Buyer’s Right to Demand Termination of Contract

Termination of contract is the last resort when a breach of contract has occurred. Termination is possible both when the goods are defective and when the delivery is delayed. However, the buyer has a right to terminate the contract only if the breach of contract is of substantial importance to them and the seller knew or ought to have known this. The buyer has to give the seller a notice of termination within a reasonable time after they have noticed the delayed delivery or noticed or ought to have noticed the defect. Otherwise, the buyer loses their right to demand termination. However, if the seller has displayed gross negligence or has acted in breach of good faith and fair dealing, the buyer retains the right to make a claim even in the absence of prior notification.

Termination of a contract is a unilateral legal act. The effect of the termination is that the contract ceases to bind the parties to any performance. After the termination, the parties no longer have any contractual obligations and all performances already performed are usually returned. The buyer must return the delivered goods substantially unchanged and undiminished. In addition, the buyer has to account the seller for any yield they have derived from the goods as well as pay reasonable compensation for any other benefit they may have derived from the goods. Correspondingly, the seller must refund the purchase price and pay interest on the amount to be refunded, in accordance with the Interest Act, starting from the date the seller received the payment.

There are no formality requirements in regards to the notice of termination, unless otherwise specifically agreed between the parties. The notice must articulate the reason for terminating the contract, i.e. the breach of contract must be clearly identified. It is advisable to provide the notice in writing.