so nothing more is required.

Where one party has already fully performed their side of the contract, they may require the other party to give value in exchange for release from the remaining obligation. The party promising to release the other party may change their mind before the value is paid. However, if the party in breach has relied on the agreement and has changed their situation in some way, a court may force the party promising release to keep to the agreement.

Discharge by frustration

Sometimes circumstances change so much after a contract is made that it is impossible to carry it out. If this happens without the fault of either party a court may find that the contract has automatically ceased (become frustrated). In that case neither party will be bound. The common law doctrine of frustration provides that the losses lie where they fall. This means that neither party is liable to compensate the other for any loss suffered.

The Frustrated Contracts Act 1988 (SA) changes the common law doctrine and can assist parties to reach a fair result. Get legal advice by calling the free Legal Help Line on 1300 366 424 if you are unsure how this legislation applies to your situation.

Force majeure

Some contracts include a force majeure clause. They are more common in commercial contracts. A force majeure clause will govern who bears the loss when a contract cannot be performed because of an event outside of the control of the parties, such as a pandemic.

In the absence of a force majeure clause, the parties may rely on the doctrine of frustration.

Be careful if relying on a force majeure contract in a consumer or small business contract. The Australian Consumer Law protects consumers and small business from unfair contract terms. A court can declare that a contract term is void if it is unfair. An unfair contract term example might be a force majeure clause that says a consumer cannot get a refund if the supplier cannot supply the service.

For more information about unfair contract terms, see Unfair Contract Terms.