What is Repudiation of Contract?
Repudiation of contract refers to instances where a party bound by a contract is unable or unwilling to perform their contractual obligations. An example of repudiation is where a contractor leaves the project that they were contracted to complete. Repudiation can also apply this idea to the quality of work. For example, if a building is full of defects, the work performed is inconsistent with contractual obligations and, therefore, amounting to repudiation.
Has repudiation of contract occurred?
To determine whether repudiation has occurred, the court will look objectively at whether the parties conduct would have conveyed a renunciation of the whole contract or a fundamental obligation under it.
There are generally four instances where repudiation occurs:
- There is writing by the party that they are unable/unwilling to fill their contractual obligations;
- Their conduct highlights that they have repudiated the contract;
- They demonstrate that they are unable to perform the contract based on the facts, or
- Wrongful termination.
Responses to repudiation
Repudiation does not mean that the contract has been terminated. However, it does provide you with the following options:
- Accept the repudiation and terminate the contract; or
- Continue with the performance of the contract.
It is vital to have a written declaration of whether you decide to accept repudiation or to enforce specific performance of the contract. If no express declaration has been made, the court can infer from the facts that your words and actions have amounted to either an acceptance of repudiation or you have elected to continue the performance of the contract.
Acceptance of Repudiation
If you decide to accept the repudiation and terminate the contract, you must ensure that the criteria mentioned above have been satisfied. If you had terminated the contract when you were not entitled to do so, you would have been taken as repudiating the contract. Successful repudiation and termination will entitle the innocent party to seek damages for breach of contract.
Performance of Contract
If you decide to continue the performance of the contract, either through your actions, court order or writing, your contractual obligations continue. However, you may lose your right to seek damages for that particular repudiation but may still be entitled to seek damages for later repudiations.
- Repudiation of contract occurs where a party is unable or unwilling to complete their contractual obligations.
- Repudiation allows the innocent party to elect whether to have the contract terminated or whether to continue with it.
- Depending on the decision, the innocent party may be able to seek damages.
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