A contract is usually established with good intentions. However, there are occasions when one party cannot or will not fulfil their obligations. When this happens, it is known as contract repudiation or repudiation of a contract.
When does contract repudiation occur?
Repudiation of contract occurs when one party openly renounces their obligations under a contract because they are unable or unwilling to fulfil their obligations under the stipulated timeline. A party’s behaviour can also be a reason for repudiation.
Contract repudiation is serious as it can lead to a breach of contract. That is why it is sometimes referred to as an anticipatory breach.
How do you respond?
If you are the ‘innocent party’ caught in the contract repudiation, then you may:
- Continue with the contract, or
- Accept the repudiation and terminate the contract.
A contract repudiation does not automatically terminate the contract. It allows the ‘innocent party’ the right to elect to terminate the contract.
Your conduct may be under scrutiny by the law so you cannot behave as though you were intending to keep the contract going if your intentions were to terminate the contract.
Also, if you wrongly assume that the other party had repudiated the contract (when they have not) and you start behaving in a manner that compromises your obligations to the contract, then you can be deemed as the party responsible for repudiating the contract.
You should discuss your options with a business lawyer who understands contract law so you do not make a mistake that could be costly to you.
What happens if you choose to terminate the contract?
A lawyer will be able to help you prepare the termination of the contract and to give you legal advice on your next course of action. You can also decide whether you want to seek compensation for damages.
Contract repudiation is serious and complex, and the test for whether a party has repudiated the contract requires careful analysis.
If you believe you have been involved in a repudiation act, then the best thing for you to do is to seek legal advice immediately.