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Consider the case of nonpayment under a very simple contract, where the only promise made is that Person A will perform and deliver some specific work, and Business B will pay them a stated amount for it upon completion. And to provide Person A with an incentive to terminate rather than sue for performance, say they also agreed to provide some small accessories to the main work after receipt of payment. So Person A prefers to terminate if they get the opportunity to do so.

There's no dispute that the work has been completed and delivered, however Business B has not provided payment despite being invoiced, despite taking possession of the delivered work, and despite the passage of multiple weeks and the delivery of multiple notices that payment is due. Person A then delivers a notice along the lines of:

In relation to Business B's continued nonpayment of the invoice delivered on date and the notice delivered on later date regarding same, which advised Business B that its nonpayment has adversely affected Person A's finances, that payment was now past due, and which requested payment in full by close of business on the same day, I must inform you that no such payment has been received. Business B owes an amount of payable amount for work which was completed and delivered on date and has no reasonable grounds for withholding payment. This amount is past due and payable immediately.

This will be my final demand for payment of completed work, and any subsequent nonpayment will be taken as evidence that Business B is either unwilling or unable to uphold its obligations. Failure to dispatch payment, in full, before close of business on today shall be construed as nonpayment, notwithstanding any excuse which may be offered. For the avoidance of any doubt, with respect to the matter of payment time is of the essence.

Say Business B receives this and promptly replies stating that payment has now been issued. However, Person A sees no evidence of any payment having actually been made. This should give rise to Person A's right to terminate the contract due to repudiation and/or fundamental breach.

My question is, do Business B's actual or stated motivations have any bearing on Person A's right to terminate? For instance, if Business B was just plain lying about having paid, that would certainly have no bearing (except that it may also constitute unconscionable conduct and/or fraud).

But what if Person A terminates, and it was the case (or Business B claims it was the case) that Business B made an honest mistake issuing payment, and for instance sent payment to the wrong account or accidentally scheduled it to occur on some future date instead of immediately? Would that have any bearing on their repudiation of the contract or Person A's right to terminate?

Is there any avenue of defense against termination that becomes accessible to Business B by virtue of having claimed, in word, to have fulfilled their obligations whilst failing in deed to actually have done so?

Does the distinction between whether Business B has been dishonest, legitimately incompetent, or devious (in feigning incompetence) make any difference?

  • I don't see why terminating the contract would be an issue. The work has been performed, the duty to pay has been breached, and the breaching party could be sued for non-payment. What am I not understanding about this fact pattern? – ohwilleke Dec 5 '16 at 15:10
  • @ohwilleke - Perhaps nothing, but I'm no expert (which is why I ask). But what I read about termination (and in particular, repudiation) is that a wrongful termination can amount to repudiation, and give the other party a right to terminate. If so, is there a way for the breaching party to end up with a right to terminate? – aroth Dec 5 '16 at 15:20
  • @ohwilleke - As for why terminate rather than sue for non-payment (if that's what you're asking?), say the non-breaching party has agreed to deliver some additional accessories to the main item of work upon receipt of payment. It would then be in their interest to terminate performance and sue the breaching party for damages, as then their obligation to deliver those accessories would cease while the amount they can sue for remains unchanged. – aroth Dec 5 '16 at 15:23
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    Ah. . . . so the contract is not quite as simple as all that. This would explain it. Certainly, non-payment would be a material breach that justifies withholding further performance. Usually, in contracts, intent to act or not act doesn't matter, only the intent of the parties regarding what the contract means in the first place. – ohwilleke Dec 5 '16 at 15:28
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    Yes. A honest mistake in failing to pay can still be a material breach of a contract justifying termination of the contract. – ohwilleke Dec 5 '16 at 15:33
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In general, breach of contract is a matter of objective fact and how that interacts with contract law.

From the facts you state, payment has not been made on or before the due date - that is a breach of contract and the intention to pay or even the belief that they have paid is irrelevant. There are some nuances of course; for example, payment by a posted cheque has been made when the cheque is posted, not when (or if) it is received.

Is there any avenue of defense against termination that becomes accessible ...

Always. Termination is tricky and hard to do right - if you screw it up it is you who have repudiated the contract and are now liable for damages. However, intention doesn't enter into it. Assuming that non-payment is a valid ground for termination (which it may not be) then non-payment is non-payment.

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