In the case of most commercial relationships, parties negotiate and agree to terms and conditions, normally captured in a contract. A contract is the oral or written agreement that stipulates rights and obligations of parties enforceable by law. The termination of a contract has been defined as the expiration of the commercial relationship before the agreed duration between the parties. When a contract is validly terminated, the parties’ obligations under it are discharged. However, wrongful termination may result in disputes and potential liabilities. This note explores the grounds and processes for contract termination under Nigerian law and the implications of wrongful termination.
Grounds for Terminating a Contract
Generally, a contract automatically comes to an end when the parties to the contract completely fulfill their various obligations. Still, even without complete performance, a contract can be legally discharged through certain grounds and is divided into two classes:
1. Express Right to Terminate:
The rights which are specifically provided in the contract. Generally, the termination clauses are grouped into three categories:
• Termination for Cause/Default: Both parties can terminate the contract in the case of specific events, such as breach of contract, insolvency, liquidation, or unauthorized assignment of rights.
• Termination for Convenience: A party may terminate the contract at will, whether with or without cause, provided they are acting within the required notice period as set out in the contract.
• Force Majeure Termination: This occurs when forces beyond the control of either party, such as natural disasters, pandemics, civil unrest, or legal changes, make it impossible or impracticable to perform under the contract.
2. Implied Right to Terminate:
Nigerian law also recognizes rights to terminate a contract, which may not be expressly provided in the contract. For example:
• A party may terminate the agreement if there is a breach of an essential term by the other party.
• Termination may also occur due to the doctrine of frustration when unexpected events make performance of the contract impossible. Unlike force majeure, frustration is a legal doctrine that applies even in the absence of an express provision in the contract.
Consequences of Wrongful Termination
Failure to comply with any of the conditions laid out for termination in a contract may render the termination to be invalid, wrongful, and ineffective. A party that wrongfully terminates a contract may be considered to be in breach and may face damages, including:
Compensation for the non-terminating party’s losses, or
Restitution to place the non-terminating party in the position they would have been in had the contract been lawfully terminated.
To prevent wrongful termination, parties must follow the certain procedures laid down in the contract, such as notice periods and appropriate delivery of notices for termination.
Key Considerations
Termination of a contract is a complex and sensitive process that requires strict compliance with the provisions in the contract and the governing laws. A party intending to terminate should carefully consider the terms of the agreement and observe all the requirements to avoid legal and financial implications. It is important to first consult a lawyer before beginning the termination process to ensure not only validity but also reduced risk and limited, unintended liabilities.
By understanding the legal grounds and implications of contract termination, parties can safeguard their rights and maintain compliance with Nigerian law.