Demands and terminations done in the right order
A great many breach cases turn on a single letter rather than on the facts, because a termination that skips a step leaves the contract alive, and everything done afterwards makes the terminating party the one in breach.
The order the statute sets
Section 387 of the Civil and Commercial Code provides that where one party fails to perform, the other may fix a reasonable period and call on them to perform within it, and if they do not, may then end the contract. The order is therefore always three steps: fix a period, give notice, then terminate. A single letter saying the contract is terminated forthwith skips the first two.
How long is reasonable
The statute fixes no number of days, because what is reasonable depends on what has to be performed: paying an outstanding sum and rebuilding defective work do not call for the same time. What can be done is to set a period that can be justified, and to state plainly that failure to perform within it will end the contract, so that a second letter is not required.
The right to terminate can lapse
Section 393 provides that where no period is fixed for exercising a right to terminate, the other party may set a reasonable period and call on the party holding the right to state within it whether it will terminate. If no notice of termination is received within that period, the right is extinguished. A party sitting on the right without deciding may therefore lose it.
Sending it so it can be proved
The best-drafted letter is worthless if delivery cannot be proved. Send it to the address given in the contract, keep the acknowledgment and the envelope together, and where the contract prescribes a particular manner of notice, to a stated address or a named person, follow it, because failing to observe the parties' own term can invalidate the notice just as readily.
What the letter has to say
A letter that works identifies the contract relied on, states what has not been performed, specifies the sum or the thing to be performed, sets the period allowed, and states what follows if it is not met. Writing broadly that the other side is in breach, without saying which term or what would cure it, makes the letter a poor foundation for a termination.
PREPARE
What to bring
- The full contract with its attachments and any amendments
- Evidence of what was not performed
- Any letter already sent, with the acknowledgment and envelope
- The correspondence between the parties, kept whole
- Evidence of the loss already suffered
QUESTIONS
Questions this raises
I sent a termination without allowing any time. What now?
In many cases it can be put right by sending a fresh letter that follows section 387 properly: fix a reasonable period and call for performance. The further question is what was done in the belief that the contract had ended, such as stopping work or engaging someone else, because those steps may themselves amount to a breach by the terminating party.
The other side has told me to decide within fifteen days whether I am terminating.
That is section 393 being invoked, under which the right to terminate is extinguished if no notice of termination is received within the period set. It should not be left to pass: decide within the time and reply in writing, whichever way the decision goes.
LAW
The legislation
- Civil and Commercial Code, sections 387 and 393
ENQUIRIES
