Contract Law

Ceasing the Contract

Termination

Parties can terminate a contract at will, within what is permitted by the contract terms. When a party simply ceases performing their obligations under a contract, this called repudiation. They may state that they are ceasing to perform, or it may be implied by a period of non-performance.

 

Upon repudiation, the other party can then terminate the contract if they wish. They may sue for damages or for specific performance. (See later) to be compensated for what they would reasonably expect to receive had the contract been performed in full.

 

Repudiation can happen lawfully if the counter-party breaches an essential term, but not a minor term. The case for intermediate terms depends on the situation. The seriousness of the breach is also a factor. Termination can also occur lawfully for unreasonable delay.

 

In other circumstances, if you terminate prematurely, then you are the party guilty of repudiation and can be sued. It is possible to terminate by mutual agreement at any time. A contract may also contain terms specifying that it is to be terminated once certain conditions are met.

 

In Associated Newspapers v Bancks[1]. Bancks the creator of Ginger Megs among other cartoons, signed a 10 year contract in 1949 with Associated Newspapers. He was to draw cartoons and they would be published on the first page of the cartoon section of two newspapers. Associated Newspapers eventually moved the cartoons to the third page without consent and against protest. Bancks gave notice of termination.

 

The court had to determine whether the obligation to print on the first page was an essential term (that is, a condition), the breach of which would permit termination. The court reasoned that any stipulation that goes to the root of the matter is a condition of the contract.

 

The court said that it was a condition of the contract for Bancks to draw the cartoons, and this makes the obligation to print the cartoons on the front page of the comics section equally important. The newspaper would not have employed Bancks unless it was assured he would perform his promise, and Bancks would not have made the promise unless he was assured his work would be published in a particular manner. Therefore Associated Newspapers had breached an essential term and Bancks was entitled to terminate his contract, bearing no liability.

 

A contract may stipulate that ‘time is of the essence.’ This is common terminology employed in a lot of contracts, which is to be watched for. This means that when an obligation must be performed by a certain time, this is an essential term. As long as the intention is clear there are no exceptions. Failure to meet the deadline is a fundamental breach resulting in the right to terminate.

 

The circumstances also may show that timing is essential to gaining the benefit for which the contract was entered into. When that is so time can be construed to be of the essence if the facts allow.

[1] Associated Newspapers Ltd v Bancks (1951) 83 CLR 322.