One of the common areas of confusion regarding contracts involves the right to terminate.
While most contracts specify termination clauses outlining this process, situations can arise where breaches happen outside of these provisions. In such cases, understanding whether the breach is significant enough to warrant termination, known as a repudiatory breach, is crucial.
If you’re thinking about pulling out of a deal because of a breach, you must be sure you’re allowed to do so.
In this article, we’ll explain what a repudiatory breach is, how courts determine if a breach is repudiatory, and what your options are if you encounter a breach. That being said, if you’re not sure what to do, it’s always a good idea to get legal advice from a commercial lawyer who can help you make the right choice for your circumstances.
Table of Contents
- What does “terminating at common law” mean?
- What is a repudiatory breach?
- Examples of a repudiatory breach
- What is the difference between a repudiatory breach and a material breach?
- How do courts determine if a breach is repudiatory?
- What are my options if I encounter a repudiatory breach?
- What is affirmation of the contract?
- Can I claim damages if I decide to terminate the contract?
- What are the potential risks of terminating a contract for a repudiatory breach?
- How can Lawhive help?
What does “terminating at common law” mean?
In contracts, it’s often laid out exactly what kinds of breaches give you the right to end the agreement. Sometimes, there are even steps you have to follow if you want to end the contract because of a serious breach.
Terminating at common law refers to how a contract may end outside the specific termination clauses outlined in the contract.
These methods include rescission (where one party ends the contract due to undue influence or duress) or frustration (where unforeseen events make contract performance impossible), among others. However, these methods often render the contract void, impossible to perform, or unenforceable, rather than outright terminating it.
While terminating at common law may render the contract void or unenforceable, a right to terminate under the contract allows parties to end the agreement without rendering it void. In some cases, there may be an implied right to terminate with reasonable notice, but the most relevant right to terminate at common law is for a repudiatory breach.
What is a repudiatory breach?
A repudiatory breach is a serious violation of contract terms that undermines the core purpose of the agreement, indicating the unwillingness or inability of one party to fulfill their obligations.
A repudiatory breach is typically addressed under common law, but parties can specify in their agreement what actions would be considered a repudiatory breach in their specific situation. However, caution should be taken when creating legally binding contracts and agreements so as not to restrict your rights and remedies under common law.
Examples of a repudiatory breach
Here are some instances where a repudiatory breach might happen:
When a contract clearly says something is important, but that task isn’t done on time.
When someone says they’re not going to do something they promised even before they were supposed to do it (anticipatory breach).
When the contract is performed in a way that is significantly different from what was agreed.
What is the difference between a repudiatory breach and a material breach?
A repudiatory breach is a severe violation of contract terms that undermines the core purpose of the agreement.
On the other hand, a material breach is not necessarily as severe and may not always lead to termination.
How do courts determine if a breach is repudiatory?
Whether a breach constitutes a repudiatory breach depends on various factors, including the nature and severity of the breach, as well as the construction and interpretation of the contract terms. Breach of conditions or serious breaches of intermediate or innominate terms are common examples.
If a contract doesn’t clearly say that a breach allows terminations, it’s the court’s job to sort things out. Courts typically assess whether a breach demonstrates that the defaulting party is unwilling or unable to fulfill their contractual duties, especially when the contract doesn’t specify termination rights.
They look at the contract, what the parties meant when they made it, and how they’ve conducted themselves. Sometimes, industry standards or customs might also play a role in the court’s decision.
It’s important to note that just because one party didn’t do a good job or missed a deadline, it doesn’t always mean you can terminate the contract. Even if a buyer doesn’t pay up, that alone might not be enough to say they’re breaking the contract so badly that you can walk away.
What are my options if I encounter a repudiatory breach?
If you encounter a repudiatory breach you can choose to:
Terminate the contract and seek damages.
Not terminate the contract, but still seek damages.
Waive the breach entirely and continue the contract, forfeiting your right to claim damages.
For personalised legal advice and to best understand your position in English law relating to repudiatory breaches of contract, contact our Legal Assessment Team today.
What is affirmation of the contract?
Affirmation refers to the innocent party's decision to treat the contract as continuing despite the breach. This decision must be made promptly upon becoming aware of the breach and understanding the options available.
Can I claim damages if I decide to terminate the contract?
Even if you choose to terminate the contract, you may still be entitled to claim damages for losses incurred due to the breach.
What are the potential risks of terminating a contract for a repudiatory breach?
Although terminating a contract for a repudiatory breach might seem like a good idea, it’s not without risks. For example, if the breach isn’t serious enough to be considered repudiatory and you still decide to end the contract because of it, the other party could turn around and take action against you for breaking the contract.
Therefore, before you decide to end a contract because of a breach, you must make sure that it’s serious to warrant it.
How can Lawhive help?
At Lawhive, our network of corporate solicitors is on hand to help you understand your rights in the event of a breach of contract.
Contact our legal assessment team to find out more and get a free quote for the services of a specialist lawyer.