What Happens When a Breached Contract is Not Properly Terminated?

If a contract is breached, the non-breaching party may decide that they would rather terminate the contract than give the breaching party a chance to correct the breach. Of course, they can choose to ignore the breach, or to give the breaching party a chance to cure their breach. However, if the non-breaching party wishes to cancel the contract, they must be careful to strictly follow all cancellation provisions, or they risk giving the other party a chance to correct their breach and enforce the contract.

A number of Arizona cases discuss this situation. In Horizon Corp. v. Westcor, Inc., 688 P.2d 1021, 142 Ariz. 129, ( App. 1984), escrow did not close within the time period required in the contract. The seller could have cancelled the contract due to this failure to perform by the buyer, but the contract required a notice of cancellation to be given 13 days ahead of time. The seller did not comply with this cancellation provision, and the buyer eventually tendered full performance, although it was long after the time periods stated in the contract had elapsed.

On appeal, the Arizona Court of Appeals found for the buyer and entered a decree of specific performance. The court reasoned that the seller had to comply with the cancellation provision stated in the contract and had not done so, leaving the contract in full force and effect at the time the buyer tendered full performance.

Another case, Secan v. Dunbar, 139 Ariz. 503, 679 P.2d 526, (App. 1983), presented a similar situation. The seller attempted to cancel this contract due to the buyer’s non-performance, but failed to comply with a cancellation provision in the contract that required 10 days notice. The buyer tendered performance a week later, and the court found that the contract was in full effect due to the failure of the seller to give the buyer 10 days to come into compliance under the contract.

There may be some situations where a contract can be cancelled without strictly following the cancellation provisions. In L.K. Comstock & Co. v. United Engineers & Constructors, Inc., 880 F.2d 219, (9th Cir. 1989), the 9th Circuit noted that there was a distinction between curable and vital breaches. Because the breaching party in this case was 11 weeks behind the required work completion schedule, a contract provision requiring 48 hours notice would have been useless in effect, as there was no way for the breaching party to cure their breach in time.

You may have the right to cancel a contract immediately in some circumstances, but the decision of how to handle a breach should not be treated casually.  It is usually prudent to consult with a business attorney to be sure you are properly handling termination of a contract.

Chernoff Law handles business disputes throughout Arizona. Contact us by calling 480-719-7307 to discuss your real estate matters.