Repudiation
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To repudiate a contract is to indicate an inability or unwillingness to perform it in such a way as to deprive the aggrieved party of substantially the whole benefit of the bargain represented by the contract.
A “repudiatory” or “fundamental” breach of contract is a one which is sufficiently serious to indicate a party has repudiated the contract, thereby entitling the innocent party to terminate the contract.
In this case the innocent party has two options: It can
- accept the repudiation and treat the contract as at an end; or
- affirm the contract and insist on performance by the repudiating party.
How serious is “serious”?
The $64,000 question: What counts as “sufficiently serious”?
Does “failure to pay an amount due by the time specified in a contract” constitute a repudiatory breach? Usually failure to pay may be a specific event of default prescribing exactly what should happen — so this question is moot — but it may apply where you have a lender of a revolving credit facility, or a prime broker.
If your contract stipulates that time is of the essence, then yes. If not, then it will depend on the circumstances. If the failure to pay was due to a force majeure-style external event, probably not. If the failure to pay was accompanied by an extended middle finger, more likely.
In the Master Trading Agreements
Both the 2002 ISDA and the 2010 GMSLA have a repudiation as a specific Event of Default[1], though it doesn’t really need to be — if the other guy has indicated he doesn’t regard the contract as being binding on him, you can terminate and sue for damages, and those damages are hardly likely to be lower (or, really, different) than you would get under the close-out procedure prescribed in the contract. But anyway, a some what arid debate all told; people don’t really argue about repudiation.
See also
References
- ↑ Repudiation under the 2010 GMSLA and Repudiation of Agreement under the 2002 ISDA.