Contents
A business functions largely through its contracts. Whether it’s a Supply Agreement or a Privacy Policy, each well drafted legal agreement gives a business the support and protection it needs to conduct its operations.
However, what happens when a contract cannot be completed by one party?
When a party is unwilling to fulfil the contract or unable to do it in the way it was agreed upon, then chances are they are claiming repudiation.
So, what happens when you find yourself at the crossroads of a repudiation in a business contract? Let’s discuss this in more detail below.
What Is Repudiation And How Does It Affect Business Contracts?
Repudiation occurs after a contract has been signed. Usually, before the performance of the contract has begun or during it, when one party can no longer uphold their contractual obligations. When this happens, it impacts not just the agreement but the other party, who was relying on the completion of the contract.
Repudiation of a contract means there’s two parties: an innocent party and the party that is claiming the repudiation. In most cases, it will be up to the innocent party to decide how to proceed. They might need compensation, a restructuring of the contract or a dismissal of the contract altogether.
Exactly what happens to a business contract when repudiation comes into play will depend largely on the specific circumstances. Repudiation is known to be one of the more complex areas of contract law, so there’s no standard outcome for such situations.
The Basics Of Repudiation In Business Contracts
There’s more than one way repudiation can be shown. At times, a party will clearly state they cannot fulfil their obligations where as in other cases, repudiation will be demonstrated through actions. Let’s take a closer look at this below.
Implied Repudiation
Implied repudiation is when a party has not clearly stated they are unable or unwilling to perform their end of the contract, however their actions demonstrate otherwise.
| Example Joe has been asked to illustrate a children’s novel by Maria. Both Joe and Maria agreed that Joe would send in his draft illustrations on particular dates to keep Maria in the loop, however Joe’s submissions are consistently late or simply don’t show up. |
In the example above, it’s clear that Joe is struggling to fulfil his contractual obligations even though he hasn’t outright expressed it. This can likely be considered implied repudiation.
Express Repudiation
Express repudiation occurs when a party to a contract clearly states they can no longer fulfil their obligations to the contract. This can be due to circumstances that have rendered them unable to perform their part of the contract or simply, an unwillingness.
| Example Mike has agreed to hire out his limousine for a wedding party. However, an engine issue with his vehicle means the car will no longer be ready in time for the wedding. Mike lets the bride and groom know he cannot hold up his end of the contract anymore. |
Mike’s example is most likely to be considered express repudiation or an ‘anticipatory breach’ where Mike has let his customers know of the situation beforehand.
It’s crucial to take note of the type of repudiation that has occurred, as this could impact the overall outcome.
What Are The Legal Consequences Of Repudiation In Business Contracts?
When one party claims repudiation, a number of different matters can affect what happens next. Factors like, what type of contract, jurisdiction and the impact of the repudiation will determine any legal consequences that arise from the repudiation. Ultimately, an aggrieved party will need to decide two things:
- Whether they accept the repudiation
- If they are planning to continue the contract or seek legal remedies
Before making any decisions though, it’s crucial to talk things out with a legal expert. This way, you can have some clarity on the legalities surrounding your situation and go from there.
Is Repudiation A Breach Of Contract?
In most cases, repudiation tends to be considered a breach of contract or an anticipatory breach. Declaring that a contract you agreed to can no longer be fulfilled tends to violate the terms of any legal agreement.
When this happens, it’s important for the party who cannot fulfil their obligations in the contract, to make things right. Remedies for repudiation can be through compensation, an act of service or anything else that is fair to the situation- whatever the solution, it’s important that both parties agree to it.
Understanding The Risks Of Repudiation In Business Agreements
When you sign a contract, the possibility of repudiation is always there. You might be thinking, what happens if me or the other party can’t hold up our end of the deal? There’s always a risk involved, so it’s important to prepare for it.
If you’re the party calling the repudiation, you might not just be invoking legal consequences. Repudiation can lead to a lack of trust others have in your business and cause your business’s reputation to suffer. On the other hand, if you’re the party being hit with repudiation, this could lead to unexpected financial loss.
No matter what end of the stick you fall on, repudiation generally tends to be unpleasant for both parties.
Preventing Repudiation In Business Transactions
However, there are certain situations where a contract simply cannot be fulfilled by one party. While this isn’t the best case scenario, you can make this easier on yourself by preparing for the situation ‘just in case’.
When getting your business contracts drafted, talking to a well versed Specialist In Contracts can help get your legal documents drafted in a way that protects you, even when things don’t go as planned.
If you’re worried about the possibility of repudiation, talk to our legal experts today and so you can have a better understanding of your options.
Next Steps
Repudiation is a tricky area of contract law. In most cases, the specific situation surrounding the repudiation will determine what happens next. In any case, having well drafted contracts can help you be prepared for scenarios where something unexpected happens. To summarise what we’ve discussed:
- Repudiation in business contracts occurs when one party cannot or will not fulfil their obligations
- Repudiation can be implied (through actions) or express (clearly stated)
- Legal consequences depend on contract type, jurisdiction and impact. Parties must decide whether to accept repudiation and seek remedies
- Repudiation is typically considered a breach of contract
- Repudiation can harm a business’s reputation or lead to financial loss
- Countering repudiation involves well-drafted contracts and sound legal advice from experts
If you would like a consultation on repudiation, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.
Get in touch now!
We'll get back to you within 1 business day.
Top 3 Legal Mistakes
Book in a free consultation with us to discuss your legal needs.