At the beginning of most business relationships, the involved parties discuss and reach an agreement on various terms and conditions, which are formalized in a contract. This contract, either oral or written, reflects the parties’ rights and duties, and it is usually legally binding.

The termination of a contract refers to the process of ending the relationship before the set end date. When a contract is properly terminated, the parties’ obligations are released. However, improper termination can lead to disputes. This note outlines practical considerations regarding the termination of contracts under Nigerian law, focusing on the reasons for termination, the process, and the impact of wrongful termination.

Generally, a contract ends once the parties have fulfilled their obligations. Yet, there are circumstances where a contract can be terminated before completion. These situations are divided into two categories: (i) termination rights that are explicitly outlined in the contract and (ii) termination rights that are implied by law.

Express Right to Terminate

Parties often outline the specific conditions and processes for ending a contract. Express termination rights are usually categorized into three types: termination for cause or default, termination for convenience, and termination due to unforeseen circumstances beyond the control of the parties.

Termination for cause or default allows a party to end the contract when the other party breaches the agreement, becomes insolvent, or assigns their rights. Termination for convenience enables a party to terminate the contract without needing a reason, as long as they provide the required notice. Termination due to uncontrollable circumstances, or force majeure, happens when events such as natural disasters, pandemics, or changes in law prevent the contract from being fulfilled.

Implied Right to Terminate

Under Nigerian law, even if a contract does not explicitly mention termination, a party has the right to terminate if the other party breaches a fundamental term of the agreement or if unforeseen events make fulfilling the contract impossible. The key difference between frustration and force majeure is that the latter is listed in the contract, while frustration is not but can still justify termination.

Consequences of Wrongful Termination

If the proper procedures for termination are not followed, the termination may be considered invalid or wrongful. In such cases, the party that wrongfully terminates the contract may be liable for breaching the agreement and could be required to compensate the other party for their losses. Therefore, it is essential for parties to carefully follow the termination procedures outlined in the contract, including the notice and the required steps.

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