Amendment and Termination of Purchase Contract

Managing Change and Termination of Purchase


Amendments and Termination by Agreement

Commercial developments and trading relationships will inevitably change and things may go wrong. Ideally the contract and or terms and conditions of business will have anticipated most problems or issues that might arise.

If circumstances demand that a variation to a contract takes place, there is normally little problem if you and your supplier agree to it, although the contract may require the variation to be in a particular form.

In addition, if one party makes a concession for which the other gives no consideration then the change may need to be made by deed. If the parties agree to terminate a contract, this is again straightforward but it ought to be recorded in writing.

Termination by One Party under the Terms of the Contract

Contracts often include a term enabling a party to terminate the contract at will by giving written notice. It will usually provide that termination takes effect once a stated period has run after the date of the notice. Sometimes it will provide that such a notice can only be given after a stated minimum contract period has run.

Breach of Contract and Termination by One Party Only

If only one party fails or refuses to perform the contract at all or to comply with one or more particular obligations under the contract, then, failing negotiation, the other can generally sue for breach of contract to recover any losses he may suffer as a result.

Where that breach is fundamental (one which is serious in all of the circumstances e.g. it has significant consequences for the innocent party) or where the term breached is stated to be a basic condition to be met (e.g. time is “of the essence”), the contract might be legally deemed as a result to be terminated, or the innocent party in some cases might be entitled to consider the contract to be terminated. Where such a termination occurs, the innocent party can still claim damages for loss suffered.

Damages for breach of contract are intended to compensate for the loss and damage suffered by the innocent party. However, consequential losses (e.g. profit from resale) will normally be excluded in the supply contract or terms and conditions of sale and one cannot normally recover damages for purely financial loss. An innocent party is under a duty to reduce (or mitigate) the extent of the damage he suffers.

Sometimes a contract will stipulate a fixed level of damages for default of particular term. If this figure is considered by the Court to be a penalty, the term will not be enforceable. Where one party is in breach of the term, it will be necessary for the other party to satisfy the Court that the term is not a penalty which it can do by showing that it has a "legitimate interest" in the other party performing that obligation and that the fixed level of damages is not out of all proportion to that legitimate interest.

Anticipating the possibility of you and your seller ending up in a dispute, a clause agreeing applicable law and dispute resolution issues would be advisable (particularly in international transactions) so that you agree whether to settle a dispute in the Courts or, instead, opt for arbitration or, as is now very common, alternative dispute resolution (ADR).

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