12 Days of Contracts – Day 9 – Termination + Notice + Breach

On the 9th day of Christmas, my client gave to me, 9-0 Day notice… (Mel’s Remix)

In honor of the holidays, I’d like to share a few tips with you to make sure you go into the new year with new knowledge. Instead of the 12 Days of Christmas, I present to you — The 12 Days of Contracts! Yes, I’m a legal nerd!

In these 12 days, I will share some contract basics, terminology, and other info so you can be more informed on what a proper contract needs to contain to make it valid and enforceable.

Prior 12 Days Posts:

F YOU MISSED IT, SEE DAY 8 (DELIVERY) HERE | IF YOU MISSED IT, SEE DAY 7 (SCOPE) HERE | IF YOU MISSED IT, SEE DAY 6 (RIGHTS) HERE | IF YOU MISSED IT, SEE DAY 5 (FEES) HERE | IF YOU MISSED IT, SEE DAY 4 (TERRITORY) HERE | IF YOU MISSED IT, SEE DAY 3 (TERM) HERE | IF YOU MISSED IT, SEE DAY 2 (ELEMENTS) HERE | IF YOU MISSED IT, SEE DAY 1 (PARTIES) HERE

Termination clauses act as a fail safe in case performance under the contract is not occurring or performance falls short.

Melanie Rodriguez aka The Entertainment Esquire

Termination

Termination is essentially how a contract ends. Termination is a way to end when included in the contract or by law. A contract can terminate before the end of the full term. Parties build termination clauses in to act as a fail safe in case performance under the contract is not occurring or performance falls short. For example, a party to the contract can terminate the contract with notice or upon some event occurring or not occurring.

It’s important to determine if the contract gives automatic termination or at least, the option to terminate, meaning one or more of the parties have the right and can exercise it. Sometimes, the ability to terminate is one sided or unilateral, meaning it is only given to one party. If the option to terminate is given to both parties, then it is considered mutual.

Termination can also be tied to meeting a specific metric or upon a specific event, such as a breach (see below). For example, in the event royalties are not being accounted for and paid, then the contract terminates. Or in the example of a management contract, if artist does not secure 3 live performances in one year, artist can terminate. A contract can also include certain “triggering” events that can cause termination such as death, bankruptcy, illegal purpose.

Here’s a caveat: Termination is not the same as rescinding the contract or cancelling the contract. These are legal terms of art and mean specific things. When a contract is terminated, the rights and obligations still survive. If a contract is rescinded or cancelled (usually by a court of law), in some cases, you are no longer obligated to perform at all. Courts are very reluctant to rescind and cancel contracts because then everyone would do it, so certain facts have to be present.

If there is not an option to terminate, create one! This protects you in the event performance from parties is not being fulfilled.

Notice Requirements

In the agreement, there should be a specific and clear procedure to follow in order to give notice (for any reason) and/or to terminate. For example, a party to the contract can terminate the contract with 60 days written notice. This gives the party the right to terminate as long as it gives 60 days before it wants the termination to take place. Contracts should also contain a requirement to give written notice for all correspondence related to the contract, but especially termination. This includes providing the most up-to-date contact information to send the notice and include any other parties that need to be copied, such as the attorney or manager. Notice requirements might seem trivial, but they provide essential information needed to effectuate the contract.

Breach + Cure

When the one or more of the parties wish to terminate, it is usually because there is some deficiency in performance or no performance at all. This is known legally as a “breach”. In some contracts, the right to terminate automatically occurs if there is a breach.

However, in other contracts, the right to terminate also comes with an ability to “cure.” The ability to “cure a default” means that a party is given notice of the breach and the opportunity to make things better and fulfill their end of the contract BEFORE termination occurs. This is known as curing a default. Sometimes a breach is accidental or unknown either due to error in calendaring or accounting. In the case where a party does not intend to breach and is a result of a correctable error, simple notice will fix the deficiency. Giving notice of a breach and allowing a period of time to attempt to fix things, can give the parties a chance to reconcile and fulfill the contract.

The opportunity to cure a default (breach) should be included so the parties get a chance to reconcile and fulfill the contract.

Questions to ask:

• How does the contract end if the full term is not fulfilled? Termination is often used as a fail safe if there is no performance or unsatisfactory performance.
• Can one party end the contract or do all have the option? Contracts can give the ability for any party to terminate or the power rests with only one party.
• Does a terminating party have to meet certain notice requirements? Knowing the kind of notice required to give (e.g. written notice with 30/60/90 days) can ensure a party is protected in the case of a breach.
• What happens if a breach occurs and is there an option to cure? A breach occurs when there is failure to perform. Some contracts give the ability to “cure” or fix the breach before termination.

If you have any questions related to a contract you signed or need guidance for constructing your contracts, please contact me.

*Disclaimer: This post is for informational purposes only and does not constitute legal advice. An attorney client relationship is not formed until there is a signed fee agreement*