notice of termination

Contracts may be terminated by agreement, by breach, by frustration, by effluxion of time (the contract runs its term), or by both parties performing their obligations under the contract. Notice of termination may be issued by a party where they have right to do so under the express terms of the agreement, or where they are otherwise entitled to do so. For instance, it may be an implied term of the contract that the agreement may be terminated on reasonable notice.

Most business contracts provide that notice of termination may be issued by an innocent party where the party is in irremediable breach or where the party is in breach and does not rectify the breach within a specified period. This is known as a termination clause, and may provide a suite of grounds that may be relied upon to terminate the contract.

In order to bring the contract to an end and validly and lawfully terminate the contract, these provisions must be complied with. This is not to say that the grounds specified by the termination clause are the only grounds that may be relied upon to terminate the contract. If a right to terminate exists under the general law, then that may also be relied upon.

Where a contract does not specify its duration (known as the ‘term of the contract’), it may be terminated on reasonable notice. Reasonable notice depends on the particular contract. There are indicia that may be used to assess what a reasonable time would be in the circumstances, such the frequency of payments made under the contract or deemed automatic renewal periods specified in the agreement. Equally, contracts where licenses are granted to do something may be terminated on reasonable notice. If the licence is gratuitous, it may even be able to be terminated without notice, however whether it can or not will rely on the facts of the particular case.

Issuing notices to terminate is a serious business. If it is not done correctly (for instance, a failure to set out the grounds for termination or giving reasonable notice) terminating a contract can be disastrous, and severely compromise an otherwise perfectly legitimate right to terminate.

Usage: Notice to terminate the contract was issued after the supplier failed to deliver goods of satisfactory quality.

Related Words: contract; material breach; conditions of contract; repudiatory breach; executed consideration; breach of contract; indemnity; warranty; executory consideration; termination of contract; anticipatory breach of contract.