Your Remedy for Contract Termination Without Proper Notice

When contracts are breached or terminated improperly, it can lead to significant financial and legal implications. Understanding the intricacies of contract termination—particularly the importance of providing proper notice—is crucial for anyone engaged in business agreements. This article delves into the consequences of failing to properly exercise a termination provision, with an interesting example from Wisconsin law.

The Four Common Methods of Contract Termination

Contracts can typically be terminated in one of four ways:

1. Defined Term Expiration: When the contract reaches the end of its specified duration.
2. Breach of Contract: A violation by one party that allows the other party to terminate the agreement.
3. Mutual Agreement: Both parties agree to conclude the contract.
4. Exercise of Termination Provisions: A party follows the contract’s guidelines for ending the agreement.

This article will focus on the last of these, and how a contracting party’s failure to properly exercise a termination provision could lead to a breach of contract and potential liability for damages.

The Role of Termination Provisions and Notice Periods

Termination provisions often mandate specific requirements for ending a contract, such as providing written notice within a specified time-frame (commonly known as a “notice period”). Failure to adhere to these provisions may result in breach of contract, exposing the breaching party to liability for damages.

Wisconsin Case Study: Lake Altoona Rehabilitation & Protection District v. Jereczek

Many contracts contain a termination provision that requires notice, usually in writing, to be given in advance of terminating the agreement. Failure by a party to provide the contractually required notice can result in that party’s breach of the contract, if the party has stopped performing their contractual obligations. If the contract breach results in damages—such as a party not being paid during the notice period—the damaged party may be able to recover their financial losses by filing a lawsuit for breach of contract.

Case Summary

An example of such a breach can be illustrated by a 2018 Wisconsin case, Lake Altoona Rehabilitation & Protection District v. Jereczek.

• • Background: In this case the buyer in a contract for the purchase of frac sand (used in the process of oil and natural gas fracking) failed to give the seller timely notice of the buyer’s desire to terminate the contract. The contract required the buyer to purchase a minimum quantity of sand each month, at a fixed price. The contract’s termination provision stated that the buyer could terminate the contract at the buyer’s discretion, upon thirty (30) days’ notice to the seller. After June 2012, the buyer abruptly stopped taking deliveries—and making payments—for the minimum monthly quantity of sand outlined in the contract. However, crucially, the buyer did not notify the seller that he was terminating the contract until October 18, 2013 (over a year later). The seller brought an action to recover the amounts due under the contract from July 2012 to November 17, 2013 (the entire period for which there was no notice given, plus 30 days to account for the notice period). The buyer argued that the contract was “terminated” when he took delivery of his last load of sand in June 2012, and that the notice provision served no purpose once it was evident that he was no longer taking further deliveries. The court disagreed.
  • Court Decision: The court found that the buyer’s failure to purchase and pay for the required minimum monthly quantity of sand was a material breach of the contract, and that the buyer’s failure to give the required notice to terminate the agreement did not alleviate his responsibility to comply with the terms of the purchase contract. The seller was awarded the total price of the sand that would have been bought each month from July 2012 to November 17, 2013, had the buyer complied with his contractual obligations (whether he believed they were still in force or not).

Legal and Business Implications

Had the buyer in Jereczek given proper notice of termination, he would not have been liable to the seller for discontinuing his purchases. Notice, and other requirements for proper termination of a contract, are important and can have a major effect on how you do business (or cease doing business) with your contract partners.

How Halling & Cayo Can Assist

Our firm’s business litigation practice group handles all kinds of breach of contract matters, including those involving improper contract termination. If you entered into a contract with another party and they failed to give proper notice of termination—or violated the contract in another way—and you or your business suffered damages as a result, we can be of assistance. The business litigation lawyers at Halling & Cayo, S.C. represent individuals and businesses in contract disputes involving construction, real estate, product warranty, and many other contract matters. Our experienced attorneys at Halling & Cayo, S.C. are here to help.

Conclusion

Proper termination of contracts is not merely procedural—it is critical to safeguarding your business and legal interests. Reach out to Halling & Cayo, S.C. for expert guidance and representation in contract disputes.