Breach of a Contract: Understanding Repudiation

No matter the type or scope of work you may be in, the whole point to having a signed contract with another party is that it is legally binding - you’re both held responsible for upholding your end of the formal document.

But what happens when one party breaks that contract? This is where repudiation comes in.

What is the repudiation of a contract?

In its most simple form, to repudiate means to refuse to accept something as true, good, or reasonable. For example, someone claims your birthday is in May, but you repudiate it because the truth is that you were born in December.

When this term enters the legal realm, it revolves around the presence of a contract and becomes a bit more complex.

Perhaps you are having work done at your home, and a contractor will be installing new floors in their living space. You sign the contract, the contractor signs the contract, and you pays half of the fees upfront. You agree to pay the rest when the contractor completes the project. The contractor finishes half the floors on Monday but then doesn’t show up again. You call the contractor, and he claims they won’t be finishing the floors. As a result, the contractor has repudiated the contract with you.

Simply put, when a contract has been signed by all parties for specified services or the completion of a project, or whatever it may be, both parties are legally bound to that contract. The failure to fulfil the agreement leads to repudiation. If you fail to uphold your end of a contract, you will receive a letter of repudiation notifying you of that breach.

Understanding anticipatory repudiation

We've learnt about the most straight forward form of repudiation, but there is also what is called anticipatory repudiation. Let’s revert back to the floor renovation. You and the contractor sign a contract that the contractor will install new floors. You pick out the tile you like and place an order, but the contractor never picks up the tile from the wholesaler. While waiting, you anticipate that the contractor will fail to fulfil their contract since the tiles are never picked up, and the floor cannot be completed without it. You anticipate that the contractor will repudiate the contract.

However, without evidence that there will be a breach of contract your contractor can claim repudiation of contract against you in trying to pre-emptively avoid paying the contract out. Confusing right. That’s we recommend that you get legal advice regarding the breach or anticipatory breach of a contract.

Next steps when facing repudiation

During the course of a contract, you may find yourself in one of two situations regarding repudiation of a contract. You may have a contract signed with another party who has failed (or you anticipate they will fail) to fulfil their end of your contract, and you are looking for options for the repudiation of the contract. On the other end, you may have received a letter of repudiation and are wondering what your options are.

If you’re a party to a contract and the opposing party has breached that contract, one option is to terminate the agreement without consequence since they repudiated. In this scenario, there would be no loss and no damages, and you’d want to seek legal advice to ensure there isn’t any blowback from the secondary party.

The other option is when one party has in fact suffered losses or damages as a result of the contract repudiation. Like if you paid for some of the services in advance for your new floors or have to hire a new company to install your floors, you are able to sue the first contractor for the financial loss and additional damages of the breached contract.

If you’re looking for legal advice regarding a repudiated contract, come and talk to us today.