What is contract repudiation, and the biggest risk?
What does it mean when one party repudiates a contract? Well, stick around, and I’ll tell you.
Hi everyone, Simon here from The Contract Company, contracts, it’s what we do, all day, every day, and sometimes overnight. Lucky us.
What is Contract Repudiation?
So, when one party repudiates a contract, that is their way of saying to the innocent party, or the good guy, that they, the bad guy, no longer wish to be bound by the terms of the contract.
SO, let’s use an example. Let’s say you have a contract to maintain the grounds at a building, university premises, doesn’t matter. And your rights under the contract are exclusive. I.e. you are the only person allowed to maintain the grounds at that premises. Let’s say the contract is for a period of two years.
Then the party who owns the premises, allows someone else to maintain the grounds. Then that, to me, would be a clear indication they are no longer willing to be bound by the terms of the contract.
So, what happens then? Well, the good guy, I.e. the innocent party, is able to do one of two things.
They can either continue to perform under the contract, or they can elect to terminate. So the actual act of repudiation by the bad guy, in this case by allowing a third party to come on site and maintain the grounds is contrary to the exclusivity provision in the contract with the good guy.
This means that the bad guy has given a clear indication to the good guy that they no longer want to be bound by the terms of the contract.
So, the good guy can then do two things, either continue to perform, and potentially sue under the contract, or they can terminate the contract.
Possible Breach of Contract
Now, this is where it gets tricky. If the good guy terminates the contract, based on what they believe is the repudiatory conduct of the bad guy, and the good guy gets it wrong, then the good guy can actually be sued for breach.
So, this is one of those areas of law, where I hate to say it, you probably want to get legal advice, cause your stuff is up, and you can be in for some serious legal bills.
Anyway, it’s a fairly complex area of law. And probably longer answer than I needed to give, but, there you go.
Any questions or queries, please give us a call, Simon@thecontractcompany.com.au, 1-800-355-455. Hope that helps.