When Can You Terminate A Contract?
What Is A Contract?
A contract is a legal document that binds at least two parties to one another and requires them to meet certain obligations detailed in that contract. In some instances, a contract may be terminated making it void from any legal binding. Often, the contract may be prematurely terminated by parties involved.
Generally, for an aggrieved person to have a right to terminate a contract, the offending party must have breached a term of the contract that is considered a condition as opposed to a warranty.
While there is extensive case law that help explain the difference between a condition and a warranty, it suffices for our explanation here that a term that is a condition can be said to be a one that goes to the root of a contract, whereas a warranty is a term that does not.
When There Is A Breach Of Contract
When a contract is intentionally not honored by one party or more, it is called a breach of contract and is grounds for contract termination. A breach of contract may exist because one party failed to meet his obligations at all or did not meet his obligations fully.
Issuing A Letter Of Demand To Terminate A Contract
Applying law to facts, let’s take for example that you have a long-term contract with another person for him to deliver certain goods to you every month.
However, on one of these months you are not satisfied with some of the goods you receive and realized you have already made payment for it. Arising from this you decide to issue a letter of demand to terminate the contract and demand damages.
Your termination may however be wrongful if there was only a breach of a term that is considered a warranty as opposed to a condition of the contract, and you may from this be exposed to liability for the wrongful termination.
Problems may similarly arise from the same set of facts even if you are entitled to terminate the contract because there was a breach of a condition, but now decide you prefer the contract to have continued to stay in force.
To understand this problem, it is useful to note that generally speaking, once an aggrieved party elects to terminate a contract, the contract is brought to an end and ceases to bind the parties from the time the election is communicated to the other party.
Applying this principle to a factual scenario, let’s say that after terminating the contract you realize that you would rather have not done so.
Pursuing Civil Action For Damages And Not Terminate A Contract
Perhaps you realize that the better option for you was to keep your long-term contract going and just pursue damages for those unsatisfactory goods and not terminate the long-term contract.
You perhaps reach this conclusion after realising that you cannot find a new alternative supplier, and that pursuing the party in breach purely for damages may be of little use as it was a company dependent on you for business and will not have enough assets to pay you even if you get a judgement in your favour.
Another scenario arising from the same facts is that under certain circumstances, failing to terminate a contract but simply issuing a letter of demand for damages regarding the unsatisfactory goods may be considered an election to affirm the contract. If so, you may lose your right to terminate the contract later.
