In our continuing series on commercial contracts, we have examined how agreements are formed and the legal principles that sustain them. In this edition, we turn to what happens when things no longer go as planned, when one party fails to perform, or circumstances make performance impossible. Can a party simply walk away?
The answer is not straightforward. Under Nigerian law, terminating a contract must be done carefully and only on legally recognised grounds. A wrongful termination can expose a party to serious liability, sometimes exceeding the losses that might have arisen under the contract itself.
Understanding Termination of Contract
Termination means bringing a contract to an end. It stops further performance by either party but does not erase rights or obligations that have already accrued. The Supreme Court in Adedeji v. Obajimi (2018) LPELR-44360 (SC) recognised four main ways a contract may be terminated:
1. By performance
2. By express agreement
3. By breach or repudiation
4. By frustration (operation of law)
Termination by Performance
A contract is terminated by performance when all parties have fulfilled their respective obligations under the agreement. This is the most common and straightforward mode of discharge, as it signifies that all terms have been satisfied, leaving no further duties on either side. In Achonu v. Okuwobi (2017) LPELR-42102 (SC) at 46, C the Supreme Court held that “A contract is discharged, only when both parties are released from their obligation under the agreement. A contract is usually discharged by performances. If both parties have done all that is required of them by the express agreement.”
Full performance occurs when every party completely performs their contractual obligations. A contract may be terminated by partial performance if the other party accepts it as sufficient fulfilment. In such cases, there is often a proportional adjustment in payment or other terms.
Where a party has fulfilled most obligations, leaving only minor omissions, the court may treat this as substantial performance and discharge the contract.
Termination by Mutual Agreement
Contracts are based on consent, and just as parties freely enter them, they can also agree to bring them to an end.
Termination by agreement occurs when both parties mutually decide to end their contractual obligations. This form of termination protects each party from future breach claims and clarifies any remaining responsibilities.
There are several ways a contract can be discharged by agreement: rescission, variation, or waiver.
Such termination can occur in two main contexts:
1. Executed Contracts: where one party has completed their obligations while the other has not.
2. Executory Contracts: where both parties still have outstanding obligations.
For executed contracts, the party that has already performed its obligations must either:
• enter into a discharge agreement under seal, or
• provide fresh consideration (such as a payment or new promise) to make the termination valid.
For executory contracts, a contract under seal is not required. The consideration lies in the mutual release; each party gives up the right to enforce the other’s unperformed obligations.
Termination by Breach or Repudiation
Things become more complicated when one party fails to perform its obligations. A serious breach (known as a repudiatory breach) gives the innocent party the right to treat the contract as terminated.
In Living Faith Church v. Superior Choice Integrated Ltd (2019) LPELR-46501(CA), the Court of Appeal held that:
“A party is in breach of a contract when he acts contrary to the terms of the contract… when it is established that a party has made his intention clear beyond doubt that he is no longer willing to perform his side of the bargain, there is a breach of the contract.
Put differently, a breach of contract is committed when a party to the contract without lawful excuse fails, neglects or refuses to perform an obligation he undertook in the contract or either performs the obligation defectively or incapacitates himself from performing the contract.”
Under Nigerian law, breaches may be classified into four main types:
i. Actual Breach: This happens when a party fails to perform their obligations on the agreed date or performs them improperly.
ii. Material Breach: A serious violation that goes to the root of the contract, making further performance impossible or pointless. The non-breaching party may terminate the contract and claim damages.
iii. Minor Breach: A less serious breach that does not defeat the contract’s core purpose. The non-breaching party may claim damages but cannot terminate the contract.
iv. Repudiation (Anticipatory Breach): Occurs when a party expressly or impliedly indicates that they will not fulfil their obligations when due.
Termination of Contract by Frustration or Force Majeure
A contract may be terminated by frustration when an unforeseen event occurs that makes performance impossible or radically different from what was originally agreed. Such events must be beyond the control of the parties, for example, natural disasters, fires, or government prohibitions, and not caused by either party’s fault.
Similarly, a contract may be terminated under a force majeure clause, if one exists. This clause specifies extraordinary circumstances (such as epidemics or wars) that excuse parties from performance. While most force majeure clauses suspend obligations temporarily, some allow for termination if the event persists.
As stated by Shuaibu, J.C.A. in Ezudeyemoih v. Turkish Airlines Ltd (2023) LPELR-60297(CA) at 20–21A: “Frustration of contract is the premature determination of an agreement… owing to the occurrence of an intervening event entirely beyond what was contemplated by the parties. In such circumstances, not due to the fault of either party, they are discharged from any liability arising from the contract.”
The defence of frustration cannot be relied upon where a party’s obligation had already become due before the alleged frustrating event occurred. In Nospecto Oil & Gas Ltd v. Kenney & Ors (2014) LPELR-23628(CA), the appellant failed to refund investors’ funds as promised, claiming that an investigation by the CBN, EFCC, and SEC, which led to its account being frozen, made performance impossible The court rejected this argument, holding that frustration was inapplicable because the duty to refund the investment had matured before the freezing of the account. The Court of Appeal affirmed that frustration cannot excuse non-performance of obligations that were already due prior to the supervening event.
Considerations When Deciding to Terminate a Contract
When deciding to terminate a contract, parties must act carefully and deliberately to avoid unintended consequences, such as inadvertently affirming the contract.
1. Avoid Actions Suggesting Continuation:
• Conduct and Communication: Refrain from behaviour or statements that imply acceptance or continuation of the contract. Once termination is decided, stop performing any obligations to avoid being seen as affirming the agreement.
• Payments: Do not make additional payments unless part of a termination settlement. Continuing payments can signal recognition of the contract’s validity. Where appropriate, request refunds for undelivered goods or services to demonstrate intent to end the contract.
2. Documentation:
• Maintain Records: Keep thorough documentation of all communications and actions surrounding the termination for evidentiary purposes.
• Acknowledgment of Receipt: Ensure the other party acknowledges your termination notice to confirm awareness of your intent and the grounds for termination.
• Review Contract Terms: Examine the contract for any specified procedures or requirements for valid termination, as failure to comply may render the termination ineffective.
Conclusion
Termination is an integral part of the life cycle of any contract. Whether by performance, agreement, breach, or frustration, the key is to act within the boundaries of the law and the contract itself.
As Nigerian jurisprudence continues to evolve, courts remain consistent in emphasising good faith, clarity, and adherence to agreed terms. Businesses should avoid hasty termination and follow due process. In commercial relationships, knowing how to say goodbye can be just as important as knowing how to start.
About the Authors
This guide was prepared by the Dispute Resolution team at Broderick Bozimo & Company. The team advises on contractual disputes, commercial litigation, and arbitration, drawing on decades of experience representing clients in high stakes matters across Nigeria.
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Nigeria
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Website: www.broderickbozimo.com
Disclaimer
This publication provides general information and does not constitute legal advice. You should not act or refrain from acting based on its content without seeking professional advice. Contacting us does not create a solicitor-client relationship. We can only act once we have completed a conflict check and both parties have signed a formal engagement agreement.
