Repudiation

Repudiation is a procedure when one of a contract’s party refuses to follow the contract’s conditions. There are several possible reasons for it. The party no longer wants the contract to be valid, or the party at this particular moment is in a difficult financial state and isn’t able to continue following the conditions. In the field of investment, the repudiation in the majority of cases refers to the securities with fixed income, which are part of a sovereign debt. These kinds of securities are basically contracts, which suppose that a person gives to the government a certain amount of money and then this amount will be returned to the person with interests.

In case of repudiation, the second party has a right to wait until the first one is ready to continue cooperation. Thus, it’s worth noting that repudiation of a contract doesn’t mean the contract is terminated.

Reasons for Repudiation

The process may take place if the borrower no longer has a desire to follow the contract condition and pay to the other party as it was stated in the contract. Financial income instruments allow their borrowers not to pay if they don’t want to, default, or find the terms unfair and, thus, dispute the contract’s validity. However, there are two possible options whom the borrower can be. The first option is the borrower is a company. Then in case the borrower wants to proceed with repudiations, its investors may lose money, but still has a chance not to lose all of them. In order not to lose money, the investors have to make recourse against the borrower. The second option is the government. Then recourse is impossible, since there are no techniques of recourse that may be applied to the government.

There are also cases in which one party isn’t able to follow the terms of a contract or don’t want to. Since repudiation isn't something that can be ignored, the court may be needed. The party must prove that it either isn’t able to perform the contract conditions or doesn’t have the will to perform them. In case violation of the contract’s condition hasn’t taken place, but repudiation has occurred, the situation may be called an anticipatory breach.

There is an easy way to proceed the repudiation, it means that both parties hold a meeting where they recognize that either one of them or both no longer want to honor the contract terms due to the reluctance or being unable. Sometimes, a party may behave itself in a way that can be regarded as a repudiation. The court may approve and may not approve the repudiation, every case is investigated individually. The process may take much time since the investigation needs to be thorough and meticulous. Also, the court needs time to analyze the terms and obligations that are stated in the contract. Only after that the conclusion may be made.

Types of Repudiation

When parties want to cancel the contract, there are three main types of repudiation that may take place:

• Transferring the deed. It means that the deed to the property, which is the core of the agreement, is transferred to the other party.
• Verbal repudiation. It happens in case one of the parties claims that the conditions will not be performed anymore.
• Inappropriate behavior. It refers to the situations in which one party behaves in such a way that it becomes difficult for the other one to fulfill the stated obligations.

The law recognizes all types that were mentioned above.

How to respond to Repudiation

There are always two parties in the repudiation process, the party that repudiates and the party that has to handle it. The last one should be cautious and attentive about the response to the repudiation. Generally, this party may be called innocent and from this particular moment it has two options. It may continue with the contract or accept the fact that the relationship with the other party within the current contract is over and terminate the contract.

The fact, which always must be remembered, that just repudiation can’t terminate any contract. However, it gives the right to the innocent party to identify terms on which they wish to proceed. Even though the party has two options of further actions, termination may be the only possible option that allows moving forward. In most cases, if the contract isn’t terminated after the repudiation, it results in big losses of assets for the innocent party.

In general, the law will never leave two parties of repudiation alone, in case it’s needed. The court is obligated to review each act of repudiation thoroughly in order to figure out what exactly caused.

Repudiation or rescission

There are two concepts that may be confusing. Repudiation is an act that takes place when one of the parties decides that this time it can’t follow the contract terms. It may happen due to the difficult financial state, etc. The rescission takes place in a court. The court terminates the contract, in case one of the parties made an error while the contract preparation, or there was an act of unconscionable conduct on behalf of this party. Thus, a repudiation takes place between parties of the contract and doesn’t terminate this contract, a rescission is a means of termination of contracts and takes place in court.